ISLAMIC FINANCE: AN OVERVIEW
Islamic finance refers to the means by
which corporations in the Muslim
world, including banks and other lending
institutions, raise capital in accordance
with Shariah, or Islamic law.
Islamic law views money as a measuring
tool for value and not an 'asset' in itself.
Islamic law views lending
with interest payments as a relationship
that favors the lender, who charges interest
at the expense of the borrower.
These teachings and principles of Islam
are either provided in the holy Qur’an
and the Traditions of the Prophet
Muhammad(S.A) as well as interpreted
by the Muslim Jurists.
Ayah’s From holy Qur’an :
“and that which you give in gift (to others), in
order that it may increase (your wealth by
expecting to get a better one in return) from
other people’s property, has no increase with
(Ar Rum 30: 39)
“O you who believe, Eat not Riba doubled or
multiplied, but fear Allah that you may be
Salient Features of Islamic Finance
Essentially, Islamic finance shall be free from all
prohibited items and practices which include:
a) Paying and charging interest (riba)
b) Gambling (maysir)
c) Uncertainty in the object, price and delivery
d) Practices/clauses which against the Islamic law
e.g. Capital guarantee in equity-based contracts.
e) Buying/selling and/or leasing non-halal items
e.g. liquor, non-halal food, etc
The main underlying principle of Islamic
finance is to depart from “money for money
Money can only earn more money if put into
real productive economic activities such as
sale, lease, investment, services, etc.
Money provided via loans cannot be expected
to pay returns.
Islamic finance is essentially reflective of both
economic and financial functions of money
Conventional vs Islamic Finance
Islamic finance must be conducted for
Halal(fair) activities only, whereas
conventional finance cover wider
Interest mechanisms which is key in
conventional finance must be avoided
in Islamic Finance
Derivatives and its trading is popular in
conventional finance but it’s application is
very limited in Islamic finance
Islamic finance shall be governed by both
modern law and Shariah principles as
interpreted by the Shariah Supervisory
Contracts in I.F :
a) Mudarabah (Profit and loss sharing)
b) Musharakah (Partnership)
c) Qard (Benevolent loan)
d) Salam (forward sale)
e) Istisna’ (manufacturing & construction
f) Tawarruq (cash financing)
THE FUTURE OF ISLAMIC FINANCE
Western and Far East financial institutions
embracing Islamic finance – the fourth wave.
Petrol wealth and diversification of assets and
Competitiveness and synergy.
Risk management and prudential standards.
Global Islamic financial institutions in
banking, takaful, retakaful, asset
management and derivatives.
Human capital and education.
CASE STUDY :
The Islamic Bank Bangladesh Limited
Based on Islamic principles and shariah.
Incorporated on March 13, 1983 as a Public
first interest free banks in South Asia.
Authorized capital of TK. 500 million (12.5
million US dollars) .
Objectives of IBBL:
To develop morals among the people and to
establish the shariah in the field of trade and
To invest to those businesses sectors that are
found legal from the religious point of view.
To invest on profit and risk sharing basis.
accept deposits on profit and loss sharing