What islamic banking (ali) Mohammad.Ali.Mian


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What islamic banking (ali) Mohammad.Ali.Mian

  1. 1. WHAT IS Islamic BANKING? Concept, Instruments Issues, Theory and Practice mohammad ali main iqra University may 7-11,20138
  2. 2. This presentation includes:  What is Islamic banking?  Basic functions  An Introduction to Islamic financing techniques.  Practices of Islamic Banking and Finance  Observations on some common misconceptions.
  3. 3. What is Islamic banking?  System of banking or banking activity that is consistent with the principles of Islamic Law (Shariah)  Its practical application through the development of Islamic Economics
  4. 4. Clarification on Nomenclature Islamic Banking is known by several names:  Interest free banking (Iran)  PLS Banking (Pakistan)  Islamic Banking (Gulf)  Special Finance Houses (Turkey) All expressions are used interchangeably. Is it a contradiction in terms?  Some people prefer Islamic Finance House instead of Islamic bank. (Beit ul tamweel)  while the mainconcept remain same
  5. 5. Basic functions: Primary Objectives of Islamic Economic System Equal Distribution of Money Social Justice
  6. 6. Islamic financing techniques.  Shariah laws and values that comprehensively guide individuals’ in (ritual and non-ritual) life.  Dealings with haram (unlawful) services and commodities, such as gambling, liquors, etc. are prohibited.  Contracts should be based upon profit and risk sharing; and in the forms of buyer 1. Seller (Murabaha), 2. Lessor – leasee (Ijarah), 3. Partnership (Musharakah), 4. Debtor – Creditor (qard hasan) relationship.
  7. 7. Similarities between Islamic and contemporary banks  Same purpose: Financial intermediation  Same Objective: Profit  Successful Operation of Islamic banks has shown that financial intermediation is possible even without interest.
  8. 8. Mohammad Ali MIAN DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 1) Functions and operations are based on Shariah principles Conventional Banking 1)Functions and operations are based on fully man made principles
  9. 9. Mohammad ALI mian DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 2) No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss. Conventional Banking 2) It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.
  10. 10. Mohammad Ali Mian DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING Islamic Banking 7) one of the service- oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat. Conventional Banking 7) It does not deal with Zakat.
  11. 11. Difference In Products  Current Account  Saving Accounts  Investment Acc  Special Invest. Acc  Murabaha  Musharakah  Mudarabah  Ijarah  Qard Hasan
  12. 12. Social and Moral Norms  Should not indulge in Riba  Should not involve Gharar  Should not indulge in fraudulent behavior  Should not coerce  Should assure fairness to all parties.  Should not resort to morally reprehensible practices such as cheating, bribing, fraudulent practices.
  13. 13. AVOIDANCE OF GHARAR  Definition of Gharar:  any bargain in which the result of it is hidden.  cheating in business) and ghabn
  14. 14. ADVANTAGES OF Islamic Banking Over Contemporary banks  Interest free loan  Islamic teaching and Shariah  Knowledge on Islam and religious environment in the city  Financial position of Asosiates rises  Economic benefits and better facilities.  ISLAMIC BANKING REPLACES INTEREST RATE WITH PROFIT AND THAT IS ALL.
  15. 15. PRESENT SCENE  Islamic Banks in the Government Sector  Pakistan, Sudan, Iran  Islamic Banks in the Mixed Sector  - Malaysia  Islamic Banks in the Private Sector  Gulf  Non Banking Financial Institutions  Al Ameen [ Bangalore, India]  Islamic Financing by standard Commercial Banks in the Domestic Sector  Saudi British, NCB, Saudi American, Misr Bank  Islamic financing by Commercial banks in the foreign sector.  Islamic Banks established by multinational Banks Citibank, HSBC Amanah Bank,
  16. 16. Other Classifications  Islamic Banks in the Government Sector Pakistan, Sudan, Iran  Islamic Banks in the Mixed Sector Malaysia  Islamic Banks in the Private Sector Gulf  Non Banking Financial Institutions  Islamic Financing by standard Commercial Banks
  17. 17. Financing Techniques  Musharakah Finance  Both the Bank and the customer contributes towards the capital of the enterprise  Under a “diminishing” musharakah, the customer buys out the bank's share over a period of time.  The customer and the bank share in the profits according to the agreed proportions, which may be different from the proportions of capital contributed. Any losses of the enterprise will be borne by the customer and the bank according to their capital contributions.
  18. 18. Responding Islamic Banks 1. Jordan Islamic Bank (1979) 2. Faisal Islamic Bank, Egypt (1977) 3. Islamic Bank for Western Sudan (1981) 4. Tadamon Islamic Bank, Sudan (1981) 5. Qatar Islamic Bank (1983) 6. Islamic Bank International Denmark (1983) 7. Islamic Bank, Bangladesh (1983) 8. Sudanese Islamic Bank, Sudan (1983)