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Islamic Finance: Basic Principles and Contributions in Financing Economic

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Abstract

The aim of the study is to present the basic principles which guide the financial activities and operations within an Islamic bank and to see how the Islamic banking activities diverge from a conventional bank. Our purpose is also to show how Islamic banks may contribute to provide financial services to the real economy. The idealistic basis of an Islamic financial system exceeds the simple interaction of production factor and economic behavior. It can be completely respected only in the case of Islam’s directives on the business ethics, wealth distribution, social and economic justice and honesty, and the role of the state. While the conventional economic vision focuses principally on the economic and financial aspects of operations, the Islamic economic doctrine focuses on the ethical, moral, social, and religious dimensions, to improve equality and fairness which are the values of Islamic commandment and its practical application via the development of Islamic economics. It is not necessary that the parties of an Islamic financial contract be Muslims; however, they should respect the ethical norms and values emphasized by Islamic law (Shari’ah).

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Notes

  1. The word riba translate to English as interest and usury. The word usury responds to meaning of riba better than interest. So it is seen that the use of usury is necessary in order to avert confusion in terms. (Ahmed 2002).

  2. Ibn Abidin, (1252 A.H.), Radd al-Muhtar, 4/147.

  3. Ibn Hazm, (1351 A.H.), Al-Muhalha, 8/343, 389 and 43.

  4. Al-Sarakhsi, (n.d.), Al-Mabsaut, 13/194.

  5. Al-Babarty (n.d.), Fath-Al-Qadir, 5/192

  6. Ibn Abidin, (1252 A.H.), 4/147.

  7. Ibn Taymiyyah (n.d.), Majmu’ Fatawa, 3/275.

  8. Al-Hasani (1350 A.H.), Al-Bahr A-Zakhkhr, 3/293.

  9. Al-Dusuqi (1230 A.H.), Al-Sharh Al-Kabir, 3/49.

  10. Al-Ramli (1357 A.H.), Nihayat Al-Muhtaj 3/392.

  11. Tuhfat Al-Tullab with Notation of Sharqawi 29

  12. Ibn Taymiyyah, Al-Qawa’id Al-Nuraniyyah (1370 A.H.), p. 11

  13. The Mejelle, Majallah Al-Ahkam Al-Adiyah. A Complete Code or Islamic Civil Law, the Book House, Pakistan (n.d).

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Authors and Affiliations

  1. Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of Airport, km 4.5, LP 1088, Sfax, 3018, Tunisia

    Saïda Daly & Mohamed Frikha

Authors
  1. Saïda Daly
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  2. Mohamed Frikha
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Correspondence to Saïda Daly.

Appendix

Appendix

Fig. 1
figure 1

Murabaha: used to finance the purchase of good. (1) Buyer and seller agree on goods to be purchased. (2) Buyer requests Islamic bank to purchase the goods and promises to purchase goods from Islamic bank once goods have been purchased. (3) Islamic bank purchases specified goods from seller. (4) Seller delivers goods to Islamic bank. Buyer is appointed as agent of Islamic bank to inspect and accept goods. (5) Islamic bank pays seller for goods. (6) Islamic bank resells goods to buyer at cost plus agreed profit. (7) Buyer pays for goods on payment terms agreed by buyer and Islamic bank

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Fig. 2
figure 2

An example of musharaka

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Fig. 3
figure 3

An example of mudaraba

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Fig. 4
figure 4

An example of istisna’a

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Fig. 5
figure 5

An example of Bai Salam

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Fig. 6
figure 6

An example of ijarah

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Daly, S., Frikha, M. Islamic Finance: Basic Principles and Contributions in Financing Economic. J Knowl Econ 7, 496–512 (2016). https://doi.org/10.1007/s13132-014-0222-7

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