Islamic Digital Economy

Running head: ISLAMIC FINANCE ISLAMIC FINANCE Name of Student Name of University Author notes 2 ISLAMIC FINANCE T a ble of Contents Introd uc tio n ..................................................................................................................................... 3 Disc ussio n ....................................................................................................................................... 3 Conc lusio n ...................................................................................................................................... 9 Re fe re nces ..................................................................................................................................... 10 3 ISLAMIC FINANCE Introduction Islamic finance refers to the raising of funds by firms and individ ua ls under Sharia or Islamic rule. It also refers to the kind of investme nts allowed under this sort of legisla tio n. Isla mic finance can be considered as a unique form of investme nt that is socially responsible. Isla mic banking or Islamic finance or sharia-complia nt finance is a bank or a financ ing activity that is consistent with Sharia law and its practical applicatio n by means of Islamic economic develop me nt 1. Discussion In view of Australia's financ ia l market environme nt itself, the challenge is to be grea tly imposed on key policymak ers and regulators because of the evolving and smooth functio n in g environme nt. Australia still has a sovereign or internatio na l company issues and it has no Sharia h- complia nt index, the prerequisites to attract and mobilise funds from abroad. More signific a nt, there are missing, deficie nt and/or regional legislatio n governing the development and expansio n of shariah-based products, especially with respect to double-tax avoidance. Risks To materially affect and encourage the expansion of Islamic finance, a holistic assessme nt of the present complia nce framework is essentia l without which substantia l efforts are hindered to expand the business. Australia risks missing an unnecessary boat, since its commitme nt to a 1 Hassan, Abdulwahid. "The Challenges and Prospects of Islamic Finance in Australia : A Case Study of Murabaha Contract." PhD diss., Victoria University, 2020. 4 ISLAMIC FINANCE diverse financ ia l system is called into question. The powerful nationa l infrastruc ture, open institutio ns, inclusive ness focus and pro-crop regulatory frameworks make Islamic Finance a logica l match. It remains to be observed whether Australia is being promoted as the leading glo b a l financ ia l centre due by the positive momentum generated by the previous Johnson report and its recommendatio ns. In the course of recent decades, their growth in Australia has been gradual and stable , despite significa nt growth and rise of IBs and IFIs worldwide. The Australia n spread of IBs is impeded by several causes. These include, for example, a lack of awareness and norms for products from Islamic finance, the absence of a consistent rate of return for IFIs and the diffic ulties of classifying risk-sharing funds. Nevertheless, these diffic ultie s must be addressed to build a firm basis for the future. There was a number of remarkable hurdles and obstructions to the embargo on receipt and payment of Riba 2. The lack of a standardised financ ia l reporting system is an essential problem. This is a major obstacle to the development and growth of the banking system. The ACI was recently set up to provide a consistent financ ia l statement reporting and reporting framework for Isla mic banking institutio ns (AAOIFI). The role of this organisatio n will be intriguing to monitor. Anothe r obstacle is that banking activity is not regulated. Iqbal notes that a standard regulatory and le ga l framework has not yet been built to support an Islamic financ ia l sector. We believe the expansio n of Islamic banking in the world and Australia is caused by various reasons. Islamic banking is 2 HASSAN, M. KABIR, SIRAJO ALIYU, and MUMTAZ HUSSAIN. "A contemporary revie w of Islamic financ e and accounting literature. " The Singapore Economic Rev iew (2019): 1-38. 5 ISLAMIC FINANCE devoid of riba; it concentrates on the community and, above all, encourages social fairness. There is certainly opportunity for the operation and successful operation of Islamic and non-Isla mic financ ia l organisatio ns. In the Australia n context, this was proved. In this region of the world, both the Australia n Credit Union of the Muslim Community and the Muslim Community Co-operative (Australia) Ltd. serve and do well to the Muslim minority. However, there are risks ahead. While the modes of financ ing for profit and loss sharing (PLS) (musharakah and mudarabah) are considered the optimum Islamic financ ing goods, their applicatio n in conventio na l financ ia l markets has been diffic ult due to diffic ultie s of adverse selection and moral hazard. 4 These issue s have caused Islamic banks and financ ia l institutio ns, which were initia lly not acceptable as Isla mic means of financ ing to finance fixed revenue trading modes such as murabaha. Murabaha is extensive ly utilised since it is friend ly to the market and has the same financ ia l impact tha n conventio na l financ ia l goods. As a matter of fact, murabaha which can be defined as both a sale and a credit agreeme nt - represents 80% of Islamic financ ing operations as the financ ia l product that Islamic Financ ia l Institutio ns (IFIs) employ mostly. As Islamic law brings all Islamic schools together, court judge s have to deal with the diffic ulty of not discriminating between Islamic legal schools, or of disregarding their viewpoint in interpreting Islamic financ ia l transactio ns. In conclusio n, the intricac y of Islamic financ ia l paperwork based on the traditiona l financ ia l system copying and pasting methodolo gy and varied methods and interpretatio ns of tribuna ls in Islamic financ ia l transactions. Given that the dispute between the princip les of Shariah and the common law le ga l system presents Islamic finances with risks as a result of Islamic financ ia l disputes, the Isla mic finance sector needs an alternative dispute resolutio n system that corresponds to the unique nature 6 ISLAMIC FINANCE of the financ ia l transactio ns 3. When there is an objectionable part of the issue under Sharia h legislatio n, such as the impositio n of interest on financ ia l transactions, a major reason for conventio na l banking, its prohibitio n underlies the legality of Islamic financ ia l transactions. In concrete terms, the aim of the study was to synthesise the princip les of Shariah for Murabaha transactio ns and the common law in Australia and to include Murabaha financ ing into the Australia n regulatory framework, in order for a unified Islamic financ ia l regulatory system to be created. It also provided an insight into Islamic financ ing procedures for Australia n financ ia l institutio ns and investors in order to help them comprehend the nature of murabaha transactio ns and the most acceptable methods of resolving associated issues. The purpose of this report is to inform politic ia ns and regulators from Australia in the context of internatio na l trade finance and business law and to understand the potential and problems for the Islamic financ ia l transactions as well as their legal and regulatory impact 4. The paper aims to provide policymakers and regulato rs from Australia with an understanding of the potential and issues associated with Islamic financ ia l transactions as well as of the legislative and regulatory implicatio ns of them in the context of internatio na l trade finance. Although attempting to construct Murabaha contracts to employ the law subject to the princip le s of the Shariah under the laws of a selected jurisdic tio n was 3 Rabbani, Mustafa Raza, Shahnawaz Khan, and Elefthe rios I. Thalassino s. "FinTec h, blockcha in and Islamic finance : An extensive literature review." (2020). 4 Al Rahahleh, Naseem, M. Ishaq Bhatti, and Faridah Najuna Misman. "Develop me nts in risk manageme nt in Islamic finance : A review." Journal of Risk and Financial Management 12, no. 1 (2019): 37. 7 ISLAMIC FINANCE unsuccessful, Murabaha conflicts were confronted with problems during the litigatio n process. Thus arbitratio n is apparently the most appropriate settlement of a dispute in cases where transactions in the Islamic banking sector in jurisdic tio ns not governed by Islamic princip le s encounter legal restrictio ns as regards litiga tio n. It investigated whether the murabaha transac tio n was legally lawful in arbitration while also being Shariah-comp lia nt. Challe nge s As in other nations, the Australia n banking system mostly builds on the Western bank ing tradition that is built on interest receipt and payment and this extends to the system of regulat io n. Many of the more common goods and mechanisms utilised by the financ ia l services companie s that conform to the Shari'ah are also subject to somewhat more subtle obstacles. In Australia, more can be seen as the Islamic finance business grows. There follows a brief discussio n of these questions and challenges. Issues of law and legisla tio n: As Islamic finance is still in its infanc y, it faces a multitude of problems and issues that can be classified as operational difficulties. This section shows some of the obstacles and obstacles associated with the imple me ntatio n of Islamic financ ing in the following parts of the Australia n financ ia l industry 5. 2.2.1.1 Operating as a bank is a problem. The APRA's authorisatio n for an IFI to operate as a fully developed bank for the taking of deposits is a major regulatory issue encountered by IFSPs in Australia. Australia n law, like many countries, normally does not allow deposits without a permit 5 Hassan, M. Kabir, Sirajo Aliyu, Makeen Huda, and Mamunur Rashid. "A survey on Isla mic finance and accounting standards." Borsa Istanbul Rev iew 19 (2019): S1-S13. 8 ISLAMIC FINANCE from the competent governme nt. A financ ia l institutio n has to obtain an APRA licence in accordance with Article 66 of the Banking Act 1959 to carry out banking activitie s. These licenc e s are not easily obtainable and the regulator of the proposed financ ia l institutio n must conduc t extensive examinatio ns, with the normal applicatio n process of up to 18 months. Change in regulatio n: The lack of an Islamic banking system regulatory or legal framework is a fundame nta l hindrance in Australia's proper impleme nta tio n of Islamic financ ia l practises. Two separate sections of legisla tio n appear to be the key concerns in this regard. The double stamp duty problem exists for housing loans. At least in Victoria this problem has been addressed however in other jurisdictio ns it has not yet been resolved. 2.2.1.3 The Basel agreement's incompatib ility. There are also diffic ulties in Australia n regulat io ns about the seeming inconsiste nc y of the present Basel I and II agreements with Islamic financ in g. The prudentia l Australia n rules, which are handled largely by APRA, are in accordance with current Basel I norms and are being changed to Basel II requireme nts. Because neither of the m internatio na lly provides for complia nce with the Shari'ah system, this in Australia is not yet addressed. In addition, the regulator has not yet received any applicatio ns to tackle the matter. The charge on the Islamic house funding for additiona l stamping duties. As simple as possible, the financ ia l institutio n would purchase the property and resell it to customers on a late payment basis over a defined term in the simple example of a typical Islamic financ ia l arrangeme nt. This requires the legal title to be transferred to the property twice: one to the financ ia l 9 ISLAMIC FINANCE institutio n and then to the client, meaning a double stamp obligatio n must be paid 6. The double- stamp duty on Islamic housing finance exists in all the states of Australia except Victoria. In fact, it constitutes a hurdle in Islamic house financ ing, because in Islam it is comple te ly banned to pay or receive interest. Islamic housing finance depends on the participatio n of the financ ia l institutio n which buys the property, then sells it to the buyer, and collects instalme nt payments for the return of the capital (akin to standard mortgaged payments). The financ ia l institutio n often sells the property at the same price instead of collecting interest, but then charge s extra profit/rent for a specific duration. The duty stamp is imposed twice, first to the financ ia l and then to the end buyer, as property ownership is transferred two times. Conclusion As Islamic finance is still in its infanc y, it faces a multitude of problems and issues that can be classified as operational diffic ultie s. The current section of the paper shows some of the obstacles and concerns associated with the introductio n of Islamic finance into the Austra lia n financ ia l markets. Because neither of them internatio na lly provides for compliance with the Shari'ah system, this in Australia is not yet addressed. In addition, the regulator has not yet receive d any applicatio ns to tackle the matter. 6 Mohamed, Hazik, and Hassnian Ali. Block chain, Fintech, and Islamic finance: Building the future in the new Islamic digital economy. Walter de Gruyter GmbH & Co KG, 2018. 10 ISLAMIC FINANCE References Al Rahahleh, Naseem, M. Ishaq Bhatti, and Faridah Najuna Misman. "Develop me nts in risk manageme nt in Islamic finance : A review." Journal of Risk and Financial Management 12, no. 1 (2019): 37. Hassan, Abdulwahid. "The Challenge s and Prospects of Islamic Finance in Australia : A Case Study of Murabaha Contract." PhD diss., Victoria University, 2020. HASSAN, M. KABIR, SIRAJO ALIYU, and MUMTAZ HUSSAIN. "A contemporary review of Islamic finance and accounting literature. " The Singapore Economic Rev iew (2019): 1-38. Hassan, M. Kabir, Sirajo Aliyu, Makeen Huda, and Mamunur Rashid. "A survey on Isla mic finance and accounting standards." Borsa Istanbul Rev iew 19 (2019): S1-S13. Mohamed, Hazik, and Hassnian Ali. Block chain, Fintech, and Islamic finance: Building the future in the new Islamic digital economy. Walter de Gruyter GmbH & Co KG, 2018. Rabbani, Mustafa Raza, Shahnawaz Khan, and Eleftherios I. Thalassinos. "FinTec h, blockc ha in and Islamic finance : An extensive literature review." (2020).