MAIN IDEA 1

The establishment of Islamic banking and finance promotes a better economic system as it
prevents prohibited elements, such as usury or interest (riba), uncertainty (gharar), and gambling
(maysir). In Islam, the transactions between money and commodity and between commodity and
commodity are allowed. However, the transaction between money and money is strictly prohibited
in Islam as this creates usury (Paldi, 2014). The meaning of usury is paying money for the use of
money. According to Yunus, Kamaruddin, & Embong (2018), usury also defined as an increment
in something or surcharge in the amount of principle. In the banking framework, usury can be
defined as an addition in the principle of a loan in which the addition is established on the time
value even though there is no intervention made to initiate the growth. It signifies that no effort is
performed to accumulate wealth.

Usury is prohibited as it is one of the forms of exploitation in economic trade and endorses
injustice in the transaction which contradicts the core Islamic teachings of social justice. Ali (2017)
summarised that the reasons behind the prohibition of riba are the elimination of injustice and the
call for cooperation as well as the emphasis of the spirit of brotherhood in Islam (ukhuwah). Usury
brings in hatred and jealousy towards the rich as they are taking advantage of their high economic
position and oppressing the poor by adding their burden. Consequently, the rich become richer and
the poor become poorer. This conduct eradicates the spirit of cooperation and inhibits people from
doing good to each other. It is contrary to Islamic teaching because Islam promotes brotherhood
as it is a significant element in uniting the community to ensure harmony and independence in the
society in addition to generate success and excellence of Muslims.

On the other hand, Uddin (2015) states that the element of gharar or uncertainty implies
any transaction of probable subject matters in which the existence or description is not certain
because of the lack of information. It is also uncertain since the facts of the ultimate consequence
of the contract or the future result of the objects such as its nature and quality remain unknown for
the time being. In addition, Yunus, Kamaruddin, & Embong (2018) state that this concept can be
further discussed as the non-existence of the subject matter, its unavailability to deliver,
unidentified quantities, unknown completion time, indeterminate deliverability and undetermined
price which can nullify Islamic banking transaction.
 The element of gharar is prohibited in order to ensure full agreement and approval of parties
in a contract. Besides, the prohibition also aims to avoid fraud and to protect the right of contracting
parties, lessen arguments and to reduce one’s opportunity to exploit a counterparty in transactions,
hence no one or both parties cheated or mistreated. Mihajat (2016) mentioned this prohibition
guarantees that every contract must have a clear transaction with objectives to avoid any dispute
from happening in the future caused by the uncertainty over the deal item and prevents any
probable disagreement upcoming. It also can help parties in the transaction rest assured, secure
themselves from having a loss and promise them to have a bright prospect especially in managing
the business transaction.

The third element prohibited by Shariah in dealing with Islamic banking transactions is
gambling. Gambling refers to all forms of activities where procurement of money is depending
entirely on chance or luck, no effort is incorporated in generating the money for instance through
lottery or lucky draw (Vejzagic, 2012). Gambling can restraint the use of productive resources as
only the winner gains meanwhile the other party suffering the loss. This situation brings harm to
others as their rights are disregarded or in the worst case, they can suffer losses that eventually
lead to bankruptcy which can affect the stability of family institutions as well.

Similar to the effects of the other prohibited elements, gambling causes injustice income
distribution. Sena (2010) explained in gambling, while one side winning, the shifting of risk from
the strong to the weak making this principle is discriminating and set off the motivation of success
of an individual, whereby income distribution should be based on the number of genuine business
activities or risk-sharing amongst the parties. When distributing the economic resources into
gambling activities, it will make the economy immobilized and clogging the flow of productive
resources, which direct the transfer of wealth from productive society to a nonproductive society.
So, it will result in an inefficient economic resource allocation.

Taking everything into account, the prohibition of the element of us usury or interest (riba),
uncertainty (gharar), and gambling (maysir) in Islamic banking and finance can lead to more
transparent and fair transaction and promotes justice towards the society and on top of that, it will
contribute to a better economic system.