1.1 - 1.6 Intro to Islamic Fin (1) (1).ppt|

8/16/2019 1.1 - 1.6 Intro to Islamic Fin (1) (1).ppt|

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DEFINITION,OBJECTIVE &

PRINCIPLES



Quick definition:

Financial services specifically designed to adhere to

Islamic law or Syariah and guided by islamic economics.

According to Ibnu Abu Yusof, Ibnu Taimiyyah and Ibnu Khaldun:

“ The creation, developing and delivery of unique

customer satisfying competitive products and services at

a profit to organization and customer in the lights of

Islamic values and principles.”

Although these financial services are designed for

Muslims, they are not exclusively available to Muslims.

Nonmuslims can also provide and buy the services.

DEFINITION



OBJECTIVES

! "o promote, foster and develop the ban#ing

finance and product based on Islamic principles.

! $esponsible for promoting the establishment of

investment companies or other business.

! %nhance economic development of Islamiccountries.



PRINCIPLES OF

FINANCIAL SYSTEM "ransaction is based on a valid contract

&rohibition of $iba

&rohibition of 'harar

Assetbac#ed financing

$is#bearing and profit sharing



Prohibition of RIBA

Quick Definition( )%xcess*,*Increase*, )growth*

! $efer to the +premium that must be paid by the borrower to the lender along with

the principle amount as a condition for the loan or for an extension on its maturity.

! Islamic financing is based on illi-uid assets, which creates real assets and

inventories. It does not recognie money as a sub/ectmatter of trade compared

with conventional financing that deal in money and monetary papers only. Money

has no intrinsic utility( it is only a medium of exchange

"herefore, profit earned through dealing in money is interest, hence prohibited

! Islam support contractual obligations and the disclosure of information as a

sacred duty.

! Intended to reduce the ris# of asymmetric information and moral haard.

!"ransactions in Islamic Financing 0ased on contractual agreements

between the buyer and the seller.

Transaction is based on a VALID CONTRACT

Asset-backed financin



! Since interest is prohibited, suppliers of funds become investors instead of

creditors.

!"he provider of financial capital and the entrepreneur share business ris#s in

return for shares of the profits.

&rofit sharing 1ne party will provide capital and another party will be an

entrepreneur. "he entrepreneur will carryout business and both parties will

share the profits according to the ratios agreed but if the company losses, it

will be borne by ban#.

Risk-bearin and !rofit sharin

Quick Definition( 2ncertainty.

! $efers to something that is not completely set in stone within a contract.! Islamic financial system discourages hoarding and prohibits transactions

featuring extreme uncertainties, gambling, and ris#s.

Prohibition of "#ARAR



SCOPE OF ISLAMICFINANCE



$ALA%&IAN 'INANCIAL

&%&T($

Is)a*ic

Banks

Bank NegaraMalaysia (BNM)

Commercial Bank

FinanceCompanies

Foreign Banks Rep. Oces

Merc!an"

Banks

Cre#i" $%aran"ee Corp (C$C)

&isco%n"

'o%ses



+, BANIN"

&%&T($Bank Negara

Malaysia (BNM)

CommercialBanks Ines"men"

Banks

Islamic Banks



., NON-BAN

&%&T($

Other 'inancia)

Inter*ediaries

Insurance

Co*!anies

inc)udin

Off-shore

SaingsIns"i"%"ions

Pro/ident 0

Pension 'unds

De/e)o!*ent

'inancia)

Institutions



1, 'INANCIAL

$AR(T

&eria"ieMarke"

Capi"al Marke"Money Marke" oreign E*c!ange



SOURCES INISLAMIC FINANCE



SOURCES

QUR’AN

SUNNAH

Ijma Qiyas

Isi!sa" & Isis#a! Isis!a$ U%

PRIMAR+ SECON&AR+



PRIMARYSOURCES



T!' Q(%’a"! Foundation of Islam, boo# of religious and moral priciples.

! 0oo# of Allah 3S.4."5 that was revealed to the &rophetMuhammad 3S.A.45 through 6ibrail 3A.S5.

! "he authenticity of the 7uran as a revelation is proven by

Allah 3S.4."5 and it represent blueprint for the Islamic wayof life.

! 'eneral contents8 Allah*s unity 3"auhid5, Allah existence,"he next life, "he people of old, Formalprayer , 9hallenges, :aws, 6ihad, and "he hypocrites.

! 7uranic field of a study8Information related to the theology 3al*a-idah5

Information related to moral sciences 3ala#hla-5

Information related to the law 3alsyariah5



%xamples of the 7uranic verses pertaining to

economics, ban#ing, finance and trade

! Surah Ali Imran ;8<=>

! Surah Al 0a-arah ?8<@@

! Surah Al 0a-arah ?8?

! Surah At "aubah 8B>! Surah An Nisa*C8D=

! Surah Al A*raf @8?

! Surah Al A*raf @8=D

! Surah At "aubah 8;C

! Surah Al Maidah D8>

! Surah Al a*rar @8;<



T!' S(""a!! A way of rule or manner of acting or mode of life.

3Ali,<D>5

! ; #inds of Sunnah 3Ali, <D>58 3i5 Qual or )saying* of the prophet 3S.A.45 which has a

bearing on a religious -uestion.

3ii5 i!l represent )action* or )practice* of the prophet 3S.A.45 3iii5 Taqrir or a )silent approval* of the prophet 3S.A.45 of theaction or practice of another.

! Sunnah is considered as a revelation as Allah 3S.4."5says in surah an"#a$m D;8; and C ( and surah al %&aidah D8B@

! "he &rophet 3S.A.45 was given a power andresponsibility of clarifying man#ind 'od*s intent in the

7uran.



%xamples of the Sunnah regarding the economics,

ban#ing, finance and trade business

3<5 "he eradication of poverty

+Narrated by Abu Eurairah , the prophet 3S.A.45 used to pray +o Allah

I see# refuge from poverty , scarcity and ignominy

3?5 &rivate ownership

Aisyah reported the prophet said +whoever cultivates land which not the

property of anyone has a better title to it

! %xposition of the 7ur*an by which it generalities were clarified and

its intended meaning were specified. "he clarification include8

"he explanation of the methodology , reasons,re-uirements and locations

"he deduction of a rule and regulation

"he explanation of the inclusion which could no be

logically deduced.



SECONDARYSOURCES



Ijma’! I/ma* is consensus, unanimous and agreed upon opinion of the

9ompanions or of the Muslims scholars 3Mu/tahid5 on any point of

law not specified in the 7uran and the Sunnah.! "he Eadith which says , +My community will never agree upon an

error

! "he authorisation of I/ma* is based on the followings8

Surah An Nisa* C8<<>

Surah Al 0a-arah ?8<C;

Qiyas! Means )measuring by* or )comparing with* or /udging by comparisons*

3Ali,<D>5.

! "he authorisation of 7iyas is based on the followingSurah an Nisa* C8D

Surah al Easyr D8?

! %xample of 7iyas is the hu#m of producing, mar#eting, selling and

consuming )tua#* is unlawful 3haram5 based on the hu#m on #hamr , because the

prophet 3S.A.45 +every into'icant is khamr an every form of khamr is haram



Isi!sa" a") Isis#a!! Involved the preference of an opinion over another opinion

because it appears more suitable to the situation andcircumstances

! Authorisation based on Surah al A*raf @8<C;

! %xamples of istihsan and istislah regarding the economics,ban#ing, finance and business(

"he right of the government to collect taxes from the richother than a#at. "he government is allowed to collecttaxes other than a#at from the rich if the interest of thestate demands it although in syariah only a#at has been

specified.



Isis!a$

! &rocess of deducing fi-h law by lin#ing a later set ofcircumstance with an earlier set.

! 0ased on the assumptions that the fi-h laws applicable

to certain condition remain valid as long as it is notcertain that these condition have altered.

! %xamples

:ong absence of someone, it is doubtful whether he isalive or dead. "herefore in istishab deduction, all rules

must remain in force which in one #new that he was still

alive.



*U% ! "he various customs and social habits of people

throughout the muslim world were accepted as a

secondary sources of the islamic law as long as they did

not contradict with the shariah.

! %xample8

In rental customs. "he shariah does not re-uire the

payment of the price until the thing sold has been

delivered completely being.



SIMILARITIES &DIFFERENCES



SIMILARITIES +ITH

CONVENTIONAL FINANCE! In term of products and services that both

provided.

&I$ILARITI(& 0etween IS:AMI9 FINAN9%and 91NG%N"I1NA:

&roduct %,g Heposit, Insurance, Saving

Services %.g Issuing fast che-ue deposit, A"M cards

1b/ective &rofit maximiation, 9ustomer satisfaction



&IFFERENCES ,I-'

CONEN-IONALFINANCEISLAMIC FINANCE CONVENTIONAL

FINANCE

<. &rinciple 0ased on Shariahcompliance.

0ased on fullymanmade principles.

?. &rohibitedelements

Free from prohibitedelements.

Not applicable.

;. $is# sharing In contrast, it promotes ris#sharing between provider of

capital 3investor5 and the userof funds 3entrepreneur5.

"he investor is assuredof a predetermined rate

of interest.



C. &roducts Shariah complianceproducts.

Not applicable

D. Asset0ac#edFinancing

Hoes not recognisemoney as a sub/ect

matter of trade

0an#s and financialinstitutions deal in

money and monetarypapers only

D. Moral dimension 4or# within themoral values of

Islam, cannot financeany pro/ects whichconflicts with the

moral value of Islam.

Not concern aboutmoral implication of

the activity theyfinance.

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1.1 - 1.6 Intro to Islamic Fin (1) (1).ppt|