What Are The Terms Of Credit?

    Shiimaa Mohamed

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    What Are The Terms Of Credit?

    Credit is defined as the trust given by a bank or financial institution to a person, whether natural or moral, to grant him a sum of money to be used for a specific purpose, within an agreed period of time and under certain conditions for an agreed return or agreed benefit ( That Islamic banks do not adopt the lending system, but rely on other Islamic financing models away from interest rates), financial institutions and banks provide these loans with guarantees that enable these institutions to recover their loans if the customer stops paying.

    Bank loans are defined as those provided to customers, under which the individuals, institutions, and enterprises in the community are provided with the necessary funds. The debtor undertakes to pay the money, interest, commissions, and expenses in one payment or installments on specific dates. Which guarantees the bank to recover its money in case the customer stops paying without any losses. This means the so-called credit facilities and contains the concept of credit and advances.

     Credit elements

    Credit must have at least four essential elements to be considered credible, it is the constituent and even if it does not exist there is no credit, these elements are as follows:

    1. Debt relationship: the existence of a creditor (credit grantor) and the existence of debtor (recipient of credit), and the existence of trust between them.
    2. The existence of the debt itself: the existence of the amount of cash given by the creditor to the debtor where the debtor must repay it to the creditor, and here shows the link between credit and money.
    3. Time horizon of debt: Time difference is the fundamental element that distinguishes between spot and forward transactions.
    4. Risk: It is the reason that the creditor obtains his debt plus the interest as a result of waiting for the debtor. Interest is the price of the risk that the debtor may not repay the debt.

    Foundations of credit granting

    Credit should be granted based on stable rules and principles between financial institutions and banks. If they do not exist then credit is not called credit but bank corruption where corrupt financial institution officials grant credit to those who do not deserve, That in Egypt dozens and hundreds of times in many cases famous for sixty years black of the military rule, which is still a storm on the Egyptian chest, dozens of corruption cases and hundreds of billions of dollars wasted and not tried because of course because corruption is common, corrupt corrupt is the Egyptian judiciary is lost Rights .

    The Most important of these are:

    First: the safety of the bank's money. This means that the banking institution is reassuring to the person or entity or entity that obtains the credit. The bank trusts that the credit holder will be able to repay the loans granted to him with interest on the specified dates.

    Second, making a profit. This means that the bank gets interested from the loans it gives to enable it to pay interest on deposits and to meet its various expenses and to achieve a return on capital invested in the form of net profits. There are no interest rates in Islamic banks, but there are other Islamic formulas that define the relationship between the Islamic bank and the client such as Islamic financing formulas that are in accordance with Islamic Sharia.

    Thirdly: Liquidity, which provides sufficient liquidity for the bank to meet withdrawals without any delay. It is necessary to balance the provision of adequate liquidity with the bank and the granting of credit to its customers. The successful management of the bank remains the task of matching profitability and liquidity objectives.

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