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MUAMALAT
Md. Mokhter Ahmad, Associate Professor, IIUC-DC
Md. Mokhter Ahmad
Associate Professor
IIUC-Dhaka Campus
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4/30/2012 2
Topics to be covered in the lecture:
Definition of Muamalah
Scope of Muamalah
Principles of Muamalah in Islam Fundamental issues of Muamalah and their details:
Family Life Relations between husbands and wives
Relations between parents and children
Relation between siblings
Relation between relatives
Social Life
Political Life
National and International Life Professional Life
Business
Working in agriculture
Working in the professional areas
Games, Recreation and Culture
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(2) Where we are now?
Despite being 22 per cent of the world population having 70 per cent of energy resources 40 per cent natural resources
The contribution of OIC countries towards world income
is only 8 per cent. 39 per cent of population lives below the poverty level 22 of the 50 least developed countries in the world are
OIC Member States. It is sad to admit to the fact that gross national product of
the Islamic countries collectively was about US$1,200billion, less than one quarter the figure for Japan with nonatural resources, and only just higher than the GDP ofGermany.
(A) Status of science and technology in OIC/IDB member countries
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The 57 predominantly Muslim countries have about 23
% of the world's total population but
Less than 1% of its scientists who generate less than 5 % of its
science and make barely 0.1 % of the world's original researchdiscoveries each year.
The Islamic countries have a negligible percentage of patentregistrations in US, Europe and Japan.
The Research and Development manpower of Muslim countries
is only 1.18% of the total science and technology manpower. Only two scientists from Islamic states have won Nobel Prizes,
Abdus Salam, a Pakistani (Physics, 1979) and Ahmed Zewail, anEgyptian (Chemistry, 1999). Both carried out their researchoutside Islamic countries. Today's Muslim societies have
generated few scientists of international repute. Islamic countries, as a whole, have approximately 275researchers per million population against 850 per million in thedeveloped West.
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The entire Muslim world constituting onefifth of humanity,contributes barely 1000 research articles out of 100,000 sciencebooks and 2,000,000 research articles published annually.
While the West has an average of 3000 science PhDs per millionof its inhabitants, the number in OIC/IDB member countries is sodismally small that not even the statistics are available.
Countries that are predominantly Muslim are characterized bylow spending on Science, small scientific communities, and
poorquality universities.
Whereas Japan, the United States, Germany, and other Westerncountries spend 2 % - 4% of their gross domestic product (GDP)annually on research; no Muslim country spends more than 0.5%
of its (much lower) GDP on research. The OIC countries have about 1000 universities in total
compared to 1,000 in Japan, including 120 in Tokyo alone.
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Even among the Muslim countries, there are regional
imbalances. The ratio works out to:
Only 100 researchers per million African Muslims 445 for one million Arab populations
For Asians it is 569 researchers per million people.
The disparity between the Third World and Muslim nations in
the number of scientists and engineers is quite striking.
Despite similar levels of development, there are more than
twice as many scientists and engineers in the Third World as in
the Muslim countries, and almost eleven times as many in the
industrialized nations.
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Western Civilization: A direct Offspring
of Islamic Science
al-Banna al-Marrakushi's form
of the numerals. He gave thisform of the numerals in his practical
arithmetic book written around the
beginning of the fourteenth century.He lived most of his life in Morocco
which was in close contact with al-
Andalus, or Andalusia, which was
the Arab controlled region in the
south of Spain.
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Definition & Scope ofMuamalah
Muamalah refers to the principles governing the
everyday life of the Muslims. It is meant to address
the relationship between the creation of Allah,
between man and man and between man and nature.
It is beyond the Faith and faith-based pure formalistic
rituals of the Muslims.
Muamalah incorporates everything relating our dailylife (personal, family, social, economic, political,
recreational/cultural, and international life.)
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4/30/2012 10
Islam
Islamic LawTawhid/Aqidah(Belief in
Oneness of
Allah)
Muamalah(Code of Conduct for an
Islamic Way of Life)
Ibadat
(Pure Ritualsand ReligiousPerformances)
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4/30/2012 11
(Al-Munakahat)Rulings related
to Islamic family life
(Al-Iktisaad)
Rulings related toeconomictransaction
(Al-Siyasat wa al-Mujtama)Rulings related to
Social & Political Life
(Al-Jinayat)
Rulings related tocrimes
DISCIPLINES UNDERMUAMALAT
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Objectives
Islam works for the protection and
preservation of five basic objectives which
are essential for human existence on earth:1.Preservation and Protection of Religion
2.Preservation of life and its sanctification
3.Safeguarding the intellect4.Protection of lineage
5.Safeguarding of wealth
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Islam
Islam allows one to own and earn property as it is intrinsic toanyone, for the fulfillment of the following three requirements:
1. Daruriyyat: It refers to bare necessities comprising all activities andtangible or non-tangible things that are essential to the preservation of
the above-mentioned five foundations of life (Religion, Life, Mind,Offspring, and Wealth)1. Examples: Prohibition of wine and all intoxicants; institution of marriage
and prohibition of fornication
2. Haajiyyat: These are convenience which remove hardship and
difficulties, but are not bare necessities.1. Examples: Free-mixing between male-female, nutritious foods
3. Tahsiniyyat: These are embellishments or luxuries includingactivities and things that are beyond bare necessities and convenience,
but give brilliance and shine.
1. Examples: Plush carpets, good quality furniture, eating of sweets aftermeal
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& Haram
1. All things created by Allah S.W.T are halal, with few exceptions2. To make halal or haram is the right of Allah alone
3. Prohibiting what is halal and permitting what is haram is similar
to ascribing partners to Allah
4. The basic reasons for the prohibition of things are due toimpurity and harmfulness
5. What is halal is sufficient and what is haram is superfluous.
6. Whatever is conducive to the haram is in itself is haram
7. Falsely representing haram as halal is prohibited
8. Good intention do not make the haram acceptable. Islam does
not allow employing haram means to achieve praiseworthy ends.
9. Doubtful things should be avoided
10.Haram things are prohibited to everyone alike
11.Necessity dictates exception
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Islamic Procedure for Economic Pursuit
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The following is the Islamic procedure for any economic pursuit
1. Legality of Trade
2. Mutual Consent
1. Devoid of coercion
2. Devoid of fraud
3. Devoid of Lying
3. Justice/Equity
1. The Imperatives:
a) Fulfillment of the promises, pacts and contractsb) Exactness in weights and measures
c) Work, Wages, and Payments
d) Truthfulness, Sincerity, and Honesty
e) Efficiency and Competence
f) Selection on merit
g) Investigation and verification2. TheSafeguards:
a) Writing of a contract
b) Witnessing
c) Rahn
d) The Principle of Individual Responsibilty
4. Islamic Modes of Economic pursuit:
P hibiti & P i i
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Prohibitions & Permissionsof Muamalah
1. One is allowed to earn and obtain wealth
and property for the above-mentioned
purposes and in according with the above-mentioned principles in the following three
ways:
1. Business
2. Agricultural Sector
3. Professional and Industrial Sector
H l l E i
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Halal Earnings Business:
The Prophet was asked about the best earning.
He transformed a beggar into a great businessman
The Prophet including Four rightly-guided Caliphs were businessmen
The Quran talked about business galore.
Work in Agriculture: In the holy Qurn, hundreds of verses refer to the virtue of agriculture and
farming, and its process
There is none among the Muslims who plants a tree or sows seeds, and then abird, or a person or an animal eats from it, but is regarded as a charity gift for him.(Anas ibn Malik, Sahih al-Bukhari, 3:513)
Work in Industry & Professional Areas: Muslims are encouraged, as a Fard Kifayah, to engage and develop proficiency in
professional areas which are instrumental to the survival and betterment of the
community. Imam Ghazali says: Sciences whose knowledge is deemed fard Kifayah comprise
every area which is indispensable for the welfare of this world.
All sorts of professions are dignified by Islam. Prophet Musa worked as a hired
hand for eight years. The Prophet Muhammad (saas) also worked as a shepherd for
several years:
There is no prophet who has not herded sheep, and someone asked, You as well,Messenger ofAllah? He said, Myself as well.
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Prohibition in Muamalah
In Muamalah there are two
basic prohibitions:
Gharar
Riba
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Gharar and its Explanation Gharar:
The Arabic word Gharar ( ) means 'risk', 'uncertainty', and
hazard. Gharar is also defined by some scholars as 'any bargainin which the result of it is hidden'. Unlike Riba, Gharar is notprecisely defined by Shari'ah. Gharar is also considered to be oflesser significance than Riba;
The prohibition of Riba is absolute but some degree of Gharar
or uncertainty is acceptable in Shari'ah. Normal Gharar (thatdoes not lead to conflict) is acceptable. Also Gharar isacceptable in some social contracts;
Gharar has two ways. First, Gharar implies uncertainty.Second, it implies deceit. Shari'ah has forbidden all business
transactions, which cause injustice in any form to any of theparties;
Gharar may be in the form of hazard or peril leading touncertainty in any business, or deceit or fraud or undueadvantage;
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Gharar and its Explanation Gharar:
Gharar can arise in the form of uncertainty in the terms of a
contract, or as uncertainty surrounding the existence,ownership, deliverability, availability, or nature of the object ofa contract. An example of the first form: it is not permissible for A to agree to sell
his car to B for a price of 100,0000/ BDT ifit rains tomorrow due touncertainty in contract execution.
A classical example of the second kind of Gharar is that one may notagree to sell the unborn fetus in a camel, since in this case there isuncertainty as to the nature of the object of sale (it may be healthy orunhealthy, weak or strong, male or female
Some further examples of transactions prohibited on account of thissecond form ofghararare:
Sale of a runaway camel
Sale of uncaught fish in the river
Sale of milk in lactating glands
Sale of whatever fish will be caught in a specified net
Sales of fruits on the tree by estimated quantity
Sale of any one of the animals from the herd
Sale of unripned fruit
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Issues of Uncertainty in Gharar
Gharar is measured through qualitative and
quantitative method:
To provide a quantitative measure, Sami Suwailem said, a
gharar transaction is equivalent to a zero-sum game with
uncertainpayoffs. I zero-sum game A loses what B gains.
An example from Muattah Imam Malik is a man loses acamel worth fifty dinars, then he sells his lost camel for
twenty dinars. Here the buyer and the seller may lose
ultimately (the seller 30 dinars, the buyer 20 dinars)
Excessive gharar is prohibited and minor gharar ispermitteda taxi driver is permitted to charge on the basis
of time or mile of a journey.
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Issues of Uncertainty in Gharar
Gharar is based on the following things:1. Uncertainty over the existence of the subject-matter
2. Uncertainty over the possession of the subject-matter
3. Uncertainty over the availability of the subject-matter
4. Price
5. Delivery
6. Suspended and Future Sales
7. Legal Tricks
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Issues of Uncertainty in Gharar
Gharar is based on the following things:
1. Uncertainty over the existence of the subject-matter A farmer cannot agree to contract to sell whatever crop
grows in the field this year as the quality and quantity of the
product is unknown and thus this is gharar.
But the farmer may sell one ton of top quality rice fordelivery in six monthstime in a contract ofbay al-salam as
here the price, amount and delivery are fixed
Sales of this kind may be divided into three groups:
The object of sale does exist now but will change in nature by the
delivery date (sale of un-ripened fruit..)
The object does not exist today but will be in existence on the
delivery date
Uncertainty shrouds the existence of the object of sale on the delivery
date..
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Issues of Uncertainty in Gharar
2. Uncertainty over the possession of the subject-matter:
Possession or construction possession of the object of sale is
a pre-requisite for making any sale contract. The Prophet said in the case of Hakim ibn Hajam: Oh Prophet of Allah!
A man comes to me and asks me to sell him what is not with me, so I
sell him and buy the goods for him in the market (and deliver). The
Prophet said, sell not what is not with you
Constructive possession is the legal possession of a object, though notphysical possession. Like when one purchases a car but has not picked
it up yet from the parking plot, has got a constructive possession.
3. Uncertainty over the availability of the subject-matter:
Any commodity of sale must be seen prior to sale or be
described with respect to its material attributes.
4. Price:
The price is to be stated at the beginning of or prior to any
sale in clear-cut terms.
5 Delivery:
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5. Delivery: In most of the types of contracts, the contracting parties may agree to delay either
the payment of the price (thaman) or delivery of the object (mabi) to a later date.
The sale ofJabirs (r) camel to the Prophet Muhammad, the Prophet allowed Jabir todeliver the sold camel after reaching Madinah.
6. Suspended and Future Sales: A legal trick is a device that employs contractual techniques that are permitted
under Shariah in such a way as to defeat a specific ruling ofSharaiah. It has threedimensions:
A. The first is the imposition of any condition that defeats the purpose of a contract :
A contract of exchange in which a condition is imposed that requires the return ofthe sold item after a period of time. It defeats the sales purpose of permanentlytransferring the ownership of a object of sale.
A second example: a clause requiring one partner in an investment project to buythe others share at the issue price on a future date.
B. A second common trick is the combination of valid contract forms to produceprohibited outcomes.
A usury-free loan, a promise, and a gift are each accepted legal forms in shariah.However, if they are combined in a way that the borrower promises to give lender agift upon repayment of the loan, then the effect of the combination of contracts is toproduce a usurious loan.
C. A third form is the application of contract forms beyond their intended scope.
Short selling of equity shares.
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Al-Riba: Its Definition
Nabil Salihs:
An unlawful gain derived from the quantitative
inequality of the counter values in any transaction
purporting to affect the exchange of two or more
species which belong to the same genus and aregoverned by the same legal cause.
Deferred completion of the exchange of such species, or
even of species which belong to different genera but
are governed by the same cillah (legal cause), isalso riba, whether or not the deferment is
accompanied by an increase in any one of the
exchanged counter values.
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Al-Riba: Its Definition
Riba:
Deferment in the time of exchange (riba al-nasiah)
Quantity of one of the counter values (riba al-fadhl)
al-Riba
Time Factor Quantity Factor
Ribawi items
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Prohibition of Riba
Riba has been prohibited in Islamic Shariah on
the basis of the Quranic Revelation in three
stages:
First stage: al-Rum, 39
Second stage: al-Nisa, 161
Third stage: Ali cImran, 130
Fourth stage: al-Baqarah, 275-281
hibi i f ib
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Prohibition of Riba First stage: al-Rum, 39:
That which you give as Riba (interest) the peoples wealth increases not with
God; but that which you give in Charity, seeking the goodwill of God,multiplies manifold. [ 30 : 39]
Second stage: al-Nisa, 161:And for their taking interest even though it was forbidden for them, and their
wrongful appropriation of other peoples property, We have prepared thoseamong them who reject faith a greivous punishment. [4: 161]
Third stage: Ali cImran, 130:o believers, take not doubled and redoubled interest, and fear God so that you
prosper. Fear the fire which has been prepared for those who reject faith, and
obey God and the Prophet so that you may receive mercy [3: 130-2]
Fourth stage: al-Baqarah, 275-281:Those who benefit from interest shall be raised like those who have been driven
to madness by the touch of the Devil; that is because they say: Trade is like
interest while God has permitted trade and forbidden interest. [2: 275]
P hibi i f Rib i h H di h
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Prohibition of Riba in the Hadith
From Jabir: The Prophet (pbuh) cursed the receiver,
the payer of interest, the one who records it and thetwo witnesses of the transaction and said: They are
all alike (in guilt) [Reported by Muslim, Tirmidhi and
Ahmad]
Jabir b. Abdallah said: The Prophet (pbuh) said, All
of the riba of Jahiliyah is annulled. The first riba that
I annul is our riba, that accruing to Abbas b. Abd al
Muttalib; it is being cancelled completely. [ Reportedby Muslim and Ahmad : Last Sermon of the Prophet
(Pbuh)]
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al-Riba
Al-Buyuc/
Al-Khafiyy /Al-Sunnah
Al-Duyun /
Al-Jaliyy
Al-Quran /Al-Jahiliyyah /
Al-Nasiah*(excess
is charged
for deferment)
al-Nasiah*
(deferment of one of the
counter values)
al-Fadl
Classification of Riba
Rules of Exchange of Ribawi
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Rules of Exchange of Ribawi
Materials
Exchanges Rules1) Ribawi Materials of the same kind of the
same basis:
(5 grams of 916 gold for 5 grams of 750 gold;
10 grams of Bashmoti Rice for 10 grams of A1
Rice)
1. Materials must be of the same
weight, measure or number of
units.
2. Payment must be on cast terms
2) Ribawi Materials of different kinds of the
same basis:
(5 grams of gold for BDT 4000/;
BDT 70,000/ for USD 1000/;
10 kgs of rice for 15 kgs of wheat;
1 tonne of palm oil for two tonnes of sugar)
1. Difference in weights,
measurements or number of
units allowed.
2. Payment must still be on castterms
3) Ribawi Materials of different kinds of
different bases:
10 kgs of dates for 1 gram of gold;
30 kgs of wheat for 10 USD;
1 tonne of palm oil for 30,000/ BDT
1. No Rules are imposed
(Difference in weights,
measurements or number of
units are allowed).
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Types of Modern Day Interest
The modern forms of interest of two types:
Interest on loans: This is main type of interest which is clear and easy to understand for
everyone;
Lending and borrowing on interest is simple example of it likeBanking interest;
Under this way cash is advanced to a borrower for receiving interestfrom him;
Interest on debts: Debt originates with a loan and also with a sale and other transactions
wherever the payment of money is deferred to a future date. TheQuranic prohibition of Riba in debt, no increment is permissible whenthe debt is repaid or settled;
The settlement of debt sometimes involved its replacement with a newincreased debt and this has been condemned as the worst form of Riba
or Riba al-jahiliyya;
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Basic Difference between Islamic and
Conventional Modes of Finance
Conventional
Bank Client
money
money + money (interest)
S ifi f H E i
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Specific case of Haram Earnings
In Business:
4/30/2012 35
Trading in Alcohol
Drug Dealing and Trading
Sculptors & Artists
Production & Sale of Haram Goods
Prostitution
Al-Gharar Use of Incorrect weights & measures
Hoarding and Price Manipulation
Adulterated & Spoiled Products
Swearing to support a sale
Purchase of stolen property
Prohibition of Interest or Riba
Prohibited Form of Sharecropping Mukhabarah is disallowed
Others: Bribery, Theft, Beggary,
M j P i i l f I l i B i
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Muslim businessmen should bealways aware of two basic tenets ofIslam:
Allah owns and controls allHis creations. Muslimbusinessmen are allowed toutilize all these as long asthey obey His commands.
All mens actions areaccountable to Allah who haspromised that even thesmallest good deed will berecognized and rewarded.
Based on these, Islam lays down thefollowing business principles:
Major Principles of Islamic Business
@Mokhter_Ahmad, IIUC-DC
1. Both buyers and sellers are ofsound mind.
2. Both buyers and sellers willingly
and knowingly undertake thetransaction.
3. Sellers to give correct andaccurate measure and weight.
4. Goods must as much as possiblebe traded in an open market.
5. Not to withhold from people thingsthat are their due.
6. To be contended with reasonableand fair monetary profit.
7. Commodities sold and moneypaid to be lawfully acquired.
8. Goods not to be sold beforeobtaining their possession.
9. Good & services to be transactedare not prohibited by Islam.
10.Goods & services to be
transacted are beneficial toconsumers.4/30/2012
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1. Encouragement to have proper contracts inbusiness dealings.
2. Settlement of disputes through arbitration.
3. To agree on specifics when making payment
in advance.
4. Goods sold are suitable for consumption.
5. Obligation to repay loans.
6. The necessity of business knowledge.7. To provide courteous service.
Minor Principles of Islamic Business
@Mokhter_Ahmad, IIUC-DC4/30/2012
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ISLAMIC MODES OF FINANCING Islamic mode of financing:
Islamic modes of financing mean the way of supplying funds that isacceptable to Islam;
As we have learned Islamic mode of financing could not be based onlending of money as lending of money is not a remunerative way offinancing;
Prohibition of interest does not allow utilization of loan/lending as modeof earning;
Therefore, there must be a way of funding that does not contain elementof interest;
There are three type of financing available under Islamic concept of
funds supply:Trade-based modes of financing;
Rental-based mode of financing; and
Participation-based of financing;
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PRODUCT TREE OF ISLAMIC FINANCE
Islamic Modes of Finance
Trade Based
Modes
Partnership Based
Modes
Rental Based
Modes
MusharakaMudaraba
Murabaha
Musawama
Salam
Istisna
Ijarah
Diminishing
Musharaka
39
Partnership
Profit-Sharing
Financial acti ities
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Financial activities
Exchange of goods orservices
Murabahah (cost
disclosed sale)
Musawamah (simple
bargain sale)
Salam (future sale)
Istisnaa'
(Manufacturing Sale)
Ijarah (servicesrendering)
PartnershipGiftLoan
Capital provisioning
TemproryPermanent
Remunerative (partnership
based financing)
Non-
remunerative
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TRADE-BASED MODE OF FINANCING
Trade-based mode of Financing means a way of
financing in which Islamic banks provide financingthrough sale and purchase of commodities and assets;
Trade-based modes are secure modes because theycreate debt and payables upon debtors/customers;
Islamic banks buy a commodity/asset (directly orthrough its agent) from the market and sells it tocustomers on deferred payment basis (instalments);
The agent may be a an employee on Islamic bank, athird party or the customer himself as well;
All conditions should be observed carefully in salefinancing.
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TRADE BASED MODE OF FINANCING
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TRADE-BASED MODE OF FINANCING
There are four kinds of Trade-based modes of financingwhich are very common: MURABAHAHA;
Cost+profit transaction in which both are disclosed to thebuyer;
MUSAWAMAH;
A simple sale transaction in which a price is quoted tocustomer without any disclosure to the buyer;
SALAM;
A kind of sale in which price is paid in advance for a specific
commodity to be delivered in future; ISTISNAA';
A sale transaction for assets that require manufacturing.
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RENTAL BASED MODE OF FINANCING
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RENTAL-BASED MODE OF FINANCING
There are four kinds of Trade-based modes of financing
which are very common: IJARAH; Ijara is based on a wage paid for the delivery of a service, use of equipment, use of
real property
The assets remain the property of the Islamic bank to put them up for rent every time
the lease period terminates so as not to remain utilized for long periods of time The bank benefits from the returns from leasing
The lessee benefits by covering immediate demand without bearing large capital cost
Areas of application:
High cost expensive assets (Aircrafts & Ships)
Industrial equipment, agricultural machinery, and transportation
DIMINISHING MUSHARAKAH;
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PARTICIPATION-BASED MODE OF
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PARTICIPATION BASED MODE OFFINANCING
There are two kinds of participatory modes of financing
which are very common: MUSHARAKAH;
All parties share in the capital
All parties share profits as well as losses
Profits are distributed as per agreed ratio Loss is borne by the parties as per capital ratio
Every partner is agent of other;
MUDARABAH;
One partner (Rab al Mal) contributes capital and the other (Mudarib)contributes his skills or services to the venture
Venture may for a fixed period or purpose
Both share profit in pre-agreed ratio
Loss is borne by Rab al Mal only, Mudarib loses his services;
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MUSHARAKAH
PARTNER A PARTNER BVENTURE
Rs.1000 Rs.1000
PROFITRs. 100
LOSSRs.100
Rs. 60 Rs. 40
Rs. 50 Rs. 50
May be in anyagreed ratio
Must be according to
capital ratio 45
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MUDARABAH
RABBUL MAL MUDARIBVENTURESERVICESCAPITAL
PROFIT
LOSS
40 %60 %
ALL MONETORY LOSS LOSS OF SERVICES
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T k f l d it Diff t M d l
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Takaful and its Different Models
Many models of Takaful are practiced the world over;
Pure Mudarabah model: The participant and the operator enter into a Mudarabah contract from the
beginning of the relation, for indemnification and share of theunderwriting results;
Wakalah Model (hybrid of Wakalah & Mudarabah):
An agency agreement is made between an individual willing to participatein the fund and the operator working as the manager of the fund;
The operator earns an upfront deductible fee and shares the profit ofinvestments, it does not share the results of underwriting;
Wakalah based on Waqf (trust): The share-holders create a Waqf fund to extend the help to those who
want cover against financial losses;
The participants donate to the fund and the operator manages the fund.All underwriting results belong to the fund which itself has a legal entity;
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WALLAHU ALAM