Study On Financial Engineering In Islamic Finance Finance Essay

Islamic banking is non new, If we look into the human history we found that in different timings different type of inventions are introduced harmonizing the people need at that clip. If we take illustration from “ Bible ” people at that clip went for trade trades concerns with each other. During the clip of “ Jesus ” the same examples we have but the manner of trade was different but the message from Allah ( SWA ) was the same that we have today.

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Furthermore, at the clip of baronial epoch of Holy Prophet ( PBUH ) , we have illustrations that Holy Prophet ( PBUH ) at the clip of childhood went for trade with his gramps Hadrat Abdul Mutlib and Hadrat Abu Talib ( r.a, may Allaah hold mercy on him ) for trade and even Holy Prophet ( PBUH ) covering trade, when Prophet ( PBUH ) worked for Hadrat Khadija tul Qubra ( r.a, may Allaah hold mercy on him ) harmonizing to the Shariah.

Soon, conventional fiscal system is good griped and people deals their concerns with the aid of Riba based minutess which is non allowable harmonizing to the Shariah. It is the needed to present a Riba free fiscal system that meet the demand of liquidness and fund direction.

In 1980s there is a rapid debut of fiscal inventions in international fiscal markets and present broad scope of Islamic instruments that fulfil the demand of both side international and domestic fiscal market. Fiscal establishments particularly Bankss playing a theoretical account function by presenting liquidness and hazard direction tools like for short term financing they offer “ Mudarba ” , for partnership “ Masharka ” and for gross revenues offering “ Ijara ” finance.

The secondary market still confronting the job and still it ‘s traveling on under the rehabilitation procedure because deficiency of efficient secondary markets and liquidness in the Islamic finance market. Due to the un-sufficient of liquidness resorts Islamic bankers can non easy use their portfolio. Risk direction merchandises are still unfamiliar to Islamic fiscal markets. While, harmonizing to the sole of Shariah based on sharing of hazards and Riba free investings.

Soon, extremely liquid instruments and derived functions are introduced harmonizing to the Shariah conformity after acquiring the permission of Shariah consultative council and board which is free from Riba, Ghara, Qimar and Ikrah. Islamic bookmans have fixed elaborate footings and conditions for a broad scope of contracts such as topographic point and future gross revenues, leasing, partnership and trade.

The other fiscal instrument that provides conventional banking more liquidness is Securitization is the procedure of taking an illiquid plus, orA group of assets, and through fiscal technology, transforming them into a security. The most common fiscal markets securities are mortgages, auto loans, rentals, and receivables assets and from stock list, recognition cards, and service Centres, such as wellness attention suppliers. Leasing ( Ijara ) is a well-established and recognized Islamic instrument that holds a considerable portion of Islamic fiscal investings and offers medium- to long-run funding for capital goods and equipment required by undertakings

Renting ( Ijarah ) is a good campaigner for Islamic plus securitization for several grounds. First, rentals are by definition backed by assets, so that investors are non exposed to any recognition hazard.

Second, they provide a collateralized and steady watercourse of hard currency flows-a coveted characteristic for successful securitization. Third, leases can be at fixed or drifting rates, therefore offering more flexibleness and chance for better assets-liabilities fiting. Finally, there are similarities

between Islamic rentals and conventional rentals that make the instrument attractive to non-Muslim investors.

The factor of recognition enrichment or underwriting in conventional securitization may non hold an exact replacement in Islamic securitization. the related map in Islamic finance can be emulated through an instrument based on the rules of Islamic Guarantee ( Daman ) or surety ship ( Kifula ) or insurance ( Takaful ) .

Swap trades are non experienced in Islamic fiscal markets chiefly because the instrument is suspected to integrate interest-a forbidden component in Islamic finance.

A simple signifier of trade good barter could be recognized as a valid contract that does non go against any of the Shariah ‘s regulations and therefore could be considered acceptable by Shariah

Scholars but the involvement rate and currency barters are non allowed under the Shariah conformity.

Muslim sale contracts Buy ‘ Salum or Istisna ‘ are the closest replacement for the deferred payment gross revenues ( frontward contract ) . common conditions regulating Buy ‘ Sulum are that the trade good should be delivered on a specific hereafter day of the month after subscribing the contract, the sum of chief ( monetary value times measure ) paid should be known, the principal should be paid in progress, the topographic point of bringing should be specified, the contract should non let options, the principal paid should be in the signifier of money, and the two transacted points should non be of the sort whose exchange would take to Riba.

Istisna ‘ is apply to a contract of fabrication something harmonizing to a given specification and can besides be functional to natural resources like oil, gas and gaps etc.


Fiscal technology by its alone attack of concern reshaped the western fiscal market in the last two decennaries by offering efficient liquid secondary markets and derivative instruments. Shariah conformity provides more hazard sharing merchandises by offering Mudarbah, Musharka, Ijarah, Istisna and Takaful finance. Derived functions are really of import for the strengthen the Islamic capital market against the conventional market demand to present more long term and short term instruments that provide the Islamic finance its existent peep but under the Shariah


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