As per the recent
research, the Islamic finance sector is worth more than $2.4 trillion USD. It
serves nearly around 2 billion Muslims all across the globe and is built on the
foundation of Sharia or Islamic law. Though, the common practices of Islamic
Finance came into existence with the foundation of Islam but the formal Islamic
finance was started only about a century ago.
difference between conventional Western Finance and Islamic Finance is that
some practices and principles used in conventional finance are prohibited under
the Islamic laws. Take note, Islam takes financing with interest payments as an
exploitive practice which favors financer at the expense of the borrower.
Hence, collecting and paying with interest is highly prohibited.
Until now, rules of
finance have also been participating in contracts with high risk and
uncertainties. As far as Islamic finance is concerned, the material finality of
transaction is necessary. Specifically, each translation must be related to
real underlying economic transaction. In fact, parties entering into contracts
during Islamic finance share profit or loss and risks associated with the
transaction. It signifies that no party can benefit from the transaction more
than the other party.
All because of the
principles of Islamic finance, different arrangements were developed to comply
It’s a common
partnership where one partner (rab-ul-amal) acts like an investor and provide
capital to another partner (mudarib), responsible for managing the capital. Both
partners can share the profits as per pre-agreed rate.
It’s quite similar
to mudaraba except that all parties involved in the partnership contribute to
the capital and share profit and loss on a pre-agreed ratio. This involves two
types of partnerships such as:
type of partnership, project does not have a deadline and continues to work
till the involved parties agree to continue operations.
this type of partnership, the bank and investor jointly purchase a property.
And the bank gradually transfers its portion of equity in the property to the investor
in exchange for cash. It is often utilized while acquiring properties.
It is a term that
describes a contract where the buyer and seller agree on a mark-up or
“cost-plus” price for a good being sold. In this contract, the price is
marked-up because the buyer is allowed to pay over time like with monthly
payments. In fact, a certain amount of fee is charged rather than riba
(interest). It is to note that this type of loan is acceptable or considered
legal in Islamic countries.
At times, it becomes
a matter of argument that this is just the other method of charging interest.
But there is a difference in the structure of the contract. The bank sells an
asset and charges profit which as per Sharia is permitted.
All the above
discussed instruments are used in financing WAQF projects along with blockchain
Finterra’s WAQF Chain aims
to increase engagement and raise awareness and funds for Waqf development through the fundraising
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