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Islamic Finance: Principles and practice

Islamic Finance: Principles and practice. It is the Economy, Stupid 5: over Gharar , Riba en Murabaha | 9 October 2012. Rachida Talal-Azimi PhD Candidate.

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Islamic Finance: Principles and practice

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  1. Islamic Finance: Principles and practice It is the Economy, Stupid 5: over Gharar, Riba en Murabaha | 9 October 2012 Rachida Talal-Azimi PhD Candidate

  2. “What we need is the application of Islamic finance principles, in particular a strong preference for profit-, loss- and risk-sharing arrangements and a rejection of ‘riba’ or interest-bearing debt instruments.” Financial crisis Willem Buiter Chief Economist, Citigroup (US)

  3. Development Source: Thomas et al.(2005) StructuringIslamicfinance transactions

  4. Development

  5. What is Islamic Finance? What is Islamic finance? ‘The discipline to perform financial transactions in accordance with the principles of Islamic law.’

  6. Establishment of an Islamic Economic Thought

  7. QUR’AN SCHOLARS Fundamentals of Islamic financial products SUNNAH

  8. Other prohibitions / principles • No investments in prohibited companies and/or products • Encouragement of trade • All transactions must be asset backed • Mandatory independent Sharia board (Islamic supervisory board) • Islamic Window!

  9. Wat is islamitisch financieren? Handel drijven Onafhankelijke shari’araad Assetbased Winst- & verliesdeling

  10. Islamic financial instruments • Partnership contracts • Muđāraba (type of limited partnership) • Mushāraka (type of equity participation)

  11. Islamic financial instruments • Mushāraka(type of equity participation) 4 Bank Real estate 2 1 3 5 6 7 1 Down payment 10.000 2 payment 90.000 3 10 % of the units 4 90% of the units 5 rent* 6 Unilateral commitment topurchaseremaining units 7 purchasing contract / sales contract re units Customer

  12. Islamic financial instruments • Mark-up contracts • Murābaħa (mark-up contract) • BaycSalam (sale by advance payment for future delivery, i.e. buyer credit) • Istisnāc(production contract)

  13. Islamic financial instruments Murābaħa basic contract Purchase sale Goods for cash

  14. Islamic financial instruments Murābaħa finance seller buyer 1 3 2 4 financier 3 1

  15. Islamic financial instruments • Other contracts • Qarđ al-Ħasan (no-interest loans) • Ijāra(leasing) ijāra wa iqtinā’ (hire-purchase) • Şukūk (Islamic investment certificate)

  16. Conclusion What is Islamicfinance? ‘The discipline toperform financial transactions in accordancewith the principles of Islamic law.’ • In otherwords, more thanjust a ban on interest! • A system based on a completely different approach to the trading of money than the traditional system

  17. Conclusion • Rapid development of Islamic financial sector • Niche market • Not yet fully developed • Growth is undermined by a number of tough challenges, including: • Lack of standardisation • Lack of qualified staff • Financial crisis has both a positive and a negative impact

  18. Thank you for your attention!

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