FOUNDATION OF ISLAMIC BANKING

1. SHARIAH REQUIREMENTS IN ISLAMIC BANKING:

1.1. •Islam permits trade and commerce and the contracts that applied to termed Muamalat. •Muamalat are civil contracts. •All civil contracts can be used in Islamic banking and finance. Concept of Islamic banking and finance its operation is based on contracts permissible by Shariah.

1.2. Purpose of the Shariah requirements: •to ensure the products are permissible or halal. •to ensure the trading in them becomes permissible and valid (Halal and sahih)

2. ISLAMIC BANKING PRINCIPLES:

2.1. 1. Transactions must be free of riba' 2. Activities or transactions involving speculation (gharar) must be avoided 3. Promotion socio economic, justice via Islamic tax (Zakat) 4. Discouragement of the production of goods and services that are harmful to humankind and contradict the Islamic principles or value "Haram" 5. Avoidance of oppression (zulm)

3. CONCEPT OF AQAD (CONTRACT) •refers to the Arabic words means agreement. •refers to join, tie or the rope •restricted connection between ijab and qabul based on the Syariah compliances which is caused into law's barrier when the aqad being agreed by two peoples or more

3.1. ESSENTIAL ELEMENT OF VALID AQAD: 1. The contracting parties •the seller and buyer 2. The offer (ijab) and acceptance (qabul) 3. The consideration 4. The subject matter of aqad •must exist •can be delivered •must be known •owned by seller

4. THREE BASIC ELEMENTS: 1. AQIDAH • concerns all forms of faith and belief by a Muslim in Allah and His will. 2. SHARIAH •concerns all forms of practical actions by a Muslim manifesting his faith and belief. 3. AKHLAQ •concerns behavior, attitude and work ethics.

5. •Shariah is the centrepiece and backbone of the religion of Islam.

5.1. Shariah divided into two: 1. Ibadah •concerned with the practicalities of his worship to Allah. •man to Allah relationship 2. Muamalat •concerned with the practicalities of his mundane daily life. •man to man relationship

6. •Muamalat is the conduct of a Muslim's economic activities within his economic system. •In the Islamic scheme of life and Shariah framework, a Muslim's banking and financial activities can be traced to his economic activities, to muamalat, to Shariah, to Islam and finally to Allah.