Islamic Banking: Interest Impact & Monetary System

BANKING DUTIES 1. The Muslim Economic View explains that the prohibition of interest or usury is because it has a bad impact on the economy and replaces it with lossn profit sharing. Explain the impact of interest and loss profit sharing on the economy. • the impact of interest on the economy is that with interest, money will be concentrated in the monetary sector so that it will depreciate the real sector. When the real sector shrinks, there is additional money in the monetary sector but accompanied by additional debt in the real sector. When money increases but is not accompanied by the number of goods it will cause inflation. When inflation occurs, it will hamper the pace of the economy. • The impact of loss profit sharing on the economy is that when using loss profit sharing, the distribution of wealth and income will be even, so that the real sector will grow, when the real sector grows, productivity and employment opportunities will increase. When productivity and employment opportunities increase, it will boost the pace of the economy. 2. Explain the differences between conventional and Islamic theories of money demand! • Conventional theory of demand for money a) Classic monetary (money demand) theory The economy will always be in a state of fill employment. b) keynes theory That the market mechanism cannot automatically guarantee full employment in the economy. • Islamic theory of demand for money a) Demand for money according to alternative schools The existence of money is essentially a representation of the volume of transactions that exist in the real sector. Islam considers that changes in economic added value cannot be based on changes in time. The added value of money occurs if there is economic utilization as long as the money is used. b) Demand for money according to the iqtishoduna school of thought The demand for money is only shown for two main purposes, namely: transactions and precautions or investments. c) Demand for money according to the mainstream school Says that Islam directs existing resources to allocate them optimally and efficiently. Prohibition of hoarding money or hoarding wealth is an act of crime. 3. The difference between the Islamic economic system and the conventional economic system lies in the monetary sector. In the conventional monetary system, interest is the main instrument in influencing the economy, while in the Islamic economic system, interest is strictly forbidden. Interest is prohibited in the Islamic monetary system because interest can cause an imbalance between the real and monetary sectors which results in economic instability. Explain why interest can cause an imbalance between the real and monetary sectors which results in economic instability! And what alternative does the Islamic monetary system offer to the interest system? Explain! • Interest can cause an imbalance between the real and monetary sectors which results in economic instability because interest inhibits real sector activity and investment, interest also encourages inflation and speculation, interest rates affect employment and unemployment rates and can affect people's income. • And the alternative offered by the Islamic monetary system to the interest system is by way of a profit and loss sharing system which then becomes the heart of the Islamic monetary system. So the Islamic economic solution to interest or usury in the loan system to borrow funds used for business is a "profit sharing" system. The Islamic economic system also offers Mudharabah, Musyarakah, and Muzara'ah systems which are implemented in the development of investment, manufacturing and capital markets. As well as the principle of leasing ijarah which can develop the hotel services sector, consulting, labor market and also leasing. 4. Company A buys 5 units of cars from the leasing company by way of credit for 5 years. However, the leasing company does not have sufficient funds to provide 5 cars. Because they did not have sufficient funds, the leasing company partnered with Conventional Banks. In the end, the conventional bank financed the purchase of the car. Company A takes and must pay credit to Conventional Banks. In your view, is the credit provided by Company A valid or not? If valid, explain your reasons! If it is not legal, also explain your reasons and explain so that the transaction becomes legal! • In my view, this case is illegal and not permissible in Islam, because the total installments that Company A must pay to conventional banks for borrowing funds will exceed the principal amount of the loan. This is included in the form of jahiliyah interest/usury, in contrast to sharia financing, where transactions between companies and consumers are buying and selling and the income received by the company is a lawful margin because buying and selling is different from usury, where usury is debts owed borrowing money paid in money. whereas in buying and selling murabaha in sharia financing, the transaction is money with goods, with non-cash buying and selling and not usury. 5. In your opinion, what about gold credit by Islamic banks? • In my view regarding gold repayments at Islamic banks is not a problem, it is permissible to do it, as long as you have to fulfill the contract. The contract in question is a Murabahah contract and there must be an agreement made at the beginning of the delivery of gold, it must be made at the end of the installment after the installment is paid off. And also gold installments made at Islamic Banks are not included in the form of Riba, because gold is not a means of payment. And it has also been explained in the DSM MUI Fatwa No. 77 of 2010 concerning buying and selling in cash. There it is explained that buying and selling gold in cashless ways, either through regular buying and selling or murabahah buying and selling, is permissible as long as the gold is not exchanged to become an official medium of exchange. a) Moral appeals are inducements by central banks and conventional banks b) The profit sharing ratio is that the central bank can use the profit sharing ratio as a monetary instrument and must be determined before starting a business where when the central bank wants to increase the money supply, the nasaabha profit ratio will be increased. c) The financing ratio is the central bank determining the ratio of financing carried out by commercial banks in channeling financing. So when the economy is sluggish the ratio of financing will be increased when . d) Redinance ratio is a number of proportions of interest-free loans. When the refinancing ratio increases, the financing that will be provided will increase. And when it goes down, commercial banks must be careful because they are not encouraged to give loans. e) Islamic Sukuk is government equity. When there is inflation, the government will issue more sukuk so that money will flow to the central bank. And the money supply will decrease so that the sukuk has the capacity to increase or decrease the amount of money in circulation. So when the amount of circulating waste increases, the government will sell its sukuk so that the money from the people will go to the central bank. f) Government Investment Certificate is the sale or purchase of central bank certificates.