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Islamic Finance - Assignment

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Added on  2020-05-16

Islamic Finance - Assignment

   Added on 2020-05-16

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ISLAMIC FINANCENameInstitution
Islamic Finance - Assignment_1
1ISLAMIC FINANCEQ1: Shari’a remains a dynamic body of rules and can adopt to conditions or technologieswhich may emerge in the future. The Shari’a dynamisms has structures on how the Islamic banksare run and how emerging issues are raised and resolved. There Committees and Boards thatsupervise the financial institutions and listen to their comments and complaints. The Shari’acompliance is paramount and there are areas of flexibilities through which adaptation to newtrends have been effected while still remaining in compliance with Shari’a. For example, some ofthe Islamic banks have got their own alternative to LIBOR called Islamic Interbank BenchmarkRate, IIBR that complies with the Shariah moral codes. 1Q2: Riba means not solely usury but also all form of unearned income. It is classifiedinto al-nasi’ah an al-fadl. The former denotes loan interests and the latter is extra over and aboveloan paid in kind. It depends on payment of an extra by debtor to creditor in exchange ofproducts of same type. The Sharia’ah desires to remove not only exploitation which remainsintrinsic in institution of interests, but further that which remains inherent in each form of unjustexchange in transacting business. 2The former riba’s prohibition means that fixing in advance of a plus return on the loan asan incentive for waiting is never allowed in Islam. Despite the fact that interests takes a key rolein contemporary economic system and that interest became the financial institutions life blood,1Askari, Hossein, Noureddine Krichene, and Abbas Mirakhor. "On the stability of an Islamic financial system."(2014).2El-Karanshawy, Hatem A., Azmi Omar, Tariqullah Khan, Salman Syed Ali, Hylmun Izhar, Wijdan Tariq, KarimGinena, and Bahnaz Al Quradaghi. "Financial Stability and Risk Management in Islamic Financial Institutions."(2015).
Islamic Finance - Assignment_2
2Islam regards the principle of interest charging as quite contrary to that business in spirit ofsharing as well as cooperation and that lending based on interest is never as a business inpractice. 3 Islam, in legalizing trade but condemning interest, regards that fundamentaldifference exists between profit nature arising from charges of interest and those earned viatrade. The interest prohibition rationale denotes how risk-reward sharing might be increasinglyconductive to equity realization and entrepreneurship promotion. 4The concepts that replace riba include the Mudaraba and Musharaka contracts in Islamicfinance. This is because, it has been argued that Mudaraba provides functions likened to interestor riba. This is because it provides chance of pure finance in that the capital owner is able toinvest in absence of personal management of capital investment and in absence of being exposedto infinite liabilities. Nevertheless, these concepts deviate from riba or interests in the sense thatthey keep a fair balance between the capital owner and the implementing entrepreneur. LIBOR denotes a benchmark rate charged by certain top banks for loans (short-run). Itacts as the 1st move in calculation of interest rates on a range of loans globally. LIBOR hasestablished a ‘role’ in Islamic finance in that it has brought transparency to Islamic financingcourse and might motivate wider utilization of Islamic banks. Despite being prohibited fromearning or paying interest, Islamic banks have been using LIBOR right from 1986. Some of theIslamic banks have got their own alternative to LIBOR called Islamic Interbank BenchmarkRate, IIBR that complies with the Shariah moral codes. Other known alternatives to LIBORinclude return on assets (ROA), Murabaha profit rates and retail deposit rates. 3Kenourgios, Dimitris, Nader Naifar, and Dimitrios Dimitriou. "Islamic financial markets and global crises:Contagion or decoupling?."Economic Modelling57 (2016): 36-46.4Rahman, Farhat Naz. "Theory of Islamic Financial System and Economic growth."JOURNAL OF CREATIVEWRITING| ISSN 2410-62593, no. 01 (2017): 66-82.
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