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- Introduction To Islamic Banking And Finance Principles And Practice
- Introduction to Islamic Banking and Finance: Principles and Practice
- Islamic banking and finance
Introduction To Islamic Banking And Finance Principles And Practice
Posted by Jibril S Dec 13, economics 0. This chapter is about the motives for Muslims to advocate the use of financial instruments that obey specific Islamic requirements.
The movement for an Islamic economy, and an Islamic financial system in particular, is rooted in the experience of Muslims in what they, or at least some of them, felt in the past was an unfriendly non-Muslim environment. A new impetus was given with the rise in oil wealth in a number of Muslim countries after the —74 oil crisis and the success of Malaysia as a fast grower, both of which may have contributed to a formerly unknown level of self-confidence that made it possible for Muslim governments and firms to develop new financial instruments in close cooperation with Western firms, without the feelings of resentment that underlay the first attempts to Islamize the economy.
The history of the movement for Islamic finance, and Islamic economics in general, is sketched and the chapter ends with highlighting the diversity of views among Muslims on this matter. Islamic finance is a way to put Islamic principles about the economy into practice. There is a deep-rooted idea among large parts of the Muslim intelligentsia, in particular in the Middle East, that the forces of the globalizing world, in their view characterized by materialism and sex, are incompatible with the values cherished by Muslims Najjar Thus, Islamic economics can also be seen as an attempt to prevent Muslims from assimilating in this globalizing world dominated by Western culture Kuran , , ch.
The idea of Islamic economics was introduced around the time of the Partition of India by a number of people, first of all maulana or. It should not come as a surprise that pre-Partition India and later Pakistan provided a fertile environment for developing ideas on an Islamic economy, as Pakistan was founded expressly to be a homeland for Muslims. Maududi is the main figure behind the movement to organize society along orthodox, fundamentalist lines Slomp , p.
One important motivation for developing specific Islamic views on the economy was the conviction that Islam was seen as backward by the dominant European civilization, which had little time for the tenets of Islam in the economic sphere. From the nineteenth century on, Islam was not taken seriously and was regarded as rather benighted and incompatible with modern scientific views, people such as Maududi, Qutb and al-Sadr felt; and not without some justification see the Introductions by Syed Sulaiman Nadvi and Manazir Ahsan Gilani to Qureshi ; Kuran , pp.
Maududi, as editor of a journal he founded in , wrote about its objective:. The plan of action I had in mind was that I should first break the hold which Western culture and ideas had come to acquire over the Muslim intelligentsia, and to instill in them the fact that Islam has a code of life of its own, its own culture, its own political and economic systems and a philosophy and an educa- tional system which are all superior to anything that Western civilization could offer.
I wanted to rid them of the wrong notion that they needed to borrow from others in the matter of culture and civilization. Quoted from Slomp , p. They said farewell to the defensive attitude and went on the offensive, in their discussion on economics in particular impugning existing interest theories and justifications of interest extensively in Qureshi , ch. Mahmud Ahmad even states that intellectual bankruptcy is the hallmark of every theory of interest Mahmud Ahmad , p.
Communism could not find favour with Maududi, as, in his words, Islam does not approve of any political or economic organization that seeks to submerge the individual in the society, and stultify the flowering of his per- sonality Maududi , p. Nationalization of all means of production would lead to social regimentation, read: dictatorship Maududi , pp.
Fascism and national-socialism are as bad as communism in this respect Maududi , pp. On the other hand, Islam, according to Maududi, also abhors laissez faire, because that would open the way for individuals to pursuit their own ends at the cost of society as a whole. Capitalism is associated, in his view, with the French revolution, which propagated individual liberty, liberalism, capitalism and the system of secular democracy Maududi , p.
For French revolution we may probably read Enlightenment. Maududi was the most outspoken advocate of an Islamic economy. He was born in in Aurangabad, in the Muslim state of Hyderabad in the Deccan. His family belonged to the upper crust of Indian Muslims and claimed to descend from the relatives of the Prophet. Rather, he would bolster the Islamic community in order to prepare for life in an independent India dominated by Hindus often hostile to the Muslim minority Kuran , pp.
Nonetheless, after the Partition he moved to Lahore and propagated the view that the moral and ethical principles of Islam can only be put into practice if the state imposes them. This party, which is still active in Pakistan, is based on the idea that all present-day problems can be solved with the help of the Quran and the sunna from sunnat al-nabi or practices of the Prophet, see Chapter 2 , as delivered in the ahadith , or traditions.
Maududi distinguished himself by combining a strictly literal interpreta- tion of the Quran with modern political terminology in order to show the relevance of the Quran and the sunna for twentieth-century society. Remember that the first three are not acknowledged by Shiites, as they were no relatives of Muhammad.
It was all fine and well to have a Muslim state, or a state for Muslims, but that was still far removed from an Islamic state. The Muslim population should freely choose a leader, but with the choice restricted to people, or rather males, with an impeccable sunna-respecting track record.
He only differed from traditionalist ulama , or religious scholars, in that he still left a small place for the modernization of Islamic law, as traditional Islamic law does not have the answer to each and every problem confronting present- day Muslims. His views did not go down too well with the modernists in the Pakistani government and the army, nor were these enamoured of the well-organized Jamaat-e-Islami machinery that spread his message.
Maududi was several times imprisoned and in he was even sentenced to death by a court martial, but under public pressure the sentence was commuted to two years imprisonment. He died in in New York, where he had gone for heart surgery.
In the same year his follower Kurshid Ahmad became a cabinet minister —80 under President Muhammad Zia ul-Haq —88 , who declared Pakistan an Islamic state and began to enforce sharia law see on Maududi Adams ; Aziz Ahmad ; Otto ; Slomp Maududi held strong views on the way society should be run. He advo- cated strict gender separation and was strongly in favour of the death sentence for apostates, even if prominent Muslim scholars argue that in the early times of Islam the death sentence was only issued for soldiers that converted to Judaism or Christianity, in order to evade military service Slomp He was very strict as regards expenditure on leisure and even culture.
This rejection of culture sounds not too different from the views of some of the more puritan currents within Protestantism, and, like there, cannot be seen as representative of the views of the whole community of believers.
The ideas about what an Islamic economy should look like took some time to develop. For the founding fathers in British India and later Pakistan it was a process of trial and error; they did not start out with a detailed blueprint. Also harsh realities impeded a fast adoption of the principles of Islamic economics. Anwar Iqbal Qureshi notes that he, as Economic Advisor to the Government of Pakistan after Partition, actively tried to introduce interest-free banking, but did not pull it off because of practical difficulties Qureshi , p.
An important step in the process was that President Muhammad Zia ul-Haq, who had seized power in , in February decided that interest-based transactions were to be phased out. Banks were ordered to offer interest-free alternatives to conventional savings accounts and to completely switch to interest-free banking within five years.
Zia started in the same year by making three financial institu- tions interest free. Even if some specialized credit institutions were quick to shift to interest-free financial products, in the commercial banking field the process proved time-consuming and the government itself did not refrain from fixed-interest borrowing activities. The struggle has been dragging on since. The Sharia Bench had ordered the government to eliminate interest from the economy by 30 July An appeal by Pakistani banks for the court to review its earlier decision was backed by the government, which claimed that the initial ruling was flawed and that modern banking did not conflict with Islamic principles.
The government also argued that interest-free banking would create financial anarchy in the country. The Supreme Court on 24 June , a few weeks before its earlier deadline, duly reviewed the earlier judgement and remanded the case back to the Federal Sharia Court for a fresh decision Supreme Court of Pakistan , pp.
Maulana Maududi can be credited with launching the idea of an Islamic economy. In his approach, it is associated with an ideology where the state sees to it that Islamic rules are strictly observed. This idea of an Islamic economy not only proved attractive to Pakistanis, but also to non-Pakistanis in search of an Islamic answer or alternative to capitalism and communism. It was embraced by the Muslim Brotherhood in Egypt, which, like Maududi, advocated Islamic forms of finance as part and parcel of a rather aggressive drive to Islamize society at large.
Members of the Muslim Brotherhood also played a prominent role in the establishment in of the first Islamic bank in Sudan, Faisal Islamic Bank rival groups set up their own Islamic banks, see Coutsoukis Indeed, political Islam , the ideology that seeks the establishment of an Islamic state based on the sharia, is commonly seen as having been born with the establish- ment of the Muslim Brotherhood in Muslims that turn unbelievers are guilty of apostasy and deserve the death penalty.
Sunnites are not allowed to rise against a Muslim ruler, but declaring him an unbeliever frees the way for insurgents. Through takfir, attempts on the life of Muslim rulers that stand in the way of the establishment of a fully Islamized society can be justified Best et al.
The Muslim Brotherhood and similar movements attacked, after their countries had gained independence, the ruling classes in their own societies, who they felt were guilty of social injustice and oppression. A return to what they preached to be the true Islamic way of life was seen as necessary to end these evils Hoebink As a reaction, some argue, the ruling classes embraced the cause of Islamic finance in order to legitimize their rule and evade takfir Barenberg — Timur Kuran , pp.
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Introduction to Islamic Banking and Finance: Principles and Practice
Posted by Jibril S Dec 13, economics 0. This chapter is about the motives for Muslims to advocate the use of financial instruments that obey specific Islamic requirements. The movement for an Islamic economy, and an Islamic financial system in particular, is rooted in the experience of Muslims in what they, or at least some of them, felt in the past was an unfriendly non-Muslim environment. A new impetus was given with the rise in oil wealth in a number of Muslim countries after the —74 oil crisis and the success of Malaysia as a fast grower, both of which may have contributed to a formerly unknown level of self-confidence that made it possible for Muslim governments and firms to develop new financial instruments in close cooperation with Western firms, without the feelings of resentment that underlay the first attempts to Islamize the economy. The history of the movement for Islamic finance, and Islamic economics in general, is sketched and the chapter ends with highlighting the diversity of views among Muslims on this matter. Islamic finance is a way to put Islamic principles about the economy into practice. There is a deep-rooted idea among large parts of the Muslim intelligentsia, in particular in the Middle East, that the forces of the globalizing world, in their view characterized by materialism and sex, are incompatible with the values cherished by Muslims Najjar
Introduction to Islamic Banking and Finance: Principles and Practice. Rasem Kayed. al-aqidan contracting parties al-ma'qud alaih subject matter of contract.
Islamic banking and finance
The Qur'an prohibits riba , which literally means "increase". Technically riba is the increase when liquid or fungible assets cash, debt, grains, etc. In the late 20th century, as part of the revival of Islamic identity,  [Note 1] a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community. The industry has been lauded for returning to the path of "divine guidance" in rejecting the "political and economic dominance" of the West,  and noted as the "most visible mark" of Islamic revivalism,  its most enthusiastic advocates promise "no inflation, no unemployment, no exploitation and no poverty" once it is fully implemented. Although Islamic finance contains many prohibitions—such as on consumption of alcohol, gambling, uncertainty, etc.
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Banking or banking activity that complies with sharia Islamic law —known as Islamic banking and finance , or shariah  -compliant finance  —has its own products, services and contracts that differ from conventional banking. Some of these include Mudharabah profit sharing , Wadiah safekeeping , Musharakah joint venture , Murabahah cost plus finance , Ijar leasing , Hawala an international fund transfer system , Takaful Islamic insurance , and Sukuk Islamic bonds. Sharia prohibits riba , or usury , defined as interest paid on all loans of money although some Muslims dispute whether there is a consensus that interest is equivalent to riba. To be consistent with the principles of Islamic law Shariah and guided by Islamic economics, the contemporary movement of Islamic banking and finance prohibits a variety of activities:. Money earned from the most common type of Islamic financing—debt-based contracts—"must" come "from a tangible asset that one owns and thus has the right to sell—and in financial transactions it demands that risk be shared.
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