INTRODUCTION IslamicBanking is a banking or banking activity based on principles of Islamic (Shariah) Shariah prohibits Riba Investmentin business that provide goods or services is also known Haraam (forbidden
Types of riba Ribaal-nasi’ah : Interest on loans. Ribaal-fadl : Excess over and above the loan paid in kind.
Reasons for prohibitionof riba It is unjust. It corrupts. It implies improper appropriation of other people’s property. It results in negative economic growth. In demeans and diminishes human personality.
characteristics Avoiding riba Consuming money which comes from is condemned repeatly in Quran
Controversy aboutIslamic banking There is no entity besides an individual state that may enforce a particular Islamic law.
Sharing risk When Islamic banks invest in a business venture, they assume risk proportional to the ratio of their contribution.
Halal investment If the forbidden items are a minor part of the business then it is considered permissible to invest as long as a portion of the profit is given to charity.
1. Any predetermined payment over and above the actual amount of principal is prohibited : qard-el-hassan (literally good loan)
2. The lender must share in the profits or losses arising out of the enterprise for which the money was lent : Shari’ah (Islamic law ) To reduce the burden of the borrower To encourage entrepreneurs in maximizing their efforts.
3. Making money from money is not islamically accepted : Money advanced in business as a loan is debt of the business and not capital. They are discouraged to keep money idle.
4. Gharar (uncertainty, risk or speculation) is also prohibited : The creditor advances the loan to win the blessings of Allah almighty. Bai bithaman ajil (sales with advanced payment) Istisna (contract to manufacture) Ijara (hire contract)
5. Investment should only support practice or products that are not forbidden: Aim is to engage in only ethical investing and moral purchasing.
benefits Not centered only on credit worthiness & ability to repay the loans & interest. Considerationof ethical & moral values with its banking operation.
Restrictedto useful goods and services. Relationship with depositors. Eliminates the barriers between the one who save & the one who invest.
problems Supportspractices or products forbidden by Islamic Law. Achievingconsistent Shariah supervision. Managing the pool.
Islamic Banking VsConventional BankingThe two major difference between Islamic Banking and Conventional Banking: The pressure has been on RBI to introduce Islamic banking in country which would earn billions of dollars in investments.
When Conventional banks involve in transaction with consumer they do not take the liability only get the benefit from consumer in form of interest whereas Islamic banks bear all the liability when involve in transaction with consumer. Getting out any benefit without bearing its liability is declared Haram in Islam.
Green finance : sustainable environment development facing global warming, development of water resources. Infrastructuredevelopment can attract foreign investment if country opens up to Islamic banking.
Should RBI introduceIslamic Banking in India ?
NEW DELHI They, however said the Bank approached RBI for offering consultancy services in this regard.
Islamic bank follows theShariah law of Banking
D.SUBBARAO, Governor ofthe Reserve Bank Of India As interest payment forms the basis of current banking principles, and therefore ,it is not possible to have Islamic Bank in India.
Itis located in Karachi, Pakistan. Incorporated on January 27, 1997; started its operations as investment bank in August, 1997; Granted licence as commercial Islamic bank in January 2002.
The Banks amin financial institutions are: Pak Kuwait Investment Company. Islamic Development Bank of Jeddah Shamil Bank of Bahrain.
Ithas a 226 branches in 63 cities of Pakistan. 1st and largest bank awarded as Bes Islamic Financial Institution in Pakistan, by Global Finance magazine at its Annual Awards for The Worlds Best Islamic financial Institutions 2011.
It was judged on the basis on the basis of:Contribution to the growth of Islamic Financing in the world- Successfully meeting customer needs.- Creating foundation for continued fast growth in the future.- Growth in assets, profitability, geographic reach, strategic relationships, new business development & innovations in product.