PROHIBITION OF RIBA IN ISLAM

prohibits any transaction that is seen as exploitative and profiting from lending is seen
as exploitative.

To charge interest from someone forced to borrow to meet his essential consumption
requirement is considered an exploitative practice in Islam.

Charging of interest on loans for productive purposes is also prohibited because it is not
an equitable form of transaction.

The main reason riba is prohibited is the concept that it makes the rich richer and the
poor poorer. It keeps on increasing the gap between the rich and the poor due to the
inequality in dealings.

Islamic economists have argued for the adoption of a profit rate, rather than an interest
rate. In modern times, every conventional bank practice charging interest on loans.
Islamic ullamas have proposed different Islamic ways of financing where on is safe from
interests and other haram ways of financing.

MUSHARAKA

The literary meaning of Musharakah is "sharing". The root of the term "Musharakah" in
Arabic comes from the word ‘Shirkah’, which means 'being a partner'. It is used in the
same context as the term "shirk" meaning "partner to Allah".

Musharaka refers to a joint partnership where two or more persons combine either
their capital or labor, forming a business in which all partners share the profit according
to a specific agreed ratio, while the loss is shared according to the ratio of the
contribution

Clauses:
⁃ The partners should be of legal age for entering into a contract.
⁃ The contract must take place under free consent of both individuals
 DIMINISHING MUSHARAKA

Diminishing Musharka is an Islamic mode of finance where the asset ownership is

broken down into units. The bank then leases its ownership to the customer against
rental payments and in parallel the customer then buys the units until he gets the
complete ownership of it.

MUDARABA

Mudaraba is a partnership in profit whereby one party provides capital and the other
party provides skill and labour. The provider of capital is called "Shahib al-maal", while
the provider of skill and labour is called "Mudarib".

The profit shared according to specific agreed ratio while loss is bared by the Sahib al
maal only.

MURABAHA

Murabaha is basically a type of sales contract. Murabaha also referred to as cost-plus

financing, is an Islamic financing structure in which the seller and buyer agree to the
cost and markup of an asset. The markup takes place of interest, which is illegal in
Islamic law.

IJARAH

Ijarah denotes a contract where one party transfers the right to use an item he owns to
another party for a specified period in exchange for an agreed consideration. Informally,
Ijarah is often called 'Islamic leasing'.
 SALAM

Salam is where the supplier makes a contract with the buyer to supply specific goods in
future date where the payment is completely done in advance in cash, but the supply of
the ordered goods is promised to be done on a later date.

ISTISNA

Istina means asking someone to manufacture , build or construct an asset. In Islamic

Finance istisna is a process where the manufacturer undertakes a contract to build,
construct or manufacture the asset and deliver it to the buyer on completion. While the
payment can be done in instalments either on the completion of the delivery or the
project. The difference between salam and istisna is that in salam the payment is done
fully advance in cash while in istisna it is done in installments.