Cost of Funds – Is It a Part of Actual Loss (Ta'wid)?

ISBN/ISSN: 0128-1976 (Printed) | E-ISSN 2289-4365
Pages: 208
Year: 2011

This publication is part of the journal ISRA International Journal of Islamic Finance (English Journal) (2011-1)

The research aims to identify whether the cost of funds can be treated as actual loss that can be recognized as revenue of Islamic Financial Institutions (IFIs). At the outset, the research will show how the understanding of the cost of funds from both the conventional and the Islamic perspective differs significantly. The research will then elaborate on the importance of Shari’ah parameters of ta’wid in Islamic finance. The research will also provide further illustrations on the justifications of the industry players on the need to have the cost of funds treated as actual loss. This research will also consider elaborating on the various Shari’ah views on whether the cost of funds can be deemed as the IFIs’ actual loss. Finally, the research will take the approach that cost of funds cannot be treated as actual loss that can be recognized as revenue of IFIs. However the research affirms and agrees on the importance of cost of funds in bringing stability to IFIs, especially in handling the behavior of IFIs’ depositors. It is therefore important in view of the research to highlight the possible solutions for the IFIs under the context of maslahah.



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