The Pros And Cons Of Islamic Finance

Main competitive pitch of Islamic banking is in Sharia compliant and interest free. But the real business of Islamic banking is producing profit.

and what the appropriate loan amount is for the asset that is being purchased with the

A private agent from COMPANYXXXX in LOCATIONXXXX will spend numerous hours gathering confirmation and data that will settle a case or for the customer to use in court in COUNTYXXXX.

Actually, this financing office is taking into account the exercises of purchasing and offering. Utilizing this agreement, the Islamic bank may back the client who wishes to get a given resource however to concede the installment of the advantage for a particular period or to pay by portion. The advantage that the client wish to buy for instance, are purchased by the bank and sold to client at a concurred cost. A concurred cost will incorporate the bank's imprint up benefit. When the bank and client focus the residency, the way of the portions will then be closed. The client is moreover permitted to settle installment inside a preagreed period in a knot whole. The cost at which the bank offers the property will incorporate the genuine expense of the advantage and will likewise join the bank's net revenue. There is no hobby charged and the additional value repays the bank for its benefit. Portions stay settled over the time of the contract and no conformity is made if interest rates

Awaqf, the Arabic Pronunciation of the word endowment, has become a vital element of the economic sector of Sharia law as well as the Amana bank. “This asset, be it in real estate, inheritance, or savings in benefits, is something that will help someone in society,” which is one of the basic principle of Amana bank. This is a vital sector of the industry that the bank is especially wonder, careful with when it comes to its dealings with their

The world of Islamic Finance is still young and it was begins only a few decades ago. Although it is new, the Islamic Finance is rapidly develop and continues to expand to serve a growing population of Muslim. Many have been able to accept the Islamic financial system and even admiration of Islamic finance is increasing due to the uniqueness found in the Islamic financial system. The definition of Islamic finance is the system in finance that operates it activities based on Islamic law (which is called Sharia) and is therefore Sharia compliant. All Islamic financial activities is free from interest (riba) and it is based on profit sharing activities.

Apart from that, Islamic Banking contributes towards the economic development and prosperity within the principles of Islamic justice. The mechanism of Profit-Sharing establishes a direct relationship between the benefit of the bank and the entrepreneurs. Islamic Banking aims to facilitate efficient allocation of resources. This means, in the case of Islamic banking profitability of projects works as deciding factor as to where the financial resources will go and to what extent. The basic mechanism of Islamic banking system is such that financial resources are allocated based on the profit. It means financial resources are allocated to projects which are considered more

E. Personal Finance (Service Ijarah) This is based on the Sharia’h Principle of Ijarah. Here the bank makes agreements with certain Service-Providers and leases the services required by the customers from the Providers and sub-leases to the customers based on Ijarah.

Sharing of profit among the partners was to be done according to the agreed ratio and vice versa in terms of any losses.

The first states that paying interest is prohibited, thus Islamic banks have to use contracts that create exposure to the real sector and must ensure efficient risk management (citation needed). The second principle revolves around the profit and loss sharing concept, where any financial transaction must share both risk and reward so excessive losses and profits are minimized. The third principle prohibits uncertainty and/or speculation. Uncertainty in contractual terms and conditions is forbidden, however, risk taking is allowed only when all terms and conditions are clearly outlined to all participating parties. The last principle requires the use of asset-backing, where each financial transaction must relate to tangible and/or identifiable underlying assets that ensure Islamic banks remain connected to the real economy. A better understanding of Islamic finance is called for in all respects.

The Islamic alternative to conventional leasing is ijarah. Ijarah is an Arabic term with origins in Islamic fiqh, meaning to give something on rental basis or wages. Ijarah also call as ajr or ujrah. Ajjarahu or aajarahu means wager for job that have been done. This word for a job that will give profit, of the job cause loss its cannot use that term. Meanwhile ajr use for reward in hereafter but ujrah use for reward in life. Under the Islamic juristprudence, state in Mughni al-Muhtaj : ijarah is a contract for a specific service (manfaah) that can be pay and halal with the certain good. Ijarah contract was allowed proven by dalil syara’ base on holy quran :

Omani financial regulatory bodies have finalised the amended regulatory framework for Islamic banking in the Sultanate. Alongside the GCC-based Islamic finance favourites, the reformed Islamic financial jurisdictions of MENA are entering into the limelight. Other regional developments in non-GCC countries in MENA include the Iraqi government, which has approved the establishment of the country’s first state-owned Islamic bank, the Two Rivers Islamic Bank, with an initial capital of USD21.5 million. Iraq and Libya are in the midst of designing Islamic banking legislation. Tunisia’s Islamic finance industry is expected to grow further with the efforts undertaken by that country’s government. Meanwhile, the Government of Yemen is structuring a Sukūk programme for 2014.

This study is undertaken to understand the concept and features of Islamic banking and conventional banking, the similarity and differences between the two systems and their economic implications. Generally, a financial institution or a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets is given the name of bank. its source of generating revenue and cost of funds is charging of interest through lending and also accepting deposits for interest respectively. Interest is the major driver of operations of conventional banks although other valuable services including guarantees, funds transfers, safety of wealth, facilitation in international trade etc., also form a substantial part of income of banks.

DEFINITION OF MUDHARABAH A Mudharabah transaction is derived from a partnership based on risk and profit sharing. This partnership is a collaboration between an investor (Rabbul Mal) and an entrepreneur (Mudharib) under which the former provides funds to the latter for the purpose of investment and profit sharing. This is how it works in practice - you, the investor will deposit an amount of money with the bank, which acts as the entrepreneur. This investment is utilised as business capital by the bank. In this contract we have no authority to interfere in the management of our investment. On the other hand, the bank will have the right to manage our investments as it thinks fit by placing it into businesses that are permissible in

Berdirinya Islamic Development Bank (IDB) pada tahun 1975 di Jeddah telah memotivasi banyak negara Islam untuk mendirikan lembaga keuangan syariah. Pada awal periode 1980-an bank-bank syariah bermunculan di Mesir, Sudan, Pakistan, Iran, Malaysia, Bangladesh, serta Turki. Secara garis besar lembaga tersebut dapat dibagi dua kategori: bank Islam komersial, dan lembaga investasi dalam bentuk international holding companies.