Intriduction to Islamic Banking and finance By Muhammad Ayub

Top 20 FREQUENT WORDS

riba 26 price 24 sale 22 contracts 20 risk 20 exchange 19 islamic 19 profit 18 debt 17 salam 17 banking 15 goods 15 istisna 15 ownership 15 assets 13 permissible 11 contract 10 credit 10 debts 10 loans 10 musharakah 10 trading 10

DOCUMENT KEY POINTS

quran guides on def of riba financial liability qard loan to give anything in ownership of other by way of virtue same or similar amount of that thing would be paid back on demand or at the settled time
dayn debt incurred by way of trade or rent or any other credit transaction ought to be returned at the settled time without any profit

i one who wishes to earn profit on his monetary investment must bear the loss or damage accruing to the business where his money capital is to be used
i tradingbairisk taking value addition i leasing a ijarah risk taking value addition i exchange transaction a monetary transactions i lending a a virtuous act not a business i hand to hand exchange of currencies

i time value of money is accepted to the extent of pricing of goods but not in the form of conventional opportunity cost concept
reality differentiating trading loaning and leasing i return by way of pricing of goods and their usufruct needs to be fixed permissible

i and if you repent then you have your principal
wrong not and you shall not be wronged

then shall every soul be paid what it earned and none shall be dealt with unjustly
and fear the day when you shall be brought back to allah

some other myths i credit and cash market prices of a commodity must be same i profit margin on credit sale by banks resembles riba
non sharing instruments i permissibility priority two different aspects i money can be rented like other assets

i pls modes have preference but debt creating modes also permissible banks can use any modes keeping in view the risk profile of the investors and nature of business and cash flow of entrepreneurs
reality i profit margin that islamic banks charge in their trade operations is permissible if trading principles given by islam are properly taken care of

i they used to say that it is all equal whether we increase the price in the beginning of the sale or we increase it at the time of maturity
it is this objection which has been referred to in the verse by saying they say that the sale is very similar to riba

types of riba i riba al fadl sale transactions i quality premium in exchange of low quality with better quality goods of same kind prohibited e
i riba al nasia riba al ouran involved in credit delay modern banking transactions falls under riba al nasia

gharar i excessive uncertainty regarding subject matter and the price i inadequacy and inaccuracy of information uncertainty lack of adequate value relevant information a transparency and disclosure
i any bargain in which the subject matter result of it is hidden settlement risk counterparty risk involved i only exception salam forward sale with prepayment

i qimar includes every form of gain or money acquisition of which depends purely on luck and chance
gambling i maysir game of chance getting something too easily or getting a profit without working for it

welfare economy framework i socio economic justice i distributive justice i ethics and value system i functioning of the market role of the state i right of ownership freedom of enterprise over seeing role of the state
i transparency and disclosures i competitive price mechanism i creating additional value and sharing gains i closer linkage between real economy finance i society happy both materially and spiritually

impact of contracts i bai definite transfer of ownership of goods against payment of price spot delayed and forward profit permissible i ijarah leasing transfer of usufruct of goods
any thing which cannot be used without consuming its corpus or whose corpus changes its form in the process of its use cannot be leased out like money edibles fuel etc

i time has value that can be discounted only through price not in the form of interest sometimes negative value as well

i differentiating trading loaning and leasing i ownership transfer in sale of assets loans and leasing i any thing which cannot be used without consuming its corpus cannot be leased out like money edibles fuel etc
i taking rent on leasing of asset permissible while rent on loan is prohibited

exchange rules i different for different contracts and types of wealth i goods durable assets shares representing pool of assets market based pricing i gold silver or any monetary units athman a rules of bai al sarf i usufruct and services leasing services i loans debts a repayment or assignment of the same amount
i well known injunction on exchange of six commodities gold silver wheat barley dates and salt

i when commodities of exchange are heterogeneous but the illah is same as in the case of gold for silver medium of exchange or wheat for rice edibility then excess deficiency is allowed but delay in exchange is not allowed
exchange rules nawawi i illah effective cause of prohibition unit of value and edibility i when underlying illah is different short fall excess and delay both are permissible e

i currency futures some scholars forbid them while others distinguish between the two cases i first where one currency is delivered on spot and the other is delayed forbidden
exchange of currencies contd i special rules for exchange of monetary values

banking a business i banking or benevolence i principle of islamic banking business sharing of profit and loss on post facto basis arising from i
deferred tradinga profit margin for the seller ii

sharing or non debt modes full risk category
qard al hasan interest free loan

the commodity should also be under physical or constructive possession of the seller
conditions for valid sale i general rule commodity should have come into existence

principles of credit sale i installments sale permissible even if the deferred price exceeds the spot price
i commercial papers are lawful types of authentication of a debt by putting it down in writing treated by shariah near to mandatory

rules in murabaha i basic concept sale on mutually agreed profit margin on the known cost of goods payment of sale price is deferred
i murabaha cannot be used as mode in case no commodity is purchased by the client

i asset price risk or commodity risk client might not take delivery i market risk i credit risk i reputational risk
i client as agent to the bank i better to have a third party as agent i roll over

rules in musawamah i a general kind of sale price bargained without any reference to the price paid or cost incurred
i musawamah can be used for big single deals

i parallel salam a bank can sell a commodity purchased through salam for even the same date of delivery or the quantity i as long as the two contracts are not made conditional on each other
salam and parallel contracts future sale i prepayment of price in full for goods to be delivered in future

purpose of salam i to meet the need of farmers who need money to grow their crops and to look after their family up to the time of harvest
i to finance someone who is in need to grow something or acquire something for further sale

in case of a number of commodities the amount and delivery period should be separately fixed
salam conditions i fungible a homogeneous goods i not where delivery has to be simultaneous e

salam conditions contda i the bank can sell the salam commodity through a parallel contract of salam for the same date of delivery
i bank can also obtain a unilateral a promise to purchase from a third party

istisna a order to manufacture i istisna a an agreement for order to manufacture culminating into a sale at an agreed price i the things to be manufactured must be known and specified to the extent of removing any ignorance or lack of knowledge of its kind type quality and quantity
i price be known in advance that can be readjusted only by mutual consent of the parties

salam istisna differentiated istisna salam i the subject on which i subject can be transaction of istisna anything agri is based is always a produce thing which needs to manufactured goods be manufactured
paid in advance i price has to be paid in full in advance

salam istisna differentiated istisna salam i time of delivery i time of delivery is an does not have to be essential part of the fixed can be sale delivered before the i the contract cannot settled time
be cancelled i the contract can be unilaterally

ijarah rules i subject matter i the corpus of the leased asset should exist till the expiry of lease period i the corpus of the leased asset should remain in the ownership of the lessor during the whole period of lease in case of shirkah pro rata ownership
i the lessor must accept responsibility of any defect in leased asset without negligence of the lessee which hinders the intended use of asset

variable floating return i time of execution of the contract i potential in sukuk issue
flexibility in ijarah i fixed vs

shirkah partnership commingling by two or more persons either their money or work or obligations to earn a profit or a yield or appreciation in value and to share the loss if any according to their proportionate ownership
musharakah mudarabah diminishing musharakah

i profit allocation in percentages of earning profit and not a sum of money or a percentage of the capital or investment
profit loss sharing i profit distribution as per agreed ratio i loss in proportion to the investment of each party

ptcs or musharakah based tfcs after agreed time period s diminishing musharakah one partner promises to buy the share of the other partner gradually until the title to the property is completely transferred to him
structures of musharakah permanent musharakah partners can sell as in case of shares of joint stock companies

i for conventional finance only one reference rate interest rate i islamic finance debt semi debt contracts and non debt equity contracts i therefore two reference scales are needed a c price mark up rent reference scale a c share ratio reference scale through the central bank mudaraba ratio or interbank mudaraba ratio
reference rates i reference rates needed for executing and pricing the contracts

challenges i parallel functioning of the two systems a the greatest challenge i creating awareness i catering to the education and training needs
i ultimate objective to establish banks that are shari ah compliant enjoy depositors confidence and are efficient and stable

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

contract price sale asset financing lease client purchase ijarah payment profit musharakah lessee amount commodity housing agreement contracts ownership project

DOCUMENT REFERENCES

Number of Pages

64

Published Date

2016-09-17 00:26:17

Full Document

Read the Full Document

Intriduction to Islamic Banking and finance By Muhammad Ayub

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

RELATED DOCUMENTS

DOCUMENT REFERENCES

Number of Pages

Published Date

Full Document

Navigation menu

Personal tools

Namespaces

Variants

Views

More

Search

Navigation

Tools

Categories