Islamic Micro Finance by Qazi Abdul Samad
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Transcript of Islamic Micro Finance by Qazi Abdul Samad
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International Conference onIslamic Microfinance
CENTER OF ISLAMIC BANKING & ECNOMICS
By :
Held At:
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What is Islamic Finance
Abdul Samad
Shariah AdvisorThe Bank of Khyber
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Islam and ShariahIslam
Aqidah
(Faith & Belief)
Shariah
(Practices & Activities)
Akhlaq
(Morality & Ethics)
IBADAT
(Man to God Worship)
Muamalat
(Man to Man Activities)
Political Activities Economic Activities Social Activities
Banking & Financial Activities
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Human Financial Needs
Fulfillment of Financial Needs
Own Capital Others Capital
Equity Financing Debt Financing
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Why Islamic Finance?The body which is promotedby Hiram sources is
bound to hellfire.
On the Day of Judgment, a person will not bemoved from the place where he stand until he isasked about the sources of his income and theyway he spent it.
Purifying of the needs of life (food, drink, clotheshouse etc) is one of the most important reason forthe acceptance of prayers by Allah.
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Most Important Islamic Teaching RelatedTo Business1. Elimination of Interest (Raba)
2. The prohibition ofuncertainty (Gharar)
3. The prohibition of Gambling (Qimar)
4. The precipitation ofgames of chance (Maser)
5. Honesty and Fair Trade (Ghishsh andKhilabah)
6. Spending in the Good Cause7. Buy Back
8. Two Mutually Conditional Contract
9. Entitlement to profit depends on liability for risk
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Interest
Interest, Usury, or Riba is forbidden in almost allmajor religions of the world e.g.
Judaism
Christianity
Islam
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Riba in Quran God has permitted trade and forbidden interest.
(The Cow Sura Al-Baqara 2:275)
O believers, fear
Allah, an
dg
iv
eup what is still
due
to your from the interest (usury), IF [indeed] youare true believers[!!!]. If youdo not do so, thentake
Notice of War from Allah and his Messenger. But, if you repent, you can have your principal.
Neither should you commit injustice, nor should you besubjected to it.
(The Cow Sura Al-Baqara 2:278-9)
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Riba in Quran (Related in context to 2:278)The only reward of those Who make War upon Allah & his Messenger, and strive
after corruption in the land, will be that they will be
1. Killed
2. Or, Crucified,
3. Or, have their Hands and Feet on alternate sides Cutoff,
4. Or, will be Expelled out of the land.
Such will be their degradation in the world, and
in the hereafter, theirs will be an terrible doom.
(Quran: The Table Spread - Al-Maida Chapter 5: Verse 33)
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Riba inH
adithThe Prophet cursedthe receiverand
thepayerof interest,
the one who records it and
the witnesses to the transaction
and said: They are all alike (in guilt).
(Sources: Jabir Ibn Abdullah, Muslim, Tirmidhi, Musnad Ahmed
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Riba in Hadith
The Prophet said: Riba has seventy
segments, the least serious being equivalentto a man committing adultery with his own
mother.
(Sources: Aby Hurayrah, IbnMajah)
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The prohibition ofuncertainty (Gharar)There are strict rules in Islamic finance against
transactions that are highly uncertain or may cause
any injustice or dishonesty against any of theparties.
The concept ofGharar has been broadly defined
by the scholars in two ways. First, Gharar implies uncertainty.
Second, it implies dishonesty.
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Classical Examples ofGharar
Sellinggoods that the seller is unable to deliver
Selling known orunknown goods against an unknownprice, such as selling the contents of a sealedbox
Sellinggoods without properdescription, such as shopowner selling clothes with unspecified sizes
Sellinggoods without specifying the price, such as sellingat the 'going price'
Sellinggoods on the basis of false description
Sellinggoods without allowing the buyer the properlyexamine the goods
The Prophet (pbuh) prohibited the pebble sale and theGharar sale.
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Qimar Qimar includes every form of gain or money, the
achievement of which depends purely on luck and
chance.
O ye who believe! Intoxicants and gambling,
sacrificing to stones, and (divination by) arrows, are
an abomination, of Satans handiwork..: (5:90-91)
He who pla yed Qimar ha s disobeyed Allah and HisMessenger.(Ibn Majah )
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Honesty and Fair Trade (Ghishsh and
Khilabah) Thus Manipulations and Mismanagement like Hoardings
Black marketing
Cheating Short weighting
Hiding the defective quality of the goods are
prohibited in Islamic Financial System. The prophet (PBUH) said: the truthfulhonestmerchants
are with the prophets in the Day of Judgment.
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Spending in the Good CauseThe Islamic economic approach is one, which is
directed towards the achievement andactualization ofjustice in human relations.
The result of this effort is falah or success andsalvation, and hayah tayyibah or good life inthis world and the hereafter.
So IMFI dont permute to establish any relation
with commodities, services and individualswhose moral practices are doubtful
Some people spend Allahs wealth (i.e. Muslims Wealth)in an unjustmanner, such people will be put in the (Hell)
fireo
n th
e dayofresurr
ection
(Bukhari andAhmad)
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Buy Back
The financier sells an asset to the customer on a
deferred-payment basis, and then the asset isimmediately repurchasedby the financier for cash
at a discount.
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Two Mutually Conditional ContractTwo mutually contingent contract have been
prohibited by the holy prohibited by the holy
Prophet (pbuh).
The sale of two item in such a way that one who
intends to purchase good is obliged to purchase
the other also at any given price. One sale transaction with tow prices.
Combining sale and lending in one contract.
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What is Microfinance?Microfinance is usually defined as the provision of
financial services and products to those whose low
economic standing excludes them from
conventional financial institutions.
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MFI ENGAGE IN TH
EFOLLOWINNNG ACTIVITIESMicro-finance offer of financial services
such as loans, savings, insurance, and training topeople living in poverty.
And to those typically unable to gain such services
in the normal finance markets
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What Islamic MF
To provide all these services under the umbrella of
Shariah.
Shariah compliant MFI, to enable Muslims to do
theirtransaction a Halal way.
Achieving the goals andobjectives of an Islamic
economy.
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Message of Islam regarding poverty
Islamic jurists have unanimously held the view
that it is the collective obligation (fard kifayah) of
a Muslim society to take care of the basic needs of
the poor.
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Economic Empowerment
Islam strongly encourages charity from the givers
point ofview, it seeks to minimize dependence on
charity from the beneficiarys point ofview.
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Economic Empowerment
A man of the Ansar community came to the
Prophet (peace be upon him) andbegged from
him.
He (the Prophet) asked: Have you nothing in your
house? He (the man) replied: Yes, a piece of cloth,
which we wear, or which we spread (on the
ground), and a wooden bowl from which we drink
water.
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Economic Empowerment He (the Prophet) said: Bring them to me. He (the man)
thenbrought these articles to him and he (the Prophet)
took them in his hands and asked to the assembly ofpeople: Who will buy these? A man said: I shallbuy them
for one dirham. He (the Prophet) asked twice or thrice:
Who will offer more than one dirham? Another man said:
I shallbuy them for two dirhams. He (the Prophet) gave these to him and took the two
dirhams and, giving them to the man of the Ansar, he said:
Buy food with one of them and hand it to your family, and
buy an axe andbring it to me.
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Economic Empowerment He then brought it to him. The Prophet (peacebe upon
him) fixed a handle on it with his own hands (#5) and
said: Go, gather firewood and sell it, anddo not let me see
you for a fortnight. The man went away andgathered firewood and sold it.
When he had earned ten dirhams, he came to him and
bought a garment with some of them and food with the
others.
The Prophet (peacebe upon him) then said: This is better
for you than thatbegging should come as a spot on your
face on the Day of Judgment.
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Source of Fund Collection of IMFI
The Shariah option fordeposit mobilization can be
worked out by respecting two principles:
The aim of the exchange at hand must be
recognizes in Shariah.
The modalities to achieve the said must be
Shariah Compliant.
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Source of Fund Collection of IMFI
Zakat
1. Zakah is the third among five pillars of Islam andpayment of zakah is an obligation on the wealth
of every Muslim based on clear-cut criteria.
2. These funds are meant mostly for the extremely
poor and function as a safety net for meeting their
immediate and basic needs
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Source of Fund Collection of IMFI
Suddqa
1. Charity occupies a central position in the Islamic scheme
of poverty alleviation.
2. Suddqa kind of Charity which is not obligatory.
Waqf (trust)
The term waqf literally means detention. The legalmeaning of Waqf according to Imam AbuHanifa is the
detention of specific thing in the ownership of waqif and
the devoting of its profit or products "in charity of poors
or othergood objects".
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Source of Fund Collection of IMFI
Islamic banks generally use Musharakah and
Mudarabah based product for obtaining investment
account.
These deposits are based on the Shariah principles
of profit and loss sharing, and the banks use them,
along with its own funds in businesses which areShariah compliant.
Wakala model can also be used for Investment
Account.
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WHAT IS MUSHARAKAH?
The literal meaning of Musharakah is sharing. Theroot of the word "Musharakah" in Arabic is
Shirkah, which means being a partner.
Under Islamic jurisprudence, Musharakah meanswhere two or more than two persons agree to
contribute funds for conducting some business inwhich all partners share the profit according to aspecific ratio while the loss is shared according tothe ratio of the contribution.
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Management of Musharakah Each partner has right to take part in Musharakah
management.
The partner may appoint a managing partnerby mutualconsent.
One are more of the partners may decide not to work for
the Musharakah and work as a sleeping partner
If one or more partners choose to become no-working orsteeping partners. The ratio of their profit cannot exceed
from the ratio of their capital investment.
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Capital of Musharakah
All partners must contribute their capital in terms
of money or species at an agreedvaluation.
Share capital in a Musharakah can be contributed
either in cash or in the form of commodities. In the
letter case the market value of the commodities
shall determine the share of the partner in thecapital.
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Distribution of Profit The ratio of profit distribution must be agreed at the time
of execution of the contract.
The ratio mu
stb
ed
etermined
as a proportion on the
actual profit earnedby the enterprise.
1. Not as percentage of partners investment.
2. Not in lump sum amount
A sleeping partner cannot share the profit more than
the percentage of his capital.
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Rule for loss
In the case of loss all the Muslim jurists are
unanimous on the point that each partner shall
suffer the loss exactly according to the ratio of
investment
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Islamic Microfinance Contracts
Qariz
MusharakahMubarabah
Murabaha
Ijarah Salam
Istisna
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Thank You
CENTER OF ISLAMIC BANKING & ECNOMICS
Head Office:
192- Ahmad Block, New Garden Town , Lahore, Pakistan
Ph: +92-42-35913096-8, 35858990, 38407850
Fax: +92 -42-35913056
E-mail : [email protected]
Web: http://www.alhudacibe.com