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INCEIF Shariah Module

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  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    An Overview of Shariah Principles in Financial Transactions

    Topics in This Unit

    Introduction

    Sale-Based Principles

    Leased-Based Principles

    Fee-Based Principles

    Summary

    1-

    2-

    3-

    4-

    5-

    6-

    7-

    8-

    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 1

    Unit 14

    !!"#$ %

    &"'!#$'! '!#%

    !$ '!""!'! #%

    Learning Outcomes

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    Key Terms

    Financial transactions that are based on sale such as

    Murabahah

    Financial transactions that are based on partnership such

    as Mudarabah

    Financial transactions that are based on lease such as

    leasing

    Financial transactions that are based on charging fee such

    as wakalah

    Financial transactions that are based on benevolent

    (no fee to be charged) such as Qard Hasan

    Sale-Based

    Principles:

    Profit Sharing

    Principles:

    Leased-Based

    Principles:

    Fee-Based

    Principles:

    Free-of-Charge:

    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 2

    & ( "!'!# %

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  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    Unit 14.1 INTRODUCTION

    ,$!#$$('""!".$(, '! "" * $$! " ( & $ '! "$'!!(

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    " #"! namely mudarabah and musyarakah('"

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  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    !#$#!!!=al-aqd al-munjaz>"!;$ ! =al-aqd al-mudaf ila al-mustaqbal>=al-aqd al-muallaq>(/$$=sahih>$=fasid>$=batil>(

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  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    ""=arkan>" ( @ " ! !( '!""

    (+=>"(,"'!!!"(

    ,!."$('!!'!"!( kafalah => hawalah =! > rahn =>!inter alia!

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    Which are the best forms of income generation? The Prophet (PBUH) replied: A mans labour and every legitimate sale.

    15874 466 3

    &$=!$>! '!!! "(, ! ..$$!ASunnah and consensus of @!*$"!!

    !!!!!!(,!!"

    &( .=sighah>(Sighah !; =ijab>!=qabul>!(@! *$";" !"(&

    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 5

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    ! '!"(/! sighah "" .(&. $$( !!;$ "!.!(& (;!! !(:$*;" !!!;! *!!! !;!!(&! @#0"=> .

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    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 6

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    (' "

    !! (!" !(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    " . !=H.!.!gharar #( . ! . $ " "( (

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    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 8

    SOME CLASSIFICATIONS OF SALE-BASED CONTRACTS

    & $ $$ $ !" $ !( ' ! ! !!'!!.(

    Unit 14.2.1

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    $ '! & " $ " $!!&!(/'!!!"(O'!#(&""'!

    riba " $ ( & " " '! " !""(,! Q?"! " " '!"!""'!!!(

    ! ! =H" " ! " ! ! ! '! ! # ! gharar =>jahalah =>zulm =*>(

    :.!bay al-mulamasah =!">bay al-hasat ="!">bay al-muwsafah ="!">bay al-muzabanah = . $ !!!>bay al-muhaqalah =.">(

    + ! ! *!"$ '! "(:.!bay al-salam and bay al-istisna(

    ,*!.('$

    1. Bay al-muqayadah () ,"'!"(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    ( '!!!=((.> !!$9$$ $( ( '!;#=((.$> .!(,9! 9(

    2. Bay al-mutlaq (),!!!$!(@#!$('!*!.";!!(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    $*!(

    &'()bay bithaman ajil)' $ *!(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    (,#$

    /0(!)bay al-murabahah) '"*$ !

    "(

    b) Tawliyyah '"(

    /Wadiah ,*!"* "(

    An Overview of Shariah Principles in Financial Transactions

    Unit 14 | 12

    %)Bay al-musawamah)' !!!( ' "

    9*!('$!!!(,!!!! !!!!!"$"

    (

    B. Murabahah Bay Bithaman Ajil )/,!!'!#murabahah and bay bithaman ajil =&>(&!murabahah #"(!!@murabahah as

    "!=!#>!#"

    $$(,!!!!""

    !(murabahah !('9

    (

    SOME TYPES OF SALE-BASED CONTRACTSUnit 14.2.2

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    ,!$(&of murabahah '!#;!murabahah (Hmurabahah;('!murabahah '!#"!!"##('#

    #

    ( , " * # ;!murabahah(

    (O""!!(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    From this introduction, it is obvious that the allowance of salam and istisna is actually an exception to the general rule of existence of subject matter and the rule of possession applied as to other contracts of exchange. Ibn Taymiyyah and his disciple, Ibn al-Qayyim, however, opposed this assertion. They maintained that the legality of bay al-salam and bay al-istisna are not based on the exception made to the rule of existence of the subject matter. To them, these two contracts, in fact, have established a new principle as to the rule of existence of subject matter in a contract.

    Literally, the term salam, salaf, etc. means to advance. It is a contract where the purchaser pays the price in advance () and the delivery of the subject matter is !(

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    ! M( ! istisna "# !

    determined price.

    It should be noted that in istisna, it is necessary that the material be provided by the manufacturer. If it is provided by the customer, and the manufacturer uses his labour and skills only, it will not be a contract of istisna. Instead, it would be a contract of ijara. ,$!!#$#"consideration, it is permissible but it will not be istisna, rather it will be called an ijara contract. Istisna shares the same criteria of the salam contract in several ways. Among others, both in fact involve trading an immediate item in exchange for a deferred one, sales of non-existent objects and in both contracts, the object of sale is established as a liability to the seller.

    ,"$;$"(* istisna is always a product that needs manufacturing or construction, while salam can be on anything, whether it needs manufacturing, constructing or not. Second, a salam contract can only ;!!"99.a criterion which is not found in istisna. Third, in a salam contract, the price of the goods is paid in advance, whilst the payment mechanism for istisna [.( determining the time of delivery is very essential in salam, but not in istisna. Finally, a salam ;"of istisna can be cancelled before the manufacturer starts the work.

    E. Bay al-inahis a kind of sale contract whereby the seller sells his assets to the buyer at an agreed selling price to be paid by the buyer at a later date. Thereafter, the buyer immediately sells back the assets to the seller at a cash price, lower than the agreed selling (,;"(, $ " $ (

  • SH1002 Shariah Aspects of Business and Finance INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2011/1432 AH CIFP

    are combined and formed as one. In Malaysia, has been applied extensively in Islamic banking and the capital market such as the practice of BBA in the acquisition # '!securities in the Islamic capital market.

    F. Bay al-daynAnother contentious subdivision of sale-based contracts applicable in Islamic banking

    bay al-dayn. In the banking sector, it is used for a variety of products such as sale and purchase of trade documents like bill of exchange and bankers acceptance. Factoring also uses this contract. In the capital market, this contract is widely used in the secondary market to trade the securities that have been issued based on the concept of , BBA, istisna, etc.

    Two main issues need to be discussed pertaining to bay al-dayn. First, the meaning of debt and its creations, and second, whether debt can be sold or not. Many $ $ ( & "$ $almost a similar connotation in that dayn is

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