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CHAPTER II THEORETICAL FRAMEWORK
A. Islamic Bank
Islamic Banking act 2008:
“Islamic banking business means banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam.”
While Ariff 2007:3 defines Islamic bank as an institution that deals in money and its substitutes and provides other financial services. Banks accept
deposits, make loans, derive a profit from the difference in the profits-shares, and fee incomes that are consistent with the Shari’ah common law principles
governing such a bank. According to Haniffa and Hudaib 2007: 99 Islamic banking
refers to a system of banking which is consistent with the principles of Islamic law. Shari’ah bank is one of national banking which operates
according to shari’ah principle. Shari’ah prohibits transaction involving interest riba, uncertainty gharar, and unlawful haram and it requires
muslim to pay zakah . Riba
refers to the addition in the amount of the principal of a loan. The prohibition of interest means that Islamic banks cannot incur or
earn interest in any of their financial transactions. Beside that, riba is prohibiting in Islam because it’s established injustice and exploitation in
economic system. Sulaiman 2003: 6 argue that the moral motive behind the prohibition of interest is based on the principle of not exploiting the poor and
the needy through charging interest on loans extended to them. According to Haniffa and Hudaib 2007: 99 Shari’ah concern with promoting justice and
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welfare in society Al-adl and Al-ihsan and seeking God’s blessings Barakah, with the ultimate aim of achieving success in this world and
hereafter Al-falah. It describes that the purpose of Shari’ah is to promote and protect the interest of individuals and societies by bringing benefits and
preventing harm in relation to their necessities needs and wants. Consequently, the various financial instruments develop by Islamic bank
base on two principles: the profit-and-loss sharing principle and the mark-up principle Aggarwal and Yousef, 2000: 95. According to Haniffa and Hudaib
2007: 100 Financing instruments based on the former principle include mudharabah venture capital and musharakah partnership arrangement
; While instruments based on the latter include murabahah resale with stated
profit, bay’al-salam forward sale contract, ijarah and ijarah wa iqtina operating and financial lease
; 1. Mudharabah is a form of partnership where one party provides the
funds and the other provides the expertise and management. Mudharabah is based on profit sharing.
2. Musharakah is involving places capital with another person and both sharing the risk and reward. Musharakah is based on profit and loss
sharing. 3. Murabaha is a contract of sale between a buyer and a seller in which a
seller purchases the goods needed by a buyer and sells the goods to the buyer on a cost-plus basis. Both the profit and the time of repayment
are specified in an initial contract.
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4. Salam is a sale of goods where the price is paid in advance and the goods are delivered in the future.
5. Istisna’ is a contract for manufacturing or construction whereby the manufacturer seller agrees to provide the buyer with goods identified
by description after they have been manufactured or constructed in conformity with that description within a pre-determined time-frame
and price. 6. Ijara operating lease is a form of leasing. It involves a contract where
the bank buys and then leases an item. The duration of the lease, as well as the basis for rental, are set and agreed in advance
7. Ijarawa- igtina lease with optional ownership is another form of Ijara, except that included in the contract is a promise from the customer to
buy the equipment at the end of the lease period, at a pre-agreed price.
B. Islamic Value