Conclusion

One of the most important characteristics of Islamic financing is that it is an asset-backed financing. As compare to conventional financing, the banks and financial institutions normally deal in money and monetary papers. In Islam, however, money should not be used as a subject matter of trade to generate profit (except in some special cases); rather it is only a medium of exchange. Thus, profit is generated when something is sold for money or when different currencies are exchanged, one for another. The profit earned through dealing in money (of the same currency) or the papers representing money is considered as interest (riba) and therefore prohibited.

Consequently, unlike conventional financial institution, financing in Islam is always based on illiquid assets which create real assets and inventories. Looking into this perspective, of course, the most suitable and ideal instruments of financing in Shariah are musharakah and mudarabah. Under these two instruments, the money contributed by the financier is converted into the assets having intrinsic utility. Thus, profits are generated through the sale or trading of these real assets. Similarly, financing on the basis of salam and istisna’ also creates real assets. The financier in the case of salam receives real goods and makes profit by selling them in the market. In the same way istisna’ financing also created real assets through manufacturing process, in which the financier earns profits. Financial leases (ijarah), murabahah and bay’ bithaman ajil, however, are not originally modes of financing in the Shariah. But, in order to meet some needs, these instruments have been restructure in a manner that they can be used as Islamic financing methods, in the sectors where musharakah, mudarabah, salam or istisna’ are not workable due to some reasons or another. REFERENCES

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