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How the jurists solve partnership problem in the agricultural activities??

Crafting agricultural product and loss sharing (aPLS) in the place of profit and loss for Islamic agricultural finance.             First and foremost, this article which was written by Muhammad Hakimi Bin Mohd Shafiai discussed about the principles used in financing the agricultural industries according to the Islamic jurisprudence. Consequently, in order to solve the riba-based financial issues, partnership contract is commonly introduced and used by the jurists as it proposed an equitable risks and profits sharing. In addition, partnership contract is based on some principle such as mudharabah, musharakah and etc.             The author focussed on al-mudaraba, al-musharaka, al-muzara’a and al-musaqa concept with a brief explanation on the definition and practices in economy activities based on Islam. Furthermore, we will be exposed on a several example of partnership contract implemented on agricultural activities and some of inappropriate practices by financial institutions on thi…

How does Islam view profit maximization?

Islamic teaching generally approves lawful earnings and profit levels which do not lead to exploitation. Thus, profit maximization is accepted in Islam with certain conditions. The article of ‘Islamic Perspectives on Profit Maximization’ discussed the Islamic prescriptions on profit maximization into two major discussions; i.Islamic Ethics and Business Conduct Businesses should prioritize ethical value and conduct in earning profits. Thus it is expected for the business to apply and create an ethical environment in the business by referring to Islamic ethics. Four foundations of Islamic ethics[1] is emphasized is ihsan, relationship with others, equity, and accountability. Ihsan means goodness and generosity in business activities or management. Ihsan also includes the values of mercy, justice, forgiveness, tolerance and attentiveness. These values are interconnected with the second foundation which is relationship with people which is succinctly related by the Prophet’s saying: “Al-Din…

Profitability of Islamic Bank

Islamic bank was established based on interest-free institution. The objective of this institution is to issue financial facilities by providing financial instruments that comply and in line with the revelations in the Quran and the Hadith. It’s to render socio-economic benefits to the Muslim communities.     The operation of Islamic banks and the conventional banks are totally different. Islamic banks promote profit and loss sharing (PLS) between investors and entrepreneurs. It is guided by the shariah principles. Since the Islamic banks do not charge interest and therefore do not lend money, they have developed some techniques such as murahabah contract, musharakah, and mudharabah to invest money and gain profit.     In conventional banks, the depositors will be informed exactly about the amount of the returns from their deposits while in Islamic banks this information will not be provided. Basically, we can determine it based on assumption and historical fact.      As we know, …

Article Review: The Effect of Conventional Interest Rates and Rate of Profit of Funds Deposited with Islamic Banking System in Malaysia

By Dr Sudin Haron & Norafifah Ahmad
            In conventional banks, the depositors will be informed exactly about the amount of the returns from their deposits while in Islamic banks this information will not be provided. Basically we can determine it based on assumption and historical fact.             As we know, most of the banks get their major funds from depositor’s money including Islamic banks. The factors that influenced the depositor’s decision making in depositing their money with the Islamic banks need to be determined by the management of Islamic banks clearly. For instance, religion as a factor for the customers to choose the Islamic banks in Bahrain. However, in Turkey and Sudan a study shows religion is not the main reason for depositor choosing Islamic banks. While in Malaysia and Singapore both religion and profit are the factors.             It has been pointed out that both the rate of profit applied in Islamic banking system and the rate of interest have solid…

Article Review: A Study on Conventional Banking, Islamic Banking and its Treatment of Profit and Loss

By Asst. Prof. Sameena Begum
        Justice is the unique law of Islamic banking, a basic requirement for all sort of Islamic financing. Profits or loss are being shared with the investor and receiver rather than putting the entire burden to the entrepreneur. When the investor shares the profit, he will also has to bear the loss in accordance with proportional share. The principle of fairness and justice is important between two parties in order to have a fair distribution of output. Because of profit sharing, Islamic banks gives a higher rate of returns as oppose to conventional banking that gives a fixed return to the depositors without looking at the performance of banks.               Islamic banks are offers the contract of Mudarabah. In Mudarabah partnership, Rabbul Mal[1] and Mudarib[2] are to agree on the proportion of profit sharing between them with mutual consent. The profit ratio has to be decided at the time of contract. They can agree on equal sharing or different proport…

Article Review: Riba and Islamic banking

by Ahmad, A. U. F., & Hassan, M. K.
The responsibility of a Muslim towards another Muslim are many, including to learn about Islamic transaction when they are dealing with business trade, finance and buying and selling transaction. This kind of knowledge will avoid them from being trapped/involved with riba transaction and other prohibited elements in Islam             Riba is derived from an Arabic word ‘raba’ that literally means ‘to grow’ or ‘expand’ or ‘increase’. Technically, riba could be defined as ‘premium’ that must be paid by the borrower to the lender along with the principal as a condition for a loan or for an extension in its maturity. Riba has been classified into two categories according to the transaction which give rise to riba: Riba al-nasiah (delayed payment interest) which involves lending and borrowing,Riba al-fadhl (increase interest) which involves buying and selling.
            The main hadith with reference to the comprehensive meaning of riba is one which wa…

Article Review: Conventional Bank Interest and the Murabahah (cost-plus-profit) Contract in Islamic Finance: Two sides of a Coin or two Coins of different Sides?

By Abdullahi Saliu Ishola & Isa Olawale Solahudeen 
Murabahah is commonly used for financing the purchase of raw materials, machinery, equipment, and consumer durables. Because of the trust involved in the transaction and the aspiration of people that Murabahah is able to meet, it has been widely used and customers of Islamic banks all over the world have been making a preferred choice over other contracts. Murabahah contract is legal in accordance to the Shariah law and it had been practised by the early generations of Muslims. However, in the modern days, there are criticism and condemnation of some contemporary jurists. One of the argument is that Murabahah is too close to bank interest (Riba), or even the same as bank interest, but just called or being ‘legalised’ with other name or brand. “Murabahah may be defined as a sale in which the margin of profit is mutually agreed upon between the buyer and the seller. The payment of sale price, inclusive of the agreed profit margin, ma…