What is Islamic Finance?

If we ask someone what Finance is, we will

probably get a number of responses such as:
it is all about money, and It concerns
resource allocation, management, acquisition
and investment. Whatever response we get,
it will be more or less correct.
 As we know that Finance is broad term
and takes into account many aspect of the
economy and financial system since it deals
with matters related to money. Now if we
ask the question: What is Islamic Finance?
many people would come up with diverse
answers depending on their level of
exposure and understanding.
 To some, Islamic finance is just another
religious doctrine to provide financing for
mosques, charities or funding for Muslim
entrepreneurs. Unconvinced secularists as
well as other critical observers would go
further to argue that Islamic finance is a
broader political agenda to transform the
present state of the world.
 However, people have increasingly
discovered that Islamic finance appears to
be far removed from political and
philanthropic endeavours. In fact, Islamic
finance practitioners including bankers,
fund managers, economists and regulators
would perhaps hesitate to categorise
themselves a social or philanthropic
movement.
 Instead, the rapid growth of Islamic
finance since its first inception in the
1960s witnessed the growing
concern and interest among the
Muslims and non- Muslims alike
whether academicians

Cont.
, practitioners, professionals, or
the general public towards
establishing a more viable,
robust and competitive Islamic
financial system that may
eventually become the best
alternative to the conventional
system in future.
 Inconventional system, everything
relating to the concept of man-made
which based human judgments and
more prone to be contradicted,
rejected, opposed or changed
whereas Islamic socio-economic
system is based on the Divine
Authority.
 IslamicEconomic is different
from secular in most aspects,
since its close tie to religion.
Some of the aspects are
prohibition of interest (riba),
uncertainty (Al-grarar),
Gambling (Al-maisir ), etc.
 Unlikeconventional system, in
Islam all resources belong to
Almighty Allah and have
guidance and control over them
and command to use the
resources as being a vicegerent
of Allah.

Although, the existence of
conventional institutions and secular
economic system of todays world
are substantial and operative but
there is also the development of
Islamic economic system which is
considered fast growing institution of
Islamic finance .
 The scope of shariah (Islamic
jurisprudence) is very wide and
complete and without proper
knowledge and implementation will
result to slow its effectiveness and
consequently enhance the
continuation and existence of
conventional financial institutions.
 Islamic
economics encourages
the acquisition of wealth
throughout the process of
earning the righteous way (Halal)
and abstaining what is forbidden
(Haram
 ), Islam is also against all forms of
injustice and exploitations and stated
an economic system that trends its
effort to secure socio-economic
justice and harmony life of the
people. one of the injustice element
is interest (riba)

cont.
 which is prohibited, giving and receiving as well as
witnessing are also prohibited as Allah revealed in the
Quran
those who devour Riba (usury) will not stand (on the

day of resurrection) except like the standing of a

person beaten by Syaitan (satan) leading him to
insanity. That is because they say:Trading is only like
Riba, whereas Allah has permitted trading and
forbidden Riba ,So whoever receives and admonition
from his Lord and stops eating Riba shall not be
punished for his past; his case is for Allah (to judge);but
whoever returns (to Riba),such are the dwellers of fire
_they will abide therein. (Quran,2:275).
 The well being of people is to
acquire wealth and become an
active member within society,
therefore, the concept of private
ownership of property is relative,
and absolute ownership of
everything belongs to Allah
,there is no distinction between
a spiritual and material activity
of man who is in return
accountable to Allah, so that the
enforcement of Islamic shari;ah
guides individuals to fulfill their
obligations towards society.
 Islam considers all factors of production an
ethical framework. The strategic plan of
production integrates meanly on
distribution of wealth. Islam also
encourages good consumption and
discourages extravagancy; therefore
Individuals should contribute to the
achievement of socio-economic objectives
of the Islamic economic system.
 There are many areas of social development
that can be achieved through clear
manifestation of Islamic Principles, e.g.
Zakah revenue for the poor and
disadvantaged individuals of the community,
on the other hand Muslim cannot earn an
income(interest) by either lending or
investing money but it is only allowed

Cont.
 participationof projects by financing
it and sharing in its profit/loss
method, so the Islamic option for this
is the concept of the area that may
include real estate investment
assets, mudaraba,murabaha,
Takaful/insurance, Ijara and
Musharaka contracts.
Economic development towards
social welfare
Islamic social welfare and development of
economics are interacting one another, in
Islam, economic development without social
welfare has nothing to do with Islamic
shariah compliance and consequently
enhance gap among the society, and the
existence of poverty, instability, illiteracy as
well as crime.
 Thereare many ways that can be
developed the economic
sustainability of society through the
trends of leading tranquil life of the
world and hereafter,

Cont.
 that is the re-distribution of wealth which is
compulsory (Zakah) to every Muslim who
acquired and accumulated wealth in Halah
way, while in turn get blessing, purification,
increase and goodness. On the other hand,
there are other ways such as voluntary
activities like Saddaqah, Takaful, and Waqaf.
Production of wealth in Islamic economics

In Islam, natural resources are

abundant and sufficient to all
creature of the world, therefore,
these resources would be distributed
lawfully to needy people without
exploitations
.It essential Muslim community
to belief Towhid (unity of God)
and man as Khilaphah
(vicegerincy) to be trustee of this
earth and requires as guardian of
God.
 Islam believes in social justice and
justice has to done in matters of
production and distribution as well as
anything causing inflation such as
interest (usury) transaction. A
capitalist, where freedom has no
boundaries

Cont.
, Islamic socio-economic system
is based on the Divine Authority,
and encourages the ownership,
investment, and consumption
within the limits of shariah
compliance
Man should earn his
livelihood instead of being
unproductive and
valueless to society as
glorious Quran says:


Heit is Who hath made the
earth subservient unto you, so
Walk in the paths thereof and
eat of His providence. And unto
Him will be the resurrection (of
the dead). (Al-Mulk:15).
 Thisverve of Quran reveals that
the production and exploration of
wealth is necessary to produce
value things which good for all
creature and

Cont.
 environments while utilization is only
based what is permitted (Halal) and
not what is prohibited (haram). After
production, the question arising is
how to distribute the wealth among
the people and by which way is
suitable.
Thank you