Ifis Failure

Topics: Sharia, Islamic banking, Islam Pages: 9 (3159 words) Published: May 4, 2013
Riphah center of islamic business|
Causes of Failure of IFIs in Pakistan|
Supervisor : Sir lutf Ullah Saqib|
By: Muhammad Adnan|


More than 200 IFIs are operating all over the world with an annual growth rate between 12% to 15 % .Their combined asset is more than $200 billion and increasing day by day. Islamic financial institutions are developing very vastly over the globe. Islamic financial institutions mean where all the materials must follow according to the Islamic laws if any things against the Islam means it’s not an Islamic institution .IFIs are those who finance the organization or individual when they need for financing. The main difference among IFIs and conventional FIs are the IFIs ask what you need we will purchase for you means they are dealing in commodities while conventions are about financing through money and get extra amount on the principal amount. There are different ways to fiancé the individual or organization such are Mudaraba, Musharaka etc. Islamic fiancé was practiced predominantly in the Muslim world throughout the middle ages. European financiers and businessman later adopted many concepts and techniques, and instruments of Islamic finance. In contrast the term Islamic financial system is relatively new appearing only in the mid-1980. In fact all earlier references to commercial or mercantile activities conforming to Islamic principles were made under the umbrella of either interest free or Islamic banking. This is no doubt prohibits the receipts or payments of interest as the nucleus of the system , but is supported by other principles of Islamic doctrine advocating risk sharing , individual rights, and duties , property rights and the sanctity of contracts . Similarly the Islamic financial system is not limited to banking, but covers financial instruments, financial markets and all types of financial intermediation. There is a debate among the Islamic community over the effectiveness of an interest based banking system. While it is ack nowledged that the banks play a pivotal role in the development of country through their role as financial intermediaries, the question is how efficient an interest based system is in performing this function. In fact there is even some debate as to whether or not interest based system actually contributes to cyclical fluctuation. A new system of banking has emerged known as Profit Loss Sharing (PLS) most likely in response to the interest based banking system debate, but more to religious beliefs in the Islamic community. Currently this banking system is integrated into over 60 countries his financial throughout the world. Aside from the economic debate, the main contributing factor in the emergence of the PLS banking system is the prohibition of Riba in the Holy Quran. The basic intention behind establishing Islamic banks was the desire of Muslims to recognize their financial activities to complement the principle of sharia and enable them to conduct their financial transactions without ribs. The term Riba is used in sharia in two perspectives. First Riba al nasiah which is fixed in advance of a positive return second Riba al fadl is encountered in a hand to hand purchase and sale of commodities. The sharia prohibits both .It is important to realize that the Islamic community has no objection to true profit as a return on entrepreneurial efforts that benefits all of society .Furthermore in case of Riba al Fadl , the Islamic community is only interested in ensuring justice and fair play in spot transactions to avoid any exploitation through unfair exchange. While the original basis for the prohibition of interest was divine authority , recently Muslim scholars have placed a major emphasis on the lack of theory for interest .Muslim scholars have rebutted the argument that interest is a reward for saving , a productivity of capital and provides for the difference between the value of capital good today...
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