Islamic banking institutions are established to provide an alternative financing arrangement that uses trading (al-bay) as opposed to usury in their business. The banking modality however is still based on the deposit-taking function where deposit funds are used by banks to make loans. Deposit funds are in essence loans acquired from depositors who can make withdrawal on call, thus bank faces withdrawal risk and also potential bank run under economic shocks.
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Islamic banking institutions are established to provide an alternative financing arrangement that uses trading (al-bay) as opposed to usury in their business. The banking modality however is still based on the deposit-taking function where deposit funds are used by banks to make loans. Deposit funds are in essence loans acquired from depositors who can make withdrawal on call, thus bank faces withdrawal risk and also potential bank run under economic shocks.
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