Islamic Banking (IB)Definition:Islamic banking can be defined as: a form of modern banking based on Islamic legal concepts using risk- sharing as its main method excluding financing based on fixed pre- determined return.
2. The Principles of Islamic Finance
Islamic Banking (IB)
Definition:
Islamic banking can be defined as: a form of
modern banking based on Islamic legal concepts
using risk- sharing as its main method excluding
financing based on fixed pre- determined return.
3. The purpose of the Islamic
financial system:
The purpose of the Islamic financial system
is, as with conventional finance, to mobilize
global resources to promote and sustain
global and regional development.
4. Islamic Finance taps the vast pool of savings
held by Muslims, and puts these savings to
productive use for the benefit of Islamic and
other societies.
5. Can Economy and Religion mix
The practice of religion is between the person and his God in
forms of pray or meditations, and in daily life such as marriage,
funerary service, public service and charities
Economic systems are manmade system to regulate and
reform trade:
Throw history economic systems have taken a form of trying and
testing of what to produce? How to produce? Who gets what is
produced?
Efficacy, growth, liberty and equality are objectives to achieve in
good economic systems
In capitalist economic system production carried out to maximize
profit, while in socialist systems labour and jobs is the goal
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6. Islam
The five pillars of Islam:
1. Shahadat (profession of faith)
2. Salat (prayer)
3. Zakat (giving of alms)
4. Sawm Ramadan (fasting during the month of Ramadan)
5. Hajj (pilgrimage to Mecca for those who are able
physically and financially)
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7. Shari'ah law
Justice, fairness and morality
Are values which underpin both the entire Islamic way of
life.
Shariah gives guidance as to what is, and what is not,
acceptable behaviour in all areas of a Muslim’s life
Shari'ah is developed by Shari'ah scholars (Known as Schools
of thoughts, Safaai, Hanafi, Hanbali, Malki, Sheaat ,etc. ) over
1000 years ago (over 400 years after Islam)
The recent Scholars known as Shari'ah advisors or Shari’ah
board has studied Fiqh Al-Muaamlat able to explain Shari'ah
law for recent business dealings.
The principal base of the Shari’ah Law is:
the permissibility, the prohibition is exceptional
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8. What is Islamic Finance?
Islamic Banks Started in 1974 in Egypt with the first Islamic
Bank “Nasser social bank” followed by Islamic development
bank in 1975, now there are over 600 Islamic Banks globally
Islamic Banks started as interest free bank to help the small
entrepreneurs to start business, the costs of managing the bank
charged the stack holder as expanses
The framework of an Islamic financial system is based on
elements of Shari'ah(Islamic Law) which prohibit Riba (Usury)
and Gharar (Deception) and permit Risk sharing
The fundamental concept is that the money has no inherent
value and should be used as a measure of worth
Shari’ah compliant investment are structured on the exchange
of ownership in tangible assets or services with money acting
as the payment mechanism to effect the transfer of ownership
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9. Shari’ah Law
Recent Islamic scholars who from time to time re-
examine the Shari'ah principals have structured new
financial instruments
Those instruments must comply with principals of The
of Shari'ah law
Ethics of the Shari’ah Law originate from:
The Qur'an
The Sunnah,
Ijmaa - consensus among the jurists,
Qiyyas – analogy
Ijtihad - reasoning
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11. Prohibitions
In Islamic financial system
Prohibition of Unfairness & Unjust
Prohibition of Riba (usury)
Prohibition of Gharar (Deception & Speculation)
Prohibition of Gambling
Prohibition of Monopolies
Prohibition of Short Sales
Prohibition in money trading (Money is a medium not a
commodity)
Prohibition of Dealing in Unlawful or Unethical Goods or
Services
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12. Shari'ah
Compliant
Products
Products that
exchangeabl
e for money)
Products
are not
prohibited
in Islam
Products
are not
traded
under
duress
Products
that are
free from
Riba
Products
are traded
in the open
market
Products that
are not
monopolized
by one party
13. Islam has given an immense importance to trade
The nobility of this profession is obvious from the
fact that it was the chosen profession of prophet
Muhammad (PBUH).
14. Musharakah
Definition:
A Musharakah is a joint venture where by all
partners (BANK /CLIENT) participate in providing
the financial resources for the business. the Client
to start and/or
operate a business or industry, or undertake any
other type of business venture.
The bank and the Client agree to manage the
business enterprise according to
the terms of the agreement.
15. Basic Principles Of
Musharakah:
Financing through Musharakah means participation in the business.
An investor/financier must share the loss incurred by the
business to
the extent of his financing.
The partners are at liberty to determine, with mutual consent, the
Ratio of profit allocated to each one of them, which may differ from
the ratio of investment.
The loss suffered by each partner must be exactly in the
proportion of
his investment.
16. The usage of Musharakah in financing business :
Project
financing
Financing of a
single
transaction
Securitization of
Musharakah
Financing of
Working
Capital
Musharaka
17. Murabaha
Definition:
Murabaha is a sale contract between the
Bank as seller of goods and Client as purchaser, based
on the disclosure of initial price to client. Bank purchases
Goods on spot at the request of the Client, and then sells
same to him on credit at a mutually agreed marked-up
price.
18. Murabaha Financing Process
Customer Bank
1
Supplier
Price
Goods
Promise
to
Purchase
Sale
Contract
(Musawama
)
2
3
4
Customer Bank
Goods
Sale Contract
(Murabaha)
Installments
5
6
7
(Buyer) (Seller)
(Buyer) (Seller)
Price
19. Assignment
Read out the banking system of different
banks which are presently working on Islamic
Account