Islamic banking


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Islamic banking

  2. 2.  Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics.  Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba or usury) for loans of money.  Investing in businesses that provide goods or services considered contrary to Islamic principles is also haraam ("sinful and prohibited").
  3. 3. Islamic financial transaction terminology  Bai' al 'inah (sale and buy-back agreement) Bai' al inah is a financing facility with the underlying buy and sell transactions between the financier and the customer.  Bai' bithaman ajil (deferred payment sale) This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.
  4. 4.  Mudarabah "Mudarabah" is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise.  Murabahah This concept refers to the sale of goods at a price, which includes a profit margin agreed to by both parties.  Bai Salam Bai Salam means a contract in which advance payment is made for goods to be delivered later on
  5. 5.  Hibah (gift) This is a token given voluntarily by a debtor to a debtor in return for a loan.  Ijarah Ijarah means lease, rent or wage.  Musharakah (joint venture) Musharakah is a relationship between two parties or more that contribute capital to a business and divide the net profit and loss pro rata
  6. 6.  Qard Hassan / Qardul Hassan (good loan/benevolent loan) This is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed.  Sukuk (Islamic bonds) Sukuk, plural of Sakk, is the Arabic name for financial certificates that are the Islamic equivalent of bonds.
  7. 7. Riba  The word "Riba" means interest, usury, excess, increase or addition.  According to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money).  The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart", or "to ensure equivalency in real value", and that "numerical value was immaterial."
  8. 8.  How do you perceive the recent Kerala High Court order regarding Islamic banking?  What is the future of Islamic banking in India?  In simple terms what is Islamic banking and how it can be beneficial for common man?  Is the term Islamic the main obstacle for the popularity of Islamic Banking, if so how can you convince others?  How a business man will get assistance from Islamic banking for fund raising?
  9. 9. The main difference between Islamic and conventional:-  Banking is that Islamic teaching says that money itself has no intrinsic value, and forbids people from profiting by lending it, without accepting a level of risk –  In other words, interest (known as "riba") cannot be charged.  To make money from money is prohibited – wealth can only be generated through legitimate trade and investment.  Any gain relating to this trading is shared between the person providing the capital and the person providing the expertise.
  10. 10. Progress of Islamic Banking Themes in India  There is a growing awareness about the benefits of Islamic Banking concepts among Indian financial sector also.  It is being increasing felt that there is an enormous potential market for Islamic banking products in India.  As we know Islamic banking prohibits use of money for activities related to gambling and wine as well as prohibits interest-based lending.  Islamic Banking can help India by providing long term funds for infrastructure development.
  11. 11.  Islamic banking will provide financial alternatives to 170 million Indian Muslims who are second largest population after Indonesian Muslims, of which 70% to 80% who do not deposit money in banks because of religious beliefs.  Finance Minister P. Chidambaram and welcomed this new idea after meeting a delegation of Bankers.  Palami Manickam said that Islamic banking addresses the concerns of the poor and helps in building a „more just adaptable socio-economic order‟.  The Life Insurance Corporation of India (LIC) started a new international joint Venture company in the name of „Indo- Saudi Insurance Company‟ which will be the first insurance company to Introduce Islamic Insurance.
  12. 12. Conclusion  The preceding discussion makes it clear that Islamic banking is not a negligible or merely temporary phenomenon.  Islamic banks are here to stay and there are signs that they will continue to grow and expand.  It is especially in this sense that Islamic banks can play a catalytic role in stimulating economic development.  In many developing countries, of course, development banks are supposed to perform this function.