Munich Personal RePEc Archive

Islamic Finance within Trading Framework: The Way to Legitimate Profit

Abdul Aziz, Ahmad Faizal (2011): Islamic Finance within Trading Framework: The Way to Legitimate Profit.

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Traditional financing has been viewed as exploitation of the poor debtor by the rich creditor where an increase to the borrowed amount (riba) is imputed to the loan. The prohibition in Islam is strict, absolute and unambiguous in all forms and intent. Bank interest has been traditionally associated with riba and widely discussed by scholars. Sheikh Muhammad Sayyid Tantawi declared that interest-bearing bank deposits are perfectly Islamic, more than Islamic accounts that impose disadvantageous terms on the customer. OIC Fiqh Academy echoed the fatwa by upholding the historical consensus on the prohibition of interest. In Malaysia, prohibitions of conventional bank interest have been formalized by the National Council for Islamic Religious Affairs. Acknowledging this fact from the beginning, Malaysia has taken tremendous effort in establishing banking system based on the teachings of Islam but there are still issues raised about the Islamic banking particularly on the lack of innovation in Islamic financing products, operating within the conventional banking framework, compliance issues, and so on. Due to the issues, this paper shall relate the contemporary products of Islamic banking to the framework of sale as outline by the Shariah, in order to illustrate whether these products confine to the true spirit of trading while eradicating the bad influence of riba. This paper is also supplemented with some practical solutions on the discussions.

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