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  • Presentation on Islamic Banking Services Ali Rehman, Vice President, Askari Islamic
  • Presentation on Islamic Banking Services Ali Rehman, Vice President, Askari Islamic

Transcript

  • 1.  
  • 2.
  • 3.
    • Introduction to Islamic Banking Products
    • PRESENTED BY
    • Ali Rehman
    • Vice President
    • Askari Bank Ltd. Islamic Banking Services
    • Disclaimer: Views expressed here in a personal capacity.
  • 4.
    • ISLAMIC BANKING PRODUCTS & THEIR OPERATIONAL MECHANISIM
  • 5.
    • All transactions are asset-based
    • It is socially-responsible banking because it operates under Shariah restrictions
    • Does not permit financing of prohibited goods / Industries
    Islamic Banking
  • 6. Main Financial Contracts/ Islamic Modes
  • 7. Islamic Mode Description Basis of Shariah Permissibility Murabaha Cost + Profit Sale Quran, Sunnah & Ijma’Consensus Istisnaá Sale on Order Sunnah & Ijma’Conses Salam Commodity Sale Quran, Sunnah & Ijma’Consensus Ijarah Leasing Quran, Sunnah & Ijma’Consensus Musharakah Joint Venture Profit Sharing Quran, Sunnah & Ijma’Consensus Mudarabah Trustee Profit Sharing Quran, Sunnah & Ijma’Consensus
  • 8. MURABAHA Islamic Mode Description Basis of Shariah Permissibility Murabaha Cost + Profit Sale Quran, Sunnah & Ijma’Consensus
  • 9. MURABAHA
    • Murabaha is a particular kind of sale where the seller discloses its cost and profit charged thereon.
    • The price in this sale can be both on spot and deferred.
  • 10. MURABAHA
    • The product of Murabaha that is being used in Islamic banking as a mode of finance is something different from the Murabaha used in normal trade .
    • This transaction is concluded with a prior promise to buy, submitted by a person interested in acquiring goods through the institution.
  • 11. MURABAHA
    • It is called Murabaha to the purchase orderer .
    • It is a bunch of contracts completed in steps and ultimately suffices the financial needs of the client.
    • The sequence of their execution is extremely important to make the transaction Shariah compliant.
  • 12. MURABAHA
    • As it is a kind of sale, there must be a seller and buyer and some thing that is bought and sold . The institution is the seller and the client is buyer.
    • It cannot be used as a substitute for running finance facility , which provides cash for fulfilling various needs of the client.
  • 13. MURABAHA
    • Step by Step Murabaha
  • 14. MURABAHA
    • 1- Promise stage
    • Stage One (a) for Murabaha financing
    • 1. Client approach the bank for facility through Murabaha.
    • Facility Approved
    Bank Client
  • 15. MURABAHA
    • Stage One (b) for Murabaha financing
    • Client and bank sign an agreement to enter into Murabaha.
    • Murabaha Facility
    • Agreement
    • MOU
    Bank Client
  • 16. MURABAHA
    • Promise stage
    • Stage One (c) for Murabaha financing
    • Client submit the purchase requisition to the bank.
    • Purchase requisition/
    • Promise to the bank.
    Bank Client
  • 17. MURABAHA
    • Agency stage
    • Client appointed as agent to purchase goods on bank’s behalf
    • Agreement to Murabaha
    • Agency Agreement
    Bank Client
  • 18. MURABAHA
    • Agency stage Stage Two for Murabaha financing
    • Bank gives money to supplier through client’s account for purchase of goods.
    • Agreement to Murabaha Agreement of Purchase
    • Disbursement to the Supplier
    Bank Supplier Client
  • 19. ISTISNA Islamic Mode Description Basis of Shariah Permissibility Istisnaá Sale on Order (Manufacturing Goods) Sunnah & Ijma’Conses
  • 20. ISTISNA
    • Istisna is the second exception where a sale is allowed of goods before they come into existence
    • It relates to goods that require manufacturing
    • If the manufacturer undertakes to manufacture goods with material available with the manufacturer
    • It is necessary for the Istisna transaction that price is fixed
    • And necessary specifications of the product are defined
  • 21. ISTISNA
    • The Istisna contract creates a moral obligation on the manufacturer But both parties may unilaterally cancel the contract before work starts After work starts, cancellation requires mutual consent.
  • 22. SALAM Islamic Mode Description Basis of Shariah Permissibility Salam Commodity Sale (Agricultural Products in Advance) Quran, Sunnah & Ijma’Consensus
  • 23. SALAM
    • Salam was allowed by the Prophet (SAW) subject to certain conditions
    • The basic purpose was to meet the needs of small farmers
    • Who needed money to grow their crops And to feed their families till the time of harvest.
  • 24. SALAM
    • Since, after the prohibition of Riba
    • They could not borrow money on interest
    • Hence they were allowed to sell their agricultural products in advance.
  • 25. SALAM
    • Salam is where the seller undertakes to supply some specific goods to the buyer
      • At a future date
      • Against an advance price, fully paid at spot
    • Hence, the price / Payment is in Advance
    • But the supply is deferred
  • 26. IJARAH Islamic Mode Description Basis of Shariah Permissibility Ijarah Leasing Quran, Sunnah & Ijma’Consensus
  • 27. IJARAH
    • Ijarah is a term of Islamic Fiqh Literally, it means “To give something on rent”
    • The term “Ijarah” is used in two situations
    • It means ‘To employ the services of a person on wages’ e.g “A” employs “B” to work at his office, and pays him salary for his work
    • “ A” hires a porter at the airport to carry his luggage
  • 28. IJARAH
    • 2. Another type of Ijarah relates to paying rent for use of an asset or property
    • The 2nd type of Ijarah is relevant to our discussion
    • This Ijarah is analogous to the English term “Leasing”
  • 29. IJARAH
    • Rules governing Ijarah are similar to the rules governing sale
    • Because in both cases something is transferred from one person to another
    • The only difference is:
    • In case of sale, title of property is transferred to Buyer
    • In case of Ijarah, title remain with the Lessor
    • Only the use of the property is transferred to Lessee
  • 30. MUSHARAKAH Islamic Mode Description Basis of Shariah Permissibility Musharakah Joint Venture Profit Sharing Quran, Sunnah & Ijma’Consensus
  • 31. MUSHARAKAH
    • Derives from “Shirkah”
    • Literal Meaning – Sharing
    • In the context of business, it means partnership in a venture Such that the participants share the profit & loss
    • In modern banking, Musharakah can provide a viable alternative to interest-based transactions
  • 32. MUSHARAKAH
    • Interest determines a fixed rate of return
    • Return in Musharakah is based on actual profit & loss
    • Interest-bearing transaction–Financier cannot suffer loss
    • Musharakah transaction -Financier can suffer loss
  • 33. MUSHARAKAH
    • Basic rules of Musharakah
    • Distribution of profit:
    • The ratio of profit distribution should be agreed at the time of execution of contract
    • Otherwise contract is void
    • The Profit Sharing will be according to agreed ratio.
    • Loss must be shared strictly according to Capital.
  • 34. MUDARABAH Islamic Mode Description Basis of Shariah Permissibility Mudarabah Trustee Profit Sharing Quran, Sunnah & Ijma’Consensus
  • 35. MUDARABAH
    • This is a kind of partnership where one partner gives money to another for investing in a commercial enterprise.
    • The investment comes from the first partner who is called “Rab-ul-Mal” (Investor)
    • The management and work is an exclusive responsibility of the other, who is called “Mudarib” (Working Partner)
    • Profit is shared as per agreed ratio
    • In case of Mudarabah all losses are borne by Rab-ul- Mal
  • 36. MUDARABAH
    • Types of Mudarabah
    • Al Mudarabah Al Muqayyadah (Restricted Mudarabah)
    • Al Mudarabah Al Mutlaqah
    • (Unrestricted Mudarabah)
  • 37. MUDARABAH
    • Authority of Rab-ul Maal
    • Rab-ul-Mal has authority to:
    • a)  Oversee the Mudarib’s activities and
    • b) Work with Mudarib if the Mudarib consents.
  • 38. MUDARABAH
    • Different Capacities of the Mudarib
    • Ameen (Trustee): The money given by Rabb-ul-maal (investor) and the assets required therewith are held by him as a trust.
    • Wakeel (Agent): In purchasing goods for trade, he is an agent of Rabb-ul-maal.
    • Shareek (Partner): In case the enterprise earns a profit, he is a partner of Rabb-ul-maal who shares the profit in agreed ratio.
  • 39. MUDARABAH
    • 4 . Zamin (Liable): If the enterprise suffers a loss due to his negligence or misconduct, he is liable to compensate the loss.
    • 5 . Ajeer (Employee): If the Mudarabah becomes Void due to any reason, the Mudarib is entitled to get a fee for his services.
  • 40. MUDARABAH
    • Termination of Mudarabah
    • Mudarabah can be terminated any time by either of the two parties by giving notice.
    • If Mudarabah was for a particular term, it will terminate at the end of the term.
    • Termination of Mudarabah means that the Mudarib cannot purchase new goods for the Mudarabah. However, he may sell the existing goods that were purchased before termination.
  • 41. Islamic banking turns to Afghanistan
    • After the success of Islamic banking in Pakistan, local banks want to steer towards Afghanistan which is a rapidly emerging market for the financial industry.
  • 42. Islamic banking turns to Afghanistan
    • Experts related to the industry ,they said Islamic banking and insurance have shown significant progress in recent years in Pakistan, compared to conventional banks.
    • Now, it is time for Pakistan’s banks to enter the fast emerging market of Afghanistan and lead the banking sector in Islamic banking.
  • 43. Islamic banking turns to Afghanistan
    • Afghanistan and Pakistan have a strong potential for Islamic banking
    • Afghanistan is interested in Islamic banking but it lacks human resources and technical expertise.
    • We can utilize our potential in Afghanistan
  • 44. What distinguishes Islamic banking from conventional banking?
  • 45. Documents
    • “ Conventional Banks deal in Documents”
        • Transaction Documents (“Loan Creation”)
        • Security Documents
    • “ Islamic Banks deal in Goods and Documents”
        • Transaction (Process) Documents (“Debt Creation”)
        • Security Documents (similar)
  • 46. Basic Difference between Islamic and Conventional Modes of Finance Conventional Mode Bank Client money money + money (interest)
  • 47. Basic Difference between Islamic and Conventional Modes of Finance Islamic Transaction Bank Client Goods & Services money
  • 48. Conventional Vs Islamic Economics Difference in Factors of Production
    • Conventional Islamic
    • Land Land
    • Labour Labour
    • (+Entrepreneur) (incl. Entrepreneur)
    • Capital
    Capital Conversion
  • 49. Key Misconceptions
  • 50. “ Islamic banking looks the same as conventional banking” A halal meat and haram meat may look exactly the same but one is permissible while the other is not Key Misconceptions
  • 51. “ A fixed rate of return is not permitted under Islamic Shariah”
    • Fixed return does not make a transaction halal or haram
    • For example:
      • Profit on trading
      • Rent on property
    Key Misconceptions
  • 52. Onus Shifts!! Client Halal Restaurant Halal Abattoir/ Butcher Client Islamic Bank Shariah Advisor Onus Onus Onus Onus
  • 53.
    • ANY QUESTION?
    ?
  • 54.
    • Jazakumullah!
  • 55. Thank You CENTER OF ISLAMIC BANKING & ECNOMICS Head Office:   192- Ahmad Block, New Garden Town , Lahore, Pakistan  Ph: +92-42-35913096-8, 35858990, 38407850  Fax: +92 -42-35913056 E-mail :  [email_address] Web: www.alhudacibe.com