Islamic Finance Islamic development bank in 1975, now there are
over 600 Islamic Banks globally
The Principles of Islamic Finance - Islamic Banks started as interest free bank to help
the small entrepreneurs to start business, the costs
Islamic Banking (IB) of managing the bank charged the stack holder as
- Islamic banking can be defined as: a form of expenses
modern banking based on Islamic legal concepts - The framework of an Islamic financial system is
using risk- sharing as its main method excluding based on elements of Shari'ah(Islamic Law) which
financing based on fixed pre- determined return. prohibit Riba (Usury) and Gharar (Deception) and
permit Risk sharing
The purpose of the Islamic financial system: - The fundamental concept is that the money has no
- The purpose of the Islamic financial system is, as inherent value and should be used as a measure
with conventional finance, to mobilize global of worth
resources to promote and sustain global and - Shari’ah compliant investment are structured on
regional development the exchange of ownership in tangible assets or
services with money acting as the payment
Islamic Finance taps the vast pool of savings held by mechanism to effect the transfer of ownership
Muslims, and puts these savings to productive use for the
benefit of Islamic and other societies. Shari’ah Law
- Recent Islamic scholars who from time to time re-
Can Economy and Religion mix examine the Shari'ah principals have structured
- The practice of religion is between the person and new financial instruments
his God in forms of pray or meditations, and in - Those instruments must comply with principles of
daily life such as marriage, funerary service, public the of Shari'ah law
service and charities - Ethics of the Shari’ah Law originate from:
- Economic systems are man made system to
regulate and reform trade: The Qur'an
The Sunnah
Throw history economic systems have taken a form of Ijmaa - consensus among the jurists,
trying and testing of what to produce? How to produce? Qiyyas – analogy
Who gets what is produced? Ijtihad - reasoning
Efficacy, growth, liberty and equality are objectives to
achieve in good economic systems
In capitalist economic system production carried out to
maximize profit, while in socialist systems labor and jobs is
the goal
Islam
Shari'ah law
Justice, fairness and morality
- Are values which underpin both the entire Islamic
way of life.
- Shariah gives guidance as to what is, and what is
not, acceptable behavior in all areas of a Muslim’s Prohibitions In Islamic financial system
life
- Shari'ah is developed by Shari'ah scholars (Known - Prohibition of Unfairness & Unjust
as Schools of thoughts, Safaai, Hanafi, Hanbali, - Prohibition of Riba (usury)
Malki, Sheaat ,etc. ) over 1000 years ago (over - Prohibition of Gharar (Deception & Speculation)
400 years after Islam) - Prohibition of Gambling
- The recent Scholars known as Shari'ah advisors or - Prohibition of Monopolies
Shari’ah board has studied Fiqh Al-Muaamlat able - Prohibition of Short Sales
to explain Shari'ah law for recent business - Prohibition in money trading (Money is a medium
dealings. not a commodity)
- The principal base of the Shari’ah Law is: the - Prohibition of Dealing in Unlawful or Unethical
permissibility. the prohibition is exceptional Goods or Services
What is Islamic Finance?
- Islamic Banks Started in 1974 in Egypt with the
first Islamic Bank “Nasser social bank” followed by
Importance of Trade in Islam
- Islam has given an immense importance to trade
- The nobility of this profession is obvious from the
fact that it was the chosen profession of prophet
Muhammad (PBUH).
Musharakah
- A Musharakah is a joint venture whereby all
partners (BANK /CLIENT) participate in providing
the financial resources for the business. the Client
to start and/or operate a business or industry, or
undertake any other type of business venture.
- The bank and the Client agree to manage the
business enterprise according to the terms of the
agreement
Basic Principles of Musharakah:
- Financing through Musharakah means
participation in the business.
- An investor/financier must share the loss incurred
by the business to the extent of his financing.
- The partners are at liberty to determine, with
mutual consent, the ratio of profit allocated to each
one of them, which may differ from the ratio of
investment.
- The loss suffered by each partner must be exactly
in the proportion of his investment.
The Usage of Musharakah in Financing Business:
Murabaha
- Murabaha is a sale contract between the bank as
seller of goods and Client as purchaser, based on
the disclosure of initial price to client. Bank
purchases goods on spot at the request of the
Client, and then sells the same to him on credit at
a mutually agreed marked-up price.
