Monday, 25 July 2016

Takaful: The Islamic Insurance

Conventional Insurance:
                 In conventional term, Insurance is a way to provide security and compensation to what is valuable in the event of its loss, damage or destruction based on the principle of risk taking and specultion.
According to Shariah, there are two aspects of conventional insurance, namely:
1. Conceptual aspect
2. Practical aspect
So far as the concept of insurance is concerned, it is to cover the risk of loss, or fortunate many helping the unfortunate few. This concept is not only recognized, but also encourage and rewarded by islam.

"Help one another in righteousness and piety, but do not help one another in sin and transgression".(Al Quran).

The principles of muwalat, Maaqil, Kafalah(Guarantee) Dhaman( indemnity) and the establishment of islamic welfare state by the Holy Prophet (S.A.W) Waqf and Tabarru support this concept. The practical aspect of insurance, however is forbidden due to the following elements.

Qimar or Maysir (Gambling)
Riba( interest)

Since both are clearly prohibted in the Holy Quran and Ahadith.

Sunday, 24 July 2016

Riba An Nasiyah

Riba An Nasiyah is defiened as excess, which results from predetermined
interest(Sood)which is a lender receives over and above the principal (Ras ul Maal) in any loan transaction. This is real and primary form of Riba. Since the verses of the Holy Quran has directly rendered this type of Riba as haram, it is also called "Riba Al Quran". Similarly, since only this type was considered as Riba in the dark ages, so it has earned the name of Riba Al Jahiliyyah as well.

The meaning of Riba has been clarified in the following verses of Holy Quran.

"" That is because they have said:" Sale is but like riba", while Allah has permitted sale, and prohibtted riba" (Surah Baqarah; 275).

Imam Abu Bakr Jassas Razi( Rehmatullah eleh) has outlined a comprehensive legal definition of Riba An.Nasiyah in the following words;

" That kind of loan where specific repayment period and an amount in excess of capital is predetermind."

The famous Sahabi Hazrat Fazala Bin Obaid( Razi Allah anho) has also defined Riba in similar words:

"Every loan that draws profit is one of the forms of Riba."


The word Riba means excess, increase or addition. According to Shariah terminology, it implies any excess compensation without due consideration.
(This definition of Riba is derieved from Holy Quran and is unanimously accepted by all Islamic scholars.

                   There are two types of Riba, idetified to date by the scholars namely "Riba An Nasiyah" and Riba Al Fadl".

Saturday, 23 July 2016


In Salam, the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The payment is at spot but the supply of purchaesd goods is deffered.

Purpose of use:

1. This mode pof financing can be used by the modern banks and financial institutions especialy to finance.the agricultural sector.
2. To meet the needs and requirements of small formers who need financing theor financing to grow their crops and to feed their families until the time of harvest. When Allah's messenger declared Riba as haram, the farmers could not take usurious loans. Therefore, the Holy Prophet(S.A.W) allowed them to sell their agricultural products in advance.
3. To meet the need of traders for import and export business. Under Salam,  it is allowed to sell the goods in advance so that after receiving cash price,  they can easily undertake the aforesaid business. Salam is beneficial to the seller as he receives the price in advance and it is beneficial to the buyer also as normally the price is Salam is lower the price is spot sale.

The permissibility of Salam is an exception to the general rule that prohibts forward sale and therefore it is subject to strict conditions,  which are as follows.

Conditions for Salam:
                                        The conditions for Bai Salam are as follows.

1. It is necessory for the validity os Salam that the buyer paysthe price in full to the.seller at the time of affecting the sale.
In the absence of full payments, it will be tantamount to sale of debt against a desbt, which is expressly prohibted by the Holy Prophet (S.A.W). Moreover, the basic wisdom for allowing Salam is to fullfil the "instant need" of the seller. If the full price is not paid in advance, the basic purpose of Salam will mot achieved.
2. Only those goods can be sold through a Salam contract in which the quantity and quality can be exactly specified e.g precious stones can not be sold on the basis of Salam because each stone differ in quality and size, weight, their exact specification in not possible.
3. Salam cannot be effected on a partilar commodity or or for

To be continued..........

Friday, 22 July 2016

Islamic Banking

Islamic Banking and Finance- Global growth trends.
Islamic banking and finance growth has generated considerable interest in the financial world in recent years. The concept of Islamic banking has received encouraging response from different corners of the globe as one discovers its ideological dimensions and practical significance.

Given its ability to offer innovative financial solutions for basic financial needs in under-served markets espacially in the Muslim world and to meet complex financial requirements of the modern times, it is seen as a socially responsible and ethical banking model with considerable growth potential. In the Muslim world and increasingly in the West,  significant segments statements of the institutional and retail markets are choosing Islamic finance for their financing and investment needs. Islamic financial system also draws its strength from it being asset backed nature and directly linkage to the real economic transactions and avoidance of any element of interest and speculative activity.

Understanding the difference:

When we look at the difference between Islamic Financial Institutes and the interest based conventional institutions, we find out that the differences are on three levels:

1. Conceptual and Socio religious level.
2. Business model and governing framework.
3. Product Level Implementation.

Without a clear understanding of these differences, some people, even experts tend to make a common mistake of equating Islamic banks with other conventional banks with mere change of name.

Key difference.

1. In a conventional Bank the relationship between the bank and customer is that of creditor and debtor and any benefit available to either party falls under the ambit of interest since it is a gain on Debt/Loan. In Islamic Banking, the relationship between bank anf customer differ as per the modes of finace and thenature of the facility.
2. In Sale based transaction modes, Islamic Banks and the customer assume the role of seller and buyer respectively and any benefit available to either party is profit on Sale Trannsaction.
3. In rental based modes, the relationship between Islamic bank and customer is that Lessor and Lesssee respectively and any benefit available to bank is in the form of Rent.
4. In Participation based modes,  the relationship between Islamic bank and customer is that of partnership and the gain is raken by either party is profit on Musharakah.
In Service based mode, the relationship between Islamic bank and customer is of Mustajir (Service Provider) and Ajeer( To whom service is given) respectively and islamic bank gets remuneration in the form of fees(Ujrat).

Islamic Banking

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