Riba_in_Transactions_Negative_implicatio - Shariah Rules in...

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Shariah Rules in Financial Transactions Riba in Transactions: Negative implications and imperativeness of its elimination Shariah Rules in Financial Transactions Syed Salman Student ID: 1300218 INCEIF The Global University of Islamic Finance Submitted to: Prof. Dr. Zainal Azam Abdul Rahman Submission Date: November 17 th , 2013 This Project Paper is a partial fulfillment of Module SH-1003 of part I of Chartered Islamic Finance Professional (CIFP) INCEIF The Global University of Islamic Finance September 2013
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Syed Salman 1300218 Riba in Transactions: Negative implications and imperativeness of its elimination 2 Abstract The purpose of this research paper is to identify the Riba in transaction whereas it’s pessimistic repercussions and why the elimination of Riba in financial transactions is critically important. The characteristics of any financial transaction have some basis which differentiates it in Conventional or Islamic financial transaction and the most vital thing is called Interest or Riba. In this research we will discuss about the Riba (Interest), why it is essential to eliminate Riba, what are the pros and cons of it to the society and the harms it can create. We will also discuss the differences that how riba based system, if replaced by the Islamic economic and financial system can help the society as well as what primarily could be the optimistic effects after the elimination of Riba from the system. Shariah Rules are the basis of any contract and essential to derive and allow rulings based on the principles of Quran & Sunnah.
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Syed Salman 1300218 Riba in Transactions: Negative implications and imperativeness of its elimination 3 Table of Contents 1 Introduction: ............................................................................................................................ 5 2 What is Riba? ........................................................................................................................... 7 3 Kinds of Riba: .......................................................................................................................... 8 3.1 Riba on Credit .................................................................................................................. 8 3.2 Riba Al Fadl ..................................................................................................................... 9 4 Ribawi Items and their exchange / Trading conditions: .......................................................... 9 5 Riba on deferred payment / credit transactions: .................................................................... 10 6 Difference of Opinions among Mazahib on Riba: ................................................................ 11 7 Why is Riba Haram? .............................................................................................................. 11 8 Difference in Transactions: Sale Based and Riba Based ....................................................... 13 8.1 Sale based transaction ........................................................................................................ 13 8.2 Riba based transactions ...................................................................................................... 13 8.3 Contracts Used in transactions: .......................................................................................... 14 9 Negative implications of Riba in Transactions: .................................................................... 15 9.1 Injustice .......................................................................................................................... 15 9.2 Uncertainty ..................................................................................................................... 16
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Syed Salman 1300218 Riba in Transactions: Negative implications and imperativeness of its elimination 4 9.3 Economic Instability & Negative Growth ...................................................................... 17 9.4 Selfishness & Greed ....................................................................................................... 18 9.5 Diminishes Human personality, Ethical and Moral Values ........................................... 19 9.6 Improper appropriation of other’s property and their rights: ......................................... 20 10 Imperativeness of Riba from Transactions: ....................................................................... 22 10.1 Financial Institutions can survive without Riba ............................................................. 22 10.1.1 Home Financing (Conventional vs Islamic) ........................................................... 22 10.1.2 Conventional Car financing vs Ijarah: .................................................................... 23 10.1.3 Deposits: Conventional vs Islamic .......................................................................... 24 10.2 Abiding Shariah .............................................................................................................. 25 10.3 Profitability, Growth and Stability ................................................................................. 26 10.3.1 Promoting entrepreneurship, decrease in unemployment ....................................... 27 10.4 Assimilation of Real Shocks .......................................................................................... 27 10.5 Relative efficiency of an Islamic Financial System ....................................................... 28 10.6 Fairness to the system and the society ........................................................................... 28 11 To Survive and Flourish, Muslim Economy Needs to Implement Allah's Law ................ 29 12 Conclusion: ........................................................................................................................ 30 13 References: ......................................................................................................................... 31
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