Islamic banking refers to a system of banking Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries or banking activity that is consistent with the principles of Islamic law Sharia is the sacred law of Islam. All Muslims believe Sharia is God's law, but they have differences among themselves as to exactly what it entails. Modernists, traditionalists and fundamentalists all hold different views of Sharia, as do adherents to different schools of Islamic thought and scholarship. Different countries and cultures have (Sharia) and its practical application through the development of Islamic economics Islamic economics refers to the body of Islamic studies literature that "identifies and promotes an economic order that conforms to Islamic scripture and traditions," and in the economic world an interest-free Islamic banking system, grounded in Sharia's condemnation of interest . The literature originated in "the lates 1940s, and. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba Riba means usury and is generally forbidden in Islamic economic jurisprudence fiqh, usury Usury originally meant the charging of interest on loans. This included charging a fee for the use of money, such as at a bureau de change. After interest became acceptable, usury came to mean the interest above the rate allowed by law. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. The) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam Haraam (often Haram) is an Arabic term meaning "forbidden". In Islam it is used to refer to anything that is prohibited by the faith. Its antonym is halal, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner(s). In any such case, the creditors can look to both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets or semi-private commercial A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. After the implementation of the Glass-Steagall Act, the U.S. Congress required that banks engage institutions within the Muslim community.[citation needed]
History of Islamic banking
Introduction
Main article: Islamic economics in the world Islamic economics in practice, or economic policies supported by self-identified Islamic groups, has varied throughout its long history. Traditional Islamic concepts having to do with economics included Further information: Early reforms under Islam Many social changes took place under Islam between 610 and 661, including the period of Muhammad's mission and the rule of his four immediate successors who established the Rashidun Caliphate and Islamic capitalism The origins of capitalism and free markets can be traced back to the Islamic Golden Age and Muslim Agricultural Revolution, where the first market economy and earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism". A vigorous monetary economy was created by Muslims onDuring the Islamic Golden Age The Islamic Golden Age is traditionally dated from the mid-8th to the mid-13th century A.D. although it has been extended by one scholar to at least the 15th century. During this period, artists, engineers, scholars, poets, philosophers, geographers and traders in the Islamic world contributed to agriculture, the arts, economics, industry, law,, early forms of proto-capitalism Capitalism is an economic system in which the means of production and distribution are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the market rather than by central planning; profit is distributed to owners who invest in businesses, and and free markets A free market is a market without economic intervention and regulation by government except to enforce ownership and contracts. It is the opposite of a controlled market, where the government regulates how goods, services and labor are used, priced, or distributed. Advocates of a free market traditionally consider the term to imply that the means were present in the Caliphate The term caliphate refers to the first system of governance established in Islam. The most common translation for the word which appears in the Quran is vicegerency (or caretaker). It is a constitutional republic, which means that the rulers are bound by a set of laws which they cannot break at a whim, and the people have the right to appoint,[1] where an early market economy A market economy is economy based on the power of division of labor in which the prices of goods and services are determined in a free price system set by supply and demand and an early form of mercantilism Mercantilism is an economic theory, thought to be a form of economic nationalism, that holds that the prosperity of a nation is dependent upon its supply of capital, and that the global volume of international trade is "unchangeable". Economic assets are represented by bullion (gold, silver, and trade value) held by the state, which is were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism".[2] A vigorous monetary economy A monetary economy stands in contrast to an economy based on bartering or to an economy where goods are not traded, i.e. where the goods are produced and consumed by the same households (closed household economy). These two types of economies are said to be non-monetary economies was created on the basis of the expanding levels of circulation This list of circulating currencies contains the 182 current official or de facto currencies of the 192 United Nations member states, 1 UN observer state, 9 partially recognized states, 1 unrecognized states, and 32 dependencies. Only dependencies and unrecognized countries that use a currency other than that of the sovereign state that of a stable, high-value currency In economics, the term currency can refer to a particular currency, for example Pound Sterling, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of money deposited in banks , ownership of which can be transferred by means of (the dinar The Dinar is the name of the official currency in several countries. The Gold Dinar was a coin dating back to the early days of Islam, issued by many rulers, and the Islamic gold dinar is a modern revival of it as a coin or unit of account, separate from the currencies listed below. The name of the Gold Dinar was derived from denarius, a Roman) and the integration of monetary Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest. Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy. These goals usually include stable prices and low unemployment. Monetary theory areas that were previously independent.
A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation. As payment of money is promised later, the instrument itself can be used by the holder in due course frequently as money. Common examples include cheques, banknotes , and commercial paper, the first forms of partnership A partnership is an arrangement where entities and/or individuals agree to cooperate to advance their interests. In the most frequent instance, a partnership is formed between one or more businesses in which partners co-labor to achieve and share profits or losses (mufawada) such as limited partnerships A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner (mudaraba), and the earliest forms of capital In economics, capital, capital goods, or real capital are factors of production used to create goods or services that are not themselves significantly consumed in the production process. Capital goods may be acquired with money or financial capital (al-mal), capital accumulation Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. Capital can be generally defined as assets invested with the expectation that their value will increase, usually because there is the expectation of profit, rent, interest, royalties, (nama al-mal),[3] cheques A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the drawer, usually has a chequing account where their money is deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, know as the drawee, to pay, promissory notes A promissory note, referred to as a note payable in accounting, or commonly as just a "note", is a contract where one party makes an unconditional promise in writing to pay a sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. They differ from IOUs in that,[4] trusts In common law legal systems, a trust is a relationship whereby property is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor (or feoffor to uses), who entrusts some or all of their property to people of their choice (the trustees or feoffee to uses). The trustees hold legal title to (see Waqf A waqf is an inalienable religious endowment in Islamic law, typically denoting a building or plot of land for Muslim religious or charitable purposes)[5], transactional accounts A transactional account is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels. Because money is available on demand these accounts are also referred to as demand accounts or demand deposit accounts, loaning A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower, ledgers A ledger is the principal book for recording transactions. Originally, the term referred to a large volume of scripture/service book kept in one place in church and accessible and assignments An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee. The legal nature of the assignment determines some additional rights and liabilities that accompany the act.[6] Organizational An organization is a social arrangement which pursues collective goals, controls its own performance, and has a boundary separating it from its environment. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon enterprises A business is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities. Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business independent from the state A sovereign state is a political association with effective internal and external sovereignty over a geographic area and population which is not dependent on, or subject to any other power or state. While in abstract terms a sovereign state can exist without being recognised by other sovereign states, unrecognised states will often find it hard to also existed in the medieval Islamic world, while the agency Agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when an agent is authorized to act on behalf of another to create a legal relationship with a Third Party. Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, institution was also introduced during that time.[7][8] Many of these early capitalist concepts were adopted and further advanced in medieval Europe The Middle Ages is a period of European history from the 5th century through the 15th century. The period followed the fall of the Western Roman Empire in 476, and preceded the Early Modern Era. It is the middle period in a three-period division of history: Classical, Medieval, and Modern. The term "Middle Ages" (medium aevum) was coined from the 13th century onwards.[3]
Riba
The word "Riba" means excess, increase or addition, which according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money). The definition of riba Riba means usury and is generally forbidden in Islamic economic jurisprudence fiqh in classical Islamic jurisprudence Fiqh is Islamic jurisprudence. Fiqh is an expansion of the Sharia Islamic law—based directly on the Quran and Sunnah—that complements Shariah with evolving rulings/interpretations of Islamic jurists was "surplus value Surplus value is a concept used famously by Karl Marx in his critique of political economy, although he did not himself invent the concept. It refers roughly to that part of the new value created by production which is claimed by enterprises as "generic gross profit". Marx argues its ultimate source is unpaid surplus labour performed by without counterpart", or "to ensure equivalency in real value", and that "numerical value was immaterial Immaterialism is the theory propounded by Bishop Berkeley in the 18th century which holds that there are no material objects, only minds and ideas in those minds. Berkeley summarized his theory with the motto "esse est percipi" , but went on to elaborate it with God as the source of consensus reality and other particulars." During this period, gold Gold is a chemical element with the symbol Au (from Latin: aurum, "shining dawn", hence adjective, aureate) and an atomic number of 79. It has been a highly sought-after precious metal for coinage, jewelry, and other arts since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial and silver Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal. The metal occurs naturally in its pure, free form (native silver), as an alloy with gold and other metals, and currencies In economics, the term currency can refer to a particular currency, for example Pound Sterling, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of money deposited in banks , ownership of which can be transferred by means of were the benchmark metals that defined the value of all other materials being traded. Applying interest Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is to the benchmark itself (ex natura sua) made no logical sense as its value remained constant relative to all other materials: these metals could be added to but not created (from nothing).
Applying interest was acceptable under some circumstances. Currencies that were based on guarantees by a government to honor the stated value (i.e. fiat currency The term derives from the Latin fiat, meaning "let it be done", as the money is established by government decree. Where fiat money is used as currency, the term fiat currency is used. Today, most national currencies are fiat currencies, including the US dollar, the euro, and all other reserve currencies, and have been since the Nixon) or based on other materials Material is anything made of matter, constituted of one or more substances. Wood, cement, hydrogen, air and water are all examples of materials. Sometimes the term "material" is used more narrowly to refer to substances or components with certain physical properties that are used as inputs to production or manufacturing. In this sense, such as paper or base metals were allowed to have interest applied to them.[9] When base metal currencies were first introduced in the Islamic world, the question of "paying a debt in a higher number of units of this fiat money being riba" was not relevant as the jurists only needed to be concerned with the real value of money (determined by weight only) rather than the numerical value. For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had to be same because all makes of coins did not carry exactly similar weight).
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Fri, 02 Jul 2010 08:40:23 GMT+00:00
may raise some eyebrows Financial Times (blog) However, ta'widh payments can be treated as income, to the extent that they are imposed as compensation for actual losses incurred by the Islamic banking ...
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Ahmad Sanusi Husain (Kuala Lumpur)
Wed, 04 Aug 2010 10:28:00 GM
He served at a public university, a government department, a leading . Islamic bank. , a national . Islamic banking. & finance institute, a national . Islamic banking. association and a currently a premier consulting & training firm. ...
