Question

 

From the chosen product, conduct an extensive research to answer the following questions:

1. What is the product?

2..What are the basic differences between the product from Islamic and conventional perspectives

3. What is the contract used in the product and explain the concept of the product

4. Why conventional product is not Islamic?

Answer 1

1. One of the product issued by Islamic financing is Mudarabah.this is the kind of partnership where one partner gives money to another partner for investing into the commercial enterprise and they will be providing hundred percent of the capital and the other party will be using its expertise and Management in order to make a higher rate of return.

2. The basic difference from Mudarabah and conventional financing instrument will be financial instrument will be dependent upon the philosophy of exchange of interest where has Islamic product will be not taking any interest because Islamic product feels that interest are against the principles of Sharia and Islam and it is halal.

Another difference would be that Islamic product are based upon the risk sharing agreement whereas conventional product will be having no risk sharing agreements like Islamic financing.

3. It is an equity based contract which will be profit sharing In nature and it is a partnership contract when the capital will be provided by the capital provider where as manager will be providing the managerial skill to manage the capital accordingly and it is just like another venture capitalist in the world of Islamic financing.

4. Conventional product is not Islamic because it is not offering any kind of interest for investing in normal venture financing and it is never a risk sharing agreement also so it will be completely borne by the venture capitalist in the normal conventional product.

Answer 2

There has been an rapid growth in the Islamic banking industry. Malaysia established its first Islamic bank in the year of 1983, with the formation of Bank Islam Malaysia Berhad (BIMB). For this answer I have taken BIMB products.

1) The product I am describing is the trading and the investment policies.

2) Islam prohibits Ursury, sharing of risk and trading has to be aligned with the principle of Islam. The relationship of the creditor and the debitor is not followed in any bank in Malaysia. Unlike that of any conventional perspective, both the mpney lender and the borrower has to take risks. The risks is to be obliged with both the parties. In fact all the banks in Malaysia is governed by, Syariah Islamic Board. In fact all the principles of banking must comply with the principles of Islam.

3) The contract of trading and investment is pretty similar to the conventional practices, the only difference being that the risk has to be born by both the creditor and the debitor. A small percentage of risk is fixed, depending upon the nature of the Investment. The Islamic board of each banks decides the percentage of the risk to be fixed.

4) As, already mentioned in the above passages, In conventional products of Investments and trading only the investing party is at risk. While in any bank in Malaysia both the creditor and the Debitor has to pay a certain percentage of money as an Liablity of risk.