10-04-2003, 05:09 AM
Salam to every body
Its my first time here on accountancy forum and the topic was also interesting but its very sensitive also. Therefore, I request you all that before making any kind of comments please be sure what you are commenting.
I have been involved in the audit of a reputable modaraba and the difference I perceived between Islamic and interest based financing is the form of contract. In Islamic mode of financing the asset pertains to the lessor and the lessee does not have any bargain purchase option.
In Chapter 2 âAl-Baqarahâ of Quran, Allah strictly prohibited interest and specifically allowed the profit.
Here comes the concept of Islamic mode of financing.
The essence of this type of financing is that you are buying a THING ânot moneyâ on a credit basis. If you buy that thing on cash basis, you have to pay less but if you buy on credit, you will have to pay more (and it happens in normal course of any business, i.e not only financial institutions)
The other difference between them is, for making this transaction under the norms of Islam, the price of that good must be fixed in advance and the islamic financial institution cannot charge over that price. Therefore, in the early stages, modarabas and other financial institutions did not take late payment charges but this facility was abused by some defaulters therefore they started to charge late payment charges on nominal rate and for your information, these late payment charges cannot be the income of that financial institution and they have to be utilized on a charitable purpose.
I agree that there is a hair line difference between interest based and Islamic mode of financing but unfortunately, our knowledge regarding islam is very limited but we cant keep ourselves from commenting on issues which we donât know. Therefore, for guidance, I use the work of âMoulana Taqi Usmaniâ who has vast knowledge backed up by research on this topic.
To answer the question of Zubair, who asked if the interest was forbidden before Mohammad (PBUH) or after. The simple answer is that interest is prohibited in quran which means it must be in the life of him.
Its my first time here on accountancy forum and the topic was also interesting but its very sensitive also. Therefore, I request you all that before making any kind of comments please be sure what you are commenting.
I have been involved in the audit of a reputable modaraba and the difference I perceived between Islamic and interest based financing is the form of contract. In Islamic mode of financing the asset pertains to the lessor and the lessee does not have any bargain purchase option.
In Chapter 2 âAl-Baqarahâ of Quran, Allah strictly prohibited interest and specifically allowed the profit.
Here comes the concept of Islamic mode of financing.
The essence of this type of financing is that you are buying a THING ânot moneyâ on a credit basis. If you buy that thing on cash basis, you have to pay less but if you buy on credit, you will have to pay more (and it happens in normal course of any business, i.e not only financial institutions)
The other difference between them is, for making this transaction under the norms of Islam, the price of that good must be fixed in advance and the islamic financial institution cannot charge over that price. Therefore, in the early stages, modarabas and other financial institutions did not take late payment charges but this facility was abused by some defaulters therefore they started to charge late payment charges on nominal rate and for your information, these late payment charges cannot be the income of that financial institution and they have to be utilized on a charitable purpose.
I agree that there is a hair line difference between interest based and Islamic mode of financing but unfortunately, our knowledge regarding islam is very limited but we cant keep ourselves from commenting on issues which we donât know. Therefore, for guidance, I use the work of âMoulana Taqi Usmaniâ who has vast knowledge backed up by research on this topic.
To answer the question of Zubair, who asked if the interest was forbidden before Mohammad (PBUH) or after. The simple answer is that interest is prohibited in quran which means it must be in the life of him.