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Showing posts from October 2, 2010

Principles of Islamic Finance

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Common terms used in Islamic banking include profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah). In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the bank's profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. …

History and Evolution of Islamic Finance and Banking

History of Islamic banking

During the Islamic Golden Age, early forms of proto-capitalism and free markets were present in the Caliphate, where an early market economyand an early form of mercantilism were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". A vigorousmonetary economy was created on the basis of the expanding levels of circulation of a stable, high-value currency (the dinar) and the integration of monetary areas that were previously independent. A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, the first forms of partnership(mufawada) such as limited partnerships (mudaraba