Concepts of Islamic Finance Essay

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Islamic finance is the system that practicing financial services according to the principles and rules of the Islamic commercial jurisprudence. It is a system that operates the services based on Islamic law which is called shari’ah which is based on Al-Quran and Sunnah. The objective of the Islamic finance is maximizing profit by minimizing loss but at the same time taking consideration on the welfare (maslahah). In Islamic finance, it is prohibited from any payment which is over and above the principle which is called interest. Interest is known as riba or usury which is refer as excess of money imposed from the principal amount.

The sources of the shari’ah is come from primary and secondary sources. The primary sources is based on Al-Quran and Sunnah (Hadith) while the secondary sources is come from ijma’ and Qiyas. Both Ijma’ and Qiyas only applied when there are no solution on the matter in questions found in Al-Quran and Sunnah. The prohibition of the interest (riba) in operation of Islamic bank is the most important aspect of the Islamic finance. The prohibition of riba is not only stated in the several of verses (ayat) in Al-Quran but it also revealed by the Prophet Muhammad s.a.w in condemning the provider and accepter of riba.

The principle in Islamic finance include the prohibition of any predetermined payment over and above the principal amount (riba), prohibition of the transaction involving uncertainty about subject-matter and term of contract (gharar) which is refer to the selling of goods that does not exist or does not owned, prohibition on maisir which is refer to the transaction based on speculating or gambling and prohibition on the investment by dealing with unlawful or haram business such as drugs, a...

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... the people especially Muslims, do not the advantages of investing in Islamic finance compare to the conventional finance. Most of them feel that Islamic transaction and conventional transaction is a same. This is due to the lack of promotion from Islamic financial institution to the public. Therefore public does not realize and not well understanding about the Islamic finance services and products.
Besides that, the second issue is relate to the issue on the seriousness of the financial institution such as bank in order carry out their transaction based on the shariah principle. There are many financial institution based on the Islamic law but some of them does not really fully apply the shariah concept in every of their transaction. They are attend to follow the conventional concept in some matter in the transaction without realizing it against the shariah.

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