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Evaluation
Group project
25%
Mid-term examination 15%
Article Review
10%
Participation
10%
Final examination
40%
Total
100%
2
TOPIC 1
OVERVIEW OF SHARIAH AND ACCOUNTING
What is Bank?
Financing
Surplus Units
Individuals
Businesses
Government
Return on investment
& savings
Banks Liabilities
Deficit Units
Financial
Intermediary
(e.g. bank)
Individuals
Businesses
Government
Return on
financing
Banks Assets
6
Why Do
We Need
Islamic Banking System?
the Muslims
Meet modern requirement of individual and
commercial needs
Encourages financial innovations but in line
with Shariah
In Malaysia, growing regulatory and social
support
Historical Development of
Islamic Banking
The 1st. Islamic Bank Mit-Ghamr Local Savings Bank
25 November 2008)
Standard Chartered Saadiq Berhad (Launched
on 12 November 2008)
OCBC Al Amin Bank Berhad ( Launched on 11
November 2008)
Three foreign Islamic banks:
Al Rajhi Banking and Investment Corporation
Shareholder
s Funds
Financial Institution
Loans &
Advances
Investmen
ts
Fixed
Deposits
(Time)
Deposit interest rate
(expense)
15
Shareholder
s Funds
Financial Institution
Equity
Based
Financing
Sales
Based
Financing
Lease
Based
Financing
Investmen
ts
Profit rate
(income)
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Valid
What is Riba?
19
Juridical Meaning of
Riba
Literally means excess, increase, expansion,
growth.
In Shariah: (Refer to Wahba Al-Zuhaily, Fiqh AlIslami Wa Adillatuh)
Hanafis School: A surplus of commodity or an
excess in return without counter value
Riba is a predetermined excess or surplus over
and above the loan received by the creditor
conditionally in relation to a specified time
period
Riba was made forbidden in the 8th or 9th
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Quranic Prohibitions
Those who devour riba will not stand
Hadith Justification
Avoid the seven grievous sins They asked:
22
Categories of Riba
1. Riba al-Duyun
2.
Riba al-Buyu
- Applies to sale
- Applies to loan or to
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transactions in certain
commodities
- It has two types:
1. Riba al Nasiah (delay
in paying or delivery of
one or the two sold
items); and
2. Riba al Fadl
(exchanging one ribawi
commodity for the
same commodity but
unequal in amount
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Condition
Money1 + Money1
Equality
Hand-to-hand (spot)
Food1 + Food1
Equality
Hand-to-hand (spot)
Money1 + Money2
Hand-to-hand
Food1 + Food2
Hand-to-hand
Money + Food
Money + Others
Food + Others
Others + Others
What is Gharar?
27
Meaning
Deceit, fraud, uncertainty,
danger, peril, or hazard that might lead
to destruction or loss
Technically: uncertainty and/or
ignorance of one/both parties in a
contract over the substance or
attributes of the object of sale, or doubt
over its existence and availability at the
time of contract
Literally:
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Prohibition of Gharar
All jurists agree that gharar should be avoided in commercial
exchange contracts
Prohibition of gharar
Indirect references made in the Quran
Conclusively prohibited by the Sunnah of the Prophet
s.a.w.
Classical examples of gharar sale
Sale of fish still in the sea
Sale of birds in the air
Sale of unborn animals
Types of gharar
Gharar yasir (minor or slight)
Tolerated and will not invalidate a contract
Gharar fahish (major or excessive)
Not tolerated and may result in contract voidability
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What is Accounting?
31
= LIABILITIES + EQUITIES
USES OF FUNDS
SOURCES OF FUNDS
PRICING
EFFICIENCY
EQUITY
Islamic Bank:
Financial Claims & Assets
UNRESTRICTED
INVESTMENT ACCOUNT
HOLDERS/ GENERAL
INVESTMENT
ACCOUNTS
DEPOSITORS
FIXED ASSETS
SHAREHOLDERS
EQUITY & RESERVES
INVENTORY
INVESTMENTS
PAYABLES
FINANCING
RESTRICTED
INVESTMENT ACCOUNT
HOLDERS/ SPECIAL
INVESTMENT
ACCOUNTS
35
38
Islamic Accountability
Transcendental accountability to Allah
SWT (Hablumminallah)
Social accountability to the society
(Hablumminan-nass)
Individuals as trustees or khalifah
Success in this world and in the
hereafter (al-falah)
Economic goals beyond purely wealth
but include tazkiyah (purification of self
and wealth)
39
Allah
1
3
Concept
of
Khilafah
Self
2
40
Shariah
Othe
rs
41
Islamic
Statement of
Income
Economic
Performance
Fulfilment of
Amanah
Statement of
Financial Position
Financial Position
Statement of
Cash Flows
Cash Position
Cash Entrusted
Statement of
Equity
Wealth Ownership
Wealth Entrusted
Components of Islamic
accounting
Accounting
For
Islamic
Business
Organizations
Accounting
For
Islamic
Societies & Unions
Accounting
For
Zakat Collection &
Distribution
ISLAMIC
ACCOUNTING
Accounting for
Islamic
Banks
Accounting for
Waqfs
Accounting
For
Islamic
Government Agencies
Features of Islamic
Accounting
No different in terms of recording (double entry
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system)
Clear distinction of Accounting Objectives i.e.
religious obligation vs. commercial obligation
(different significance of financial statements)
Different users information need (legitimate and
equitable transactions and wealth vs.
maximization of wealth and economic
consequences)
Compliance with the principles and rules of
Shariah
Different Islamic contractual relationships
(mudarabah instrument; murabahah etc.)
Distinct accountability relationships (to Allah
SWT and Ummah)
Determination of zakat
equitable investment)
Creditors (potential and existing) (lawful trade
assets)
Regulators (e.g. Bank Negara)
Shariah Supervisory Board & Advisory Council
(Shariah compliance)
Customers (lawful goods and services)
Others who may be effected by the disclosure
or non-disclosure of information
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END OF TOPIC 1