FIN546 Islamic Finance Precious Guide 2024 PDF

FIN 546 ISLAMIC FINANCE PRECIOUS GUIDE Dr. Nor Hazila binti Ismail Finance Department Faculty of Business Management Universiti Teknologi MARA, JOHOR A precious say to my students… Dear All, CONGRATULATIONS! You are now a...

FIN 546 ISLAMIC FINANCE PRECIOUS GUIDE Dr. Nor Hazila binti Ismail Finance Department Faculty of Business Management Universiti Teknologi MARA, JOHOR A precious say to my students… Dear All, CONGRATULATIONS! You are now at your second year in this Bachelor of Business Administration majoring in Finance program. After undergone few of finance courses along the semesters, I believed you’ve been equipped with a strong basic understanding about the investment and finance conventionally. Alhamdulillah, it is a very kind advantage for you as BBA (Finance) student having this golden opportunity to undergone another course under the cohort. Islamic Finance, FIN546 is another core course to be fulfilled by you. The objective of the course is to ensure the students familiarize themselves with the effective part of the Islamic Financial System consists of the fundamental concept of Shariah, Fiqh and Usul Fiqh. In addition students also being exposed to the role of Islamic Financial Institution as well as the transactions undertaken by the IFI based on muamalat contract. Therefore, this tutorial workbook is designed primarily to serve as a guide to what is going to be covered under FIN 546. The handouts printed act as a GUIDE only, therefore reading the text book as well as other references is mandatory for you to well understand the subjects. I enclosed also the tutorial questions to be answered and discussed by you with hope that you’ll able to apply the theory learned. The main source of the information provided in the manual is from the textbook of Islamic Financial System; Principles and Operations by ISRA. I would like to tell you that you have so much to learn and that you cannot and must not leave all your reading and exercises till the end of the semester because by then, you will have neither the time nor the ability to digest everything! So get yourself organised!!!!!!! If you follow the syllabus, do the exercises and assignments as required, take the tests and sit the exam; you should not have any problem in succeeding the subject. Wish you all the best! CHAPTER 1: Introduction to Islamic Finance FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE  The term “Islamic law” refers to fiqh and can be used SHARIAH FRAMEWORK FOR ISLAMIC as well to describe Shariah in the general meaning. 1.1 FINANCE: SHARIAH, FIQH & USUL FIQH Relationship between Fiqh & Usul Fiqh Islam & Component of Shariah  Usul fiqh is a methodology, rules & principles that Islam guide the jurist to derive legal rules from the original 1) Tauhid (Unification &Risk taking attitude) sources. 2) Akhlak (Moral standard) relationship -  Usul fiqh is a method of derivation of rules. 3) Syariah/Law (Applied Principle) doddont's > -  Whereas fiqh derives Islamic ruling by using those legal rules in the light of the Usul Fiqh methodology. rule Islam & Component of Shariah ex : students + academic  The duty of the Usuli the legal theorist is to provide rules, principle & methodology.  The duty of faqih (the jurist) is to derive the legal rules by using and implementing those rules and principles provided by the Usuli. Relationship between Fiqh & Usul Fiqh law of Gorigin aw producenter >to - do I don't -overall guide nice What is Shariah? begule tasik -airfmengal zungaiiv was a whole ke  literal meaning - path to watering place  technical meaning ❖ path to tread for guidance in this world ❖ commands, prohibitions, values Islam Topic focus -> prescribed by Allah for His slaves either ↓ figh through Quran or Sunnah  Shariah is a set of norms, values and laws that go to muamalat ↓ make up the Islamic way of life. (Ahmad,2003) activities economic activities certain services Banking financial to M law -certain govern as to the Relationship between Fiqh & Shari’ah - fatua Kebangsaan Majlis   The word shariah has a very wide meaning to fiqh gridedby law be Shariah consists from law, rules, regulations, commands, obligations, guidance, principles, idealogy, faith and behavior which govern the human being in every aspect of life.  The shariah includes all aspects of human life in this world.  The shariah is meant for 2 different worlds, happiness in this life and in hereafter.  Shariah the whole divine law and values as given by Allah, whereas the fiqh is the laws extracted by Muslim jurist from the sources of Islamic law.  Fiqh contains human involvement which is required as juristic interpretation. Chpt.1 | 1 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE TUTORIAL 1 SHARIAH, FIQH AND USUL FIQH QUESTION 1 What are the differences between Shariah and fiqh? QUESTION 2 Has the word fiqh been used in the Quran and Sunnah? QUESTION 3 Provide the basic concept of Usul Fiqh? QUESTION 4 Discuss any three (3) benefits of Usul Fiqh. QUESTION 5 Shariah principle is a crucial reference for IFI to ensure that the transactions are just, transparent and does not contain any prohibited elements in illegal activities that detrimental to society. Briefly explain the concept of shariah. (Exam Jan 2018) ACTIVITY  What are the different names of Islamic Jurisprudence? Discuss. Chpt.1 | 2 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE SHARIAH FRAMEWORK FOR ISLAMIC  The authorisation of Qiyas is based on the 1.2 FINANCE: SOURCES OF ISLAMIC LAW following as a. -Surah an Nisa’ 4:59 dig Sources of Islamic Law b. -Surah al Hasyr 59:2 undergone  Example of Qiyas is the hukm of producing, talcoholic 1) Primary Sources 2) Secondary Sources a Remudian & marketing, selling and consuming ‘tuak’ is wine Sulva Rear > - unlawful (haram) based on the hukm on khamr , & ulama para because the prophet (S.A.W) “every intoxicant is khamr an every form of khamr is haram” agreement anonymous Secondary Sources protect have Shevelop t - to istihad evaccine covid- jadi wajib under this need eventho ketum zulum > 1) Maslahah Mursalah protect - dann abuse jatuhlan ↓  Unregulated public interest. : ex + banned RATE halt :  Considerations which secure a benefit or prevent EPRECIATION harm such as protection of life, religion, intellect and property  Example: Issuing currency, introducing X X 2) Istihsan documentation for marriage on ownership of property, imposing taxes on wealthy people > - if fever that's severe , need go home just ↓ To approve or to deem something preferable; to better just clinic , something if not , can - choose take whatever instead S f. good dose covid 3rd Primary Sources consider something is good.  To formulate a decision which set aside an 1) The Holy Qu’ran: established analogical reasoning for a reason  The last revealed book from Allah, free from any stronger than the one which is obtained precedent. tampering until the Hereafter (Qur’an; 15:9) Eg: waqf - T I T :g : [ · places different different rules & - & -  The authenticity of the Qur’an as a revelation is 3) Istishab presumed - be law to proven by Allah and it represent blueprint for the  Literally – companionship Islamic way of life  The facts, or rules of law and reason, whose 2) Sunnah existence or nonexistence had been proven in the  Authenticated of the saying and the actions done past are presumed remain so far lack of evidence and/or approved by the holy Prophet (PBUH) of sunnan to established any change. & ↳ silence  The importance of sticking to the Sunnah is also  Eg: Al Quran 6:145: everything is presumed to be mention in the Qur’an permissible unless prescribed otherwise 3) Ijma’a 4) Saad Al Dhara’i producing > - botol > - sell botol - if botol to another seller nat buat letal arak jual which isjadiharam- > botol haram sbb awale  consensus, unanimous and agreed upon opinion of  “blocking to the means to an evil” the Companions or of the Muslims scholars  Blocking the means to an expected end which is (Mujtahid) on any point of law not specified in the likely to materialise if such means is not blocked Quran and the Sunnah.  Sale of grapes is lawful but sale of grapes to a  The Hadith which says , “My community will wine maker is unlawful never agree upon an error” 5) “Urf Based shafile on baru bayar > - Mahan haramduld byr bar is : beli kena terus halal  The authorisation of Ijma’ is based on the jadi dah T custom -acceptable Malaysiain sbb ❖ The various customs and social habits of people followings: throughout the muslim world were accepted as a a. -Surah An Nisa’ 4:110 secondary sources of the islamic law as long as b. -Surah Al Baqarah 2:143 they did not contradict with the shariah. 4) Qiyas  Means ‘measuring by’ or ‘comparing with’ or perandi jenazal setan judging by comparisons’ – analogy Pengablian Chpt.1 | 3 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE TUTORIAL 2 SOURCES OF ISLAMIC LAW QUESTION 1 Differentiate primary and secondary sources of shariah law. QUESTION 2 What are the conditions for the applicability of ‘urf as a basis of Shariah law? QUESTION 3 Classified the Sunnah based on the number of reporters of the hadith. QUESTION 4 What are the five Islamic rulings known in Shariah? QUESTION 5 Identify the occurrence of ijma, as agreed by the majority of scholars. ACTIVITY  Mustafa Al Zarqa, defined legal maxim as the general fiqh principles. Identify the five (5) major legal maxims which are unanimously accepted by the scholars. Chpt.1 | 4 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE SHARIAH FRAMEWORK FOR ISLAMIC  Occurs in lending and borrowing: 1.3 FINANCE: RIBA, GHARAR & MAYSIR  The extra amount of money that is either imposed by the lender on the borrower in the contract; or promised The prohibited elements: by the borrower in the contract.  Riba qardh : imposed from the beginning 1) Gharar 2) Riba (interest)  Riba jahiliyah : there is no riba in the beginning; riba is 3) Maysir (gambling) only imposed after default failing to -denda pay for mana davi dapat xteu untung > Kalan Riba - Riba Buyu’ faedah Skim perbankan tanpa The concept of riba  Occurs in trading or transaction:  Which a ribawi item is exchanged for the same ribawi  Probably best known and greatest practical different item but unequal in amount OR the delivery of a from Western Finance commodity is postponed  Riba is the prohibition of interest on money to > - need to be equal value  Riba Fadhl : The ribawi items are exchanged in the  Underlying concept: money has no intrinsic value – it same time but unequal in weights, measurements, is only a measure of value quantity or numbers  Since money has no intrinsic value, there should be no  Riba Nasiah or Riba Yad : The ribawi items are charge (interest) for its use. a on - Xe U exchanged in the same weights, measurements, 10berbanjo only , person balik unless the quantity or numbers but not in the same time Is it just “playing with word” > - pinjum patut byr lebih- earthquake/tsunami last warning mintak add flow. earth > Allah memang - by on Al-Quran & Prohibition of Riba:  Conventional - Identical financial impact komen Ahmad Dasulei ? 1st Stage  To Muslims - Definitely not the same Kaabah- trading centre -> people go in dont to worship a  from hindu inindiato do berhal Comparison  Surah Al-Rum verse 39 I need capital idea ❖ Daughter A marries, has several children.  “ That which you give riba to increase people’s wealth ❖ Daughter B runs off “without benefit of increases not with God, but that which you give in clergy”, has several children. charity seeking the goodwill of God multiples ❖ The result is the same: grandkids and your manifold” daughter lives with a man. Dou you see a  Emphasized deprivation (removal) of God’s blessing different? for a man-making interest transaction, and charity  The purpose of Sharia’a is to assist in removing having the essence of manifold rise obstacles to a happier life and reducing discord.  The unacceptability of riba is not just because Al-Quran & Prohibition of Riba: money has no intrinsic value. Rather , it is intended 2nd Stage haram calap to avoid injustice and civil discord caused by one  Surah An-Nisa verse 161 Xallah party (the lender) becoming unfairly enriched at the  “That they (jews) took riba though they were forbidden expense of another party (the borrower) and that they devoured the properties of people Types of Riba wrongfully” duit  Severely condemned interest by referring prohibitions - 1) Riba Duyun (Riba in Debt) taken place in the previous kitab  Riba Al-Qard  Riba Al-Jahiliyyah Al-Quran & Prohibition of Riba: -barang 3rd Stage 2) Riba Buyu’ (Riba in Trades / Sales) besi riba  Surah Al-Imran verse 130 ↓ jangan  Riba Al-Fadl  “ O ye who believes devour not usury doubled and  Riba An-Nasiah multiplied : but fear Allah that ye may prosper” naik titanic interest sys tem believers  Enjoined Muslims to keep away from Riba JP Morgan x against Karan is yg untu > for people oselydesign titanic - Riba Duyun - purp Al-Quran & Prohibition of Riba: without 4th Stage center Mekah famous - trading Chpt.1 | 5 - kill nation by killing history Abrahah jea lous - bring gajah tentera Kabah want diminished to his place to bring  test suka tanya doubling payment of riba is prohibited , at expense. & why party prophet one's FIN 546 Islamic Finance for CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE verses plast  Surah Al-Baqarah verse 275-279  “While Allah has permitted trade and forbidden riba” (275) -clear prohibited riba is  “ O you who believe! Observe your duty to Allah, and give up what remaineth (due to you) from usury, if you are (in truth) believers. And if you do not, then be warned of war (against you) from Allah and His messenger. And if you repent, then you may have your principal (without interest). Wrong not, and ye shall not Riba versus interest be wronged”(Al –baqarah:278-279)  General position; interest is equivalent to riba. Sunnah & Prohibition of Riba  Basis of prohibition of interest (riba): From Ubadah bin Al-Samit (R.A), The Prophet S.A.W said: ❖ Justice and equity – due to process of doubling and redoubling the principal, riba is not a fair “Gold for gold, silver for silver, wheat for wheat, barley for business transaction barley, dates for dates, salt for salt, like for like, equal for ❖ It constitute wealth created at the expense of other equal, and hand to hand (spot),if the commodities differ, people’s wealth (zulm @ zalim) then you may sell as you wish, provided that the exchange is hand to hand or a spot transaction” on the spot equal in value Riba/interest versus profit of riba Extension of the 6 Ribawi Materials materials : ex : rice as grains etc Riba/Interest category extent Jumhur - food  Stable Premium paid by the borrower to the lender along with - They are subject to extension to all other commodities that are deemed to posses the same characteristics but illah principal amount as a condition for the loan (effective cause) for extension is subject to juristic views.  Pre-determined and there is no uncertainty on the part of either the givers or the takers of the loan Shafie’s  Cannot be negative, only low or zero Illah for gold and silver is because they are currency involved  Haram effort (thamaniyyah), and for wheat, barley, dates and salt as they from doing there something - is are foodstuffs that are used to sustain the body whether as -earned Profit (Gained from trade) principal nourishment, spices, fruits or medicine. Extension of the Ribawi Materials  The difference between the value of production and the cost of production  Medium of Exchange  Post-determined and its amount not known until the ❖ Gold in any form activity is done ❖ Silver in any form  Can be negative ❖ Currency (the currency of each country is  Halal provided that the business activity is halal considered as one kind  Food stuffs Scenario ❖ Grains: Rice, Wheat, Corn Conventional Finance : Bank gives you money. You buy the ❖ Meat : Beef, Mutton, Chicken. house. You pay interest on the money. ❖ Vegetables: Tomatoes, Beans ❖ Fruits: Apples, Oranges Islamic Finance ❖ Salt: Salt, Sugar, Condiments  A murabaha arrangement. The bank buys the house and sells it to you on deferred payment schedule.  A musharakah arrangement. You and the bank buy the house together in partnership. You make payments that Rules of Exchange for Ribawi items are partly rent and partly buyout of the bank. material - Non ribawi in involved -does not has al Chpt.1 | 6 is exchange  FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE Rationale of Risk Sharing in Islamic Businesses and  Examples: Institutions should be transparent ❖ Relating to buyer or seller: everything. islamic contract , beli - kena ugut  To foster equitable distribution of risk, profits and also ▪ Buyer or seller is not capable of taking losses responsibility not of majority age, or drunk  So the capital provider i.e. Islamic bank does not only ▪ Buyer or seller is prohibited from disposing consider the creditworthiness of the customer but also of his property ▪ such as declared bankrupt, or declared the financial viability of the project prodigal/wasteful  To enhance transparency hence promoting mutual trust ▪ Buyer or seller is forced and fairness in dealings among business partners, ❖ Relating to asset: institutions and customers info ▪ Asset or property does not exist hidden Gharar > - apa tapi nak jual ▪ Asset or property is not free from legal Xtal jenis liability or Ex : phone -> > Literally: Deceit, fraud, uncertainty, danger, peril, or hazard ▪ Asset or property is not specific or not that might lead to destruction or loss According to its specifications. Technically: Uncertainty and/or ignorance of one/both ❖ Relating to price: parties in a contract: ▪ Price not mentioned in absolute amount, ▪ Two prices in one contract, or 1) over the substance or attributes of the object of sale, or 2) doubt over its existence and availability at the time of ❖ Relating to contract: contract  Some of venues where gharar may occur: ▪ Conditional contract ❖ Type, shape, quantity, weight and sum ▪ Contract is not expressed in an absolute ❖ Due to delivery time and decisive language ❖ Due to price value & payment method ❖ Due to ambiguity in ownership and the capacity of Risk versus Gharar asset owner  Type of Gharar 1) Gharar Fahish (Major / Excessive Gharar) 2) Gharar Yasir (Minor Gharar) Gharar Yasir –minor gharar  Contracts involve minor gharar are permissible and valid  Examples: ❖ Purchase of fruits without peeling the skin to see Maysir the inside Tak tgk cantil tak is i be. ❖ Charging a fixed rate per night for a hotel room as  Maysir or Gambling, Speculation, and Wager is an different guest use the different amount of services activity which involves betting whereby the winner will major uncertain expensive ↑ during holiday rate take the entire bet and the loser will lose his bet Gharar Fahish –major/excessive gharar  Any party involves in gambling might gain at the X void unacceptable - contract can be. expenses of the loss of the other party  Uncertainty is so great that it becomes unacceptable and  Maysir is also taking a risk or deliberately created or invalidate the contract reward. invited which is not necessary in economic activity. Kalay mak claim tapi x dpt pape pun : Kena byr gores menang  Can be in the form of gharar when something has the - probability either to be in existence or non-existence Chpt.1 | 7 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE TUTORIAL 3: RIBA, GHARAR & MAYSIR QUESTION 1 Based on the following identify whether the transaction contains riba elements or not. If your answer contains riba, state the type of riba involved. a) 10 kg of dates in exchange for 1 gram of gold and payment made on the spot. b) 1 tonne of palm oil in exchange for 2 tonnes of sugar and payment will be made in 2 weeks’ time. c) Lend RM250 to a friend and he will return RM280 after one week. d) Exchange 5 kg A1 rice with 7 kg Basmathi rice and the delivery is made in the 2 days. e) Borrow USD100 within a month, failure to pay on time will result to a payment of USD115. (Exam July 2017) QUESTION 2 Riba which means not only usury, but all forms of unearned income, has been strictly prohibited in Islam. Discuss the rationale and wisdom for the prohibition of riba in Islam. (Exam Dec 2016) QUESTION 3 Conventional insurance is considered haram for Muslims. Explain your answer in terms of gharar, maysir and riba. (Exam Dec 2016) QUESTION 4 “Every increase, which is without ‘iwad or equal counter value is riba”. (Ibn ‘Arabi). Discuss the elements of ‘iwad. (Exam Jan 2018, Q1ii) ACTIVITY  Trading in the share market is profitable but not encouraging. As an Islamic finance scholar, what say u? Chpt.1 | 8  of > Sulam 12 part Chapter - Chapter contract FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE SHARIAH FRAMEWORK FOR ISLAMIC Al-Ghazali’s Framework 1.4 FINANCE: OBJECTIVE OF IF & MAQASID SHARIAH Objectives of Islamic finance  Objectives of an Islamic Finance are the objectives of an Islamic economy.  The objectives are to achieve Maqasid Shariah (objectives of Shariah)  Primary objectives of Shari’ah are protection and preservation of ❖ Religion (Deen) ❖ Self (Human life) ❖ Mind & Intellect (Aql) ❖ Progeny / Descendants and Honour ❖ Wealth / Property Maqasid Shari’ah  Daruriyat are elements without which the system of the Ummah will run into chaos  It is the objectives of al-Shari’ah  Hajiyat are elements that facilitate comfortable living  It aims to achieve the Maslahah of ‘Ibad in this world standard and in the Hereafter  Tahsiniyat relate to moral and ethical standards  It is classified into general objectives and specific objectives Objectives of Shariah in Financial Transaction  Maslahah must be genuine  Continuity of the circulation of Wealth.  The opposite of Maslahah is Mafsadah  Continuity of the Investment of Wealth.  The general objectives are to promote Maslahah and  Achieving Comprehensive Communal Prosperity. prevent Mafsadah  Financial Transparency.  In case of conflict between two Maslahah, priority is  Validation of Financial Ownership. given to the higher Maslahah  In case of conflict between two Mafsadah, priority is Continuity of the Circulation of Wealth given to the least Mafsadah  Avoiding concentration of wealth in a few hands. The Evolution of Maqasid Shari’ah  By giving zakah, the generous donation, and spending for the sake of Allah.  The concept of al-Maqasid originated from the birth of  By refraining from hoarding and monopolizing wealth. Islam  Over time, it evolved as a universal concept responding Continuity of the Investment of Wealth to al-Shafi’i Usul al-Fiqh  Al-Juwayni used al-Maslahah to develop a theoretical  In order for a society to become prosperous, the wealth framework of al-Maqasid must be invested and should be made available in many  Al-Ghazali refined al-Juwayni’s model hands, for its investment and increment.  Many scholars have benefited from al-Ghazali’s framework Achieving Comprehensive Communal Prosperity  Instead of acting as a lender, Islamic bank can become a partner to individuals who would like to venture in activities that bring prosperity to ummah/community. Chpt.1 | 9 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE Financial Transparency  To rid Islamic finance from misuse and squander, and to prevent disputes, arguments and grudges among the community in financial matters.  To ensure qualities and transparencies are upheld in making such agreements, contracts and in any transactions, particularly in pricing. Validation of Financial Ownership  To ensure authentication of the right of lawful financial ownership in any transactions  This to avoid illegal ways in acquiring property.  As mentioned by Prophet (SAW): “Do Not Sell what you do not possess” Chpt.1 | 10 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE TUTORIAL 4: MAQASID SHARIAH QUESTION 1 Explain the principle of Maqasid Al Shariah and relate any one principle to the establishment of Islamic Banking System. (Exam June 2016) QUESTION 2 Discuss the concept of maqasid al shariah according to Ghazali. QUESTION 3 What are the main categories of the essentials? QUESTION 4 What is the meaning of tahsiniyyat as mentioned by Ibn Ashur? ACTIVITY  Umum Balwa is unfavorable widespread situation affecting people and is difficult to avoid. Identify the purpose and Shariah justification of Umum Balwa Chpt.1 | 11 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE SHARIAH FRAMEWORK FOR ISLAMIC 1.5 FINANCE: PRINCIPLE OF ISLAMIC Distribution Decision (For whom?) ECONOMICS  A central question is factor compensation and concern Principles of Islamic Economics with socioeconomic justice  I.e. distribution of income, to compensate two workers  Islamic economics is a discipline that seeks to examine unequally if they put equal effort for the same job the behaviour of man in the marketplace, his likes and  i.e distribution of price, to charge customer with dislikes and how these tendencies have impacted his different price for the same good way of conducting economic activities.  Islamic economic emerged to satisfy a new Needs in relation to the Mind, the productive human resource.  Two general assumptions about the universe and mankind are: Shariah/law D > - ↓ life conduct Tankid we ❖ Assumption about the universe- limited resources Akidah way ❖ Assumption about the man- unlimited wants limited resources unlimited wants in a Shariah ↓ mumalat ↓ ↓ cost Finance opportunity Islamic Islamic Economy we should act within limitation as a muslim but some don't agree necessity had is first al-qurand Production Decision (What to produce) > - should based on - produce ah ? ① Davur y ,  The authority to make decision of production is ② government, market or combination of both. ③  The Law of scarcity states economic resources should compete for the production of pressing necessities, needs and embellishments.  From the maqasid solution, prioritise the process of resource allocation whereby production of necessities comes first to satisfy minimal standards, then production of needs to remove hardship and extend convenience and finally production of embelishments to improve the quality of life. Management Decision (How to produce)  Issues relating to production organization, factor participation, financing and technology.  The production organization is about how factors come under single firm to engage in production. The factors include labour, capital, land and entrepreneur Chpt.1 | 12 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE Similarities with Conventional Finance PRINCIPLE OF ISLAMIC FINANCE 1.6  Products (Deposits, Financing etc)  Services (ATMs, Cheques etc) Definition and scope of Islamic finance  Business objectives (Profit maximization, Customer Satisfaction)  Islamic Finance is a provision of financial services on a basis that is compliant with the principles and rules of Differences with Conventional Finance Islamic commercial jurisprudence (fiqh al mu’amalat)  At the core of Islamic finance are the religious precepts (commandment) governing what is good and permitted, or halal, and what is harmful and forbidden, or haram. The aim of Islamic investing is to ensure that one’s earnings are halal (Delorenzo, 2002, p. 12)  According to Ibnu Abu Yusof, Ibnu Taimiyyah and Ibnu Khaldun: “The creation, developing and delivery of unique customer satisfying competitive products and services at a profit to organization and customer in the lights of Islamic values and principles.” with islamic ways. everything should be in line Although these financial services are designed for Muslims, they are not exclusively available to islamic finance differ Ridrae what makes may sit Muslims. Non-muslims can also provide and buy Irish -> islamis banking > Rodney Wilson - the services. for general purpose Why Islamic Finance? make something on conventional cannot keep on relying muslim  Need to comply with Shariah figh  Relationship between man and lord, Man and Man should be more than ijtihad  Deals with production, consumption and distribution last warning by. Allah earthquack- activities of man according to Islamic worldview  “approach to, and process of, interpreting and solving man’s economic problems based on the values, norms, laws and institutions found in, and derived from the sources of Islam” Principles & Elements of Islamic Finance Prohibition of Riba or predetermined rate of interest Prevention of gharar (ambiguity) in contracts Prohibition of gambling (maysir) Prohibition of conducting economic or investment activities which are ethically and socially unacceptable although profitable Prohibition of monopoly Introduction of religious levy or alms-giving (zakat) Co-operation for the benefit of society and development of all religiously legitimized (halal) aspects of business trade and investment Chpt.1 | 13 FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE TUTORIAL 5: ISLAMIC FINANCE AND THE DEVELOPMENT QUESTION 1 Differentiate between Islamic and conventional finance (Exam Dec 2017) QUESTION 2 Explain any three (3) differences if Islamic Banking and conventional banking products. (Exam June 2016) QUESTION 3 There are several challenges in powering Shariah in Islamic Finance. Discuss QUESTION 4 Discuss some prospects which can be serves as catalyst for the development of Islamic Finance in future. ACTIVITY  It is important to ensure an adequate supply of a talent pool of experts and high caliber professionals to drive and support the long term growth and development of IFI. Do you agree or disagree? Why? Chpt.1 | 14  ? edrogol FIN 546 Islamic Finance CHAPTER 1: INTRODUCTION TO ISLAMIC FINANCE  1.7 HISTORICAL BACKGROUND OF Western banks and non-western conventional bank ISLAMIC FINANCE started to offer Islamic products either via ‘islamic window’ or Islamic subsidiaries such as Hong Kong and Shanghai Banking corporation (HSBC), Citibank (established Citi Islamic Investment Bank-Bahrain in Pre-1950s 1986), Union bank of Switzerland (established Noriba Establishment of interest-free loans in 1890s in India by Bank), American Express Bank Ltd, American Bank, a minority community of Muslims in Southern India ANZ Grindlays, BNP-Paribas, Chase-Manhattan, (similar to welfare association collecting donations and Naitonal Commercial Bank of Saudi Arabia, United providing interest-free loans to the poor) Bank of Kuwait and Riyadh Bank. A formal opposition to the institutions of interest can be stock found as early as 1903 when the payment of interest of 1990s islamic - post office saving funds was declared contrary to  A self-regulatory agency, Accounting and Auditing Islamic values and therefore illegal by Shari’ah scholars Organization for Islamic Financial Institutions Kuala lumpur index in Egypt. (AAOIF) is established (responsible for accounting and ↑ composite Shariah standards). & KLCI Dowjones Establishment of ‘Anjuman Imdad-e-Bahmi Qardh Bila Malaysia F Bursa FBM ↓ Sud (Interest free Credit Society) in 1923 in Hyderabad,  Islamic Insurance (takaful) is introduced. FISE market us India.  Islamic Equity Funds are established London system < follow  Dow Jones Islamic Index & FTSE Index of Shariah- Kendadd i to 1970s compatible stocks is developed to track the for  Establishment of Nasir Social Bank in Egypt (1971) performance of Islamic equity funds. Futsy ? being the 1st state sponsorship of interest-free benchmark composite index + for stock institution. 2000s-recent I  1st Islamic commercial bank, Dubai Islamic Bank  Islamic Financial services Board (IFSB) was stock good determine (DIB) Of UAE opens in 1975. established to deal with the regulatory and supervisory, not etc - Op and corporate government issues of the Islamic Efluctuation  Islamic Development Bank (IDB) was established in 1975 with the objective of promoting economic regulatory issues of the regulatory issues relating to indicate condition stock development in Muslim countries as well as offering Islamic financial services industry. of islamic development finance according to the rules of Shariah  Sukuk (Islamic bond) are launched. market (Islamic Law).  Several institutions are established to create and support conventional ↓ index , etc  Accumulation of oil revenues and petro-dollars a robust financial system i.e. international Islamic composite increase demand for Shariah compliant products. Financial Market (IIFM)  The concept of Murabahah was developed as the core islamic culture diminished mechanism for the placement of Islamic Bank’s funds. Alkattab > - bapa moden turbeges Khamar  1st International Conference on Islamic Economics was scholar held in Makkah, Saudi Arabia in 1976. used to be a place filled with islamic  Establishment of the 1st specialized research Syria ↓ etc head of country diminished institutions, ‘Centre for Research in Islamic Economics try ke lebanon ? at King Abdul Aziz University of Jeddah, Saudi Arabia Kaya lari untuk misi ngo. helmi in 1978. Join heliza follow islam 1980s more islamic product that truly  Establishment of the ‘Islamic Research and Training Find way how to create conventional Intstitute (IRTI)’ by IDB in 1981 way without replicating  Islamization of economies in Islam Republics of Iran, Pakistan and Sudan where banking systems are Equity CM[ Dev3 king operation converted to interest-free banking systems (intention ↑ central Bank Imm IFM of converting overall financial system to interest-free ↓ banking systems). IFSB  Countries like Bahrain and Malaysia promote Islamic banking parallel to the line conventional banking regulations system. - standard letter