The Essence of Islamic Banking

we are a group of companies called alfalah group with presence in finace,real estate-infrastructure,agro based industries,international trading and education.thegroup has apaid up capital of $150 million and are looking for partnership investments from islamic bankers/venture capitalists. the group has been working on islamic principles in india and has a presence across the country.more info. about the group is available on its web page alfalah.com.please guide.

I hae read your comments and If you are a Mirzia then that is your mission to depress us with all your knowledge.But if you are a friend of Professor Khursheed type of people Agents of God trying to explain the point of view God to us all then I dont like to talk to you.

I have just now taken Prime ministers loan of Rs 300000/- before that I went to each and every one for a profit and loss financing and you must be knowing what happened. I can tell you that Professor Khursheed has earned a lot of money by explaining the point of view of God.May you also .But this is the time I am telling you.We will get each penny out some how.

To start with go to the Chowk forums and see my reply to the string by EnverKhenova Khalifah is the solution for Pakistan and muslim ummah.My reply is by the name alam_3 additionally there is another string by the name of Freud go and read it and then talk to me if you can.

However if are stupid enough to still accpet Mirza ghulam Ahmed Quadiani as your prophet then sorry I will never reply to you.Beucase the man who thinks that God would never produce a prophet who could not control his urination and there was always a chance that you would be wet by his urination while listenning to the wahi.

Oh dear urine passing prophet . Urine of adult is too stinky so my friend I feel sorry then to refuse but dont bother to talk to me.

I have got my own set standards to check if there is any reaon to believe that there will be any prophet . I never needed one.If you need one get some one who will atleast let you clean yourself after each sitting with him for guidance.

May Allah Subhanahu wa tallah help us all.

Hello

Hello Muhammed,

I think you write quite a thought provoking article on the subject of VC funding vs. Islamic Banking. Now, if only the Islamic world could also wake up and start to utilize such approaches! If you don`t mind I would like to circulate your view on this matter to some fellow friends.

Please can someone send/post Chowk`s email address since I cannot access their email link.

Thank you

I need your help for my studies.

I am writting a memory about ``Islamic Banks`` and I

need every kind of information in french or

english

Thank y

I am glad someone took time to put into words what i have been thinking about. We need to keep in mind that teh current financial system worldover has evolved over the centuries keeping in mind the religious beliefs (mainly Judeo-Christian). The prohibiiton of intrerest was termed as prohibition of excessive interest (ussury) and as such legitamized.

If such legitamacy was not given than we would have had a system similiar to the venture capitalist, profit-loss, mudaraba, mushariqa.

Anyway, I am very interested in this topic and would love to hear from people who are thinking on these lines. i am not concerned about M & M or anyother study (they are all fatally flawed) but in a ways to build and consolidate a theoretical and, with time (InshAllah) a practical entity.

My e-mail is:

ufarouq@acgnet.com

Allah hafiz

Faaiz Hasan

Miller and Modgiliai`s (M&M) theory are acceptable assuming other frameworks are met.

Economic principles revolving around the determinants of interest rates (e.g. liquidity preference, and risk / return trade-offs). All that MM`s theory say is that you cannot create shareholders wealth by borrowing money at fixed interest rate (trading on equity).

However, it is not said that you cannot create a capital structure that suits the need of business. Equity capital is the residual claim on the profits of a business. And while it is difficult to capture the true gains and losses even after a year, business do make estimation of their operating results at periodic periods ranging from quarterly to periods in excess of a calendar year.

Investors that have shorter time horizons for returns are generally happy to accept lower returns by giving up the additional risks of equity. These risks are therefore reallocated to other investors (MM assumes that equity holder accept those risks and therefore should aim to earn a higher return, so that the risk-adjusted return remains the same).

Financial engineering is a field that studies the creation of such instruments that redistributes the risks and returns to those investors that are willing to accept the risks. Ofcourse, it is really difficult to say that the risks and returns are equitably distributed. However, each institution tries to price the sub-components of returns to the best of its abilities (and available information).

This brings me to my earlier point that the capital markets needs the entire spectrum of capital markets instruments to ensure that all participants of the investor community participate in the process and keep the pricing efficient. Each participant may choose the risk return framework that most appropriately suits his need (transactional, investment and speculative funds framework).

Ali Lodhi

While a number of institution have applied to the Ontario Government to form a Muslim credit union, they have been unable to satisfy the Province`s concern on the operational viability of such an institution. Needless to say the Province, through DICO, bears the final responsibility to the depositors.

The size of average loans is based on the capital structure and while all capital is redeemable it is important to have an extremely wide spread member base to justify a large capital base. The Muslim community has a disporportionally large representation in and around Toronto where the average residential property (which forms a sizable portion of financial institutions assets) run in excess of $200,000 this means that the loans have to be in excess of $ 100K and may be upto $190K (in case of high ratio mortgage). This would require capital in excess of $10 million (although credit unions may be created with only $500K capital).

Futhermore, a number of credit union proposals included selling insurance which is explicitly prohibited under Bill 134 section 176.

Any proposal of interest-free banking meets with skepticism because it transforms a credit institution (which is obvious from its name) to a mutual fund. I would suggest that a mutual fund, something like a REIT, would be more appropriate under such circumstances.

I am sorry I do not agree with such a myopic view of Islamic Banking.

Finance provides a risk return spectrum to the participants in the capital markets. On one side are those that may have funds available for short periods of time (transactional and speculative funds) to those that have longer term perspectives of funds placements (investment funds). The author has conveniently viewed all funds simply has investment funds and seems to be leading potential investors down the rocky path. He does not discuss the success rate of these venture capitals (over 50% of investments are lost, while less than 5% of those provide returns of over 100%). And the average period required for the investment to mature is over 5 years. Given such a condition, how does the author expect persons to have a shorter-term horizon to deal with their money? Should they just stuff it under their mattresses and take it completely out of the economy. Or is there a better way of resolving the issue. People quote economic principles from 1400 years back without understanding the intricate difference between the two environments, fiat versus real money economies, and their limitations.

My interpretation of Islamic Banking is one that is fair on not only the borrower but also lender and at the same time provides opportunities for adequate utilization of surplus funds without regards to time horizon. It ensures that purchasing power and risk-adjusted returns of funds are safeguarded to reasonable levels. The principles are based on having adequate competitive forces to drive pricing down to levels that are comparable to other activities in the economy (of-course on a risk adjusted basis).

Interestingly the author berates LIBOR based financing, while at the same time exhorts the Silicon Valley companies which use the full spectrum of capital market instruments to run a successful business. If we were to go along with the author`s representation, we would have to admonish companies that the author holds in awe. Companies with sophisticated capital budgeting processes use the entire spectrum of instruments to minimize interest-rate and liquidity risks (among other exposures) while structuring their financial operations.

Apple Computers owed $23 million notes payable to the banks and about $953 million to long term debt holders besides other liabilities of over $2.5 billion. Sun Microsystems had a long term debt of $ 138 million plus other liabilities. Netscape and Intuit also have long term obligation and notes payables outstanding. (figures derived from the latest SEC 10-Q filings).

Lets hope we can come to terms with the western banking system sooner rather than later. Not that we should not improve on it but at the same time not make ornamental changes to it to delude ourselves in thinking that we have created some sort of a superior Islamic Banking system. If it is venture capital, call it venture capital and not Islamic Banking. If it is leasing then that what it is not Ijara. It it is voting & non-voting share structure then lets not call it Mudaraba. This way we do not alienate the international community with product names that they might not be comfortable with. I am not being an apologist over here but a realist. Just as Exxon changes its product name from Esso (which in certain languages means Zero - therefore a negative conotation) or equally the use of the color white in a country like Japan where it means death. We have to ensure that we may be able to attract resources to enhance the economic conditions of the Muslim Ummah.

The question is are we ready?

Can anyone please tell me what is considered interest in Islam?
I have heard that fixed-rate is prohibited.
What about mutual funds that have
1. varying rates of interest?
2. invest in stocks and BONDS both..thus have no fixed income.
What is halaal income?
I am really confused.