Free Essay

Islamic Economy

In: Social Issues

Submitted By fatinsyazwani
Words 2053
Pages 9
1.0 INTRODUCTION
In this summary, I choose five articles regarding on the same topic which is Islamic economy. Generally, the articles focused on Islamic Macroeconomics issues, the poverty problems regarding on inequality income and the power of zakat in order to alleviate the poverty. All the articles are done from year 2006 until 2010. This summary consists of 4 sections which is introduction, articles summary, criticize of the article summary and conclusion. The summary regarding Islamic macroeconomics will be explained in the next section.
2.0 ARTICLE SUMMARY
2.1 ISLAMIC MACROECONOMICS
This subtopic is very important to understand deeply about the overview of the Islamic Macroeconomics. According to Choudury (2006), the paper aims to offer a new perspective on the nature of Islamic economics and the researcher wants to address the issue of the mainstream tradition without noticing the micro-interface of the theoretical nature of Islamic economics. Besides, the author wants to examine the nature of Islamic economics as an interdisciplinary paradigm that explains interaction over the domains of the moral guidance which is ‘Ilm, laws and the formative world-systems according to such discursive impulses and process (Shuratic). The author had focused his study on systemic unity of knowledge, meaning of ethics and morality are derived from the epistemological premise of unity of knowledge. The researcher had used the method of comparative study of received literature in the history of economic thought and contrasts the ethical foundations of Islamic economics from the mainstream dichotomy between microeconomic and macroeconomic parts. The paper found there is a cogent microeconomic foundation of Islamic economics for the economy-wide treatment of ethical economic issues and problems including the policy framework. However, the researcher limits his paper regarding theoretical exploration only.
2.2 THE CHALLENGE OF POVERTY AND ISLAMIC ECONOMICS
Based on Farooq (2008), he stated that in 2004, there are 980 million people are absolutely in poverty line which means the individuals who are living in households with command over no more than $1 per day per person valued at international prices. Therefore, he wants to focus the potential of Islamic economics in order to alleviate the challenge of poverty in the Muslim World. In his paper, he stated that Nabi Muhammad S.A.W concerns about the establishment of society which is reforms in people’s attitude and institutional policies and frameworks to help those in poverty through zakat. The objective of this paper is to study how far the Islamic economy can challenge the poverty or Islamic economy itself suffering from poverty of substance. The researcher used several questions in his exploratory paper.
2.3 ZAKAT
After seeing the challenge of poverty, we need to explore about the power of zakat in order to alleviate the poverty. Based on Shirazi and Fouad (2010), their paper is the extended and updated version of Shirazi (2006), which covers 38 OIC member countries. In their study, they want to estimate the resource that have to require and the potential of zakat collection in order to eliminate poverty. They had stated that different policies and strategies to safety-nets program have been adopted in the past to alleviate poverty, but poverty still persists. It is because some of the Muslim countries have implemented the system of zakat officially and while in other it is unofficial matter and they have ignored the collection and distribution. They also stated that none of the Muslim country has enforced zakat in letter and spirit. Therefore, they really believe that if the system is enforced in letter and spirit, the extreme poverty can be eliminated. The authors had used Poverty Gap Index under US $ 1.25 a day and US $ 2.0 a day as reported in World Bank (2009). Total number of population is taken from World Development Indicators (2007), while GDP (at PPP) from 2005-2007 are taken from the CIA World Fact books and Development Data Group, the World Bank (2008). The result of the study regarding resource shortfall for poverty elimination was arranged by three groups of countries which consist of Group 1 for the Countries with Moderate Resources Shortfall (≤1.0 percent of GDP), Group 2 for Countries with Intermediate Resource Shortfall (≥1.0 percent to ≤6.0 percent of the GDP) and Group 3 for Countries with severe Resource Shortfall (≥6.0 of GDP). Besides, in terms of resource shortfall and potential zakat collection, the authors had put the result in table 4 and they found that the resource requirement under US $ 1.25 a day, of the countries in Group 3, for poverty elimination is too high, which cannot be met by their potential zakat collection. In overall, the paper found that all the countries from Group 3 cannot meet their resource requirement by their own potential zakat collection, half of the countries from Group 2 cannot meet their resource shortfall from their potential zakat collection while the rest of the countries of the group can meet their resources shortfall from their own potential zakat collection. The paper recommends that pooling of zakat funds from the zakat surplus countries and providing for the resource deficit countries to eliminate the poverty. They conclude that the resource shortfall under US $ 2.0 a day is high. Countries, which could meet their resource shortfall under US $ 1.25 a day from Zakat proceeds, are not able to meet their resource shortfall under US $ 2.0 a day. The countries which added to such list are Djibouti, Pakistan, Tajikistan and Yemen. The maximum zakat that can be collected is estimated to be 4.31 percent of the GDP of all countries under study, whereas corresponding resource required are estimated to be 5.20 percent of the GDP of these countries. However, some resource rich countries are not included in the sample due to non-availability of data. If these countries also collect zakat to its potential and transfer their surplus to the common pool which could be provided for the resource deficit countries, then the deficit in resource can be met and poverty under US $ 2 a day can easily be eliminated.
Besides, Dimas and Raditya (2010) stated that the role of zakat is relevant to alleviate the poverty. The objective of the paper is to discuss the structure design of zakat in order to maximize role of zakat subsequently mitigate the poverty. In their study, they stated that zakat as one’s of five pillars in Islam are originally developed in order to mitigate social inequalities incurred as a result of economy activities. Therefore, they disclose several assumptions lay zakat as expenditure part in order to be able to generate its potential effects on the distribution. First assumption is zakat proceeds are sufficient to cover needs. Second assumption is government has responsibility to collect and distribute zakat. Third assumption is the government has an authority to regulate the methods and approaches of zakat disbursement. Fourth assumption is the costs of collection and disbursement are minimized and the fifth assumption is zakat does not create economic injustice in terms of equity and it does not reduce other government revenues. They had analyzed their study in the aspect of the effectiveness of zakat from macro model perspective, the picture of poverty and the potential of zakat in poverty alleviation. They recommend that some policies should be stipulated to attain goals of zakat in order to mitigate the poverty and promote dignity of Muslim Ummah.
Despite there are many evidences regarding zakat which can help the needy, but constraints still faced the lack of knowledge about the advantages of zakat affect the awareness of people to meet their obligation. Based on Barizah and Majdi (2010), the purpose of his paper is to identify factors that may influence the Muslims behavior towards zakat on income. He took academicians from three faculties in the International Islamic University Malaysia as sample in his study. They were sent self-developed questionnaires requiring them to indicate their level of agreement on certain factors which might influence them in paying zakat on income. According to the result of the survey shows an encouraging percentage of respondents do pay zakat on income but the author still believe that the fact still remains that only 33% of those potentially-eligible zakat payer in IIUM actually pay zakat. It indicates that there are still a lot more to be done by those involved in the collection of zakat, not only in IIUM, but throughout Malaysia. The author also stated that in fact, the scenario in IIUM can be considered as one of the benchmark to assess the potential of zakat on income elsewhere. It is because IIUM is an ‘Islamic’ institution which supposedly becomes the role model for other institutions, especially in the issue of compliance to religious obligation. This study, in particular, found that internal factors still remain as important influences for the majority who pay zakat, as compared to the external factors. Therefore, the researcher recommends that there is a need of proper education on zakat which probably can help the ummah to benefit from the noble system of zakat.
3.0 CRITICIZE OF THE ARTICLE SUMMARY
Nowadays, there is no doubt that there are various forms of literature debate in Islamic economic issues, especially in the aspects of macroeconomics, inequality of income, and the ownership of the property but it is very limited. In the contemporary Islamic references on this problem is not found and deeply discussed and sometimes just a small topic in a book or magazine. This also can be seen in the writings of Choudury (2006) about “Islamic Macroeconomics” which explained theoretically exploration only. The writings should be followed by empirical analysis in order to understand deeply about the Islamic macroeconomics.
As we can see many papers and studies discussed about the economic matters such as poverty because of the inequality income, unemployment and several factors but the writing does not keep pace with the power of Islamic economics and the beauty of Islamic teaching to solve the problem. Therefore, the writing of Farooq (2008) should be praised. The explanation is very interesting because he came out with the statistics of poverty in Muslim World and then he continues with the background of Islamic economics and how the Islamic economic solve the poverty problem.
The study about poverty elimination and potential of zakat collection also explained by Shirazi and Fouad (2010) and they focused on the OIC-member Countries only. However, the method in their study was not clearly stated. Moreover, Dimas and Raditya (2010) had chosen an interesting topic which is The Power of Zakat in Poverty Alleviation but their explanation is hard to understand.
Last but not least, based on the Barizah and Majdi (2010), the findings is bias in its sample selection whereby it does not represent the real state of affairs in the society at large and the survey received a very low response which is 13.2% and thus limits its generalizability. However, the result is still useful as they pinpointed certain essential issues which need to be considered by those who are involved in zakat to map their strategy towards enhancing the efficiency and effectiveness of the noble system.
4.0 CONCLUSION
Based on the summary above, zakat which a part of Islamic economy is a popular topic to discuss in the context of ilmiah compared to the other areas. However, the tendencies of Islamic thinkers to discuss the issues are very limited. Besides, the implementation of Islamic economy is still at the early stage and it is probably have a lot of constraint because of lack of expertise in this field.

REFERENCES

Bakar, N. B., & Rashid, H. M. (2010). Motivations of Paying Zakat on Income: Evidence from Malaysia. International Journal of Economics and Finance , 76-84.
Choudury, M. A. (2006). Islamic Macroeconomics? International Journal of Social Economics , 160-186.
Farooq, D. M. (2008). The Challenge of Poverty and the Poverty of Islamic Economics. Journal of Islamic Economics, Banking and Finance , 35-58.
Kusuma, D. B., & Sukmana, R. (2010). The Power of Zakah in Poverty Alleviation. The Tawhidi Epistemology: Zakat and Waqf Economy , 409-434.
Shirazi, N. S., & Amin, M. F. (2010). Prospects of Poverty Elimination through Potential Zakat Collection in OIC-member Countries: Reappraised. Journal of Islamic Economics, Banking and Finance , 56-74.

Similar Documents

Free Essay

Islamic Economy

...Islam is an entire way of life, and Allah's Guidance extends into all areas of our lives. Islam has given detailed regulations for our economic life, which is balanced and fair. Muslims are to recognize that wealth, earnings, and material goods are the property of God, and that we are merely His trustees. The principles of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly. The fundamental principles of the Islamic economic system are as follows: Muslims are not to deal in interest. "Those who devour usury will not stand....Allah has permitted trade and forbidden usury.... Allah will deprive usury of all blessing, but will give increase for deeds of charity..." (Qur'an 2:275-6). "O you who believe! Devour not usury, doubled and multiplied. But fear Allah, that you may really prosper" (Qur'an 3:130) This prohibition is for all interest-based transactions, whether giving or receiving, whether dealing with Muslims or non-Muslims. It is reported that the Prophet Muhammad (peace be upon him) cursed those who pay interest, those who receive it, those who write a contract based on it, and those who witness such a contract. It is forbidden to gain property or wealth by fraud, deceit, theft, or other falsehoods. "...Give just measure and weight, and do not withhold from people the things that are their due. And do not do mischief on the earth after it has been set in order. That will be best for you, if you have faith" (Qur'an 7:85)...

Words: 696 - Pages: 3

Free Essay

Principles of Islamic Banking

...* Principles of Islamic banking Islamic banking refers to a system or banking activity that is consistent with the Islamic jurisprudence [arab. fiqh] based on the principles of the Sharīʿah. Literally, it may be translated with “Path to the water of source”, rendering the “right” way that Allah has carved out for all Muslims. Main sources of the the Sharīʿah are the Qur’an and the Sunnah. Basic aims of the Sharīʿah are the spread of wisdom and welfare through transferring faith including beliefs and practices. In addition, in the past centuries Islamic religious scholars and jurists have been developing its practical application [arab. fatwa] to a system of instructions; some of them find their way into the constitutions of Arabic countries like Kuwait. Today Islamic jurisprudence is a code of conduct that on the one hand regulates the relationship between Allah and the mankind [arab. ʿibādāt] and on the other hand the economic and interpersonal relationship between individuals [arab. mu’amāt]. Since the entire legal framework of Islamic banking is codified in the Sharīʿah, every Islamic bank in the GCC region and the majority of the remaining Islamic banks worldwide have an in-house Sharīʿah -board that audits the compatibility of the banks’ products and services with the restrictions imposed by the Islamic law. In the following, the main principles of Islamic banking are explained. * Prohibition of riba, gharar and maysir (Qur’an 4:161) The first and most important feature...

Words: 1668 - Pages: 7

Premium Essay

Bank

...Islamic Banking: Answers to Some Frequently Asked Questions 9 ISLAMIC DEVELOPMENT BANK ISLAMIC RESEARCH AND TRAINING INSTITUTE ISLAMIC BANKING: ANSWERS TO SOME FREQUENTLY ASKED QUESTIONS Mabid Ali Al-Jarhi and Munawar Iqbal Occasional Paper No.4 1422H 2001 Mabid Al-Jarhi and Munawar Iqbal 10 Islamic Banking: Answers to Some Frequently Asked Questions 11Mabid Al-Jarhi and Munawar Iqbal 12 Islamic Banking: Answers to Some Frequently Asked Questions 13 FOREWORD In the last quarter of a century, there has been a great interest in the Islamic banking system both at private and public levels. There is an earnest and widespread desire to understand the system. Academicians, bankers and general public, all, have some genuine questions and concerns. Policy makers in the monetary and financial sectors of the IDB member countries have also often asked the Islamic Research and Training Institute (IRTI) some basic questions of theoretical and practical importance about the elimination of interest from the national economies of Muslim countries and the transformation of the prevailing conventional system to an Islamic one. Some of these questions reflect a desire to understand the basic concepts of Islamic finance while others relate to the creation of an enabling environment through macroeconomic reform and structural adjustments that are needed to establish the Islamic financial system and the complications that arise when an effort is made to bring about the transformation...

Words: 20928 - Pages: 84

Free Essay

Impact of Interest Rates on Islamic and Covenional Banks

...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...

Words: 6567 - Pages: 27

Premium Essay

Finance Litercy

...of Mudarabah & a new approach to equity financing in Islamic finance Salman Ahmed Shaikh International Association of Islamic Banks 1. July 2011 Online at http://mpra.ub.uni-muenchen.de/19697/ MPRA Paper No. 19697, posted 19. September 2011 12:50 UTC A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Ahmed Shaikh Project Director, Islamic Economics Project islamiceconomicsproject@gmail.com www.islamiceconomics.viviti.com Abstract Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order. Keywords: Interest free economy, Islamic Economic System, Mudarabah, Agency Problem, Moral Hazard...

Words: 5079 - Pages: 21

Free Essay

Islamic Finance: Can It Be a Remedy for Financial Crises

...ISLAMIC FINANCE: CAN IT BE A REMEDY FOR FINANCIAL CRISES? I. INTRODUCTION The financial system is at the heart of the modern economy. When this system works well, it enables to allocate resources that maximize the productivity of the economy. On the contrary when it does not work properly, the whole economy starts to decline. Because financial system must be considered as an in-built part of real economy in terms of credit mechanism. The recent global financial crisis began in August 2007 and after this time it spread gradually to the financial markets in the world. Although it is not severe as in its beginning phase but recovery is not but its aftershock is still going on. There has been numerous research conducted by many economists and analysts. According to the many of these studies, risky transactions, lack of surveillance, and greed that underlie this financial crisis. The relationship between Islamic finance and the financial crises has been discussed by many authors in some of these research. All those works has been done after the beginning of the global financial crisis. Thanks to its strength aspects include risk sharing mechanism, strict Sharia governance rules, tighter supervision and transparency policy, almost all of these works have been concluded that Islamic finance may make significant contributions to prevent financial crises like the current one. Also the reality of the limited impact of the current global financial crisis on Islamic Finance-based institutions...

Words: 3382 - Pages: 14

Premium Essay

What Panasonic Learned from China

...All you need to do is to answer all the questions for the different discussions (200 words each) Topic 1: What factors affect the consumer's perceptions of fast food and its services? Summary: The two studies by M.K. Brady et al and Kim et al are concerned with the same question: what factors affect the consumer’s perceptions of fast food and its services? But while Kim et al. focuses on American college students to find out what factors that segment finds favourable in a fast-food service, M.K. Brady et al takes their study to the international level to find out how different cultural values can affect the consumer’s behavioural intentions relative to the fast-food industry and its services. Both articles agree that the majority of America customers prefer to trade-off between quality of services and expenditure required (expense-conscious). The American consumer tends to judge consumption of goods and services with a ‘neutral’ and logically based mindset; always asking the question of “is it worth my money?” Kim et al claims that due to relatively inexpensive, quick and convenient service, fast-food is becoming more and more popular among college students in North America. How could restaurants attract this emerging market? Further discussing in particular the college student market, and selecting Wendy’s, Burger King and McDonald’s as target examples will figure out the way to attract college students in fast-food services restaurant. Several factors are taken into consideration...

Words: 2252 - Pages: 10

Premium Essay

Islamic Accounting : Their Position in International Standard Harmonization

...“Islamic Accounting : Their Position in International Standard Harmonization” Rendy Anggita Putra “Islamic Accounting : Their Position in International Standard Harmonization” 1. Abstract According to (Susela, 1999) said the development of accounting theories is are affected by several factors including political and economic interests of certain people or group in community. Therefore, it can be also called if the accounting is a significant tool to illustrate the interests and perspectives of the various stakeholders. Islamic industry of finance has obtained tremendous growth in last few years, both in number of assets that manage by industry and in the diversity of financial products. A global system that can rule the industry will become significantly important for the Islamic finance sector in order to meet the needs of continued growth (Vinnicombe, 2012). Harmonization of Shari’a accounting standards has continue to be made by the AAOIFI as it is also done by the International Accounting Standards Board (IASB) for conventional accounting harmonization. In its development, financial reporting in Islamic accounting adds some different additional reports than conventional accounting to accommodate the unique transactions of Islamic economics. In that regard, this paper have objective to explore the main important values of Shari’a accounting and reporting standards of Islamic Accounting and try to find the answers of Islamic accounting positions among the process...

Words: 3438 - Pages: 14

Premium Essay

Islamic Finance

...analysis of Mudarabah & a new approach to equity financing in Islamic finance Shaikh, Salman Ahmed International Association of Islamic Banks 01. July 2011 Online at http://mpra.ub.uni-muenchen.de/19697/ MPRA Paper No. 19697, posted 19. September 2011 / 12:03 A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Ahmed Shaikh Project Director, Islamic Economics Project islamiceconomicsproject@gmail.com www.islamiceconomics.viviti.com Abstract Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order. Keywords: Interest free economy, Islamic Economic System, Mudarabah, Agency Problem, Moral Hazard...

Words: 5078 - Pages: 21

Premium Essay

Policy

...Finance | The Rise of the Sukuk in Indonesia’s Islamic Finance Industry Islamic banking is one of the fastest-growing segments in international finance. Indonesia is home to the world's largest Muslim population (around 210 million), yet its share in Islamic finance is still low. Neighbouring Malaysia, with less than a tenth of Indonesia's population, has effectively turned itself into a global leader for sharia-compliant banking. But Indonesia's new Financial Services Authority (OJK) looks determined to help the country catch up. Sukuk will remain the heavyweight Islamic asset class in Indonesia (and globally) for the foreseeable future, buoyed by the immense capital needed for infrastructure development At a time when conventional investment products in developed economies have lost appeal due to their unattractively low yields, investors around the world are turning to sukuk, a kind of bond that is permitted under the Koran. Compared to conventional securities, sukuk usually offer higher returns and are considered fairly safe because they are backed by tangible assets. For Indonesia, this is an opportune context to carve out for itself a greater share of the global market. Realising the potential that Islamic finance holds for Indonesia's emerging economy, such as funding massive infrastructure development (See Indonesian Infrastructure: Tremendous PPP Opportunities), deepening the country's capital markets and making them more resilient to global downturns, the government...

Words: 1456 - Pages: 6

Premium Essay

Islamic Banking in Western China

...Islamic Banking in Western China Group Paper 3 Group 4 November 6, 2014 Banking in some form has been around for thousands of years. It started small with loans of food or some other valuable product in local villages and has now evolved into the global industry we know today. There is a newer kind of banking that has seen a surge of acceptance from across the world, and that new kind of banking is known as Islamic banking. Islamic banking is a fairly new alternative to western banking, starting in the 1970’s. It is based on Shariah, the fundamental Islam religion. This is a socially responsible way to do banking and allows religion to guide decisions. Interest based transactions are not allowed because they violate Islamic law (Varriale, 2014). Instead, they share profits and losses with the lenders and borrowers of the banks. A few concepts, musharaka, murabaha, and mudaraba, are used in place of interest. Musharaka is when a borrower repays their loan through principal payments and a predetermined percentage of profits. Mudaraba is when a borrower agrees to pay the bank a handling fee if the investment is successful (R.J.C. and A.O.S., 2009). Murabaha is when the bank buys an asset for a customer and then sells it to them on a deferred basis, avoiding an interest-bearing loan. They also offer leasing agreements (R.J.C. and A.O.S., 2009). Islamic banking also requires tangible assets to back up the financial products. This is a much more conservative approach...

Words: 1381 - Pages: 6

Premium Essay

Islamic Banking Presentation

...1. Islamic banking is banking activity that is consistent with the principles of Sharia- Islamic law and participates actively in achieving the goals and objectives of an Islamic economy. Sharia prohibits the interest-based transactions and Investing in businesses that provide goods or services considered contrary (vrazrez) to Islamic principles, for example alcohol, pork, gambling (igra na birze,azartnaja igra), or businesses that produce media such as gossip columns or pornography. The aim of this is to engage in only ethical investing, and moral purchasing. 2. Interest-free banking seems to be of very recent origin. The earliest references to the organisation of banking on the basis of profit sharing rather than interest are found in 1946. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. In The early 1970s were held several conferences on Islamic Economics and banking. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process. It was set up with the mission to provide funding to projects in the member countries. The efforts undertaken in the 1980’s to Islamize the economy at national level are considered as pioneering...

Words: 1475 - Pages: 6

Premium Essay

Islamic Banking

...Islamic Banking Malek Alraddadi 02-24-2014 FIN-610 Introduction This study debates upon the history of Islamic banking. What are the ethical issues involved in the implementation of Islamic banking. Since the birth of Islam what type of steps are taken and by whom these measurements were taken. Besides this this paper also declares the response and customers point of view regarding Islamic banking with the help of different studies. History of Islamic banking The term Islamic banking got regular in the 1960's, however the systems and thoughts of the framework were suggested and operated since the beginning of Islam. Numerous studies and explores have indicated that Islamic money components were utilized within the Muslim world all around the Middle Ages; in leading exchange and business exercises. Charging investment on credits was not regular in those days. The first run through investment bearing credits were generally utilized within the Muslim world, particularly in the Middle East, was throughout the Ottoman Empire's governed in the fifteenth century. Mehmet Ebusuud Efendi, the senior Islamic minister of the Ottoman Empire, issued a fatwa (decision) permitting the charging of investment and thinking of it halal (allowable) as long as it was underneath 10%. Despite the fact that it was clear in The Holy Quran that investment was strictly disallowed, practically nobody could challenge the senior Islamic priest's decision since testing him might mean testing the...

Words: 1810 - Pages: 8

Premium Essay

Evolution of Islamic Banking

...25, Number 1 The Evolution Of Islamic Finance In Southeast Asia: The Case Of Malaysia (1) Rika Nakagawa, Institute of Developing Economies, Japan ABSTRACT The purpose of this paper is threefold: to explain why the Islamic financial system was introduced in Malaysia; to outline how the Malaysian government has promoted this system; and to analyze the development of the Islamic financial system with a specific focus on the banking sector. In Malaysia, the first Islamic bank, Bank Islam Malaysia Bhd., was established in 1983. One turning point of the Islamic financial system in the country was the Financial Sector Master Plan presented by the central bank in 2001. The government, in accordance with the plan, has taken a strong initiative in the development of an Islamic financial system. As a result, the country has succeeded in promoting a comprehensive Islamic financial system, banking and insurance sectors and capital markets. In the banking sector, this paper reveals that the profit-sharing system does not seem to be popular in this country although the reward system is central to Islamic Finance. In order for further development of the Islamic financial sector, the reasons why the percentage of contracts under the profit-sharing system is small need to be analyzed. Keywords: Islamic Finance in Malaysia, Financial Sector Master Plan, New Economic Policy, Bank Islam Malaysia Bhd., Islamic Banking Scheme INTRODUCTION I n the globalized economy, large amounts of capital are...

Words: 8514 - Pages: 35

Premium Essay

Chapter 5 Financial System of Malaysia

...The Financial System Structure in Malaysia Financial System Financial Institutions Financial Market Banking System 1. Bank Negara Malaysia 2. Banking Institutions • Commercial Banks • Finance Companies • Merchant Banks • Islamic Banks 3. Others • Discount Houses • Representative Offices of Foreign Banks Non-Bank Financial Intermediaries 1. Provident and Pension Funds 2. Insurance Companies (including Takaful) 3. Development Finance Institutions 4. Savings Institutions • National Savings Bank • Co-operative Societies 5. Others • Unit Trusts • Pilgrims Fund Board • Housing Credit Institutions • Cagamas Berhad • Credit Guarantee Corporation • Leasing Companies • Factoring Companies • Venture Capital Companies Money & Foreign Exchange Market 1. Money Market 2. Foreign Exchange Market Capital Market 1. Equity Market 2. Bond Market • Public Debt Securities • Private Debt Securities Derivatives Market 1. 2. 3. Commodity Futures KLSE CI Futures KLIBOR Futures Offshore Market 1. Labuan International Offshore Financial Center (IOFC) 5.2 Banking System The banking system consists of Bank Negara Malaysia (Central Bank of Malaysia), banking institutions (commercial banks, finance companies, merchant banks and Islamic banks) and a miscellaneous group (discount houses and representative offices of foreign banks). The banking system is the largest component of the financial system,...

Words: 8960 - Pages: 36