‘Islamic Banking’ is a banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.
Islamic Banks in the 20th Century:
In 1963, in MitGhamr, in Egypt, the first Islamic interest-free bank came into being. MitGhamr was a rural area and the people were religious. They did not place their savings in any bank, knowing that interest was forbidden in Islam. In these circumstances, the task was not only to respect Islamic values concerning interest, but also to educate the people about the use of banking.
Banks offer diverse career openings, providing scope for different skill sets.
Vast and complex, the world of finance offers a wide range of career opportunities for people with various skill sets.
My eight-year-old daughter was reading a book when she looked up and said, “You should work in a bank. Then we will be rich.” Surprised, I asked her why. She said, well, banks stored lots of money and so if you work there you can take some of it! Simplistic, yet in a way this resonates with the popular (but not entirely true) view of the world of banking and finance.
So what is finance and why is it important? Finance is the field that deals with money. Finance is like the fuel that powers our cars. Without fuel we cannot move our vehicles or indeed, ourselves. Similarly, finance is the fuel that powers our economy and drives it forward. When financial lending, investing, etc. come to a halt, the economy will not move. How does this happen?
How it works
When people work, they earn money. Some people earn more money than they can spend and hence save the money in a bank, which keeps it safe for them until they need it. Now imagine you want to start a business and need more money than you have currently. If there are no banks, you will need to borrow from the people who have extra money. However, you cannot know who has this surplus money and therefore typically unable to obtain a loan. Also your requirements for the loan may be higher than just one individual’s savings, so you have to go to multiple people to get your loan. Here is where a bank’s role comes into play. The bank collects savings from all those individuals who have extra money and aggregates it. Then it assesses the loan applications made by potential borrowers and then grants a loan to the ones who need it (and those who can repay it back). This is the fundamental role of a bank — the ability to create a marketplace for disbursement of money between those who have and those who need it. Banks also spread the risk of losses to savers if a few borrowers do not pay back a loan (reducing risk). Banks also invest the money they safeguard in stocks/equities (ownership units of companies) in order to obtain the maximum possible gains from the money they manage.
If the world of banks/finance did not exist, then many business people with good ideas will not be able to proceed and contribute to the economy!
There are two broad areas of banking — Retail banks and Wholesale banks. Retail Banks (such as the State Bank of Inida or HDFC Bank) directly interact with customers, helping them with their financial needs. The Wholesale or Investment banks are bankers to the business community, helping companies borrow, lend, raise money, etc.
Within these two broad areas of banking, there a number of career opportunities. The skills required to succeed in the different careers within banking can be quite different. For example, to be a successful Retail Bank Manager (your local bank manager), you have to have excellent people skills, interact with end customers, be organised and manage processes efficiently. To be a successful investment banker, say in charge of mergers and acquisitions (the process of buying / selling new companies), you need excellent analytical and problem-solving skills and the ability to work under pressure and handle stress.
The world of finance is large and complex. There are a number of companies that specialise in different aspects of the broad financing world. Banks are just one type of companies within this world. There are many more like hedge funds, venture capital and private equity, insurance firms etc. — too many to cover in this article, which all offer exciting and rewarding career options.
To enter into the world of finance, unlike what many people believe, you do not have to do a commerce degree or be a CA. There are innumerable examples of successful people within the financial world who have a background in engineering, art and even medicine!
What is most important for all of you, who may be interested in this field, is to understand what finance is, what the different roles available are and then develop the skills required to be successful in the career option you choose.
Vikram Ramakrishnan The writer is director at the Pathways Programme.