Weightages and income sharing ratio practice for profit distribution in Islamic banks: Bangladesh scenario
The article first explores the weightages system, a specific profit calculation method for profit distribution on deposits taken under Mudarabah, which has been widely used since Bangladesh started Islamic banking in 1983. There has been a growing discussion about whether this approach fully adhe...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | en |
| Published: |
Accounting and Auditing Organisation of Islamic Finance Institutions (AAOIFI)
2023
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/108608/1/108608_Weightages%20and%20income%20sharing%20ratio.pdf http://irep.iium.edu.my/108608/ https://aaoifi.com/joifa/download-joifa/?lang=en |
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| Summary: | The article first explores the weightages system, a specific profit calculation method for profit
distribution on deposits taken under Mudarabah, which has been widely used since Bangladesh
started Islamic banking in 1983. There has been a growing discussion about whether this approach
fully adheres to Islamic banking principles. We then explore an alternative system known as the
Income Sharing Ratio (ISR) method, which some banks have started to implement as it is claimed
to be aligned more closely with Islamic principles. Using textual and discourse analysis and relevant
AAOIFI standards, the paper compares the practices of both calculation methods for Mudarabah
based deposits profits within the Bangladeshi Islamic banking industry context. The analysis
suggests that the current prevalent practice of the weightages in Bangladesh needs improvement,
and the ISR approach can either replace it or help improve it. The authors offer specific actionable
recommendations to stakeholders for better adherence to Islamic principles when processing
Mudarabah transactions. |
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