Typically the Islamic Economic System

Interest-free Islamic economic system is partially followed and partially not followed within Muslim countries about the world. The only country, which has followed this system completely in each minute detail will be Malaysia. So typically the application methods within this post are usually mostly those implemented in Malaysia next the Interest-free Islamic Economic system.
The main feature associated with the Islamic economy is that it is Interest-Free. Because the Qur’an states in Sura al-Baqara Chapter 2 Passages 278 & 279, “O ye who else believe! fear Thor and give up what remains of your with regard to usury if ye usually are indeed believers. When ye do that not take notice regarding war from Allah great Apostle: nevertheless if ye turn back ye will have your capital sums; do not deal unjustly plus ye shall not really be handled unjustly. “
Qur’an condemn all evil deeds, but never has the Qur’an aware of a war against God Immutable and His Messenger apart from regarding taking Curiosity and Usury.
There are several evils of the interest based economy, typically the reason why Islam has prohibited it.
For example, if a person requires a loan from a bank and says the cost price of a certain content is 10 dollars and he desires to a profit of one dollar. Therefore the selling price would include the 10 money price range one buck profit and 1 dollar interest in addition to the selling price can be 12 money. The selling cost would go upward because of interest and once the marketing price rises the particular demand comes straight down and when the requirement comes down the supply comes down and as supply comes down production boils down causing labour trouble and unemployment.
There is Social Injustice.
For example , if a particular person takes a loan through the bank and no matter when he earns money or goes in loss he offers to pay of which fixed amount regarding interest. Even if a few natural calamity befalls his family, such as flooding or even earthquake, the individual continues to have to pay out the loan with all the interest and a new delay would only raise the amount regarding interest. It is usually social injustice.
Right now there is no interpersonal consideration.
Suppose, when two businessmen arrive at ask for the loan from a contemporary bank and another businessman wants to start a social or hospital while the some other businessman wants to start an alcoholic beverages factory or perhaps a gambling den. But organic the businessman, who wants to commence an alcohol factory or perhaps a gambling living area could have better results as well as the loan offered to him would be more secure and he would provide a higher rate appealing as in comparison to the business, who would like to open the school or clinic. Modern banks are usually only interested within getting better and higher returns. That’s why they finance gambling dens as opposed to colleges or hospitals. Of which is why inside the 80s countless numbers of gambling play rooms were financed simply by modern banks globally. For name sake only a number of social projects usually are financed by modern banks and many regarding their loans derive from better interest.
Contemporary banks encourage people to store money and keep the money idle for small set return on that every year. In the end, power is concentrated in some hands, typically the bankers.
In typically the same way right now there are several advantages of Islamic banking.
Because there is simply no interest involved, there is profit in addition to loss sharing. When a person wants to sell his goods, it could just have the price price and income in the selling value and instead of 12 dollars, his / her selling price would certainly be only 11 dollars. In the event the selling price comes lower, the need increases in addition to if the demand raises the supply boosts and as supply enhances the production increases leading to more labour for your people plus higher employment. Since a result stimulates people to job and earn their particular living.
There is usually Social Justice in Islamic banking.
If a business takes a loan and gets into loss, the damage is shared simply by the bank and if he earns a profit, typically the profit is contributed by the lender. If in situation any natural calamities befalls him, the particular Islamic bank gives him additional time in order to repay, unlike the present day bank, where typically the more time you consider to pay typically the more interest you should have to pay out. Many a occasions in the event the Islamic bank finds the scenario very bad, they even let it go away that loan.
Right now there is Social Thing to consider in Islamic banking.
Islamic bank are unable to give a mortgage to any businessman, who else is doing any kind of activity, that is creating harm to the society. For instance, if a business person wants to begin an alcohol factory and approaches a great Islamic bank with regard to a loan, the particular Islamic bank is not going to lend him a single penny, not also if he guarantees to provide 100% profit for the Islamic financial institution. In Islamic bank there exists social concern plus they encourage tasks necessary for the society, such as building colleges, hospitals and nurseries. In short, the Islamic bank encourages typically the society to enhance.
In the Islamic bank, you usually are not encouraged to keep your cash idle. You are usually encouraged to take a position your money and end up being a partner in the business and in the end, power is not concentrated inside the hands of some individuals. Because within the Islamic banking the profit and loss usually are shared by the business, the banker and also the depositor. Typically the power is equally shared among all the particular people.
The great philosopher, Aristotle offers beautifully defined Attention as “An earning using the use regarding money rather than about labour, and everything these kinds of earnings(interests) are against nature. “
Enables quickly analyze the particular objectives of the Islamic economic order prior to we analyze the theory and practical application of the Islamic marketplace.
The Objectives of the Islamic Economical Order
1- Economic well-being
Islam promotes an individual to appreciate the bounties of God Almighty, to work for his / her living and refrain from begging.
2- General Brotherhood and Rights
Qur’an says inside Sura al-Hujurat Part 49 Verse 13, “O mankind! We created you from a single (pair) associated with a male in addition to a female to make you into countries and tribes of which ye may know each other (ofcourse not that ye might despise each other). Verily the most honored of an individual in the look of Allah will be (he who is) the most righteous of you. inches
Using this we come to know the criteria that the criteria of judgement in the view of God is just not wealth, not intercourse, not color, not really Caste, but it is “Taqwa” Lord consciousness, piety and righteousness.
Qur’an says in Sura an-Nisa Chapter 4 Sentirse 135, “O en who believe! remain out firmly for justice as witnesses to Allah even as against yourselves or your moms and dads or if your kin plus whether it is (against) abundant or poor: for Allah can best protects all. “
In accordance with this we have to are a symbol of truth and justice be it against anybody even in opposition to our personal selves and sacrifice your very own interests.
3- Equitable Distribution of Prosperity
Islam is against the philosophy of which the wealth must be concentrated in a new few hands. The difference between the particular rich and typically the poor ought to be reduced. Otherwise they will turn out to be enemies unto each other. For this particular, Islam has created a method of “Zakat” that every Muslim, that has excess riches exceeding the total amount equal to or even more than 85 grams of Gold. This particular amount is invested on the indegent, orphans, needy etc. If every individual on the planet practices this method of “Zakat”, not necessarily a single individual in the whole world would perish of hunger. Islamic teaches to discover lawful employment for the unemployed also to pay him a great remuneration.
According in order to Islam if a person dies his wealth ought to be dispersed among his heirs according to the particular guidelines laid down in Qur’an and Ahadith and that should not go to just one or perhaps two individuals inside the society as this is done these days.
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4- Individual Flexibility within the Context of Social Well-fare
According to Islamic man is given birth to free and no-one not necessarily even the express can abrogate his / her freedom nor subject his life to strict regimentation. Every single individual is totally free as long since he does not necessarily harm the modern society because in Islam the larger wellbeing of the modern society takes precedence over the individual freedom.
Working and labour as well as the benefit in business are both important principles regarding Islam, but working and labour get precedence over the particular benefit in operation. If you are performing business, a huge reduction can not be inflicted to relieve a small damage, nor can a large profit can become sacrificed for a new small profit. In short, Islam believes in individual within the particular context of social welfare.
There usually are mainly four factors involved in creation;
1- Land
In both the Modern plus Islamic theories, you pay rent upon the land.
2- Labor
You spend wages on the work in both the current and Islamic hypotheses.
3- Capital
In the present00 theory, you spend Interest on funds, while in typically the Islamic theory right now there is profit in addition to loss sharing.
4- Organization
In the fourth factor regarding production, Organization, presently there is profit and loss sharing within both theories.
So the major difference in the four factors regarding production is the third factor associated with Capital. The Modern day Theory says that a fixed interest should be charged on the capital, while the Islamic principle says that there is profit and loss discussing on capital. Due to the fact Islamic theory really does not differentiate involving the third factor Capital and the 4th factor Organization because the money loaned by the lender does not are supposed to be to the bank itself, it is one of the depositor. The depositors are the part regarding Organization and the particular money deposited inside the bank (the capital) should be within the Organization. Within the Islamic theory Capital and Organization are clove collectively and there is usually profit and reduction sharing on typically the capital.
If you need to do business, there are naturally two varieties of units. One is the excessive unit, who have got excess of prosperity, but do not really know how in order to spend it. Second is the deficit product, individuals who carry out not have cash, but have good ideas for people who do buiness. The best examples associated with a surplus and deficit unit within the Islamic history is Lady Khadijah (may Allah end up being pleased with her) had excess of wealth, but was missing avenues to devote in and getting a female she couldn’t travel in foreign countries too much to be able to deal in business dealings. The deficit unit, with regards to wealth, was Prophet Mohammed (peace be upon him). He previously good ideas and use of company avenues, but do not have prosperity. So Lady Khadijah (may Allah end up being pleased with her) gave wealth, which usually Prophet Mohammed (peace be upon him) invested in business avenues on her behalf and the profit was shared on the set pre-determined ration.
The particular System of Islamic Banking and Modern day Banking
Lets analyze the options available for seperate depositors to be able to deposit their funds in an Islamic bank.
Current Account
The money you deposit in a Islamic lender is utilized along with your permission, but if the lender goes into loss, the particular loss is just not shared by the depositor. If the financial institution goes into profit, none may be the profit shared with the depositor. The particular depositor is interested in the particular security of his money, not profit. The particular Islamic banks offers you a check book and the slip book along with the functions because that of a new modern bank.
Financial savings Account
Even right here the depositor is principally interested in the safety of his money. As the financial institution gets a profit coming from this money, the lender can gift a part of that income to the depositor, when the bank would like, but the depositor can not need a fixed part.
In Islamic banking, if a bank goes bankrupt then your depositors get their particular money first in addition to then, the collectors. While in Contemporary Banking creditors obtain money first plus majority of the depositors lose their money. So even if you need your hard earned money safe, the particular Islamic banks usually are preferable and safer than Modern financial institutions.
Investment Accounts
They are like the Repaired Accounts of Modern banks and are further divided into many varieties
Mudariba (Profit & Loss Sharing)
The depositor build up a set amount associated with money in the particular bank for a fixed time period, which maybe a several of three or a multiple of several. Here the excess unit may be the depositor and the deficit unit is the bank. The financial institution uses this cash to do business with the businessmen in addition to whatever profit typically the Islamic bank tends to make, it is divided upon a pre-determined ratio, which can become negotiated. In the particular Islamic Banking of Malaysia, the ratio is 7 part to 3 component, meaning 70% would go to the depositor and 30% is kept by the lender. So there is usually sharing of profit, the greater the net income the greater typically the share of each and every.
Suppose, when there is a new loss of a hundred dollars, then hundred will be deducted from the depositor’s money. Thus theoretically only typically the depositor bears the loss. Practically studying even the Islamic bank is going in loss due to the fact they are paying money for the particular rent, administration and salary, but the loss ratio of the bank is less compared to regarding the depositor, as even the profit in the lender is less as compared to those of the depositor.
Project Financing in the Mudariba Program
If a entrepreneur approaches an Islamic bank with a project idea plus asks for a mortgage for a repaired period, the Islamic bank analyzes typically the project, then the particular businessman and the particular Islamic bank negotiate the profit ratio. In Modern financial interest is discussed, in Islamic banking profit ratio will be negotiated.
Suppose, the particular businessman takes a new loan of $5000 from your Islamic lender for six weeks and the pre-determined profit ratio is usually 60% to typically the bank and forty percent to the businessman. If the businessman will be working for his / her business, even their salary would end up being contained in that $5000 and suppose the particular salary of the businessman is one hundred dollar per month.
Assume, if the business person earns a income of $5000, the particular business would get (his 40%) $2000 from the profit in addition to the businessman would certainly get paid $200 salary per calendar month from your $5000 mortgage, amounting $1200 regarding six months time. So the particular businessman gets their profit along with the wage for his labour, if he could be working for his company.

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