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What is Islamic Finance Abdul Samad Shariah Advisor The Bank of Khyber
Political Activities
Economic Activities
Social Activities
Own Capital
Others Capital
Equity Financing
Debt Financing
Elimination of Interest (Raba) The prohibition of uncertainty (Gharar) The prohibition of Gambling (Qimar) The precipitation of games of chance (Maser) Honesty and Fair Trade (Ghishsh and Khilabah) Spending in the Good Cause Buy Back Two Mutually Conditional Contract Entitlement to profit depends on liability for risk
Interest
Interest, Usury, or Riba is forbidden in almost all major religions of the world e.g.
Riba in Quran
But, if you repent, you can have your principal. Neither should you commit injustice, nor should you be subjected to it.
(The Cow Sura Al-Baqara 2:278-9)
Killed Or, Crucified, Or, have their Hands and Feet on alternate sides Cutoff, Or, will be Expelled out of the land. Such will be their degradation in the world, and in the hereafter, theirs will be an terrible doom.
Riba in Hadith
The Prophet cursed
the the the the and
receiver and payer of interest, one who records it and witnesses to the transaction said: They are all alike (in guilt).
Riba in Hadith
The Prophet said: Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.
(Sources: Majah) Aby Hurayrah, Ibn
are strict rules in Islamic finance against transactions that are highly uncertain or may cause any injustice or dishonesty against any of the parties. The concept of Gharar has been broadly defined by the scholars in two ways. First, Gharar implies uncertainty. Second, it implies dishonesty.
Qimar
Qimar includes every form of gain or money, the achievement of which depends purely on luck and chance. O ye who believe! Intoxicants and gambling, sacrificing to stones, and (divination by) arrows, are an abomination, of Satans handiwork..: (5:90-91) He who played Qimar has disobeyed Allah and His Messenger. (Ibn Majah )
Buy Back
The
financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount.
mutually contingent contract have been prohibited by the holy prohibited by the holy Prophet (pbuh). The sale of two item in such a way that one who intends to purchase good is obliged to purchase the other also at any given price. One sale transaction with tow prices. Combining sale and lending in one contract.
What is Microfinance?
Microfinance
is usually defined as the provision of financial services and products to those whose low economic standing excludes them from conventional financial institutions.
What Islamic MF
provide all these services under the umbrella of Shariah. Shariah compliant MFI, to enable Muslims to do their transaction a Halal way. Achieving the goals and objectives of an Islamic economy.
To
jurists have unanimously held the view that it is the collective obligation (fard kifayah) of a Muslim society to take care of the basic needs of the poor.
Economic Empowerment
Islam
strongly encourages charity from the givers point of view, it seeks to minimize dependence on charity from the beneficiarys point of view.
Economic Empowerment
A
man of the Ansar community came to the Prophet (peace be upon him) and begged from him. He (the Prophet) asked: Have you nothing in your house? He (the man) replied: Yes, a piece of cloth, which we wear, or which we spread (on the ground), and a wooden bowl from which we drink water.
Economic Empowerment
He (the Prophet) said: Bring them to me. He (the man) then brought these articles to him and he (the Prophet) took them in his hands and asked to the assembly of people: Who will buy these? A man said: I shall buy them for one dirham. He (the Prophet) asked twice or thrice: Who will offer more than one dirham? Another man said: I shall buy them for two dirhams. He (the Prophet) gave these to him and took the two dirhams and, giving them to the man of the Ansar, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me.
Economic Empowerment
He then brought it to him. The Prophet (peace be upon him) fixed a handle on it with his own hands (#5) and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. The man went away and gathered firewood and sold it. When he had earned ten dirhams, he came to him and bought a garment with some of them and food with the others. The Prophet (peace be upon him) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment.
The aim of the exchange at hand must be recognizes in Shariah. The modalities to achieve the said must be Shariah Compliant.
1.
2.
Zakah is the third among five pillars of Islam and payment of zakah is an obligation on the wealth of every Muslim based on clear-cut criteria. These funds are meant mostly for the extremely poor and function as a safety net for meeting their immediate and basic needs
banks generally use Musharakah and Mudarabah based product for obtaining investment account. These deposits are based on the Shariah principles of profit and loss sharing, and the banks use them, along with its own funds in businesses which are Shariah compliant. Wakala model can also be used for Investment Account.
WHAT IS MUSHARAKAH?
literal meaning of Musharakah is sharing. The root of the word "Musharakah" in Arabic is Shirkah, which means being a partner. Under Islamic jurisprudence, Musharakah means where two or more than two persons agree to contribute funds for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the contribution.
The
Management of Musharakah
Each partner has right to take part in Musharakah management. The partner may appoint a managing partner by mutual consent. One are more of the partners may decide not to work for the Musharakah and work as a sleeping partner If one or more partners choose to become no-working or steeping partners. The ratio of their profit cannot exceed from the ratio of their capital investment.
Capital of Musharakah
All
partners must contribute their capital in terms of money or species at an agreed valuation. Share capital in a Musharakah can be contributed either in cash or in the form of commodities. In the letter case the market value of the commodities shall determine the share of the partner in the capital.
Distribution of Profit
The ratio of profit distribution must be agreed at the time of execution of the contract. The ratio must be determined as a proportion on the actual profit earned by the enterprise. 1. Not as percentage of partners investment. 2. Not in lump sum amount A sleeping partner cannot share the profit more than the percentage of his capital.
the case of loss all the Muslim jurists are unanimous on the point that each partner shall suffer the loss exactly according to the ratio of investment
WHAT IS MUDARABAH?
This
is a kind of partnership where one partner gives money to another for investing in a commercial enterprise. The investment comes from the first partner who is called Rab-ul-Maal(Investor) The management and work is an exclusive responsibility of the other, who is called Mudarib (Working Partner). All other terms and conditions of Mudarabah are mostly same to Musharakah.
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