Ch 28 islamic finance
-
Upload
gale-pooley -
Category
Economy & Finance
-
view
1.030 -
download
0
Transcript of Ch 28 islamic finance
![Page 1: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/1.jpg)
Chapter 28
Islamic Finance
![Page 2: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/2.jpg)
Holy Quran SunnaShariah - “Sacred Law”
Islamic Finance
![Page 3: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/3.jpg)
Riba - UsuryInterest-based lending
where borrower repays more than amount borrowed to reflect
time delay in repayment
![Page 4: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/4.jpg)
GhararExcessive uncertainty
and ambiguity about an outcome
Gambling and Insurance
![Page 5: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/5.jpg)
HaramForbidden practices
No interestNo selling what you do
not ownNo selling of debts
![Page 6: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/6.jpg)
Interest Prohibited
Profit and Loss SharingPermitted
![Page 7: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/7.jpg)
Haram - Prohibited Interest
Halal - PermittedProfit and Loss Sharing
![Page 8: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/8.jpg)
Avoid RibaNo interest elements
Null and void
![Page 9: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/9.jpg)
Different cultures have different definitions of fairness and justice and
what is unfair and unjust
![Page 10: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/10.jpg)
Islamic definition of fairness and justice
MoneyProfitRisk
Interest
![Page 11: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/11.jpg)
Argument1. Can only charge rent on something that is a commodity
2. Therefore, it is unfair to charge rent on something that is not a commodity
3. Money is not a commodity.
4. Therefore money cannot be rented
5. Rent on money is called interest
6. Therefore cannot charge interest
![Page 12: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/12.jpg)
Avoid Gharar
Gambling - Zero Sum Game
Seller should own what they intend to sell
![Page 13: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/13.jpg)
Objectives
Maximize profit and wealth
Spread prosperity
![Page 14: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/14.jpg)
Islamic FinanceMoney does not have
intrinsic value
Just a measure of value or medium of exchange
![Page 15: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/15.jpg)
Islamic FinanceMust have an asset
involved in the exchange
No money for money
![Page 16: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/16.jpg)
Participatory-type finance
Share profit and lossShare risk
Equity positionDebt position
![Page 17: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/17.jpg)
Zakat - Religious Tax
2.5 Percent on profits
Poor, orphans, charityFinance projects
![Page 18: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/18.jpg)
Operations
IslamicShariah - Interpreted
Non-IslamicSecular - Elected
![Page 19: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/19.jpg)
Interest ChargingIslamic
Not allowedProfit and loss sharing
Non-IslamicAllowed
Fixed and variable
![Page 20: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/20.jpg)
Interest on DepositsIslamic
Not allowedMay share in profits
Non-IslamicAllowed
Interest plus principal
![Page 21: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/21.jpg)
Risk Sharing
IslamicMust share risk
Non-IslamicMay share risk
![Page 22: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/22.jpg)
Penalty on Default
IslamicNot allowed to charge
Non-IslamicMay charge
![Page 23: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/23.jpg)
Gharar
IslamicForbidden
Non-IslamicAllowed
![Page 24: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/24.jpg)
Customer Relationship
IslamicPartner and Investor
Non-IslamicCreditor and Debtor
![Page 25: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/25.jpg)
Shariah Supervision
IslamicRequires Board
Non-IslamicNo Board
![Page 26: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/26.jpg)
Islamic Banks
Maximize shareholder wealth
Develop society
![Page 27: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/27.jpg)
Source of Funds
ShareholdersDepositors
![Page 28: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/28.jpg)
Deposits
Current Savings
Investment
![Page 29: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/29.jpg)
Hiba
A non-predetermined return paid
Gift
![Page 30: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/30.jpg)
Current Deposit Accounts
Receive funds on demandIssue checks
No guarantee of returnBank may give Hiba
![Page 31: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/31.jpg)
Savings Deposit Accounts
WadiahMust get permission to
use for loans Bank may give Hiba
![Page 32: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/32.jpg)
Investment Deposit AccountsMudarabah
Specific time periodProfit and loss sharing based
on predetermined ratioCould lose deposit
![Page 33: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/33.jpg)
IslamicProfit and loss sharing system
Non Islamicinterest-based system
![Page 34: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/34.jpg)
Equity Financing
Musharakah
Mudarabah
![Page 35: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/35.jpg)
MusharakahPartnership
All contribute capitalProfit shared on prior agreement
Only lose invested capitalCharge a fee if manage
Project pays profit share to bankEntrepreneur pays bank capital
![Page 36: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/36.jpg)
MudarabahPartnership
Bank contributes capitalEntrepreneur contributes work
Profit shared on prior agreementBank bears all capital losses
![Page 37: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/37.jpg)
Asset Financing
Must own before reselling
MurabahahSalem
Ijarah Leasing
![Page 38: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/38.jpg)
Murabahah
Bank buys the assetResells to customer
Price includes cost plus markup profit
Full disclosure transparencyCustomer pays installments or lump
sum at the end
![Page 39: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/39.jpg)
SalemBank buys the asset today for
delivery in the future
Agriculture
Buyer responsible for delivery
![Page 40: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/40.jpg)
Ijarah LeasingUsufruct: temporary use and enjoyment
of a property
Bank (Lessor) buys the asset and rents to client (lessee)
Client may return or receive asset at the end of the term
![Page 41: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/41.jpg)
Sukuk - Islamic BondsRegular bonds not permitted
Interest and reselling debt prohibitedInvestor owns a proportionate
undivided share of the asset
Ownership equity position not a debt position
No guarantee or fixed return
![Page 42: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/42.jpg)
Takaful - Islamic InsuranceDistribute losses among participants
Participants pool fundsNo insurer-insured relationship
Operator manages account fundParticipants pay premiums to create fund
Operator pays damages out of funds
Operator can charge an administrative fee
![Page 43: Ch 28 islamic finance](https://reader034.fdocuments.us/reader034/viewer/2022042716/55a50fbb1a28ab18238b4579/html5/thumbnails/43.jpg)
FutureDifferent views and interpretations
EvolvingNo uniform consensus
Four schools of thoughtShafi’i, Maliki, Hanafi, and Hanbali