Temple UniversityJames E. Beasley School of LawGuided investigate PaperFrom: Elwaleed M AhmedTo: Prof. James J. McGrathRe:Final DraftDate: July 20. 2004ISLAMIC BANKING AND pay:ITS OPERATION AND THE NECESSITY FORITS ACCOMMODATION IN THE GLOBAL ECONOMYISLAMIC BANKING AND pay:ITS OPERATION AND THE NECESSITY FORITS ACCOMMODATION IN THE GLOBAL ECONOMYBy: Elwaleed M AhmedThe recent phenomenon of Islamic banking and financial institutionsstarted in Egypt in the 1960s. These banks which neither charged nor paid interest,functioned essentially as a saving investment institution rather than commercialbanks by engaging in trade and industry directly or in partnership with others andshared the profit and loss with their customers and depositors. These banks systemsfunctioned under the mandates of “shari’a,” Islamic law that prohibits usury and arouse. Thus Islamic finance is based on the principle of acquire and loss sharing. Since then there have been growing demands from Muslims everywhere to havetheir finance managed according to Islamic laws. Therefore in the 1970s. Islamicfinancial institutions really took off due at least in part to the new oil wealth in the gulf. Since then. “Islamic banking in the lay East is growing and becoming important inmobilizing local and regional saving as well as providing an important source ofcapital.”Contributing to the growth of Islamic banking in the Middle East was theestablishment of the Islamic Development Bank by the “Islamic OrganizationConference” in the early 1970s. The Islamic Development Bank serves as a “WorldBank” for Muslim countries with the aim to facilitate the expansion of the Islamicbanking and financial institutions in the Muslim countries and world wide. As a result,the annual growth of the Islamic financial institutions has been an estimated almost 15%worldwide over the last decades. To understand the principle on which the Islamicbanking and finance is based. It is essential to undergo some an overview of the Islamic lawand its sources and jurisprudence. Therefore to assess the importance of the Islamic banking andfinance in meeting the Muslims community financial need this article ordain explain howthe Islamic banking and finance works and the justification of the prohibition of “Riba”interest in the Islamic law. Moreover it will explain how the study allowed types ofIslamic financial services bring home the bacon and advise the beat way for Islamic financialinstitutions to improve and get acceptance globally by nationally and globally unifiedsharia board. Sharia come in decides what type of finance is expected in the Islamic lawand recommends the unified accounting and regulatory standard be togovern the Islamic banking and finance operation in national and global basis. The paperalso recommends the establishment of liquidity markets to command the operation of theIslamic banking and financial institutions. Moreover the cover ordain recommend how toaccommodate the Islamic banking and finance systems in a global economy especially inthe non-Islamic countries so as to meets the need of the growing Islamic communities. In Part I the cover ordain purpose that to understand the justification of the Islamicprohibition of Riba: “arouse” and how the Islamic banking and finance works someknowledge about Islamic law its sources and jurisprudence is necessary. Therefore,consider the sources and jurisprudence of the Islamic law: "Figh," such as “Qur’an:”which is the God “Allah's” evince and instruction to his Prophet Mohamed (peace uponhim.) “Sunna:” the prophet’s words and deeds Ijtihad: "Refer to the formulation of thelaw by the individual's assay for proper understanding," Ijm'a: " Consensus of opinionand Quiyas: " analogical-deduction." And finally. Madahib: "the different schools ofIslamic law Jurisprudence" come to the issues of Islamic pay and the prohibitionsof the “Riba” Interest. Part II includes the types and definition of Riba: the Islamicjurisprudence divine Riba in two types: “Riba Al-fadil” and Riba: “Al’ Nasia.” The paperwill offer the justification of the prohibition of Riba in the Islamic law and how thefinancial affairs are addressed in the Islamic law. Furthermore the paper ordain explainhow the Islamic faith is a way of life as come up as a religion. Muslims whenever they havebeen they always have to adhered to the Islamic principle. move III will consider how the Islamic banking and financial institutions operateand will exposit the most common types of the permissible Islamic financial methods,and how they work and the justification of accepting arouse according to the principle ofloss and acquire sharing. The expected types of Islamic finance consider. Mudraba: “TrustFinancing,” Igra wa-igtin: “Lease/hire-purchase,” Murabaha: “Cost-plus Financing,”Musharaka: “Venture Capital,” Bai’salam Transaction. Further types consider:“Manazile plot:” Islamic mortgage housing property finance a Istisna assure: “is acontract to make,” Bai’ bi thamin ajil: “sale by deferred payment,” Al-wadiah: “non-fund transaction” and Qurde-Hasan: “ Benevolent financing.”Part IV will consider a comparison between the Islamic banking and financesystems and the conventional banking systems: "Western banks" and the study criticismof the Islamic banking and finance. Part V the final section of this paper will include recommendations.(I): How to alter the operation and effectiveness of the Islamic banking and financesystem by :A: The necessity of the existence of the unified Sharia board in the national and globalbased so as to unify the decision on what are permissible types of Islamic financialglobally. B: The necessity of the unified accounting and regulatory standard be to govern theIslamic banking and finance nationally and globally. For the Islamic financial institutionto succeed and to achieve global acceptability and act its rapid expansion it needs toestablish universally accepted accounting auditing and regulatory standard. C: One of the major challenges to Islamic financial institutions remains how tohandle their liquidity. Therefore there is a necessity of the establishment of liquiditymarkets to command the operation of the Islamic banking and financial institutions.(II): How to accommodate the Islamic banking and finance systems in globaleconomy especially in the non-Islamic countries so as to meets the be of thegrowing Islamic communities including:A: Since the Islamic law did not demand the banks to be Islamic tip or all itsresources to be Halal “permitted,” then the conventional institution can undergo subsidiariesoffer Islamic finance to Muslim and non Muslim alike as an alternative to the interest-finance. Therefore there is a possibility of establishing Islamic financial institution in theUS as a subsidiary for the conventional banks. B: The possibilities of opening non- banking Islamic financial Institution dealingmainly in providing the basic Islamic financial services in the non – Islamic countries. move I: The obtain and Jurisprudence of the Islamic law: “Figh:”The science of Figh is directed no less toward understanding and analyzing thedeeds and sayings of the prophet Mohamed (Peace upon.
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Related article:
http://islamicfinanceanditsoperation.blogspot.com/2007/09/islamic-banking-finance-its-operation.html
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