General Facts on Islamic Finance
General Facts on Islamic Finance
Islamic finance focus on financial or business activity which is not contradictory with the principle of shariah.
In general, conventional finance such as conventional banking business relies on the deposits taking from and providing loans to the society / public. There will always be a relationship of debtor – creditor between the banker and the customer.
Conventional banking focuses on the giving or receiving interest. For instance, a fixed deposits product in a conventional banking is based on the promise by the borrower which is the bank to repay the loan plus fixed interest to the lender that is the depositor. Deposited money will result in more money which is the foundation of an interest based system. This activity is prohibited under Shariah.
Another activity prohibited under Shariah is taken place in a non-banking businesses. These are capital market and insurance which is not approved under Shariah principle due to its uncertainty or Gharar The uncertainty or Gharar is common in insurance and interest arising from securities or conventional bonds.
In insurance setting, the protection provided by the insurer in exchange of premium is uncertain as to the amount as well as its actual time of happening.
A conventional bond will pays the holder the principal and interest which is prohibited under Shariah.
Besides that other normal conventional practice also cannot escape the Shariah perspective. This involves the selling and buying goods and services which are not lawful from a Shariah point of view. These includes services such as gambling, entertainment, pornography, alcohol, non Halal foods and others.
As a conclusion, conventional business which depends heavily on interest or uncertainty or transactional perspective which involves the production, sale and distribution of goods and services which are not lawful under the Shariah are prohibited in Islamic finance.
Islamic finance focus on financial or business activity which is not contradictory with the principle of shariah.
In general, conventional finance such as conventional banking business relies on the deposits taking from and providing loans to the society / public. There will always be a relationship of debtor – creditor between the banker and the customer.
Conventional banking focuses on the giving or receiving interest. For instance, a fixed deposits product in a conventional banking is based on the promise by the borrower which is the bank to repay the loan plus fixed interest to the lender that is the depositor. Deposited money will result in more money which is the foundation of an interest based system. This activity is prohibited under Shariah.
Another activity prohibited under Shariah is taken place in a non-banking businesses. These are capital market and insurance which is not approved under Shariah principle due to its uncertainty or Gharar The uncertainty or Gharar is common in insurance and interest arising from securities or conventional bonds.
In insurance setting, the protection provided by the insurer in exchange of premium is uncertain as to the amount as well as its actual time of happening.
A conventional bond will pays the holder the principal and interest which is prohibited under Shariah.
Besides that other normal conventional practice also cannot escape the Shariah perspective. This involves the selling and buying goods and services which are not lawful from a Shariah point of view. These includes services such as gambling, entertainment, pornography, alcohol, non Halal foods and others.
As a conclusion, conventional business which depends heavily on interest or uncertainty or transactional perspective which involves the production, sale and distribution of goods and services which are not lawful under the Shariah are prohibited in Islamic finance.
