Since Riba is prohibited in the Quran and interest in all its forms is akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free.
Efforts in Muslim countries to revert to an interest-free economy were hampered by many obstacles. It is time for Islamic banks to generate practical and implementable action plan that can elevate the standards of Islamic banking in the international market place.
Islamic laws promote the welfare of people by safeguarding their faith, life, intellect, property and their posterity. Objectives of Islamic Banking The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector.
Leasing differs from sale only in-so-much-as not transferring the corpus or ownership of the property which remains with the transferor.
In response, though not exactly to that exigency but for quite a few other reasons, the second half of the twentieth century witnessed a distinctly separate line of thinking on banking.
It also aims at Islamic financial system assgnmnt profit but subject to Shariah restrictions. Advance rentals are admissible subject to the condition of adjustment against the actual rental when due upon commencement of the lease as discussed before.
The role of banking is comparable to what an artery system does in the human body. To this end, Pilot schemes in some much selected areas should be started to test innovative ideas with profit-loss-sharing modes of financing as major component.
Leasing differs from sale only in-so-much-as not transferring the corpus or ownership of the property which remains with the transferor. On this religious ground, proponents of the PLS-system urge the Islamic community to avoid all transactions with institutions those are interest-based.
Some of the instruments also represent ownership of the underlying assets together with a claim to underlying cash flows. Profit-loss sharing being a distinctive characteristic of an Islamic bank fosters closer relations between banks and entrepreneurs.
One very important requirement of an ideal evironment is an inflation-free economy. Secondly, when the percentage shares of allocation of funds are determined among the sectors of investment financing, profitability of projects should be the criterion for allocating investment funds.
The balance will be distributed between investor and the at the end of the term of instrument. It makes no effort to ensure growth with equity. Islamic financial institutions cannot be a passive spectator of these profound changes. Usmani among others for not progressing from "debt based contracts", such as murabaha, to the more "genuine" profit and loss sharing mode, but instead moving in the opposite direction, "competing to present themselves with all of the same characteristics of the conventional, interest-based marketplace".
According to noted Islamic scholar Taqi Usmanithis is because in Quran aya 2: In order to mitigate the risk and as per the terms of the instrument, a Takaful fund is established for the term of the instrument.
Underlying material transactions are also missing in such transactions as "tawarruq, commodity murabahas, Malaysian Islamic private debt securities, and Islamic short-sales".
Rather it is the conventional banking system whose operational mechanism needs to be re-examined and converted into PLS system considering beneficial impact of the latter on the economy. Anyone attempting to change a well-established practice must be prepared to make some sacrifice for this, as arguably no noble cause has been achieved without any sacrifice.
Despite the outstanding contribution of the conventional banking system interest-basedseveral ancient and modern economists are critical about its efficiency level. The lessee cannot use the leased assets other than for the purpose specified in the contract or agreed to by the lessor expressly.
Every religion has the same basic aim. Yet others thought that the efforts being made were only superficial and in reality the new system was no different from the existing system. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.
This Type may be traded in the secondary market at its fair market price acceptable to the parties involved but not discounted. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk.
Taqi Usmani, however, explains that this is a "misconception". This eventually called for Keynesian prescription of government intervention. The fixing of any bench mark for determining the amount of rent, as with an inflation index etc.The Islamic financial system is based on equity whereas the conventional banking system is loan based.
Islam is not against the earning of money. In fact, Islam prohibits earning of money through unfair trading practices and other activities that are socially harmful in one way or another.
Islamic banking and finance customers, are almost all, if not entirely, Muslims. But the majority of financial institutions that offer Islamic banking services are Western financial institutions, not owned by Muslims. REFERENCES REPUBLIC OF IRAQ FINANCIAL SECTOR REVIEW. EXECUTIVE SUMMARY REPUBLIC OF IRAQ IFSB Islamic Financial Services Board ILO International Labor Organization financial system, and ensuring economic growth.
We hope that the findings. Introduction The financial system is composed of financial institutions, financial instruments, financial markets and financial services to boost transactions for goods and services as well as financial. islamic financial system assgnmnt essay INTRODUCTION Islamic finance system has its basis in great Islamic value.
It is Riba-free system (Riba means interest) which ensures the abolition of profit-sharing from the whole financial system.
View Islamic Financial System wsimarketing4theweb.com from MBA at Government College University Faisalabad. ISLAMIC FINANCIAL MANAGEMENT Islamic Financial System Assignment .Download