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governs the principles of faith and belief in Islam. Belief in Allah, only one worthy of all worship(tawhid)(rusul)(mala'ika)(kutub)(qiyama) (Fate) Akhlaq defines the Islamic ethical code as it relates to ‘personal conduct’. Prophet Muhammad SAW “My religion is based on cleanliness” doesn’t refer to outwards cleanliness only. Intelligence-angelic. Anger-ferocious. Desire-animalistic. Imagination– demoniac Imam Ali: Surely God has characterized the angels by intellect without desire and anger, and the animals with anger and desire without reason. He exalted man by bestowing upon him all of these qualities. Accordingly, if man's reason dominates his desire and ferocity, he rises to a station above that of the angels; because this station is attained by man in spite of the existence of hurdles which do not vex the angels. (NahjulBalagha) Ahkam (literally ‘law’) governs all forms of practical action. 1)Ibadat(the law pertaining to devotional matters) , 2)Muamalat(the law pertaining to activity in the political, economic and social spheres). – Wajib, obligatory; also known as: fard, rukn – Mustahabb, recommended, also known as fadilah, mandub – Mubah, neither obligatory nor recommended (neutral) – Makruh, abominable (abstaining is recommended) – Haraam, prohibited (abstaining is obligatory) Generally speaking, only the law of Muamalatis considered enforceable in an Islamic court of law. Ibadat, along with Aqidah and Akhlaq, are not usually subject to juridical sanction. ShariahQuran, Ahadith, Sunnah, Ijtehad, Fatwa Quran is the ultimate unimpeachable reference when establishing Islamic law –Shariah. Ahadith(singular ‘Hadith’) are the sayings of Prophet Muhammad s.a.w Sunnah(literally 'way' or 'path'), is the practice and traditions of the Prophet Muhammad s.a.w., The six most authentic ahadithcollections are: Bukhari, Muslim, Tirmidhi, Abu Daud, Nasa'iand ibnMajah. For an area of human activity or which there is no mention in Quran, Sunnah or Ahadith, the theologians indulge in ‘Ijtehad’. The resulting jurisprudence is termed ‘fiqh’ (literally comprehension) and the passing of a judgementis termed a ‘fatwa’. Fiqh is derived in two ways. Firstly, through achieving a consensus among ulema, termed ‘Ijma’, and secondly through deduction by analogy with existing principles, termed ‘Qiyas’. Shari`ah is thus composed of laws derived from the Qur'an, Sunnah, Ijmaand Qiyas. Four schools of thought: Hanifi, Maliki, Shafi'Iand Hanbali ShariahHijri Calendar ‘AH’ Current year is 1429 AH is 11 days shorter with 354 days Quranic Verses on Riba "And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah." [Ar‐Rum 30:39+ This verse is not of prohibitive nature. It simply says that riba does not increase with Allah i.e. it carries no reward in the Hereafter. However, it may be taken as a subtle indication to the fact that the practice is not favored by Allah.
Surah An-Nisaa where the term riba is used in the context
of the Jews in the following words: "And because of their charging riba while prohibited from it." *An‐Nisaa4:161]
*Al‐i‐'Imran3:130] “O those who believe do not eat up riba doubled and redoubled."
• Surah Baqarah: (2:275-281) The following set of verses is found in the Surah Al-Baqarahin the following words: Allah destroys riba and nourishes charities. And Allah does not like any sinful disbeliever. Surely those who believe and do good deeds, establish Salahand pay Zakah, have their reward with their Lord, and there is no fear for them, nor shall they grieve. RIBA Riba = Usury, literally ‘increase’ or ‘addition to anything’. 1.Riba Duyun-prohibits increases arising from debts (loans). a.Riba Qardh: where the increase (interest) on the principal sum of the loan is agreed upon at the point of contract. b.Riba Jahilliyah: this refers to the increase levied on the borrower for late repayment or failure to repay the loan. 2.Riba Buyu-prohibition of exchanges involving the following goods known as ribawiitems if there is any increase because of difference in quantity, quality and/or time: gold for gold; silver for silver; wheat for wheat; barley for barley; dates for dates; and, salt for salt. a.Riba Fadhl: difference in weight, volume, quantity; difference in time. ShariahRiba al-Qardh Riba al-Qardh, the usury of loans, involves a charge on a loan arising due to the passage of time, in other words a loan at interest. It arises where a borrower of another's wealth, in any form, enters into a contract to repay to that other person a pre-agreed amount in addition to the principal that was borrowed, in whatever manner this increase arises. Riba al-Buyu Riba al-Buyu (‘Usury of Surplus’.) may comprise either Riba al-Fadhlor Riba al-Nasiah. • Riba al-Fadhl involves an exchange of unequal qualities or quantities of the same commodity simultaneously, and could therefore be described as the usury of surplus. • Riba al-Nasiah involves the non simultaneous exchange of equal qualities and quantities of the same commodity and does not therefore involve a surplus but only a difference in the timing of exchange. 'Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt -like for like, equal for equal, payment being made on the spot. If the species differ, sell as you wish provided that payment is made on the spot'. Hadith : Muslim RibaTransaction of Loan or Deferred Sale? It is clear from these quotations that the transaction in which the creditor used to charge an additional amount on the date of maturity was not a transaction of loan. Initially; it used to be a transaction of sale of a commodity on deferred payment basis in which the seller used to fix b.Riba Nasiah:
a higher price because of deferred payment, but when the buyer would not pay at the date of maturity, the seller used to keep on increasing the amount in exchange of additional time given to the buyer. "The non‐believers say that sale is very similar to Riba." *Al‐ Baqarah2:275] IbnAbiHatimon the authority of Said ibnJubair: "They used to say that it is all equal whether we increase the price in the beginning of the sale, or we increase it at the time of maturity. Both are equal. It is this objection which has been referred to in the verse by saying 'They say that the sale is very similar to Riba.‘” Barter Trade & Medium of Exchange –Money After the revelations of these verses, the Holy Prophet, Sall-Allahualayhiwasallam, prohibited some other transactions as well, which were not known previously as Riba. The Arabs used certain commodities like wheat, barley, dates etc., as a medium of exchange to purchase other things. The Holy Prophet, Sall-Allahualayhiwasallam, treating these commodities as a medium of exchange like money, issued the following injunction: "Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba." Riba on bothConsumption or Productive Loans is prohibited (When liquor was prohibited, it was not only the particular forms of liquor available in those days which were forbidden, it was the substance of liquor which was banned) The Holy Prophet, Sall-Allahualayhiwasallam, has said: "If the creditor received a goat as mortgage from the debtor, the creditor may use its milk to the extent he has spent in providing fodder to the goat. However, if the milk is more than the price of the fodder, the excess is riba.”
The History & Evolution of Islamic Banking History of Commercial Banks • Rich & Reputable Merchant –Used to issue IOUs –People who had nothing to do with the merchant used to deal in sale / purchase of these IOUs. –SootarMandiin Faisalabad? –Modern day Merchant Banking = Investment Banking • The Money Lender –Started with his own capital –Then as the reputation built people started depositing their money for further investment –An embryonic bank • Goldsmith –People entrusted their gold for safekeeping –Goldsmith acted as trustee –Receipts for deposit of Gold or other valuables were traded as money –People can write an order to transfer the gold to another account created ‘Money’ All 3
1. Merchant –finances foreign trade and issues bill of exchange 2. Money Lender –channelizes savings from depositors to businesses 3. Goldsmith –trustee and custodial services for accounts
Why • • • • •
did it took so long? Muslim countries were colonies of western nations Muslim institutions like Shariah Courts were destroyed and made ineffective Commercial banking expanded with rapid industrialization in west Their was no alternative for Muslims Even now conventional banking is restricted to urban centers only • There were Muslims who used to debate upon consumption vs.commercial loans, excessive rates of interest etc. Islamic Bank 1963 –MitGhamr–Egypt –an experiment 1970 –Cairo –Nasser Social Bank 1975 –Dubai –Dubai Islamic Bank 1981 -Dar al-Mal al-IslamiTrust (DMI) 1982 -Al Baraka In the middle came ‘Islamic Development Bank’ in 1975 Financial Accounting Organization of Islamic Banks & Financial Institutions (AOIFI)
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