Islamic finance is notsomething foreign to the community but studies have found that the modernIslamic financial system is growing consistently at the national and globallevel. The Islamic financial system is essentially a financial system in aneconomic system that is based on the principles and values of Islam. Islamic finance is a financing system that based onShariah which is Islamic Law. (Ahmed, 2010). There is a lot of importance of islamic finance to individuals such as,non-interest, financial justice, stability in investments.
Firstly, Islamic finance isbased on non-interest. The main principle of Islamic finance is the prohibitionof interest in all transactions while conventional financing looks forward toprofits through interest payments. (Ahmed, 2010). In Islam there isonly one type of loan called Qardhul Hasan.
Which when we borrow RM1000, Wehave to repay RM1000. For example, in the contract of Al-Wadiah a contract whenthe property owner has entrusted the bank to keep the money for the purpose ofa deposit or loan contract, the bank will not benefit even the bonus money(hibbah) will be given to depositors at discretion. This will benefitindividuals who want to make loans to avoid high interest rates.
Besides that, financialjustice is a fundamental requirement that helps the continuous innovation of Islamicfinancial products and financial infrastructure in a Shariah-compliant way. TheIslamic economic system promotes justice and balance between individual freedomand public maslahah. Islamic financing paves the way for business partnershipsor joint ventures. For example, the concept of Musyarakah where a person whoopen a partnership business.
Profits earned from business sharing will be sharedbased on the agreed ratio. While the loss will be incurred by the ratio ofcapital contribution, all the risks received are proportionate. Hence the riskthat one individual will face is less because it will be shared betweenpartners.
In addition, in Islamicfinance it encourages investment. If profits from investingare high, the overall profits will be divided on both sides based on the ratioof the partnership because the Islamic finance system sets a higher standardfor investment and it also promotes risk reduction. For example, al-mudharabahcontract is a contract where investors will contribute capital whileentrepreneurs will contribute their energy and expertise. Profit frominvestments will be shared between investors and investors based on agreedsharing ratios.
In the event of a loss it will be borne by the financier, whilethe entrepreneur will incur losses on his or her effort and energy. Thereforeone should not be afraid to invest in Islamic finance because it has its owninterests for investors.In conclusion, the Islamicfinancial system deserves to stand on the basis of justice and transparency.Hence, the Islamic financial system needs to empower its position and rolebased on Islamic principles that are not burdensome, customer-friendly,blocking any oppression and becoming a preferred system not only to Muslims butalso to non-Muslims. In addition, Islamic finance has its own importance andbenefits to individuals. All related Islamic finance based on Islamic Law whichavoids any activity in any transaction, conducts business activities based onthe fairness of Shariah law, promising investment stability.
Not only forMuslims but also from other religions should be aware of the importance ofIslamic finance as it benefits the global community: The rules and practices of fiqh muamalat came from the Quran and theSunnah, and other secondary sources of Islamic law such as opinionscollectively agreed among Sharia scholars (ijma’), analogy (qiyas) and personalreasoning (ijtihad).