Islamic Finance Essay Example | Topics and Well Written Essays - 1250 words

Islamic Finance - Essay ExampleInvestments have an element of gambling beca usage of the reality of risks. How can sophisticated financial products be acceptable to Muslims? How can notions like interest, speculation, and gambling be excluded in financial products not only in mixed bag but in substance? In particular, how can it be possible for conventional financial products to be acceptable to Muslims? In the opinion of this writer, an important bring up towards designing financial instruments that are compatible with Islam is an understanding what financial transactions are prohibited and permissible under Islam. According to El-Gamal (2000, p. 2-6, 24), Islam prohibits Riba, Gharar, and financial insurance. Transactions that impress prohibited acts under Islam are invalid (batil) and forbidden (haram) under Islam (El-Gamal 2000, p. 1). On the other hand, El-Gamal (2000, p. 10-17) asserted that Islam permits cost-plus sales (murabaha), credit sales (bay bi-thaman ajil), forwar d contracts (salam), and conjunctive insurance. More importantly, Islam permits trade even if Riba is a forbidden (El-Gamal 2000, p. 9). According to El-Gamal (2000, p. 9), a trade that is valid from the perspective of Islam takes place if the seller and buyer exchange an tin and acceptance which specify the object of sale and the price, and they both agree. ... 4) Bilal visted the Messenger of Allah (pbuh) with some high quality dates, and the Prophet (pbuh) inquired about their source. Bilal explained that he traded two volumes of demoralise quality dates for one volume of higher quality. The Messenger of Allah (pbuh) said this is precisely the forbidden Riba. Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the other. While usury involves exorbitant interest ordinates, a Riba takes place when an interest rate is charged regardless of its amount (El-Gamal 2000, p. 9). Thus, the charging of interest rate is prohibited under Islamic laws regardl ess of whether the interest rate is small or large. The preceding discussion pointed out that while inferior dates is prohibited to be exchanged with fine dates, the transaction can proceed nevertheless by selling the inferior dates and then buying the fine dates from the proceeds. Thus, it can be conclude that while Islam can prohibit certain transactions, the same transactions can essentially proceed by taking certain routes such(prenominal) that the essential of the intend transaction can ultimately take place despite the prohibition under Islam. In short, alternative transactions routes can be executed such that the essentials of the target transaction are eventually realized. According to El-Gamal (2000, p. 6), a good translation of Gharar is risk or uncertainty. Gharar is the sale of probable items whose existence or characteristics are not certain, due to risky nature which makes the trade similar to gambling. Selling non-existent objects is categorized as Gharar and is forb idden (El-Gamal 2000, p. 17). At this