Islamic finance is a productive tool and a humanitarian necessity
Islamic finance is a productive tool and a humanitarian necessity
Many economists attribute the emergence of Islamic banks to problems in other financial systems, whether socialism or capitalism, but I claim that the emergence of Islamic banks and the Islamic economy is a natural development in society in that time period in which societies began to return to their origins and human reference.
In fact, the emergence of Islamic banks sparked hope for societies to get rid of the negative effects caused by economic crises, as Islamic banks depend in their work on the provisions of Islamic Sharia and the foundations of the Islamic economy, which prohibits dealing with usury (interest).
Therefore, investment opportunities are limited to actual production, which directs resources directly to real investment, and here the Islamic economy shows that capital does not deserve a return if it does not participate in the production process, unlike what traditional banks deal with, which gives it a return (usury) interest. According to the Islamic perspective, the legitimate form of profit is through the participation of capital with human effort and other economic resources, which result in goods and services, so that profit is based on risks.
The Jordanian experience in Islamic banking is considered one of the first experiences in the Arab and Islamic world, as it started since the beginning of the eighties of the last century and was the second or third experience in the Arab and Islamic world.
Therefore, the Jordanian experience is considered rich in its antiquity, and it had an active role in enriching and enriching this experience in many countries of the Arab and Islamic world.
* The Islamic economy considers money a tool of exchange and not a commodity that can achieve a return.
From here, the direct role of Islamic banks in caring for society and its needs emerges
Islamic finance is defined as: providing wealth in kind or cash with the intention of profit from its owner to another person who manages or disposes of it in return for a return permitted by Shariah provisions. :
1. Doing banking services.
2. Accepting funds and investing them in various investment activities.
3. Doing social activities.
Islamic banks do not differ from conventional banks in terms of funding sources, as these banks are financed by two internal sources representing shareholders’ capital, and an external source representing deposits and savings. However, Islamic banks are distinguished from conventional banks in the function of accepting investment deposits of all kinds with the following:
1. Conventional banks deal with these deposits on the basis of interest, while Islamic banks finance investors on the basis of a common share of the profits that are made
Managed by investment operations.
2. Islamic banks participate in the loss according to the sheep rule.
3. Islamic economic thought considers money a tool of exchange and not a commodity that can generate a return.
Pictures of investment finance in Islamic banks
The forms of financing in Islamic banks vary according to the diversity of productive activities in society, unlike financing in commercial banks, which depend on moving money through financial loans, even when they participate in productive financing, then moving money is the basis.
These tools vary as follows:
1. Financing projects by means of participation, speculation and other forms, and the return in this form is linked to the outcome of the funded project.
2. Financing through sales and these methods of financing in-kind assets.
3. Purchase of long-term productive assets and lease them to their users.
4. Direct contribution by retaining shares in its various projects.
The purpose of finding these images and dealing with them is to meet the needs of workers with individuals, producers and companies of all kinds, and it is noted that traditional banks choose their clients according to their financial capabilities in order to repay the loans they obtain from them. As for Islamic banks, they depend on the selection of efficiency for participation or speculation operations because the return on profits depends on the basis of competition, and from here Islamic finance plays a major role in achieving economic growth.
Differences between Islamic and conventional banks
1. Investment in Islamic banks represents the largest part of their dealings, while lending is of paramount importance in conventional banks.
2. Investments of Islamic banks require the possession of fixed assets, while this is not allowed in the traditional for fear of accumulating them.
3. The multiplicity of dimensions and objectives in Islamic social banks while traditional profit making.
4. Islamic banks focus on financing projects that are beneficial to society, while conventional banks focus on guarantees.
The Economic Importance of Islamic Finance
Islamic banks are characterized by developmental, economic and social characteristics, and the work mechanisms that they adopt have multiple effects on economic activity, as they are:
1- Focus on making work the only source of earning.
2- It supports savings awareness, as one of the Islamic bank’s premise is that cash is a means and not a commodity, and this awareness changes the behavior of individuals from hoarding to saving, which leads to the non-accumulation of capital, so it becomes ready for investment operations in the Islamic bank.
3. Carrying out legally permissible investment activities, as through them investment becomes an inevitable issue on which the existence of the bank depends or not.
* Terms and references:
The rule of sheep in debt: the costs and losses that occur from the thing are on the one who benefits from it according to Sharia; That is, whoever obtains the benefit of something must bear its harm.
Mudaraba: Mudaraba is an agreement between two parties in which one of them spends his money and the other exerts his effort and activity in trading and working with this money, provided that the profit from that is between them according to what they stipulate from the half, third or quarter. . . etc. But if the company loses, the loss is on the owner of the money alone, and the speculator does not bear any of it in return for wasting his effort and work, because it is not fair to waste his effort and work and then demand the participation of the owner of the money in what was lost of his money as long as that was not due to negligence or negligence.
Musharaka: It is the stability of the ownership of an object of financial value between two or more owners, each of whom has the right to dispose of the owner, as it is defined as a contract between two or more persons on the participation in capital and profit, or the settlement of something of value between two or more owners, each one of whom has the right to dispose as the owner.
Sources and references:
* Islamic Economics Foundations, Principles and Objectives (Abdullah bin Abdul Mohsen Al-Tariqi), Professor in the Department of Islamic Studies - King Saud University.
* Islamic Economy between Thought and Application (Dr. Hussein Hussein Shehata), Professor at Al-Azhar University.
* Articles, working papers and online research