Islamic Finance - UM Group

Islamic Finance

Extract From Book by Mufti Taqi Usmani

“Musharkah”

'Musharakah' is a word of Arabic origin which literally means sharing. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is an ideal alternative for the interest-based financing with far reaching effects on both production and distribution. In the modern capitalist economy, interest is the sole instrument indiscriminately used in financing of every type. Since Islam has prohibited interest, this instrument cannot be used for providing funds of any kind. Therefore, 'Musharakah' can play a vital role in an economy based on Islamic principles.

“Diminishing Musharkah”

'Diminishing Musharakah' Another form of Musharakah, developed in the near past, is 'Diminishing Musharakah'. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share till all the units of the financier are purchased by him so as to make him the sole owner of the property, or the commercial enterprise, as the case may be.

To see the complete book "Islamic Finance" by Mufti Taqi Usmani please click here:

To see the judgement of Supreme Court of Pakistan on Interest please click here:

For pdf version of the judgement, please click the link below:

The_Text_of_the_Historic_Judgment_on_Interest.pdf

Rulings from Quran & Hadith

“Quran: Surah Baqra: Ayat 275”

"Those who devour usury will not stand except as stand one whom the evil one by his touch hath driven to madness. That is becuase they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are companions of the fire: They will abide therein (forever).

“Quran: Surah Baqra: Ayat 278-279"

"O you who believe! Be afraid of Allah and give up what remains (due to you) of Riba (from now onward), if you are (really) believers. And if you do not do it, then take a message of war from Allah and his Messenger"

“Quran: Surah Al-Imran: Ayat 130-132”

"O you who believe! eat not Riba doubled and multiplied, but fear Allah

that you may be successful. And fear the fire, which us prepared for the disbelievers. And obey Allah and the messenger that you may obtain mercy."

"Sahih Al Bukhari"

Muhammad bin Ismail bin Zahabi in his "Kitab-ul-Kabair" states that Riba is a major sin and this is substantiated from the hadith that states: Narated by Abu Huraira: The Prophet (PBUH) said, "Avoid the seven great destructive sins." The people enquire, "O Allah's Apostel! What are they? "He said, "to join others in worship along with Allah, to practice sorcery, to kill the life which Allah has forbidden except for just cause (according to Islamic Law), to eat up Riba (usury), to eat up an orphan's wealth, to give back the enemy and fleeing from the battlefield at the time of fighting, and to accuse chaste women, who never think of anything touching chastity and are good believers.

"Narrated by Abu Jahaifa: "The Prophet (PBUH) cursed the lady who practices tattooing and the one who gets herself tattooed, and one who eats (takes) Riba (usury) and the one who gives it.

"Ibn Majah Sahih"

Abu Huraira said "that the Messenger of Allah (PBUH) said: "Riba is seventy types, the least of which is equal to one having sexual intercourse with his mother".

"Musnad Ahmed"

Abdullah ibn Hanzala reported "that the Prophet (PBUH) said: "knowingly consuming a dirham of Riba is worse for a man than committing adultery thirty six times".

"Sahih Muslim"

Jabir reported "that the Messenger of Allah (PBUH) cursed "the one who consumes Riba, the one who gives it to others, the one who writes it down and the one who witnesses it." He said> "They are all the same".

"Sunan Abu Dawood"

Narrated by by Abdullah ibn Mas'ud: The Apostel of Allah (PBUH) cursed the one who accepted usury, the one who paid it, the witness to it, and the one who recorded it."

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Islamic Finance & Riba

Click the image to see the

extract from the book

"Islamic Finance"

by Mufti Taqi Usmani

and rulings from

"Quran & Hadith"

about Interest (Riba).