Islamic Finance

Topics: Islamic banking, Bank, Debt Pages: 2 (457 words) Published: January 27, 2013
My opinion about Islamic finance is when all the transaction not only in banking but in business too, that occur must be in accordance with the law of Al-Quran, Hadith and Al-Sunnah. It also related with halal and non-halal transaction. In general, Islamic finance is defined as a banking system which uses the Syariah as a rule. This means that all operations of the Islamic bank transaction involving either deposit or financing, must be based on Syariah principle. These laws forbid to giving and receiving interest and prohibit investment in sector such as tobacco, alcohol, gambling and armament. Islamic financial institutions are providing an increasingly broad range of many financial services.

Islamic finance is existence around 30 years from 1975 until now. They are concentrated in Middle East and Southeast Asia and also a few in Europe and United Stated. The reason why Islamic finance recent growth is strong demand from large number of immigrant and non-immigrant Muslims, growing oil wealth with demand for suitable investment and competitiveness of many of the product.

Operation principle of Islamic finance is dividing on three instrument which is debt instrument, quasi-debt instrument and profit and loss sharing instrument. In debt instrument have Murabahah, Istisna and Qard al-Hasan. Murabahah refer to the sale of goods at a price covering the purchase price plus a profit margin agreed upon by both parties concerned. Istisna is a sale and purchase principle whereby an agreement is made between two parties, the seller and buyer and Qard al-Hasan is a benevolent loan that obliges a borrower to repay the leader the principal sum borrowed.

For quasi-debt instruments have Ijara. Ijara is contracting to lease or rent or hire. In profit and loss sharing instrument has Musharakah and Mudarabah. Musyarakah is partnership and Mudarabah is the terminology most frequently used by Islamic banks.

In countries where Islamic banking is operating, its coverage...
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