EVOLUTION OF THE ISLAMIC BANK: –
Before the fall of Islam, Makah was the center of world trade and was seen as a haven for investors and businessmen that traders’ caravans used to travel north and south. of Makah, summer and winter. It was obvious that the deposit of the primitive system and the use of money would appear in pre-Islamic Makah society. Most goods are traded on an exchanged basis, while payments are also made in dinar and dirham coins. The dinar coins were gold while the dirham coins were silver.
The Islamic banking sector is growing rapidly around the world, especially in Pakistan, while the traditional banking sector is surprisingly declining in the countries that are the defenders of capitalism and the founders of the interest-based financial system. At present, these developed countries are trying to control the financial crisis by manipulating interest rates and bringing it back to near zero without achieving the desired results. Dozens of centuries-old financial institutions have been eliminated from the financial scene.
Mudarabah (profit sharing): –
Mudarabah (profit-sharing) is one of the first commercial forms used by pre-Arabs for their commercial activities. Although mudarabah (profit-sharing) has no basis in the Qur’an or Sunnah, it was used by early Muslims to trade. The term “mudarabah (benefit sharing)” is derived from al-darb al-ard, which means “traveling through the earth”. He was also approved by the Prophet Muhammad (SAW). Mudarabah (profit sharing)), mixing wheat and barley for domestic use and not for sale. Mudarabah (profit-sharing) is also called “silent partnership”, involving a financier (rabbulmal), who provides a specific amount of capital and acts as a dormant or dormant partner and as an entrepreneur (mudarib), who acts as trustee or a commercial agent. The mudarib is required to use and manage the capital appropriately in order to generate optimal profits for mudarabah (profit-sharing) investment, while respecting Sharia law.
The mudarib does not invest any property in the company, apart from its knowledge and skills. He also does not have the right to claim wages for running the business. Mudarabah (profit sharing) is one of the oldest forms of business used by pre-Arabs for their business activities. Literally, the word mudarabah (profit sharing) is derived from the expression “al-darbfi al-ard” which means to make a trip. The literal meaning of this partnership is that, in the past, this contract required the parties involved to engage in the management of their business.
Ijarah is also called because Al Ijarah is a specified asset transaction available for a payment where ownership of the asset is not transferred. The Ijarah contract is essentially the same as an installment lease. This is similar to a type of leaser or mortgage without a down payment requirement, such as a capital lease.
In Ijarah, fixed assets are the subject of the lease. They can be returned to the lessor at the end of the rental period. In this case, the lease has the characteristics of an opening contract and is therefore only part of the amortization of the leased assets. Valuable results. In another approach, the lessee may agree from the outset to purchase the asset at the end of the lease period, in which case the lease is in the nature of a lease, called Ijarah WA iqtina (literally, lease and ownership).
The term “Ijarah” has been defined as a contract between two parties, the lessor and the lessee, in which the lessee benefits from the specific service or benefits from a specified consideration or rent from the lessor’s assets. It is a leasing agreement under which a lessor leases to a lessee a certain asset against a fixed rent or a lease for a specified period. A penalty may be charged to the tenant in the event of late payment, but the amount recovered must be used for charitable purposes by the lessor. There cannot be two contracts in a contract. Since the purpose of the “trading option” is quite different from that of transferring usufruct of an asset. The insertion of the “call option” clause is used for another contract. On one hand, it allows the tenant to take advantage of the usufruct of the leased asset and, on the other hand, it also gives the lessee the right to buy the same rented property, which is not allowed in the Sharia. A leased asset must have a value at the end of the agreed leasing period. From the moment of termination, the tenant is not required to pay the rent. Sale and leaseback are allowed, but only in two separate transactions. Leasing differs from sale in that it does not transfer the corpus or property of the property, which remains with the transferor.
Musharakah is a word of Arab origin that means sharing. In business and commerce, this means a joint venture in which all partners share in the profits or losses of the joint venture. Musharakah is defined as a form of partnership in which two or more people combine their capital or work to share the benefits and enjoy the same rights and responsibilities. This type of business can be registered as a company with unlimited liability or as a limited liability company. If the project seems feasible to you, the bank could consider sharing the financing of the project after considering all the conditions required by the bank.
The two types of funding based on Musharakah are:
1. Joint venture project or partnership on the basis of a mutual account without the creation of a separate entity. The Musharakah financing agreement will be concluded between the Islamic financial institution and the client. The funds are deposited in a mutual account in the form of a lump sum or in stages. The joint account is registered under the client’s name, while the transaction management of the account is jointly managed by the Islamic financial institution and the client.
2. Musharakah equity, through the establishment of a private limited liability joint venture, an institution will be created by the Islamic financial institution and the client to run a specific business. The project management process by both parties in Musharakah to represent their interests and responsibilities towards the company. The Islamic financial institution will disburse Musharakah funding in a lump sum through the company’s additional paid-up capital.
The financing of Musharakah is the most vital method for influencing economic activity in the Islamic economy. Which includes Musharakah depositors, banks and investors in project financing and profit and risk participation? As a result, it affects savings, investment and the domestic resource gap. Compared to the interest rate, the implementation of the Musharakah financing is considered more flexible than the interest rate, it includes three rates of return; a depositors’ Musharakah return rate, a Musharakah return rate from the bank and a Musharakah return rate from investors. The investor bears the interest as a financing risk.
Also, the mechanism of using the interest rate in the money market equilibrium is to transform the savings and the economic activity, while the Musharakah financing assures the participation of all parts simultaneously; the bank, the saver and the investor in the Musharakah process. Therefore, it is limited to the period of implementation of the Musharakah process.
Murabaha is one of the most widely used financing instruments by Islamic banks. As a fixed income instrument, it has apparent similarities to conventional loans such as final debt, credit and collateral structure, and so on. Analysis of the data, relevant documents and product structures revealed that apparent similarities have no real substance and Muraba?ah’s strengths are evident. The real problem lies in the problems related to the implementation strategy of Islamic banks, such as the procurement methodology, the use of non-Islamic benchmarks, etc. The essay deals in detail with problems related to the practice of Murabaha. The results of the study indicate that there are practical solutions to these problems.