International Business has always played a essential role in the economical and social of most people through the age ranges. Muslim as part of contemporary world, and can't be exception out of this rule. Their religion (Islam) not only permits them, but also motivates them to conduct business. The prophet Muhammad (pbub) (the Messenger of Islam) himself was a full-time business man for a considerable period of time. However, contemporary Muslim end up confronted with serious dilemmas, because they didn't follow their constitution, that are Quran and Sunna. This Quran's focus on justice generally and maintenance of right balance in practical is visible from forceful and oft-repeated injunctions.
This study will try to accumulate some brightness efforts from implementing Islamic rules and standers in international business.
1. 2 The purpose of the analysis:
The goal of this analysis is to recognize Islamic banking as the main contribution in international business and exactly how this contribution gives significant answer to world banking problems
1. 3 Technique:
In this project the methodology is determined by several recommendations such as books, articles in journals, websites, and journals.
. Chapter Two
2. 0 The Fundamental of any Islamic Business System
The basic shape work with an Islamic business system is a couple of rules and laws. Collectively known as shariah, governing economic, social, politics, and culture aspects of Islamic societies. Shariah originates from the guidelines dictated by the Quran and its routines, and explanations from Sunnah by the prophet Muhammad. Further elaboration of the rules is provided by scholars in Islamic jurisprudence within the framework of the Quran and Sunnah. (Saeed, M. Ahmed, Zr. Mukhtar, S 2001)
This platform clarifies the prohibition of interest. Prohibition of riba, a term of actually meaning "an excess" and interpreted as "any unjustifiable increase of capital whether in loan or sales" is the central tenet of the machine. More specifically, any positive, fixed predetermined rate linked with the maturity and the amount of principle is known as riba which is prohibited. The overall consensus among Islam scholars is the fact that riba cover not only usury but also the changing of "interest" as broadly practiced.
This prohibited is based on argument as public justice, equity, and property right. Islam motivates the earning of profit but forbids the charging of interest because profits, identified ex lover post, symbolize successful entrepreneurship and creation of additional prosperity where as interest, determined former mate ante, is an expense that is accrued irrespective of the outcome of business procedures and might not exactly create wealth if there are business losses. Social justice needs that borrowers and the lender share rewards as well as losses within an equitable fashion and this the process of wealth deposition and distribution throughout the market be good and representative of true output. Risk posting. Because interest is prohibited, suppliers of funds become investors instead of creditors. The provider of financial capital and the entrepreneur talk about business risks in return for shares of the gains. Money as potential capital is treated as actual capital only when it joins hand with other resources to attempt a successful activity. Islam identifies the time value of money, but only when it operates as capital, not when it's potential capital.
Prohibition of speculative patterns. An Islamic financial system discourages hoarding prohibits transactions displaying extreme uncertainties, gambling and dangers.
Sanctity of deals. Islam upholds contractual obligation and the disclosure of information as a sacred duty. This feature is supposed to reduce the risk of asymmetric information and moral threat. Shariah-approved activities. Only those business activities that do not violate the guidelines of shariah qualify for investment. (Saeed, M. Ahmed, Zr. Mukhtar, S 2001)
Some of the popular musical instruments in Islamic business marketplaces are trade with markup or cost-plus sale (murabaha). Perhaps one of the most widely used musical instruments for short-term financing is offered the traditional land of purchase funding. The investor undertakes to supply specific goods or commodities, combining a mutually arranged contact for resale to your client and a mutually negotiated margin.
Profit-sharing agreement (mudaraba). This is identical with an investment fund in which managers take care of a pool of cash. The agent-manager has relatively limited liability while having sufficient incentives to execute. The capital is invested in broadly described activities, and the conditions of earnings and risk posting are customized for each investment. The maturity composition ranges from brief to medium term and is more ideal for trade activities.
2. 1 The Rule of Islamic bank:
The principle of Islamic bank is based essentially on the idea that interest, which is totally forbidden in Islam, is neither a necessary nor an appealing basis for the carry out of banking operation, and that Islamic teachings provide an improved foundation for arranging the working of banks. Muslim economists have remarked that this is a historical car accident that interest has become the kingpin of modern bank. The practice of interest has been condemned by most important thinkers in human history and by all biblical religions. Aristotle dwelt on the "barren" nature of money and vehemently condemned the establishment appealing which explain as "beginning money from money". ( Abeng, T 1997)
Under Judaism, Israelites were forbidden to demand any increase on the theory amount of the total lent in trades among themselves, though interest could be costed in working between Israelites and gentiles. The reason for his distinction, corresponding to numerous scholars of Judaism, was that there is no law at that time on the list of gentiles which prohibited the practice appealing and it was no regarded as unfair that Jews be allowed to restore interest from people who incurred interest from them. One of the followers of Islam, the institution of interest is definitely thought to be highly ignoble because the Holy of Qur'an purely forbidden interest based transaction in all form. In the first record of Islam the injunction relating to prohibition of interest was strictly witnessed, but with the decline of the your hands on religion and get spread around of western impact, financial practices based on interest started out to permeate Muslim societies as well. In the period of colonial domination of Muslim countries by american power, the interest centered system became solidly entrenched. Muslim scholars dispute which has led to the resent -day dominance of interest in financial ventures around the world. ( Abeng, T 1997)
Muslim scholars discover the key role finance institutions play throughout the market of the country in the present day time. Financial institutions act as financial intermediaries between savers and buyers. They can be of significant help in assisting the process of capital formation and development.
2. 2 Non Muslim countries interesting with Islamic banking serve
The achievements of Islamic banking through world crises encourage many non Islamic countries demand to apply this perspective by institutionalized use of Islamic settings of deposit mobilization and funding, if not full flagged Islamic bank; in quit a few non Islamic countries. Thus Islamic financial institutes can be found in up to now a part as Australia, Denmark, India, Liberia, Liechtenstein, Luxemburg, Philippine, South Africa, Thailand, United Kingdom and United Express of America. Apart of these there are a number of nun -Islamic financial institution in non-Muslim countries that offer Islamic finances services because of their Muslim clients. There is a good deal of controversy, however, about the financial services being offered by such organizations being in completely conformity with Shariah requirements.
3. 0 The impact of Islamic Bank on economic system
The culture of Islamic banking has magnificent have an effect on in several measurements of financial system, which can be saving, investment, rate and percentage of progress. These elements have major rule for financial system stability.
Islamic market has pointed out that standard economic will not deliver a definitive summary regarding the aftereffect of increased uncertainty of rate of return on the quantum of saving. The exact out come would rely upon lots of factors such as the form of tool function and its own risk aversion, the amount to which future is discounted, whether or not increased risk is compensated by higher return, and the income and substitution effects of increased uncertainty. It has further been argued that the move to an Islamic interest free system, under cretin conditions, could lead to increase rates to come back on saving. Therefore, the increased degree of uncertainty that can derive from adoption (Profit/loss posting) (PLS) established system could be compensated unchanged or simply even leading to a rise in saving.
Muslim economists expect PLS founded bank to exercise beneficial effect on the level of investment. Both demand for investment PLS founded bank. The demand for investment money will probably increase as a set coast of capital is no more necessary to be met as part of the firm earnings computations. The marginal product of capital can be taken until where maximum gains are obtained with no constraint of interacting with a set coast of capital. The supply of investment funds is likely to increase as PLS established banking is enable to undertake the funding of a sizable number of high-risk projects due to an enhanced dangerous absorbing capacity.
The expected advantageous aftereffect of PLS based banking on the amount of investment world impart a pronounced expansion orientation to the overall economy, the increased availability of risk capital under the Islamic system would promote know-how and experimentation which would be another favorable factor for expansion. Islamic lenders are also expected to influence the routine of progress through appropriate selectivity in their financial operations to ensure that the procedure of development is broad established and an best use for loan company resources.
The financial system predicated on an Islamic shape work of earnings sharing would become more reliable in allocating resources as compared to the conventional interest established system. This position is defended on the basic the general proposition that nay financial development that triggers investment alternative to be compared to one another, purely predicated on their efficiency and rate of return, is bound to produce allocative environment, and such a proposition is the cornerstone of the Islamic economic climate.
Muslim economists do not deny that investment efficiency requires the utilization of discounting to take proper care of the time aspect of costs and benefits. They point out that non-existence of interest does not mean that discounting as a method of computing the present value of future cash moves cannot be utilized in a pastime free economy. They have father been pointed out that interest is not proper discount factor under conditions of uncertainty, the speed of go back on collateral is the correct discount rate. Knowledge the real world is an environment of uncertainty and since no real investment in virtually any overall economy can be performed without facing risk, cashflow of such investment should be discount not by a riskless interest but by the real opportunity cost of capital raising.
The literature of Islamic banking that transition over from interest based on PLS based banking would import greater stableness to the banking system. there is absolutely no confidence on the resources side that the loan and developments will be protected, shocks on the advantage that the loan and improvements will be covered. Shocks on the resources side, therefore, load to a divergence between assets and liabilities, and the bank operating system can undergo a loss of confidence along the way, leading crises. In the PLS founded system, the mineral value of investment deposited is not guaranteed and shocks to the investments position are immediately absorbed in the value of investment deposits. This minimizes the risk of bank inability and increases the steadiness of the bank operating system.
The replacing of desire for the Islamic bank operating system is PLS, that eliminate the interest few with other institutional feature of the Islamic market, will tend to enhance stability, the eye in the financial standard bank depends on debts, which is the key reasons for instability in capital economy. It's easy to see, for example how the interest centered system intensifies business reason. As soon as banks find that business concerns are starting to incur losses, they reduce assistance and call again loans, therefore of which some businesses have to close down. This raises unemployment resulting in further decrease in demand, and chlamydia spreads. Islamic bank on the other hands, are prepared to share in losses where reduces the severity of business recession and permits the productivity organization to tide over difficult period without shutdown. Islamic banking should be seen as a promoter of steadiness rather than a conduit of instability.
3. 1 The practice of Islamic banking
The Islamic banking movement began on the modest size in the first sixties. The earliest experiment in Islamic banking occurred in the most cases on individual effort with governments participating in a more or less passive role. The later progress of the Islamic bank activity has been significantly helped by the encouragement provide by the government of lots of Muslim countries. The establishment of Islamic banking institutions in bank legislation. It ought to be stated that changes in bank legislation effected in certain countries to assist in the working of Islamic lenders are not designed to confer any special advantages on these lenders vis- -vis the conventional banks. The methods are in fact made to remove a few of the handicaps that Islamic banks undergo in doing their operations within an current economic climate where interest established business deal dominate the landscape. (Saidi, T. 2008)
Two different approaches are discernible in regards to the adoption of Islamic bank practices. In a number of countries Islamic banking companies have been began on private effort. The governments of the countries have never determined themselves to the abolition appealing, and Islamic bankers exist side by side with interest established lenders. Pakistan and Iran are carrying out a different approach targeted at economy wide removal of interest. In Sudan, where Islamic lenders co-existed with interest based mostly banks for long time, the government has now opted for overall economy vast Islamization of banking. This portion of the paper reviews the fads in the practice of Islamic bank in both the setting. It also takes take note of activities of the Islamic Development loan provider, which is an international development funding institution working in shariah principles, the bank services by regular banks in certain Muslim countries.
3. 2 Individual entities for Islamic lender practices
There are actually fifty Islamic banking institution operating in different countries encompassing almost all of the Muslim world. Two major international keeping companies, namely, the Dar al-Mal al-Islami Trust and AL-Baraka Group control a number of Islamic bankers Almost every other have been proven by organizations of individual sponsors. In a few banks gleam certain amount of government contribution in their capital
Islamic banks carry out their banking operation under shariah key points. The vast majority of them have Shariah Supervisory planks as part of their organizational composition. The function of Shariah Supervisory mother board is to guarantee the compatibility of all procedures of Islamic banking companies with requirements of Shariah. (Saidi, T. 2008)
Islamic banks acknowledge both demand deposits and cutting down and time deposits. Demand deposits are cared for as Qard al Hasnah. The lender is given permission to use the first deposit amount at its way but with warranty of returning the full principle amount on demand. Saving deposits are differentiated from demand deposits because they are at the mercy of certain restriction with respect to the amount that can be withdrawn from such accounts at any one time and the periodicity of such withdrawals. Some Islamic lenders accept saving first deposit deposits on PLS basis while some do not pay any go back on these deposits and assure the principle amount. Time deposits are accepted by Islamic banks PLS sharing biases and generally known as investment profile. The investment deposits of Islamic finance institutions can have different maturity periods. The return on investment deposit is given as percentage of total income in most circumstance, however in most conditions the percentage return varies with the length of the time that the deposits are created. Apart from limited period deposits, some Islamic finance institutions also accept infinite period investment deposited. In this case, the period of first deposit is not given and the deposits are automatically renewed unless a notice of termination of deposits is given of a mutually agreed of any mutually decided time period. Some Islamic lenders likewise have specific investment accounts in which deposits are created for investment specifically project. The return to depositors in these accounts is determined by the outcome of the particular tasks and the percentage of the earnings sharing agreed between the loan company and the depositors.
Islamic banks working in different countries are by using a combination of different funding techniques permissible in shariah. However, almost all of them lean seriously on Murabahah in their operations. This is for two main reasons. Their orientation mainly is towered short term financing of trade business deal for which Murabahah look like far more convenient devices set alongside the system of PLS. Second of all, they are simply in competition with interest centered banking institutions and are therefore stressed to earn at least just as much on their environment as will enable them to given return around comparable to prevailing interest to their investment account holders. This is easier to achieve by participating in Murabahah exchange as the mark-up can be set in a way which less assure the mandatory return. On the other hand, considerable uncertainty attaches to earnings under a system of PLS writing as the results is determined by the operating of varied business units that are subject to the most common business dangers.
Excepting the three countries where Islamization of the bank operating system has taken place on an market huge basis, Islamic bankers far away are at a considerable downside in facing the competition with conventional banking institutions as they can not avail of the facilities of the money market which manages on the essential interest. This forces them to work with higher liquidity ratios that have implications for his or her profitability. Islamic finance institutions also face lots of problems in investing their cash internationally as they can not take advantage of the facilities of the Eurocurrency market and the Eurobond market which offer ready investment stores for conventional banking companies.
Islamic bankers have generally a good track record of profitability. Like standard banks, Islamic lenders also have acquired problems in the recovery of their due during durations of business recession or suffered loses in a few investment which performed no pay back but these have never grown up to any crises. The Dar Al-Mal Al-Islami, which is a retaining company for a huge quantity of Islamic banks, do suffer operating loss in 1983 and 1984, and Kuwait financing House experienced a bad season in 1984 when neither the shareholders nor the depositors received a go back on the capital. However, both these institution recovered from the set back in 1985 and demonstrated good profits. You can find course substantial dissimilarities in the performance and the profitability of individual institution within the Islamic bank community but this isn't surprising because functioning conditions and business environment are different greatly from country to country.
4. 0 Exemplory case of Islamic bank in Islamic countries
We will spotlight on some Islamic countries like Iran, Pakistan and Sudan. To know their experience with Islamic Bank.
A new regulation was enacted in Iran in August 1983 to displace interest based banking by interest free bank. The brand new required the lenders to convert their deposits to an interest free basis within one year, and their businesses within 3 years, from the time of the passage of regulations, and specified the types of orders that has to constitute the foundation fro asset and responsibility acquisition by banking institutions. The law also specified the responsibilities of the central standard bank under the new system and the mechanics of its control over the banking system. (Roy, D 2010)
The legislations allowed the banks to accept to types of deposits, Quard al Hasanah deposits and term investment deposits. The Quard al Hasanah deposits include current as well as keeping account which fluctuate in their functional guidelines. The holders of current and cutting down accounts are guaranteed the safety of the process amount and aren't entailed to any contractual go back. However, lenders are allowed to provide motivation to depositors through
Grant of prizes in cash or kind
Reduction in or exemption from service charges or agent's fees payable to banking institutions.
According main concern in the utilization of bank facilities.
Holders of term investment deposits are entitled to receive return, depending on the success of the project in which these cash are invested. The law allows the finance institutions to undertake and repayment of the theory amount of conditions of investment.
The regulation provides various methods of procedure upon that your financing ventures of sorts must be centered. Banking institutions are obliged to earmark some with their resources for give of Quard al Hasanah to help achieve the socioeconomic objectives set out in the constitution of the country. Beside Quard al Hasanah, lenders are authorized to increase financial assistance for predictive enterprise on PLS basis relative to the rule of Mudarabah and Musharakah. Banking companies are permitted to provide part of the capital of a fresh joint stock company and also to get share of the prevailing joint stock companies. Bankers are certified to provide working capital financing to productive unites by purchasing new materials, free parts and other items on the request for sale to them on the basis of deferred payment in installment. Purchasing of equipment and equipment on the market with their clients on deferred repayment basis is also allowed. Another setting is called Salaf which is utilized for meeting working capital requirements through move forward purchase of result. Banks can engage in lease-purchase purchase.
In the new set up, the central lender of the country has been given large authority to control and supervise the functions of the country's finance institutions. While it continues to have lots of the erstwhile credit control weapons which do not involve Riba, it has been endowed with new device of control to regulate the interest free procedures of the lenders. These include capacity to determine
Minimum and maximum expected rates of come back from various facilities to the banks.
Minimum and maximum earnings shares for finance institutions in their Mudarabah and Musharakah activities.
Maximum rates of commission rate the banks may charge for investment accounts for which they provide as trustees.
Studies on Islamic bank experience of Iran have remarked that no try out has been made up to now to Islamize the international bank and financial procedures. Government continues to borrow from banks on the based mostly of resolved rate of return. It has also been remarked that some techniques in Iran are not variance with the practice of Islamic banking in other countries.
The aim of this economy vast Islamize of the banking system in Sudan has not been smooth and steady. The first attempt to Islamize the entire banking system was made 1984 when a presidential decree was issued directing all commercial banking institutions to stop interest based dealing with immediate impact and to discuss the conversion of their then existing interest bearing deposits and improvements into Islamically suitable form. Foreign trades were allowed to be continued on the basis of interest for the time being. It really is reported that this sudden change pressured the banks to adopt the nearest Islamic choice available that is Murabahah which soon constituted 90 percent of these financial operations. It's also reported Islamic system only officially in their ledger catalogs and in the reports submitted to the central loan provider of the country. Policy designers in the central loan provider were also discontented with the task of transforming the bank operating system. They considered it as only political decision imposed by the federal government without being preceded is adequate detailed research. This experiment which economy large Islamization of banking system came to end in 198 with the fee in government. The federal government which is currently in power had chosen the economy extensive Islamization of the bank operating system once more, and newspaper reported indicate that your time and effort is a lot more earnest and much better organized this time around. (Roy, D 2010)
The process of economy extensive Islamization of the bank operating system in Pakistan was initiated immediately after declaration by the leader of Pakistan in 1979 that federal likely to remove interest from the economy within period of 3 years and a decision had been taken to make a beginning in this direction with the eradication of the interest from the procedure from House Building Fund corporation, Country wide Investment Trust and common funds of he investment corporation of Pakistan. In just a few months of this announcement, these special finical institutions needed the steps needed to reorientation their activities on a non interest basis was a much more complex process and took a longer time span. To begin with, step were used 1981 to set up separate counters for accepting debris on PLS basis in all the local braches of the five nationalized commercial bankers. The parallel system, where savers had the choice to keep their profit the bank either in the interesting bearing deposits or PLS deposits, continued to operate till the finish of 1985. As the first 1985, no bank company is allowed to agree to any interest bearing deposits except foreign currency deposits which continue to earn interest. As lack of that bank company accepted deposits in current bill on which no interest or earnings is given and whose capital sum is assured.
The central bank or investment company of the united states has granted instructions specifying twelve modes of financing in which money mobilized by the banking companies can be employed. They are broadly categorised into three teams:
Trade related method of financing
Investment method of funding.
Loan financing needs the form either Qard Al-Hasan given on compassionate grounds free of any interest or service fee or of loan with a service fee not exceeding the proportionate cost of the procedure. (Roy, D 2010)
Trade related settings of financing include:
Purchase of goods by banking institutions and their sale to clients.
Purchase of trade bills.
Purchase of movable or immovable property.
Financing for development of property based on a development charge.
Investment settings of financing include:
Equity participation and buy of shares
Purchase of contribution term qualification.
The central bank of the state ahs been approved to repair the minimum annual rate of income which banking institutions should retain in view while deciding proposals for provision of financing, and maximum rate of earnings they could earn, theses rate may be transformed every once in awhile. It has also been laid down that should lose occur, they need to be distributed by all the financiers in proportion to the individual budget provided by them.
To guard the banks against delays and defaults in repayment by parties obtaining fund from them, a fresh regulation called the Banking Tribunals ordinance was promulgated in 1984. The tribunals set up under the radiance must get rid of all situations within the ninety days of submitting the issue. Appeals can be crammed in the high judge within thirty days but the decrial amount must be transferred with high judge appeal.
The Islamic Development Loan company, set up in 1975, can be an international lender whose goal is to foster the economical development and interpersonal improvement of member countries and Muslim neighborhoods singularly as well as jointly relative to rules of Shariah. It has 47 users and a subscribe capital of 2028. 74 million Islamic dinar. The functions of the lender are to take part in the equity capital and give loans for profitable project in member countries and also to provide financial assistance in other form for economic and interpersonal development. The bank is also required to establish and operate special money for specific goal including finance for Muslim areas in non-member countries.
The bank certified to accept first deposit and to increase fund in any manner. It is also charged with the responsibility of supporting in the promotion of international trade, especially in capital goods, among member countries, providing technological assist with member countries, extending training facilities for personal employed in development activities and undertaking research for enabling the economic, financial and bank activities in Muslim counties to comply with the Shariah. (Roy, D 2010)
The cumulative financing approved by the lender since its inception till the end of 1991-1992 amounted to 9389. 13 million Islamic dinar. International trade financing, predicated on Murabahah, has accounted for the majority of the full total resources providing by the bank to its people. It accounted for 72. 5 present of total funding. Loans provided based on a service fee accounted for 8. 2 percent while leasing and installment sales accounted for 5. 3 percent and 6. 3 percent of total funding respectively. Equity involvement accounted for 2. 2 percent of total financing as the assistance provide through earnings posting accounted for2. 0 percent of total funding.
Equity involvement and profit showing are thought to be the chief distinguishing top features of Islamic financing and banking. It is disappointed to note that, they may have so far performed very financing businesses of Islamic development loan company. The over-anxiety of the bank in it primary years to grow the network of collateral financing to cover as many of it's member countries as possible, insufficient sufficient professional experience in the bank to attempt an satisfactory appraisal of the project and to follow the task of vigorous follow up of it equity investment, delay in the implementation of the projects financed by the lender, marketing complications and currency devaluation have been cited as the main factors in charge of this situation
4. 1 Evaluation the role of commercial banking companies in increase debts
Commercial banks is the banking institutions that depends upon interest to increase there revenue. To achieve his object, they do maximum to attract clients to join up in these facilitates, which may have different designs.
By the impact of advertising, many people try to achieve their goals by special solution which is loan. Also there may be another advertising from these finance institutions to get customers which are credit cards, which consider an easy method for shopping and pay expense. In the long run of the month, people will face huge obligations without any settlement to these bad debts.
The graph below show the average of personal debt per capita in Midsection East counties
From the graph we can easily see your debt per capita and exactly how commercial lenders increase these obligations by there facilitates.
4. 2 Analyzing of Islamic Financing System and the answer of World Crises
Through years, many european countries present capitalism as a remedy for financial problem that facing several neighborhoods, and modern style for modern life system. This style handles loan as a powerful solution for paying expense. After years, the loan become as an undesirable wish for person if he didn't apply the conditions and the conditions, because it be based upon interest, which increase through the time. For that many economist advise to start just how for alternative monetary systems to emerge, among which is the Islamic money and market. Yet, instead of just reacting to the problems, scholars of Islamic economics ought to explain the principles and rules of the Islamic financial and monetary system and present its research and applications to wider audience. The Islamic economic and financial system is dependant on a set of ideals, ideals, and morals, such as honesty, credibility, transparency, clear proof, facilitation, co-operation, complementarily and solidarity.
These morals and ideals are key because they ensure stableness, security, and safeness for all those involved in financial orders. Furthermore, the Islamic Shari`ah prohibits the monetary and financial trades that involve laying, gaming, cheating, gharar (risk-taking), gahalah (unawareness), monopoly, exploitation, greed, unfairness, and taking people's money unjustly. (Shehatah, H 2008).
In addition, Islamic economy promotes participation in profit, loss, and real exchanges of money and investments. In fact, there must be real interaction between your wealthy, employers, the employees, and financial specialists. There is absolutely no party who is a constant success or a constant loser; yet profit and reduction is mutually distributed. Predicated on Shari`ah regulations, economic agreements entail mudarabah, showing, murabaha, istisnaa`, salm, igarah, and sharecropping. Shari`ah prohibits all forms of investment-based contracts of funding that involve interest loans forbidding financial transactions that require gharar (risk-taking) and gahalah (unawareness).
Actually, monetary experts assert that the system of financial derivatives cannot lead to real development. Financial derivatives create only money, without real value, triggering inflation and price rise, as well as moral decadence. For example, financial derivatives induced quick collapse of East Asian financial institutions. Regarding money, Shari`ah prohibits all varieties of selling bills, like discounting promissory notes and checks with postponed obligations. Also forbidden under the Shari`ah is the scheduling of debt at a higher interest. Prophet Muhammad (tranquility and blessings be after him) forbade the deal of debts. In fact, economists contend that reselling bills has exacerbated the financial meltdown. Actually, the Islamic monetary and financial system makes it easier for the borrower to repay debts.
Shari`ah allows for something of money and investment based on participation in both income and loss and relationship between capital and labor. Shari`ah message or calls on the gatherings involved in deals to react in a truthful, genuine, clear and clear way by prohibiting gharar, gahalah, cheating, gaming, lying, gossips, exploitation and taking people's money unjustly.
In a word, the only path out of this crisis can be found in the principles and laws of the Islamic economics
4. 3 Bottom line and recommendation
The way in which Islamic banks handling their system and increase their earnings with lowest risk, attracting globally attention at present second. Establish new style of bank with international financial counseling but under the conditions of Shuriah legislations. The techniques of Islamic bank have been distributing in many Islamic and non-Islamic countries and many clients trust Islamic values especially after world crises.
From the analysis the following advice can be recommended. The global overall economy phone calls from authorize person of Islamic banking to increase these facilitates. Also the global business must encourage authorize person to provide services with high matching to technology and internet. There are several update issues in Islamic business need to build solution for this.
Finally Islamic banks must send a message to globally, that succeed of Islamic bank comes from the law of Islam and Islam is not only a religion, it's a worldwide system matching with each time and everywhere.
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