Definition

Islamic finance:

Overview:

“Islamic Finance is governed by the Sharia (Islamic Law), sourced from the Quran and the Sunnah”.

The term “Islamic banking” refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called Riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haram (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values). Furthermore the Sharia prohibits what is called “Maysir” and “Gharar”.

Definition of Islamic Finance:

Islamic finance is defined as:-

“A financial service principally implemented to comply with the main tenets of Sharia (or Islamic law)”.

In turn, the main sources of Sharia are the Holy Quran, Hadith, Sunna, Ijma, Qiyas and Ijtihad. The Holy Quran is the book of revelation given to the Prophet Muhammad (S.A.W); Hadith is the narrative relating the deeds and utterances of Prophet Muhammad (S.A.W); Sunna refers to the habitual practice and behavior of Prophet Muhammad (S.A.W) during his lifetime; Ijma is the consensus among religion scholars about specific issues not envisaged in either the Holy Quran or the SunnaQiyas is the use of deduction by analogy to provide an opinion on a case not referred to in the Quran or the Sunna in comparison with another case referred to in the Quran and the Sunna; and Ijtihad represents a jurists’ independent reasoning relating to the applicability of certain Sharia rules on cases not mentioned in ether the Quran or the Sunna.

A large number of Islamic finance definitions are found in the literature, ranging from the relatively simple definitions for specific aspects (say, Islamic banking) to more complex definitions covering all financial operations. Warde (2000, p. 5), for example, defines Islamic finance as follows: “Islamic financial institutions are those that are based, in their objectives and operations, on Quran’s principles (principles of the Muslims’ holy book)”. This particular definition suggests that Islamic financial firms are not just banks, but also other types of financial intermediaries that employ Sharia principles. The other point of departure is that the Sharia ostensibly requires the adjustment of all aspects of Muslims’ lives and the formation of a complete moral system. According to Iqbal (1997), while the prevailing Western financial system focuses on the capitalistic features of economic and financial processes, Islamic finance aims to make an actual moral and equitable distribution in resources and social fairness in all (Muslim) societies.

core of islamic finance

core of islamic finance

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: