Transcript
Prohibition of Riba in Islamic FinanceA case study on the PTPTN Education Loan
Name : Punithemalar HariaratnamMatrick No. : GP01285Date : 29 July 2012 (Sunday)Lecturers : Prof Madya Dr Jasri Jamal / Dr Ruzian Markom
UK6063 Teori dan Amalan Kewangan Islam
Introduction to Islamic Finance
Prohibition of Riba in Islamic FinanceA case study on the PTPTN Education Loan
Shariah
• Literally translated means THE WAY
• And is the Islamic law that governs religious rituals and day to day life in Islam
• Derived from the Quran and the Sunnah
Shariah compliant
• neither pay interest, nor benefit from gambling
• The key difference between Islamic and conventional banking is the prohibition of riba (usury)
Prohibition of Riba in Islamic FinanceA case study on the PTPTN Education Loan
Definition of Riba
Riba means usury
(interest obtained by charging money from the lending of money)
Universally condemmned
Prohibition of Riba in Islamic FinanceA case study on the PTPTN Education Loan
Riba is prohibited by Islamic Law
Riba is forbidden in Islamic economic jurisprudence and considered as a major sin
Two types of riba are discussed by Islamic jurists:
• an increase in capital without services provided and risk taking
• commodity exchanges in unequal quantities, also prohibited in the Qur'an
In Surah Al-baqarah verse 2: 275, it is quoted that
Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: "Trade is like usury but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord desist shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are companions of the fire: they will abide therein (for ever)
In Surah Al-baqarah verse 2: 275, it is quoted that
To comply with this fundamental principle, Islamic finance has developed practices based on custom and fairness that do not involve the paying and charging of interest
Initially these were restricted to
profit sharing
(musharakah and mudarabah)
Followed by
Equity sharing, and asset trading techniques
(murabahah, bai salam, and ijarah-based finance)
The PTPTN Education Loan
Set up with the aim of providing education loans to students pursuing their studies in local institutions of higher learning (IPT)
Finance students’ tertiary education
Conversition of PTPTN to Ujrah
The Existing PTPTN Study Loan was devised as a way for economically underprivileged families to finance their childrens’ tertiary education
Repayment:
• Automatic deduction from salary• Direct Debit• Lump sum settlement• 3% interest
Mechanism for the conversion (2010) of the existing 3% interest loan to the 1% Ujrah
Definition of Ujrah
Ujrah –
rental or fees for usage of labour and benefits
• Based on fixed fee (fixed interest rate)• Implemented worldwide by the Islamic
financial system
The payment are based on fixed interest rate which differs from other financial system
The Ujrah is based on avoiding riba and at the same time, prevents the lessee from running away from their debt
Characteristics of Ujrah
The contract must state:• The loan amount• The ujrah to be received• The period of payment and etc• Give clear description• must also be sane and able to enter into a
contract (aqil)• must be able to an adult (baligh)
Is PTPTN Ujrah Interest Free
Al Quard Al Hasan is an interest free loan and is the sole type of loan acceptable in Islamic finance• Purpose could be charity• Help or advance for a certain time period• Repayment by the borrower is obligatory • Guaranties such as mortgage or any other
collateral security are allowed.
Is it worth converting?
1% Ujrah conversion reduce the existing
3% interest
Total Ujrah for the Term of 10 Years= Outstanding amount as of Jan 2008 X 1%
X Term of Loan in Years= RM20,000 X 1% X 10 Years= RM2,000
In the existing 3% interest reducing balance, administrative cost is charged on loans as specified in the signed agreement
An annual rate of 3% will be imposed for the repayment period, with a reducing balance
• If the lessee plans to settle the loan earlier than the period specified, there will be a rebate amount, which may end up being less than the 1% Ujrah
Is PTPTN Ujrah Really Islamic
Dr Asyraf Wajdi Dusuki,
Says IT IS NOT
WHY NOT
a study loan scheme must be free of elements prohibited by the Shariah, especially in the context of usury
The service charge must reflect the actual cost and cannot be based on a percentage of the loan
Any profit made by a borrower can be categorised as usury
Conclusion
If you were keeping with your repayments, changing to the new 1% Ujrah loan seems like a good idea with attractive savings.
The example attached saved a total of RM1,999.99 in interest
• Debt payable is fixed and paid• Converting PTPTN from 3% interest to the
1% Ujrah fixed interest should be implemented
• Easier to calculate, and it is based on the Syariah principles.
• Will also encourage the students to pay on time and not run away from debts
Calling it interest has created much conflict
PTPTN should just have a yearly fixed service charge
Those who choose to settle the loan earlier than the due date, should pay less on service charges
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