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Islamic finance - PowerPoint Presentation Example

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Islamic finance

Instead Islam asks for an equitable distribution of wealth so that all members of society can prosper together. Concentration of wealth in a few hands is not desirable. Islam strikes a balance between conventional socialism and capitalism. One allows only for private ownership, while the other negates it outright. It is the Islamic way that has sought a path between the two extremes for the betterment of man. Unlike conventional systems, Islam recognizes only 3 factors of production which include capital, land and labor. The returns generated from the combination of these three are distributed accordingly. Capital gains return in the form of profits, land in the form of rent and labor in the form of wages. Islamic Contracts Islamic contracts govern the business conventions on how trade transactions must be entered into. First of all, the trade must be permissible in the light of Shariah. It cannot contain any element of Riba’, Gharar, Mysur, Haram etc. Secondly, there are many conditions which must be fulfilled in order for a contract to be rendered valid. They include: A condition which is not against the contract is a valid condition A condition which seems to be against the contract, but is normal market practice, is no void unless proved in the light of Shariah. A condition which seems to be against the contract and not market practice but favors any one participant is void. A condition which is against the contract, not market practice, and doesn’t favor anyone is a void condition. Sales in Islamic Finance The concept of sales in Islam is the exchange of a thing of value with another thing of value. However, it is very strict on the core principles of sales. In the contract, there must be offer and acceptance for the contract to be executed. Furthermore, the individuals must be sane and of proper age to enter into agreements such as this one. The commodity/asset under consideration must exist. It must also have some intrinsic value to as to cater to the sale. Furthermore, it should be capable of showing ownership. For example, no one can point to the moon and claim that they own it. It exists, and must have some value. But since it cannot be owned, it cannot be transacted. Furthermore, the asset must be deliverable to the buyer, the quantity and quality must be aforementioned. The price of the trade must be addressed at the start so as to avoid any misunderstandings between the parties. Lastly, either physical or constructive possession of the asset must be taken in order to render the sale complete. Modes of Islamic Finance The modes of Islamic Finance, while seemingly like their conventional counterparts, are free from all the Haram (unlawful) ways which have been prohibited in Islam. Following are the types of Islamic Financing: 1. Musharakah In a Musharakah agreement, two parties come together to form an alliance for commercial enterprise and share the profits according to a set ratio. This is decided at the time of entering into the alliance. However, if a loss occurs then the parties distribute that according to the rate of participation of initial investment from each individual. There are two explicit types of Musharakah. In the first type, the partnership arises out of a joint ownership of an asset. For example, two brothers inherit their father’s sugarcane factory. Hence they become partners through the joint ownership which exists. The second kind is via contracts. In this case, the two individuals enter into an ...Show more

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Islamic Finance Introduction Islam is a blessing to man from Allah, and it is the complete way of life. That also includes how we conduct our financial dealings. The Islamic economic system revolves around core principles which structure and develops a robust business cycle…
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