Table of Content

I.
Introduction to Islamic Finance

What is Islamic Finance? Islamic finance must accomplish in accordance with the principles of
Islamic law or Sharia. Moreover, the basic principle of Islamic finance is underlined by the
prohibition of investment in interest based ventures and businesses that provide goods and
services considered contrary to its principles like alcohol, betting, bad-mannered entertainment,
tobacco, conventional finance and illegal contracts.

According to Iftikhar Ahmed (2017), the basic principle of Islamic Finance are prohibition of
interest and usury in financial dealings, avoidance of Gharar (uncertainty) in a business
transaction, avoidance of Maysir (speculation) or any game of chance, profit and loss sharing
(according to this principle an investor can earn return on his investment subject to risk of loss),
financing for only Halal (permitted) businesses (activities such as liquor, pork, pornography,
adultery, dance clubs, conventional banking, etc. are unlawful) Asset Based Financing and the
Sanctity of contracts and preservation of property rights. To conclude Islamic financial system
ensures fairness and justice between borrowers and investors.

So, this course and assignments will emphases on the Islamic financial transactions which
represent the core business events of the Islamic finance. This includes Sharia basis in Islamic
finance, where the focus will also be on the introduction to Islamic finance and basic aspects of
Sharia and its framework in Islamic, application of contracts in Islamic finance will further form
an understanding of the various contracts or applications of Islamic finance and how they are
used in Islamic finance. Last but not least, types of prohibition under Sharia law.
We believe that aim of this course is to provide a basic foundation in Sharia that enables us to
comprehend the different aspects of Islamic finance. This assignment will provide key terms and
aspects in Sharia for easy penetration to other subjects in Islamic financial transactions.
Moreover, this will also needed in order to understand Islamic finance courses easily and
investigate deeper.

1.

Question 1
Explain the Islamic Finance and the importance of having the Islamic Finance

What is Islamic Finance?

Islamic finance indicates to the methods by which organizations in the Muslim world, including
banks an d other loaning establishments, raise capital as per Sharia, or Islamic law. It likewise
indicates to the sorts of assumptions that are admissible under this type of law. Islamic finance
is also a budgetary framework that works as per Islamic law (which is called sharia) and is, in this
way, sharia-agreeable. Much the same as customary budgetary frameworks, Islamic money
highlights banks, capital markets, fund managers, investment firms, and insurance agencies.
These elements are represented too by both Islamic law and the account business standards
and guidelines that are connected to their conventional counterparts.

History and Growth of Islamic Finance

Notwithstanding the way that the Islamic record industry itself is energetic, Islamic speculations
of financial angles have existed for over a thousand years. By the mid-twelfth century, honestly,
various Muslims researchers had presented key ideas of Islamic financial related viewpoints that
are so far huge today. In any case, political and social turmoil put the brakes on Islamic store for
a long time just in the twentieth century Muslim researchers and academics genuinely began to
come back to these subjects and in doing all things considered set ups for the lead Islamic
record industry to create during the 1970s. With advance technology, the Islamic finance sector
nowadays grows at 15%-25% per year, while Islamic financial institutions oversee over $2
trillion.

2.

Sharia Definition and Objectives of Sharia

Sharia law separates Islamic account from ordinary fund. The Islamic money related framework
is built on financial ideas indicated by sharia, an implicit rules that aides Muslims (the devotees
of Islam) in social, monetary, and political issues. Sharia advances equalization and equity and
debilitates practices of overabundance. A portion of the center thoughts advanced by sharia
incorporate the accompanying:

 Allah (God) is the proprietor of all prosperity. People are only the trustees of riches,
which has a place with Allah. People must oversee riches as indicated by Allah's
directions, which advance equity and disallow certain exercises, including squandering
or pulverizing assets. Muslims reserve the privilege to appreciate whatever riches they
get and spend in sharia consistent ways.
 Material chases must be stable with a person’s spiritual n eeds. A Muslim's financial
exercises and quest for riches should offset with the profound parts of life. Financial
action directed by sharia is, itself, a demonstration of love, however discovering
harmony between monetary exercises and otherworldliness is critical. A Muslim is
required to look for control in the material world to abstain from being either
closefisted or excessively materialistic.
 An person’s needs must be balanced with society’s requirements. A Muslim needs to
consider society all in all when making the most of Allah's bounties. These
 contemplations incorporate advancing equity in every financial movement, recalling
that all individuals have shared obligation regarding all others, and utilizing the world's
assets carefully.

 Economic trades should take place within a just, accountable, free-market economy.
Islam does not confine monetary movement but rather guides it toward being
dependable to other individuals, to the earth, and to Allah. Islam takes into
consideration a free-advertise economy where free market activity are chosen in the
market, however it coordinates the capacity of the market system by forcing explicit
laws and morals. A main role for forcing these laws and morals is to advance social
equity where a parity where riches are not amassed uniquely by a couple while most
others endures.

In support of these principles, sharia prohibits business trades based on the following

•Interest. Riba, the Arabic word for intrigue, intends to increment, develop, or duplicate into
more than what might be expected. Riba is precluded by Islam since it makes societal bad form.
In a riba-based exchange, the proprietor of the riches gets return without endeavouring, and the
borrower conveys the entire hazard.

•Uncertainty. The Arabic word Gharar implies vulnerability or to cheat or misdirect. Exchanges
dependent on gharar are misty or equivocal; not every person included realizes what's in store
and can settle on an educated choice. Gharar exists when two gatherings enter an agreement
and one gathering needs total data or when the two gatherings need authority over the hidden
exchange.

•Gambling. Consist of two Arabic words which are maysir and qimar. This alludes to exchanges
that include betting. Maysir is the procurement of riches by chance rather than by exertion.
Qimar alludes to a round of shot. The two kinds of exchanges depend on vulnerability; nobody
can know how a bet will satisfy.

•Prohibited items and industries. Islam denies items and enterprises that it thinks about hurtful
to society and a danger to social duty. Models incorporate liquor, pork, prostitution, sex
entertainment, tobacco, and any items dependent on vulnerability or betting.
 4.

The Importance of Islamic Finance

Islamic Finance serves to helping budgetary consideration.

World Bank characterizes budgetary consideration as monetary incorporation implies that

people and organizations approach helpful and reasonable money related items and
administrations that address their issues which are in type of exchanges, installments, reserve
funds, credit and protection that conveyed in a mindful and supportable manner. The customary
financial framework depends on premium installments at a rate preset on the stores of cash.
Installment and receipt of premium is restricted under Sharia Law, so Muslims swear off
banking. Be that as it may, through Islamic banking, money related incorporation can be
advanced and acquire a bigger pool of reserve funds the nearby and worldwide economy.

Islamic Finance is a guideline of monetary equity.

Money related equity is a necessity that enables Islamic fund items to work in a Sharia agreeable
manner. The Western money related framework sees making benefit through premium
installments and makes the recipient subject for any hazard. Islamic fund clears path for the
sharing of benefit or misfortune and hazard engaged with corresponding way. Monetary equity
is an essential prerequisite for the working of Islamic account items. Western or traditional
financing anticipates benefit through intrigue installments and makes the recipient totally
subject for any hazard. In opposition to this, Islamic financing prepares for the sharing of net
benefit/deficit and the hazard engaged with a corresponding way between the moneylender
and the recipient. In this way, if a lender is anticipating a case on benefits of an undertaking, it is
essential that he/she ought to likewise convey a corresponding portion of the loss of that
venture.

Islamic Finance empowers solidness in ventures.

In Islamic money, ventures are drawn nearer with a slower, savvy basic leadership process,
when contrasted with regular fund. Organizations whose money related practices and tasks are
too hazardous are normally repelled by Islamic financing organizations. By performing
concentrated reviews and investigations, Islamic account advances the decrease of hazard and
makes the space for more prominent venture soundness.

5.

Question 2

Anyone can own the properties and assets in the world. Explain the concept of owning a
property or assets in accordance to sharia law.

What is the idea of owning a property as per sharia law?

What is the concept of owning a property as per sharia law? In Islam the concept of
proprietorship is treated with most extreme consideration. The properties that are proficient to
be claimed are all around characterized and determined. Moreover, the privileges of the
proprietor over such property are stipulated in the Sharia law. The Sharia additionally manages
its assurance by setting down guidelines and guidelines with the goal that proprietors and
different people would be guided and won't abuse the power and specialist agreed to them. We
generally have to accept that all the property complete and total possession to Allah (s.w.t). For
what reason is it so? It is the point of this modest paper to explore whether a man's
responsibility for property is perceived and to what degree he is allowed. Additionally whether
individual or private possession is perceived in Islam and to what degree in such proprietorship
is exercisable.

It additionally tried to distinguish how possession is procured and lost and how claims to a thing
are to rank. In Islam it is commonly recognized that Allah (s.w.t.) is the maker and proprietor and
Lord of "all that is in the sky and on the earth." Land like everything has a place with Him. Like
water, air and daylight, land is intended for the normal use and advantage of the network.
Besides, He has designated to man the power and specialist to use and adventure the assets
that he has benevolently offered to them. Possession means the rights to misuse and use the
riches and assets given by the master, Allah (s.w.t) and the privilege is transferable just through
real strategies. The proprietor merits the privilege of possession as long as he uses the blessing
given to him appropriately. If he stops to do as such, and misuses and does not put the riches
into appropriate and profitable use, he will be prompted or even power to surrender that
privilege of ownership.

6.

What is the concept of owning an asset according to Sharia Law?

Next is the idea of owning an asset as indicated by sharia law is known as Murabaha. Murabaha,
additionally alluded to as expense in addition to financing, is an Islamic financing structure in
which the merchant gives the expense and overall revenue of an advantage. Murabaha isn't an
enthusiasm bearing advance, however it is a satisfactory type of credit deal under the Islamic or
Sharia law. At the point when a lease to-claim plan occurs, the buyer does not turn into the
genuine proprietor until the advance is completely settled. In a murabaha contract of offer, the
customer petitions the bank to buy a thing for him/her. Consenting to the customer's
solicitation, the bank builds up an agreement setting the expense and benefit for a thing, with
reimbursement ordinarily in portions. Since a set expense is charged as opposed to riba
(intrigue), this kind of credit is legitimate in Islamic nations. Islamic banks are denied from
charging enthusiasm on credits as per the religion, that cash is just a vehicle of trade and has no
natural worth, so banks must charge a level expense for proceeding with day by day activities.

Extra charges may not be forced after a murabaha due date, which makes murabaha default an
expanding worry for Islamic banks. Numerous banks accept that defaulters ought to be
boycotted and not took into consideration future credits from any Islamic bank as a strategy for
diminishing murabaha default. Regardless of whether it isn't explicitly referenced in the advance
understanding, this plan is admissible in Sharia. On the off chance that an indebted person is
confronting a real hardship and can't reimburse an advance on schedule, break might be given
as portrayed in the Quran. Be that as it may, the administration may make a move in instances
of unshakable default. For instance, murabaha is a type of financing that is commonly utilized in
a position of credits in assorted divisions. For instance, buyers use murabaha when buying
family machines, vehicles, or land. An organization utilizes this sort of financing when buying a
hardware, gear, or crude materials. Murabaha is likewise usually utilized for a momentary
exchange, for example, issuing letters of credit for merchants.

A murabaha letter of credit is issued for a candidate (shipper). The bank issuing the letter of
credit consents to pay a measure of cash in consistence with the terms depicted in the letter of
credit. Since the bank's credit value replaces that of the candidate, the recipient (exporter) is an
ensured instalment. This advantages the exporter in light of the fact that the bank expects the
instalment chance. Following the murabaha contract arrangements, the merchant is required to
compensate the bank for the expense of merchandise in addition to a benefit mark-up sum.

Question 3

Conventional finance and Islamic finance have their own source document. Explain the source
documents for both Islamic and conventional finance.

Source Document for Conventional Finance.

What is Conventional Finance? Conventional finance is a home financing plan offered by

monetary establishments or banks, which are not ensured by government offices. Sources
document of Conventional Finance? From the part of laws, customary laws typically allude to
the law which is made by human to build up a legitimate framework which can be utilized to
lessen the bad behaviors of the general public. It is delegated two main lawful frameworks
which is polite law and precedent based law. For example, custom-based law is known as British
law that depends on legal choice which is typically made in the higher courts and it is situated in
huge on guidelines which the judges should apply and elucidation.

In Malaysia, common law is begun from Roman law which depends on the codification
framework which contains intelligently associated ideas and standards, beginning with general
standards and proceeding onward to explicit principles. In Malaysia, we have Capital Markets
and Services Act 2007, supposed Akta Pasaran Modal Dan Perkhidmatan 2007 in Malay, is a
Malaysian laws which instituted to join the Securities Industry Act 1983 [Act 280] and Futures
Industry Act 1993 to direct and to accommodate matters identifying with the exercises, markets
and mediators in the capital markets.

Next, we have Securities Commission Malaysia Act 1993 that set up the Securities Commission
Malaysia that is endowed to manage and methodicallly build up the capital markets in Malaysia.
This statutory body reports to the Minister of Finance and its records are postponed in
Parliament every year. It intention is to explore and implement the regions inside its locale. The
Securities Commission Malaysia is a self-financing association where its salary is gotten from the
accumulation of tools and application charges. Other than of its administrative capacities, the
Securities Commission is likewise obliged by rule to energize and advance the improvement of
the protections and prospects advertises in Malaysia.

8.

Source Document of Islamic Finance

What is Islamic Finance? Islamic finance is characterized as a budgetary administration

essentially connected to agree to the fundamental standards of Sharia law. Thus, the principle or
source wellsprings of Sharia are the Holy Quran, Hadith, Sunna, Ijma, Qiyas and Ijtihad. The Holy
Quran is the book of disclosure given to the Prophet Muhammad, Hadith is the story relating the
deeds and expressions of Muhammad, Sunna alludes conduct of Muhammad during his lifetime,
Ijma is the understanding among religion researchers about explicit issues not looked in either
the Holy Quran or the Sunna, Qiyas dependent on the utilization of the directive of one case to
another gave both have the equivalent compelling reason or the Sunna in examination with
another case alluded to in the Quran and the Sunna and Ijtihad speaks to an application from a
law specialist of certain Sharia controls on cases not referenced in ether the Quran or the Sunna.

In view of research, Islamic money related establishments are those that are based, in their
destinations and activities, on Quran's standards. This characterizes Islamic budgetary firms
especially that they are banks, yet additionally different kinds of money related middle people
that utilize Sharia standards. The other purpose of takeoff is that the Sharia clearly requires the
alteration of all parts of Muslims' lives and the arrangement of a total good framework.
 9.

Question 4

Riba is one the prohibited element in Islamic finance. Explain Riba with example.

The essential rule of Islamic financial framework is the denial of riba (Usury). The Arabic word
Riba, truly implies development, abundance, expansion, extension, surplus or increment. Riba,
from Sharia point of view, alludes to any foreordained and restrictive additional sum, huge or
little, that must be paid by the borrower to the bank above and over the head, for the credit to
be appeared or for an expansion in its development. It is also as illegal, exploitative gains made
in business or trades under Islamic law. Riba also is a concept in Islamic Banking that refers to
charged interest. It has also been referred to as usury or the charging of unreasonably high
interest rates. There is another form of Riba to the most Islamic Jurists, which refers to the
simultaneous exchange of goods of unequal quantities or qualities. It’s forbidden under Sharia
Law because it is thought to be exploitative. Through Muslims agree that riba is prohibited,
there is much discussion over what they founds about riba, whether it is against Sharia law, or
only discouraged, and whether or not it should be penalised by people or by Allah.

Depending on the interpretation, riba may only refer to excessive interest, however to the
others the whole concept of interest is riba and thus is unlawful. For example, even though
there is a wide spectrum of interpretation on the point at which premium winds up exploitative,
numerous cutting-edge researchers accept that premium ought to be permitted up to the
estimation of swelling, to repay loan specialists for the time estimation of their cash, without
making over the top benefit. All things considered, riba was to a great extent taken as law and
framed the premise of the Islamic financial industry.

The Muslim world has battled with riba for a long while, religiously, ethically and legitimately,
and inevitably, monetary weights allowed for a slackening of religious and lawful guideline, in
any event for a period. In his book, Jihad: The Trail of Political Islam, Giles Kepel composed that
"since modern economies function on the basis of interest rates and insurance as preconditions
for productive investment, many Islamic jurists racked their brains to find ways of resorting to
them without appearing to bend the rules laid down by the Koran," and "the problem loomed
ever larger as more and more Muslim states entered the world economy in the 1960s." This
loosening of economic policy lasted until the 1970s, when a "total ban on lending with interest
was reactivated.

Classfication of Riba with examples

Riba al-Buyu' (riba in transaction)

 Riba al-Nasiah (riba of delay) - charged dependent on postponement of finishing of a

trade. Example: if 5 kg of gold is traded with another 5 kg of gold, with a deferral of one
year, the said exchange will add up to riba al nasiah since there is a presence of
postponement in the said exchange.
 Riba al-Qardh- any foreordained advantage, for the proprietor of obligation expressed
in the agreement, which the indebted person needs to satisfy. This type of riba could be
seen in advance contracts.

Riba al-Duyu’ ( riba in loan )

 Riba al-Jahilliyah - a type of intrigue, which is charged over the original obligation as a
penalty to the account holder because of his powerlessness to support the credit
reimbursement inside the time concurred. This type of riba could be seen in Visa
exchanges where, the postponement of reimbursement of the obligation.
 Riba al-Fadl (riba by way of access) - emerges when there is any additional amount or in
equality in the trading of products. Example, a trade of 5 kg of wheat with 6 kg of wheat
adds up to riba al-fadl.
 11.

Why Riba prohibited under Sharia Law?

 Riba is a reason for deceit and misuse – which negates the center Islamic lessons of social
equity and it, is uncalled for the loan specialists to ensure come back with no contribution of
hazard.
 Riba stimulates the formation of materialistic nation – in Islam, acquiring obligation is
debilitated. The Prophet (PBUH) would not offer salat-ul janazah of an individual who
passed on obliged. Loaning is a beneficent demonstration. Obtaining cash ought to be
restricted to instances of desperate needs.
 Riba weaken profitable work – intrigue based financing results more riches gathered by
loan specialists without applying much exertion or adding to gainful movement. Cash
independent from anyone else isn't a piece of capital in financial definition and thus, is
definitely not a profitable asset.
 Riba expands the clashes in salary and riches – the rich (moneylender) exploit the need of
poor people (the borrower) for cash by charging premium, which adds to the weight of the
borrower. Subsequently, the rich wind up more extravagant and the poor ends up less
fortunate. In this way, riba builds riches disparity among the individuals from the general
public.
 12.

Question 5

Gharar is one of the prohibited concepts in Islamic finance. Explain gharar.

What is Gharar?

Gharar is an Arabic word that is related with vulnerability, double dealing and hazard. It is a
critical idea in Islamic Finance and is utilized to gauge the authenticity of a dangerous deal or
unsafe speculation relating to either short selling, the selling of products or resource of
questionable quality or conveyance, betting or gets that are severe principles in Islamic Finance
against exchanges that are exceptionally unsure or that may bring about any bad form or
trickery against any gatherings.

In finance, Gharar is seen inside subordinate exchanges, for example, advances, prospects and
alternatives, just as in short selling and in theory. In Islamic Finance, most subsidiary contract
are illegal and considered invalid in light of the vulnerability engaged with the future
conveyance of the basic resource, Islamic Finance likewise carefully restricts broadening credits
with intrigue, which it thinks about usury.

Gharar also can be define as deals or money related exchanges considered as Gharar are made a
decision about with respect to the degree of misconception that exists among gatherings and
the degree of vulnerability that the merchandise or instalment can be conveyed. Analysts
separate among minor and liberal Gharar, and remembering that most subordinate things are
blocked in view of over the top defencelessness, various practices considered as Gharar, for
instance, business assurance, are fundamental parts financial life. It is moreover sensible for a
merchant to short-sell fungible things, for instance, wheat and various products, to be passed on
at some point not long from now to a buyer.

A deal without physical having a place is not generally reproached. Be that as it may, the
assurance of movement by either party without acceptability makes the encroachment. Trades
and contracts are considered as Gharar when preposterous peril or defencelessness is united
with one social affair abusing the property of the other or one assembling only benefitting by
the other party's adversity.

13.

The avocation and direction for restricting contracts or exchanges considered as Gharar
originates from the hadith, a loved book in Islam. It contains the truisms of the Prophet
Muhammad, who criticized the selling of the winged animals in the sky, the fish in the water, or
the unborn calf in the mother's belly, saying, "Sell not what isn't with you." Therefore, inquiries
of Gharar emerge when a case of proprietorship is vague or suspicious. Clearness of the planned
importance of Gharar additionally comes in the Quran, where it states, "And don't gobble up
your property among yourselves for vanities," which is deciphered as the disallowance of savage
strategic approaches.

Gharar is a component of hazard (mukhatarah), vulnerability, danger, or absence of

straightforwardness (hilter kilter data) that could render an agreement void. A Gharar-related
contract is one that contains a degree of risk as for any of the counterparties in a way that could
provoke him losing part or most of some counter value, right, etc. Gharar was described by
some sharia scientists (to be explicit Ibn al-Qayyim) as "an arrangement wherein the dealer isn't
in a circumstance to hand over the subject to the buyer, paying little heed to whether the point
is in nearness or not". According to its degree (entirety), Gharar is consistently named minor
Gharar, delicate gharar, and major gharar.
We as of now comprehend that the probation of Gharar is relative, another method for taking a
gander at Gharar is from a money saving advantage examination, for example in the event that
there is a more prominent advantage (positive externality) at that point cost (negative
externality), at that point the agreement would be considered as substantial. This point is
strengthened by 'Ibn Taymiya (1998, vol. 4).

14.

Question 6

Gambling and money trading are prohibited everywhere especially in Islamic Finance. There
are a few reasons why gambling and money trading are prohibited.

Why Gambling Prohibited in Islamic Finance?

For what reason is gambling restricted in Islamic Finance? It likewise denies gambling and
unnecessary hazard. First standard will be Maysir. This actually means betting as such it
additionally implies any type of business movement where money related increases got from
negligible possibility, theory or guess. Islam has additionally completely denied all types of
betting. Maysir alludes to the simple accomplishment of riches by some coincidence, regardless
of whether it denies the other's ideal for, instance vulnerability of the planning of advantages of
an unadulterated extra security contract makes a component of Maysir. Club are likewise
regular case of Maysir, where basically move of riches happen from washouts to champ without
making another load of riches. To sum things up, contracts including unadulterated theory,
traditional protection and subsidiaries are instances of Maysir. At long last, the other principle is
Gharar. Gharar is a wide idea that actually implies misleading, chance, extortion, vulnerability or
risk that may prompt pulverization or misfortune. Other than that, Hanafi researchers have
characterized Gharar as something which is outcome is dubious. Gharar in Islam alludes to any
exchange of likely articles whose presence or depiction are not sure, because of absence of data
and information of a definitive result of the agreement or the nature and nature of its topic.
Gharar is separated into two kinds: Gharar fahish and Gharar Yasir. A case of Gharar fahish in
contracts are bounty as appeared by the AlHadith and ordinarily is related with the reasons why
Gharar deals are precluded. Then again, Gharar Yasir, which means little in sum or unimportant
is the vulnerability that is constantly present in all agreements and behaviours, along these lines
its reality is endured. All researchers concur that each exchange has some measure of Gharar in
it, however they begin to contrast when alluding to the measure of Gharar contained in each.

15.

Why Money Trading Prohibited in Islamic Finance?

Money Trading is referred to the procurement and selling of monetary forms in the outside
trade advertises with the aim of producing benefits. These days, cash exchanging has developed
so enormous that the procedure has turned out to be so convoluted and went with gigantic
hazard. Anyway this does not prevent individuals from engaging in cash exchanging since the
idea of earning a major measure of benefit energizes them. Under Islamic law, there are a few
reasons that cause cash exchanging to be restricted. The above all else is, cash exchanging
incorporates the component of vulnerability. In the event that the degree of vulnerability or
hazard being borne is low, the exchange is reasonable. In any case, when the vulnerability is
excessively high, at that point it will be considered as betting which is obviously taboo under
Islamic Finance. Subsequently, if an individual needs to engage in this action, the person in
question needs information in the current monetary atmosphere so as to estimate the good and
bad times of the cash conversion scale. Without adequate measure of learning, the financial
specialists may confront the likelihood of losing their cash. This implies, cash exchanging may
likewise convey indistinguishable dangers from betting. A portion of the dangers are expanding
measure of obligations, probability of confronting insolvency and breaking down wellbeing
because of money related emergency. To add on, much the same as betting, cash exchanging
makes somebody be less beneficial when the individual trusts in something profitable easily as
opposed to putting much exertion into creating something that is proportionate to the
estimation of what the person in question needs. Besides, the disallowance of cash exchanging
relies upon the circumstance as well. For instance, cash exchanging completed one sitting (trade
of the two monetary forms settled at the accurate minute) is passable. Then again, cash
exchanging is denied if there is a postponement in the trading of the money since it includes the
component of Riba. As an end, the decision of whether cash exchanging is legitimate under
Islamic Finance point of view may shift since it depends on different reasons. In this manner, it is
ideal to look for guidance from expert and authorize budgetary consultant before making any
exchange.

16.

Question 7

Monopoly could be the easiest way to earn much money in short term. However, why
monopoly prohibited under Islamic finance?

What Is Monopoly?

Monopoly is an act that is strictly prohibited in Islam, or in Arabic it is called ihtikar. Monopoly
can be defined as the only seller of a product or service. The monopolist usually uses their
power of monopoly for profiteering. Profiteering is an act of gaining profit by raising the price.
This action is mostly done by monopolist because they have the power and the opportunity to
do so because they are the only seller. Therefore, people have no choice but to buy the goods or
services from them. Selling when prices soar, and at the highest possible price. Whoever does
this would be considered as an act of monopoly, and they are indeed prohibited by the laws of
Sharia. “Profit which is unreasonably high is termed as profiteering and is prohibited in Islam.”
[Mohamed Ariff, Islamic Banking in Southeast Asia, Institute 8 for Southeast Asian Studies, 1088,
p.m 183]”. Profiteering is forbidden in Islam.
Reasons Why There Are Prohibited In Islamic Law

There are a few strong reasons why monopoly is prohibited in Islam. Based on sharia law, it is
prohibited, because it could lead to injustice. The unjust actions happen when it inflicts harm on
people and also makes it hard for them. For example if the price raise to the roof then it is unfair
for all customers, they have no choice but to pay.

Besides that, Monopoly has an element of unilateral interest where the monopolists have a
strong motivation in playing the price and therefore being a price maker. Again, it seems to be
the main and the strongest reason to why monopoly is prohibited. Due to the injustice that it
caused when one becomes a price maker, and tends to earn more than they should.

Moreover, it could be very unfair when a monopolist have the right to either sell the product on
the market or not. This gives them leverage on controlling the customers. For example, they can
withdraw their services or goods at any time leaving the consumers with nothing left. With that
in mind, the monopolist gain control in once again setting the price as they wish because they
know that the consumers need their product or services.

17.

Last but not least, monopoly is prohibited because it can be used as a form of exploits upon
their customers and especially for the poor. This will happen when the price is really
unreasonably high which makes it hard for the poor to pay yet they have no choice but to pay.
This is an unjust act which is commonly done by monopolist. They have nothing to lose, because
the people are not left with any choice. Even for the rich, it can be a way for the monopolists to
exploit the wealth of the rich.

Examples of Monopoly

After all of that being said and done, these are two examples of a monopoly in Malaysia, Tenaga
Nasional Berhad, and Syarikat Bekalan Air Selangor (Syabas) Sdn Bhd. Even if these two
companies that are mentioned is considered a monopoly, we must be wondering why is
Malaysia, an Islamic government allowing these, the answer is simple. The majority opinion,
which is also most in line with the aims (maqasid) of the Sharia, is that the prohibited monopoly
is one that inflicts harm on people and makes it difficult for them. This means these are an act of
monopoly that might not be prohibited by Islam unless they abuse their powers to earn more
profit by profiteering.

Another example of a monopoly is for instance, if Raju Chicken Sdn Bhd is the only company that
supplies chicken. Raju Chicken simply raises the price of the chicken in order to gain more profit.
Their customers have no other choice but to pay the high price in order to get the chicken
because Raju Chicken is the only chicken supplier. This is an act of profiteering, which troubles
the customers but makes Raju Chicken gain more profit. Therefore, it is prohibited because Raju
Chicken is selfishly exploiting their customers by raising the price.

18.

Question 8

What is a sharia compliant product? Explain with example.

Sharia compliant is an act or activity that complies with the requirements of the Sharia or Islamic
law. Sharia refers to the law and orders and way of life set by Allah to mankind. Sharia includes
law, prohibitions, instructions, regulations, command, obligation, guidance, ethics, ideology,
trust and behaviour which govern the human being in every aspect of life. Sharia compliant
products are investable products governed by the requirements of sharia law and the principles
of the Muslim religion. Sharia compliant products are considered to be some type ethical
investing.

Product that is exchangeable for money

There are six types of sharia compliant products, the very first product is products that are
exchangeable for money, for example in the early days people used to exchange products and
services without money. For example, a person may repair car as long as the client would
provide so many cooked meals for him. As you can see, this is not a very appropriate way to
conduct business. This is where currency came. It is much easier for both of us if the person pays
me RM200 to repair that car so she doesn’t have to cook me 30 meals. This would be good
because I might not even like her cooking. In the end, money represents the work and the value
of the products and services that are being performed and exchanged. 

19.

Products that are not prohibited in Islam

The second type of Sharia compliant product is products that are not prohibited in Islam. In
Islam meat of pigs, hogs and pigs is strictly prohibited, as is the meat of predatory animal’s lions,
tigers, cheetahs, dogs, cats and the like this also applies to birds of prey, such as the eagle, the
falcon and so on. If a person anyhow did something that is prohibited in Islam will always face
the consequences. As the prophet Muhammad said follow the rules in Islam such as Wajib/
Fard, obligation which is rewarded for doing and penalized for failing to perform. Sunnat/
Mustahabb, act which are commendable but are not obligatory. Not penalized for failing to
perform them. Harus/ Mubah are a probable act. Neither rewarded for doing nor penalized.
Makruh, improper act which is discourage. Haram is a forbidden act. Rewarded for not doing
them and penalized for including them. When followed the teaching of the prophet Muhammad
you will be rewarded. These are the consequences by a person if did something prohibited in
Islam.
Products are not traded under duress
Thirdly, products are not traded under duress. Duress means the act of using force, false
imprisonment, force, threats or psychological pressure to make someone to act differently to his
or her wishes or interests. Duress takes place when a person is prevented from acting according
to free will. Forms of duress could be threatened physical harm or economic duress which is
prohibited in Islam. Example of trading under duress is, if Azman makes an unlawful threat,
force or pressures his friend Sally to sign an agreement or execute a will against her will, and
then Azman is causing Sally to be under duress which is prohibited in Islamic finance. In Islam,
products must be traded the correct and in an ethical way for example if Azman desperately
wants to trade a cow with his friend Sally who has a goat, in this case Azman must follow the
teaching of the prophet Mohammad and not force or pressure Sally to trade the goat to Azman
if Sally refused to trade it with Azman.

20.
Products that is free from Riba
Fourthly, products that is free from Riba. The basic principle of Islamic financial system is the
prevention of riba (usury). Riba refers to any fixed and conditional extra quantity that must be
paid by the borrower to the owner. There are two type of Riba, Riba al-Buyu (riba in trade
transaction) and Riba al-Duyun (riba in loan transaction). Riba al-Buyu divided into two Riba al-
Nasiah and Riba al-Fadl. Riba al-Nasiah (riba of delay), charged based on delay of the end of an
exchange. For example, if 5kg of rice exchange with 5kg of rice with a delay of two years
becomes Riba al-Nasiah. Riba al-Fadl (riba by way of access), rises when there is any extra
amount or equality. For example, an exchange of 5kg of bread with 8kg of bread amounts to
Riba al-Fadl. In Riba al-Duyun, Riba al-Qard is any fixed benefit, for the owner of debt stated in
the contract, which the borrower needs to fulfil. Finally, Riba al-Jahiliyah, a form of interest,
which is charged above the original debt as a penalty to the borrower due to his failure to
service the loan repayment within the time fixed. Islamic finance only allows transaction to
happen without any involvement of Riba, if there’s any it’s strictly prohibited.

Products are traded in the open market

The fifth type of Sharia compliant product is products are traded in the open market. Open
market transaction is a situation where companies can trade freely without limits and the prices
are charged based on the number of goods and how many people are buying the goods.
An open market transaction is the opposite of a close market transaction. No other parties are
involved when any trading that is done in the close market and it is only between the insider
and the company, which is prohibited in Islamic finance. For example, Karim’s mother is in the
hospital and urgently need a liver for a liver transplant but in the open market list he is in the
250th number, he couldn’t wait any longer so instead of waiting he went to the closed market
and made the transaction with a lot of money.

21.
Product that is not monopolized by one party
Final statement is the product that is not monopolized by one party. Monopoly, or ihtikar in
Arabic, is a prohibited practice in Islam because it leads to injustice. The prophet Muhammad
has made it clear and specific statements about it. For example the prophet Muhammad said:
“Someone has indeed got it wrong when the person refuse to give food in order to raise its
price” The prohibited monopolist is one that inflicts harm on people and makes it difficult for
them, for example Hamid has the only company in Kampung Merah that supplies electricity to
the people who live there. Hamid raise the price monthly that makes the people who live there
no choice of paying it because Hamid’s company is the only one there who supplies electricity.
This makes it difficult for the person who is living there and this can lead to polemics and
dissatisfaction in society. Monopoly is one way to exploit the poor by the rich class which is
strictly prohibited in Islam.
 22.

Question 9

Give example of bank that promote Islamic finance and illustrate the products provided.

The bank that we choose is Public Islamic Bank Berhad (PIBB). This bank promotes a lot of
products.
The products are:-
a) Personal Banking
b) Business Banking
c) Credit Cards:
i. Platinum Cards
ii. Gold Cards
 d) Deposits (Debit Cards):
i. Savings Account-i
ii. Current Account-i
e) Financing:
i. Home Financing-i
ii. Vehicle Financing-i
iii. Personal Financing-i

23.
a) Personal Banking
Personal banking is a kind of banking administration and product offering offered by banks
to retail clients, that is purchasers instead of organizations, mediators and establishments.
Banks overall offer personal banking items that ordinarily incorporate savings and
transaction facilities, for example, bank transaction account, debit cards/EFT, interest
bearing floating account (savings account) and a fixed interest deposit account for a specific
agreed period (certificates of deposit / term deposit) which can differ as indicated by the
bank. What's more it likewise incorporates obligation offices, for example, loans, home
loans and credit cards.

b) Business Banking
 Business banking is an organization's money related dealings with a foundation that gives
business loans, credit, savings and checking accounts specifically designed for companies
instead of individual. Business Banking also called as commercial or corporate banking.
Banks provide money related and advisory services to small, medium, and large foundation.
These include deposit accounts, non-interest-bearing floating products, real estate loans,
commercial loans, and credit cards services. The services that business banks offered are
financing options and cash management solution. They also offer business checking and
savings account.

24.
c) Credit Cards
Credit cards are a piece of plastic made by bank. It functions as a loan payment where
cardholders borrow money from the bank to pay for goods and services. Credit card
imposes the condition that users have to pay back the borrowed money, plus interest, and
any other agreed-upon charges. Credit card users will be received penalty (Riba Al-Jahiliah) if
they failed to pay at the end of the month. If they delayed the payment they will receive a
penalty which is plus interest at a certain rate.
i. Platinum Cards
PIBB offers PIBB Platinum Visa Credit Card and PIBB Platinum Mastercard Credit Card.
There is no difference between Visa and Mastercard. It is up to client to choose either
Visa or Mastercard. The requirements to make this card are RM500,000 minimum
 income per annum and principal aged 21 and supplementary aged 18. The features
offered by PIBB are unlimited Hibah performance bonus of 0.2% on both and overseas
retail purchases. Next, PIBB covers our travel up to RM500,000. Plus, the first year
annual fee is surrendered. Following years’ is subject to minimum 12 swipes over the
previous 12 months. Last but not least, it is easy to access through Public Islamic Bank
branches at anywhere.
ii. Gold Cards
PIBB offers PIBB Gold Visa Credit Card and PIBB Gold Mastercard Credit Card. There is
no difference between Visa and Mastercard. It is up to client to choose either Visa or
Mastercard. The requirements to make this card are RM24,000 minimum income per
annum and principal aged 21 and supplementary aged 18. The features offered by PIBB
are unlimited Hibah performance bonus of 0.1% on both and overseas retail purchases.
In addition, the first year annual fee is waived. Following years’ is subject to minimum
12 swipes over the previous 12 months. Furthermore, non-compounding of
management fee. Last but not least, it is easy to access via Public Islamic Bank branches
or PBe.

25.
d) Deposits (Debit Cards)
i) Savings Account-i
There are a few types of Savings account offered by PIBB. One of it is Qard Savings
Account-i. The features offered for this particular account are initial deposit of
RM250-00 for an individual or non-individual to open an account. Next, Hibah (if
any) may be applied into the account. You can access via PIBB or PBB branches, ATM
or PBe. The requirements are simple which the minimum amounts RM20 must
remain and maintained are and other terms and condition applied.
Next, PB MySalary and Savings Account-I where PIBB offered low minimum initial
deposit of RM20. This account needs RM20 as a minimum balance in the account.
This account can access via any PIBB or PBB branches, ATM or PBe.

In addition, BESTARI Savings Account-I and the he features for this particular
account are ease of opening an individual account under the age of 18 with a
deposit amounted to RM10. Next, Hibah (if any) may be applied into the account.
PIBB will provide an ATM card for children above 12 years old, free unlimited
withdrawals, passbook provided. Last but not least, easy access via any PBB or PIBB
branches, ATM or PBe. The requirements are RM20 as minimum balance and other
terms and condition applied.

26.
Last but not least, BASIC QARD Savings Account-i. There are two options of ATM
cards to apply this account.
Option 1: Waiver Annual Fee for PB Lifestyle Debit Card
- Free 6 over-the-counter (OTC) visits per month
- Free 8 ATM cash withdrawals per month
- First 2 Interbank GIRO transactions through OTC in a month at a fee of
RM0-50 (including GST at 0%) per transaction and RM200 (including GST
at 0%) per transaction for third transaction forwards
 Option 2: Annual Fee ofRM8.00 (including GST at 0%) for PB Lifestyle Debit Card

- Unlimited ATM cash withdrawals and OTC transactions

- First 2 Interbank GIRO transactions through OTC in a month at a fee of
RM0-50 (including GST at 0%) per transaction and RM200 (including GST
at 0%) per transaction for third transaction forwards

Besides that, Malaysian citizen and permanent residents aged above 18 are eligible
to apply. Next, the opening fee will be at RM20 for an individual opening. Hibah (if
any) will be credited into the account. Last but not least, easy access via PBB or PIBB
branches, ATM or PBe. The requirements to apply this account are minimum
balance of RM20 must be maintained and other terms and condition applied.

27.

ii) Current Account-i

Current account is a record at a bank or building society from which cash might be
withdrawn without notice, regularly an active account catering for frequent deposits
and withdrawals by cheque. There are 5 types of current account offered in PIBB.

First and foremost, Qard Current Account-i. Qard current account features are RM3, 000
for initial deposit to open an account. Normally business peoples will use current
account instead of savings because current account has no minimum balance which also
a feature from PIBB. Easy access via any PBB or PIBB branches, ATM or PBe. The
requirements are introducer is required and term and condition applied.

Secondly, PLUS Current Account-I and the features are almost the same with Qard
Current Account-i. PLUS Current Account-I features are RM3,000 for initial deposit to
open an account which is the same with Qard Current Account-i. Hibah (if any) may be
applied into the account. There is no maximum limit on deposit amount. Lastly, can
access via any PBB or PIBB, ATM or PBe. The requirements are the same with Qard

Thirdly, Plus Current Account-i Enterprise. This account is a Shariah compliant current
account which is offered to business enterprises, corporations as well as associations to
optimise their business cash flow. The features offered are open for non-individuals
(sole-proprietors, partnership, corporate entities, associations, clubs, societies, and etc).
The initial deposit is at RM5,000. Consolidated monthly statement is provided. Ease of
access to account via PBB or PIBB branches or PBe. Optional ATM card for sole-
proprietor. Lastly, cheque book will be issued with No Cash Line Facility-i. The
requirements to apply this particular account are introducer is acquired for account
opening, Cash Line Facility-I is not allowed and terms and condition applied.

Fourthly, Foreign Currency Current Account-I and the features for this account are
Malaysian citizen, permanent resident or non-resident aged 18 and above are eligible to
apply. Next is initial deposit of USD1, 000 or equivalent to any other currency. These are
the 5 major currencies Australian Dollar, Euro, Great Britain Pound, U.S. Dollar and New
Zealand Dollar
In order to apply this account there must be no introducer required if any MYR current
account has been maintained with the bank. Finally, easy access via PBe. The
requirements are simple. First, subject to guidelines under the Bank Negara Malaysia
‘Foreign Exchange Administration Rules’ and terms and condition applied.

Last but not least, Basic Qard Current Account-i. There are two ATM card options to
apply this account:
 Option 1: Waiver Annual Fee for PB Lifestyle Debit Card
- Free 6 over-the-counter (OTC) visits per month
- Free 8 ATM cash withdrawals per month
- First 2 Interbank GIRO transactions through OTC in a month at a fee of RM0-
50 (including GST at 0%) per transaction and RM200 (including GST at 0%)
per transaction for third transaction forwards

Option 2: Annual Fee ofRM8.00 (including GST at 0%) for PB Lifestyle Debit Card

- Unlimited ATM cash withdrawals and OTC transactions

- First 2 Interbank GIRO transactions through OTC in a month at a fee of RM0-
50 (including GST at 0%) per transaction and RM200 (including GST at 0%)
per transaction for third transaction forwards

Besides that, the eligibilities for this account are Malaysian citizen and permanent
residents (individual or joint) aged 18 years and above. Small and Medium Enterprises
(SME). The features offered for this account are RM500 for initial deposit, cheque book
facility, standing instruction facility, free monthly statement with minimum one transaction,
and easy access via any PBB or PIBB branches, ATM or PBe. The requirements are half yearly
service charge of RM10 if balance is less than RM100 during the half year period. Lastly,
terms and condition are applied.

29.

e) Financing
Financing is the way toward giving assets to corporation, making buys or contributing.
Finance foundations, for example, banks are in the matter of giving cash-flow to
foundations, customers, and financial specialists to enable them to achieve their goal. The
utilization of financing is imperative in any monetary framework, as it enables organizations
to buy items out of their quick reach.
 i) Home Financing-i
Home financing is a loan to purchase a property (house). PIBB has two types of home
financing.
Firstly, Home Equity Financing-i which is provides you the means to purchase a property
with tenure up to 35 years. The features offered by PIBB are competitive financing rate
among other banks, flexible payment period, redraw and reinstate facility available,
government incentives on stamp duty and multiple payment channels via Pbe, ATM and
PBB or PIBB branches.
Secondly, ABBA House Financing-I which is a variable rate financing based on the
Shariah concept of Bai Bithaman Ajil which allows you to finance your properties with
PIBB. Customers can pay to PIBB by monthly instalment until the loan is settled. The
features are, financing up to 35 years or age 70 (whichever comes first). Next, redraw
facility available and last but not least multiple payment channel via PBe, ATM or PBB or
PIBB branches.

ii) Vehicle Financing

PIBB offers AITAB Hire Purchase-i. AITAB Hire Purchase-i is a Vehicle financing under the
Shariah principle of Al Ijarah Thumma Al-Bai, they offer an attractive margin of financing
and competitive financing rates. There are only two features for this finance. First,
financing period up to 9 years for commercial or consumer vehicle. Finally, multiple
payment via PBe, ATM and PBB or PIBB branches.

30.
These are the margin of financing and maximum duration is shown at below diagrams 1, 2 and
3:
 Diagram 1

Diagram 2

Diagram 3

31.
iii. Personal Financing-i
 Personal Finance is a term that spreads dealing with your cash and sparing and
contributing. It envelops planning, banking, protection, contracts, ventures, retirement
arranging, and duty and domain arranging. It regularly alludes to the whole business
that gives budgetary administrations to people and family units and exhorts them about
monetary and speculation openings. PIBB offered three types of personal finance.

First, BAE Personal Financing-I and the features for this loan are quick cash up from
RM5,000 to RM150,000, hassle-free payment (via salary deduction from employer), and
no guarantor required. The requirements to apply this loan are Malaysian citizens aged
20 years and not exceeding 60 years of age, minimum gross wage of RM3,000 per
month including fixed allowances, encourage to take Takaful coverage and terms and
condition applied.

Second, BAE AG Personal Financing-i. The features for this loan are quick cash up from
RM11,000 to RM150,000, hassle-free payment (via salary deduction through Biro
Angkasa), and no guarantor required. The requirements needed to apply this loan are
Malaysian citizens aged 20 years and not exceeding 58 years of age, direct deduction
from employer’s wage for monthly instalment payable to bank, encouraged to take
Takaful coverage, terms and condition applied. The other requirements as below shown
at diagram 4:

Diagram 4

Finally, PLUS BAE Personal Financing-I where PLUS BAE Personal Financing-i is tailored for
existing PIBB customers with good payment record who can opt for additional financing without
any additional collateral or a guarantor. The features are open to all existing House/Term
Financing-i or Cash Line Facility-i to customers, payment period up to 10 years, fast cash from
RM10, 000 to RM150, 000, and optional Group Takaful coverage. The requirements needed are
existing customers of PIBB with good payment record and terms and condition applied.

33.

The Conclusion
Lastly, as a team, we learn different aspects of Sharia in business and finance. The course covers
the Sharia framework and the composition of the Islamic financial system, where we also learn
the major primary sources of Sharia and secondary sources of Sharia used to derive Sharia
ruling. Moreover, we also learn maqasid al Sharia or the objectives of Sharia along with its
different categories and legal maxims. The course also covers the major aspects of the theory
contract from Sharia perspective that govern activities and contracts in the financial system. This
foundation will be agreed before boarding on the Sharia solicitation of each specific contract
such as murabahah and along with their related application in Islamic finance. Lastly, we also
gained some knowledge about Islamic Finance Sharia contracts in services and assess and
evaluate the products and services offered by the Islamic financial institute. As a promise, This
Islamic Finance studies will help us in our future transactions or businesses that going to
conduct.

34.

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