Islamic law and finance

Abd. Ghafar Ismail, Achmad Tohirin

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

Purpose – The purpose of this paper is to discuss Islamic laws which are relevant to finance. More specifically, it covers the types of contracts as foundation for the distinctive Islamic financial products. The current institutional framework of financial institutions seems to be incompatible with the nature of these Islamic contracts. Design/methodology/approach – This is a conceptual paper describing the link between finance and economic growth in the present of Islamic contracts, which have various types from contract of partnership, buysale contract, to contract of usufructs. The nature of Islamic contract is to avoid riba (i.e. interest system), because it is unjust and prohibited, meanwhile under conventional system they rely very much on the interest system. Findings – The conclusion of the paper is that the distinctive character of Islamic contracts applied by Islamic banking and finance relies mostly on the profit and loss sharing mechanism which contains the cooperative spirit, in the contracts such as mudharabah (profitsharing), musharakah (partnership). The development of equity partnership instruments in the financial system necessitates a different set of regulation and institutions in order to achieve Islamic goal through economic/financial activities. Research limitations/implications – This paper opines that the current framework of financial institutions does not match with the nature of Islamic contracts. Practical implications – This paper suggests that a new framework for financial institutions is necessary in order to accomplish the maqasidalshariah, by implementing the true spirit of cooperative through various Islamic contracts. Consequently, the rules and regulations and other relevant elements also need to adjust. Originality/value – The paper indicates a possible different consequence on the link between finance and growth in the presence of Islamic contracts, i.e. a more positive relation.

Original languageEnglish
Pages (from-to)178-199
Number of pages22
JournalHumanomics
Volume26
Issue number3
DOIs
Publication statusPublished - 31 Aug 2010

Fingerprint

Islamic law
Law and finance
Islamic finance
Islamic Law
Finance
Financial institutions
Profit sharing
Institutional framework
Finance and growth
Islamic banking
Profit
Equity
Economic growth
Design methodology
Financial products
Financial system
Financial economics
Economic Growth
Conventional
Methodology

Keywords

  • Company profit sharing schemes
  • Finance
  • Islam
  • Law

ASJC Scopus subject areas

  • Philosophy
  • Economics and Econometrics

Cite this

Islamic law and finance. / Ismail, Abd. Ghafar; Tohirin, Achmad.

In: Humanomics, Vol. 26, No. 3, 31.08.2010, p. 178-199.

Research output: Contribution to journalArticle

Ismail, Abd. Ghafar ; Tohirin, Achmad. / Islamic law and finance. In: Humanomics. 2010 ; Vol. 26, No. 3. pp. 178-199.
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