Murabaha or Ijarah: Best Method in Islamic Mode of Financing

By

ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

DECLARATION

I, (Your name), would like to declare that all contents included in this dissertation stand for my individual work without any aid, & this dissertation has not been submitted for any examination at academic as well as professional level previously. It also represents my own views & not essentially the ones associated with university.

Signed __________________ Date _________________

ABSTRACT

The topic of the research study is “Best method in Islamic mode of financing” that is considered to be an important area of research in the Islamic banking system. The researchers have largely discussed the best practice of financing in Islamic banking system that offers the optimal profits to the investors and users. Various modes of financing have been introduced within the Islamic banking system however the study pay particular attention to the relevance of Ijara and Murabaha that are known to be the best financing methods in the Islamic economic system. Different aspects of Murabaha and Ijara have been discussed in the study that provides in depth analysis of the research topic and provides extensive information about the Islamic modes of financing. The emergence of Islamic finance is one of the most striking features of the 21st century financial system that has provided various benefits to its users in terms of interest free payments and quick ownership of the assets. The absence of interest transaction is an important characteristic of the Islamic financial system that makes it different from rest of the financial systems being operated in the financial markets. Despite the debates about whether Islamic financing truly reflects the economic order required by Shariah religious law, the industry has experienced explosive growth worldwide particularly in the past ten years. Also in the United States the Islamic finance industry, concentrating mainly on home financing, has grown at a modest but steady pace over the past years as providers have refined their product, expanded their market geographically, sought sources of investment, and developed their customer base. On the financing side, one of the most important developments for Islamic finance was Freddie Mac's 2001 decision to buy Islamic mortgages from LARIBA via its cash window

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Background of the Study1

Aims of the Study3

Objectives of the Study3

Problem Statement4

Purpose of the Study4

Significance of the Study5

Rationale of the Study5

Research Questions6

Summary6

CHAPTER 2: LITERATURE REVIEW8

Islamic Financing as Reflection of Economic Order8

Concept of Financial System9

Differences in Islamic and Conventional Banking System10

Riba (Interest) and Gharar (Risk)13

Issues of Islamic Banking System13

Types of Islamic financing products14

Islamic Conceptions15

Riba Free Insurance (Takaful)15

Conventional Insurance Requirements16

Takaful17

Tabarru20

Mudaraba and Wakalah in takaful22

Summary22

CHAPTER 3: METHODOLOGY24

Introduction24

Research Philosophy24

Explanation of Methodology25

Selection of Research Method25

Methodological Approach26

Justification of Research Method27

Research Design27

Literature Design28

Data collection methods and tools28

Aims of the Research Study29

Achievement of Aims of the Study29

Methodological Possibilities30

Method of Analysis30

Procedure of Primary and Secondary Data Collection31

Primary Sources32

Secondary Sources32

Rationale for a Qualitative Study33

Rationale for a Quantitative Study33

Instrument ...