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Research & WrittenYOUSUF IBNUL HASAN Program Consultant
Islamic Banking & Applied FinanceDesign by SAIRA ALI Student
MBA Program 2010-2014IQRA UNIVERSITY
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Islamic Economics is a system that defines the available
resources blessed by Almighty Allah to the mankind. How these
resources are utilized and distributed by man keeping in it, the
social justice and seeking best of these in participation and
cooperation by applying, knowledge, experience, ability and efforts
through the power of pen and book, granted by Almighty Allah,
recognizing and in confirmation the status of men as Unique among
all creations and appointing as Custodian to all the resources,
that Almighty Allah owns it alone and absolute.
WHAT IS ISLAMIC ECONOMICS?WHAT ARE THE PRINCIPLES ON WHICH
ISLAMIC ECONOMY, ITS MONETARY AND FINANCIAL SYSTEMS FUNCTION?
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20TH CENTURY ECONOMISTS DEFINE ISLAMIC
ECONOMICSHasan-uz-ZamanIslamic economics is the knowledge and
application ofinjunctions and rules of the Shari'ah that prevent
injustice inthe acquisition and disposal of material resources in
order to provide satisfaction to human beings and enable them to
perform their obligations to Allah and the society. M. Akram
KhanIslamic economics aims at the study of human recovery achieved
by organizing the resources of earth on the basis of cooperation
and participation.
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Dr. Nejatullah SiddiqiRole of Shariah define belief in justice
and freedom, cooperation and sharing which are the fundamentals to
Islamic economic philosophy within the total Islamic system. Key to
Islamic economics philosophy lies in man's relationship with Allah,
his universe and his people. The other human beings are the nature
and purpose of man's life on earth.
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DEFINITION OF ISLAMIC ECONOMICSAny activity that has a
commercial, economical and financial purpose with the priority of
social benefit to mankind is classified as Islamic Economics The
system that has the foundation on this classification leads to
socio- economic development and not just the economic
development.
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CONCEPT OF ECONOMICSEstablished on the day AdamAdam was
senseless to his needs & desires upon his creation. He
disobeyed Allah Almighty on the temptation of IBLEES (devil).Adams
act of disobedience created principles of economics that revolve
aroundTheory of Need, Want and Desire that lead toAct, Acquire and
AcceptProphet Adam (May Peace Be Upon Him) was sent to earth to
develop mankind with a system of life that give birth to Natural
Economics.
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BASE OF ISLAMIC ECONOMICSResources are unlimited and efforts are
limited.Needs and wants does not effect on the supply or
resources.Availability of resources depend on efforts that increase
affordability which is the force for satisfying needs. Nations
using their efforts in achieving knowledge and apply it in seeking
rights are leaders of economic growth. Nation merges economics
growth with socio development are the genuine Communities and such
states are For the People, By the People, & Of the PeopleThis
Socio Economics Development converts Peoples into Nations.
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ISLAMIC ECONOMICS IS AN INDEPENDENT SYSTEMIt enjoys a separate
identity.It is a self-contained system with its own economic
policy,It covers interests at Private and Public as well as
Material or Spiritual.It has given a complete system of lifestyle,
Earning, Expenditure, Businesses, and Relationship with Legal
Framework.It emphasizes for all bases on Social Justice, Equality,
Unity, love, Cooperation, Sharing, Transparencies in all affairs
and respect.
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Islamic Economics System guardsRights of minorities and
non-Muslims in the Islamic state.Rights of Women and Orphans.
Rights of employees.Rights of Lenders and Borrowers.Rights of
everyone without Race-Religion-Language-Color or Sect.Islamic
Economics system is based on four principles All wealth belongs to
Almighty AllahMan is the trustee of the wealthHoarding of wealth is
prohibitedWealth must be in circulation at all time
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ISLAMIC ECONOMICS SYSTEM GUIDANCE Guides in maintaining of
wealth in a proper form of distribution and define incentives for
work and efforts.Shows opposition & defends against misuse of
exploitation in getting hold of wealth through unfair means.Denies
clearly "free" Market of Capitalism, which has led to the situation
of survival of a part of the society.Emphasizes public revenue from
natural resources should be use to secure needs of community and
not to fill pockets of casino owners.Outlaw hoarding of wealth and
eliminate copyright or patent laws that open an avenues for
developing potential monopoly.*yousuf ibnul hasan
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ISLAMIC ECONOMIC SYSTEMProtects the society and secures the
needs of the people.Mandates vital and natural resources as public
property while allowing for unlimited access to luxury
items.Protects society by defining certain needs as a prohibited
needs.Disregards corrupt man-made systems and protects honor,
rights of woman, minor and orphans.Bans all forms of prostitution,
pornography or any activities that exploit charms and physical
attractiveness of women.Prohibits alcohol, gambling, spiral of
corruption, social turmoil and moral devastation
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BASIC PRINCIPLES OF ISLAMIC ECONOMICS
Principle of adaptable ownershipPrinciple of economic freedom
within a defined limitPrinciple of social justice.
FIRST PRINCIPLEThree types of ownerships are permitted ;The
individual ownership.The state ownership.The public ownership.
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SECOND PRINCIPLEEconomic Freedom within a Defined Limit Islamic
law prohibits all such social and economic activities that differ
to the teachings of Islam and its principles and values. It guides
State to protect and safeguard public interest through the control
on individual freedom in the illegal and non-permitted actions they
involve due to which the economic activity of the community and
society suffer.*yousuf ibnul hasan
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THIRD PRINCIPLE:Social Justice in Islamic Economics To
give-and-take responsibilityTo keep social balanceProhibits growth
in differences
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IT GIVE SOCIAL BALANCE i.e. few live in extra luxury and rest
were deprived of basic necessities of life and forced to live a
life of misery, hunger, without shelter, illness and as neglected
class of the society.
DIFFERENCE
Tawhid (monotheism) Definite acceptance of Almighty Allahs
relationship with man and mans believes in supremacy of Almighty
Allah with clear vision on Day of Judgment. The accomplishment of
man depends on the belief and obeying the teachings of Islam and
bringing healthy and peaceful community by synchronizing between
morality and the material characteristic of life.
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ETHICS
The contribution of Zakat and elimination of Riba develop
stability, peace, harmony and social economics development.It gives
the real value of Money as money to be respected instead to be
loved. It defines the state responsibilities for income
distribution and take this responsibility as the basic principles
towards the social justice
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MAN & MONEY IN ISLAMIC ECONOMICS
Money matters in human life play a vital role Matters pertaining
to money must be fair, transparent & useful for developing
socio-economic life of community.It does not impose limits on
amount of wealth that an individual can acquire.
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WHAT ISLAMIC ECONOMIC BELIEVEIslamic Economics is specifically
believe distribution as an economic problem.It differ application
to capitalist & communist systems for production.It
differentiates between Basic Needs & Luxuries.It does not
accept concept of effective scarcity of resources.It does not
accept concept of inflation
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MAN, MONEY & COMMODITYThree factors of production give birth
to the exchange system and practice in the fulfillment of needs.The
two exchange system are classified as Lending and Borrowing
Financing and ParticipationLending is base on principle amount in
transaction by pricing it with the time value without the concept
of utilization of money and its impact on economic
activity.Financing is made available on the basis of Mans ability
to use the money and to multiply, divide, subtract and add the
amount realize through the exercise of money.
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DIFFERENCE OF FINANCING & LENDINGFinancing is Equity and not
LiabilityLending is liability and not participation.Loan is secure
financing is support.Financing is an investment and loan is
facility.Loan cannot be financing until it is agreed on Profit and
loss sharing Financing cannot be a loan till return is
guaranteed.Loan is given at a price of money on application of
RateFinancing outcome to be profit, shared in an agreed Ratio.Loan
has to be secured by external factor of collateralFinancing cannot
be made until the user is able to use it Lending is given against
the confirmation of guarantee.*yousuf ibnul hasan
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LENDING AND FINANCING DIFFERENCELending leads to inflation and
liquidationFinancing ends at ownershipFinancing increase the
capital base as well as net-worth Lending increase liability, cost
and decrease the net worth LENDING money given for unstated purpose
against the security without going through pros & cones of
activity for which money is spent on and return is fixed either in
cash or in term liquidation of mortgaged movable or non movable
property/properties.FINANCING is joining in the profitable
operation, like equity participation, venture finance, acquiring
business operation with proper appraisal of purpose, verification,
validation of data submitted by the two partners in which financier
becomes direct or indirect partner in that venture with
un-guaranteed profit and loss in returns.*yousuf ibnul hasan
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DEFINITION OF FINANCINGFinance is the intermediary source in
shape of money having a value to act in production, trading and
exchange of commodities, services and assets. Financing is the
source that makes the money service for specific purpose within
specific period, in between person to person, person to institution
or institution with group or institution on an understanding to
share the result in profit and loss.Financing is the source that
develops ownership, support entrepreneurship and line-up
procurement, production, distribution, utilization through
participation and cooperation between skill and capital on the
basis of profit and loss acceptability upon the maturity.*yousuf
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(CONT)Financing is the use of money by one who owns it and the
other who has the ability to use it for a common purpose to make
profit by participation and cooperation.
Financing is the act of money without the concept of liability,
collateral or the guarantee. Its origin is investment and its end
is ownership.
Financing is an act of money which is classified as the opposite
to lending.
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HISTORICAL BACKGROUNDFinancial matters in Post Islamic era were
commonly practiced on the basis of social priorities & Prophet
(PBUH) too was involved in commercial & financial activities
considering social obligations in financial mattersIt is
authenticated by archives of the Islamic world that with the
introduction of financing and discarding lending the most powerful
community development on the basis of social development in first
Islamic state under the guidance of Prophet Muhammad ( May Peace Be
Upon Him) in the rule of four Caliph.Interest based system was
dominating 98% monetary markets, controlling the market with its
powerful grip and titled as Conventional Monetary System *yousuf
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(CONT)Now reduce to almost 75% and it is gaining the momentum on
daily basis.Financial system derived from Quran, Sunnah and Hadiath
has a well defined title that signifies motive and concept of the
system as Socio-Financial System.Islamic Finance was practice for
the most part in the Muslim world throughout the middle ages.In
Spain, the Mediterranean and Baltic states, Islamic merchants
became vital intermediaries for trading activities.European
financiers and businesspersons later adopted many concepts,
techniques, and instruments of Islamic finance.
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(CONT)Term "Islamic finance is relatively new for commercial
money market in a sense as it appearing only in the early 1960s
through a movement that started from Egypt when the fist Social
Bank was establish to bring the change in the money activities and
unite money with ability with propose and period.
Commercial or business activities confirming to Islamic
principles are made under the umbrella of either "interest-free" or
"Islamic Banking which Islamic financial system simply as
"interest-free" does not provide a true picture of the system as a
whole. Prohibition of receiving and paying interest may be the base
of this system, not all.
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(CONT)
It works on Islamic set guidelines consisting of Risk Sharing,
Individual Rights & Duties, Property Rights, Purity of
Contracts, Commitments, Transparencies, Fair Deals and Employment
Growth.
Not limited to banking only but covers capital formation,
capital markets, and all types of financial settlement.
Conventional financial system deals primarily with the economic
lending and borrowing aspects of transactions.
It is established on absolute prohibition of payment or receipt
of predetermined and guaranteed return rate.*yousuf ibnul hasan
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(CONT)
The system encourages risk sharing, promotes entrepreneurship,
discourages speculative behavior, and emphasizes the sanctity of
contracts
Basic framework for Islamic financial system is enforcement of
the rules for handling of economic, social, political, and cultural
characteristic of Islamic societies
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BASIC PRINCIPLES OF ISLAMIC FINANCE Prohibition of RibaAny
unjustifiable increase of capital through the use of the capital
whether in financing, lending or sales is central belief of the
system.Any positive, fixed, predetermined rate tied to maturity and
amount of principal etc. i.e. guaranteed regardless of performance
of the investment is prohibited Risk sharingInterest is prohibited
and owner of funds become investors instead of creditors. The
provider of capital and entrepreneur shares business risks and
shares profits and loss according to the ratio of investment and
participation by way of their Capital or Skill.
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(CONT)Money as "potential" capitalMoney is treated as
"potential" capitalIt becomes actual capital only when it joins
hands with other resources to undertake a productive activity.Islam
recognizes the time value of money, only when it acts as capital,
not when it is "potential" capitalMoney cannot be treated as
Capital if it is not in circulation.Prohibition of speculative An
Islamic financial system discourages exhibition of wealth and
prohibits transactions featuring extreme uncertainties, gambling,
and risks
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(CONT)Transparency of contractsIslam upholds contractual
obligations and disclosure of information as a sacred duty. This
feature is intended to reduce risk of information and moral
hazards.Shariah Approved ActivitiesOnly those business activities
that do not violate the rules of Shariah qualify for investment.
For example, any investment in businesses dealing with alcohol,
gambling, and casinos would be prohibited
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(CONT)Salient features of this orderIslam clearly characterizes
difference between lawful and forbidden economic activities and
permits the Muslims to make all efforts for their right in seeking
their economic benefits.Islam prohibits financial, economical,
social and legal actions, which are morally, financially and
socially damaging to the community life.
It implies Careful investment policy, diversification of risk
and careful management by Islamic financial institutions.*yousuf
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HOW FINANCE IS APPRAISE Financing appraisal is base on straight
line method, applying 12-P Formula12-P Formula in pre-financing
activities Person who is financing to whom?Purpose for which
financing is work out?Project for which financing is
required?Period for which finances to stay as financing?Product
that develop through financing? Process to be use for
financing?Price is the volume of finance require? Place locations
where finance shall be utilize?
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(CONT)Participation, relationship and responsibilities of
financier and user? Pact terms and condition of financing between
parties of financing? Professionalism ability, experience,
knowledge and expertise in purpose?Perfect ness in
Performances?Profitability by the application of twelve P formulas
which is the RISK base perimeters
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RIBA- PROFIT & INTERESTIntroduction & Differences*yousuf
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Prime Importance for mankindAlmighty Allah prohibited any object
or any act that is harmful to humankind that creates instability,
bring injustice, become injurious to human life and considered as
unconstructive to Socio Economic System.
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Riba is an Arabic word drive from word RIBH which means
Profit.
Any earning, income, profit or benefits being earned, taken or
received through wrong means, bad intentions, shady practices or
wicked participation. Such earning, income, profit or benefits are
classified as RIBA.
Such earning, income, profit or benefits are not only treated as
immoral, unjust and filthy but furthermore threat to socio economic
life of society.
*yousuf ibnul hasanRIBA.
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People who indulge in Riba shall be raised like those who have
been Driven to madness by the touch of Devil. That is because they
say that Riba-based transaction is just like trading, while Allah
has permitted trade and prohibited Riba. Hence those who have
received the warning from Allah and have stop accordingly, may have
what has already passed, their case being entrust to Allah but
those who revert to Riba-based dealings, shall be the inhabitants
of the hell-fire and abide therein for ever. (You must know that)
Allah deprives Riba from all blessings and blesses charity; He
loves not any ungrateful sinners.*yousuf ibnul hasan
HOLY QURAN AL-BAQARAH 2:275-6
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AL-BAQARAH 2:278-79O you believers! Fear Allah and give up Riba
that remains outstanding if you are true believers. Watch out! If
you do not obey this directive, then Allah declares war against you
from Himself and from His Prophet. But, if you give up your
outstanding Riba, then you can claim your principals. Neither
should you cause harm with Riba to others, nor should others harm
you.
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Prophet Muhammad (May Peace Be Upon Him) Said At the last
Pilgrimage,All Riba of Jahilliya is null and void. In this respect,
the first Riba I (May Peace Be Upon Him) withdraw that the
borrowers owe to my uncle Abbas; it is cancelled completely.
(Muslim)
The Prophet (May Peace Be Upon Him) cursed all those who take
Riba, who give Riba, who write a Riba contract and the two
witnesses to a Riba contract. He (May Peace Be Upon Him) further
said: "They are all alike (in fault). (Muslim 2995)*yousuf ibnul
hasan
HADIATH REINFORCE CONCEPT OF QURANIC RIBA
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Riba is as a combination of evil and sins. Riba is bad practice
to earn & gain.Riba bring instability in the community
life.Riba is the source for the increase of inflation.Riba create
classes in the society.Riba create injustice in seeking the
rights.Riba is non transparent economic activity.Riba is the most
hated practice in IslamRiba is the social crime Riba is immoral,
unethical, unjustified commercial, economical, political, social,
cultural and traditional practices and activities to gain benefit
at individual, collective or institutional level , *yousuf ibnul
hasan
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INTERESTWhen money becomes a commodity and bought and sold with
guaranteed results of profitability or increase in volume of money
being used for the transaction, such increase is the price of the
money and this price of the money is classified as Interest which
is the part of Riba
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HOW TO DEFINE INTEREST
Any amount, earning or income that is taken over and above to
principal amount, without any risk, efforts, activity, without loss
sharing and the return is guaranteed within a specific time is
called interest. *yousuf ibnul hasan
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ABUL ALA MAUDUDI,
Interest is an earning through lending on money by lender from
borrower on condition that lender shall charge a fixed amount of
money in addition to the principal. Interest is prohibited in Islam
and people are not allowed to make money by lending their capital
on interest. Capital is to be invested in productive manner that
increases the profits.
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KEYNESA western economist defines "Interest has nothing to do
with influencing volume of savings. Practically it is rate of
return on investment that determines rate of saving
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GREEK SCHOLAR ARISTOTLEHe define Interest in his book Money
& politics.
Interest is an artificial profit, which does not enter in legal
trading. Using money as a commodity is selling, just a forged
artificial transaction. Money has to be used as a means of sale and
purchase and a measurement of a commodity to be sold or purchased.
Money is just a means to ascertain value of commodity and it cannot
be sold or purchased within similar quantities and qualities
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Prophet Moses(May PEACE BE UPON HIM)Torah 22nd versus of the
Exodus
If you lend money to any of my people with you who are poor, you
shall not be to him as an exact Riba from him.Deuteronomy verse
23rd You shall not lend upon Riba to your brother, Riba on money,
Riba on virtual, Riba on anything that is lent for Riba.Leviticus
25:35'If one of your countrymen becomes poor and is unable to
support himself among you, help him as you would an alien or a
temporary resident, so he can continue to live among you.*yousuf
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JUDAISMIn several Biblical passages in which the taking of
interest is either forbidden, discouraged or disliked.
The religion of peace and love define Interest as the key to
cruelty and hatred and give birth to cirme. *yousuf ibnul hasan
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Roman Catholic ChurchIn fourth century AD prohibited taking of
interest by Church Scholars.
In the eighth century under Charlemagne it was declared usury to
be a general criminal offence.
"The love of money is the root of all evil." (Timothy
6:10)*yousuf ibnul hasan
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Ancient Hindu Religion
Vasishtha, a well known Hindu law-maker made a special law which
forbade higher castes of Brahmans (priests) and Kshatriyas
(warriors) from being usurers or lending at interest. Vedic texts
of Ancient India (2000-1400BC)
In the Jatakas, (600-400 BC) Usury is referred to in a
humiliating manner: Two-Faced elite accused of practicing
Usury.
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Islam for Money MatterRiba does not justify money to be a medium
of exchange and develops the love of money in several ways that
disrupt the entire system of mankind. Islam stresses a respect of
money by disregard lending and borrowing and guide to financing on
participation by uniting money and skill as equal in effort and
utilization and value.Islam guides the point of origin and limit of
destination of monetary transaction. Islam defines duties and
responsibilities between money owner and money user.*yousuf ibnul
hasan
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Profit how it is Describe?Income on financing is determined not
on financing amount, but takes principal amount, cost of
transaction and applicable fee & charges as a part. Profit is
the aim of financing and loss is acceptance.Appraisal, Precaution,
Trust, Confidence, Experience, Knowledge, Purpose, Will and Sprit
are business ethics that result in realizing profit on the
transaction.*yousuf ibnul hasan
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Now the question arises If Interest is eliminated from monetary
system, would it be possible that system & transactions would
become transparent and clear? Answer is simple and straight: Filth
remains in its hard and powerful grip irrespective of other
factors. Interest alone cannot be eliminated without eliminating
categories that fall under term called Riba.*yousuf ibnul hasan
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The main classes of RIBAExploitation by taking advantage of
status and position,Irregular weight & measures for
profitability,Wrong declaration for higher return,Misconduct
(misbehavior),Crime & Law breaking,Mistrust,Commit a breach
False commitment,*yousuf ibnul hasan
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Manipulation of affairs for benefits at a cost and efforts of
other,Gambling in all form,Promising to secure the benefit by
covering honorable, nearest, dearest Falsehood and LiesBetting and
gamblingSpeculationTrading in commodities prohibited by Islam and
law of the land,Income from the practices or activities that are
prohibited by Islam,
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Breaking and abuse of state law for self benefit or for any
purpose that is declared as punishable act.Disobedience to the
state law by declaration and submission of wrong information for
self-benefits.Disturbing peace of community by using
force.Committing and involving in the illegal acts.Paying and
receiving Interest that is declare as price of money using act of
cruelty, exploitation, wrong means, false declaration, and
advantage based on weak or wrong calculation,Taking and giving
return on loans or fixing amount without appraising the use of
funds that are given to user.*yousuf ibnul hasan
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Keeping deposit with person or institution having involved in
Riba practices,
Using deposits as investments and declaring non-transparent
results that lead to discrimination of sharing in accordance with
investment percentage,
Holding and storing of currency that affects economic activities
negatively.Holding commodities that lead towards scarcity in the
supplies against market demand.
Monopoly and monopolization of activity, transaction and
business to taking sole benefit, stopping the growth of employment
and earnings
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Grabbing the wealth,Illegal encroachment on the property that is
not owned by encroacher. Like construction of pray area on the
property not lawfully purchase, legally gifted or transferred to
occupantUsing public money for luxuries & self-usage,Misuse of
rights belonging to minors, orphans, widows and
women,Misappropriations among share division on inherited
wealthMiscalculation of share for inherited wealth under law of
inheritance,Income by power and cruelty,Misuse of power and
status,
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Theft,Burglary,Smuggling,Adultery,Human trading,Pressurizing and
influencing of earning situation and taking benefits,Misuse of
public representation and obtaining benefit through status as
Public Representative,Trade and Sale of commodity by charging over
and above to the prevailing price and avoiding payment to state
toward revenue, hiding such earning and income on transactions.
(Premium on commodity for extra benefit),*yousuf ibnul hasan
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RIBA AL NASSIEAH Riba al Nassieah practiced before Islam as man
paying his money to another for a pre agreed period. In return, he
took from him a certain amount every month without taking the
principal amount. When date of payment came, he asked him for his
capital and if he was unable to repay would increase in his fund
and the term of repayment.
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RIBA AL FADL A man sells an article in exchange of another
article having same quality and nature with an increase or decrease
like gold sold for gold, rupee for a rupee, corn for corn and
barley for barley. This kind is considered as Riba, as commodities
are similar to each with different values not ascertain. Such
transaction has the involvement of exploitation and injustice on
any ones part of the two. *yousuf ibnul hasan
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GHARARGharar is uncertainty, hazard, chance or risk and
technically it is sale of a thing which is not present at hand or
the sale of a thing whose consequence or outcome is not known or a
sale involving risk or hazard in which one does not know whether it
will come to be or not. Such as fish in water or a bird in the air
which are dishonesty through ignorance by one or more parties to a
contract. There are several types of Gharar, all of which are
Haram. The following are some examples: *yousuf ibnul hasan
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Selling goods that the seller is unable to deliver Selling known
or unknown goods against an unknown price Selling goods without
proper description Selling goods without specifying the price
Making a contract conditional on an unknown event Selling goods on
the basis of false descriptionSelling goods without allowing buyer
to properly examine the goodsGambling is a form of Gharar because
the gambler is ignorant of the result of his gamble*yousuf ibnul
hasan
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ANY QUESTIONS??
THANK YOU
yousuf ibnul hasan
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