| 1. Txn based on interest violate equity aspect of economic organisation |
| 2. Interest based system discourages innovation, particularly SMEs. |
| 3. In Capitalist market economy, Commercial banks falls under debt channel. |
| 4 |
| Monetary demand |
| Inflation |
| |
| 4. Interest based system is security oriented rather than growth oriented. |
| Shariah prohibits concentration of wealth in a few hands and breeds inequalities in society. |
| Shariah encourages maximum welfare for the maximum number of people. |
| |
| Treatment of deposits with Interest |
| Islamic bank act as trustee (Mudarib) Instead of borrower from depositors |
| islamic bank rely on a kind of joint venture or mutual participation between customer and bank to generate profits. |
| |
| Profit sharing enterprise |
| 1. Shirkah al-inan / Limited partnership |
| 2. Mudarabhah / dormant partnership |
| |
| Contract : |
| 1. Offer and acceptance (ijab and qabul) |
| 2. Consideration : |
| 3. Capacity |
| 4. Legality |
| 5. Absence of duress |
| |
| Types of Contract (7) |
| 1. Al Tamlikat (Acquiring of ownership) |
| |
| |
| 2. Al Isqatat (releases) |
| 3. Al-Itlaqat (permissions) |
| 4. Al-Taqyidat(restrictions) |
| 5. Al-Tauthiqat (Securities) |
| 6. Al-Ishtirak (Partnerships) |
| 7. Al Hifz (safe custody) |
| In a nutshell, traditional setting involved simple commercial, agricultural or manufacturing ventures. No. of investors are limitted. Today contemporary economic requires flexible framework. Profit Loss sharing company can accommodate this. |
| |
| Risk (Gharar) is forbidden |
| 1. Txn where seller is not in a position to hand over the goods to the buyer |
| 2. Item or commodity for sale cannot be immediately acquired eg., sale of fruit which has not yet ripend, fish or birds not yet caught |
| 3. Speculative investments trading and stock market |
| 4. Txn where purchaser is not given opportunity of inspecting goods before purchase. |
| |
| Equity Based Financing |
| 1. Al-Mudharabah - Trustee profit sharing |
| 2. Al-Musharakah - Joint venture profit sharing |
| |
| Debt based financing |
| 1. Deferred contracts of exchange (Al-bai, al-tijaraj and al-dayn) |
| 2. Deferred lump-sum sales (bai al-murabahah) |
| 3. Leasing (al-ijara) |
| 4. Salam sales (al-salam - capital financing) |
| 5. Manufacture sale (bai al-istisna) |
| |
| Debt financing contract |
| 1. Al-bai bithaman Ajil (financing the acquisition of assets through deferred installment sales) |
| 2. Al-Ijara (Financing the use of services of an asset through leasing) |
| 3. Al-Ujr (fee based syndication services) |
| 4. Al-Murabaha (Letters of credit : Deferred lump-sum sales or cost plus) |
| 5. Al-Murabaha (financing working capital : deferred lump-sum sales or cost plus) |
| 6. Salam (financing the acquisition of assets in the future: forward purchase) |
| |
| Debt Securities |
| Deferred Contracts of Exchange |
| 1. Al-bai bithaman ajil (deferred sales) |
| 2. Bai al-murabaha(defered sales) |
| 3. Al-ijara (leasing) |
| Loans |
| 1.Al-qardh al-hasan (benevolent loans) |
| Refinancing of Assets |
| Bai Al-inah |
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