Is it permissible to take a conventional style loan to finance/fund a #Shariah Compliant Commercial Project?
A loan is not permissible in the traditional banking operational jargon or sense!
A loan is not permissible in the traditional banking operational jargon or sense!
The Credit application should have an underlying asset trade funding request inbuilt and/or an explicit tangible commercial intent stating the same, embedded in the actual financing/investment contract.
Any transaction which provides money without a trading justification will not work.
In Islamic Finance, debt-refinancing and NPA - Non-performing Asset rollovers are not allowed.
In Islamic Finance, debt-refinancing and NPA - Non-performing Asset rollovers are not allowed.
Kindly note: that in Islamic Banking and Finance all contracts are essentially asset-based, not asset-backed in the conventional fixed income sense!
The actual movement of goods between the vaults of two traders can be done sequentially as per Sharia Banking Guidelines.
The bank is imitating a commodity trader in the financing transaction.
The bank is imitating a commodity trader in the financing transaction.
E.g. Bay Al Istisna and Bay Al Salam Contracts operate somewhat like forward dated contractual commitments, but without the same level of risk (Gharar) and gambling/ speculation (Maysir) if done properly using the Shariah Guidelines.
Very difficult to explain what a tangible commercial intent is at this level. But it would basically imply the confirmation of a potential trade or a transaction that leads to execution of actual trade, by using the financing(credit) facility line approved by the Bank.
So a loan for financing or earning an arbitrage risk-less profit(using borrowed money) to do transaction/s across financial markets, stock market margin financing using a margin call system, asset short-selling, or for another speculative purpose is not allowed!
Islamic Banking is ethical banking!
They are a lot of non-deductive strong arguments presented for the right logical reasons, not just restricted to Financing and Investment, but applying across a wide range of commercial principles =>
They are a lot of non-deductive strong arguments presented for the right logical reasons, not just restricted to Financing and Investment, but applying across a wide range of commercial principles =>
-NO (Non - risk sharing) leverage in the traditional banking sense. Kindly refer to the one-tier and two-tiered modaraba models of financial intermediation adopted at Islamic Banks.
-NO Shorting
-NO Shorting
-NO Arbitrage (Islamic Finance is all about risk-sharing and risk-taking within defined parameters).
-NO Margin Financing using a margin trading account in the traditional sense.
-NO Credit or Charge Cards.
-NO Margin Financing using a margin trading account in the traditional sense.
-NO Credit or Charge Cards.
-NO leasing/ lease financing without the mandatory right to purchase the ownership of the asset as given in the contract clause.
-NO #Annuities in the traditional Insurance and/or Financial Mathematics sense.
(I don't agree with Continuous Compounding, but a good deal of scholars might disagree with me).
(I don't agree with Continuous Compounding, but a good deal of scholars might disagree with me).
-NO financing of haram businesses (that sell porn, drugs, sex entertainment, pork, alcohol or other socially destructive products).
A business should be shariah-compliant and certified!
A business should be shariah-compliant and certified!
- NO Principal /Capital Protection in the traditional investment/asset management sense.
(As per the Hanafi school of thought followed in South Asia).
(As per the Hanafi school of thought followed in South Asia).
-NO Deposit Insurance paying premiums
-NO Cash Vault or Lockers Insurance paying premiums to an Insurance Company!!
-No Saving / Current Account Capital Guarantee on the liability side(does not apply to the SE- Asian countries, where they follow the Shafi school of thought).
Etc.
-NO Cash Vault or Lockers Insurance paying premiums to an Insurance Company!!
-No Saving / Current Account Capital Guarantee on the liability side(does not apply to the SE- Asian countries, where they follow the Shafi school of thought).
Etc.
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