IN THE NAME OF ALLAH, THE MOST BENEFICENT, THE MOST MERCIFUL

All praise for Allah SWT, may peace and blessing be upon the messenger of Allah, Prophet Muhammad SAW

OBJECTIVES OF ISLAMIC BANKING

- to put to all Muslims, contemporary Islamic financial dealings in strict respect to ethical individual and social values of Islamic Shariah , without contravening the heavenly imposed prohibition of dealing in riba

- to serve the ummah of Islam and other nations by strengthening the brotherhood bond through mutually benefical relationship for economic development and the enhanced environment for peace

RIBA

there are hadith of Prophet Muhammad SAW where:

'Gold for Gold, Silver for Silver, Wheat for Wheat, Barley for Barley, Dates for Dates, Salt for Salt, should be exchanged like for like, equal for equal, and hand to hand. If the types of the commodity is different, then sell them as you wish, if they are exchanged on the basis of a hand-to-hand transaction' 

 and the Prophet Muhammad SAW cursed the receiver and the receiver of interest, the one who records it and the witness to the transaction and said:

'They are all alike(in guilt)' (Muslim)

DEFINITION

Literally-excess

Shariah- addition, however slight, over and above the principal of loan or debt that resulting from i)the delay of counter value in an exchange based on loans or and ii)the quality premium in the exchange of low quality for quality goods of the same genus

Broader definition- means and includes any increase over and above principal amount payable in a obligation,not covered by corresponding increase in labor, commodity, risk or expertise

TYPES OF RIBA

Debt( Al-Nasiah) 

-from the word of nasa'a - to postpone, defer or wait
-refer time that is allowed for the debtor to repay the loan after its due date
-therefore, the debtor have to pay an extra amount or called as premium on the extended paying period
-that extra amount = riba

hadith related- by Usama Ibn Zaid- 'there is no riba except in nasiah'

Sales(Al-Fadl)

-occurs as a result of trade or sale transactions
-covers all on-the-spot transactions involving cash payment and immediate delivery of goods
-the prohibition is based on 'Gold for Gold, Silver for Silver .....'
-happens when the ribawi materials exchanged are different weight and measurement
-happens when payment of the price and delivery of the ribawi materials are made at two different times and not immediate

Pre-Islamic(Jahilliyah)

-is a transaction whereby a person would sell something for a payment to be made at a specified future time. Then when the time at payment came, and the buyer did not have all the necessary amount, the seller would increase the amount due and give him more time

-it contains riba al-nasiah  riba al-fadl. In this transaction, the payment is delayed(nasiah) in exchange for an increase(fadl)

-modern examples are loans from the banks and credit card

MUSYARAKAH MUTANAQISAH

DEFINITION

as a form of partnership in which one of the partners promises to buy the equity share of the other partner until the title to equity is completely transferred to him

IF DEFAULT ? 

without waad - the underlying asset will be sold in the market and the proceeds will be shared between the partners according to the latest ownership share ratio

with waad- bank drags customer to buy all the remaining shares of the bank. It creates a legal obligation on the customer to buy all outstanding shares of the bank and to pay outstanding rental and other fees. Through this process, a debt is created and this debt is to be paid by the customer.