INTRODUCTION
Defination of Islamic Finance
Islamic finance means is the provision of financial instrument and services that follow the principle and rules of Islamic commercial jurisprudence, a branch of Islamic shariah jurisprudence. It also can be defined as a complete system that prescribes specific patterns of social and economic behaviour for all individual.The main principle of Islamic finance is its adherence to interest or riba. Below this explain the term that prohibits in Islam:
a) Riba
Riba or usuary is the predetermined interest collected by a lender , which lender receives over and above principal amount it has lent out
b) Gharar
Gharar means uncertainty. It knowingly expose oneself one property jeopardy or the characteristic are not accurate. For instance, advise clients or investors to buy shares in the company by offering a low price without telling disadvantage or effects of buying the shares. c) maysir maysir means speculation about something. This terms is prohibit because it will make policy holder loss 100% from his capital or investing fun. For example in insurance term, maysir happen when policy states that if termination is done before maturity date, the holder will not get any payment of his premium.
History of Islamic finance
In the past, all transaction and trading of business happened just by using the barter system. It means if someone or an individual need something item, he can get it by exchange any item that he had with item that he want,owns by others. For example 5 grams of gold in exchange with 10 grams of silver. However this transaction is lack of standardization and prac...
... middle of paper ...
...er ona deferred payment and then the asset is immedietly repurchased for cash at the discount.
Al-Wakalah
The concept of nominating another person to act. It refers to situation, where a person nominates another person to act on his behalf. For example bank is act behalf of its customer or depositers in making a payment to the other parties.
Bai’ as-salam
Bai’ as-salam is about an agreement whereby payment is made immedietly while the goods are delivered at an agreed later date. It is equivalent to an advance payment. For example transaction of this concept is an online shopping whereas the customer need to bank-in fund first then the seller will delivered the goods.
Al-hiwalah
Transaction of funds from depositor’s account to the receiver’s creditor’s account is the contract of Al-Hiwalah. However depositor has to pay a commision may be charged for such service.
...-based, charge-based, and contractual payment systems. (p. 7). CRC Press. Retrieved from http://books.google.com/books?id=sCzhN9HruM0C&dq=fee schedule based payment&source=gbs_navlinks_s
The first scenario is that Bo Broker Company will accept a non-interest bearing or unsecured negotiable note that is payable over the life of the related
Selling receivable before its maturity date to financial institutions or factoring companies is one of the company’s strategies to obtain an immediate cash and make company’s operating cycle becomes shorter. For providing this service, the financial institution or factoring company requires a compensation such as interest, commission fee, and other requirements to secure the transaction. Consequently, the amount of money received by the company, as a seller or transferor, less than the face value of the account receivable, or it purchases at discount. Selling receivable transaction can be executed either without recourse in which the transferor has no obligation for uncollectible receivables or with recourse in which the transferor has full responsibility for any uncollectible receivables.
Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. Therefore, islamic finance is to be assets based as oppose to the currency based whereby investment structured on exchange or ownership of assets, and money is simply mechanism for transaction process. It would based on two sources which are Al-Quran and As-Sunnah.
Based on the concept of usury and gharar under the wisdom of the prohibition of usury and gharar can say that is forbidden in the Islamic concept requires that the damages should exceed the interest and usury, reflects this clearly. Gharar illustrates the flexibility of Islamic law in terms of it being permissible when its benefits outweigh the harms. Through these findings we see a question emerge that deserves to be the focus of a discussion: are all contracts in Islamic banks completely free of usury?
Cash is disbursed for a variety of reasons, such as to pay expenses and liabilities or to purchase assets. Generally, internal control over cash disbursement is more effective when payments are made by cheques rather than by cash, except for incidental amounts that are paid out of petty cash. Payments are made by cheques generally only after specified procedures have been followed. In addition, the paid cheques provide proof of payment. (Kloot and Sandercok 1991)
‘Badla’ literally means ‘something in return’ and it is the charge that the investor pays for carrying his position forward. It is a hedge tool and lets the investor to take position in the scrip without even taking an actual delivery of the stocks. Badla transaction system was in practice for several decades in the stock exchange of
...rge, and correct Income Account for the interest income. Enter the amounts as positive numbers Screen appear as follows before clicking on Record to save the bank entry:
1. The functions and operating modes of Islamic banks are based on the principles of IslamicShariah.
First of all, let us outline how Islamic banks actually work and what their main differences are in comparison with conventional banks. In this banking system, banks are operated by Islamic laws (known as Sharia), so Islamic economic principles are considered as primary guidance. Two basic doctrines behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest . Hence unlike conventional commercial banks, Islamic banks do not pay or charge interest on lending or borrowing of money. This is because the Sharia’s strictly prohibits, among other things, the receipt and payment of riba (interest) /. The interpretations to clarify the meaning behind this restriction suggests that earning or charging extra amount of money from debtor has to be seen something as immoral behavior, because making pressure on your borrower is actually unfair from the view point of Islam. To make it clear, the religion of Islam basically promote the principle of justic...
Customers are provided the facility regarding bank assurance by means of modern-day commercial banks. When customers have to deposit certain resources in government places of work or courts because particular purpose, financial institution execute itself as the guarantee for the customer, alternatively on concession of depositing fund by customers.
According to Shari’ah, which is the guidelines underlined by Islam, there is several principles of Islamic Banking that are in accordance to its practices. They are :-
In Islamic Fiqh the term Riba has a special meaning that is an unjustified increment in borrowing or lending money, paid in kind or in money above the amount of loan, as a condition imposed by the lender or voluntarily by the borrower.
provided by the government. This meant that the new bank debt would be the most senior piece in and would
In case of insolvency of surety, the creditor is entitled to proceed in the surety’s insolvency and claim the pro rata