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Islamic Banking and Finance

Hyperborean

Hyperborean

Cultural Conservative
Islamic Banking is a way of describing financial systems used in accordance with Shari'ah Law. As such, devices of making money such as usury are prohibited under the system. For example, as oppose to lending out money at a rate of interest, capital providers can become shareholders and share profits of whatevery they are investing in. It provides alternatives to the other systems of banking in which devious methods are used to extort people of more and more money.

Wikipedia Article: Islamic banking - Wikipedia, the free encyclopedia
 
Cordoba

Cordoba

Well-Known Member
This is a FAQ page from HSBC's Islamic Banking section (Amanah) which has some interesting answers on different Islamic Banking services:

FAQs
 
N

nuaeman

Member
Is that by using some arabic word or put Islamic Banking we can consider it follow shariah law? Its like a trend now which many banks like to use some arabic words just to telling people they are follow shariah even the real fact some of them not follow at all.
 
Hyperborean

Hyperborean

Cultural Conservative
nuaeman said:
Is that by using some arabic word or put Islamic Banking we can consider it follow shariah law? Its like a trend now which many banks like to use some arabic words just to telling people they are follow shariah even the real fact some of them not follow at all.
Click to expand...

That's a good point. If Arabic words are merely applied to things, then it matters not what it is called. Many financial instruments in the west are already legal by Quranic law, but a great many also depend on interest, which is haram.

Comparing the economy of the old days with the economy of today, we can note that inflation was much lower since coinage was often directly struck in precious metals. Thus, charging excessive interest gave the lender an unfair advantage over the borrower. In today's system of fiat currency, inflation is much more rampant because the economy can change more rapidly. The question is then how to make sure that a bank doesn't lose too much money in the long run, which would lead to further economic problems.

I'm not really an economist or knowledgable about finance. However, finance is much more complicated in today's world, and Islamic nations need a way that can cope with changes as well as stay within shariah law.
 
Cordoba

Cordoba

Well-Known Member
The basic core difference between Islamic banking and traditional banking is that money is not what is being exchanged on its own as a commodity

In Islam, trade is lawful but money lending for interest is unlawful

When an Islamic bank finances the purchase of a house for example, it is not suppossed to lend money and get back capital plus interest, but rather to buy the house, and sell it by instalment to the person who wants to buy that house

For a background on Islamic mortgage (as one example of Islamic banking transactions):

Islamic Mortgage - Islamic Finance
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial, Helvetica, sans-serif]Video: CAIR Rep Discusses Islamic Financing on FOX[/FONT]
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CAIR-LA Executive Director Hussam Ayloush discusses Islamic financing on FOX Business Network

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http://www.cairfl.org/ViewArticle.asp?Code=CM&ArticleID=782
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]The West Should Promote Islamic Banking[/FONT]

by Professor Rodney Wilson
(Director of Post-Graduate Studies at Durham University's Institute of Middle Eastern and Islamic Studies)

[FONT=Arial,Geneva,Verdana,Sans-Serif]... increasing numbers of people in the West are dissatisfied or sceptical about the banking services they receive, and see them as exploitive or even unethical[/FONT]

http://www.islamicamagazine.com/online-analysis/the-west-should-promote-islamic-banking.html
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]World Financial Crisis: Islamic Solution? [/FONT]

IOL Dialogue today with Dr. Monzer Kahf - Expert on Islamic Economics

Q: I am a student of islamic banking and Finance and beleive that the solution of the current economic crisis potentially lies in Islamic Economics. What lessons can oventional system learn from this recent turmoil and what contribution Islamic economics can make to ease the situation? Thank You

A: Two main points are essential in this regards: elimination of debt trading in the Islamic econo-finance system is important. This is an essential result of the prohibition of Riba.

Once debts are no more discounted and traded, the financial market cannot be stretched beyond what the real sector can bear. In fact financing shall always be less that real market transaction because financial institutions require that certain portion of the transaction be financed by the parties themselves from equity.

This avoid the chain repercussion of any debt failure and this is a major cause of the trouble of major finance institutions in this crisis. The second lesson is never finance non- real transactions. that is eliminating most of the derivatives and their transactions that are essentially speculative and do not add value to the economy.

Besides these two points we have the moral issues of Islamic economics, but that is a little remote from the finance mentality and it is long term by definition and nature.

http://www.islamonline.net/livedialogue/english/Browse.asp?hGuestID=VeCtpd
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]Wisdom behind Prohibition of Riba (Usury)[/FONT]

Q: Could you please furnish me with the wisdom behind the prohibition of Riba?

A: "Islam permits increase in capital through trade.

Referring to this, Allah Almighty says, “O you who believe, do not consume your property among yourselves wrongfully, but let there be trade by mutual consent...” (An-Nisa’: 29)

At the same time, Islam blocks the way for anyone who tries to increase his capital through lending on usury or interest (Rriba), whether it is at a low or a high rate, ...
The wisdom behind the prohibition of interest

The strict prohibition of interest in Islam is a result of its deep concern for the moral, social, and economic welfare of mankind. Muslim scholars have sound arguments explaining the wisdom of this prohibition, and recent studies have confirmed their opinions, with some additions and extensions of their arguments. ...

http://www.islamonline.net/servlet/Satellite?pagename=IslamOnline-English-Ask_Scholar/FatwaE/FatwaE&cid=1119503543140
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]Interest-Free Mortgages [/FONT]​

Q: My question is about the interest-free mortgages that the Islamic banks in Britain allow Muslims to get. Are these mortgages halal or haram ...?

A: ... mortgages offered by Islamic banks are permissible according to Shari`ah. Financing is permissible in Islam whereas interest is prohibited. Interest is an increment in a loan.

Financing may be done on the basis of a sale contract or ijarah (leasing) contract. In ijarah, the financier owns the property and collects rentals on the part he or she owns while also offering to sell its share in the property on installments to the occupant. There is nothing forbidden in this, especially when the contract itself is reviewed by respected Shari'ah experts as what Islamic banks usually do.


The same thing happens with sale financing, usually called murabahah. The bank purchases with you the property and sells you its share in it on installments at a higher price. This sale with a higher price is permissible as it is included in the implication of the text of the Qur'an itself (2:279).​


You need to notice that the Shari`ah prohibits increments in loans but does not prohibit financing itself. Therefore, once financing is done by means of sale and/or ijarah, it becomes permissible. The problem arises from similarities of both approaches in house financing. But to understand the purpose of the prohibition, you really need to look at cases of dissimilarities such as debt rescheduling or debt discounting.​


For more details, I suggest that you take a look at other Fatwas on Islamonline and on my own website www.kahf.net

http://www.islamonline.net/servlet/Satellite?pagename=IslamOnline-English-Ask_Scholar/FatwaE/FatwaE&cid=1184649440988
 
Cordoba

Cordoba

Well-Known Member
Riba (usury/interest) is indeed the main problem of Capitalism today

In the search for a more sustainable banking/financial system on the long run, one important criteria to consider, in addition to it being a sound system with long-term sustainability, is the issue of justice for all

When the banking system allows the elite rich to have an advantage of day 1 by giving them a guaranteed risk free profit for their capital, (say 5% interest rate for deposits), it is a system designed to be in favor of a certain segment of society, as it puts those without capital at a disadvantage

On the long term, this current system is simply not sustainable, as it makes the richer richer, and the poor poorer on the long run.

Why?

Simply because after a number of years with high growth rates, where all benefit - poor and rich - an artificial bubble is created in the markets, as the financial system becomes detached from the real economy. This bubble can be in the real estate market, the stock market or other markets, and as the poor get saturated by loans, they reach a point when they can no longer pay back their loans due to interest and conpound interest, ... etc

It's at that point that the negative long term impact of interest starts to destroy the economy and wipe out all gains done in the "good years" of growth

This is what happened with the sub-prime mortgage market in the last 2 years, and it's a repeated cycle over and over again

By making interest rates = 0%, the financial system offers an equal chance to investors and entrepreneurs to work together on business sound opportunities which are long-term oriented. If they make a profit, they would share it together, and if they make a loss they would both lose

As the economy is a zero sum game, winners on one end means there are loosers on the other end, and an important percentage of businesses do fail each year, while others prosper, when interest rates = 0%, there is a fair chance for all parties and the system is not skewed in favor of the rich elite ...

For more details on the goal of achieving justice for all through 0% interest rates, there is a book titled (Towards a Just Monetary System) by Dr. Umar Chapra which may be of interest:

Amazon.com: Towards a Just Monetary System: A Discussion of Money, Banking, and Monetary Policy in the Light of Islamic Teachings (Islamic Economics Series): M. Umer Chapra: Books
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]Why are We All in Debt? [/FONT]
[FONT=Arial,Geneva,Verdana,Sans-Serif]The Financial Crisis and the Islamic Solution[/FONT]

The following event details have recently been posted at www.islamic-finance.com:

Event: Why are We All in Debt? The Financial Crisis and the Islamic Solution
Details: Tarek El Diwany presents some ideas on the credit crunch.
Organisation: University of Nottingham
Organisation Country: United Kingdom
Start Date: 2008-12-02
End Date: 2008-12-02
Location: 6.30pm-8.30pm, Room C11, Portland Building, University Park, University of Nottingham
 
Abdullah ibn Adam

Abdullah ibn Adam

Muslim
Hyperborean said:
Islamic Banking is a way of describing financial systems used in accordance with Shari'ah Law. As such, devices of making money such as usury are prohibited under the system. For example, as oppose to lending out money at a rate of interest, capital providers can become shareholders and share profits of whatevery they are investing in. It provides alternatives to the other systems of banking in which devious methods are used to extort people of more and more money.

Wikipedia Article: Islamic banking - Wikipedia, the free encyclopedia
Click to expand...

The Great deception - "Islamic Banking"! Muslims *MUST SEE*

http://www.youtube.com/watch?v=apr4Wju62XY

Islam and the Future of Money

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http://www.kalamullah.com/misc-vid.html
http://www.imranhosein.org/media/books/dinarbook.pdf
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]IDB chief urges G-20 to assess Islamic finance [/FONT]

LONDON: “The opportunities offered by Islamic finance in promoting global financial stability and financial inclusion are worth assessment by the leadership of the G-20 countries,” said Jeddah-based Islamic Development Bank (IDB) President Ahmed Mohamed Ali.

[FONT=verdana,arial,helvetica,sans-serif]Ali was echoing calls by the Islamic finance industry experts that the faith-based alternative investment model has something to offer to the global financial system, which has been teetering on the brink of meltdown following the impact of a credit crunch as a result of risky investments in junk derivatives such as subprime CDOs (collateralized debt obligations) in the US.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]The IDB president told an Islamic Financial Architecture Colloquium hosted yesterday by Lord Mayor of the City of London Ian Luder at his official headquarters that it is time that the wider world should consider mainstreaming Islamic financial services. And the best way to do this is to accord the relevant Islamic finance stakeholders “observer status” within the framework of the G-20 and the expanded Financial Stability Forum of the International Monetary Fund (IMF).[/FONT]

http://www.islamonline.com/news/articles/28/IDB_chief_urges_G20_to_assess_Islamic_finance.html
 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]Lessons From and for Islamic Finance [/FONT]
[FONT=Arial,Geneva,Verdana,Sans-Serif](by Dr. Monzer Kahf)[/FONT]

In light of the financial crisis, some lessons of utmost significance can be derived from Islamic finance and banking:-

[FONT=Verdana, Helvetica]1. [/FONT][FONT=Verdana, Helvetica]There is deep-seated confidence in the correctness of Islamic finance in terms of its adherence to funding by sales, leases, and partnerships, and in terms of its avoidance of loans of all types, given that they are a method of finance that takes finance away from the real market of production and exchange. Likewise, there is ingrained confidence in the principle of rejection of circulation or securitization of debts. These are the most important guarantees that a financial system will not slip into a crisis.

[/FONT]
[FONT=Verdana, Helvetica]2. [/FONT][FONT=Verdana, Helvetica]It is necessary to stop the attempts aiming at imitating the Western forms and practices of finance, which are devoid of the reality of goods, particularly those contracts that produce no added value but only result in shifting wealth from one hand to another. The point is that these contracts belong to the type of contracts whose total equals zero, including the so-called funds of Islamic caution, contracts of compound promises, imaginary contracts of investment, and other nominal practices that are founded upon no real production or exchange.

[/FONT]
[FONT=Verdana, Helvetica][FONT=Verdana, Helvetica]3. [/FONT][FONT=Verdana, Helvetica]It is necessary to reevaluate certain financial dealings adopted by some Islamic banks — namely, those dealings that separate finance from the real market and avoid relying on the production of an added value. These dealings rely on the accumulation of debts that are not accompanied by any movement in services and goods. Such dealings do not effect generation of wealth; they widen the gap between the real market and the financial market and contribute to inflation of debts in a way that leads to financial instability.[/FONT]

[/FONT]
[FONT=Verdana, Helvetica]4. [/FONT][FONT=Verdana, Helvetica]Also, the debts that are not based on real exchange of goods (but rather on overlapping contracts) result in illusory financial accumulations not reflecting the true identity and goal of Islamic finance. As a consequence, Islamic finance would fail to maintain its moral purity and would fail to apply its moral standards to the measures it follows. Here, one may make special mention of the transactions of tawarruq and murabahah for local and international commodities.

[/FONT]
[FONT=Verdana, Helvetica]5. [/FONT][FONT=Verdana, Helvetica]There is a need for reviewing the systems of financial markets in Muslim countries, with the aim of limiting financial speculations by laying down restrictions on their different types and also by banning the transactions that do not involve real investment. It is to be known that the systems applied in some Arab and Muslim markets do not allow many derivatives, which is one of the most important causes of the crisis.

[/FONT]
[FONT=Verdana, Helvetica]6. [/FONT][FONT=Verdana, Helvetica]It is necessary to revise many views and opinions, especially those practices falsely labeled "Islamic," such as the so-called short-term sale, derivatives and dealings on the same day, markets of caution, mudawalat (speculations) via the Internet using currency, and so forth. These practices facilitate the prevalence of the mentality of quick profit and encourage — albeit implicitly — the spirit of selfishness and financial speculations that do not increase production or create any added value.

[/FONT]
[FONT=Verdana, Helvetica]7. Principles of Islamic finance should be presented to the world as part and parcel of the true image of Islam, whose message is directed to all humankind — a mercy for the worlds. These principles are not specific to Muslims; they are principles of Islam, which is a universal religion. In fact, throughout the ages, these principles have always been known and practiced in all communities in their exchanges and transactions, though some financial dealings and speculations have marred them. Above all, these Islamic principles are required by the scientific, logical analyses of economic and financial systems and by the principles of human rights, notably the right to reaping the fruits of one's own property and the right to protection against encroachment upon the personal property of those benefiting from funding. This is the meaning of justice and elimination of oppression. It is the meaning that is constantly stressed by all the rulings and branches of Islamic Shari`ah.[/FONT]

[FONT=Verdana, Helvetica]8. There is a need for reevaluating — from the perspective of Islamic Shari`ah — the current systems of Islamic sukuk (financial documents), in an attempt to perfect their rules and lay down organizational and jurisprudential regulations that would ensure they will not slip into the forms of securitization that dominated the Western financial markets.
[/FONT]

9.From the standpoint of Islamic finance, a firm stance should be taken against selling debts (a practice found in Malaysia) and against discounting and rescheduling them, even under false names.

Solution to the Financial Crisis (Dr. Kahf)

The Global Financial Crisis - IslamOnline.net - Living Sharia'h

 
Cordoba

Cordoba

Well-Known Member
[FONT=Arial,Geneva,Verdana,Sans-Serif]Call for focus on Islamic micro-financing[/FONT]

Islamic investments must focus on micro-financing since the default rate in the sector is quite low, an Islamic financial expert said here yesterday.

During a panel discussion at the concluding day of a key Islamic banking forum, Safdar Alam, an expert, suggested Islamic financers better tap micro-financing as a viable investment option.

"We should better start looking at this asset class as a possible avenue of investment. The default rate in the sector is low," said Alam.

Micro-financing is all about helping people do small things. The business has, therefore, has a lot of social good to deliver as well. Venture capital funds, food processing and direct investment in trading and service related businesses, among others, are some of the other untapped avenues for Islamic investment, other speakers said.

The two-day 'Leaders in Islamic Finance 2009' conference ended yesterday. Speakers said there were a lot of opportunities for Islamic investment in the primary market as well due to the global downturn.

Faiz Nassim, from QINVEST, said Islamic investors could also look at socially responsible investment avenues as well as a viable alternative for investment.

http://www.islamonline.com/news/articles/28/Call_for_focus_on_Islamic_microfinancing.html
 
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