In the Name of Allah, the Beneficent, the Merciful First praise is to Allah, the Almighty, on whom ultimately we depend for sustenance and guidance. Second, my sincere appreciation goes to my Course Director Mr.M.F.Burah, whose guidance, careful reading and constructive comments were valuable. His timely and efficient contribution helped me shape this into its final form and I express my sincerest appreciation for his assistance in any way that I may have asked. I am also deeply indebted to my Course Facilitators Moulavi Siraj Najubudeen, Mr.Fazly Marikar, Mr. Mirak Farook, Mr.Ali Wahid and Mr. Irshad Iqbal for their invaluable lectures and supervision through out of this study. I also wish to thank the College of Banking and Finance, its leadership and the staff for providing me with an academic base, which has enabled me to take up this study. Special thanks, tribute and appreciation to all those their names do not appear here who have contributed to the successful completion of this assignment. Finally, I’m forever indebted to my family who, understanding the importance of this work suffered my hectic working hours, To my parents ,my spouse, my sisters and my child Maryam.
Islamic finance – financial institutions and products designed to comply with the central tenets of Sharia (or Islamic law) – is one of the most rapidly growing segments of the global finance industry. Starting with the Dubai Islamic Bank in 1975 (and operations in the United Arab Emirates, Egypt, the Cayman Islands, Sudan, Lebanon, the Bahamas, Bosnia, Bahrain and Pakistan), the number of Islamic financial institutions worldwide now exceeds over three hundred, with operations in seventy-five countries and assets in excess of US$400 billion (El-Qorchi 2005). Though initially concentrated in the Middle East (especially Bahrain) and South-East Asia (particularly Malaysia), Islamic finance principles are now increasingly found elsewhere. This includes developing economies where the financial sector is almost entirely Islamic (such as Iran and Sudan) or where Islamic and ‘conventional’ financial systems coexist (including Indonesia, Malaysia, Pakistan and the United Arab Emirates) (El-Qorchi 2005). It also includes developed economies where a small number of Islamic financial institutions have been established and where large conventional banks have opened Islamic financing windows (such as in Europe and the United States) (Archer and Rifaat 2002).
The global proliferation of Islamic financial institutions has been accompanied by parallel developments in Islamic financial products. Starting with simple prohibitions on usury, investment in tobacco, alcohol, gambling and armaments and a requirement that all financial transactions be based on real economic activity, Islamic financial products now cover a broad range of financial services, including funds management, asset allocation, payment and exchange settlement services, insurance and reinsurance, and risk management. For almost all conventional financial products there is nearly always an analogous Islamic finance product.
Definition of Islamic finance
Islamic finance is defined as a financial service principally implemented to comply with the main tenets of Sharia (or Islamic law). In turn, the main sources of Sharia are the Holy Quran, Hadith, Sunna, Ijma, Qiyas and Ijtihad. The Holy Quran is the book of revelation given to the Prophet Muhammad; Hadith is the narrative relating the deeds and utterances of Muhammad; Sunna refers to the habitual practice and behaviour of Muhammad during his lifetime; Ijma is the consensus among religion scholars about specific issues not envisaged in either the Holy Quran or the Sunna; Qiyas is the use of deduction by analogy to provide an opinion on a case not referred to in the Quran or the Sunna in comparison with another case referred to in the Quran...
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