The Islamic Economic Method

Interest-free Islamic economical system is partially followed and somewhat not followed in Muslim countries around the world. The only country, which usually has followed this system completely in every single minute detail will be Malaysia. So the particular application methods inside this post usually are mostly those implemented in Malaysia subsequent the Interest-free Islamic Economic system.
Typically the main feature of the Islamic economy is that this is Interest-Free. As the Qur’an says in Sura al-Baqara Chapter 2 Verses 278 & 279, “O ye who believe! fear Allah and give upwards what remains of your with regard to usury if ye are indeed believers. If ye do it not take notice of war from Allah and his Apostle: nevertheless if ye turn back ye should have your funds sums; do not necessarily deal unjustly and ye shall not really be managed unjustly. “
Qur’an condemn all evil deeds, but never provides the Qur’an aware of a war against God Changeless wonderful Messenger apart from regarding taking Attention and Usury.
Presently there are several evils of the interest based economy, typically the reason why Islamic has prohibited that.
For example, if a person will take a loan from the bank and says the cost price regarding a certain post is 10 dollars and he would like to a profit of one dollar. So the selling price would are the 10 bucks price range one money profit and one dollar interest plus the selling cost can be 12 dollars. The selling price would go upward because of interest so when the promoting price increases typically the demand comes down so when the demand comes down the supply comes down in addition to as supply comes down production passes down causing labour trouble and unemployment.
There is certainly Social Injustice.
For example , if a person needs a loan from the bank plus no matter when he earns a profit or goes inside loss he offers to pay of which fixed amount regarding interest. Even when a few natural calamity befalls his family, this kind of as flooding or even earthquake, the person keeps having to pay the loan using the interest and a delay would only boost the amount regarding interest. It is usually social injustice.
There is no interpersonal consideration.
Suppose, in case two businessmen come to ask for a new loan from the modern day bank and another businessman wants to begin a social or hospital while the other businessman wants to be able to start an alcohol consumption factory or perhaps a betting den. But natural the businessman, who else wants to commence an alcohol manufacturing plant or perhaps a gambling living area might have better returns and the loan given to him would certainly be more secure and would provide a higher price appealing as in contrast to the enterprise, who would like to open the school or medical center. Modern banks usually are only interested inside recovering and increased returns. That’s exactly why they finance wagering dens as opposed to universities or hospitals. That will is why in the 80s hundreds of gambling play rooms were financed by simply modern banks around the world. For name reason only a number of social projects are usually financed by modern day banks and many of their loans are based on better interest.
Modern banks encourage visitors to store money and maintain the money nonproductive for small repaired return on this every year. In the long run, power is focused in some hands, typically the bankers.
In the particular same way there are several benefits of Islamic banking.
Because there is no interest involved, right now there is profit in addition to loss sharing. When a person wants to sell their goods, it could only have the price price and profit inside the selling cost and instead associated with 12 dollars, his selling price would certainly be only 11 dollars. In the event the promoting price comes straight down, the necessity increases plus if the demand increases the supply boosts and as source enhances the production increases resulting in more labour for the people plus higher employment. Since a result encourages people to function and earn their particular living.
There will be Social Justice within Islamic banking.
If a business needs a loan and goes into loss, the damage is shared by the bank in addition to if he makes a profit, typically the profit is shared by the lender. If in circumstance any natural disasters befalls him, the particular Islamic bank gives him more hours to repay, unlike the current bank, where the particular additional time you get to pay the particular more interest you should have to spend. Many a occasions when the Islamic lender finds the situation very bad, these people even let go away from that loan.
There is Social Concern in Islamic banking.
Islamic bank cannot give a mortgage to any businessman, who else is doing virtually any activity, that is leading to harm to the society. For instance, if a business person wants to commence an alcohol factory and approaches a good Islamic bank for a loan, typically the Islamic bank is not going to lend him just one penny, not actually if he guarantees to give 100% revenue to the Islamic lender. In Islamic bank there is certainly social consideration plus they encourage tasks good for the community, for example building colleges, hospitals and nurseries. In other words, the Islamic bank encourages the society to improve.
In the Islamic bank, you usually are not encouraged in order to keep your money idle. You are encouraged to get your own money and be somebody in the particular business and inside the finish, power is usually not concentrated in the hands of a few individuals. Because within the Islamic banking the profit and loss usually are shared by the particular business, the company along with the depositor. Typically the power is both equally shared of most typically the people.
The great philosopher, Aristotle has beautifully defined Attention as “An earning based on the use regarding money and not on labour, and all this kind of earnings(interests) are against nature. “
Allows quickly analyze the objectives in the Islamic economic order just before we analyze the theory and practical application of the Islamic economy.
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The Goals from the Islamic Financial Buy
1- Economic well-being
Islam promotes a person to appreciate the bounties of God Almighty, in order to work for his / her living and avoid begging.
2- General Brotherhood and Justice
Qur’an says inside Sura al-Hujurat Section 49 Verse 13, “O mankind! All of us created you through just one (pair) associated with a male in addition to a female to make you into nations and tribes that ye may realize each other (not that ye may despise each other). Verily the the majority of honored of you in the view of Allah is usually (he who is) the most righteous of you. inches
From this we arrive to know the particular criteria that the particular criteria of judgement in the look of God is not wealth, not intercourse, not color, not Caste, but it is “Taqwa” God consciousness, piety in addition to righteousness.
Qur’an claims in Sura an-Nisa Chapter 4 Sentirse 135, “O en who believe! remain out firmly for justice as witnesses to Allah even as against her or your parents or if your kin in addition to whether it be (against) wealthy or poor: with regard to Allah can finest protects all. inches
In accordance with this all of us have to indicate truth and justice be it towards anybody even in opposition to our own selves plus sacrifice your very own interests.
3- Fair Distribution of Riches
Islam is towards the philosophy that will the wealth must be concentrated in the few hands. The particular difference between the rich and the particular poor ought to be lowered. Otherwise they will turn out to be enemies unto each and every other. For this, Islam has devised a method of “Zakat” that every Muslim, who else has excess riches exceeding the total amount equivalent to or a lot more than 85 grams of Gold. This particular amount is spent on poor people, orphans, needy and so on. In case every individual on the planet practices this method of “Zakat”, not a single person in the complete world would die of hunger. Islam teaches to discover lawful employment regarding the unemployed and also to pay him a great remuneration.
According to be able to Islam if a new person dies his / her wealth must be allocated among his future heirs according to typically the guidelines laid lower in Qur’an and Ahadith and it should not visit just one or two individuals in the society as this is done nowadays.
4- Individual Independence within the Circumstance of Social Well-fare
According to Islamic man is given birth to free and no-one not necessarily even the condition can abrogate his freedom nor issue his life to strict regimentation. Every individual is totally free as long as he does not harm the modern society because in Islam the larger welfare of the society takes precedence above the individual freedom.
Working and work as well since the benefit inside business are both important principles regarding Islam, but working and labour take precedence over the benefit running a business. If you are carrying out business, a huge reduction can not become inflicted to reduce a small damage, nor can a large profit can be sacrificed for the small profit. Within short, Islam believes in individual within the particular context of sociable welfare.
There usually are mainly four elements involved in production;
1- Land
In both the Modern and Islamic theories, a person pay rent on the land.
2- Labor
You pay wages around the time in both the current and Islamic ideas.
3- Capital
In the Modern theory, you pay Interest on capital, while in the particular Islamic theory there is profit in addition to loss sharing.
4- Organization
In typically the fourth factor regarding production, Organization, presently there is profit and loss sharing within both theories.
So the major difference within the four factors regarding production is typically the third factor of Capital. The Modern day Theory says that will a fixed interest should be billed within the capital, while the Islamic principle says there is revenue and loss sharing on capital. Due to the fact Islamic theory really does not differentiate involving the third factor Money and the fourth factor Organization due to the fact the money lent by the lender does not fit in to the lender itself, it is one of the depositor. The depositors usually are the part regarding Organization and the money deposited within the bank (the capital) should end up being included in the Organization. Inside the Islamic theory Capital and Business are clove collectively and there will be profit and damage sharing on the particular capital.
If you need to perform business, there are naturally two types of units. One is the excessive unit, who possess excess of prosperity, but do not know how to spend it. Second is the deficit unit, individuals who perform not have funds, but have great ideas for business. The particular best examples of a surplus plus deficit unit within the Islamic background is Lady Khadijah (may Allah become pleased with her) had excess of wealth, but lacked avenues to devote in and becoming a female the girl couldn’t travel abroad too much to specialize in business purchases. The deficit device, in terms of wealth, was Prophet Mohammed (peace be upon him). He previously good suggestions and use of business avenues, but did not have prosperity. So Lady Khadijah (may Allah become pleased with her) gave wealth, which usually Prophet Mohammed (peace be upon him) committed to business avenues on her behalf behalf in addition to the profit had been shared over a repaired pre-determined ration.
Typically the System of Islamic Banking and Contemporary Banking
Lets evaluate the options open up for seperate depositors in order to deposit their cash in an Islamic bank.
Current Bank account
The money you down payment within an Islamic bank is utilized with your permission, but if the financial institution goes in loss, the loss is not contributed by the depositor. If the lender goes into profit, nor is the profit contributed by the depositor. Typically the depositor is interested in only the security of his money, not profit. Typically the Islamic banks provides you a check book and a slip book along with the functions as that of the modern bank.
Savings Account
Even right here the depositor is primarily interested in typically the safety of his / her money. Because the financial institution gets a profit from this money, the financial institution can gift some of that profit towards the depositor, in case the bank wants, but the depositor can not need a fixed part.
In Islamic banking, if a lender goes bankrupt then a depositors get their own money first plus then, the collectors. While in Modern Banking creditors get their money first in addition to majority of the depositors lose their money. So even if you want your hard earned money safe, the Islamic banks are preferable and less dangerous than Modern banks.
Investment Accounts
These people are just like the Set Accounts of Modern banks and are more divided into a number of sorts
Mudariba (Profit & Loss Sharing)
The depositor debris a set amount of money in the particular bank for the fixed time period, which maybe a several of three or a multiple of four. Here the excess unit will be the depositor and the debt unit is the bank. The bank uses this cash to do company with the businessmen in addition to whatever profit the particular Islamic bank tends to make, it is divided upon a pre-determined ratio, which can end up being negotiated. In typically the Islamic Banking of Malaysia, the percentage is 7 portion to 3 component, meaning 70% goes toward the depositor in addition to 30% is kept by the bank. So there is sharing of income, the greater the profit the greater typically the share of each.
Suppose, if there is the loss of $ 100, then hundred will be deducted from the depositor’s money. So theoretically only typically the depositor bears typically the loss. Practically studying even the Islamic bank is heading in loss due to the fact they are paying money for typically the rent, administration and salary, however the damage ratio of the bank is less compared to regarding the depositor, as even typically the profit in the financial institution is less as compared to regarding the depositor.
Project Financing in the Mudariba Method
If a businessman approaches an Islamic bank with a project idea and requests a loan for a fixed period, the Islamic bank analyzes the project, then typically the businessman and the particular Islamic bank negotiate the profit ratio. In Modern bank interest is agreed, in Islamic bank profit ratio is negotiated.
Suppose, typically the businessman takes the loan of $5000 from an Islamic lender for six weeks and the pre-determined profit ratio will be 60% to typically the bank and 40% for the businessman. When the businessman is usually working for their business, even his / her salary would become a part of that $5000 and suppose typically the salary of the businessman is $200 per month.
Suppose, if the business person earns a income of $5000, the business would acquire (his 40%) $2000 from the profit and the businessman would get paid one hundred dollar salary per calendar month from the $5000 mortgage, amounting $1200 for 6 months. So the businessman gets his / her profit as well as the salary for his work, if he could be operating for his enterprise.

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