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Part 3.8
ECONOMICS & FINANCIALINSTITUTIONS
by Rohaizan Baharuddin
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Outline of Presentation
Concept Philosophy Basic Islamic Concepts of
Economy & Finance Institutions
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Concept
A monetary activities based onsyariah
Aim to prevent injustice inacquiring sources and utilizing
them to fulfill humanrequirements
To execute humans
responsibility towards Allah andsociety
All economic activities that arein line with syariah are ibadah
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Concept
Rububiyyah stresses thatAllah is the creator and sourceof all wealth
Ubudiyyahto express oneshumility and humbleness
Tazkiyyah to purify the soulthrough the purification of
wealth by giving zakah
Brotherhood economics asa wasilah (medium) to form the
Islamic brotherhood
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Outline of Presentation
Concept Philosophy Basic Islamic Concepts of
Economy & Finance Institutions
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Philosophy
the spirit of al-adl wa al-ihsan
is a guiding principle to theIslamic economic system
Allah said:Allah commands justice, the doing ofgood, and liberality to kith and kin,and He forbids all shamefull deeds,
and injustice and rebellion: Heinstructs you, that ye may receiveadmonition (16: 90)
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Outline of Presentation
Concept Philosophy Basic Islamic Concepts
of Economy & Finance Institutions
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Islamic Economy vsNon-Islamic Economy
Western economic system is
based on laissez faire principle.
This means, free growth withoutgovernment interference that
involve private property, free trade
and profit are the only motivation
in the competitive market.
Islamic economy is based on the
concept ofJamaah whereby
society as the trustee has the
right to decide on how the wealth
can be used. But all wealth
belongs to Allah and He creates
it for societys benefit. The
practice of interest is forbidden in
Islam.
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Basic Islamic Concept ofEconomy and Finance
1. Wadiah (Safekeeping)
2. Mudharabah (Profit Sharing)
3. Musyarakah (Joint Venture)
4. Murabahah (Cost Plus)5. BaiBithaman Ajil
(Deferred Payment Sale)6. Qardh al-Hasan
(Benevolent Loan)7. Ijarah Thumma al-Bai
(Hire Purchase)
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Basic Islamic Concept ofEconomy and Finance
1.Wadiah (Safekeeping)
A bank is deemed as a keeperand trustee of funds
The depositor, at the banksdiscretion, may be rewarded withhibah(gift) as a form ofappreciation
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Basic Islamic Concept ofEconomy and Finance
2. Mudharabah (Profit Sharing)
An agreement between a capitalprovider and an entrepreneur,
whereby the entrepreneur canmobilise funds for his businessactivity
Any profits made will be shared
between them according to anagreed ratio
Losses are borne solely by the
capital provider
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Basic Islamic Concept ofEconomy and Finance
3.Musyarakah (Joint Venture)
Normally applied for businesspartnerships or joint ventures
Profits made are shared on anagreed ratio
Losses incurred will be dividedbased on the equity participation
ratio
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Basic Islamic Concept ofEconomy and Finance
4. Murabahah (Cost Plus)
The selling of goods at a price,which includes a profit marginagreed by both parties
The purchase price and sellingprice, other costs and the profitmargin must be clearly stated atthe time of the sale agreement
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Basic Islamic Concept ofEconomy and Finance
5.Bai Bithaman Ajil(Deferred Payment Sale)
The selling of goods on a
deferred payment basis at aprice, which includes a profitmargin agreed by both parties.
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Basic Islamic Concept ofEconomy and Finance
6.Qardh al-Hasan (BenevolentLoan)
A loan extended on a goodwillbasis and the borrower is onlyrequired to repay the amountborrowed
The borrower may, at hisdiscretion, pay extra (without
promising it) as a token ofappreciation
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Basic Islamic Concept ofEconomy and Finance
7. Ijarah Thumma al-Bai(Hire Purchase)
Ijarah means contract
(leasing/renting) Baimeans contract (purchase)
are undertaken one after another
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Outline of Presentation
Concept Philosophy Principles
Basic Islamic Concepts ofEconomy & Finance
Institutions
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Institutions
1) Zakat Institution
- zakat literally means purification
- technically means giving out part ofour property to be distributed to theeligible recipients (asnaf)
- Asnaf:a) Fakir e) Riqab (slave)
b) Miskin f) Gharimin (debter)
c) Amil g) Fisabilillah
d) Muallaf h) Ibn al-Sabil (musafir)- part of principles of Islam
- types: Zakat Fitrah, Zakat of Property
- Zakat ratio is 2.5% of overall
income
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Institutions
2) Bayt al-Maal Institution
- introduced by Caliph Umar al-Khattab
- serves as a financial institutionin charge of financial inflow andoutflow
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Institutions
3) Waqaf Institution
- human consciousness andkindness to donate property for
charitable purposes- foster the spirit of unity,
cooperation and mutual
assistance- Property that can be contributed
for waqaf: land, house, car, etc.
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Institutions
4) Al-Rahnu Institution
- literally means collateral
- valuable property tied under
collateral agreement due to debt- If the borrower could not settle
the debt, the property can beused as a mode of payment
- an easy way for simple cashloan
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Conclusion
Islamic economic system is provento be a fair, just and relevant to all
time, place and race. It emphasizes
on the equality in the distribution
and utilization of wealth amonghuman being regardless of what
position they hold in the society. Itprotects the welfare of the needy
and maintain the rights of thewealthy base on the principle that
property is belong only to Allahand human being is His trustee
in this world.
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