Analysis of Islamic Financial Instruments in Terms of Microf

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in the name of allah (god), the compassionate, the merciful " there is no deity except allah and muhammad is the messenger of allah o my sustainer! open up my heart (sadr) ( to thy light). and make my task easy for me. and remove the impediment from my speech. so that people may understand what i say / so that they might fully understand my speech. (sura taha -20: 25-28) analysis of islamic financial instruments in terms of microfinance development for poverty alleviation zohra jabeen institute of management sciences, peshawar islamic microfinance conference, islamabad july 22,2009 this paper how islamic financing instruments can be used

a plot of land for growing crops/orchards – rental rate based on the going market rates in that particular area for that rental service utilized for helping the poor to do their own work for generating their own income, running their own small venture, and paying the ijara'h rent accruing out of their cash flows a helping hand of sustenance ijara'h in microfinance if lessees generating enough funds, over and above their operating costs, they can be encouraged to opt for ownership of the underlying asset, through payment of the installments this gradual transfer of ownership diminishing musharika or 'gradually reduced ownership' of the initial owner ijara'h's utility

however, the very generic contracts can be utilized mostly in the same original form in the area of poverty alleviation through microfinance or can be combined /developed for microfinance. ijara'h to give something on rent mode of renting out usage of an asset in agriculture – in sub continent traditionally different kinds

the islamic principles call for leniency towards the downtrodden and economically distressed- pro-poor – it follows a risk-based reward system and asset- based system of economic transactions, which ties monetary growth to real economic growth. brief introduction islamic finance

renting out service can be for a very small period of time, say a day or two and it can also be for longer periods of time say one year or many years, depending upon the nature and utility of the asset under consideration

need for more awareness creation about them in their actual generic form rather than even the modified forms in some cases. islamic financial instruments- the practice observed while analyzing some of the products of islamic banking and islamic capital markets they have undergone certain additions and amendments

if the poor are provided the facility of using an asset which they can't purchase ( at least initially) by using the ijara'h mechanism – providing agricultural machinery on rent – shop's/premises' usage on rent ijara'h's utility in microfinance

and if the market price of the crops has escalated very much at the time of crops' harvesting and sale, out of goodwill, the farmers should be given a little extra too so that they won't feel cheated because of their poverty and the subsequent advance payment

this is what the islamic financing techniques embody, in one form or the other. these can be fruitfully applied for poverty alleviation at the grassroots level as well as for economic development at all levels of the society

it detests mere ownership of money as the reason for earning a reward in the shape of interest. this it terms as the root cause of injustice and extortions in the society brief introduction islamic instruments or methods of economic transactions

denying the due share to resources and access to opportunities can cause a major damage which no amount of microfinance can repair

is there anything seriously wrong with the distribution of rewards ( of factors of production and the definition of factors of production) in the conventional system? resource-sharing & providing long term sustenance

worldwide financial crisis, – lending and investment streams at international levels are also drying up or are already dried up.

in this regard, it is similar to conventional leasing (except difference of interest and risks ) nature of assets given on ijara'h basis

'compound' ijara'h- inclusive contracts designed to transfer ownership to the lessee over a period of time through installments ijara'h's utility in microfinance

by practicing the principles of islamic finance, the financial and real sectors are aligned. – artificial credit expansion and speculation does not take place

the mechanism was useful for giving a long term durable /usable commodity (or a horse , mule etc. for transportation) on rent

salam can be best undertaken between the actual user of the commodities and the farmers who grow the crops conclusion

aaoifi sharia' standards – main source of drawing the contract structures- brief introduction the current times growing poverty levels

modified islamic contracts suiting the specified market conditions and requirements- although sharia'h compliant islamic financial instruments- the practice

later gradually enhancing and improving their capacity – doable mechanism/s, yet devoid of interest ijara'h in microfinance

sharing of crops' yield, 50:50 or the monetary equivalent as rent

however, again exploitative pricing ( setting too low a price) must be avoided ,

provide them opportunity to produce more and good quality products when demanded

having an asset-backed ( and services based) requisite for profit-making economic transactions. brief introduction islamic finance

one wonders why poverty was rising amidst the economic growth till 2007?

that can be reused – like land, building, a vehicle ijara'h wa iqtinaa

primarily due to the money market and capital markets' prevailing trends,

highlighting their attributes – which can be effectively utilized for poverty alleviation in the context of microfinance

originally, ijara'h was not meant for transfer of ownership of the underlying asset

to solve the microfinancing needs of the neglected population this paper

should not perish after usage by the lessee,

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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

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36

Published Date

2016-09-17 00:25:06

Analysis of Islamic Financial Instruments in Terms of Microf

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