CHAPTER 3 - FUNDAMENTALS, PHILOSOPHY AND FEATURES OF ISLAMIC BANKING AND FINANCE

PRINCIPLES OF ISLAMIC FINANCE

FEATURES OF ISLAMIC BANKING & FINANCE

1) Avoiding interest (RIBA)

1) TAUHID - Menguatkan akidah & menyedarkan manusia, maka sistem kewangan juga memerlukan individu yang bertauhid.

PHILOSOPHY OF ISLAMIC FINANCE

3) KONSEP TOLONG MENOLONG - Amat penting & harus sentiasa diamalkan. Tidak sepatutnya bersaing dalam segala perkara tanpa tujuan yang jelas.

2) KONSEP HARTA - Harta kekayaan di dalam Islam perlu difahamkan dari 2 segi. Setiap unit harta yang digunakan/dikumpul menjadi tanggungjawab. Contohnya, Islam menggalakkan Waqaf.

3) Avoiding gambling & games of chance

2) Avoiding Gharar

4) Avoiding financing principle

4)PENALTY - Change in the form of compensation or penalty for charity.

1) FUNCTIONS & OPERATING MODES - Based on Shariah rules & principle.

3) INVESTMENT & FINANCING PORTFOLIO - Subject to Shariah restrictions. Must be constructive & beneficial to the Ummah.

2) INTEREST-BASED TRANSACTIONS - Absence of interest-based (RIBA) transactions.

5) BANK - CUSTOMER RELATIONSHIP - Partners, Investors & Traders, Buyer & Seller.

6) ETHICS - Must follow Shariah guideline.

7) ZAKAT - Not Necessary.

1) FUNCTIONS & OPERATING MODES - Based on man-made principles.

6) ETHICS - No religions based guideline.

FEATURES OF CONVENTIONAL BANKING

4) PENALTY - Impose penalty & compounded interest in case of defaulters.

2) INTEREST-BASED - Most of the activities are interest-based.

5) BANK-CUSTOMER RELATIONSHIP - Creditor & Debtor.

3) INVESTMENT & FINANCING PORTFOLIO - No restriction.

7) ZAKAT - Must pay Zakat.

8) UNDERLYING ASSET - No need for underlying asset because they can create money with money.

9) TERMINOLOGIES (REQUIREMENT ON COMMUNICATION) - Interest, penalty based on interest, loan & premium.

8) UNDERLYING ASSET - Compulsory because any benefit/earning from loan is prohibited.

9) TERMINOLOGIES (REQUIREMENT ON COMMUNICATION) - Profit (Sale & Purchase) = Ta'Widh, Financing, Cover & Contribution.