ISLAMIC FINANCE: To meet the demands for Islamic

financial services in Muslim majority countries.

INITIAL OBJECTIVE: ISLAMIC FINANCIAL SYSTEM COMPRISES:

PROHIBITION OF AL-RIBAAl-riba covers both usury and interest rates as practised today.

1.

Islamic CapitalMarkets

Islamic Insurance(Takaful)

Other Islamic financial institutions and sectors

(e.g.: Waqf institutions,microfinance).

Islamic Banking

“Those who devour usury will not stand except as stands one whom The Evil One by his touch hath driven to madness. That is because they say: Trade is like usury. But Allah hath permitted trade and

forbidden usury.”

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I S L A M I C F I N A N C E : T H E N E W N O R M A L

KNOWLEDGE MANAGEMENT CENTRE

Reasons for the prohibition:1) al-riba triggers fasad or social corruption. 2) al-riba amounts to unlawful appropriation of people’s property (meaning, interest is a property right claimed outside the permissible framework). 3) al-riba brings negative impacts on economic growth and hence diminishes the resources of state.

Quranic verse on the prohibition of al-riba:

[Surah Al-Baqarah (2), Verse 275].

PARTNERSHIP AND REAL-SECTOR CONNECTIVITY

Partnership-based contracts, risk-sharing.

“With risk comes profit” and “Profit is accompanied with responsibility”.

Partnership at the end must create real wealth (production of goods and services that benefits the individuals and society, not merely monetary wealth without any addition to the goods and services available in society).

5.

Muslims are prohibited from entering into exchanges of goods and services prohibited by the Qur’an (for example, all dealings related to alcoholic beverages, pork, prostitution, and other sinful goods and services).

4. PROHIBITION OF DEALING IN FORBIDDEN GOODS AND SERVICES

PROHIBITION OF AL-GHARARAl-gharar is described as “… the sale of probable items whose existence or characteristics are not certain, due to the risky nature which makes the trade similar to gambling.” (El-Gamal, 2000)

2.

“Ahmad and Ibn Majah narrated on the authority of Abu-said Al-khudriy: Muhammad has forbidden the purchase of the unborn animal in its mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to their distribution, the purchase of charities prior to their receipt, and the

purchase of the catch of a diver.”

PROHIBITION OF AL-MAYSIR (GAMBLING)In economics and finance, al-maysir refers to gaining returns through deliberate excessive risk-taking.

3.

“O, you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al-Ansab (animals that are sacrificed in the name of idols on their altars) and Al-Azlam (arrows thrown for seeking luck or decision) are an abomination of Satan’s handiwork. So, avoid that

(abomination) in order that you may be successful.”

Hadith from sahih Muslim about the prohibition of al-gharar:

The prohibition of al-maysir as stated in the Holy Qur’an:

[Surah Al-Ma’idah (5), Verse 90].

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I S S U E S A N D C H A L L E N G E STO I S L A M I C F I N A N C E

-- not uniformly adopted and implemented across the board

REGULATORY FRAMEWORKS - DOMESTIC ANDINTERNATIONAL STANDARDS 1.

-- the dynamic and intricate nature of regulatory changes -- impact on operations and growth potentials

2.

THE NEED TO ADDRESS INADEQUATEREGULATIONS MANAGING A VARIETY OFUNIQUE RISKS IN ISLAMIC FINANCE.

EXPOSURE TO CHANGING MARKETCONDITIONS AND MACROECONOMICUNCERTAINTIES

THE NEED FOR STRATEGIC INNOVATION TO ATTAIN COMPETITIVE ADVANTAGE

P R I N C I P L E S O F I S L A M I C F I N A N C E

I N T R O D U C T I O N

3.

4.

HUMAN CAPITAL AND TALENT GAP 5.-- Quality vs quantity

A financial system that operates in accordance with Islamic laws

(Shari’ah).

INCEIF KNOWLEDGE REPOSITORY (IKR) : https://ikr.inceif.org/handle/INCEIF/2722

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Source: Abdul Hamid, Baharom and Ali, Mohsin. (2017). Islamic finance: the new normal. In Baharom Abdul Hamid, Mansor H. Ibrahim & Sazalina Kamarudin (Eds.), Islamic finance: the new normal (pp. 1-10).

Kuala Lumpur, Malaysia: RAM Holdings Berhad.

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https://ikr.inceif.org/handle/INCEIF/2722