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Concept of islamic finance
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Profit-loss sharing
In order to be able to understand the core factors that contribute to the lack of profit-loss sharing in Islamic banking, this mode of financing must first be introduced. The fundamental basis for PLS is based on equity orientation. Such a mode of financing allows all parties involved to share both risks and losses in the ratio of their individual capital input, while the profit is allocated on an agreed ratio. This Islamic mode of banking guarantees the sharing of profits or losses and ensures no accrual of a fixed rate of interest, which promotes the efficiency and stability of the Islamic banking system. According to one of the leading Sharia scholars, Muhammad Taqi Usmani, "The real and ideal instruments of financing in Sharia
are mudarabah and musharakah” (Farooq, 3:1996).
Mudarabah
Mudarabah is an alternative in financing where two parties form a special type of partnership in which one partner provides the capital (rab-ul-mal) while the other individual conducts managerial operations (mudarib). Any profit generated is allocated and shared based on agreed ratio determined by both parties. Moreover, if a loss is incurred, the financier is the one who bears loss, bearing in mind that the mudarib was not negligent (Al-Omar, Abdel-Haq, 1996).
Musharakah
Musharakah exhibits some of features of common partnerships. It is described to be a contractual relationship created by the mutual agreement of parties for sharing any profits or losses in joint business activity. This type of financing involves an Islamic bank that provides funds, which are mixed with the funds of the business enterprise and any other operations. The capital providers are permitted to participate in management, yet it is not requir...
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... [report] Research Division, Islamic Research and Training Institute.
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Saeed, A. 1996. Islamic banking and interest. Leiden [u.a.]: Brill.
Santomero, A. M. 1997. Commercial bank risk management: an analysis of the process.Journal of Financial Services Research, 12 (2-3), pp. 83--115.
Siddiqi, M. 1983. Banking Without Interest. Research in Islamic Economics, Volume 1, Number 2.
Ul Haque, N. and Mirakhor, A. 1986. Optimal Profit-sharing Contracts and Investment in an interest-free Islamic Economy. IMF Working Paper.
Visser, H. 2009. Islamic finance. Cheltenham, U.K.: Edward Elgar.
Warde, I. 1999. The Revitalization of Islamic Profit-and-loss Sharing. [report] Cambridge: Center for Middle Eastern Studies, Harvard University.
Ibn Munqidh, Usama. "From Memoirs." McNeill, William and Marilyn Robinson Waldman. The Islamic World. Chicago: The University of Chicago Press, 1973. 184-206.
It is adequate to note that the financial assets in banks for the rich Arabs, their amount is valued is more than 1190 ...
"Financial Management in the International Business." Hill: International Business: Competing in the Global Marketplace, Sixth Edition. : The McGraw−Hill Companies, 2007. . Print.
Hilāl, ʻAlī Al-Dīn. Islamic Resurgence in the Arab World. New York, NY: Praeger, 1982. Print.
...r something that has its source from Islam in their government. It can be seen from recent mosque protests that, even a place of worship comes to instill the fear of the sharia in people’s minds. Whereas sharia is something very complex and not a monolithic canon of law (it’s very flexible)—and most countries that say they practice it really don’t plus forget everyone else most Muslims don’t want a sharia themselves. Islam being such a controversial issue, it might not be possible to use zakat. However, the general idea was that society and individuals themselves are responsible for many aspects of poverty and it is their responsibility and duty to fix in the end for their own benefit.
Encouragingly Jordan’s banking sector managed to weather the crisis better than other sector of the economy, and other banking sector in different countries. This was mainly supported by rather conservative policies and tight regulations. For instance banks in this country are pure universal. This implies there is no pure investment bank that relies entirely on investment income, a factor that majo...
The modern Islamic Finance industry is young, its timeline begin only a few decades ago. However, islamic finance is involving rapidly and continues to expend to serve a growing population of muslims as well as conventional.
Alternatively, when expenses exceed revenue for a defined period, an operating loss shall be recorded. Mudarabah operating loss which is measured during the operating period may be offset against prior or future profits. Loss shall be solely borne by the capital provider except in the event of misconduct, negligence or breach of contract by the manager. The manager may not undertake to bear the loss. The manager may bear the loss at the time the loss is realized without any prior condition or undertaking. A third party may undertake to bear the loss of capital due to misconduct or negligence on the part of the manager. The capital provider may take collateral from the mudarib, provided that the collateral could only be liquidated in the event of negligence or misconduct or violation of term of contract by the Mudarib. Capital loss shall be recognized when the loss occurs prior to the commencement of the business or due to extenuating circumstances beyond the control of the manager and not due to the negligence or misconduct of the manager. The Mudarabah agreement may be mutually reviewed to ascertain whether the capital loss impairs the future performance of the business activity and the partners may decide to restructure the agreement accordingly. Operating loss shall be recognized when the loss occurs during the course of ordinary business. The losses may be carried forward to the next period and subsequently, be set-off against prior or future
Block, S. B., & Hirt, G. A. (2005). Foundations of financial management. (11th ed.). New York: McGraw-Hill.
A variety of groups are concerned in bank profitability for various reasons. The bank shareholders would want to know if the value of their investments is high or low. The investors also use current and past performance to predict future price of the banks’ shares traded on the stock exchanged. The management of the bank as trustee of the shareholders is evaluated and compensated on the basis of how well their decisions and planning have contributed to growth in assets and profits of their banks. Employees of bank also are concerned with profits, since their salaries and promotions are frequently tied to the profitability performance of their banks.
...). "The conflict between shari'a law, planning and land development in Saudi Arabia." Journal of Property Research 5(3): 231-238.
This assignment discusses about the Islamic Perspective in Risk Management. To define what is the risk management based on general definition and based on the Islamic Perspective. Second is to differentiate the distinct features of risk management in Islamic banking. To study more details in types of risk in Islamic financial institutions. Furthermore to determine risks in Islamic modes of financing such as mudharabah, murabahah, and musharakah.