Introduction
Over the past three decades, Islamic finance has grown rapidly into a multi-million dollar global industry estimated to have assets in excess of $250bn worldwide and expected to experience double digit growth in the coming decades insha Allah. The welfare of the community is very important in Islam, and we are encouraged to work hard and grow our wealth in halal ways. The fundamental benefits of Islamic finance lies in the fact that we make our wealth in a way that is pleasing to Allaah and at the same time help the economy grow by creating real assets.
lslamic Finance is the provision of financial services on a basis that is compliant with the principles and rules of Islamic commercial jurisprudence (fiqh al muamalat), a branch of Islamic Shariah jurisprudence. The fundamental objectives of an Islamic Economic system include:
1. A broad-based economic well being with full employment and optimum rate of economic growth.
2. Socio-economic justice and equitable distribution of income and wealth.
3. Stability in the value of money to enable the medium of exchange to be a reliable unit of account, a just standard of deferred payments, and a stable store of value.
4. Mobilization and investment of savings for economic development in an equitable manner such that a just return is ensured to all parties concerned.
5. Effective rendering of all services normally expected from the financial system.
Basic Principles of Islamic Finance
These parameters define the nature and scope of Islamic finance, as interpreted by the Shariah scholars that specialize in Islamic commercial jurisprudence. "Riba - The most distinctive element of Islamic finance is the prohibition of interest, whether "nominal" or "excessive", simple or compound, fixed or floating. Simply, riba is interest. "Any amount, big or small, over the principal, in a contract of loan or debt is "riba". It is prohibited by the Quran, regardless of whether the loan is taken for the purpose of consumption or for some production activity." Allaah says: "Allaah has permitted trade and forbidden usury. "(Q2[Baqarah]:275) Also, He says: "You who believe, heed Allah and write off anything that remains outstanding from lending at interest if you are [true1 believers. If you do not do so, then be prepared to face war declared by Allah and His messenger! If you repent, you may retain your principal. Do not wrong [others] and you will not be wronged. " (Q2 [Baqarah]:278-279)
Profit devoid of risk of loss cannot be assured and there can be no guarantee of a fixed return. "To be entitled to a return, a provider of finance must either undertake business risk or provide some other service such as supplying an asset. It is important to note that money is merely a means of exchange and cannot be treated as a commodity (i.e traded). "Taking security is permitted to guard against negligence, willful wrongdoing or breach of contract by partners. "Trade and enterprise, which can generate real wealth for the benefit of the community as a whole, is encouraged between partners sharing profits and losses. Gharat; refers to uncertainty that is not permitted in business dealings. Full disclosure or the removal of uncertainty or ambiguity as to subject matter, terms or conditions is essential in Islamic finance.
It is not the business outcome of a transaction that needs to be certain, it is the basis upon which the transaction is put together. For this reason, every Islamic finance transaction is captured in an agreement that details all the terms. Maysir involves gambling or speculation which is forbidden as playing games of chance with the intention of making an easy or unearned profit is haram. " Hoarding of wealth in such quantities as is harmful to the community is, strictly prohibited in Islam.
Any diminution in the essential supply of capital through hoarding is likely to damage the economic growth of the country and consequently the welfare of the people. Conclusion The rules guiding the Islamic economic system are practical and therefore easy to imbibe. Islamic finance brings about the fulfillment of its objectives which is basically to promote justice and fairness in all economic transactions.
This article was culled from the publications of Deen Communication Limited