User talk:Alphasig1053
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I redirected this article to Islamic banking. The orginal is below. Best, --Bfigura (talk) 19:51, 2 May 2008 (UTC)
An Islamic Economy is an economy that is regulated by a set of rules based on outlines set by the Quraan called the Sharia. The Quraan is the holy scriptures that Muslim believers follow. Islamic financing practices are a concept that emerged in the second half of the past century. With the expanding role that the banking system and money handling, many Muslim communities were faced with a problem over the concept of interest. The Quraan states that no interest is to be made on trading practices. An example of this is found in Quraan 2:278-279. The verse states, “O you who believe be careful of Allah (God) and give up the interest that is outstanding. And if you do not then be warned of war from Allah (God) and His messenger.” In addition, in Islamic Sharia, there is a straight forward and definite rule that has to be obeyed that says no riba. Riba is an Arabic word that literally means extra, or not interest. In regards to Islamic Sharia, Riba means the lending of money for a specific time whereupon the lender receives his money with an extra amount agreed upon. This rule of no interest causes some hardships for Islamic believers. Western banks, which dominate world banking, are based on interest paying accounts and interest bearing loans. Based on the rule and definition mentioned above, Muslim people must not access any of the facilities or services that the aforementioned banking system provides. So, through this the Islamic Banking system emerged. Islamic Banks do not charge or pay interest and they are based on personal relationships. The concept of not paying or charging interest is an interesting concept in today’s banking structure. The fact that the larger Western banks that are so interweaved with all the daily aspects of our life is based on interest is a major factor in making this concept seem different to Westerners.
Islamic Banks rely on three other method to generate income. These methods are approved forms of Islamic Financing and are mentioned in the Islamic Sharia. In all three methods a customer receives a product or rights and benefits. When the customers deposit money with a bank they receive it back with profit, depending upon the relationship type. Because the relationship is based on profits it is very common to hear Islamic Banks refer to their investment..The three forms of generating income are Modaraba, Morabuha, and ljara.
First, Modaraba is a form of participating finance, which falls under three different categories. The three categories are demand deposits, mutual investment deposits, and special investment deposits. The demand deposits are not restrictive. They are payable on demand and do not share in any profits. Mutual Investment Deposits are like mutual funds except that they do not invest in traded equity. An Islamic Bank will merge these deposits with the bank’s money in order to participate in mutual investment transactions carried out by the banking institution. Under these deposits, the percentage of profit is fixed at the end of the bank’s financial year. An Islamic Bank will invest these deposits in a specific project or investment upon the request of the approval of the depositor. The depositor in this instance will be entitled to receive profit and is liable for the losses, provided that the bank is not negligent or in default. At the close of the deposit period, the bank receives its share of profit against its contribution of experience and management, while the depositor gets his share of profit as a capital share contributor.
Second, Morabaha is financing of resale goods. This relationship is between the customer and the bank in the form of buyer and seller. The bank purchases goods or products from its owner directly on the request of the customer and resells it to the customer, at a selling price higher than the purchase price. The customer then pays any consideration to the goods he purchased on an installment basis, as per an agreed repayment schedule. This method is similar to installment sales in Western Banks.
Third, Ljara is the Islamic form of leasing. Ljara requires an Islamic bank to purchase equipment and lease them to the customer for a set period of time. At the end of the lease the bank will transfer the title to the customer either by executing a sale agreement for a normal value or by way of donations. In Islamic Banking there is two types of leases. The two types are financial and operating leases. If the transfer of ownership is handed to the lessee after the agreement then the lease is considered a financial lease. The operating lease does not transfer ownership and resembles renting in a lot of ways. The profits that are made from operating leases are from payments that must be made due to ware and tear on the leased equipment. Also, the bank must be satisfied with the nature of the usage of the leased assets, as their use must be permitted under Sharia. For example, an Islamic Bank would not allow an asset to be used in production of a pornographic film.
The Central Banks of 8 Islamic countries have agreed to have a common regulator that will oversee financial institutions in all of the nations in an effort to improve accountability and transparency. The overseer is called an Ulama, which means expert. With the difficulties and complexities that are attributed to Islamic Banking the Ulama must give approval in all financial transactions in order to ensure their compliance with the principles of Islamic Sharia
