lecture 02 islamic financial system
TRANSCRIPT
-
7/27/2019 Lecture 02 Islamic Financial System
1/20
-
7/27/2019 Lecture 02 Islamic Financial System
2/20
The Concept of Money
Money is essential for the activity of IFIs.
Definitions of money:
Based on fiqh, money is synonym ofnuqud, which
is defined as a medium of exchange ortransaction as well as a measurement of the valueof goods or services.
Its defined as everything that performs
the functions of money included as amedium of exchange, a mode of payment, a valuestore and as a unit of measurement.
-
7/27/2019 Lecture 02 Islamic Financial System
3/20
The Forms of Money
Commodity money refers to moneywhose value comes from a commodity.Examples of commodities that have been usedas money include gold, silver, large stones.This is basically how it worked: twoindividuals each possessing a commodity theother wanted or needed would enter into anagreement to trade their goods.
Fiat money, any money declared by agovernment. Most of the world's papermoney is fiat money. Because fiat money
is not linked to physical reserves.
http://www.investordictionary.com/definition/moneyhttp://www.investordictionary.com/definition/valuehttp://www.investordictionary.com/definition/commodityhttp://www.investordictionary.com/definition/commodityhttp://www.investordictionary.com/definition/valuehttp://www.investordictionary.com/definition/money -
7/27/2019 Lecture 02 Islamic Financial System
4/20
Commodity Money
Gold and silver
Applied in the Islamic State period
In the next development, modified as agold reserve standard
paper money supported by gold andsilver
printed only if gold/silver is provided
gold standard
-
7/27/2019 Lecture 02 Islamic Financial System
5/20
Fiat Money
Paper money
Not supported by commodity
Only supported by government policy Managed money standard
Government responsible for the
maintaining of the paper value The paper its self has no value actually
-
7/27/2019 Lecture 02 Islamic Financial System
6/20
Forms of Fiat Money
Cash
Non cash
-
7/27/2019 Lecture 02 Islamic Financial System
7/20
Financial System
Subsystem of economic system;
Allows the transfer of money between
savers and borrowers; Includes a set of complex and closely
interconnected financial institutions,markets, instruments, services,
practices, and transactions.
-
7/27/2019 Lecture 02 Islamic Financial System
8/20
The Importance of Financial System
Crucial to the allocation of resources in amodern economy;
Channels household savings to thecorporate sector and allocate investment
funds among firms; Allows smoothing of consumption by
households (Family Unit) and expendituresby firms;
Enables households and firms to share risks
Has impact on saving, investment,technology innovation, and economicdevelopment;
Controlling and monitoring managers of
firms.
-
7/27/2019 Lecture 02 Islamic Financial System
9/20
Islamic Financial System
A set of rules and laws,collectively referred to asshariah,governing economic, social,
political, and cultural aspects ofIslamic societies (Iqbal, 1997);
Includes of: Islamic Financial Instruments
Islamic Financial Institutions
Islamic Financial Rules and Regulations
Islamic Financial Control andSupervision
-
7/27/2019 Lecture 02 Islamic Financial System
10/20
Basic Principles of Islamic FinancialSystem
Syari principles Based on Al Quran and As
Sunnah
Tabii principles Based on the ijtihadand ijma Related to modern issues such as
risk management, cash flow
management, technical analysis,capital management and so forth.
-
7/27/2019 Lecture 02 Islamic Financial System
11/20
Syari principles
Prohibition of interest (riba) Prohibition of speculative behavior (maisir) Prohibition of uncertainty (gharar) Risk sharing between suppliers of fund (investor)
and entrepreneur Money as potential capital
Money becomes actual capital only when it joinshands with other resources to undertake aproductive activity
Purity of contracts Disclosure of information and maintenance the
responsibility contract is duty To reduce information unequal and moral hazard
Shariah-approved activities
-
7/27/2019 Lecture 02 Islamic Financial System
12/20
Riba
Usury Excess, increase or addition Types:
Riba Al Buyu Like Barter System Riba Al qard Like Banks Loans Riba Al Jahiliyah Riba Al Fadhl Riba Al Nasa Riba Al Nasia
-
7/27/2019 Lecture 02 Islamic Financial System
13/20
Riba Al Buyu
Usury of trade
Referring to instances where the
usury is achieved through atrading transaction as opposedto a loan transaction
-
7/27/2019 Lecture 02 Islamic Financial System
14/20
Riba Al Qard
Usury on a loan
Analogous to the charging of
interest on the loan of an asset Any excess for precondition to the
borrower
-
7/27/2019 Lecture 02 Islamic Financial System
15/20
Riba Al Jahiliyah
The kind of usury practisedduring the pre-Islamic timesamong the Arabs
Involving a delay in payment of adebt in return for an increase inits amount
Debt payment above the actualamount of the debt because thedebtor fails to pay on time
-
7/27/2019 Lecture 02 Islamic Financial System
16/20
Riba Al Fadhl
Usury of surplus
The usury is achieved through anunequal exchange of quality or
quantity An exchange of unequal qualities or
quantities of the same commoditysimultaneously
The exchange of commodities at thedifferent quality and or quantity
-
7/27/2019 Lecture 02 Islamic Financial System
17/20
Riba Nasa
Usury of postponement
A form of usury in which an exchangeof two equal qualities or quantities
occurs, but where the exchange is notcompleted on the spot (i.e. hand tohand).
There is thus a postponement in the
completion of the exchange.
The term is sometimes usedinterchangeably with 'riba al-nasia'
-
7/27/2019 Lecture 02 Islamic Financial System
18/20
Riba Nasia
Usury of waiting Used variously by scholars:
some regarding it as being that usurywhich is achieved solely by effecting a
delay in the exchange of two countervaluesin a transaction
others regarding it as a combination of ribaal-fadl and riba al-nasa thus giving rise toboth a delay and an unequal exchange ofquality or quality
Differences/excess/additional to theexchanged commodity because of thedifferent time of delivery/payment
-
7/27/2019 Lecture 02 Islamic Financial System
19/20
The Implication of Riba to theSale and Purchase Transaction
Sale and purchase of similar ribawi commoditiesshould be performed at the same quantity andquality and must be hand to hand.
Sale and purchase of different ribawi
commodities at the different quantity andquality is permissible but it should be performedon the spot.
The exchange of ribawi commodities to nonribawi commodities may not be at the samequantitiy as well as quality. The commoditiesshould be transferred at the same time of aqad.
The exchange ofnon ribawi commodities at thedifferent quality and quantity is permissible butmust be delivered on the spot.
-
7/27/2019 Lecture 02 Islamic Financial System
20/20
Characteristics of Islamic FinancialSystem
Chapra (2000) To achieve the economic welfare
through utilizing resources efficiently; Without producing unlawful product
Without great gap between the poor andthe rich (Equitable distribution)
Without harming current/next generationas well as environment
Stability of currency value Mobilization of saving investment to
encourage productive activity To provide effective financial services.