Answering all your queries on Islamic banking and Finance in the light of Quran and Hadith  
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Islamic Financial Products

The need for financing are:

  • Humanity is not uniformly endowed with wealth: Not all men have material resources and those who have it may not necessarily be competent enough to make good use of it. Financing is used to combine these two resources, material and man, for the benefit of both, the one having material and the other having skill. There are people without money but having excellent business skills. The world has poor class, middle class and the rich class. They all have existed through ages, exist today, and will continue to exist. The rich cannot claim to be self sufficient nor can the other two classes. The wealth of the rich finds its outlet in the form of financing whether it be through banks or direct financing. The less rich classes benefit from the financing from the wealthy in the form of being employed with them or getting cash in hand to venture in the market and earn profit.
  • Utilization of excess wealth: One important reason for financing could be the inability of the rich to handle too big a business himself. So he hands over his excess wealth to a person who may put it to good use and earn profits for himself as well as the owner of the capital.
  • Well being of an economy: A society cannot be imagined without a market. Trade is essential for any society. Trading has been a backbone of economy for many cities throughout history. One such example is the Makkan economy. People who owned small amount of wealth lent it to the traders who would earn profit and give it back to those who had financed his trade proportionately. Other example of financing can be found in the literature of medieval Europe. In Shakespeare's play, The Merchant of Venice the story revolves around financing by the Jew, Shylock.
  • Desire to become rich: It everyone's desire to become rich and to see his wealth grow. Human beings have their own limitation. They cannot go on working endlessly. He needs to sleep, eat and take rest. There are only 24 hours in a day and 365 days a year, so time is also a big constraint. Therefore financing is required to make other work on his behalf thus mutually benefitting both.
  • Inability of money to grow by itself: The natural assets such as live stocks, trees and plants have the natural ability to grow by the process of reproduction, embedded in them by the almighty Allah (SWT). Money has no inherent nature to grow by itself, so to make it grow its circulation in market is necessary. It is also good for the health of an economy.
  • Financing produces marketable goods and services: financing is seen to produce goods and services in the market. These provide employment which is important and essential for the development of any nation. For example, India has seen huge investments in IT and ITeS fields. This has solved the problem of unemployment to a large extent. Unemployment had been a monstrous problem ever since India became free in 1947.
  • Financing for social insurance: Financing is also required for social insurance. Every human being should have the minimum subsistence level below which remaining alive would be impossible. Meaning that every human being should get his daily meals, should have enough clothes to cover his body and should have a shelter to protect him from vagaries of weather. For this purpose also financing is required so that humans may live as humans.
  • Financing for business losses: Financing is also required to help a person who has lost his means of livelihood due to some natural calamities or huge loss in his business. Financing is used to support him and help him re-establish his lost business or recover his loss. This kind of financing is temporary and irrespective of whether a person is rich or poor. Because anybody can suffer a loss in his business. Once he has reestablished himself, he does not require any more financial support.
  • Financing for students: Financing is needed by students who may want to go for higher studies in his own country or abroad. Students in their limited means cannot afford higher studies which require lot of expense.
  • Financing for farmers: Farmers also need financing to buy the seeds and equipments of agriculture. A farmer would not have money until the crops are ready. So in the tilling season farmers require money so that they can buy high quality seeds which would give higher yield.

    The various Islamic financial Products are:

  • Murabaha

  • Mudarabah

  • Musharakah

  • Diminishing Musharakah

  • Ijarah

  • Salam

  • Istisna

  • Musawamah

  • Takaful (Islamic Insurance)

  • Sukook (Islamic Bonds)