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discuss the principles of islamic banking pdf
a summary about difference between islamic and conventional banking
discuss the principles of islamic banking pdf
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One of the most widely quoted operating principles in Islamic banking is the principle of mudharabah, sometimes known as qirad or muqaradah. Mudharabah is a contractual involving two parties which is the provider of funds and the mudharib is agent. There are two ways in which Islamic banks are involved in mudharabah contracts. When clients open investment accounts, the contractual relationship between the bank and the clients is based on mudharabah principles. In this case, the bank acts in its capacity as a mudharib. An Islamic bank could also be the capital provider where it provides financing based on mudharabah principles.
The capital provided should be known as to amount and type, be it in cash or trading assets or any other non-monetary assets. A debt due from a third party or the mudharib himself cannot be considered capital. In good faith, mudharabah capital cannot be guaranteed by the mudharib. However, the provider of capital may request from mudharib a guarantee against his dishonesty or misconduct. If the mudharib violates the terms of the contract, it is considered misconduct. He is the liable to return the capital which is the capital in his possession is a liability.
The amount earned in excess of capital, the profit must be apportioned between the contracting parties. No party can have exclusive right to the profit. The profit sharing ratio must be known at the time of contracting. However, it is permissible for the ration to be subsequently adjusted if so agreed at the time of contracting. This enables the management of the bank, as mudharib, to adjust the profit sharing ratio to give a higher amount of profit to investment account holders and a constant rate of return at times when profits are rather low.
Under mudharabah, the capital provider bears all financial losses. The loss of the mudharib is really an opportunity loss. The time spent on the loss-making contract could have been spent on another contract. However, if the loss arises from the misconduct of the mudharib or though his negligence, he is to bear the loss. It is not clear to what extent he is to bear the loss. Losses are net off against capital on repayment. In the case of long term mudharabah, periodic losses are set off against accumulated undistributed profits.
Profits can only be distributed on realization and on returning the capital to the provider.
in business it need to be consider the most effective form. Capital is one of the factors to
1972 HBL opened the first of 11 branches in Oman. HBL constructed Habib Bank Plaza in Karachi to commemorate the bank’s 25th Anniversary.
With a provision of funds by debt, the owner will have such benefit, which is retained control of the company
In 1975, the Islamic Development Bank opened in Saudi Arabia and gave the islamic finance industry an international presence. It recruited member countries and offer them financial products to promote economic and comunity development.
The primary objective of this article is to lay down the hypothetical framework, which discusses the Profit and loss sharing based on Islamic principles with the investment of interest free partnership. According to the author, Islamic financing is based on the risk that is beard by the both parties. On the time of investment, whether agents have shortage or surplus of resources, they have to share the returns and risk on the investment they are making. General concepts of Islamic financing instruments like Mudarabah, Musharakah, Murabahah, Al-Salam and Al-Ijara are based on the mechanism of profit and loss sharing (PLS). All of these above mentioned partnerships are based on the agreed upon the subsequent loss or th...
Capital is the principal feature of Mudarabah forming the substance of the contract. The capital shall be contributed by the capital provider only. The capital shall be managed by the manager to generate income. The capital of Mudarabah may be in the form of monetary or non-monetary
6. The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds is given to charity. Rebates are give for early settlement at the Bank's discretion.
Mudharabah have two types. There are mudharabah muthlaqah and mudharabah muqayyadah. Mudharabah muthlaqah means the purpose is to form collaborations between capital owners and managers of capital coverage is very broad and not limited by the specifications of the effort, time and the business district. In the discussion of fiqh scholars forbearers sholih often exemplified by expression if'al ma syi'ta (please do as you please) of the owners of capital to capital manager that gives enormous power. Mudharabah muqayyadah means it is type of the opposite of mudharabah muthlaqah. That is capital constrained by the limitations of governors of effort, time or place of business. The difference between them lies in the restriction of the use of capital in accordance with the will of the owners of capital.
A Company’s policy generally is to have different types of investors for their securities. Therefore, a capital structure should give enough choice to all kind of investors to invest. Usually bold and adventurous investors go for equity shares and loans & debentures are often raised keeping into mind conscious
As the world has recently passed through the global financial crisis that begun in 2008 in the USA with the banks’ collapsing, analysts are giving different opinions and making new economic hypothesizes about the origin of, as well as the process of different countries escaped from the crisis. Among all these new “theories”, the case of Islamic banks is interesting in terms of its nature and consequences. In my essay, I will try to highlight the basic principles of the Islamic finance, the reasons of the restriction of interest, the most important tools used by Islamic banks in economic activities and brief explanation of them, and finally my view point of the probable future improvement of the Islamic financial system.
As we know the financial service are of two types 1. The depository institutions 2. Non-depositary intuitions. In this let us consider depository intuitions and let discuss on it. The major example of financial depository institutions is banks. As banks accepts deposits from its customers. Banks play very virtual role in developed economy, like Oman. In this assignment let us take National bank of Oman as an example. National bank of Oman is very famous and busy bank in Oman majority of citizens of Oman bank with it.
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.
Wastage could also happen is the retained profit is not used for a long time (Altiusdirectory.com, 2014).
The word “Takaful” is derived from the Arabic verb “Kafala” which simply means to jointly guarantee. Therefore the pact between at least two parties agreeing to jointly guarantee one another in the event of a loss, as a consequent of being afflicted by a calamity defines the term “Takaful”. Technically Takaful defines a mutual; guarantee or assurance based on the principle of al-aqad (contract) provide by group of people living in the same society, against a defined risk or catastrophe befalling life, property or any form of valuable asset. According to Islamic Financial Services Act 2013 Takaful means an arrangement based on the mutual assistance under which Takaful participants agree to contribute to a common fund providing for
The Traditional Theory of Banking In this paper author review the traditional theory of banking and attempt to examine the theoretical reasons for why banks exist. As a financial intermediation, the natures of the banks are to provide financial services and conduct the intermediary functions in the whole financial system by accepting deposits and making loans. The question raised here are how they conduct these roles and why the borrowers and lenders do not come together without the banks for the saving of intermediation costs, why both of the two parties are ready to pay for their services and what’s the value added by the banks? The paper proceeds as follows. Section 2 offers a traditional view of banks and describes the nature of them.