The particular Islamic Economic System

Interest-free Islamic financial system is partially followed and partially not followed inside Muslim countries close to the world. Typically the only country, which has followed this technique completely in each minute detail will be Malaysia. So typically the application methods in this post are mostly those implemented in Malaysia next the Interest-free Islamic Economic system.
Typically the main feature regarding the Islamic economy is that it is Interest-Free. As the Qur’an claims in Sura al-Baqara Chapter 2 Poems 278 & 279, “O ye that believe! fear Allah and give upwards what remains of your demand for usury if ye are usually indeed believers. When ye do it not take notice regarding war from Jahve great Apostle: nevertheless if ye change back ye should have your capital sums; do not deal unjustly in addition to ye shall not necessarily be managed unjustly. “
Qur’an condemn all evil actions, but never provides the Qur’an warned of a war against God Almighty and His Messenger other than regarding taking Curiosity and Usury.
Right now there are several evils of the attention based economy, the reason why Islamic has prohibited it.
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For example, if a person will take a loan from a bank and according to the cost price regarding a certain article is 10 money and he desires to money regarding one dollar. So the selling price might range from the 10 bucks cost price one money profit and 1 dollar interest in addition to the selling price would be 12 money. The selling value would go upwards because of attention so when the promoting price goes up typically the demand comes straight down so when the requirement comes down the supply comes down in addition to as supply arrives down production passes down causing labour issue and unemployment.
There is Social Injustice.
For example , if a individual needs a loan from the bank in addition to no matter if he earns a profit or goes inside loss he offers to pay that fixed amount regarding interest. Even though some natural calamity befalls his family, such as flooding or perhaps earthquake, the person still has to pay out the loan with all the interest and a new delay would simply increase the amount of interest. It is usually social injustice.
Right now there is no sociable consideration.
Suppose, if two businessmen come to ask for the loan from your modern day bank and something entrepreneur wants to begin a social or clinic while the other businessman wants to be able to start an alcohol factory or perhaps a gambling den. But organic the businessman, that wants to begin an alcohol manufacturing plant or even a gambling den could have better returns and the loan given to him would be more secure and would provide a higher price appealing as in comparison to the business, who would like to open the school or hospital. Modern banks are only interested within recovering and increased returns. That’s why they finance wagering dens as opposed to universities or hospitals. That is why inside the 80s thousands of gambling play rooms were financed by modern banks worldwide. For name reason only a couple of social projects are financed by modern banks and many associated with their loans depend on better interest.
Modern day banks encourage visitors to store money and maintain the money nonproductive for small set return on this every year. In the long run, power is targeted in a few hands, typically the bankers.
In the same way presently there are several benefits of Islamic banking.
Since there is no interest involved, presently there is profit in addition to loss sharing. So if a person would like to sell their goods, it might just have the price price and revenue within the selling value and instead of 12 dollars, his selling price might be only 10 dollars. When the marketing price comes down, the need increases and if the need boosts the supply increases and as source increases the production boosts leading to more labour for the people and higher employment. Because a result stimulates people to function and earn their particular living.
There will be Social Justice in Islamic banking.
When a business takes a loan and goes into loss, the loss is shared by the bank and if he makes a profit, the particular profit is contributed by the financial institution. If in circumstance any natural calamities befalls him, the particular Islamic bank provides him more hours in order to repay, unlike the modern bank, where typically the more hours you consider to pay typically the more interest you will have to pay. Many a occasions if the Islamic lender finds the circumstance very bad, they even let it go away from that loan.
Presently there is Social Concern in Islamic banking.
Islamic bank can not give a mortgage to any businessman, who else is doing any kind of activity, that is causing harm to the society. For illustration, if a business person wants to commence an alcohol manufacturer and approaches a good Islamic bank for a loan, the particular Islamic bank is not going to lend him a single penny, not even if he promises to offer 100% profit to the Islamic financial institution. In Islamic financial there is certainly social thing to consider and they also encourage projects beneficial for the society, for example building colleges, hospitals and nurseries. In other words, the Islamic bank encourages typically the society to improve.
In the Islamic bank, you are usually not encouraged to be able to keep your funds idle. You usually are encouraged to invest your current money and be somebody in typically the business and inside the finish, power is not concentrated inside the hands of a few individuals. Because within the Islamic banking the money and loss are usually shared by typically the business, the banker and also the depositor. Typically the power is similarly shared of most the particular people.
The excellent philosopher, Aristotle offers beautifully defined Interest as “An earning using the use regarding money rather than on labour, and these kinds of earnings(interests) are in opposition to nature. inches
Lets quickly analyze the particular objectives from the Islamic economic order before we analyze the theory and practical application of the Islamic marketplace.
The Objectives of the Islamic Financial Order
1- Economical health
Islam promotes an individual to take pleasure in the bounties of God Almighty, in order to work for their living and stay away from begging.
2- General Brotherhood and Justice
Qur’an says in Sura al-Hujurat Chapter 49 Verse thirteen, “O mankind! All of us created you coming from an individual (pair) regarding a male in addition to a female and made you into nations around the world and tribes that will ye may understand each other (ofcourse not that ye may despise each other). Verily the the majority of honored of an individual in the view of Allah will be (he who is) the most righteous of you. “
Out of this we arrive to know the particular criteria that the criteria of judgement in the sight of God is just not wealth, not sexual intercourse, not color, not necessarily Caste, but this is “Taqwa” God consciousness, piety and righteousness.
Qur’an claims in Sura an-Nisa Chapter 4 Sentirse 135, “O ye who believe! remain out firmly with regard to justice as witnesses to Allah also as against yourselves or your parents or if your kin and whether it is (against) abundant or poor: with regard to Allah can best protects all. “
In accordance with this we have to stand for truth and rights be it in opposition to anybody even in opposition to our very own selves and sacrifice your very own interests.
3- Fair Distribution of Prosperity
Islam is towards the philosophy that the wealth must be concentrated in a new few hands. The particular difference between the rich and the particular poor must be decreased. Otherwise they would come to be enemies unto each other. For this, Islam has invented a method of “Zakat” that all Muslim, that has excess riches exceeding the total amount the same to or a lot more than 85 grms of Gold. This amount is put in on poor people, orphans, needy and so forth. In case every individual on the planet practices this method of “Zakat”, not necessarily a single particular person in the complete world would perish of hunger. Islam teaches to discover lawful employment regarding the unemployed and also to pay him an excellent remuneration.
According in order to Islam if a person dies their wealth ought to be dispersed among his spouse, children or other loved ones according to the guidelines laid straight down in Qur’an in addition to Ahadith and it should not go to just one or even two individuals in the society as that is done nowadays.
4- Individual Independence within the Framework of Social Well-fare
According to Islam man is born free and no-one not necessarily even the condition can abrogate his / her freedom nor subject his life in order to strict regimentation. Every single individual is totally free as long since he does not really harm the society because in Islam the larger well being of the modern society takes precedence over the individual freedom.
Working and time as well because the benefit inside business are both important principles of Islam, but functioning and labour take precedence over typically the benefit in business. When you are doing business, a big damage can not end up being inflicted to reduce a small loss, nor can a huge profit can end up being sacrificed for a new small profit. Inside short, Islam features individual within the particular context of social welfare.
There are mainly four aspects involved in creation;
1- Land
In both the Modern in addition to Islamic theories, an individual pay rent upon the land.
2- Labor
You pay out wages within the work in both the current and Islamic hypotheses.
3- Capital
In the Modern theory, you pay Interest on capital, while in the particular Islamic theory there is profit and loss sharing.
4- Organization
In the particular fourth factor regarding production, Organization, presently there is profit plus loss sharing inside both theories.
Therefore the major difference in the four factors regarding production is the third factor associated with Capital. The Modern Theory says that a fixed attention should be billed within the capital, whilst the Islamic concept says there is income and loss posting on capital. Because Islamic theory will not differentiate between the third factor Funds and the next factor Organization due to the fact the money loaned by the bank does not are supposed to be to the lender alone, it belongs to the depositor. The depositors are usually the part of Organization and the money deposited in the bank (the capital) should become within the Organization. In the Islamic concept Capital and Corporation are clove with each other and there is usually profit and reduction sharing on the capital.
When you have to carry out business, there are naturally two varieties of units. One is the excess unit, who possess excess of wealth, but do not know how to spend it. Next may be the deficit product, individuals who do not have money, but have good ideas for business. The best examples regarding a surplus plus deficit unit inside the Islamic background is Lady Khadijah (may Allah end up being pleased with her) had excess regarding wealth, but weren’t getting avenues to devote in and being a female the lady couldn’t travel in foreign countries too much to deal in business transactions. The deficit product, in terms of wealth, was Prophet Mohammed (peace be upon him). He previously good suggestions and use of business avenues, but do not have prosperity. So Lady Khadijah (may Allah be pleased with her) gave wealth, which Prophet Mohammed (peace be upon him) invested in business strategies onto her behalf plus the profit has been shared on a repaired pre-determined ration.
The particular System of Islamic Banking and Modern Banking
Lets evaluate the options open up for individual depositors in order to deposit their cash in an Islamic bank.
Current Account
The money you deposit within an Islamic bank is utilized with your permission, but if the bank gets into loss, the loss is just not contributed by the depositor. If the bank gets into profit, neither will be the profit contributed with the depositor. Typically the depositor is fascinated in the particular protection of his funds, not profit. Typically the Islamic banks gives you a check book and a new slip book with the functions because that of a new modern bank.
Cost savings Account
Even right here the depositor is primarily interested in the safety of his / her money. Since the bank gets money from this money, the financial institution can gift a part of that revenue to the depositor, when the bank would like, but the depositor can not requirement a fixed section.
In Islamic financial, if a bank goes bankrupt then a depositors get their own money first in addition to then, the lenders. While in Modern Banking creditors get their money first and majority of typically the depositors lose their money. So even if you would like your hard earned money safe, the Islamic banks usually are preferable and less dangerous than Modern banks.
Investment Accounts
They are like the Repaired Accounts of recent financial institutions and are more divided into a number of sorts
Mudariba (Profit & Loss Sharing)
The depositor deposits a set amount of money in typically the bank for the fixed time frame, which maybe a multiple of three or a multiple of several. Here the excess unit is the depositor and the shortage unit is the bank. The financial institution uses this funds to do enterprise with all the businessmen and whatever profit typically the Islamic bank can make, it really is divided about a pre-determined ratio, which can be negotiated. In the particular Islamic Banking associated with Malaysia, the proportion is 7 part to 3 portion, meaning 70% goes to the depositor and 30% is retained by the lender. So there will be sharing of profit, the greater the net income the greater the particular share of each.
Suppose, if there is the loss of a hundred dollars, then hundred will be deducted from the particular depositor’s money. So theoretically only typically the depositor bears the loss. Practically analyzing even the Islamic bank is heading in loss due to the fact they are spending money for the rent, administration plus salary, nevertheless the reduction ratio of the lender is less than that of the depositor, as even the particular profit in the bank is less than that of the depositor.
Project Financing in the Mudariba Method
If a businessman approaches an Islamic bank with a new project idea plus requests a mortgage for a set period, the Islamic bank analyzes the particular project, then the businessman and typically the Islamic bank negotiate the profit ratio. In Modern financial interest is agreed, in Islamic bank profit ratio is usually negotiated.
Suppose, the businessman takes the loan of $5000 from your Islamic financial institution for six a few months and the pre-determined profit ratio is usually 60% to the bank and 40% towards the businessman. In case the businessman is working for his / her business, even their salary would end up being included in that $5000 and suppose typically the salary of typically the businessman is one-hundred dollar per month.
Assume, if the entrepreneur earns a income of $5000, the particular business would get (his 40%) $2000 through the profit plus the businessman would certainly get paid one hundred dollar salary per month through the $5000 mortgage, amounting $1200 for six months time. So the particular businessman gets their profit and also the wage for his time, if he could be working for his company.

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