Ep 1 What is Islamic Finance Understanding the Basics

Mansoor Danish

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Salam Alaikum Warahmatullahi Wabarakatuh Hello, everyone. Welcome to a brand new series. In this series we are introducing the concept of Islamic banking and finance, and how we can also integrate them into our personal finance, our personal decisions that we take relating to money and economic decisions that we make in our life. Now let's understand what do we mean by Islamic finance? What is Islamic finance? Am I trying to pull a new trick out of the hat? Islamic finance is certain economic decisions that you're making financial transactions that you engage in which comply to the Sharia guidelines, or the Islamic law. And the most important source of Islamic sharia is the teachings of

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the Noble Quran and the teachings of our Prophet Muhammad, peace and blessings be upon him. These are the two most important sources of Islamic finance. There are other secondary sources as well, which we will talk of in the future with you. Now, what are the core principles which govern Islamic financial transactions, because all our decisions that we're going to make in our personal life in our personal finance will have to bear some link to these core principles. The first and foremost principle is non engagement in interest, there is absolutely no dealing in interest in Islamic financial setup. So, you will find that Islamic banks will not engage in giving out of interest or

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taking interest for that matter. The second and most important aspect is that there is an acid backed transaction. So when you go in for financing, to a conventional bank, you want to buy an asset you let's say you want to buy a car, the conventional bank will lend you the money to buy the car, and in return, they will ask you to pay back the money as well as the interest component. However, in an Islamic financial institution, they will procure the car in their name, and then they will sell you that car at a price and a profit margin over and above that, which introduces the third important aspect to Islamic financial transactions, which is the concept of risk sharing by

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engaging in the kind of transaction which we just spoke of Islamic financial institution is also bearing a big responsibility taking on the risk of owning an asset and therefore all the risks associated as being the principal owner comes upon the Islamic financial institution as well. So they are not murli financing your transaction, they are also becoming a sole owner of the asset and then selling you the ownership of the asset. The last and most important principle that we want to introduce today is the concept of ethical restrictions. Since the concept of Islamic banking and finance is based on religious laws, there is an aspect of ethics and morals which are involved in

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this. And one of the concepts of ethical restriction, which is applied in Islamic financial transaction is that you don't engage in dealing with companies or sectors which engage in prohibited businesses. For example, business of alcohol business of gambling, which is strictly prohibited in Islamic Sharia, you will find that Islamic financial institutions are not going to buy stocks of these companies because of the ethical restrictions. There's a lot more to study and Islamic banking and finance. Stay tuned for more videos. Thank you so much for joining me for this video. Please remember to like this channel, subscribe for this channel. And stay tuned for more videos.