ISLAMIC FINANCE: IS IT RISK-SHARING-BASED OR ASSET-BASED?
Question #1: What are some faults in Murabaha?
Fixed mark-up finance was introduced after sidelining the original finance by promoters. It promotes payment of purchases without interest. The borrower and lender agree on profit, and the seller earns a religiously acceptable profit. Marhaba has, however, faced criticism from individuals, both Muslims and non-Muslims. According to some critics, profit-making transactions are similar to those from conventional banks. To the critics, the concept of profit instead of interest is a legal trick to divert the intent of Shariah. Some studies have shown that Murabaha has charged interest indirectly on clients using profit on purchases. Murabaha also faces trouble regarding late payments of loans as to whether the debtor should pay more for late repayment of loans. The research will look into these issues to find out whether Murabaha complies with Islamic law.
Question#2: How has Islamic finance failed to help the poor?
Banking institutions are expected to take from the rich and give to the poor. However, many banking institutions give priority to the middle class and the upper class and discriminate against the poor. Islamic banks have more friendly principles to the poor, even though they face some difficulties (Tohirin & Husaini, 2019 41-50). The research will look at how Islamic finance has failed to help the poor and steps that can be taken to be of service to them.
Q#3: How does the concept of interest affect creditors during inflation?
It is a concern that once an individual or institution gives loans, they encounter losses after inflation, as the debtor pays the same amount of money they borrowed with no interest, in compliance with the Shariah law. The creditors, therefore, question whether it is riba to ask for more payments from the debtor after inflation to compensate for the loss. The research will look into the issue and find out the difficulties other creditors face in the event of inflation.
Q #4: What are the Islamic Investment vehicles?
The prohibitions in Islamic finance by sharia have forbidden financial vehicles used by other conventional financial institutions. It is crucial to research acceptable financial investment vehicles by Islamic finance that include bonds and derivatives. Also, find out the difference between Islamic and conventional financial institutions’ financial investment vehicles. That will help analyze and make a conclusion on whether Islamic financing is asset-based or risk-sharing.
Q #5: What are financial instruments in Islamic financing?
It is essential to understand the instruments of Islamic financing, especially the primary instruments. The basic tools for funding include profit-sharing (Mudaraba), cost-plus financing (Murabaha). Each of these instruments has its broader meaning in financing. Understanding these instruments gives you a chance to use correct words while addressing the research questions. For example, Musharaka refers to a fair participation contract where parties contribute capital and share profits based on predetermined ratios. Losses are shared based on money contributed. This term can be of help when addressing risk sharing in Islamic financial institutions. Sukuk is a term that can be useful in asset-based finances. It refers to a certificate of ownership of assets.
In summary, all these questions are relevant in researching Islamic finances. First, one must determine what Islamic finance entails and how it defers from other conventional financial institutions. Additionally, one needs to understand the concept of cost-sharing and asset-based funding to address the topic more appropriately. Knowledge of financial instruments will aid in using correct terms in the research. It is also essential to take note of the principles of Islamic financing.
Tohirin, A. and Husaini, F., 2019. Does Islamic Banking Financing Help the Poor? Proceeding UII-ICABE, 1(1), pp.41-50.