Islamic Banking, Money and Forex

Islam, Murabaha and Fixed Deposits

2009-09-01T16:25:00.000-07:00

Islam and Usury
Written by Imran N. Hosein
(http://www.imranhosein.org/articles/islam-and-money.html)

Islam has declared war on the moneylender who demands interest. It did so in the very last divine revelation (al-Baqarah, 2:279) to come down in the Holy Qur’an. Here is that last revelation:

“O ye who believe! Fear Allah, and give up what remains of your demand for usury (i.e., the interest due on a fixed deposit, or on any other loan on interest), if ye are indeed believers.” If ye do it not (i.e. if you persist in your claim or demand for the interest due to you), then take notice of (a declaration of) war from Allah and His Messenger: but if ye turn away (from such claim or demand), then you are entitled to the return of your capital sum (placed in the fixed deposit or otherwise lent); do not enter into (such) unjust transactions, nor allow yourselves to be subjected to such.

If (you forgo the interest due to you and then find) the debtor in a difficulty (in respect of returning the capital sum that was lent to him on interest), grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.

And (in this matter in particular, i.e., lending money on interest) fear the Day when ye shall be brought back to Allah. Then shall every soul be paid what it earned, and none shall be dealt with unjustly.’ (Qur’an, al-Baqarah, 2:278-281)

The Quran and the Prophet about Money Matters

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MONEY MATTERS

On Interest

"Allah will deprive usury of all blessing, but will give increase for deeds of charity" (Quran 2: 276).

Narrated Jabir ibn Abdullah: Allah's Messenger cursed the accepter of interest and its payer, and one who records it, and the two witnesses; and he said: They are all equal (Muslim).

Abu Huraira related that the Prophet said: On the night of the Miraj I came upon a group of people whose bellies were like houses. They were full of snakes which could be seen from outside their bellies. I asked Gabriel who they were, and he told me that they were the people who had practiced Riba (Interest). (Ahmad, Ibn Maja)

Abdullah ibn Hanjalah related that the Prophet said: A dirham of Riba (interest) knowingly taken by a man is a sin worse than committing Zina (fornication) 36 times (Ahmad, Daraqutni).

Zakah-what you owe from your money

"And they are ordained naught else than to serve Allah, keeping religion pure for Him, as men by nature upright, and to establish worship and to pay the poor-due (Zakah). That is true religion." (Quran 98:5)

Abbas related that a man asked the Prophet, Tell me what should I do to be admitted to Paradise and he (the Prophet) answered: Worship Allah associating nothing with Him, observe Salat, pay Zakah and strengthen the ties of kinship. (Bukhari, Muslim)

Inheritance and wills

"And unto each We have appointed heirs of that which parents and near kindred leave; and as for those with whom your right hands have made a covenant, give them their due. Lo! Allah is ever Witness over all things" (Quran 4:33)

Ibn Umar related that the Prophet said: It is the duty of a Muslim man who has something which is to be given as a bequest not to have it for two nights without having his will written regarding it. (Bukhari, Muslim)

Anas related that the Prophet said: If anyone deprives an heir of his inheritance, Allah will deprive him of his inheritance in Paradise on the Day of Resurrection. (Ibn Maja)

How do you earn your money?

Abu Huraira narrated that the Prophet said: A time will come upon the people when one will not care how one gains one's money, legally or illegally. (Bukhari)

It is reported by Jabir that the Prophet said: The flesh and body that is raised on unlawful sustenance shall not enter Paradise. Hell is more deserving to the flesh that grows on one's body out of unlawful sustenance. (Ahmad).

Abu Said related that the Prophet said: The truthful and trustworthy businessman will be in the company of Prophets, saints and martyrs on the Day of Judgment. (Darimi, Tirmidhi)

Debts

It is narrated by Abu Musa Ashari that the Prophet said: After the major sins which must be avoided, the greatest sin is that someone dies in a state of debt and leaves behind no asset to pay it off. (Darimi)

Loans

Abu Qatadah related that the Prophet said: If anyone would like Allah to save him from the hardships of the Day of Resurrection, he should give more time to his debtor who is short of money, or remit his debt altogether. (Muslim)

Strive with your wealth

"Believers are merely those whose hearts feel wary whenever God is mentioned and whose faith increases when His verses are recited to them. On their Lord do they rely. Those who keep up prayer and spend some of what We have provided them with are truly believers" (Quran 8:2-4).

Asmah related that the Prophet said: Spend, and do not count, lest Allah counts against you. Do not withhold your money, lest Allah withholds from you. Spend what you can. (Bukhari, Muslim)

Abu Huraira related that the Prophet said: The Lord's commandment for every one of His slaves is, ‘Spend on others, and I will spend on you'. (Bukhari, Muslim)

The poor and your wealth

"Hast thou observed him who belieth religion? That is he who repelleth the orphan, and urgeth not the feeding of the needy" (Quran 107: 1-3).

Safwan ibn Salim related that the Prophet said: Anyone who looks after and works for a widow and a poor person is like a warrior fighting for Allah's cause, or like a person who fasts during the day and prays all night. (Bukhari)

Hoarding

"O you who believe! Lo! many of the (Jewish) rabbis and the (Christian) monks devour the wealth of mankind wantonly and debar (men) from the way of Allah. They who hoard up gold and silver and spend it not in the way of God, unto them give tidings (O Muhammad) of a painful doom" (Quran 9:34).

Charity and punishment

It is narrated by Anas bin Malik that the Prophet said: Verily charity appeases the wrath of Allah and eases the sufferings of death. (Tirmidhi)

Extravagance

"Give the kinsman his due, and the needy, and the wayfarer, and squander not (your wealth) in wantonness. Lo! the squanderers were ever brothers of the devils, and the devil was ever an ingrate to his Lord" (Quran 17:26-27).

Amr ibn Shuaib, on his father's authority said that his grandfather related that the Prophet said: When you eat, drink, give charity and wear clothes, let no extravagance or pride be mixed up with what you do. (Ibn Maja, Nasai).

Being a Miser

Abu Huraira narrated that the Prophet said: Every day two angels come down from Heaven and one of them says, 'O Allah! Compensate every person who spends in Your Cause,' and the other (angel) says, 'O Allah! Destroy every miser'.(Bukhari).

Abu Said Khudri related that the Prophet said: There are two habits which are never present together in a believer: miserliness and bad manners (Tirmidhi).

Jabir reported that the Prophet said: Avoid doing injustice to others, for on the Day of Judgment, it will turn into manifold darkness, and safeguard yourself against miserliness, for it ruined those who were before you. It incited them to murder and treating the unlawful as lawful. (Muslim)

Moderation in giving

"And let not thy hand be chained to thy neck nor open it with a complete opening, lest thou sit down rebuked, denuded" (Quran 17:29).

(In reference to the slaves of Allah) "And those who, when they spend, are neither prodigal nor grudging; and there is ever a firm station between the two" (Quran 25:67).

Bribery

"And eat not up your property among yourselves in vanity, nor seek by it to gain the hearing of the judges that you may knowingly devour a portion of the property of others wrongfully" (Quran 2:188).

Contentment

Abu Huraira narrated that the Prophet said: Wealth is not in having vast riches, it is in contentment. (Bukhari, Muslim).

Envy in wealth

Ibn Masud said I heard the Prophet saying: There is no envy except in two: a person whom Allah has given wealth and he spends it in the right way, and a person whom Allah has given wisdom (i.e. religious knowledge) and he gives his decisions accordingly and teaches it to the others. (Bukhari).

Women and Charity

Ibn Abbas narrated that the Prophet went out for the Eid prayer on the Eid day and offered a two Rakat prayer; and he neither offered a prayer before it or after it. Then he went towards the women along with Bilal. He preached [to] them and ordered them to give in charity. And some (amongst the women) started giving their forearm bangles and earrings. (Bukhari)

The Best Charity

Abu Huraira narrated that the Prophet said: The best charity is that which is practiced by a wealthy person. And start giving first to your dependents. (Bukhari)

On Begging

Narrated Hakim bin Hizam that the Prophet said: The upper hand is better than the lower hand (i.e. he who gives in charity is better than him who takes it). One should start giving first to his dependents. And the best object of charity is that which is given by a wealthy person (from the money which is left after his expenses). And whoever abstains from asking others for some financial help, Allah will give him and save him from asking others, Allah will make him self-sufficient. (Bukhari)

Abu Huraira related that the Prophet said: He who makes a habit of asking from others reaches out for a brand of Fire, so let him refrain or continue, as he desires. (Muslim)

Business conduct

Jabir related that the Prophet said: May Allah show mercy to a man who is kind when he sells, when he buys, and when he makes a claim. (Bukhari)

The Basics of Money in Islam

2009-09-01T16:10:00.000-07:00

The Paying of Zakat and the Avoidance of Interest

When Prophet Muhammad (SAW) began relaying the messages of the Qur’an, a segment of society that benefitted immensely were the Muslim women. Islam allowed women to partake in the labour force; trade through their own skills and expertise; inherit money and property, and above all - they were given complete financial freedom from their male counterparts.

Today, many Muslim women earn and enjoy an income. Many own property and other forms of assets to their name. Women who do not work are provided for by their husbands.

However, with this right to financial freedom, comes responsibility. Through Allah’s wisdom, He advises women, as participating individuals of the economy, to comply with tenets regarding their money. Two canons that govern our money is the responsibility to pay zakat and the obligation to avoid riba (interest).

Have you paid zakat?

“The Believers must (eventually) win through, Those who humble themselves in their prayers; Who avoid vain talk; Who And who are payers of the poor-due.” (al-Mu’minun:1-4)

Paying zakat (Islamic tax) is one of the tenets of Islam and thus, obligatory to all Muslims (al-Baqarah: 277). There are several reasons for paying zakat.

Allah (SWT) provides for all of His followers regardless of their abilities and backgrounds. Many Muslims are less fortunate than others. Muslims who earn an income, need to remember that the ability to work comes from Allah (SWT). By paying zakat, Allah (SWT) provides for the less fortunate members of society.

Also, one of the seven categories of zakat recipients are reverts to Islam (at-Tawbah), sealing camaraderie between born Muslims and new brothers and sisters of the faith. This is similar to the bonds created between the Ansar and the Muhajireen during the emigration from Makkah to Madinah.

Money is also purified by the zakat deduction. Collectively, a community who diligently pays zakat works together to eradicate poverty in society. This emphasises the importance of having women contribute to an economy.

How much is zakat? According to prominent financial scholar, Monzer Kahf, 2.5% of a Muslim’s disposable income belongs to the zakat recipients. Besides income, zakat also applies to savings, property and gold.

The concept of riba

“O you, who believe, fear Allah and give up what remains due to you of interest if you are indeed believers.” (al-Baqarah: 278)

Riba is an element that contaminates your money. The Qur’an and numerous authentic Hadith remind that riba is strictly prohibited in Islam. Whether one is paying off interest, a recipient of interest on a savings account or facilitating the enactment of an interest-based contract, Muslims are liable to be frowned upon by Allah (SWT) (Bukhari).

Riba is defined as an increment in the repayment of a loan and a passive stream of income.

Car loans, housing loans, education loans, personal loans, and overdue credit card bills... all of these comprise interest. Preferably, Muslims should only engage in Islamic loans, those that are not riba-based. Where there is no choice, Muslims should look into repaying outstanding debt quickly. Funds or savings from investments such as unit trusts or other savings plans should be used to pay-off interest-ridden debt.

On the other hand, if savings accounts thrive on interest, Muslims are disallowed from keeping this money. “Do not earn from interest!” reminded Prophet Muhammad (SAW) in his final sermon.

Muslims are to save money in Islamic savings accounts (that pay dividend). Otherwise, interest income has to be disposed of to charitable causes in order to purify our money. This does not constitute zakat.

Make money more Islamic!

Islam has always advocated the rights of women – especially the exclusive right to income. However, it is inappropriate to abuse that right by ignoring Allah (SWT) commandments regarding money.

Paying zakat not only reminds Muslims of their ability to earn an income and curbs indulgences in aesthetics and material whims. By avoiding interest, Muslims avoid transacting with service providers that are fed by passive income.

The copyright of the article The Basics of Money in Islam in Islamic Practices is owned by Maria Zain. Permission to republish The Basics of Money in Islam in print or online must be granted by the author in writing.

Zakat - Islamic Economy System

2009-09-01T16:03:00.000-07:00

Zakat - Islamic Economy Purpose in Islam

The economics of Zakat and its relevance to modern times is a hotly debated issue among both religious and liberal Muslims. This series of articles will attempt to explain the concept of Zakat in the light of only the Quran and the faithful implementation of this concept by our Prophet Muhammad (pbuh). We will see how a similarly implemented system can solve the current economic problems of not just Muslim Countries, but of the World.

Zakat - First Universal Welfare System

Contrary to the beliefs of both religious and secular Muslims, the Prophet Muhammad achievements were based not on ephemeral but on the permanent values of the Quran. He brought about the greatest revolution, even an economic and political miracle in human history (see Michael Hart, THE 100, pages 3-10). In a very short time after the prophet migrated to Medina and implemented the system of salaat and zakat, the economic condition of the people changed.

The Prophet Muhammad (pbuh) is reported to have said; If a single person were to sleep hungry in a town, then God's protection is lifted from that town -[Masnad Imam Ahmad]. This hadith emphasizes that no one (Muslims or non Muslims) under this system should go hungry. Thus this zakat system created the first universal welfare system in human history. It also gradually transformed the existing slave based economy to a universal welfare based economy. By the end of the Prophet's period, the entire Arabian Peninsula enjoyed economic as well as political security. This system reached its pinnacle during Khalifa Umar's time (again, see Michael Hart, THE 100, pages 261-265), a time when, history tells us, hardly anyone was in need of charity.

What has occurred then in the intervening years that the Muslims masses are suffering economic deprivation even though they live in areas with plenty of natural resources?

What Happened Then?

Muslims and non Muslims alike ask the question; If the system implemented by our Prophet Muhammad (pbuh) and Sahabaa (r) was so good, why did it not continue? The answer is simple, we changed or abandoned the system implemented by the Prophet Muhammad. Instead of deciding matters with open consultation, as the Quran requires, the Ummayad and Abbasid dynastic rulers created a dictatorship under the guise of " Shari'iah " and " Ijma'a ". This was a ploy to fool the people. The rulers first acquired illegal political authority, and then delegated religious authority to Imams appointed by themselves.

Thus they hijacked the train of Islam from the track of our Prophet (pbuh) and his Sahabba (r) and put it on a new track called " Shari'ah ." Since then, a minority of the rich and powerful has been riding this train and entertaining their friends while exploiting the vast majority of Muslims along the way. Consequently, common Muslims have continued to live in poverty and to suffer intergenerational economic misery. Islam's system of Zakat has had nothing to do with this sad state of affairs.

Zakat & Our Approach

Today, we are taught that zakat is one of the pillars of Islam. Zakat is generally translated as charity or poor due and it is required to be distributed according to the details given in the Shariah. However, the descendents of the Prophet (pbuh), generally known as "Syeds" in the Indian subcontinent are forbidden to take zakat according to this Shariah. No matter how poor, they are considered superior by birth compared to other Muslims due to their supposed relationship with the Prophet (pbuh). Obviously, this is against our Prophet's Sunnah since he proclaimed justice, fairness, and equality for all, regardless of family or blood relationship.

The dispensation of zakat is regulated by different rates (called shar'h ) for different items called (nisaab) whose details are given in books of hadith and Fiqh. Zakat on money is 2.5% of the savings over a period of one year according to the Shari'ah. There are many conditions attached to the giving and receiving of zakat. There is no uniformity even among the Sunnis in the restrictions, rates and even the items of zakat.

In addition, there are different books of Fiqh and Shari'ah for different Muslim sects or schools of thought! Although Islamic scholars know about these differences in zakah among the Muslim sects, they rarely bring them out into the open, since it is in the interest of these scholars to keep the people ignorant.

The differences in zakat among the four Sunni Imams are not as major as among the Sunni and Shi'ia Imams. For example, in Fiqh Jaffariah , there is no zakat on paper currency. So, for the followers of this Fiqh there is no Zakat on bank accounts. When General Zia-ul-Haq, the Pakistani military ruler instituted compulsory zakat in Pakistan, the Shi'ia 'Ulema revolted against it and refused to abide by the government's zakat ordinance. Ultimately the government excluded Shi'ias from the yearly bank account deductions. This led many Sunnis to declare themselves Shi'ias on their bank forms to avoid paying zakat on their bank accounts.

Zakat - Conclusion

Dear sisters and brothers! We must re-turn to the true spirit of the Quran; we must have the courage to follow the Islam of our Prophet Muhammad (pbuh), which requires real sacrifice and a drastic change in our lifestyles. We must go back to the Quran as the primary source, and not to the rulings of Islamic scholars from the time of the Ummayad and Abbasid rulers.

In Part 2 of this article we will look at the real meaning and significance of zakah - the Arabic word zakah with its root z-k-w , which means growth and development, not charity or poor-due. Keeping this meaning in full view, zakat is supposed to ultimately lead to growth and development of all human beings; it is supposed to remove the need for charity or poor-due in the long term. We will see how zakat not only leads to the economic progress of individuals and all human beings but to their spiritual progress as well. We will also note the difference between Sadaqaa and Zakat.

Overview of Islamic Banking

2009-08-30T16:23:00.000-07:00

Islamic Economics

Islamic banking is based on the principles of Islamic economics — an economic framework in accordance with Islamic law (Sharia'h).

There are two types of Islamic economics:

* Caliphate , the Islamic form of government representing the political unity and leadership of the Muslim world (Islamic political framework)

* Assuming the political framework is non-Islamic, therefore, seeking to integrate some prominent Islamic tenets into a secular economic framework

Caliphate is the absolute Islamic rule, thus the economy focuses on distribution of resources in order to meet the basic and luxurious needs of individuals in society, and the state has a clear role in policing, taxation, managing public assets, and ensuring the circulation of wealth. Such a political framework in its true form does not exist in today's world.

Assuming non-Islamic political framework simply proposes two main tenets: no interest can be earned on loans and socially responsible investing. This is the way conventional banking is Islamized—the first step towards an Islamic economic framework.

Modern day Islamic scholars and academics have developed various modes of Sharia'h complaint financing that are designed to work within the prevailing capitalist economic framework. In order to achieve this balance numerous concessions have been afforded to financial institutions that would not apply if a viable interest free economic system existed. The intention behind making these concessions is to encourage the evolution of this type of alternative system.

Islamic Banking

Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia’h) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba. Generally, Islamic law also prohibits trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam.

Islamic finance has been gaining momentum on a global scale for the last 30 years.

Many Islamic Banks have sprung up over the last few years. These changes are occurring both in Muslim and in western countries, and are driven by a global trend amongst Muslims to become more observant of their faith. It might have been the reason why Islamic Banking emerged, however, today Islamic Banking is sought by Muslims and non-Muslims due to the benefits it offers.

Industry size is currently estimated at more than $400 billion, with projected growth of 15% per annum.

Financial institutions around the globe are trying to keep pace with the growing demand for Sharia’h compliant products and services.

Bai Salam - Features & Conditions

2009-08-30T16:13:00.000-07:00

Bai salam

Bai salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver, or currencies based on these metals. Barring this, Bai Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship.

Basic features and conditions of salam

The transaction is considered Salam if the buyer has paid the purchase price to the seller in full at the time of sale. This is necessary so that the buyer can show that they are not entering into debt with a second party in order to eliminate the debt with the first party, an act prohibited under Sharia. The idea of Salam is to provide a mechanism that ensures that the seller has the liquidity they expected from entering into the transaction in the first place. If the price were not paid in full, the basic purpose of the transaction would have been defeated. Muslim jurists are unanimous in their opinion that full payment of the purchase price is key for Salam to exist. Imam Malik is also of the opinion that the seller may defer accepting the funds from the buyer for two or three days, but this delay should not form part of the agreement.
Salam can be effected in those commodities only the quality and quantity of which can be specified exactly. The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam. For example, precious stones cannot be sold on the basis of salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible.
Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply the wheat of a particular field, or the fruit of a particular tree, the salam will not be valid, because there is a possibility that the crop of that particular field or the fruit of that tree is destroyed before delivery, and, given such possibility, the delivery remains uncertain. The same rule is applicable to every commodity the supply of which is not certain.
It is necessary that the quality of the commodity (intended to be purchased through salam) is fully specified leaving no ambiguity which may lead to a dispute. All the possible details in this respect must be expressly mentioned.
It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it is quantified through measures, its exact measure should be known. What is normally weighed cannot be quantified in measures and vice versa.
The exact date and place of delivery must be specified in the contract.
Salam cannot be effected in respect of things which must be delivered at spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari'ah, that the delivery of both be simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale. Therefore the contract of salam in this case is not allowed.

Terminologies of Islamic Banking

2009-08-30T16:08:00.000-07:00

Bai' al-inah (sale and buy-back agreement)

The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount. The buying back agreement allows the bank to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency. Some scholars believe that this is not compliant with Shariah principles.

Bai' bithaman ajil (deferred payment sale)

This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan. By the application of a discount rate, an Islamic bank can collect the market rate of interest

Bai muajjal (credit sale)

Literally bai muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

Mudarabah (profit sharing)

Mudarabah is an arrangement or agreement between the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. The entrepreneur provides expertise, labor and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor's profits.

Murabahah (cost plus)

This concept refers to the sale of goods at a price, which includes a profit margin agreed to by both parties. The purchase and selling price, other costs, and the profit margin must be clearly stated at the time of the sale agreement. The bank is compensated for the time value of its money in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank is not compensated for the time value of money outside of the contracted term (i.e., the bank cannot charge additional profit on late payments); however, the asset remains as a mortgage with the bank until the Murabaha is paid in full.

This type of transaction is similar to rent-to-own arrangements for furniture or appliances that are very common in North American stores.

Musawamah

Musawamah is the negotiation of a selling price between two parties without reference by the seller to either costs or asking price. While the seller may or may not have full knowledge of the cost of the item being negotiated, they are under no obligation to reveal these costs as part of the negotiation process. This difference in obligation by the seller is the key distinction between Murabaha and Musawamah with all other rules as described in Murabaha remaining the same. Musawamah is the most common type of trading negotiation seen in Islamic commerce.

Bai salam

Shariah Advisory Council/Consultant

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slamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish a Shariah Supervisory Board (SSB) to advise them and to ensure that the operations and activities of the bank comply with Shariah principles. On the other hand, there are also those who believe that no form of banking can ever comply with the Shariah.

In Malaysia, the National Shariah Advisory Council, which additionally set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services. In Indonesia the Ulama Council serves a similar purpose.

A number of Shariah advisory firms (either standalone or subsidiaries of larger financial groups) have now emerged to offer Shariah advisory services to the institutions offering Islamic financial services. Issue of independence, impartiality and conflicts of interest have also been recently voiced.

Islamic Banking - Defination

2009-08-30T16:03:00.000-07:00

Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment of fees for the renting of money (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.