The Pros And Cons Of Islamic Finance

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These theoretical models perceived two tired mudarabah finance structure, in which the Islamic bank on one hand would receive deposits as agent (mudarib) of its customers; and on the other hand provide finance to enterprise as principal [sleeping partner] (rabb al-mal). In this early period (1930s to 1960s), developments in Islamic finance took place on the intellectual side only. The first practical realization of a bank-like Islamic financial institution, on a small scale, was that of Mit Ghimar in Egypt which started in 1963 and closed down in 1967. Another independent experiment of Islamic finance started in Malaysia in the form of Shari[ah (Ahmad, 2004) Islamic banks differs many sites from conventional banks Soon as Islamic banks rose after colony liberated around the second …show more content…

Profits made will be shared by the partners based on an agreed ratio which may not be in the same proportion as the amount of investment made by the partners. However, losses incurred will be shared based on the ratio of funds invested by each partner. Ijarah Thumma Bai’ (Hire purchase) Ijarah Thumma Bai’ is normally used in financing consumer goods especially motor vehicles. There are two separate contracts involved: Ijarah contract (leasing/renting) and Bai’ contract (purchase). The contracts are made one after the other as shown in the diagram on page 7. Wakalah (Agency) This is a contract whereby a person (principal) asks another party to act on his behalf (as his agent) for a specific task. The person who takes on the task is an agent who will be paid a fee for his services. A customer asks a bank to pay someone under certain terms. The bank is therefore the agent for carrying out the financial transaction and the bank will be paid a fee for its services. Qard (Interest-free loan) Under this arrangement, a loan is given for a fixed period on a goodwill basis and

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