Islam and IFMF
Islam proposed a unique combination of contracts among the Creator, man and society on the basis of the Divine Law. It covers and directly affects the working of the various social, political, economic, and financial systems. The rules of trade and finance are part and parcel of the religion by which Muslims conduct their lives. The Economic System in Islam is part of a complete set of codes for the whole life. It is not possible to isolate the economic system from other parts of Islam because they are interconnected. For example Zakat (Obligatory charity) is viewed as purifying act, beside its economic value and importance. It is the spiritual attitude, which the Muslim reflects in life and the great care for morality. Islam does not believe in radical changes of the relations of production because of changes in the nature of production, as Socialism claims. Islam starts from man and not from production. Islam has a very important advantage, which capitalistic and socialistic systems do not have. Islam binds man to God. It makes him think of God's satisfaction, reward, and punishment too. Islam starts from the depths of the human conscience, and proceeds in its endeavors to secure.

Islam in ideologically connotation has set the development of economic wealth and the utiliza¬tion of natural resources to the greatest possible extent as a goal for society. Islam is similar to many worldly systems in affirming this economic objective; however, they differ in their approach to achieving it. While in some systems "reject any means of development of production or increase of wealth that hinders the principle of economic freedom, Islam, on the other hand, rejects those means which are contrary to its theories of distribution (of the economic resources) and its principle of jus¬tice (adopted from Al Sadr, Iqtisaduna (Our Economics) (Beirut: Dir al Ta'aruf, 1982). It is important to note that Islam does not deny the market forces and market economy, even profit motive and private ownership is acceptable. Islamic Scholars regard that economic pros¬perity as the goal of a virtuous society, not of the individual. God, after all, has created everything on earth and the heavens to serve the existence of man.

Divine Restrictions on the Economic Activities >>>
After recognizing private ownership, profit motive and market forces, Islam has put certain divine restrictions on the economic activities. These restrictions being imposed by Allah Almighty, Whose knowledge has no limits, cannot be removed by any human authority. The prohibition of riba (usury or interest), gambling, hoarding, dealing in unlawful goods or services, short sales and speculative transactions are some examples of these divine restrictions. Qur’an and Hadith have categorically prohibited taking or giving riba (usury or interest).

Islam discourages individuals from pursuing strictly materialistic objectives, downgrading the passing gains of this transitory existence. Islam only rejects materialistic gain as the ultimate ambition of man, which leads him to the oppression of others. Islam encourages zuhd (austerity) as a value, which trains man not to consider materialistic wealth as his final goal in life. Zuhd is man's mechanism for self-regulation, which he utilizes to fight his desires and direct his objectives toward God.

Additionally some of following set of business activities is considered prohibited in Islam:

• Alcoholic Beverages
• Pork and Pork Products
• Gambling in all its forms is prohibited (i.e. Casinos, Internet Gambling Outfits, betting, such as Horse and Dog racing etc.,)
• Pornography and adult oriented materials
• Business and transaction based mainly on interest
• Illegal activities like drugs, prostitution
• Activities involving Gharar and Maisir (arabic terms)

Asset-Backed Financing - Interest Free Microfinance? >>>
One of the most important characteristics of Islamic financing that distinguishes it from conventional financing is, mostly transactions are asset-backed. The conventional concept of financing is that the banks and financial institutions deal in money and monetary papers only. They may or may be backed by real asset value. On the other hand, Shariah compliant sales are assets backed transactions. All sales transaction must be conducted on real asset value, and the asset must exist and fully owned by the seller (there are some exceptions to this rule which especially deals in “Salam” and “Istisna” ) not the profit earned through dealings in money or the papers representing them is interest, hence prohibited. Therefore, unlike conventional financial institutions, financing in Islam is always based on illiquid assets, which creates real assets and inventories. =

Ideal Instruments of Financing - Musharakah and Mudarabah >>>
OIslamic Shariah has presented many modes of financing such as Mudarabah, Musharakah, Murabahah, Ijarah, Salam etc., to support various types of businesses or trade transactions. Each mode has its own specification and conditions for implementation. Nevertheless, Musharakah and Mudarabah are considered the real and ideal instruments of financing in Shari’ah. When a financier contributes money based on these two instruments it is bound to be converted into the assets having intrinsic utility. Profits are generated through the sale of these real assets. The concept of Musharakah and Mudarabah envisaged in the books of Islamic Fiqh generally presumes that these contracts are meant for initiating a joint venture whereby all the partners participate in the business right from its inception and continue to be partners up to the end of the business when all the assets are liquidated.

In Mudarabah contract, an economic agent with capital enters into a partnership with another economic agent who has expertise in deploying capital into real economic activities, with an agreement to share the profits. The earliest Islamic business partnerships can be traced back to the Prophet (PBUH) himself, who acted as an agent (Mudarib) for his wife (Hazrat Khadījah bint Khuwaylid) when he undertook several trade expeditions on her behalf. Mudarabah partnerships performed an important economic functions by combining the three most important factors of productions-capital, labor, and entrepreneurship, typically, “Mudarabah” is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called “rabb-ulmal”, while the management and work is an exclusive responsibility of the other, who is called “Mudarib”. Mudarabah contract involved an arrangement in which the capital-owner entrusted capital or merchandise to an agent (Mudarib) to trade with it and then return to the investor the principal plus an agreed share of the profits. As a reward for his labor and entrepreneurship, the Mudarib received the remaining share of the profit. Any loss resulting from the exigencies of travel or from an unsuccessful business venture was borne exclusively by the investor.

The literal meaning of Musharakah is sharing. The root of the word "Musharakah" in Arabic is Shirkah, which means being a partner. It is used in the same context as the term "shirk" meaning partner to Allah. Under Islamic jurisprudence, Musharakah means a joint enterprise formed for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the contribution. Whereas in Musharakah: a form of partnership where two or more persons combine either their capital or labor together to share the profits, enjoying similar rights and liabilities. From the very inception of human society, the methods to meet day-to-day needs have been changing with the change of social, economic, scientific, cultural, and political circumstances, especially habits, fashions, and the standard of living. These methods regulate the commercial activities and vary from place to place and time to time. The Arab society at the time of the rise of Islam had very simple financing methods and forms of business peculiar to that society. The advent of the Holy Prophet saw the practice of Musharakah already prevailing over the commercial activities in Arabia. He not only ratified it, but also himself did business based on Musharakah.

The Role of Qard Hasan >>>
The word Qard (قرض) has been used several times in Holy Quran. Like surah al-Baqarah verse 245 mentioned it:

مَّن ذَا الَّذِي يُقْرِضُ اللّهَ قَرْضًا حَسَنًا فَيُضَاعِفَهُ لَهُ أَضْعَافًا كَثِيرَةً وَاللّهُ يَقْبِضُ وَيَبْسُطُ وَإِلَيْهِ تُرْجَعُونَ

“‎"Is there any who will lend a goodly loan to ALLAH so that ALLAH may multiply it to him many times and it is ALLAH that decreases or increases (your provisions), and unto Him you shall return." Sura Muzammil verse 20:

Above-mentioned verses of Holy Quran stress the need of giving loan and it is considered good deed bringing many benefits not only in this life but also in life hereafter.

One of the Hadith mentioned, “It is written in the door of Heaven that Qard (Loan) had eighteen times reward whereas charity has ten times reward because Qard (Loan) only took by needy while charity sometimes goes not to needy”

According to Islamic principles, a financier must determine whether he is advancing a loan to assist debtor on humanitarian grounds or he desires to share his profits. If he wants to assist the debtor, he should resist from claiming any excess on the principal of his loan, because his aim is to assist him. Here comes the role of Qard e Hasan where the beneficiary is helped without adding any additional amount as return.
 

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