PHILOSOPHY OF BUSINESS IN ISLAMIC FINANCE AND BANKING BWSS2013 CHAPTER 1 An Overview Of Islamic Business & Finance

INTRODUCTION
Islam derived from root word salam : submission and peace a)Submission to Allahs will b)Sense of total peace which come from submitting to the will of Allah Islam is the religion of Allah revealed to Prophet Muhammad in order he might proclaim it to all mankind and they might be able to believe in it and put its teachings and regulations into practice. Allah states : O you who belive! Enter perfectly into Islam and follow not the footsteps of syaitan. Verily, he is to you a plain enemy. (al-baqarah 208)

CHAPTER OUTLINE
1.1 Introduction 1.2 The framework of Islam 1.3 Objectives of Syariah 1.4 Muamalat in Islam

THE FRAMEWORK OF ISLAM

ISLAM

AQIDAH
(FAITH) God Angels Prophets Holy books Predestination

SYARIAH
(ISLAMIC LAW)

AKHLAK
(ETHICS) Virtues (mahmudah) Vices (mazmumah)

IBADAH
(GOD AND MAN) 5 Pillars of Islam

MUAMALAH
(MAN AMONG MAN) Criminal Law Family Law Business Law etc

THE 5 PILLARS OF ISLAM a) Creed (Syahadah) : the acknowledgment that there is only one god Allah and that Muhammad is his Prophet b) Prayers (Salat) : the performance of five daily prayers c) Fasting (Saum) : during Ramadhan, muslims must fast from sunrise to sunset. d) Purifying Tax (Zakat) : an annual payment, which is distributes among the poor or the other rightful beneficiaries. e) Pilgrimage (Hajj) : the journey to Mecca

6 FUNDAMENTAL BELIEFS
a) Belief of single God: Allah

b) Belief of angels (malaikat)

c) Belief of divine scriptures (kitab)

d) Belief of messengers (rasul)

e) Belief of the day of Judgment (qiamat) f) Belief of the Gods will (qada qadar)

SYARIAH (ISLAMIC LAW)

Primary Sources

Sources of Syariah

Secondary Sources

SYARIAH

Education (Tarbiah) Justice (Adalah)

Objectives of Syariah
(Maqasid al-Syariyah)

Protection of Public Interest (Maslahah alAmmah) Religion (Din) Life (Nafs) Intellect (Aql) Family (Nasl) Property (Mal)

PROTECTION OF PROPERTY (MAL)

Prohibition of usury (riba) Prohibition of gambling (maisir) Prohibition of hoarding (ihtikar)

Prohibition of manipulation in contracts (gharar)

Prohibition of fraud (tatfief)

etc

SYARIAH
Derived from a root meaning the road - a path to be followed - the way to a watering place - leads man to harmonious life here and the felicity hereafter total peace A code of law or divine injunctions that regulate all conducts of human beings in their individual and collective lives integrated and interrelated, comprehensive, mutually consistent and reinforcing in consideration of human life which is one and indivisible covers social, political, cultural, economic, moral etc give religious significance to mundane activities

Sources of shariah
The primary sources the fixed elements of the shariah, divine and immutable serve as the boundary
Quran - the final revealed books, free from any tampering until the end of the world Sunnah sayings, actions done and /or approved by the Prophet Muhammad (pbuh) Ijmaa (consensus) Qiyas (analogy)

 Secondary sources based on ijtihad (the mental effort of scholars having juristic expertise to find solutions to emerging problems and issues Maslaha-mursalah (general welfare/interest) urf (prevalent practice, custom) Others applicable to areas which are experiencing changes, growth and progress over time ie economic and trade practices and biomedical issues

 Broadly divided into Dos (orders to undertake any act) and Donts (prohibition from some acts), specifically into the following scale of valuation: obligatory (fardu) performance is compulsory while omission is punishable recommended (mandub) its performance is rewarded but its omission is not punishable permissible (mubah) its performance not rewarded nor punishable reprehensible (makruh) its performance carries religious disapproval, but not punished forbidden (haram) its performance is punishable

HIERARCHY OF NEEDS
DARURIAT (BASIC NEEDS) HAJIYAT (COMFORT) TAHSINIAT (LUXURIES)

MUAMALAT IN ISLAM
Term muamalat is used past literature in order to refer to the business and finance. Muamalat means mutual dealings. In alGhazalis words, it means the exchange of commodities or any other necessities among mankind such as buying, selling, association, making gifts and donations, lending, debt, contract, etc. Indeed Muamalat are dealings necessary for everyday needs of mankind that have been regulated by Quran and Sunnah. Islam has been favorable to the business : Prophet Muhammad was a merchant and also his wife Khadijah.

Islam supports private property and competition but remains firm on the goal of achieving an equitable distribution of wealth. Wealth is believed to belong to God, Who has entrusted the individual only with spreading its positive effects. Islam stresses the sharing wealth among fellow Muslims. The accumulation of idle wealth is penalized through the obligatory giving of a predetermined part of one's wealth (zakah) and by encouraging rapid reinvestment, especially in projects designed to increase employment fairness in such matters as management-labor relations.

The prophet SAW said : The truthful and trusty merchant is associated with the prophets, the upright and the martyrs

In al-Quran : ..Allah has permitted trading and forbidden Riba.. (al-baqarah 275)
Allah states : O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent. And do not kill yourselves. Surely Allah is Most Merciful to you. (an nisa 29)

Allah states : But seek with that (wealth) which Allah has bestowed on you, the home of the Hereafter and forget not your portion of lawful enjoyment in this world.. (al-qasas 77)

OBJECTIVES OF MUAMALAT IN ISLAM

To upgrade the status of mankind to a respectable position through faith and discipline. Muamalat regulates all parties to a transaction with the spirit of honesty, justice and brotherhood.
To encourage human beings to participate actively in commercial transactions, which eventually may lead them to financial independence and self reliance. Prophet said Nine parts out of ten ones recommended livelihood lies in trade and commerce.

To avoid any misunderstanding among the parties in transactions. This is because the muamalat provides some fundamental guidelines, protect parties in transaction from any form of violence, misappropriation, dishonesty and fraud.
To ascertain and enforce the rights and duties of the parties involved in the Muamalat. In a binding contractual transaction, a party has the duty to pay the price of the goods to the other who is also under a similar duty to transfer the title of the goods to his counterpart in the transactions

PROBIHITION IN MUAMALAT
Trade and commerce in Islam must comply with requirements of the Shariah, which broadly speaking refer to: Abstinence from prohibitions, (haram matters), and Observing that every contract possesses all its essential elements and that every essential element meet the necessary conditions.

 There are many prohibitions, but these five will make aqads or contracts invalid: (i) Producing and selling impure goods; (ii)Producing and selling goods that are of no use therefore of no value; (iii) Riba; (iv) Gharar, i.e. ambiguity or uncertainty; and (v) Maisir (gambling), i.e. anything that involves betting.

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