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 FINANACIAL MANANAGEMENT

INTRODUCTION
 Islamic finance is finance under Islamic law (or Shariah) Shariah) principles.  The basic sources of Shariah are the Quran and the Sunna, which are followed by the consensus of the jurists and interpreters of Islamic law.

WHAT IS ISLAMIC FINANCE?

 Islamic finance started as a small cottage industry in some Arab countries in the late 1970s.  Its growth has been accelerating ever since, in terms of the number of countries in which it operates, as well as the areas of finance in which it has ventured.

ISLAMIC FINANCE RELIES CRUCIALLY ON THREE SETS OF INDIVIDUALS WITH COMPLIMENTARY SKILLS:

(i) Financial professionals who are familiar with conventional financial products, as well as the demand for Is-lamic analogues of those products within vari-ous Muslim communities around the world, (ii) Islamic jurists who help Islamic financial pro-viders to find precedent financial procedures in classical writings, upon which contemporary an-alogues of conventional financial products can be built, and (iii) lawyers who assist both groups in structuring Islamic analogue financial products, while ensuring their compliance with all applica-ble and relevant legal and regulatory constraints.

HISTORICAL ROOTS OF ISLAMIC FINANCE

 In the late 19th Century, the Ottomans intro-duced westernwestern-style banking to the Islamic world to finance their expenditures. While some Islamic jurists approved of modern banking practices, the majority found those practices to be violations of Islamic prohibitions against usury .

 This resentment continued through the European colonial period, which lasted into the mid-20th midCentury. Islamic revival played a central role in the intellectual and social foundations of inde-pendence movements of the mid-20th Century. To many midintellectual founders of the movement, political independence was to be supplemented with economic independence, through the defi-nition of an Islamic economic system.

HOW IS ISLAMIC FINANCE PRACTICED?

 The core concept of Islamic finance is its definition of usury and risk.  Risk sharing as part of raising capital has been made mandatory

LAW PROHIBITS THE SALE AND PURCHASE OF SUCH ITEMS THE EXISTENCE OF WHICH IS UNCERTAIN.

This category of items may include: include:

 Premiums to insure against something that may or may not occur.  Derivatives that are used to hedge against possible outcomes. outcomes.

DEVELOPMENT
 One of the first Islamic banks was set up in Egypt in 1963.  The Islamic Development Bank(IDB) was established in 1975 and gave momentum to the Islamic banking movement.  The first private Islamic commercial bank, the Dubai Islamic Bank, was founded in 1975.

MAIN PRINCIPLES.
 the prohibition of taking or receiving interest;  capital must have a social and ethical purpose beyond pure, unfettered return;  investments in businesses dealing with alcohol, gambling, drugs or anything else that the Shariah considers unlawful are deemed undesirable and prohibited;  a prohibition on transactions involving masir (speculation or gambling); and  a prohibition on gharar, or uncertainty about the subject-matter and terms gharar, subjectof contracts this includes a prohibition on selling something that one does not own.

TRADITIONALLY AN ISLAMIC BANK OFFERS TWO KINDS OF SERVICES:

 those for a fee or a fixed charge, such as safe deposits, fund transfer, trade financing, property sales and purchases or handling investments; and  those that involve partnerships in investments and the sharing of profits and losses.

THE SHARIAH BOARD

 One distinct feature of the modern Islamic banking movement is the role of the Shariah board, which forms an integral part of an Islamic bank  These boards include some of the most respected contemporary scholars of Shariah and the opinions of these boards are expressed in the form of fatwas

THERE ARE SEVERAL METHODS OF ISLAMIC FINANCING

1. Murabaha (cost-plus financing) (cost2. Mudaraba (profit sharing) 3. Musharaka (partnership financing) 4. Ijara (leasing) 5. Istisnaa (commissioned manufacture)

THE RISK AND PITFALLS OF ISLAMIC FINANCE

1. Uncertainty. 2. Ownership risk/tax. 3. Security/recourse 4. Default. 5. Documentary complexity.

TYPOLOGY OF ISLAMIC FINANCIAL PRODUCTS

 (1) Financing products Profit sharing financing products:  Musharakah  Mudarabah  Qard Hasan  Wakalah  Hawalah

2) DEPOSIT PRODUCTS
 Wadiah  Mudarabah  Qard al-Hasanah al-

(3) INSURANCE PRODUCTS

Tadamun, Takaful Which means Islamic insurance with joint risk-sharing risk-

ISLAMIC FINANCE IN ACTION

The principal answer is that Islamic finance provides an opportunity to tap into the significant funds of Islamic investors seeking Shariah compliant investments. Islamic finance can be combined with conventional funding sources and export credit agency (ECA) support.

 Retaining conventional style documentation and a bankable governing law together with a greater consistency in approach among the Shariah boards seem to be key aspects in the growth of Islamic finance.  Islamic finance has now moved into the mainstream, with specialised regional Islamic institutions experiencing a significant growth and global banks

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