One of the main principles of Islamic Banking is to avoid interest (usury) in all forms of transactions because Muslims believe that they are not allowed to deal in usury and that they have to adopt an interest-free system. In order to achieve this, the Muslims have derived their guiding rules from the Islamic principles and used profit sharing mechanism rather than using the prevailing interest rate mechanism. The Muslim Economists have been trying to develope and present some successful real working examples of an interest-free economy. The usury "interest" is called in Islam "RIBA" a term which literally means increase or addition but from the Islamic technical point of of view it refers to the addition in the amount of the principal of the loan on the basis of time for which it is loaned and the amount of the loan. The objective of the Islamic Banks and Investment Companies is to develope Islamic forms of transaction that do not involve interest which is prohibted in Islam. Islam has nothing against the modern banking operational techniques or against the cooperation or coordination with western investment and banking institutions unless they conflict with the Islamic rules. The Quran, which is the fundamental source of the Islamic rules and principles has prohibited Riba. One of the implications of prohibition of Riba is that this prohibition eliminates all debt financing instruments as they exist in the traditional banking system. Islam has given some alternative transactions which do not involve Riba dealing. One of the important characteristics of the Islamic financial instruments is the Risk and Loss and Profit sharing. The cause of the prohibition of Riba will be discussed in detail in this study- The study will also list and explain some of the main investment instruments and forms used in the Islamic Banking. One of the most important forms of transaction developed in the Islamic Banks and Investment Companies is a form of sale called Murabaha. Murabaha is the most widely used form of transaction in the Islamic Banks and in the same time it is the most frequently subject to criticism. The Murabaha represents a special form of contracts for sale of goods. It is a Contract of Sale where the seller is obliged to disi cose to the buyer the initial cost of the goods and the margin of profit he marked. The objective of this study is to discuss this special form of transaction, make comments on how it is being practised in the Islamic Banks and Investment Companies. Being a newly developed investment instrument, the Murabaha in its modern application has not been the subject of many books or researches. Many books and publications discussed the subject of the Islamic Banking System but few of them highlighted the issue of the moderm Murabaha which is a different application of the old Islamic traditional form of Murabaha. The most important publications in this field are written recently after the Islamic Banks had adopted the Murabaha Sale Contract in its developed form. One of the books written in Murabaha is a book by DR. SAMI H. HOMOUD a distinguished Islamic Banker in the year 1976. The book is titled "DEVELOPMENT OF THE BANKING ACTIVITIES IN CONFORMITY WITH THE ISLAMIC SHARIA". The book discussed and highlighted all of the banking activities and was not devoted to Murabaha. Another writer in this field is DR. AHMAD A. ABDULLAH who, in the year 1987, wrote his book "MURABAHA, its principles, conditions and applications in the Islamic Banks". There are also some other Islamic Economists who wrote about the Murabaha sale such as Dr. Youssof Al Garadawi who wrote "Murabaha Sale to Purchase Orderer as applied in Islamic Banks", DR. ABDUL HAMEED AL BAALI, "The Jurisprudence of Murabaha" in addition to the "Scientific and Practical Islamic Banking Encyclopedia" issued by the International Institute of Islamic Banking & Economics.". There are some of the recent publications which discussed the issue of Murabaha in the Islamic Banks and Investment Companies. There are old publications and books that referred to and explained this form of transaction. These are written by old Muslim Thinkers and Jurists but, of course, they did not discuss the modern applications of the Murabaha Contract as they were not known at those early days. The Murabaha Contract has been dealt with and discussed from different points of view which the writer intends to discuss and elaborate in this study which will be divided into four chapters. The First Chapter will be concerned with explaining the concept of the Islamic Banks and Investment Companies showing their main characteristics and the points of difference between the Islamic Banks and the Conventional Banks. The chapter also describes some of the important islamic investment instruments which are being applied in the Islamic Banks. The Second Chapter of the study will be devoted to explain the meaning of Murabaha both literally and in the Islamic Sharia and the stand of the different Muslim Jurists towards the definition of the Murabaha Contract. In the second part of this chapter, the author will explain how the Murabaha Sale used to be practiced in the early days of Islam and how it is being applied now a days in the modern Islamic Banks and Investment Companies. A detailed description of the transaction will be given in this chapter showing how the transaction starts with a purchase order from the client to the Bank which purchases the required goods under its name, possesses them and then re-sells them to the client. The Second Chapter also includes the general and the special conditions required to achieve a proper Murabaha Contract. The general conditions are the conditions which apply to all contracts regardless of their type such as the legal capacity of the parties, offer and acceptance, valuable consideration and that the contract should not involve any usury. On the other hand, the special conditions are those which apply to the Murabaha Sale Contract as a special form of contract. These conditions include that the original purchase price should be disclosed to the buyer, the initial contract must be a valid one in accordance to the principles of the Islamic Sharia and that the goods should be owned by the seller at the time of the Sale Contract. The third chapter of the study will contain the main problems facing the application of the Murabaha Contract in the Islamic Banks and Investment Companies showing that one of the main issues in this regard is in the execution of the contract in the Banks which, in many cases, affects the properness of the Murabaha. The chapter will also involve in the points of criticism which are raised against the application of this form of transaction. Some of the main points of criticism include that the Murabaha transaction involves usury, that it is a sale of what the seller does not own and that the transaction in its moden form was not known at the early days of Islam. All criticisms will be discussed in detail and it will be shown that some of them are true and genuine and some actions need to be taken in order to rectify the transaction. In the fourth chapter a summary of the findings of the study will be given stating the writers opinion and recommendations for the establishment of a proper application of the Islamic forms of transaction especially for the Murabaha Sale of Goods. The most important points relate to the qualifications, the concern and the seriousness of the officials and the executives of the Islamic Banks and Companies who should be always well trained in the business so that they can be able to face the challenge. -it
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:575025 |
| Date | January 1990 |
| Creators | Mahmoud, M. S. |
| Publisher | University of Salford |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | http://usir.salford.ac.uk/26793/ |
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