Islamic finance is entering into a new pattern. It is deemed that Islamic finance should take initiative to meet the increasing needs of microfinance with aim of alleviating poverty and to help the poor people in their distress. Concept of Islamic Microfinance is being used to fulfill the demands of microfinance in the developing countries. Different models of Islamic finance are proposed to be used in microfinance activities to help the poor people for betterment of their personal life and to initiate the small business for the overall growth of the economy. But profit and loss sharing (Mudarabah) model is being criticized due to high risk involvement. Due to high risk factor, proper monitoring is deemed necessary for the smooth running of the contract. Our current research tends to investigate the underlying risk attached with Profit and Loss sharing project. As per theory of Profit and loss sharing financing all the risk is to be borne by the investor of the capital i.e. microfinance institution. But monitoring itself is not risk free and can result in expenses that would surpass the original price of the sanctioned loan. In the long run and at very end, we are hopeful that our research findings would play an important role to overcome the issue of monitoring in profit and loss sharing loans in microfinance. / Islamisk finansiering går in i ett nytt mönster. Det anses att islamisk finansiering bör ta initiativ för att möta de ökande behoven av mikrofinansiering med syfte att minska fattigdomen och att hjälpa fattiga människor i deras nöd. Begreppet islamiska Mikrofinans används för att uppfylla kraven från mikrofinansiering i utvecklingsländerna. Olika modeller för islamisk finansiering föreslås att användas i mikrofinansieringsverksamhet att hjälpa de fattiga för förkovran i deras personliga liv och att inleda ett litet företag för den totala tillväxten i ekonomin. Men vinst och förlust delning (Mudarabah) modell är att bli kritiserad på grund av hög risk engagemang. På grund av hög riskfaktor är korrekt övervakning anses nödvändigt för att fungera väl i kontraktet. Vår nuvarande forskning tenderar att undersöka den underliggande risken fäst med Resultaträkning dela projekt. Per teori av vinst och förlust dela finansieringen alla risker skall bäras av investeraren av kapitalet, dvs mikrofinansiering institution. Men övervakningen i sig inte är riskfritt och kan resultera i kostnader som skulle överträffa det ursprungliga priset på sanktionerade lånet. I det långa loppet och på slutet, vi hoppas att våra forskningsresultat kommer att spela en viktig roll för att lösa frågan om övervakning i resultaträkningen dela lån mikrofinansiering.

Muslims in South Africa live within the framework of a Western economy in which the notion of interest plays a pivotal role. This system does not seem to comply with the strict interpretation of Islamic law, since the Quran prohibits any dealings on the basis of interest and strongly condemns those who continue to deal in interest-based transactions, warning them of a “notice of war from Allah and His Apostle”. Muslims are therefore faced with the dilemma of either participating in the current prevailing economic system and thereby violating the Quranic injunctions prohibiting interest or Riba, or completely withdrawing from participation in this system and conducting their business transactions in accordance with Islamic injunctions. This study is an attempt to examine whether an Islamic banking enterprise within the greater Tshwane area could survive and even flourish in the long term if it were operating within the parameters of Islamic law, thus in the absence of the interest factor. The research methodology employed was that of qualitative research, and the study consists of both a literature and an empirical study. It became evident from the literature review that a bank’s survival within the Western economic order depends on the confidence that its depositors have in it. In an Islamic economic system the ethical and legal components distinguish it from other systems. The most striking feature of the Islamic banking environment is the so-called profit and loss sharing system (PLS). The literature study was complemented by an empirical study. Respondents were interviewed in three categories: Muslim businessmen, Islamic bankers and Islamic religious leaders. An analysis of data from the respondents revealed that they were of the opinion that there was a need for an Islamic bank in order to avoid any interest-based dealings and to operate strictly in accordance with Islamic law and principles. Based on the literature and field study a simple model of an Islamic banking enterprise was constructed which could function within the greater Tshwane area and within the South African economic context, but which would be based on Islamic Shariah principles. In constructing this model due cognisance was taken of the fact that it would prove to be a very difficult task to amend existing banking laws to provide for the easy entry and functioning of an Islamic bank. Based on the literature and empirical study it was concluded that to provide for the easy entry and functioning of an Islamic banking enterprise, it should not be structured or named as a bank but rather as a finance company which would then be able to offer most of the services that are offered by traditional banks but without having to comply with the strict regulations as applicable to traditional banks. The dissertation’s final conclusion and recommendation was thus that an Islamic bank should operate not as a bank but as a finance company, thereby accomplishing its pivotal role to enable Muslims to use these indispensable services successfully while complying wholly with Islamic Shariah law. / PhD (Business Management), North-West University, Vaal Triangle Campus, 2013

Muslims in South Africa live within the framework of a Western economy in which the notion of interest plays a pivotal role. This system does not seem to comply with the strict interpretation of Islamic law, since the Quran prohibits any dealings on the basis of interest and strongly condemns those who continue to deal in interest-based transactions, warning them of a “notice of war from Allah and His Apostle”. Muslims are therefore faced with the dilemma of either participating in the current prevailing economic system and thereby violating the Quranic injunctions prohibiting interest or Riba, or completely withdrawing from participation in this system and conducting their business transactions in accordance with Islamic injunctions. This study is an attempt to examine whether an Islamic banking enterprise within the greater Tshwane area could survive and even flourish in the long term if it were operating within the parameters of Islamic law, thus in the absence of the interest factor. The research methodology employed was that of qualitative research, and the study consists of both a literature and an empirical study. It became evident from the literature review that a bank’s survival within the Western economic order depends on the confidence that its depositors have in it. In an Islamic economic system the ethical and legal components distinguish it from other systems. The most striking feature of the Islamic banking environment is the so-called profit and loss sharing system (PLS). The literature study was complemented by an empirical study. Respondents were interviewed in three categories: Muslim businessmen, Islamic bankers and Islamic religious leaders. An analysis of data from the respondents revealed that they were of the opinion that there was a need for an Islamic bank in order to avoid any interest-based dealings and to operate strictly in accordance with Islamic law and principles. Based on the literature and field study a simple model of an Islamic banking enterprise was constructed which could function within the greater Tshwane area and within the South African economic context, but which would be based on Islamic Shariah principles. In constructing this model due cognisance was taken of the fact that it would prove to be a very difficult task to amend existing banking laws to provide for the easy entry and functioning of an Islamic bank. Based on the literature and empirical study it was concluded that to provide for the easy entry and functioning of an Islamic banking enterprise, it should not be structured or named as a bank but rather as a finance company which would then be able to offer most of the services that are offered by traditional banks but without having to comply with the strict regulations as applicable to traditional banks. The dissertation’s final conclusion and recommendation was thus that an Islamic bank should operate not as a bank but as a finance company, thereby accomplishing its pivotal role to enable Muslims to use these indispensable services successfully while complying wholly with Islamic Shariah law. / PhD (Business Management), North-West University, Vaal Triangle Campus, 2013