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Geelani, Iftikhar (2005) Islamic Finance: A Synthesis. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

ABSTRACT

Islamic finance has the same purpose as conventional finance except that it operates in accordance with the rules of Shariah (the Islamic law), known as fiqh al mu'amalat (Islamic law of contract). Not all means of conventional financing are Shariah compliant, or at least there are some restrictions, especially in the debt mode of financing. Shariah compliant financial instruments are those that do not contravene Islamic prohibitions and ensure that the financial contracts would not contain Riba and Gharar (explicated further), which are forbidden in Islam in business transactions. In Islam, money is not looked at as a commodity that commands a price. Money does not reproduce and give birth to money. Economic activity such as production and trading produces the money. Money is a medium of exchange and a means of measuring the efficiency of a business through the use of 'rate of return' on investment. Moreover, risk taking on permissible activities is praised in Islam; in fact it is considered a prerequisite for profits and enrichment. However, being involved in gambling-like activities, which create pure risk for the sake of risk, is prohibited and renders the contract to be null and void.

According to the Qur'an (sacred text of Islam) and Sunnah (Prophet Muhammad's PBUH sayings and actions), maximizing profits and risk management is encouraged in Islam in legal permissible ways. Several classical jurisprudential methodologies have been employed to create financial instruments, which concur with the spirit of Islam and encounter consumers' need. Absence of adequate understanding of fiqh al mu'amalat, imitative approach, and the tendency to apply a rigid 'textualist' framework on finance is countered by the growing significance of the global integrated financial market.

This dissertation examines the rationale of Islamic finance, presenting basic theoretical understanding of the concepts of Riba and Gharar and an economic argument for their prohibition. Basic Islamic financial instruments are explored in view of modern finance, highlighting different scholars' opinions. Finally, the issues and challenges facing Islamic banking in a hyper-competitive environment are addressed.

Item Type:	Dissertation (University of Nottingham only)
Keywords:	Islamic Finance, Riba, Gharar, Islamic instruments
Depositing User:	EP, Services
Date Deposited:	07 Dec 2005
Last Modified:	24 Jan 2018 08:02
URI:	https://eprints.nottingham.ac.uk/id/eprint/20039

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