Moral Islamic Finance

Islamic banking finance economy

by islamicbankingfinanceeconomy.blogspot.com

 Moral Islamic Finance

Efforts to better understand the philosophy and performance of Islamic Financial Institutions (LKS) should be considered as a necessity and needs. Competitive advantages and comparative LKS must constantly explored and implemented in order LKS practice. Errors and shortcomings were still going to be increasingly minimized. Efforts purification (purification) should be the main agenda of the human LKS. The following are competitive advantages at the same time distinguishing feature of LKS.At least three special features that differentiate significantly between Islamic Financial Institutions (LKS) with Conventional Financial Institutions (EHS) (Beik, 2006). First, Islamic financial institutions operating on the basis on the principle of risk-bearing. That is, the Islamic financial institutions dare to risk in the face of uncertainty for businesses, because of a clause in the Sharia states 'no gain without risk'. This is in line with the word of Allah in Surah Luqman [31] verse 34: God, just on his side alone knowledge of the Hour; He is the lowering of rain, and knows what is in the womb. And no one can know (exactly) what will be earned tomorrow. And no one can know where on earth he was going to die. Surely Allah is Knower, Aware.The indicator is that Islamic financial institutions have never guarantees a definite advantage, in contrast to conventional financial institutions that provide a guarantee in the form of interest rates with a fixed percentage. Islamic financial institutions only provide the expected rate of return (profit forecast) to its customers. Interestingly, although the Islamic financial institutions have a level of risk and greater uncertainty, until now unheard of Islamic financial institutions bankruptcies and failures. In contrast to conventional financial institutions which often results in failure and bankruptcy, which one example is the destruction of the order of Indonesian financial institutions when the monetary crisis in 1997.The second characteristic is the moral dimension in the concept of Islamic financial institutions, where it will never be found in the concept of conventional financial institutions. Islamic Financial Institutions will never may want to finance projects that violate the law even though the business is very lucrative and profitable. In contrast to conventional financial institutions that had never cared halal issue illegitimate. The third characteristic is the Islamic financial institutions put more emphasis on improving productivity. Islamic financial institutions are financial institutions that emphasize the concept of asset and production based system (asset based systems and production) as the main idea. Profit and loss sharing is a major reflection of the idea.There are several advantages of financing and loss patterns of these. First, the second pattern is a manifestation of the principle of risk-profit sharing, which is the 'main core' system of Islamic financial institutions. Second, profit and loss sharing is a model of investment financing that has a real impact on the real sector development and productivity levels of society so that it has the potential to reduce unemployment and poverty.Third, the concept of profit and loss sharing will lead change in the behavior of economic actors towards a better and more productive. The depositor will have more awareness on the funds kept. In the conventional financial institutions, customers are less concerned about their deposits because the funds pledged receive a fixed interest rate. However, with the concept of Mudharabah, he would face the risk of loss that he will carefully compare the expected rate of return offered by the Islamic financial institutions and interest rates offered by conventional financial institutions. Customers became more concerned with the state of health of a financial institution. If the rate of return of Islamic financial institutions is high, he will know that the healthy condition of the financial institution. Conversely, if there is a decrease, he can know that the financial institutions are facing problems. This does not occur in conventional financial institution system. Customers do not know whether this financial institution is in good health or not because he received a number of predetermined interest.Investors will be encouraged to be more willing to innovate and work on projects risky business. Business creativity will grow and develop. If the company suffered losses, those losses will be borne by the bank in all, using pattern mudaraba, and taken together if using Musharaka pattern. The company's balance sheet will be more stable due to the assets and liabilities will move together. While in conventional systems, if required to pay some interest to financial institutions without such financial institutions regardless of whether the business suffered a gain or loss.For the financial institutions themselves will be more careful in channeling financing as it faces the risk of losses. Financial institutions will be cautious in evaluating each project, including examining carefully the background of prospective investors to be financed, whether it can be trusted or not. For the overall economy, profit and loss sharing system will reduce the likelihood of financial crisis and economic recession due to the instability of the real sector and monetary sector (Beik, 2006).Real sector and financial / monetary will move in a balanced manner. This is due to the results or the return on the financial sector is heavily dependent on the performance of the real sector. If the real sector increased, the financial results will also rise. Conversely, if the real sector experienced a decline in performance, the results for the financial sector will be reduced. The same thing will not be found in conventional systems. With the interest rate system, financial sector conditions / monetary do not necessarily reflect the real sector due to interest or return on the financial sector are not determined by the performance of the real sector. This is the reason why in a country often occurs improving macroeconomic conditions, but it does not necessarily reflect the good conditions in the real sector. Thus, it is clear that the sharing system is an instrument that can stabilize and balance the real sector and monetary sector automatically (Beik and Hafidhuddin, 2006).