Presentation on theme: "ISLAMIC MODES OF FINANCING"— Presentation transcript:
1ISLAMIC MODES OF FINANCING AN INTERMEDIATE PRIMERAUSAF AHMAD
2ISLAMIC PRINCIPLES OF TRANSACTIONS Should not indulge in RibaShould not involve in GhararShould not indulge in fraudulent behaviorShould not coerceShould not take advantage of anybody’s needsShould not withhold supplies to raise pricesShould not withhold information to take advantage of ignorance.
3Prohibition of Riba in Qur’an FIRST REVEALATION:That which you give as Riba (interest) the people’s wealth increases not with God; but that which you give in Charity, seeking the goodwill of God, multiplies manifold. [ 30 : 39]
4Prohibition of Riba in Qur’an [contd.] SECOND REVEALATION:And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other people’s property, We have prepared those among them who reject faith a greivous punishment. [4: 161]
5Prohibition of Riba in Qur’an [contd.] FOURTH REVELATIONThose who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; that is because they say: “Trade is like interest” while God has permitted trade and forbidden interest. [2: 275]
6Prohibition of Riba in Qur’an [contd.] God deprives interest of all blessings but blesses charity. He loves not the ungrateful sinner [2: 276]O believers ! Fear Allah and give up interest that remains outstanding, if you are true believers. [2: 278]
7Riba in HadithFrom Jabir: “ The Prophet (pbuh) cursed the receiver, the payer of interest, the one who records it and the two witnesses of the transaction and said: They are all alike (in guilt)[Reported by Muslim, Tirmidhi and Ahmad]
8Riba in Hadith [contd.]Jabir b. Abdallah said: The Prophet (pbuh) said, “All of the riba of Jahiliyah is annulled. The first riba that I anul s our riba, that accruing to ‘ Abbas b. Abd al Muttalib; it is being cancelled compeletely.[ Reported by Muslim and Ahmad ]
9TYPES OF RIBA RIBA OF DEBT (Riba al Diyun) RIBA OF TRADE (Riba al Fadl)Both types of Riba is prohibited in Islam. Riba al Diyun is also known as Riba al jahiliah. It is prohibited by the Quranic injunctions. Riba al Fadl is prohibited by Hadith of the Prophet (pbuh).
10RIBA OF Debt [Riba al diyun] Riba of the period of Jahiliyah: Prevailing in Arabia before the advent of IslamProhibited on the strength of Quranic injunction.
11RIBA OF TRADE [ Riba al fadl] The Prophet (pbuh) said: “ Gold for Gold, Silver for Silver, Wheat for What, barley for barley, dates for dates, salt for salt - like for like, hand to hand. Whoever pays more or takes more, indulges in Riba. The taker and giver are alike (in guilt).Narrated by : Abu Saeed KhudriReported by: bukhari
12AVOIDANCE OF GHARAR Definition of Gharar Uncertainty / Ambiguity Ambiguity of Quantity [Gharar fil Miqdar]Ambiguity of Attributes [Gharar fis sifah] such asAmbiguity in time or place of deliveryAmbiguity in price etc.
13DEBT FINANCE Vs. PARTICIPATORY FINANCE Participatory finance, in comparison, to debt finance is:More justMore equitableMore efficientMore growth oriented.
15TYPES OF ISLAMIC CONTRCTS [contd.] Contracts of Sale / Lease are Muawadat. Gharar is not allowed in such contracts.Mudarabah and Musharakah are contracts of Musharakat. Some amount of gharar may be tolerated in such contracts.Sadaqat and Hadaya are Tabarruat. No objection to Gharar in these type of contracts.
16DISADVANTAGES OF RIBA BASED FINANCE Riba based finance is inefficient. Riba based finance is unjust Riba based finance discourages growth. Riba based finance leads to economic instability. Riba based finance leads to economic inequality.