Shariah Principles Governing Islamic Law Essay

Shariah Principles Governing Islamic Law Essay

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Islamic finance is governed by the Islamic law (shari’ah) and the sources from Quran and Sunnah. Islamic finance is the financial framework that comprise the activities according to Islamic law that known as Shariah principle. In Islamic law, any activities involved must be prohibiting from riba. Riba means extra or excess interest in payment made by buyer or customer to the seller or bank. Besides riba, Shariah Law also prohibits any transactions that contain gharar (uncertainty) and maysir (gambling). In Islam, any business activities must be clear and based on Quran. For example, Islam prohibit from investing business in unlawful and haram like run business in producing media such as gossip column which are contrary to Islamic values. The sources of Shariah Law is come from Quran, Sunnah, Ijmaa’ and Qiyas. Quran is refer to the words of Allah revealed to Prophet Muhammad s.a.w. Ijmaa’ is the opinion and agreement between Muslim jurisconsults while Qiyas is application and extension of law established by binding authority to a particular case and compare a new case with Divine text with same and common effective cause (illahi). Islamic finance also can be categories into three sections, there are about faith and belief, practice and activities and moralities and ethic. Under practice and activities, it can be divide into two which is ibadat (relationship with God) and mu’amalat (relationship with others human). In mu’amalat, it separate to political, economic and social activities.

First effort of Islamic finance is in 1960’s. In 1963, Mit Ghamr Local Saving Bank was established in Eygpt. The operation is based on German Saving Bank. The purpose of the bank is to mobilize the idle saving of Musl...

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...ribute profit to the customer which is can be calculated based on gross profit is permissible. In current practice in Islamic financial system, they used to calculate the gross profit between institution and customer by deducted whole operation profit and investment finds to direct expense. After getting the value, the institution will get the actual value to the customer. Based on SAC meeting, they conclude that the method is permissible. It is because the institution have aim to safeguard the customer as the depositor and investor in their institution. In musyarakah contract, all partners were agreed about the proportion of gross profit and net profit. But in mudharabah case, majority consulters agreed that the mudarib must responsible to bear the whole operating cost include indirect cost. Therefore, the method to distribute gross profit is must meet the need.

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