Wednesday, 19 July 2017
Introduction of Islamic Finance
Financial system influence who can commence a business and who cannot, who can pay for education and who cannot,who can attempt to realize once economic aspiration and who cannot. Thus finance can shape the gap between the rich and the poor and the degree to which that gap persists across generations. A financial system that is based on Islamic principles and values,which eliminates ‘Riba’ and ensure a profit sharing mechanism in the financial system is known as islamic finance. It may be characterised by the absence of interest based financial institution and transaction, doubtful transaction or gharar, stock of companies dealing in unlawful activites, unethical or immoral transations such as market manipulation,insider trading short-selling etc.
Islamic banking can be defined as a form of modern banking based on Islamic legal concepts using Risk sharing as its main method excluding financing based on fixed pre-determined return.
Islamic finance is a system of financial activities follows with “Sharia”s law, include the “QURAN” and the sayings and actions of the prophet “mohammed” recorded in a collection of books known as the “Sabib ba baditb” and a body of laws created by Islamic scholars knows as the “figb” the main difference between Islamic finance and other form of finance is particularly the structure of how the bank is set up. The conventional banking the purpose is to pool money from the investors and give loans to public
But what is Islamic structure then in essence how an Islamic bank is supposed to be set up how an Islamic bank is supposed to be set up is based on the theory of “sources and application of funds” there should be a single flow between the deposits and the financing or investment use pf funds: this means there is no distinct function. It is a single function where customers deposits or investment pool is used to fund financing portfolio. There are set of principles of Islamic finance in India there as follows
Principles of Islamic finance
l Wealth should be generated from legitimate trade and asset-based investment
l Islamic sharia Investment India should have a social and an ethical benefits to wider society
l Risk should be shared
l All harmful activities should be avoided
Prohibited elements in Islamic finance
l Riba (it refers to the “premium” that must be paid by the borrower to the lender along with the principal amount as a condition for the loan)
l Gharar (it means exposing oneself to excessive risk and danger in a business transaction a a result of uncertainty about the price )
l Maysir (Gambling) (it refers to easily available wealth or acquisition of wealth by chance)