Lesson 3.8 - Economics and Financial Institutions

7/27/2019 Lesson 3.8 - Economics and Financial Institutions

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Part 3.8

ECONOMICS & FINANCIALINSTITUTIONS

by Rohaizan Baharuddin
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Outline of Presentation

Concept Philosophy Basic Islamic Concepts of

Economy & Finance Institutions
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Concept

A monetary activities based onsyariah

Aim to prevent injustice inacquiring sources and utilizing

them to fulfill humanrequirements

To execute humans

responsibility towards Allah andsociety

All economic activities that arein line with syariah are ibadah


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Concept

Rububiyyah stresses thatAllah is the creator and sourceof all wealth

Ubudiyyahto express oneshumility and humbleness

Tazkiyyah to purify the soulthrough the purification of

wealth by giving zakah

Brotherhood economics asa wasilah (medium) to form the

Islamic brotherhood
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Concept Philosophy Basic Islamic Concepts of

Economy & Finance Institutions


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Philosophy

the spirit of al-adl wa al-ihsan

is a guiding principle to theIslamic economic system

Allah said:Allah commands justice, the doing ofgood, and liberality to kith and kin,and He forbids all shamefull deeds,

and injustice and rebellion: Heinstructs you, that ye may receiveadmonition (16: 90)


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Concept Philosophy Basic Islamic Concepts

of Economy & Finance Institutions


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Islamic Economy vsNon-Islamic Economy

Western economic system is

based on laissez faire principle.

This means, free growth withoutgovernment interference that

involve private property, free trade

and profit are the only motivation

in the competitive market.

Islamic economy is based on the

concept ofJamaah whereby

society as the trustee has the

right to decide on how the wealth

can be used. But all wealth

belongs to Allah and He creates

it for societys benefit. The

practice of interest is forbidden in

Islam.


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Basic Islamic Concept ofEconomy and Finance

1. Wadiah (Safekeeping)

2. Mudharabah (Profit Sharing)

3. Musyarakah (Joint Venture)

4. Murabahah (Cost Plus)5. BaiBithaman Ajil

(Deferred Payment Sale)6. Qardh al-Hasan

(Benevolent Loan)7. Ijarah Thumma al-Bai

(Hire Purchase)


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1.Wadiah (Safekeeping)

A bank is deemed as a keeperand trustee of funds

The depositor, at the banksdiscretion, may be rewarded withhibah(gift) as a form ofappreciation
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2. Mudharabah (Profit Sharing)

An agreement between a capitalprovider and an entrepreneur,

whereby the entrepreneur canmobilise funds for his businessactivity

Any profits made will be shared

between them according to anagreed ratio

Losses are borne solely by the

capital provider


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3.Musyarakah (Joint Venture)

Normally applied for businesspartnerships or joint ventures

Profits made are shared on anagreed ratio

Losses incurred will be dividedbased on the equity participation

ratio


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4. Murabahah (Cost Plus)

The selling of goods at a price,which includes a profit marginagreed by both parties

The purchase price and sellingprice, other costs and the profitmargin must be clearly stated atthe time of the sale agreement


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5.Bai Bithaman Ajil(Deferred Payment Sale)

The selling of goods on a

deferred payment basis at aprice, which includes a profitmargin agreed by both parties.


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6.Qardh al-Hasan (BenevolentLoan)

A loan extended on a goodwillbasis and the borrower is onlyrequired to repay the amountborrowed

The borrower may, at hisdiscretion, pay extra (without

promising it) as a token ofappreciation


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7. Ijarah Thumma al-Bai(Hire Purchase)

Ijarah means contract

(leasing/renting) Baimeans contract (purchase)

are undertaken one after another


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Concept Philosophy Principles

Basic Islamic Concepts ofEconomy & Finance

Institutions


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Institutions

1) Zakat Institution

- zakat literally means purification

- technically means giving out part ofour property to be distributed to theeligible recipients (asnaf)

- Asnaf:a) Fakir e) Riqab (slave)

b) Miskin f) Gharimin (debter)

c) Amil g) Fisabilillah

d) Muallaf h) Ibn al-Sabil (musafir)- part of principles of Islam

- types: Zakat Fitrah, Zakat of Property

- Zakat ratio is 2.5% of overall

income


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Institutions

2) Bayt al-Maal Institution

- introduced by Caliph Umar al-Khattab

- serves as a financial institutionin charge of financial inflow andoutflow


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Institutions

3) Waqaf Institution

- human consciousness andkindness to donate property for

charitable purposes- foster the spirit of unity,

cooperation and mutual

assistance- Property that can be contributed

for waqaf: land, house, car, etc.


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Institutions

4) Al-Rahnu Institution

- literally means collateral

- valuable property tied under

collateral agreement due to debt- If the borrower could not settle

the debt, the property can beused as a mode of payment

- an easy way for simple cashloan


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Conclusion

Islamic economic system is provento be a fair, just and relevant to all

time, place and race. It emphasizes

on the equality in the distribution

and utilization of wealth amonghuman being regardless of what

position they hold in the society. Itprotects the welfare of the needy

and maintain the rights of thewealthy base on the principle that

property is belong only to Allahand human being is His trustee

in this world.

Lesson 3.8 - Economics and Financial Institutions

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