Best Method in Islamic Mode of Financing

By

ACKNOWLEDGEMENTS

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, (Your name), would like to declare that all contents included in this dissertation stand for my individual work without any aid, & this dissertation has not been submitted for any examination at academic as well as professional level previously. It also represents my own views & not essentially the ones associated with university.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTSii

DECLARATIONiii

CHAPTER 1: INTRODUCTION5

Background of the Study5

Aims of the Study6

Objectives of the Study6

Problem Statement6

Purpose of the Study7

Rationale of the Study7

Research Questions7

CHAPTER 2: LITERATURE REVIEW8

Islamic Financing as Reflection of Economic Order8

Types of Islamic financing products8

Ijara: lease-to-purchase9

Murabaha: cost-plus-sale10

Musharaka: partnership11

Mudaraba: profit- and loss- sharing11

CHATPER 3: METHODOLOGY13

Introduction13

Explanation of Methodology13

Selection of Research Method14

Research Design14

Literature Design15

Data collection methods and tools15

REFERENCES17

CHAPTER 1: INTRODUCTION

Background of the Study

There is a body of theoretical literature, spanning from the 1970s to today, arguing for the necessity of Islamic finance and how it can be structured so as to provide Muslims viable alternatives to conventional, interest-based finance. Conversely there exist criticisms of Islamic finance from scholars who question both its religious justification, in its currently practiced form, and its economic viability. These critics are often idealists who consider an "Islamic economy" one that should be based on maximizing economic productivity to the benefit of society, and consider Islamic finance as it is practiced to fall far short of this calling.

Prominent U.S. scholar on Islamic economics, Mahmoud El-Gamal, has been a forceful voice in the field arguing against Islamic finance in its current form. El-Gamal argues that Islamic finance industry practices amount to "Shari'a-Arbitrage."11 He points out that there is scholarly debate over what exactly constitutes riba and gharar. Rather than engage this debate theologically and consider its implications for modern times (a process called ijtihad), Islamic finance professionals have chosen a juridical approach that insists on developing present-day contracts only by analogy to contracts from medieval times. El-Gamal argues that this process only serves as a re-engineering and misplaced blessing of conventional finance (making it less efficient in the transformation due to increased transaction costs and fees to lawyers and religious jurists), and that it misrepresents the original intent of religious dictates about trade and finance.

Aims of the Study

The aim of the study is to analyse the importance of the two modes of Islamic financing that are the Ijara and Murabaha. The study will investigate various concepts of the two modes of financing in order to examine the importance of each of them in the Islamic banking system.

Objectives of the Study

The objectives of the study are to:

Study the concepts of Islamic financing system that has been followed and used in the world

Examine the modes of Islamic financing that have been followed by the Islamic banking system

Analyse the components of Ijara and Murabaha that have been used in the Islamic banking system

Investigate the popularity and reliability of the two modes of financing ...