The first principle of Islamic finance emerging from QH is that any

The first principle of islamic finance emerging from

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The first principle of Islamic finance emerging from QH is that any predetermined payment over and above the actual amount of principle is prohibited.
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Traditional jurists have interpreted this principle so strictly that according to one commentator this prohibition applies to any advantage or benefits that the lender might secure out the Qard. Such as riding the borrower mule, eating at his table or even taking advantage of the shade of his wall. It is repaid when the borrower is able.
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2-Participatory Financing Under this principle, the lender must share in the profit or losses arising out of the enterprise. Islam encourage investment and partnership and the sharing of the profits and risk in the business instead of becoming creditors. Islamic finance is based on the belief that the provider of the capital and its user should equally share the risk of business venture. whether they are industries, banks, farm, service company or simple trade deals. There is no room for hoarding money or depositing money in bank and receiving a return an interest without any risk.
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Islam encourage the notion of higher risk and higher return and promote it by leaving no other way available for to investors. The objective is that the risky investment provide a stimulus to the economy and encourage the entrepreneur to maximize their efforts. 3-Prohibition of Gharar : this principle requires that any transaction entered into should be free from uncertainty, risk and speculation. Contracting parties should have perfect knowledge and insight of the counter values intended to be exchanged. they cannot predetermine a guaranteed profit either.
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Gharar is also called as the principle of “ uncertain gains The rational behind the prohibition of gharar is to protect weak from exploitation . Accordingly, future and options contract and forward exchange transaction are regarded unIslamic. However a number of transactions are considered as exception to the gharar principle. For example, sales with advance payment ( salam ), contract to manufacture ( istisna ’) and hire contract ( ijara ). There are legal requirement for the conclusion of these contract to be organized in a way to minimize risk.
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4- Prohibition of unlawful activities Islam only allow investment in activities and products that are not forbidden or even discouraged by Islam. Trade in alcohol, pork product , night club activities, pornography and so on would not be financed by Islamic bank; a real estate loan could not be made for the construction of a casino . An Islamic bank could not lend money to other banks on interest.
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In conclusion financial transactions from Islamic perspective should be free from prohibited elements such as riba , gharar , unearned gain and prohibited properties. In other words, the worth and validity of a financial transaction in Islamic economic, depend on the negation these four element.
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