Islamic principles in financial activities basically represent moral guidance in running the business. A similar fundamental concept of Islamic economics, which is mentioned by the International Association of Islamic Banks includes ownership, justice, wealth distribution and the prohibition of interest
Since experiment of Islamic banking from the era of Mith Ghamar in the 1960s, Islamic banks and Islamic financial institutions has become widely popular term both in the Muslim world and the West. The term represents a system and economic practices with the general scheme for the system (profit and loss sharing) and that every transaction does not contain elements of riba[1], maysir and gharar[2].
In practice, though at first Islamic finance is just a experiment only, but the long term Islamic economic and finance industry has become an established robust industry. Islamic financial industry can no longer be neglected in the global economic area, and even its growth has soared like a meteor ball is not just Muslim countries but also penetrated to non-Muslim contries.[3]
Islamic Economic and financial system, both products and institutions is a system that constantly refer to maqashid al-Shariah or Islamic purposes in accordance with the maslahah[4],and therefore reject the Islamic economic system[5] postulates advanced by neo classical economist who is only oriented to maximize the personal needs [6] .Chapra restates the expression of al-Gazali (1111 A.D) about the objectives of sharia:
‘The objective of the sharia is to promote the well-being of all mankind, which lies in safeguarding their faith (din), their human self (nafs), their intellect (‘aql), their posterity (nasl) and their wealth (maal). Whatever ensures the safeguard of these five serves public interest and is desirable’
Any action undertaken has to promote these five elements in order to provide maslaha for human beings. Islamic banks and their operations are considered to be an integral part of a complete Islamic economic system, and must align with injunctions outlined in the holy Qur’an and the tradition of the Prophet Muhammad (peace and blessing of God be upon him). Islamic principles in financial activities basically represent moral guidance in running the business.
Economists, both Muslims and non Muslims raised some fundamental principles of the economic system and Islamic finance, first, that the product does not contain three [7]elements, first element of riba[8] (usury or excessive interest), the second does not contain gharar, and the third did not contain sin, such as gambling and alcohol[9]. that in order to assess whether an Islamic or products offered by Islamic financial institutions is to be measured by how far the product is free from maysir elements, gharar and usury. This means that these three aspects be used as operational parameters for assessing whether an Islamic or products offered by financial institution that carries the name and jargon of Islamic financial institutions.
Economically prohibition against usury and gharar is to emphasize the value of equity in the transaction. Therefore, Ibn Rushd argues that "The law is clear from what is intended by the prohibition of usury is the injustice of excessive (ghubn fahish.)[10] Likewise, the jurists of Islamic law to see that the ban on gharar aims to avoid injustice in buying or selling because of the uncertainty aspect. Meanwhile, Mustafa al-Zarqa argued that: "[the banned al-bay` gharar] is the sale of goods or the possible existence of certain characteristics, the risk characteristics that make similar deals with gambling ". Since all contracts are incomplete and has an element of randomness.
On another level it is understood that financial transactions with aspects of practice and speculative (gharar) will have implications for the emergence of absurdity that led to losses to the parties or one party to a transaction, because no sightings of transparency of transactions and profit mechanism that would be obtained by any one or each side.
In general it can be said that the orientation of the prohibition maysir, gharar and riba (usury) is that the Islamic economic system is embracing a powerful religious ideology that synergize positivisistic and normative dimensions in the theory and practice[11]. Practicely, the parameters of maysir, gharar and usury that are what made as reference and a measure of how far Islamic finance accord with Shariah criteria.
Since experiment of Islamic banking from the era of Mith Ghamar in the 1960s, Islamic banks and Islamic financial institutions has become widely popular term both in the Muslim world and the West. The term represents a system and economic practices with the general scheme for the system (profit and loss sharing) and that every transaction does not contain elements of riba[1], maysir and gharar[2].
In practice, though at first Islamic finance is just a experiment only, but the long term Islamic economic and finance industry has become an established robust industry. Islamic financial industry can no longer be neglected in the global economic area, and even its growth has soared like a meteor ball is not just Muslim countries but also penetrated to non-Muslim contries.[3]
Islamic Economic and financial system, both products and institutions is a system that constantly refer to maqashid al-Shariah or Islamic purposes in accordance with the maslahah[4],and therefore reject the Islamic economic system[5] postulates advanced by neo classical economist who is only oriented to maximize the personal needs [6] .Chapra restates the expression of al-Gazali (1111 A.D) about the objectives of sharia:
‘The objective of the sharia is to promote the well-being of all mankind, which lies in safeguarding their faith (din), their human self (nafs), their intellect (‘aql), their posterity (nasl) and their wealth (maal). Whatever ensures the safeguard of these five serves public interest and is desirable’
Any action undertaken has to promote these five elements in order to provide maslaha for human beings. Islamic banks and their operations are considered to be an integral part of a complete Islamic economic system, and must align with injunctions outlined in the holy Qur’an and the tradition of the Prophet Muhammad (peace and blessing of God be upon him). Islamic principles in financial activities basically represent moral guidance in running the business.
Economists, both Muslims and non Muslims raised some fundamental principles of the economic system and Islamic finance, first, that the product does not contain three [7]elements, first element of riba[8] (usury or excessive interest), the second does not contain gharar, and the third did not contain sin, such as gambling and alcohol[9]. that in order to assess whether an Islamic or products offered by Islamic financial institutions is to be measured by how far the product is free from maysir elements, gharar and usury. This means that these three aspects be used as operational parameters for assessing whether an Islamic or products offered by financial institution that carries the name and jargon of Islamic financial institutions.
Economically prohibition against usury and gharar is to emphasize the value of equity in the transaction. Therefore, Ibn Rushd argues that "The law is clear from what is intended by the prohibition of usury is the injustice of excessive (ghubn fahish.)[10] Likewise, the jurists of Islamic law to see that the ban on gharar aims to avoid injustice in buying or selling because of the uncertainty aspect. Meanwhile, Mustafa al-Zarqa argued that: "[the banned al-bay` gharar] is the sale of goods or the possible existence of certain characteristics, the risk characteristics that make similar deals with gambling ". Since all contracts are incomplete and has an element of randomness.
On another level it is understood that financial transactions with aspects of practice and speculative (gharar) will have implications for the emergence of absurdity that led to losses to the parties or one party to a transaction, because no sightings of transparency of transactions and profit mechanism that would be obtained by any one or each side.
In general it can be said that the orientation of the prohibition maysir, gharar and riba (usury) is that the Islamic economic system is embracing a powerful religious ideology that synergize positivisistic and normative dimensions in the theory and practice[11]. Practicely, the parameters of maysir, gharar and usury that are what made as reference and a measure of how far Islamic finance accord with Shariah criteria.
Jakarta. Maret 2010
[1] QS al-Ruum 30:39, (ii)an-Nissa’ 4:160-162, (iii)Ali Imran 3:130-136, (iv)al-Baqarah 2:275-277 dan (v) al-Baqarah 2:278-281
[2] gharar is:uncertainty, risk, or speculation, Saw Swee Hock, Introduction to Islamic Finance, (Singapore:Saw Centre fo Financial Studies, 2008),page.13
[3]Saw Swee Hock, Introduction to Islamic Finance, (Singapore:Saw Centre fo Financial Studies, 2008),page.1
[4]The word of maslahah / mashalih derived from the root s-l-h that means is good, benefits (benefits, interest), when the word is associated with al-mursalah its mean is unrestricted, (something that is not prohibited), undefined (something that was not prescribed limits) , or one that benefits the virtues, both benefit from aspects of both meaning .Muhammad Muslehuddin, Philosophy of Islamic Law and The Orientalist, (Maktaba Markazi Islami,: Delhi, 1985), page 156
[5] Masudul Alam Choudhury suggests some major principles of Islamic economic system, namely the principle of unity and fraternity, principles of work and productivity, distribution equitas, Masudul Alam Choudhury, Contribution to Islamic Economic Theory: A Study in Social Economic, (New York: St. Martin's Press, 1986 page 7-10
[6] Toseef Azid, Does Ethic Moral Coalition Complement to Economic Coalition:A Response in the Periphery of Islamic Economic, Humanics Vol 23No 3.2007.page.153-173
[7] Obaidillah Mohammed suggest there are nine norms of Islamic financial ethics that must be met in a financial transaction syariag, namely: 1) freedom of contract (freedom to conduct transactions, 2) freedom from al riba (usury-free unsusr, 3) freedom from al-gharar (does not contain gharar), 4) freedom from al-qimar (mengadung no element of gambling, 5) freedom from price control and manipulation (no element of price control and manipulation), 6) entitlement to transact at fair prices (the right to transact with a fair price), 7) entitlement to equal, adequate and accutae information (acidity, and completeness of the information), 8) freedom from al-dharar (does not contain mudharat), and 9) unrestricted public interest,Mohammed Obaidullah, Islamic Risk Management: Towards Greater Efficiency And Ethics, International Journal of Islamic Financial Services, Volume 3, Number 4, page 2-4
[8]QS.Almaidah:90
[9] A. Gait dan A.C.Worthington, A Principles on Islamic Finance:Definition, Source, Principles and Methode, Faculty of Commerce-University of Wollonggong, 2007, page 7
[10] Mahmoud A Elgamoul, A Simple Fiqh And Economics Rationale For Mutualization In Islamic Financial Intermediation, (Journal Of Islamic Economic, Rice University, 2006), page.4
[11] Volker Nienhaus and Marburg, Islamic Economics:A Threat To Development, (Journal Economic, 2006), page 2
