Eco 202 ch 28 islamic finance
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Transcript of Eco 202 ch 28 islamic finance
Riba - UsuryInterest-based lending
where borrower repays more than amount borrowed to reflect
time delay in repayment
Argument1. Can only charge rent on something that is a commodity !2. Unfair to charge rent on something that is not a commodity !3. Money is not a commodity. !4. Therefore money cannot be rented !5. Rent on money is called interest !6. Therefore cannot charge interest
Interest on DepositsIslamic
Not allowed May share in profits
Non-Islamic Allowed
Interest plus principal
Customer Relationship
Islamic Partner and Investor
Non-Islamic Partner and Investor Creditor and Debtor
Current Deposit Accounts
Receive funds on demand Issue checks
No guarantee of return Bank may give Hiba
Investment Deposit AccountsMudarabah
Specific time period Profit and loss sharing based
on predetermined ratio Could lose deposit
Islamic Profit and loss sharing system
!
Non Islamic Profit and loss sharing system
interest-based system
MusharakahPartnership
All contribute capital Profit shared on prior agreement
Only lose invested capital Charge a fee if manage
Project pays profit share to bank Entrepreneur pays bank capital
MudarabahPartnership
Bank contributes capital Entrepreneur contributes work
Profit shared on prior agreement Bank bears all capital losses
Murabahah
Bank buys the asset Resells to customer
Price includes cost plus markup profit
Full disclosure transparency Customer pays installments or lump
sum at the end
SalemBank buys the asset today for
delivery in the future !
Agriculture !
Buyer responsible for delivery
Ijarah LeasingUsufruct: temporary use and enjoyment
of a property !
Bank (Lessor) buys the asset and rents to client (lessee)
!
Client may return or receive asset at the end of the term
!
Sukuk - Islamic BondsRegular bonds not permitted
Interest and reselling debt prohibited Investor owns a proportionate
undivided share of the asset !
Ownership equity position not a debt position
!
No guarantee or fixed return
Takaful - Islamic InsuranceDistribute losses among participants
Participants pool funds No insurer-insured relationship
!
Operator manages account fund Participants pay premiums to create fund
Operator pays damages out of funds !
Operator can charge an administrative fee