Islamic Banking Essay

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Islamic Finance Group Assessment Our focus has been on two financial products offered by Islamic banks; Sukuk and Murabaha. Sukuk is a Sharia compliant alternative to traditional products, however there is still controversy regarding its status. The reason for this is because conservative scholars do not believe that Sukuk has effectively avoided the element of riba (interest). The argument lies in the fact that Sukuk requires payment for the time value of money and investors are offered a fixed return on their investments, which can be said to be similar in appearance to riba (interest). In Islam it is haram (not permissible) to trade and sell debts, conventional loans and credit cards; and Sukuk results in debt and thus can’t be traded other than face value as both money and debt cannot change value over a period of time. In a statement issued by The Chairman of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI’s) Sharia Board, Sheikh Taqi Usmani stated that “85 per cent of the GCC Sukuks’ do not comply with the Sharia principles and thereby, don't qualify to be called Islamic at all.” One of the key points highlighted by Sheikh Taqi Usmani was the regular Distributions of profits to Sukuk Holders. This was said to be identical to conventional bonds as the distribution of profits from enterprises were given at a fixed percentage based on interest rates (LIBOR). Sheik Taqi Usmani also identified three criteria for Sukuk to be sharia complaint; 1.Payments to Sukuk holders must be a share of profits (after costs etc incurred by business) 2.Sukuk must signify shares of ownership in commercial/industrial enterprise or in assets 3. Repayment value to Sukuk holders should be at current market value of asset It has been agreed by scholars that majority of Sukuk issues are not sharia compliant and after the statement

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