Nurul Haslaily Bt Abdul Ghani Econ 3510 Sect 1

1.Discuss muamalat from linguistic and technical meanings(10 marks)

Definition of Muamalat from linguistic means transactions or communications or interactions. Its also talked about how the way you treat the people.From technical meanings, Muamalat is set of rules related to worldly matters such as business or trading or commerce or transactions, lending and borrowing contracts. Muamalat also involves the rules regarding the social interactions between human such as marriage, inheritance (waqaf or faraidh) and other human activities Muamalat nowadays, is always associated to economics and finance since these elements are the key for happiness in this world and hereafter. As a Muslim, we are believed that all the wealth on this world is belong to Allah. Humans are only the appointed trustees to manage and distribute the wealth among them. Humans are encouraged to seek wealth through knowledge and skills given by Allah.

2&3. Discuss the economics activities that are related to muamalat .Identify and explain the transactions in the activities.

Musharakah is one of the activities related to muamalat. This is a financing technique in which capital owner finances investment in another partys business. Additional finance is provided to the party, which already has some funds for investment. The finance provides the additional funds on the condition that he shares the profit from the business the ratio in which the finance provider shares the profits of the business with the party receiving the additional funds is fixed and predetermined , and made known in advance to all concerned the loss, however, will be shared in the exact proportion of the capital invested by each party. The profit sharing ratio is subject to the mutual agreement and may be different from the ration in which the two parties(finance provider and user) have interested in the total capital of the project. This is because the two parties may share the work of managing the project in any mutually agreed upon .Both parties are allowed to charge a fee or wage for any management or other labour put into the project. All providers of capital are entitled to participate in management , but are not necessarily required to do so. The musyarakah is continuous if the partnership lasts as long as the business operates. Another muamalat activity is Wadiah. Wadiaah is derived from the word wadaa meaning lodge, leave or deposit. In Islamic Banking perspective, wadiah refers to safekeeping instrument that allows a person to keep the wealth or assets belonging to oneself with another person. In fact, it was practiced before Islam came. Under an Islamic scheme of savings, customers are assured for an interest free safekeeping services. However, unlike the conventional banks, Islamic Banks or Financial Institutions not promising the customers any profit or interest

for their deposits but they may offer the customers a profit earned by the bank through the investments made by utilizing using the customers money. It is called Hibah,where it is absolute discretion of the bank. Wadiah is not valid until there is mutual consent expressed through offer and acceptance (Ijab and Qabul). Offer is revocable unless declare irrevocable or until it is accepted or after a stated or reasonable time. Majority say it is not obligatory. Minority say obligatory only if the depositor cannot find anybody else to protect his property. Futhermore,the example of muamalat activities are Ijarah (leasing).Ijarah is a contract meant for the transfer othe transfer of ownership of permitted usufruct for a known period in exchange for compensation. These are two examples of two types of dealings. Firstly, Ijarah was used to connote employment of the work or services of a person for wages given to him as a consideration for his hired services. For example hiring a person or a company for a specified job like marketing and advertising services. The second type of ijarah relates to the usufruct of assets and properties, and not to the services of human beings. Next activity is Hibah(free gift). A gift offered intentionally by a debtor to a creditor against a loan, which often takes place when Islamic banks honour their clients for the payments on their deposits, which is part of the profit obtained using that capital in other activities. To the observer of capitalist culture such a procedure will immediately appear to be in terms equal to the interest recognized to bank accounts. Hibah, however, has an aspect which is fundamentally different from this, in that it is entirely voluntary and at the bank's discretion. No one can be sure of receiving it, nor in what measure. Besides that, Mudharabah is another example for muamalat activities. This consists of company financing of a businessman who supplies a work-force while the financing is supplied

by the bank, in such a way that both profit and risk are shared. This type of participation agreement between capital and workforce reflects the Islamic outlook according to which the borrower is not obliged to assume responsibility for all the costs and risks of a condition of insolvency, thus creating an equilibrated distribution of income and not allowing the supplier of funds to monopolize the economy. Next,is Takaful (Islamic insurance).This is based on the assumption that what is uncertain for a single individual can cease to be so for a large number of individuals and it represents a valid alternative for a Muslim to protect himself from the risk of losses caused by negative events. Besides that, the activities related to Muamalat is Murabahah. This is is a cost plus contract in which client, wishing to purchase equipment or goods, request the Islamic bank to purchase the items and sell them to him at a certain cost plus a declared profit. By this technique, a party needing finance to purchase certain goods get the necessary finance on a deferred payment basis .The finance provider does the purchasing of the required goods and sells them on the basis of a fixed mark up profit, agreeing to defer the receipt of the value of the goods even though the goods can be delivered immediately. The needs for finance of the person who needs funds to purchase certain commodities is thus met his purchase is financed, and paid for the some later date, though he may end up paying more than he would have paid if he had his own money to purchase the goods. The desire of the finance owner to earn income on his capital is also met. He makes profit in term of the mutually agreed upon marked up price. Bay al- Salam means advance payment or forward buying and is authorized by Prophet Muhammad. The salam contract is the sale of a good to be delivered to the purchaser at a future

date, which must be set at the time of the contract. According to normal rules and regulations, no sale can be effected unless the goods are in existence the time of the bargain,but this sort of sale forms an exception to the general rule provided that the goods are defined and the date of delivery is fixed. The objects of this sale are mostly tangible things and cannot be gold or silver because there are regarded as monetary values. Barring this, bay al-salam covers almost everything which is capable of being definitely described as to quantity, quality and workmanship. Qard Hasan or caring loans as a social service function, Islamic banks grant some interest free loan to needy individuals. Islamic banks have to take care that these loans are granted to those who are in need of support and assistance and help them to recover economically.