basic level

1. CHAPTER ONE
By instructor:
Khalid Abdi

2. 
 Definition of Islamic banking system
 Objectives of Islamic banking system
 Historical development in Islamic banking system
 Development of Islamic banks in Somaliland
 List of Financial Institutions Offering Islamic Banking Services
 Development of Islamic Banking and Finance in Other
Countries
 Differences between Islamic and conventional system
Content

3. 
 An Islamic bank is a financial institution that
operates with the objectives to implement the
economic and financial principles of Islam in the
banking arena.
 From above definitions, we can summaries that
Islamic financial institutions that are based on
shariah principles.
Definition of Islamic banking
system

4. 
 The primary objective of establishing Islamic banks
is to spread economic prosperity within the
framework of Islam by promoting and development
Islamic principles in the business sector.
 Key objectives are listed below:-
1. Offer financial services
2. Facilitate stability in money value
3. Economic development
Objectives of Islamic banking
system

5. 
 4. best resources distribution
 5. equitable distribution of resources
 6. profit/loss sharing principles
Cont.…

6. 
Historical development in Islamic
banking

7. 
Historical development in Islamic
banking

8. 
Historical development in Islamic
banking

9. 
 In 2009, was the first time to initiate the so- called
Islamic Finance in Somaliland, operating as Islamic
Banking, because, Somaliland government has
not approved legally in developed Banks system,
unless,the central Bank of Somaliland would become
Islamic Banking system, as the parliament approved.
 The Islamic banking system in Somaliand started in
2012 when the first banks, Dahabshiil international
bank and Dara salaam bank commenced its
operations.
Development of Islamic banking in
Somaliland

10. 
 At present there more than 40 Islamic banking
branches throughout Somaliland and Islamic
banking institutions are offering Islamic commercial
banking services.
 Islamic banking is barely 5 years old in Somaliland
but that overall performance of the Islamic banks in
Somaliland is slightly increasing in terms of market
share, deposits mobilization, and financing portfolio.
Cont..

11. 
 The main objective of this study is to examine the
perceptions of corporate customers towards Islamic
banking products and services in Somaliland.
 To measure the overall knowledge of the
respondents in Islamic Banking System.
 45.1% of respondents indicated that their knowledge
in this Islamic banking system was limited.
 However, 37.3% indicated that their were unfamiliar
with Islamic banking system.
AN EMPIRICAL INVESTIGATION ON CORPORATE
CUSTOMERS PERCEPTIONS OF ISLAMIC BANKING
PRODUCTS AND SERVICES IN SOMALILAND

12. 
List of Financial Institutions Offering
Islamic Banking Services
The Islamic banks are not the only financial institutions
involved in Islamic banking. Other financial
institutions also offer Islamic banking services through
the "Islamic Banking Scheme".
 Commercial Banks: saving deposits and make
loans to business and individuals
 Community banks: smaller, locally focused
commercial and savings banks
 Cooperative banks: help farmers, livestock
farmer, acquire goods and services.

13. 
International banks: commercial banks
present in more than one nation
Wholesale banks: large commercial banks
serving corporations and government.
Retail banks: smaller banks serving
primarily households and small business
Universal banks: offer virtually all financial
services available in today’s marketplace.
Cont.…

14. Development of Islamic Banking and Finance in
Other Countries
Gulf Cooperation Council (GCC) States
• Bahrain
– Bahrain Monetary Agency (BMA) is the first central bank to
develop and issue prudential regulations for Islamic banks
– Bahrain has highest concentration of Islamic financial
institutions (28 Islamic banks, 16 takaful operators)
– 2/3 of Islamic financial institutions operating in GCC countries
are based in Bahrain
– Self-confident to become centre for development of software
tailored for Islamic banking, collaborations with Microsoft
– Looks oversupplied with Islamic banks, mergers are likely in
the future
– Proposed setting up of an international Islamic stock exchange
– Proposed establishment of an Islamic rating agency

15. Development of Islamic Banking and Finance in
Other Countries (2)
Gulf Cooperation Council (GCC) States
• Saudi Arabia
– Shari’ah is the law of the land but it does not have an Islamic
banking law
– There is only one banking law, which does not exclude
Islamic banking operations
– Growing preference for Islamic banking – 95% of all new
financing is Islamic finance-based (Q1 2004)
– All conventional Saudi banks have Islamic windows
– Islamic Jurisprudence (Fiqh) Academy based in Jeddah is the
largest representative body of Shari’ah scholars, is
represented by all Muslim countries
– Presence of many Western banks providing Islamic banking
and financial services
• Saudi British Bank, Saudi American Bank, Saudi Hollandi
Bank, Citigroup, etc.

16. Development of Islamic Banking and Finance in
Other Countries (3)
Gulf Cooperation Council (GCC) States
• United Arab Emirates (UAE)
– UAE is a federation of 7 states (emirates) – Abu Dhabi, Dubai, Sharjah,
Ajman, Umm Al Qawain, Fujairah, Ras Al Khaimah
– Region experiencing high growth rates in Islamic finance (20%)
– Islamic financial products constitute 25% of total banking transactions
– Dubai
• Dubai Islamic Bank (DIB) considered to be the first Islamic bank in
the world, third largest Islamic commercial bank in the Gulf
• To attract global financial institutions, Dubai International Financial
Centre (DIFC) was established and operates as a financial free zone
• World-class regulator and regulatory regime in the Dubai Financial
Services Authority (DFSA)
• Dubai Metal and Commodities Centre (DMCC)
– Provides Islamic finance packages to companies specializing in the
gold and diamond trade
– Provides gold-linked Islamic financing, giving investors the option
to receive payments denominated in gold bullion as an alternative
to the USD

17. Development of Islamic Banking and Finance in
Other Countries
West Asia / Africa
• Yemen
– Islamic banks in Yemen include Tadamon Islamic Bank, Islamic
Bank of Yemen for Finance and Investment, Saba Islamic Bank
and Yemen & Bahrain Bank
• Egypt
– Mit Ghamir Bank of Egypt, established in 1963, is sometimes cited
as the first Islamic bank in the world
– Due to political reasons, the bank was taken over by the National
Bank of Egypt, a conventional bank
– Nasser Social Bank (1971) operates autonomously under the
Ministry of Social Affairs and Insurance as an interest-free
commercial bank although it does not bear any specific reference
to Islam

18. 
Iraq
 Islamic financial institutions include Rafidain Bank
and Iraqi Islamic Bank for Investment and
Development
 In 2002, Iraq and Sudan entered into a banking
cooperation agreement, which will help Iraq to get
familiarized with Sudan’s experience in Islamic
banking
Cont.…

19. 
Differences between Islamic and
conventional system

20. 

21. 

22. 
1. What is Islamic banking system? How do the objectives of Islamic banking
different from those of a conventional banker?
2. Trail the different stages of the development of the Islamic banking and
finance industry over the past five decades?
3. how can we live without interest?
4. How Islamic banking system work in general?
5. Is there any different between Islamic banking system and conventional
system? Mention 4 points.
Class activity two

23. 
End