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    Nurul Haslaily Bt Abdul Ghani

    Econ 3510

    Sect 1

    1.Discuss muamalat from linguistic and technical meanings(10 marks)

    Definition of Muamalat from linguistic means transactions or communications or

    interactions. Its also talked about how the way you treat the people.From technical meanings,

    Muamalat is set of rules related to worldly matters such as business or trading or commerce or

    transactions, lending and borrowing contracts. Muamalat also involves the rules regarding the

    social interactions between human such as marriage, inheritance (waqaf or faraidh) and other

    human activities Muamalat nowadays, is always associated to economics and finance since these

    elements are the key for happiness in this world and hereafter. As a Muslim, we are believed that

    all the wealth on this world is belong to Allah. Humans are only the appointed trustees to manage

    and distribute the wealth among them. Humans are encouraged to seek wealth through

    knowledge and skills given by Allah.

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    2&3. Discuss the economics activities that are related to muamalat .Identify and explain the

    transactions in the activities.

    Musharakah is one of the activities related to muamalat. This is a financing technique in

    which capital owner finances investment in another partys business. Additional finance is

    provided to the party, which already has some funds for investment. The finance provides the

    additional funds on the condition that he shares the profit from the business the ratio in which the

    finance provider shares the profits of the business with the party receiving the additional funds is

    fixed and predetermined , and made known in advance to all concerned the loss, however, will

    be shared in the exact proportion of the capital invested by each party. The profit sharing ratio is

    subject to the mutual agreement and may be different from the ration in which the two

    parties(finance provider and user) have interested in the total capital of the project. This is

    because the two parties may share the work of managing the project in any mutually agreed upon

    .Both parties are allowed to charge a fee or wage for any management or other labour put into

    the project. All providers of capital are entitled to participate in management , but are not

    necessarily required to do so. The musyarakah is continuous if the partnership lasts as long as the

    business operates.

    Another muamalat activity is Wadiah. Wadiaah is derived from the wordwadaa

    meaning lodge, leave or deposit. In Islamic Banking perspective, wadiah refers to safekeeping

    instrument that allows a person to keep the wealth or assets belonging to oneself with another

    person. In fact, it was practiced before Islam came. Under an Islamic scheme of savings,

    customers are assured for an interest free safekeeping services. However, unlike the conventional

    banks, Islamic Banks or Financial Institutions not promising the customers any profit or interest

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    for their deposits but they may offer the customers a profit earned by the bank through the

    investments made by utilizing using the customers money. It is called Hibah,where it is absolute

    discretion of the bank. Wadiah is not valid until there is mutual consent expressed through offer

    and acceptance (Ijab and Qabul). Offer is revocable unless declare irrevocable or until it is

    accepted or after a stated or reasonable time. Majority say it is not obligatory. Minority say

    obligatory only if the depositor cannot find anybody else to protect his property.

    Futhermore,the example of muamalat activities are Ijarah(leasing).Ijarah is a contractmeant for the transfer othe transfer of ownership of permitted usufruct for a known period in

    exchange for compensation. These are two examples of two types of dealings. Firstly, Ijarah was

    used to connote employment of the work or services of a person for wages given to him as a

    consideration for his hired services. For example hiring a person or a company for a specified job

    like marketing and advertising services. The second type of ijarah relates to the usufruct of assets

    and properties, and not to the services of human beings.

    Next activity is Hibah(free gift). A gift offered intentionally by a debtor to a creditor

    against a loan, which often takes place when Islamic banks honour their clients for the payments

    on their deposits, which is part of the profit obtained using that capital in other activities. To the

    observer of capitalist culture such a procedure will immediately appear to be in terms equal to

    the interest recognized to bank accounts. Hibah, however, has an aspect which is fundamentally

    different from this, in that it is entirely voluntary and at the bank's discretion. No one can be sure

    of receiving it, nor in what measure.

    Besides that, Mudharabah is another example for muamalat activities. This consists of

    company financing of a businessman who supplies a work-force while the financing is supplied

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    by the bank, in such a way that both profit and risk are shared. This type of participation

    agreement between capital and workforce reflects the Islamic outlook according to which the

    borrower is not obliged to assume responsibility for all the costs and risks of a condition of

    insolvency, thus creating an equilibrated distribution of income and not allowing the supplier of

    funds to monopolize the economy.

    Next,is Takaful (Islamic insurance).This is based on the assumption that what is uncertain

    for a single individual can cease to be so for a large number of individuals and it represents a

    valid alternative for a Muslim to protect himself from the risk of losses caused by negative

    events.

    Besides that, the activities related to Muamalat is Murabahah. This is is a cost plus

    contract in which client, wishing to purchase equipment or goods, request the Islamic bank to

    purchase the items and sell them to him at a certain cost plus a declared profit. By this technique,

    a party needing finance to purchase certain goods get the necessary finance on a deferred

    payment basis .The finance provider does the purchasing of the required goods and sells them on

    the basis of a fixed mark up profit, agreeing to defer the receipt of the value of the goods even

    though the goods can be delivered immediately. The needs for finance of the person who needs

    funds to purchase certain commodities is thus met his purchase is financed, and paid for the

    some later date, though he may end up paying more than he would have paid if he had his own

    money to purchase the goods. The desire of the finance owner to earn income on his capital is

    also met. He makes profit in term of the mutually agreed upon marked up price.

    Bay al- Salam means advance payment or forward buying and is authorized by Prophet

    Muhammad. The salam contract is the sale of a good to be delivered to the purchaser at a future

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    date, which must be set at the time of the contract. According to normal rules and regulations, no

    sale can be effected unless the goods are in existence the time of the bargain,but this sort of sale

    forms an exception to the general rule provided that the goods are defined and the date of

    delivery is fixed. The objects of this sale are mostly tangible things and cannot be gold or silver

    because there are regarded as monetary values. Barring this,bay al-salam covers almost

    everything which is capable of being definitely described as to quantity, quality and

    workmanship.

    Qard Hasan or caring loans as a social service function, Islamic banks grant some

    interest free loan to needy individuals. Islamic banks have to take care that these loans are

    granted to those who are in need of support and assistance and help them to recover

    economically.