This presentation gives an idea about Islamic banking,its advantages,prohibitions and a normal case study about the financing method

1. ISLAMIC BANKING
BY
TEAM DHRUVA

2. TABLE OF CONTENTS
 Introduction to Islamic
banking
 Working of Islamic Banking
 Advantages
 Disadvantages
 Prohibitions
 Alternative financing
 Case study
 Conclusion

3. INTRODUCTION TO ISLAMIC BANKING
 Also known as non-interest banking
 Based on principles of Islamic/shariat law
 There are two fundamental principles:
a) Sharing of profit & loss & prohibition of collection
b) Payment of interest by lenders & investors
 Islamic law prohibits collecting interest or “Riba”
 Based on Banking Regulation Act of 1949 in India

4. WORKING OF ISLAMIC BANKING
 Islamic banks use equity participation systems
 Accepts following types of accounts:
a) Savings Accounts
b) Investment Accounts
c) Zakat Accounts
 Bank gives guarantee to return money deposited
 No interest paid on savings account
 Customer is allowed to withdraw money

5. ADVANTAGES
 Helps in financial inclusion.
 Reduces the impact of harmful practices
 Principle of financial justice
 Stability in investment
 Accelerates economic development

6. DISADVANTAGES
 High transaction cost
 High risk
 Trading has been limited
 Loosing the tax benefits
 Difficult to balance interest of stake holders

7. PROHIBITIONS
 Riba (Interest)
 Gharar (Uncertainty)
 Maysir & Qimar (Gambling)
 Zakat
 Prohibited products and industries

8. Principle of Islamic Financing
 Murabaha (cost plus sale)
 Musharakah (partnership)
 Bai ‘bithaman ajil (deffered payment scale)
 Qard (interest free loan)
 Hibah (gift)

9. ISLAMIC VS CONVENTIONAL BANKING
Islamic
 Functions according to Shariah
Law
 Absence of Interest based
transactions
 Avoidance of economic
activities involving speculation
 Penalty charged on defaults are
given to certain NGOs
 Concerns the viability of the
project when investing for
partnership
Conventional
 Assure a pre-determined rate of
interest
 Only aims at maximizing profit
 Basic function is to make money
by giving loans on compounding
interest
 Penalty for defaults goes into
banks pocket
 Concerns the customer’s credit
worthiness when giving loans

10. CASE STUDY ON
EQUATE PETROCHEMICAL CO. & KFH
Located in Kuwait
Started construction of petrochemical plant
To reduce its dependence on crude oil exports
Project cost was $200 million

11. Contd.
Company financed it in following ways:
 $70 mn from International banks
 $50 mn from Regional banks
 $ 80 mn from Kuwait Finance House (Mushrakha)
Now , KFH was 40% partner in project
Project faced problems and losses
Profit and losses both shared
KFH still finance Equate co.

12. CONCLUSION

13. THANK YOU