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concept of islamic finance
islamic capital market abstract
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It is in no doubt that the Islamic finance and banking sectors have grown into a significant market that played a great role and emphasis in the worldwide financial industry. As a matter of fact, the Islamic finance industry presented and showed a stellar development and growth in terms of figures (Hancock, 2013), as Islamic finance is maturing at 10 to 15 percent annually, and there is no indication that such inclination is to decelerate in the future (Afshar, 2013). Furthermore, Islamic banking is known as a key contributor in the Islamic finance total assets in terms of its market share, which is of about 80.3% (Mubasher.info, 2013). Having to consider such progressive trend of the Islamic Finance and banking sectors in the global finance system, one mechanism or facet of Islamic financial system that strikes the most to be of great importance and is continuously embraced by the Islamic financial practitioners is the issuance of Sukuk or the so-called Islamic bonds.
In light with this, the research paper will provide a comprehensive report on the overall concept of Sukuk. In particular, the following sections of this research paper will elucidate and explain different aspects of the Islamic finance as well as practices and ideologies governing the concept of Sukuk. To start, it will provide an overview of the Islamic finance including its most important features. It will follow a thorough discussion on what really is a Sukuk or Islamic bonds, through presenting review of literatures involving its history, its two types, its seven key structures, issues and risks in Sukuk market, and its measurement and disclosure mechanisms as well. Further, the research paper also provides review on the pricing and issuance mechanism...
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...Zakat. Zakat is a core instrument for redistribution of wealth. In such case, all Islamic banks and financial institutions should generate Zakat funds that will be further distributed to the poor communities and households. They could do this through giving the fund directly to the recipients or through handing it down to any legal religious institutions (Algaoud & Lewis, 2007, pp. 40-41). Lastly, Islamic banks and financial institutions should create a religious supervisory board in order to guarantee that the practices and activities of these institutions comply with the Islamic ethics. This particular Shari’a board is composed of Muslim jurists who serve as Shari’a auditors and advisers to these banks. They also carry out responsibilities of selecting new contracts as well as assessing current contracts and endorsing and supporting new product developments
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts. Therefore, islamic finance is to be assets based as oppose to the currency based whereby investment structured on exchange or ownership of assets, and money is simply mechanism for transaction process. It would based on two sources which are Al-Quran and As-Sunnah.
Saudi Arabia’s capital market is considered to be young compared to other financial markets in the region. Saudi financial markets have been developing slowly because most enterprises in the country are either government owned or family-owned, most of which was funded through state budget, and as a result reduced the need for financing. In the recent past, Saudi Arabia has focused on a careful measurement for structural developments and regulatory changes. However, different phases of historical development of the capital market which can be classified into three phases; pre-industrialization phase, post industrialization phase and growth phase that sparked changes and shaped the kingdom 's capital market on
As Mudharabah applies the concept of profit- sharing, the probability of attainment of profits or suffering of losses is resultant from economic activities. The maturity of Mudarabah Interbank Investment in the Islamic Interbank Money Market is possible to be an overnight basis, but yet Mudarabah Interbank Investment, within this short-term period can help contribute to the economic condition. The Islamic Interbank Money Market is destined for managing short-time period liquidity to support activities banks carry out, which is the usage of funds from the excess unit, to fund the shortage units, and to match or equalize the socioeconomic and financial needs between the two units. Mudarabah Interbank Investment, may actually indirectly contribute to economic growth as a part of the entire organization of the Islamic Financial Institutions needs Islamic Interbank Money Market to guarantee the continuousness of their businesses, and Mudarabah Interbank Investment is as a tool for this purpose. (Saiti, Hasan, & Adawiah, Islamic Capital Markets: Volatility, Performance and
4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.
Islamic Banking system is banking system that guided by principles of Islamic laws (Sharia). In Islamic banking system, the most important feature is prohibited of interest (Riba), no matter what type of form or source it is.
The principle of Islamic is Syariah, it is developed through four main Islamic juristic schools which is Hanafi, Maliki, Shafi and Hanbali. However, Quran and Sunna is the two main sources which the Shariah derived from. In Islamic finance, there are three major principles. Firstly, the prohibition of usury or interest (riba). In the words of Maulana Maudoodi, page 139, Riba can be defined as the stationary increase on the capital which collected against a fixed period. This means that interest is consider as riba if the amount loaned is going doubled and re-doubled and it is given as consumption needs instead of productive needs. One of the examples of riba is rental income.
According to the IMF’s 2008 UAE ML and FT report (2008), the UAE lacks a precise duty on the part of financial institutions, to identify the primary and beneficial ownership as well as the control of the majority of companies with whom they have business de...
First of all, let us outline how Islamic banks actually work and what their main differences are in comparison with conventional banks. In this banking system, banks are operated by Islamic laws (known as Sharia), so Islamic economic principles are considered as primary guidance. Two basic doctrines behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest . Hence unlike conventional commercial banks, Islamic banks do not pay or charge interest on lending or borrowing of money. This is because the Sharia’s strictly prohibits, among other things, the receipt and payment of riba (interest) /. The interpretations to clarify the meaning behind this restriction suggests that earning or charging extra amount of money from debtor has to be seen something as immoral behavior, because making pressure on your borrower is actually unfair from the view point of Islam. To make it clear, the religion of Islam basically promote the principle of justic...
...ation, for the whole idea is a myth and cannot be introduced in a country where normal banking exists, and which claims to be secular. To create a legislation which allows no interest to be paid or received would mean subjecting ordinary savers to enormous risks - which surely cannot be the intention of Islamic banking. If Islamic banks cannot invest in bonds, T-bills, and commercial paper, or lend to finance inventory or projects for interest, it defeats the whole purpose of banking. Even in Muslim countries, what is called Islamic banking is - to put it in the dismissive words of one western critic - "normal banking sprinkled with holy water." At best, Islamic banking is a way to deny the existence of interest and make it easier for Muslims to accept the idea of banking since the Qur’an includes strong injunctions against the giving or taking of "riba" - interest.
Our group have been assinged to discuss on the topic above but in Islamic Banking perspectives. Therefore, before going any further, let us clarify definition of the Principles of Islamic Banking and clarify what are the elements involve in the Principles of Islamic Banking. Beside, we will also do some comparison of product or services offered by both banks which are conventional and Islamic banking. Apart from that, we will also clarify the problems or challenge faced by the agency which practices the Islamic banking in their agency.
Bond and stock both belong to negotiable securities, although both have their own characteristics. Bond and stock as a member of the securities system, which is a fictitious capital, they are no actual value, but they are the representatives of the real capital. Holding bond and stock are likely to obtain revenues. Also, bond and stock are the means of financing, compared with indirect financing such as bank loans, issuance of bonds and stock financing are large, long-term, low-cost, and not subject to the conditions of the lending bank. But, the mutual effect of yield from a single bond and stock, their yields are often differences and sometimes there such a big gap. However, if the market is effective, the average interest rate of the bond and the average return rate of the stock will generally remain relatively stable relationship, the difference reflects the degree of risk difference between the two. Looking with dynamic, the rate of return of the stock and prices and bond’s interest rates and prices are affect each other, often in the securities market with the movement in the same direction, for example, when the stock goes up then the bond will be going up too, but not exactly same range. These are the relationship between stock and
A safe financial system is central to the development and successful market economy, and an essential condition for growth and stability of the economy as a whole. This system is the basis for mobilizing and distributing savings and facilitates its daily operations. Therefore, it is extremely important to create a sound financial system. After creation of a well established financial system, money and capital markets can develop especially primary and secondary markets of national government securities. The financial system has a significant impact on GDP growth and its main part - the national income on development of enterprises and sectors of the economy, and financial situation of the general population.
3. The justice of income distribution: the income inequality and the natural resources which is contrary to the spirit and commitment of Islam on brotherhood man and socio-economic justice. The income gap should be overcome in Islamic way, such as
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.