Islamic finance concept
Islamic finance is the system that practicing financial services according to the principles and rules of the Islamic commercial jurisprudence. It is a system that operates the services based on Islamic law which is called shari’ah which is based on Al-Quran and Sunnah. The objective of the Islamic finance is maximizing profit by minimizing loss but at the same time taking consideration on the welfare (maslahah). In Islamic finance, it is prohibited from any payment which is over and above the principle which is called interest. Interest is known as riba or usury which is refer as excess of money imposed from the principal amount.
The sources of the shari’ah is come from primary and secondary sources. The primary sources is based on Al-Quran and Sunnah (Hadith) while the secondary sources is come from ijma’ and Qiyas. Both Ijma’ and Qiyas only applied when there are no solution on the matter in questions found in Al-Quran and Sunnah. The prohibition of the interest (riba) in operation of Islamic bank is the most important aspect of the Islamic finance. The prohibition of riba is not only stated in the several of verses (ayat) in Al-Quran but it also revealed by the Prophet Muhammad s.a.w in condemning the provider and accepter of riba.
The principle in Islamic finance include the prohibition of any predetermined payment over and above the principal amount (riba), prohibition of the transaction involving uncertainty about subject-matter and term of contract (gharar) which is refer to the selling of goods that does not exist or does not owned, prohibition on maisir which is refer to the transaction based on speculating or gambling and prohibition on the investment by dealing with unlawful or haram business such as drugs, alcohol and gambling.
History development of Islamic financial system
First modern theoretical literature on Islamic banking appeared starts on the late 19th and early 20th century. Muslim jurists that are responsible for this resurgence are Jamal al-Din al-Afghni, Muhammad Abduh, Rashid Rida, Muhammad Iqbal, Hassan al-Banna, Syyid Qutb, Abul Ala Mawududi. Their thoughts become the impetus for Muslims to apply Islamic teachings in all aspects of life. They are discuss the fact of legality of interest imposed in the transaction which is prohibited by Islamic law (Shariah). Although fatwas or opinions by Muslim jurists clearly stated the unlawfulness of interest dealing by conventional banks, there no effort and action was taken until the early of 20th century. The first experimental local Islamic bank was established in rural area of Pakistan in the late of 1950s which is charged no interest on lending transaction. Next in 1963, the revolution of the modern Islamic banking system has marked a milestone by the establishment of Mit Ghamr Local Saving Bank which is located in the Nile Delta, Egypt. It’s provided banking services such as deposits account, loan account, equity participation, direct...