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Presented by:

JUNAID ZAMIR

TARIQ ALI KHAN

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Index

- What is Islamic Banking

- Terminologies

- Principles

- History

- How it is Different ?

- Overview

- Performance of various Banks

- Islamic Banks in Pakistan

- Business Model ofa Conventional Bank

- Business Model ofa Islamic Bank

- SWOT analysis

- Future- Key Challenges- Problems- Recommendations

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What is Islamic Banking

A system of financial activities consistent withShariah, based on Islamic principles which at the corerefuses collecting interest, transactions involving

uncertainty and speculation.

It is based on the Islamic economic system.

It is not restricted to Muslims only.

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Terminologies

Takaful (Islamic Insurance)Takaful is an

alternative form of cover that a Muslim can avail

himself against the risk of loss due to

misfortunes.

Sukuk (Islamic Bonds) the Arabic name for a

financial certificate but can be seen as anIslamic equivalent of bond.

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PRODUCTTREE

Islamic Modes of Finance

Trade Based

Modes

Partnership Based

Modes

Rental Based

Modes

Musharaka

MudarabaMurabaha Ijarah

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Terminologies

MurabahaIt is a contract for purchase and resale and allows thecustomer to make purchases without having to take outa loan and pay interest. Bank purchases the goods on

behalf of the customer, and re-sells them to thecustomer on an agreed profit margin and the customerpays the sale price for the goods over installments.

MusharakaIt means partnership. It involves you placing your capitalwith another person and both sharing the risk andreward with profit sharing ratio, but losses mustbe proportionate to the amount invested.

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Terminologies

MudarabaIt refers to an investment on your behalf by a moreskilled person. It takes the form of a contract betweentwo parties, one who provides the funds and the otherwho provides the expertise and who agree to the divisionof any profits made in advance. The Bank would makeShariaa compliant investments and share the profitswith the customer, in effect charging for the time andeffort. If no profit is made, the loss is borne by thecustomer and Islamic Bank of Britain takes no fee.

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Terminologies

IjarahIjara is a form of leasing. It involves a contract where the

bank buys and then leases an item. For example auto

ijarah is simply an agreement under which the vehicleshall be given to you on rent for a period, agreed at the

time of the contract. Bank purchase the vehicle and it out

to the consumer for a period upon completion of the

ijarah period the consumer get owner ship of the vehicle

through a separate sale agreement.

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Principles

It works on Islamic set guidelinesconsisting of Risk Sharing, IndividualRights & Duties, Property Rights,Purity of Contracts, Commitments,Transparencies & Fair Deals.

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Any predetermined payment over & above the actual

amount of principal is prohibited (interest) the only loan it

allows is qard-ul-hassna whereby lender does not

charge any interest.

The Islamic financial system employs concept of

participation , utilizing funds on a profit-and- loss-sharing

basis.

Principles

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The pioneering effort, led by Ahmad Elnaggar, took the

form of a savings bank based on profit-sharing in the

Egyptian town of Mit Ghamr in 1963.

This experiment

lasted until 1967 by which time there were nine such

banks in the country.

In 1973, the Islamic Development Bank was set-up.

History

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The first Islamic bank in Malaysia was established in

1983. In 1993, commercial & merchant banks were

allowed to offer Islamic banking products and services

under the Islamic Banking Scheme (IBS). These

institutions however, are required to separate the funds

and activities of Islamic banking transactions from that of

the conventional banking business

History

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History

The Islamic Summit of Lahore, Pakistan held in 1974 recommended

the creation of Islamic Banks and Islamic Development Bank.

On 14 Ramadan 1420, the Shariah Bench of the Supreme Court of

Pakistan gave its landmark decision banning interest in all its forms

and by whatever name it may be called. The court also specified a

step by step approach to rid the country of the evil of interest. (The

Historic Judgment on Interest by the SupremeC

ourt ofP

akistan)

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After 55 years after its creation in the name of

Islam, Pakistan became the first Muslim country

to officially declare modern bank interest as ar-riba, declared haram by Qur'an

History

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How it is Different ?

Islamic Orders not to use Money as a

commodity.

They operate under the concept of lender-

borrower relationship and the profits generated

through this relationship are divided between thetwo parties as per agreement.

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Howdoes it works ?

The bank entirely depends upon the fixed

deposits and does not borrows money from the

central bank.

Bank gives loan on basis of mutual agreement.

Marjorly focuses on sales transaction.

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Overview

Islamic Banking is growing rapidly in Pak it has

been expected that by 2012 total share in

Banking sector will be 12%.

Present Islamic Banking share is 5%

Growth rate is 50%

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Assets Rs 276 Bn (asset base of entire Banking

System Rs 5,653 Bn)

Profit Rs 1.8 Bn dec-08

Deposits Rs 201.7 Bn (17.7%)

Overview

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Performanceofvarious Banks

Bank Name Profit (March 30, 2009) (Millions)

Allied Bank 4,157

BankIslami (53)

MCB 15,375

National Bank 15,459

Meezan Bank 621

Standard Chartered 630

UBL 8,333

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Islamic Banks in Pakistan

Dubai Islamic Bank Pakistan Limited

Meezan Bank

Dawood Islamic Bank Limited

AlBaraka Islamic Bank

Bank Islami

Emirates Global Islamic Bank Limited

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Branch Network

Dubai Islamic Bank Pakistan Limited branches 25 in10 cities

Meezan Bank 166 branches in 40 cities

Dawood Islamic Bank Limited 19 branches in 9cities

BankIslam102 branches in 49 cites

Emirates Global Islamic Bank Limited (EGIBL) 41branches in 24 cities

Total branch network of combine islamicbanks 353 Branches in almost all big citiesof Pakistan.

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Business Model of a Conv

entional Bank

Creditor(Depositor)

Individuals

Corporate

FIs

SMEs

Public Sector

Funds Lent

Debtor

PLS Saving

AccountTerm Deposit

Equity

Modeof

Credit

InterestInterest

Conventional

Bank

Interest based

pool managed bybank

Withdrawal

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Key Challenges FacingIslamic Banks:

Shariah interpretations

Shariah experts Product development and execution

Competition from conventional banking

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SWOT analysis

S: religious appeal, Zakat, Innovative aspect, all bigger bankscarry a Islamic portfolio because of its success.

W: Lack of standardization, There are differences in theoryand practice, Misinterpretation of Islam

O: fastest growing religion in the world, Traditional interestbased banking losing its value, New markets have beenemerged in non Islamic regions.

T: loopholes are present in its proper implementation,Research in products, Environment for Islamic banking in westhas been declined after 9/11

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Problems

The problem with these shariah boards is that they give conflicting

opinions that result in confusion and doubts.

They approve 1 product and the other may reject

Jorban a Muslim scholar disapproved the penalty imposed on

defaulting.

Britain had rejected Islamic mortgage as it based on interest based

structure.

Malaysia has proposed to setup standards for both IB and IF. such

standards would result in consensus instead of confusion or conflict.

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Future

Replace conventional Banking system with

Islamic banking System.

Expand their Branch Network.

2012 total share in Banking sector will be 12%.

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This is evident not only from the growing number

of banks established specifically for practicing

shariah compliant finance, but also from the

increasing number of conventional banks suchas Citibank, HSBC, RBS, Standard Chartered,

UBS, etc engaging in shariah compliant

operations.

Future

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Product Innovation- Ensuring innovative Shariah compliant products.

Service and product Differentiation.

Top quality service to ensure that service standards of IB Institutions is

at par with conventional.

Aggressive Marketing to ensure that Islamic Banking reaches the

tipping point in quickest possible time.

To remove conflicting confusions and doubts from the mind of a general

customer

Islamic Banking rules should be uniform worldwide.

Recommendations

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Thank you