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Products of Islamic banking


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Overview of the products offered by the islamic banks or islamic branches of the traditional banks.

Published in: Economy & Finance
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Products of Islamic banking

  1. 1. 1. What is Islamic banking ? 2. The products of Islamic banks. 3. Islamic vs conventional banking.
  2. 2. W H A T I S I S L A M I C B A N KI N G ? Islamic banking is a banking system that is consistent with the principles of the Shari'ah (Islamic rulings) . Shari'ah prohibits the payment or acceptance of interest charges (riba) for the lending and accepting of money, as well as carrying out trade and other activities.
  3. 3. “I S L A M I C” P R O D U C T S Deposit products1. 2. 3. 4. Investment products Financing products Insurance products
  4. 4. 1 . D E P O S I T In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it. A token given voluntarily by a debtor in return for a loan.
  5. 5. 2 . I N V E S T M E N T Refers to the sale of goods at a price, including a profit margin agreed to by both parties, and clearly stated in the sale agreement/contract. The bank cannot charge additional profit on late payments. However, the asset remains as a mortgage with the bank until the default is settled. Is a contract, with one party providing 100% of the capital and the other party providing its specialized knowledge to invest the capital and manage the investment project. Profits and losses are shared between the parties according to a pre- agreed ratio. The profit is usually shared 50%-50% or 60%-40% for rabb-ul- mal.
  6. 6. 2 . I N V E S T M E N T This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney. is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter, sometimes against the wishes of the other. Is the negotiation of a selling price between two parties without reference by the seller to either costs or asking price. While the seller may or may not have full knowledge of the cost of the item being negotiated, they are under no obligation to reveal these costs as part of the negotiation process.
  7. 7. 2 . I N V E S T M E N T refers to the Islamic equivalent of bonds. Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging interest. This is generally done by involving a tangible asset in the investment, such as by giving partial ownership of a property built by the investment company to the bond owner. The bond owner is then able to collect his profit as a rent, which is allowed under Islamic law.
  8. 8. 3 . F I N A N C I N G Is a relationship between two parties or more that contribute capital to a business and divide the net profit and loss pro rata. -The profit is distributed among the partners in pre-agreed ratios. -The loss is supported strictly in proportion to capital contributions. Refers to selling the benefit of use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipment such as plant, office automation, motor vehicle for a fixed period and price. Ijarah thumma al bai’, Ijarah wal-iqtina’.
  9. 9. 3 . F I N A N C I N G Is a loan extended on a goodwill basis, with the debtor only required to repay the amount borrowed. However, the debtor may, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor. Is a contract in which the seller (bank) supplies a specific good to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. Bai' al 'inah (sale and buy-back agreement), Bai' bithaman ajil (deferred payment sale)
  10. 10. 4 . I N S U R A N C E Takaful is based on the idea that what is uncertain to an individual may cease to be uncertain to a very large number of similar individuals. It’s a type of Insurance where members contribute money into a pooling system in order to guarantee each other against loss or damage.
  11. 11. I S L A M I C V S C O N V E N T I O N A L B A N K I N G 1. The oversight of a sharia board A sharia board consists of Islamic scholars who are qualified to give opinions on Islamic business contracts. In a commercial bank, the board is also involved in supervising bank operations to make sure they comply with sharia principles. (Prohibiting usury, avoiding speculation and gambling, investing ethically.) 2. Investments in the bank -Investments in conventional commercial banks are based on guaranteed principal and earning a fixed amount of income. -In Islamic banking, the concept of investment is different : Although the customer deposits the money, the principal isn’t guaranteed and the bank isn’t liable to pay the money to its customer.
  12. 12. I S L A M I C V S C O N V E N T I O N A L B A N K I N G 3. Relationships with clients -In a conventional bank, the relationship between the client and the banker is one of creditor to debtor; the bank has a responsibility to pay back your money with or without interest according to your account contract. -The relationship between a customer and an Islamic bank is completely different; the debtor and creditor relationship does exist at times in Islamic banking : It is a partnership.
  13. 13. P R E S E N T E D B Y : KARIM Oumaima