By: Muhamad Taqi Usmani
Over the last few decades, the Muslims have been trying to
restructure their lives on the basis of Islamic principles. They strongly feel
that the political and economic dominance of the West, during past centuries,
has deprived them of the divine guidance, especially in the socio-economic
fields. Therefore, after acquiring political freedom, the masses are striving
for the revival of their Islamic identity to organise their collective life in
accordance with the Islamic teachings.
In the economic field, it was the biggest challenge for such
Muslims to reform their financial institutions to bring them in harmony with
the dictates of Shari‘ah. In an environment where the entire financial system
was based on interest, it was a formidable task to structure the financial
institutions on an interest free basis. The people not conversant with the
principles of Shari‘ah and its economic philosophy sometimes believe that
abolishing interest from the banks and financial institutions would make them
charitable, rather than commercial, concerns which offer financial services
without a return.
Obviously, this is totally
a wrong assumption. According to Shari‘ah, interest free loans are meant for
cooperative and charitable activities, and not normally for commercial transactions,
except in a very limited range. So far as commercial financing is concerned,
the Islamic Shari‘ah has a different set-up for that purpose. The ÑçêÉïçêÇ=
principle is that the person extending money to another person must decide
whether he wishes to help the opposite party or he wants to share his profits.
If he wants to help the borrower, he must rescind from any claim to any
additional amount. His principal will be secured and guaranteed, but no return
over and above the principal amount is legitimate. But if he is advancing money
to share the profits earned by the other party, he can claim a stipulated
proportion of profit actually earned by him, and must share his loss also, if
he suffers a loss.
It is thus obvious that exclusion of interest from financial
activities does not necessarily mean that the financier cannot earn a profit.
If financing is meant for a commercial purpose, it can be based on the concept
of profit and loss sharing, for which musharakah and mudarabah have been
designed since the very inception of the Islamic commercial law.
There are, however, some sectors where financing on the basis of
musharakah or mudarabah is not workable or feasible for one reason or another.
For such sectors the contemporary scholars have suggested some other
instruments which can be used for the purpose of financing, like murabahah,
ijarah, salam or istisna.
Since last two decades, these modes of financing are being used by
the Islamic banks and financial institutions. But all these instruments are not
the substitutes of interest in the strict sense, and it will be wrong to
presume that they may be used exactly in the same fashion as interest is used.
They have their own set of principles, philosophy and conditions without which
it is not allowed in Shari‘ah to use them as modes of financing. Therefore the
ignorance of their basic concept and relevant details may lead to confusing the
Islamic financing with the conventional system based on interest.
The present book is a revised collection of my different articles
that aimed at providing basic information about the principles and precepts of
Islamic finance, with special reference to the modes of financing used by the
Islamic banks and non-banking financial institutions. I have tried to explain
the basic concept underlying these instruments, the necessary requirements for
their acceptability from the Shari‘ah standpoint, and the correct method of
their application. I have also dealt with the practical issues involved in the
7=~å=áåíêçÇìÅíáçå=íç=áëä~ãáÅ=Ñáå~åÅÉ= application of these instruments and
their possible solutions in the light of Shari‘ah.
In my capacity as chairman / member of the Shari‘ah Supervisory
Boards of a number of Islamic banks in different parts of the world, I came
across the points of weakness in their operations caused mainly by the lack of
clear perception of the relevant rules and principles of Shari‘ah. This
experience emphasized the need for the present book in which I have tried to
discuss the relevant subject in a simple way which may be easily understood by
a common reader who had no opportunities to study the Islamic financial
principles in depth.
This humble effort, I hope, will facilitate to understand the
basic principles of Islamic finance and the main points of difference between
conventional and Islamic banking. May Allah Ta‘ala accept this humble effort,
honour it with His pleasure and make it beneficial for the readers.
or visit http://www.muftitaqiusmani.com/index.php?option=com_content&view=article&id=6:an-introduction-to-islamic-finance&catid=4:books&Itemid=8
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4.15.2014
an Introduction to Islamic Finance
