The aim of this presentation is make people aware of the concepts of Islamic Rules of Business & Finance.

1. .
In the name of Allah, the
Most Beneficent, the Most
Merciful.

2. An Introduction
to
Islamic Rules of Business & Finance
Prepared by
Syed Mahmood Ali. M.com; MBA
Associate Professor,
Royal Institute of Technology & Science.

3. Contents:
1. Belief in Devine Guidance
2. Capitalist & Islamic Economy
3. Capital &Entrepreneur
4. Currency meaning and its role
5. Islamic Rules of Sales
6. Modes of Islamic Finance
Musharakah
Mudaraba

4. 1. Belief in Devine Guidance
• The primary belief around which all the Islamic Concepts
revolve is, the whole universe is created and controlled by
ONE GOD.
• He has created human being on the earth to fulfill certain
objectives through obeying His commands.
• These commands not restricted to some modes of worship or
religious rituals.
• On the contrary, these command cover a substantial area of
almost every aspect of our life.
• These commands are neither so exhaustive nor so little or
ambiguous. Far from these two extremes, Islam has a balanced
approach to govern the human life.

5. Capitalist & Islamic
Economy

6. Capitalist Economy
• In Capitalism, the profit motive and private ownership are given
unbridled power to make Economic Decisions.
• If there are some restrictions, they are imposed by human beings and
always subject to change through democratic Legislations, which
accepts no authority of any super-human power.
• It allows number of practices which cause Imbalance in the society
like Interest, gambling, speculative transactions.
• These transactions tend concentrate wealth in few hands.
• Unhealthy human instincts are exploited to make money through
immoral and injurious products.
• High profit earning motive create monopolies which paralyze or
hinder the market forces from their natural operations.
• Certain Economic activities not in the interest of the society, yet,
allowed to be continued as it goes against the interest of some
influential circles who dominate the legislature on the strength of
their majority.

7. Islamic Economy
• Islam does not deny the market forces and market economy.
• Even the profit motive is acceptable to a reasonable extend.
• Private ownership not totally negated.
• It put some divine restrictions on the Economic activities.
• These restrictions are imposed by ALLAH almighty.
• Whose knowledge has NO limits and cannot be removed by
any human authority.
• The prohibition of RIBA (usury or interest), gambling,
hoarding, dealing in unlawful goods or services, short sales and
speculative transactions are some examples of these divine
restrictions.
• It says that human should submit to the divine authority and
obey its commands by accepting them as absolute truth and
super human injunctions which should be followed in any case
and at any price.
• All these prohibitions show collective impact on Socio
Economic equality, maintaining balance, distributive justices
and quality of opportunities

8. Capital
&
Entrepreneur

9. Capitalist Economy
• Capital and Entrepreneur
are two separate factors of
production.
• Capital will get Interest
Entrepreneur will get profit
(after distributing fixed return
in the form of rent, wage, and
interest)
Islamic Economy
• It does not recognize
Capital and Entrepreneur
as separate factors of
production.
• Every person who
contributes the capital to
commercial enterprise
assume the risk of loss,
hence eligible to a
proportionate share of
profit

10. Currency
meaning and its role
“Money is such a companion of yours that it does
not benefit you, unless it leaves you.”
(Al-Zahabi, Siyar A’lam-al-Nubala’ v. 4, p.576, Beirut)

11. Conventional System
• Money is a product besides
medium of exchange and store
of value.
• It is recognised as subject
matter of trade.
• Time value is the basis for
charging interest on capital.
• Trading in money leads to
inflation due to non existence
of goods & services.
• Illusion of intrinsic value or
utility of money
Islamic System
• Real Asset is a product. Money
is just a medium or means of
exchange.
• It is NOT recognized as subject
matter of trade.
• Each unit of money is 100%
equal to an other unit of the
same denomination at any point
of time.
• NO inflation as trading in money
is prohibited & allowed in goods
& services
• NO intrinsic value or utility.

12. Islamic
Rules of Sales

13. • The subject of sale must be existing at the time of sale.
• It must be in the ownership of seller at time of sale.
• It must be in the physical or constructive possession of the seller when
he sells it to another person.
• The sale must be instant and absolute. Thus a sale attributed to future
date or a sale contingent to future event is void. If the parties wishes to
effect a valid sale, they will have to effect it afresh when the future
date comes or contingency occurs.
• The subject of sale must be a property of value. Thus, the thing having
no value according to the usage of trade cannot be sold and purchased.
• The subject of sale should not be a thing which is used for a Haram
purpose only, like pork, wine etc.
• The subject of sale must be specifically identified and known to the
buyer.
• The delivery of the sold commodity to the buyer must be certain and
should not depend on a condition for the validity of a sale.
• The sale must be unconditional. chance or unforeseen event.
• The certainty of price is a necessary A conditional sale is invalid,
unless the condition is recognized as a part of the transaction
according to the usage of trade.

14. Modes of Islamic
Finance
Islam is the only religion in the
world, provides guide lines and
rules and regulations for financing
and business

15. Musharakah
(Joint Venture or Partnership)
It is a most ideal form of financing advocated by Islam.
It refers to sharing of profits and losses in joint
ventures. Here the financer instead of giving fixed or
predetermined rate of loan will invest his money in a
joint venture on the condition of sharing actual profits
and losses. It is a relationship established by the parties
through mutual contract and it contains all the
necessary requirements of valid contract such as
capability of the parties, free consent and no fraud and
misrepresentation etc.

16. Basic Concepts of Musharakah
• The profit sharing ratio must be agreed at the time of signing the
agreement.
• Fixed lump sum amount for any partner as profit NOT ALLOWED
• Any fixed amount drawn by the partner will be adjusted to actual share
of profits one may deserve at the end of the period. Amount drawn less
than the actual share of profit can be withdrawn or more should be
returned.
• Only Actual profits accrued to the firm are distributed among the
partners.
• Share of profit can be any ratio agreed by the partners i.e. it may differ
from the ratio of investment.
• In case of loss all the partners has to suffer the loss exactly to their ratio
of INVESTMENT/CAPITAL.
• The share capital of Musharakah can be contributed either in cash or in
the form of commodities or kind subject of the determination of market
value as share of the partner in the capital.
• As far as the management of Musharakah is concerned all the partners
can participate or any one of them acting for all can participate.

17. • Every partner has right to terminate the Musharakah at any time after
giving other partners a notice of termination.
• Any partner dies during the Musharakah the contract with died partner
terminated. The legal heirs will have the option either to draw the died
partner share or to continue with the contract of Musharakah
• If any partner becomes insane of incapable in discharging commercial
transactions, the Musharakah stands terminated.
• If one of the partners wants to terminate the Musharakah, while other
partners wants to continue, this can be resolved by mutual agreement.
The partner who wants to terminate Musharakah can sell his share to
the partner who wants to continue the business.
• The selling price of the leaving partner must be determined by mutual
consent. If there is a dispute about the valuation of the share and the
partners do not arrive at an agreed price, the leaving partner may force
other partners to liquidate or distribute the assets.
• If the assets of Musharakah are in the form of cash, will be distributed
in the pro rata. If the partners agree to liquidate assets and distribute,
can be done accordingly. If the partners want to distribute assets as they
are, can be done accordingly. If one of the partners want liquidation and
others wants to distribute assets as they are, the distribution of assets
will be preferred.

18. Mudarabah
It is special type of partnership
where one partner provides funds to
another for investing in a commercial
enterprise. The fund provider is
called as “Rabb
-ul-mal”, while the management is a
sole responsibility of other partner
called as “Mudarib”

19. Basic Concepts of Mudarabah
• Investment is the exclusive responsibility of Rabb-ul-mal
• Mudarib will carry out the management activities while Rabb-ul-
mal has no right to take part in management.
• Loss, if any, is suffered by the Rabb-ul-mal only, as Mudarib does
not invest anything. Efforts and work of Mudarib will be lost and
will not get any fruits for him.
• Mudarib should work with due diligence which is required
normally for the business of that type while for negligence and
dishonesty he is liable for the loss.
• The liability of Rabb-ul-mal is limited to his investment.
• Mudarib has to bear the debt incurred without the consent of Rabb-
ul-mal.
• Rabb-ul-mal is the sole owner of goods purchased by Mudarib.
• Mudarib is entitled to his share of profit only, if, he could able to
generate profits.
• Mudarib or Rab-ul-maal CANNOT claim any Salary, Fee or
Remuneration

20. • Mudarib cannot claim any share in the assets or in its
increased value if any.
• Restricted Mudarabah: if Rabb-ul-mal specifies any particular
business for Mudarib, he shall invest the money in that particular
business only.
• Unrestricted Mudarabah: when Rabb-ul-mal left the option open
for Mudarib to undertake whatever business he wishes.
• The Mudarib is authorised to do anything which is normally done
in the course of business. However, if he wants to do any thing
which is beyond the scope of normal routine of the business, he
cannot do without the express permission of Rabb-ul-mal
• The profit Ratio can be anything mutually agreed.
• The contract of Mudarabah can be terminated at any time by
either of the parties by giving notice to other party.

21. Thank youE-mail: mentor.sma@gmail.com