Concepts of Islamic Finance Essay

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Islamic finance is the system that practicing financial services according to the principles and rules of the Islamic commercial jurisprudence. It is a system that operates the services based on Islamic law which is called shari’ah which is based on Al-Quran and Sunnah. The objective of the Islamic finance is maximizing profit by minimizing loss but at the same time taking consideration on the welfare (maslahah). In Islamic finance, it is prohibited from any payment which is over and above the principle which is called interest. Interest is known as riba or usury which is refer as excess of money imposed from the principal amount. The sources of the shari’ah is come from primary and secondary sources. The primary sources is based on…show more content…
Their thoughts become the impetus for Muslims to apply Islamic teachings in all aspects of life. They are discuss the fact of legality of interest imposed in the transaction which is prohibited by Islamic law (Shariah). Although fatwas or opinions by Muslim jurists clearly stated the unlawfulness of interest dealing by conventional banks, there no effort and action was taken until the early of 20th century. The first experimental local Islamic bank was established in rural area of Pakistan in the late of 1950s which is charged no interest on lending transaction. Next in 1963, the revolution of the modern Islamic banking system has marked a milestone by the establishment of Mit Ghamr Local Saving Bank which is located in the Nile Delta, Egypt. It’s provided banking services such as deposits account, loan account, equity participation, direct investment and social services. In 1971, under the regime of Mr. Sadat, the interest-free concept was revived and new Islamic bank was established known as Naseer Social Bank which is carry out financial activities based on Shariah concept. It provided a many financial products and services include practicing interest-free concept by giving loans to poor people, for student scholarships on credit and loan credit to a small business and entrepreneurs based on the profit and loss sharing concept. In 1975, private Islamic bank was be set up by the Muslim businessman in Dubai which is known as Dubai
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