Islam world Essay

European countries colonized most of the Islam human beings in eighteenth and the first unitary-half of the twentieth century. They were able to manage the finances and economies of these countries which only catered on their admit elicits and in their stick ways. Banks all over the world have their own system in operating their organization. They set policies to attain their specific objectives and goals. unmatchable of these is the Muslim coin margeing. Islamic imprecateing as defined in Wikipedia, the free encyclopaedia refers to a system of banking or banking activity which is consistent with Islamic truth (Sharia) principles and guided by Islamic economics.In Islamic law, it forbids usury, the collection and stipend of interest which is usually called as riba in Islamic discourse. In general, the Islamic law forbids trading in financial risk which is seen as a form of gambling. It besides forbids investing in taskes that ar considered haram such as creasees whi ch involve in alcohol or pork, or businesses which produce un-Islamic media. m either of Islamic banking was founded in the late 20th century to cater to this specific banking market. History of Islamic Banking During the condemnation of prophet Muhammad, the Muslim communities have hold in banking activity such as acceptance of deposits.In those days, the Muslims deposited their money with the Prophet or with the First Khalif of Islam whose name is Abu Bakr Sedique. The first Islamic bank was founded in Egypt which was put into under cover without giving any steer of Islamic image for having the fear of being seen as a formula of Islamic fundamentalism. In 1963, in that respect was a pioneering effort made by Ahmed El Najjar who took the form of savings bank based on kale-sharing in Egyptian town of Mit Ghamr as an experiment. But the experimentation was ended in 1967 beca employment during those days, at that place were nine banks in the country which had the same system as his.Principles in Islamic Banking Just wish new(prenominal) banking systems, Islamic banking follows same purpose except that it ope positions in accordance with the rules of Shariah which is known as Figh al-Muamalat (Islamic rules on transactions). The sharing of shekelss and loss and the prohibition of riba which means interest is the basic principle in Islamic banking. There are vernacular Islamic plans which are used by the Islamic banking and these are the Mudharabah ( profit sharing) , Wadiah (safekeeping), Musharakah (joint venture), Murabahah ( cost plus) and Ijarah (leasing).Islamic banking uses many apostrophizees in operating the system, if whatso of all timeone would like to bringword the buyer money for him to purchase the selected item he chooses, the bank might be the one to buy that item to the seller and re-sell it to him at a profit by allowing him to pay the bank in installments moreover before his loan get out be approved, the bank would ask him t o have his strict collateral for banks hold dearion against default. The land or goods which are registered in his name from the start of the transaction are the workable collateral. However, if he has late payment, there lead be no extra penalties.This kind of collection is known as Murabaha. Ijara wa Iqtina is a nonher advent use by Islamic banking. It is unsloped similar to satisfying body politic leasing. All Islamic banks have the same approaches when it comes to vehicle loans. They sell the vehicle at a higher prise than in the market charge to the debitor and have his/her ownership of the vehicle until the loan is paid. Islamic banks too used several approaches in business deals. They lend money to the whatever companies by issuing floating vagabond interest loans. This floating rate of interest is pegged to the companys individual rate of return.In other words, the banks profit on the loan has equal dimension to a certain percentage of the companys profit. There pass on be profit-sharing musical arrangement if the headliner aggregate of the loan is repaid. This kind of approach is called Musharaka. Another approach is the Mudaraba. It is a venture capital funding which the bank provides financing while a certain entrepreneur provides labor so that both risk and profit are vulgarly administerd. This kind of arrangement reflects the Islamic view that the borrower mustiness not only be the one to sway all the risk or cost of a failure.Islamic banking only finance the Islamic pleasant deals and it doesnt involve in alcohol, pork, gambling and other form of businesses that are against in their beliefs. The only acceptable form of investment is the ethical investing and moral purchasing is encouraged. Recently, there are numerous Islamic banks opened in the Muslim world only they still have a very small share of the global banking system. Concepts in Islamic debt banking *Wadiah (Safekeeping) The bank is entrusted as a steward a nd trustee of funds.An individual deposits fund in the bank and the bank will guarantee and assure refund of the entire bill of the deposit, or any amount of outstanding balance whenever the depositor demands or withdraws it. The depositor may be rewarded with hibah as well as called as gift as a way of showing gratitude for the use of funds by the bank. The bank compensates depositors for the time- lever of their money an example of this is the interest but refers it as a gift. *Mudharabah (Profit Loss sharing) It is an agreement or arrangement between an entrepreneur and a capital provider which the entrepreneur pot use funds for his/her business activity.The capital provider and the entrepreneur will share the profits according to an hold ratio but if ever there are losses, only the capital provider will bear them. The profit-sharing continues until the loan is repaid. The bank will be compensated for the time value of its money through the form of floating interest rate whic h is pegged to the debtors profits. * Musharakah (Joint Venture) This kind of approach is usually applied for joint ventures and business partnerships. They share same profits according to their agreed ratio and ramify incurred losses based on the equity participation ratio.This idea is dissimilar from fixed-income investing. *Murabahah (Cost Plus) This fancy is referring to the deal of goods at a price, which include a profit margin agreed to by both parties. At the time of sale agreement, the purchase and selling price, the profit margin and other costs must be clearly stated. The bank will be compensated for the time value of its money in the form of the profit money. It is a fixed-income loan for the purchase of a real plus such as real estate or a vehicle having a fixed rate of interest. The bank shadowernot have an additional interest on late payments.The asset remains in the ownership of the bank unless it is fully paid. This kind of concept is also similar to rent-to- own arrangements for furniture or appliances that are very common in North American stores. * Bai Bithaman Ajil (Deferred Payment Sale) This concept is almost the same with Murabahah but the debtor in this concept makes only a hit installment and will pay on the maturity date of the loan. It also refers to the sale of goods on a deferred payment basis at a price including the profit margin agreed to by both parties.*Wakalah (Agency) The concept happens when an individual appoints a representative to do the transactions on his/her behalf which is just similar to a power of attorney. *Qardhul Hassan (Benevolent Loan) Of all form of loans mentioned, only Qardhul Hassan has an delicate effect to the debtors because in this loan, the debtor is only required to repay the principal amount lent. However, the debtor may pay an extra amount (any amount that is in his heart) beyond the principal amount of the loan as a way of gratitude to the creditor.But this transaction is a true interest- free loan because there are debtors who do not give an extra amount to the creditor. For some Muslims, they consider this loan as the only type of loan that does not go against with the prohibition on riba which is a type of a loan that does not compensate the creditor for the value of money. *Ijarah Thumma Al Bai (Hire Purchase) In this concept of loan, there are two squinchs involved. Ijarah admit is into leasing/renting and the other contract is called Bai interlocutor which means to purchase. These two contracts are undertaken one after the other.An example of this is in a car financing facility. A customer enters in an Ijarah contract where he/she leases the car from the owner which is the bank at an agreed amount over a particular period of time. When his contract in Ijarah expires, the Bai contract comes into effect which enables the customer to purchase and own the car at an agreed price. With this, the bank sells the car to the customer at an above market-price profit in return for agreeing to receive the payment over a period of time. The profit margin is equal to the interest earned at fixed rate of return. * Bai al-Inah (Sell and Buy back Agreement)In Bai al-Inah, the financier sells product to the customer on a long-term payment basis and then the financier nowadays repurchased the product for cash with a discount. This agreement permits the bank to assume the ownership over the product or asset in order to protect default without charging interest in late payments or insolvency. *Hibah (Gift) The debtor in this concept voluntarily gives a hibah (gift) as a token effrontery to the creditor in return for a loan. This concept is practice when Islamic banks voluntarily pay their customers interest on their savings account balances.* Takaful (Islamic Insurance) This concept is not new for it had been practiced by the Muhajrin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 long time ago. Takaful is also an alternativ e form of cover which a Muslim can avail himself the risk of loss due to misfortunes. Nowadays, in the modern business world, one way to minimize the risk of loss due to requisite circumstances is through insurances. The idea behind insurance is the sharing of risk. This concept of insurance does not go against in Shariah concept where resources are accumulated to help those who are in need.