this presentation is about the time value of money in Islamic banks and in conventional banks.and it is talks how riba effect our lives.

1. Time value of Money

2. 1. Introduction
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3. Introduction
» The idea of time value of money is that money is available now worth more
than same amount of money in the future because money has greater
benefits to receive in present than future.
» The early writers of Islamic finance doesn’t recognize Time value of money
because they believe that there should not be time value of money in
Islamic finance system, but most of the recent academic writers
recognized the time value of money in Islamic finance
» The Shari`ah does not denies the concept of time value of money, we
should maintain that time value of money in Islamic finance which is
allowed only in sale and disallowed in loan, time value in Islam is accepted
only in business and trade of goods and it is not accepted in exchange of
monetary values and loans or debts.
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4. 2. Difference Between Islamic
Banking and Conventional Banking
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5. Let us first understand the major difference between
Islamic banking and conventional banking system.
"Islamic banking is an Ethical
Banking System, and its
practices are based on Islamic
(Shariah) laws. Interest in
completely prohibited in
Islamic banking.
For example, you cannot take a
loan for a Wine Shop.
Conventional Banking is an Un-
Ethical Banking system It is its
purpose is to make money
through interest"
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6. 6

7. 3. Concept of time value of money in Islamic
financing system perspective
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8. Concept of time value of money in Islamic financing system
perspective
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Islamic bank involves real sector goods money goods. Money in
Islam viewpoint is a medium of exchange, money doesn’t
considered as a commodity “
money should be translate into productive activities use and risk
must be undertaken to justify the return of the production
the return of profit should not be fixed or predetermined otherwise
it considered prohibited.
Time value of money recognized in Shari`ah law only when it is
acts as capital not as potential capital.

9. Concept of time value of money in Islamic financing
system perspective
» the time element comes into sale transaction, in credit sale the time is attached with
commodity and profit is due to financial transaction exchanging goods for money
» time value of money is acknowledged in spot exchange of currency not in credit sale
of currency.
» Time value of money in Islam should involve efforts, activities the money should be
combined with other resources and services for example mudarabha contract.
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10. 4. Islamic concept of sale
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11. Sale
» Sale is the exchange of a thing of value by another thing of value
with mutual consent.
» Mudarabha: Islamic banks practice mudarabha in their system, the
Rab mal (seller) purchase commodity on certain profit added to his
cost and then the purchaser (mudarib) to pay later on date agreed
between both parties.
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12. Mudarabha permissible and valid
transaction
1.The return of profit is not fixed or predetermined it can be considered an ex-
post one (ex-post). Also profit is generated from sales transaction not from
loan.
2.The time value of money in sales or mudarabha involves efforts, commodity
and productive business activities.
3.The Rab mail has spent his time to produce to enquire the commodity
required by mudarib. It is clear from the above explanation that to charge extra
on the actual cost of the commodity it is permissible.
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13. some rules in Islamic financing system that should be applied
while doing mudarabha transaction:
1.The rab mal cannot ask for his profit until the mudarib earns the
money of the investment.
2.Relationship between rab mal and mudarib should be as partner.
3.The riba mal should not involve in management.
4.They should share the risk, loss of the business because of many
economic reasons such as inflation or as well as the profit.
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14. 5. Concept of time value of money in
conventional bank perspective:
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15. Concept of time value of money in conventional bank
perspective:
» In conventional bank they involve only financial sector and they treat
money as commodity.
» time value of money in conventional bank is not attached with
commodity hence it is prohibited in Islam this transaction is invalid
» In fact the Interest is the time value of money
» profit is generated from lending money not from sale transaction
» their return of interest is due of debt so the source of income in
conventional bank is interest from loan and not using the sale in their
system
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16. » but if we look to Islamic bank they don’t
charge interest in loan. The Shari`ah shows
that loan should be a charitable act without
any expectation of monetary benefit.
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17. Investment in a conventional bank
» If a conventional bank lends capital for borrower for the purpose of investment, but
in conventional bank they don’t share the risk of business they share only the profit
earns from investment which in this case is prohibited transaction
» , the return of profit is due to return principle of capital (debit) itself and profit of
the investment the profit is guaranteed regardless the performance of the
investment, without sharing the risk with borrower.
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18. Riba is prohibited because of money reason
1.Interest in loan brings or leads to injustice for the individual.
2.Riba is wrong behavior that corrupts society.
3.Return of profit must result from sale or trade to enhance those
transactions in society rather than getting money from loan
without using your effort in this way the society will not use his
brain to create and to be productive society.
4.Negative economic growth.
5.Interest determined before earning ex-ante
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19. Conclusion:
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20. » the time value of money reefers that investors or lender prefer money
today than tomorrow
» Islamic bank and Islam encourages Muslims people to involve in real
sector rather than financial sector
» loan transactions used by conventional bank which is unacceptable
and prohibited transaction when they charge compound interest.
» Sales transactions are generating profit by cash or payment, but loan
will gain riba from the interest charged over the time of payment which
is invalid transaction.
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21. THANKS!
Any questions?
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The Muslim societies have the option to deal with halal
transaction or not.
References:
1.Mahmoud A.El-Gamal , 2006,Islamic Finance , First
edition ,Gambrtdge university press.