The document discusses Islamic finance principles and analyzes PTPTN's education loan program in Malaysia. It provides background on prohibitions of riba (usury) in Islamic law and how early Islamic finance developed alternatives like profit and loss sharing. It then examines PTPTN's program, originally at 3% interest, which was converted to a 1% "ujrah" fee claimed to be Shariah compliant. However, some scholars like Dr. Asyraf argue it is still interest as the fee is based on loan amount instead of actual costs. In conclusion, while the 1% rate saves borrowers money, there are issues with calling it interest and tying repayments to the loan term and amount.

1. UK6063 Teori dan Amalan Kewangan Islam
Prohibition of Riba in Islamic Finance
A case study on the PTPTN Education Loan
Name
Matrick No.
Date
Lecturers
:
:
:
:
Punithemalar Hariaratnam
GP01285
29 July 2012 (Sunday)
Prof Madya Dr Jasri Jamal / Dr Ruzian Markom

2. Prohibition of Riba in Islamic Finance
A case study on the PTPTN Education Loan
Introduction to Islamic Finance
Shariah
• Literally translated means THE WAY
• And is the Islamic law that governs religious
rituals and day to day life in Islam
• Derived from the Quran and the Sunnah

3. Prohibition of Riba in Islamic Finance
A case study on the PTPTN Education Loan
Shariah compliant
• neither pay interest, nor benefit from
gambling
• The key difference between Islamic and
conventional banking is the prohibition of
riba (usury)

4. Prohibition of Riba in Islamic Finance
A case study on the PTPTN Education Loan
Definition of Riba
Riba means usury
(interest obtained by charging money from
the lending of money)
Universally condemmned

5. Riba is prohibited by Islamic Law
Riba is forbidden in Islamic economic
jurisprudence and considered as a major sin

6. Two types of riba are discussed by Islamic
jurists:
• an increase in capital without services
provided and risk taking
• commodity exchanges in unequal quantities,
also prohibited in the Qur'an

7. In Surah Al-baqarah verse 2: 275, it is quoted that
Those who devour usury will not stand except as
stands one whom the Evil One by his touch hath
driven to madness. That is because 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 (for ever)

8. In Surah Al-baqarah verse 2: 275, it is quoted that

9. To comply with this fundamental
principle, Islamic finance has developed
practices based on custom and fairness that
do not involve the paying and charging of
interest

10. Initially these were restricted to
profit sharing
(musharakah and mudarabah)
Followed by
Equity sharing, and asset trading
techniques
(murabahah, bai salam, and ijarah-based
finance)

11. The PTPTN Education Loan
Set up with the aim of providing education
loans to students pursuing their studies in
local institutions of higher learning (IPT)
Finance students’ tertiary education

12. Conversition of PTPTN to Ujrah
The Existing PTPTN Study Loan was devised
as a way for economically underprivileged
families to finance their childrens’ tertiary
education

13. Repayment:
•
•
•
•
Automatic deduction from salary
Direct Debit
Lump sum settlement
3% interest

14. Mechanism for the conversion (2010)
of the existing 3% interest loan to the
1% Ujrah

15. Definition of Ujrah
Ujrah –
rental or fees for usage of labour and benefits
• Based on fixed fee (fixed interest rate)
• Implemented worldwide by the Islamic
financial system
The payment are based on fixed interest rate
which differs from other financial system

16. The Ujrah is based on avoiding riba and
at the same time, prevents the lessee from
running away from their debt

17. Characteristics of Ujrah
The contract must state:
• The loan amount
• The ujrah to be received
• The period of payment and etc
• Give clear description
• must also be sane and able to enter into a
contract (aqil)
• must be able to an adult (baligh)

18. Is PTPTN Ujrah Interest Free
Al Quard Al Hasan is an interest free loan and
is the sole type of loan acceptable in Islamic
finance
• Purpose could be charity
• Help or advance for a certain time period
• Repayment by the borrower is obligatory
• Guaranties such as mortgage or any other
collateral security are allowed.

19. Is it worth converting?
1% Ujrah conversion reduce the existing
3% interest
Total Ujrah for the Term of 10 Years
= Outstanding amount as of Jan 2008 X 1%
X Term of Loan in Years
= RM20,000 X 1% X 10 Years
= RM2,000

20. In the existing 3% interest reducing
balance, administrative cost is charged on
loans as specified in the signed agreement
An annual rate of 3% will be imposed for the
repayment period, with a reducing balance

21. • If the lessee plans to settle the loan
earlier than the period specified, there
will be a rebate amount, which may
end up being less than the 1% Ujrah

23. Is PTPTN Ujrah Really Islamic
Dr Asyraf Wajdi Dusuki,
Says IT IS NOT

24. WHY NOT
a study loan scheme must be free of elements
prohibited by the Shariah, especially in the
context of usury
The service charge must reflect the actual cost
and cannot be based on a percentage of the loan
Any profit made by a borrower can be
categorised as usury

25. Conclusion
If you were keeping with your repayments,
changing to the new 1% Ujrah loan seems
like a good idea with attractive savings.
The example attached saved a total of
RM1,999.99 in interest

26. • Debt payable is fixed and paid
• Converting PTPTN from 3% interest to the
1% Ujrah fixed interest should be
implemented
• Easier to calculate, and it is based on the
Syariah principles.
• Will also encourage the students to pay on
time and not run away from debts

27. Calling it interest has created much conflict
PTPTN should just have a yearly fixed service
charge
Those who choose to settle the loan earlier than the
due date, should pay less on service charges