Most Muslims around the world practise the
Islamic teachings delivered by the Qur’an and Sunn’ah (Shari’ah). These
teaching almost cover all aspects of their daily lives. And financing was
approached by the Shari’ah clearly centuries ago.
According to Khan and
Mirakhor (1989), Islam as a religion prohibits interest paid or received on money
borrowed or lending. In addition, Islam teachings prohibit taking money in the
form of tax on the income. Thus it means that the financial institutions and
banking will work as charities i.e. giving money to individuals and corporate
with getting an interest argued by Usmani (2002).
However, Usmani (2002), claims that this should not be understood wrongly. And he argues that there are other ways for making profit. Investing with the borrower rather than lending him and here the lender is in the form of investor who shares profit or losses of the investment (Sharing principle).The other form is to provide finance to others without claiming any interest as a profit but the lender has the right to claim his principle amount. Hence Usmani (2002) says, “Interest free loans are meant for cooperative and charitable activities”.
Another form of Islamic finance principles is Zakat, which is a specified percentage of money is taken from Zakat payers on their money or holdings is taken by the state and given to defined categories of community according to Qur’an. Taheri (2000) claims that zakat importance is emphasised by Islam which is the third pillar of Islam.
Islamic teaching claims to provide equability and social justice threw these principles, but how it is done?
However, Usmani (2002), claims that this should not be understood wrongly. And he argues that there are other ways for making profit. Investing with the borrower rather than lending him and here the lender is in the form of investor who shares profit or losses of the investment (Sharing principle).The other form is to provide finance to others without claiming any interest as a profit but the lender has the right to claim his principle amount. Hence Usmani (2002) says, “Interest free loans are meant for cooperative and charitable activities”.
Another form of Islamic finance principles is Zakat, which is a specified percentage of money is taken from Zakat payers on their money or holdings is taken by the state and given to defined categories of community according to Qur’an. Taheri (2000) claims that zakat importance is emphasised by Islam which is the third pillar of Islam.
Islamic teaching claims to provide equability and social justice threw these principles, but how it is done?
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