A Basic Guide to Contemporary Islamic Banking by Mahmoud

Top 20 FREQUENT WORDS

islamic 135 riba 75 contract 67 nancial 57 insurance 52 sale 45 gharar 40 price 40 jurists 37 legal 37 contracts 35 forbidden 34 pro 32 based 30 muslim 30 nance 30 lease 29 prohibition 29 conventional 28 chapter 26 ibn 26

DOCUMENT KEY POINTS

• in the name of allah the bene cent the merciful i was asked by isna to produce a short guide to islamic banking and finance for the muslims of north america
• it is easy for an economist such as myself to fall prey to the temptation of claiming religious authority from translated texts and quoted opinions

• by alerting the north american muslims to the di erences between conventional and islamic nance we may be able to boost the e orts of the sincere muslims developing or dealing with islamic nancial institutions
• there are many honest sincere and hardworking muslim men and women who are currently struggling to make it easier for muslims in north america to lead their lives in accordance with the sh ari ah without having to make unreasonable nancial sacri ces

• in this domain also the muslim needs to ensure that the contract he signs with the lessor or lessee agrees with the conditions of the lease contract aqd al ijarah or aqd al ijar in islamic jurisprudence

• as we shall see many of the conventional nancial tools currently available in north america and most of the rest of the world are legally prohibited in islam
• chapter prohibitions of riba and gharar it is commonplace in islamic discourse to stress the positive injunctions to do good and forbid evil before discussing prohibitions and other negative injunctions

• muslim narrated on the authority of abu sa id al kh udriy the messenger of allah pbuh said gold for gold silver for silver wheat for wheat barley for barley dates for dates and salt for salt like for like hand to hand in equal amounts and any increase is riba

• akim on the authority of ibn mas ud mabpwh that the prophet pbuh said there are seventy three di erent types of riba the least of which is equivalent in sin to committing incest and the worst of which is equivalent in sin to destroying the honor of a muslim
• indeed abu dawud narrated on the authority of ibn mas ud mabpwh that the messenger of allah pbuh cursed the one who devours riba the one who pays it the one who witnesses it and the one who documents it

• the defer and increase rule is in fact selling the current debt to the debtor where the price is an even larger debt with a longer deferment period
• a late rental payment in a lease or a late installment payment in a credit sale would constitute riba al jahiliyyah the worst form of riba condemned in the qur an

• mad abu dawud al tirmidh i al darami and ibn majah on the authority i al nasa translation of abu hurayra mabpwh of the version in muslim that the prophet pbuh prohibited the pebble sale and the gharar sale

• mad and ibn majah narrated on the authority of abu sa id al kh udriy mabpwh the prophet pbuh has forbidden the purchase of the unborn animal in its mother s womb the sale of the milk in the udder without measurement the purchase of spoils of war prior to their distribution the purchase of charities prior to their receipt and the purchase of the catch of a diver

• the fact that the latter statement may be perceived to make explicit a percentage payment should not be of concern since it is not riba if the sale satis es the conditions of murabah
• thus one may approach an islamic nancial institution and say purchase this item on my behalf at this price and i shall give you a pro t urbih

• however it is curious to note that some of the proponents of this view in the s were themselves the pioneers of the eld of islamic banking in the arab islamic countries and elsewhere
• credit sales bay bi th aman ajil contract the islamic bank or nancial institution must own the item at the time the customer buys it from them with the speci ed pro t margin

• the legal di erence between the two is very clear one is a sale in which price is increased for deferment and the other is an increase in the amount of a debt for deferment
• � i � j p y R a a s c in al majmu by al imam al nawawi and taqiyuddin al subki sh a i iyat masterpiece deferment earns a portion of the price also in el gamal ala sh arh

• mad abu dawud and al nasa i on the authority of sa d mabpwh the farmers during the time of the prophet pbuh used to pay rent for the land in water and seeds
• he said i intend to wed one of my daughters to you on condition that you work for me for eight years and if you complete ten full years that will be a grace from you

• since the pro ts cannot be determined unless the relevant commodities are completely sold the pro ts paid to depositors cannot be added to the cost of production therefore unlike the interest based system the amount paid to depositors cannot be claimed back through increase in the prices

• the six major books of narrate on the authority of ibn abbas mabpwh the messenger of allah pbuh came to madinah and found its inhabitants entering salam contracts with the price paid in advance in fruits for one two and three years
• those considering the use of such contracts are advised to consult an islamic legal expert along with their other lawyers to ensure that they abide by sh ari a as well as government regulations

• this guide is intended to give general information on trends in islamic banking and nance and therefore i refrain from giving any speci c information on fund management r miss one point which should be understood by the reader of this primer however is that a number of compromises were made by jurists to make it possible for islamic stock indices and islamic mutual funds to exist
• however most listed companies fall in one of two categories either they tend to face occasional liquidity shortages in which case they borrow with interest of course or they are cash rich in which case they tend to put their excess liquidity in interest bearing instruments e

• the jurists serving on those boards determine a set of rules for selecting the eligible pool of companies whose stocks may be held by musli miss some of those rules are clear cut while others require each investor to search his own conscience for answers
• we ask allah to reward them for their best e orts but we cannot absolve ourselves of our most basic religious responsibilities by following their opinions if we are convinced otherwise

• this rent will naturally go up with in ation as will the value of the real estate thus providing a reasonable in ation hedge and helping the investor keep the real value of his or her wealth while generating an income on which to live
• a the asset is no longer owned by the islamic nancial institution and what they can securitize and sell is therefore the cash ow generated by the liability on the buyer

• the typical nancial insurance contract used in north america and elsewhere would entail signing a policy with an insurance company whereby the insured makes periodic premium payments and the insurance company promises to compensate the insured for damages or part thereof according to a well speci ed formula

• the scholars said that the criterion for invalidity of the contract based on gharar or its validity despite the existence of gharar be is thus if necessity dictates committing gharar which cannot or if the gharar is avoided without incurring an excessive cost trivial h
• aqir the sale is rendered valid otherwise it is rendered invalid thus the di erences among scholars are based on this general principle where some of them render a particular form of gharar minor yasir and inconsequential while others render thesame form consequential and allah knows best

• as we have seen the origin of the term risk re secare suggests that the origins of the analysis of risk and insurance lie in this area
• the proponents of this view say that the insured may pay one small premium and collect a large sum if he can make a legitimate claim and he may pay many premia without ever collecting any sum of money

• the logic inherent in the above quote that stock insurance companies seek to make pro ts at the expense of policy holders while mutuals provide better insurance in fact agrees with our most sophisticated economic understanding of the structure and operations of such companies
• whenever one of the members makes a legitimate claim relative to the speci c form of cooperative insurance to which they subscribed they draw money out of the pool

• assuming that intentions are good and the proper screening of securities is observed we must now turn to the issue of whether day trading where the investor intends to liquidate all positions at the end of each day is particularly close to gambling as compared to other investment strategies
• his abilities to amass wealth were legendary but that did not reduce his religious status as he was one of the sh ura group to nominate the khalifah and he was one of the ten companions of the prophet pbuh to receive glad tidings of admission into paradise

• doctor abd al mun im al nimr an ex minister of awqaf in egypt wrote an article in al ahram june in which he argued that the reason for the prohibition of riba which he argued to be the harm caused to the debtor does not apply to deposits with banks

• therefore any form of loan interest free or otherwise is unsuitable as a basis for any form of nance therefore the loan contract is a form of charity since the lender is giving away the usufruct of the lent money or goods for the period of the loan
• that abu al darda mabpwh said i prefer to lend it is narrated two dinars get them back and lend them out again to giving them away in charity and ibn mas ud and ibn abbas are narrated to have said wo loans are better than one charitable payment

• the arbitrariness of this rule is quite apparent especially since this rule could not possibly be adequate independently of the term of the loan most interesting however is the fact that the academy categorically ruled out as strictly forbidden the commonly suggested solution of indexation of a lent amount of money to cost of living interest rates gnp growth rates the price of gold or some other commodity etc

• what is the di erence q it seems to me that all you re doing is re labeling interest as ent or pro t but dollar for dollar i don t see any di erence between what you call an islamic contract and what is done by banks and mortgage companies

• the islamic contract forces the two parties to link the nance charges to a speci c tangible asset and thus forces comparison if not equalization with the time value of money invested in that asset
• from a religious point of view writing a contract that intentionally abides by islamic legal injunctions is very di erent from writing one which does so by mere coincidence or based on human reasoning

• some information on the internet this is a partial list of some of the general information websites that focus on issues in islamic banking and finance

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

islamic shariah vol securities bai based contract jurists council commission advisory sac dar price resolutions jurisprudence permissible gharar principle syariah

RELATED DOCUMENTS

A Basic Guide to Contemporary Islamic Banking by Mahmoud

Developing modern Islamic Financial System via Ijtihad

Islamic Banking Product Detail in Malaysia

Resolutions - Shariah Advisory Council Malaysia

Shariah-Resolution

Shariah Rullling in malaysia

Statistik Perbankan Syariah

DOCUMENT REFERENCES

Number of Pages

49

Published Date

2106-02-07 09:28:15

Full Document

Read the Full Document