...KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES ‘Comparison of Principles of Sale Contract between Conventional and Shari’ah Laws’ LAW 3512 COMMERCIAL LAWS (SECTION 3) Any form of cheating or attempt to cheat is a serious Offence which may lead to dismissal Introduction We are blessed as a human being on the earth as the only creature created by God who has the ability to think upon choosing between alternatives. Humans are associates with many labels and beliefs that they uphold throughout their life. Major differences of choosing between alternatives would be based on their framework of thinking mostly derive from their religions or beliefs. Speaking from Malaysia context, Islamic belief would be a stronger influence for Malaysian citizens before embarking into any decision. Although, Malaysia is known as the Islamic state but Malaysia still uphold conventional laws as the supreme laws for the state over Islamic Laws which ruled by the Federal Court. Islamic Laws would only covers family laws, inheritance and few specific issues among muslims[1]. We would further discuss on the framework of sale contract from Islamic and conventional point of view. Take a look around and it is apparent in our daily lives that transactions need to occur for us to carry on sustaining our needs and wants. As humans we ought to want things and we need to have goods that are essential for our daily lives in order to carry on living our lives...
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...INTRODUCTION The contract law principles in Shariah Law are not different from English contract law principles. In English law, ‘contract is an agreement enforceable by law’. According to Islamic law, a promise may not be legally enforced although it is strongly recommended by religious and moral values to be fulfilled.[1] In Islamic law, contract is known as ‘aqd’ which means tie or bond. It means a contract binds the parties together. From the definition, the term ‘aqad is more or less of the equivalent of the technical term of contract in Western Jurisprudence. However, ‘aqad does not necessarily involve agreement (which is a necessary element in a conventional contract) because the term is also used to describe a unilateral juridical act which is binding and effective without the consent of the other party. Islam emphasizes on fulfilling contractual obligations. Allah says in the Quran, “O ye who believe, fulfil all of your obligations”[2] and also similarly in this surah which is stated “…So fulfil your engagement with them to the end of their term, for Allah loves the righteous”[3] Under Islamic law, to be a valid contract, there must have some elements in the contract. Those elements are sighah (ijab and qabul), contracting parties and subject matter. The first element is sighah (ijab and qabul) or offer and acceptance. There are three kinds of offer which are verbal offer (kalam), offer by conduct (‘amal’) and offer in writing...
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...Islamic financial models are unique in that ethics are intertwined with their operations. Islamic governance takes into account the social implications of a business transaction and thereby serves the greater community interests. One of the main tenets upon which Islamic banking law rests is the prohibition on interest or “riba”. The concept is meant to outlaw all forms of wrongdoing and give the financier an interest in the venture. Not only does the doctrine of “riba” prevent the exploitation of someone in a weak bargaining position, but it also forbids “all forms of gain or profit which were unearned in the sense that they resulted from speculative or risky transactions and could not be precisely calculated in advance by the contracting parties.” The prohibition of interest is meant to design an economy and society based on risk-sharing, fair dealing, and equity. In Islamic law, the justification that interest is the cost of using money or that a loan is an investment is rejected in favor of ethics. Islamic economic theory criticizes the conventional financial industry for speculation, consumerism, volatility, “unnecessary products,” large corporations, and usury. These traditional capitalistic means of profit-making are not compatible with Islamic values. Islamic law therefore creates a culture where people only spend what they have, a theory in direct opposition to consumer driven models. Investment regulations are implemented to avoid “sinful” activity. Currency hedging...
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...Title: Social Reporting by Islamic Banks Authors: Bassam Maali, Peter Casson and Christopher Napier Introduction: Over the last 25 years the need for accounting practices in an Islamic perspective has risen, this is because western financial and social reporting frameworks may not be suitable for Islamic enterprises as it goes against Sharia Law (Islamic law) therefore Islamic banks have emerged. Islamic banks provide the normal services of a bank except those practices which are against lawful practices (halal) of sharia such as interest and those involving speculation, Depositors enter into Mudaraba and Musharka contracts where interest is replaced through profit/loss sharing scheme. The credibility of an Islamic bank is assessed by the Sharia Supervisory Boards (In house religious advisers) who provide audits and issue a report to the stakeholders on whether the organization has adhered to Islamic principles. Some of the Islamic banks adopt the recommendations of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Discussion Emphasis on Social Reporting Since establishments of Islamic banks, social welfare has been given priority, most banks set this as one of their main objectives. Unlike western society in Islam, Religion clearly provides the rights and obligations of individuals and organizations with respect to others and is not subject to change. Given below are some factors which has been considered as points that should...
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...Introduction Corporate governance refers to the method by which a corporation is directed, administered or controlled. It includes the laws and customs affecting that direction, as well as the goals for which it is governed. Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. Corporate governance is also viewed as a process of monitoring performance by applying appropriate counter-measures and dealing with concepts such as transparency, integrity and accountability. Corporate governance requires corporations to exercise immense accountability to shareholders and the public, and also monitors the management of organisations in running their businesses. Corporate governance is normally divided into two categories, that is, self and statutory. Self-regulation involves aspects of corporate governance that are difficult to legislate. The issues in this category involve the human element, ie the independence of the board of directors, the relationship with the management and appraisal of the director’s performance. Statutory regulation, on the other hand, is the framework of corporate governance that can be explained in legal terms. The legislative and regulatory rules include: 1. Duties, obligations, rights and liabilities of directors, controlling shareholders and company officers. 2. Disclosure and transparency. Today, good corporate governance is considered vital as it promotes morality...
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...REVIEW ARTICLE “ISLAMIC LAWS ON RIBA (INTEREST) AND THEIR ECONOMIC IMPLICATIONS” by, Shabrina Rahma Anindya 20140420052 UNIVERSITAS MUHAMMADIYAH YOGYAKARTA ECONOMICS FACULTY ACCOUNTING DEPARTMENT IPAcc 2016 The purpose of this research paper is to identify the Riba in transaction whereas it’s pessimistic repercussions and why the elimination of Riba in financial transactions is critically important. The characteristics of any financial transaction have some basis which differentiates it in Conventional or Islamic financial transaction and the most vital thing is called Interest or Riba. In this research we will discuss about the Riba (Interest), why it is essential to eliminate Riba, what are the pros and cons of it to the society and the harms it can create. We will also discuss the differences that how riba based system, if replaced by the Islamic economic and financial system can help the society as well as what primarily could be the optimistic effects after the elimination of Riba from the system. Shariah Rules are the basis of any contract and essential to derive and allow rulings based on the principles of Quran & Sunnah. Riba (Usury) is one of the most hatred things in the eye of Allah SWT. In Quran, Allah SWT has mentioned very clearly that those who are dealing in Riba are actually in war against the Almighty. Thorough out the recent years, Islamic financial institutions are one of the most growing industries that has been accepted and appreciated by society...
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...THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES, AUTHORIZING ITS CONDUCT OF ISLAMIC BANKING BUSINESS, AND REPEALING FOR THIS PURPOSE PRESIDENTIAL DECREE NUMBERED TWO HUNDRED AND SIXTY-FOUR AS AMENDED BY PRESIDENTIAL DECREE NUMBERED FIVE HUNDRED AND FORTY-TWO (CREATING THE PHILIPPINE AMANAH BANK) Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: WHEREAS, the State, in Section 20, Article II of the Constitution, encourages private enterprise and provides incentives to needed investments; WHEREAS, under the Constitution, the use of property bears a social function so that the consequences in law also must be defined by policy objectives related to property rights in productive enterprises; WHEREAS, toward this end, the Government has committed itself to the establishment of an Islamic bank that operates within a legal framework permitting the investors or participants the rights to equitable or beneficial share in the profits realized from financing productive activities and other operations: Now, therefore. THE CHARTER OF THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Section 1. Title. - This Act shall be known as "The Charter of the Al-Amanah Islamic Investment Bank of the Philippines." ESTABLISHMENT AND FUNCTIONS Section 2. Name, Domicile and Place of Business. - There is hereby created the Al-Amanah Islamic Investment Bank of the Philippines, which shall be hereinafter called the Islamic Bank.ts principal...
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..............................................7 3. Understanding Riba ...........................................................10 3.1 A world shaped by Riba.................................................... 10 3.2 What is Riba? ................................................................. 11 4. The Misunderstanding of Riba............................................20 4.1. Religious reformism and capitalism ................................... 20 4.2 The Islamic Reformers ..................................................... 23 4.3 The followers of Reda ...................................................... 27 4.4 The misunderstanding of Riba an-nasiah today.................... 28 4.5 Equating Riba to interest in a loan ..................................... 33 4.6 Islamic Banking .............................................................. 34 4.6.1 Islamic Banks are banks ............................................. 34 4.6.2 Murabaha: what it is and what it is not ......................... 38 4.6.3 How the Islamic Bank’s version of the contract of Murabaha came into being ................................................................. 41 4.6.4 The danger of making principles out of contracts............ 46 4.7 The Stages of the “Islamisation” process ............................ 48 4.8 On the methodology of modernism .................................... 49 5. Understanding Paper Money ..............................................54 5.1 Paper money backed by gold and...
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...1.0 INTRODUCTION Islamic financial system are being developed in the implementation and practice in our country today .System Islamic finance in Malaysia accounted for Islamic banking, interbank money market, Islamic insurance, or takaful, Islamic capital markets and financial institutions that provided alternative sources of funding . Islamic jurists consider seriously the core in the tradition Istinbat al-Ahkam (legal formulations) to address current issues such as the question of the driver legal-illegal, usury, gharar maslahah and maqasid syar`iyyah. However, in doing this, they are always taking a balanced approach between theoretical and practical aspects of compliance with Sharia principles and the `urf al-iqtisadiyyah (custom economic...
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..............................................7 3. Understanding Riba ...........................................................10 3.1 A world shaped by Riba.................................................... 10 3.2 What is Riba? ................................................................. 11 4. The Misunderstanding of Riba............................................20 4.1. Religious reformism and capitalism ................................... 20 4.2 The Islamic Reformers ..................................................... 23 4.3 The followers of Reda ...................................................... 27 4.4 The misunderstanding of Riba an-nasiah today.................... 28 4.5 Equating Riba to interest in a loan ..................................... 33 4.6 Islamic Banking .............................................................. 34 4.6.1 Islamic Banks are banks ............................................. 34 4.6.2 Murabaha: what it is and what it is not ......................... 38 4.6.3 How the Islamic Bank’s version of the contract of Murabaha came into being ................................................................. 41 4.6.4 The danger of making principles out of contracts............ 46 4.7 The Stages of the “Islamisation” process ............................ 48 4.8 On the methodology of modernism .................................... 49 5. Understanding Paper Money ..............................................54 5.1 Paper money backed by gold and...
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...1. What is Islamic Finance? Islamic Finance Definition Islamic Finance is differs from conventional finance in that Islam prohibits charging interest on loans. It involves the provision of financial products and services by institution offering Islamic Financial Services (IIFS) for Shariah approved underlying transaction and economic activities, based on contract that comply with Shariah law. Shariah is the factor that distinguish Islamic Finance from Conventional Finance. . Islamic finance is a form of finance that is based on Shariah, or the body of Islamic law. Shariah, “the way to the source of life” is filled with moral purpose and lessons on the truth, and is more than just a set of legal rules. Shariah represents the idea that all human beings and governments are subject to justice under the law. It is common to use the term “Shariah-complaint” to describe anything that is permissible under Islamic law. Shariah prohibits the acceptance of a specific interest or fees (Riba) for loans of money. Islamic finance involves structuring financial instruments and financial transactions to satisfy traditional Muslim strictures against the payment of interest and against engaging in gambling. It is a field of growing importance for conservative Muslims, especially in the Middle East, who are uncomfortable with Western-style bonds and banking that involve explicit payments of interest Shariah, the law of Islam, originates from two principal sources: the Quran, the Holy Book...
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...The Importance of Islamic Accounting in Modern Era by: Chusnul Asfadillah Student of Airlangga University, Surabaya, Indonesia +62899 372 1772 Ines Nur Latifah Student of Airlangga University, Surabaya, Indonesia +62878 8432 3738 DR. Raditya Sukmana Lecturer of Airlangga University, Surabaya, Indonesia + 62 878 5421 6776 ABSTRACT Purpose – This paper aims to determine the importance of the Islamic Accounting in modern era. In particular, the paper analyzes the values of the Islamic principles in the accounting process that prevent the unexpected activity such as fraud, dishonest etc to appear in reality. Arthur Anderson case was a result of the fraudulent activities that lead to its termination. Certainly this kind of case is expecting not to be happened in the future. Design/methodology/approach – The paper adopts the descriptive analysis and elaboration of the important element of the Islamic principles used in the accounting process. Furthermore, this paper attempt to make clear distinction between values underlying the Islamic accounting and that of the conventional accounting. Findings – the comparison of those two systems leads to the conclusion that the value in Islam such as honest, fair, truth (which is important in the Islamic accounting process) has more meaning than the similar value of in the conventional accounting. Hold firmly the Islamic value obviously leads to the decrease fraudulent practices and other unexpected activities. Moreover, it increases the social...
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...Islamic Finance is a financial system that doesn’t work like other conventional banking systems. It follows the Islamic law, Shariah, which doesn’t allow certain aspects of a normal banking system such as usury and speculation. There are some main principles to be followed in Islamic banking. First of all, it prohibits interest, or Riba. Riba is forbidden in Islam, and therefore Islamic banking system adopts the principle of profit and loss sharing. It also prohibits uncertainty, gambling, and prohibits certain products and industries such as alcohol and tobacco. Islamic Finance needs to be in accordance with the Shariah. All products and contracts follow Islamic principles that conventional financial systems do not, such as interest and risk sharing, and uncertainty. Conventional financial systems have never worked this way and it worked for them for many years until they were hit by the financial crisis. The crisis had a minimal impact on the Islamic financial systems because they did not comply with all the factors that created the crisis in the first place. There were 3 main factors in the creation of the financial crises. First, subprime loans, which was lending to certain people who did not have a good credit history and were bound to default. The banks than charged them with higher rates that increased their risk of defaulting. Secondly, there was securitization, which was creating securities from un-liquid assets. This process is used by banks to create securities from...
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...1.0 INTRODUCTION In Malaysia, there are numerous financial instruments and concepts available for customers to choose, which one is suited to them. Financial instruments that available in Islamic Banks in Malaysia are divided into two main components which are known as deposit; and loans and advances. Bay’Bithaman Ajil (BBA) and Murabahah are 2 types of Islamic financing product offered by banks in Malaysia and were introduced in 1983. The Islamic financing product of Murabahah was introduced to meet the above Quranic verse interpretation. It should be noted that BBA is a Murabahah product but the product name of BBA was given by BBMB to differentiate between a short term (below 12 months) and long-term (above 12 months) tenor financing products. Murabahah is for short term meanwhile BBA is for a long term financing products. 2.0 BAI’ BITHAMAN AJIL (BBA) 2.1 DEFINITION The Majallah refers to BBA as the Bai’ al Muajjal. In Pakistan the term is called Bai’ al-Muajjal, in Bangladesh it called bay’al-Muazaal. BBA means a "deferred payment sale". It is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. It can be implicated in any sale contract, including Musawamah and Murabahah but it is not applicable for a Salam contract, as the payment of Salam must be settled in full at the beginning of the contract...
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...Developments of Islamic Banking in Pakistan & Malaysia: An Analytical Review Abstract This study compares Islamic banking operations currently practiced in Pakistan and Malaysia. Both countries started Islamic banking in early 1980’s but employed entirely different approaches. Pakistan attempted to convert the entire financial system in accordance with Islamic law at once at national level. Malaysia adopted the gradual application approach. It allowed Islamic and conventional banking systems to operate and to compete for deposits on parallel basis. This study examines the Pakistani and Malaysian approaches towards the implementation of Islamic banking in their respective countries. It recognizes lack of commitment and long term planning problems in case of Pakistan. Introduction Islamic banking system has emerged as a competitive and a viable substitute for the conventional banking system during the last three decades. It is especially true for Muslim world where presently Islamic banking strides at two separate fronts. At one side, efforts are also underway to covert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Pakistan and Malaysia are the two good examples of above mentioned approaches. Both countries adopted different tracks for the same ultimate destination of developing full fledge viable Islamic financial system...
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