Presentation on Islamin Banking

8/3/2019 Presentation on Islamin Banking

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ISLAMIC BANKING SYSTEM

SHOULD BE ESTABLISHED IN

THE ECONOMY

PREPARED BY :

SYNTHIA FERDOUS SHAHREEN


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INTRODUCTION

Islamic banking provides services to it

customers free from interest, and the

giving and taking of interest have

prohibited in all transaction. Islam bans

Muslims from taking or giving interest

(the Arabic term for which is Riba), and

this prohibition makes an Islamicbanking system differ fundamentally

from a conventional banking system.


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What is Islamic Banking?

Islamic Banking is interest free Asset Based

banking governed by the principles of

Islamic Shariah

It is not restricted to Muslims only.


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ISLAMIC SHARIAH

Islamic shariah is not a set of codified laws but aseries of principles derived from five separatesources:

(1) The Holy Quran;

Allah has permitted trade & has prohibitedriba

Al Baqarah 275-

(2) The practice and teachings of Prophet

Muhammad, known as the sunnah;(3) Comparisons of similar issues if a clear-cut

judgment cannot be found in the Quran orsunnah (practice known as qiyas);

(4) The judgment of scholars through reasoningand lo ic called i tehad and


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What is Riba?

Riba is the surplus income which thelender

receives from the borrower in excess ofthe principal amount .

Why is Riba Prohibited? Riba is unfair

Riba is exploitative

Riba is unproductive


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The Basic principles of Islamic

Banking/Finance(ICARE)

Interest Free Transactions

Contractual Certainty

Asset & Service BackingRisk Sharing

Ethical Banking


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Musharakah (Joint venture)

In the context of business and trade,Musyarakah refers to a partnership or a joint

business venture to make profit. Profits made

will be shared by the partners based onan agreed ratio which may not be in the same

proportion as the amount of investment

made by the partners. However, lossesincurred will be shared based on the ratio of

funds invested by each partner.


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(Hire purchase)

1) You pick a car you would like to have.

2) You ask the bank for Ijarah of the car, pay the depositfor the car and promise to lease the car from the

bank after the bank has bought the car.

3) Bank pays the seller for the car.

4) Seller passes ownership of the car to the bank.

5) Bank leases the car to you.

6) You pay Ijarah rentals over a period.

7) At end of the leasing period, the bank sells the car to youat the agreed sale price.


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Islamic products and services offered by 300+ FinancialInstitutions around the world

United States: 20- Al Manzil Financial Services- American Finance House- Failaka Investments- HSBC- Ameen Housing Cooperative

Germany: 3- Bank Sepah

- Commerz Bank- Deutsche Bank

Switzerland:6

UK: 26(primarily branchesof Gulf and glo

bal banks)- HSBC Amanah Finance- Al Baraka International Ltd- Takafol UK Ltd- The Halal Mutual InvestmentCompany-J Aron & Co Ltd (GoldmanSachs)

-Britain Islamic Bank

Bahrain: 26- Bahrain Islamic Bank- Al Baraka- ABC Islamic Bank- CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks(Bank Islam, Bank

Muamalat)Rest - conventional banks

Saudi Arabia: 10- Al Rajhi

- SAMBA- Saudi Hollandi- Riyadh Bank

UAE: 9- Dubai Islamic Bank- Abu Dhabi Islamic Bank

- HSBC Amanah

Qatar: 4- Qatar Islamic Bank- Qatar International Islamic

Kuwait: 5- Kuwait FinanceHouse

Iran: 8

Egypt: 7

- Alwatany Bank of Egypt- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5

India: 3Bangladesh:3

Turkey: 7- Faisal FinanceInstitution- Ihlas FinanceHouse

Yemen: 5Planning to go for IslamicBanking


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Difference between Islamic and

Conventional Modes of Finance

Bank ClientMoney

money + money (interest)

Conventional


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Difference between Islamic and

Conventional Modes of Finance

Bank Client

GOODS &

SERVICES

MONEY

ISLAMIC


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Difference between Conventional

Banks & Islamic Banks

1. The functions and operating modes ofconventional banks are based on fully manmade

principles.

The functions and operating modes of Islamicbanks are based on the principles ofIslamic Shariah.

2. In the Conventional bank the investor is assured ofa predetermined rate of interest.

In contrast, Islamic bank promotes risk sharingbetween provider of capital (investor) and the userof funds (entrepreneur).

3. Conventional bank does not deal with Zakat.


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4. Lending money and getting it back withcompounding interest is the fundamental functionof the conventional banks.

Participation in partnership business is thefundamental function of the Islamic banks. So wehave to understand our customers business very

well.

5. The status of a conventional bank, in relation to itsclients, is that of creditor and debtors.

The status of Islamic bank in relation to itsclients is that of partners, investors and trader,buyer and seller.

6.Since income from the advances is fixed, it giveslittle importance to developing expertise in project


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IMPORTANCE of ISLAMIC

BANKING

Proper Justice:

Modern banking, based on interest and biased in

favors of the capitalists and rich.Islamic Banks operate on Islamic principles of profit

and loss sharing and other approved modes ofInvestment. It strictly avoids interest which is theroot of all exploitation and is responsible for large

scale inflation and unemployment.This will lead to a just distribution of income andwealth, mutual cooperation, equal opportunity,balance economic growth and development, andothers.


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Social Welfare

It lay down certain regulations for the maintenance ofequity such as distinction between lawful and

unlawful means of income, right of free enterprisefor individuals and right to keep the lawfully earned

wealth.The discouragement of the production of goods and

services which contradict the Islamic value (haram)When money is lent out on the basis of interest, more

often that it leads to some kind of injustice. The first

Islamic principle underlying for such kind oftransactions is deal not unjustly, and ye shall notbe dealt with unjustly

n n n r r


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ow o s am c an s an an s rewartheir depositors since payment of interest

is not allowed?

In Shariah, there are many ways to share profit or returnsbetween a bank and its customers. For example, in adeposit product, profits from a deposit arrangement will beshared between a bank and its depositors based on anagreed ratio and paid as dividends.

Shariah also allows a bank to give hibah (gift) to its depositorsas it deems fit.

Why there is no Loss in Islamic Banking ? Taking risk does not imply that loss must occur in a

transaction or business. They go for a project and business having minimum risk.

Different portfolio choices with Islamic Bank.


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What will be the solution incase of

mortgage or default?

In an Islamic mortgage transaction, instead ofloaning the buyer money to purchase theitem, a bank might buy the item itself from

the seller, and re-sell it to the buyer at aprofit, while allowing the buyer to pay thebank in installments. However, the bank'sprofit cannot be made explicit and therefore

there are no additional penalties for latepayment. In order to protect itself againstdefault, the bank asks for strict collateral.


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PROGRESS of ISLAMIC

BANKINGIslamic Banking or Islamic Finance is one of the fastest

growing sectors in the global financial industry. Indefiance of the credit crunch, the global islamicfinance market has grown about 15% in each of thepast 3 years and is now worth about $700 billion

worlwide. Outstanding global and domestic Islamic sovereign

& Corporate Sukuk exceeded US$50 billion in 2006,US$82 billion in 2007 and expected to surpassUS$150 billion by 2010.

Currently, there are nearly 300 Islamic banks andfinancial institutions worldwide and its assets arepredicted to grow to $1 trillion by 2013.


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CONCLUSIONIslamic banking is Riba free and trade oriented

banking system. Islamic banking is based on profitand loss

sharing mechanism.

Now the most of the conventional banks are willingto Islamic banking network. The commercialbanks are also opening the new separate branchesof Islamic banking under separate head. Due toglobalization the Islamic banking network hasmoved to the other Muslim and non-Muslim

countries such as UK, USA, Canada, Malaysia,Spain, Qatar, Kuwait, Iran etc. this also proves thatIslamic banking system will be flourished in

future over the world. The expansion of this is theonly reason that it is interest free .


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Presentation on Islamin Banking

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