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ISLAM
Prohibited Elements
1. Interest (Riba) What is interest?
In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange.
What is Riba?
Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed
1. It is Allahs commandment Surah Al-baqarah verse no.275 "Those who devour usury will not stand except as stands one whom the Satan by his touch has driven to madness. That is because they say, "trade is like usury", but Allah has permitted trade and has forbidden usury", verse 276 in the same place he says, "Allah will deprive usury of all blessing, and will give increase for deeds of charity, for he does not love any ungrateful sinner."
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Al-Baqarah, verse 278 - 279, Surah Aal-Imran, verse 130 Surah Al-Nisaa, verse 161, Surah Al-Ruum, verse 39 From Al-Hadith (the saying of Prophet)
Hazrat Abu Hurairah Radiyallahu anhu reported that the Holy Prophet Sallallahu Alaihi Wasallam said: A time will certainly come over the people when none will remain who will not devour usury. If he does not devour it, its vapour will overtake him. (Ahmed, Abu Dawood, Nisai, Ibn Majah.)
FINANCING
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EQUITY FINANCING
Al-Sharikah (Partnership Contract)
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Definition: A contract between two or more parties, entrepreneur and investor, who share their capital, reputation, or expertise to share profit and loss. Two Catagories: i. ii. Sharikah al-`Aqd or al-`Uqud contract between two parties to share capital or assets Sharikah al-Milk or al-Amlak ownership on an assets by two parties without using as-Sharikah contract.
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Assets Partnership (Sharikah al-Amwal) capital sharing in terms of assets. ii. Labor Partnership (Sharikah al-Amal or alAbdan) capital sharing in terms of expertise or skills. iii. Reputation Partnership (Sharikah al-Wujuh) capital sharing in terms of reputation or goodwill.
i.
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Methods of Al-Sharikah : Hanafi Sharikah al-Mufawadah Equal share or contribution, profit sharing and management. Each shareholder become a gurantor to each other. Maliki Sharikah al-Inan Sharing of assets or capital to run a business and profit will be shared amongst themselves.
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Mudharabah
- An equity based - A contract between two person for trade purposes. Capital owner (Rabb al-Mal) give the capital to another party (Mudaarib) for involvement in trade, on agreement that profit is to be shared between them. - Eg. Prophet Muhammad (PBUH) befoe he became a prophet was entrusted a capital by Khadijah to do business in Shams (Syria). He used Mudharabah method.
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DEBT FINANCING
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DEBT FINANCING
Bay al-Murabahah (cost plus) . alBay alBay al-Salam (future contract or deferreddeferreddelivery sale) Bay al-Istisna Bay al-Istisna (contract to build or make) al-Ijarah (Leasing) alBay bi-Thaman Ajil or Bay al-Muajjal bialor Bay al-Taqsit (Deferred / installment payment) alQard al-Hassan al-
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QARD AL-HASAN
Borrower need only to repay the total loan (principle) without any additional amount. No profit The only loan type permitted by Shari`ah. The purpose is for economic and social justice. Loan is only to help the people who are in need.. Islam encourage the borrower to pay more as a gift and not determined by the money-lender.
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Equity Investing
Acceptable if the firm does not engage in prohibited practices mentioned above. Some leeway is possible previous mention of riba. Dow Jones Islamic Indexes. Listing of firms providing Islamic investments in bibliography.
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Conclusion
Islamic finance is not just for Muslims! Already a sizeable but underserved market, both domestic and international. Rapidly growing and developing. Opportunity to do well while doing good!
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The best of people are those who benefit others the most (Hadeeth)
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