Islamic banking is a modern banking system based on Islamic legal concepts that uses risk-sharing as its main method, excluding interest-based financing. This document discusses the definition of Islamic banking, its internationalization in countries like Indonesia, Brunei, and Singapore, its establishment in Pakistan in 2004, and five main sources of Islamic finance - Mudaraba, Musharka, Murahaba, Ijara, and Sukuk. It also outlines major challenges faced by the industry related to financial innovation and risk, global economic integration, and developing consistent accounting and auditing standards.

1. Group member :Group member :
MR.MUHAMMAD ZEESHAN SALEEM (0033)MR.MUHAMMAD ZEESHAN SALEEM (0033)
MR.MUHAMMAD AHMED RAZA (0083)MR.MUHAMMAD AHMED RAZA (0083)
MR.ADEEL MUHAMMAD KHAN (0017)MR.ADEEL MUHAMMAD KHAN (0017)

3. ISLAMIC BANKINGISLAMIC BANKING
• 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”.

4. AbstractAbstract
• Islamic banking has been in practice for
long but started receiving due attention
and high popularity
• Islamic banking continues flourishing the
way it is at present.
• Therefore advancements and
achievements of Islamic banking , there
remains number of controversies over
various underlying concepts and practices

5. Internationalization of IslamicInternationalization of Islamic
Banking and FinanceBanking and Finance
• Numerous countries in this region have
began development of Islamic banking and
finance
– Indonesia: set up first Islamic bank in 1992
– Brunei: established Islamic Bank of Brunei
in 1993
– Singapore: recently announced that it
envisions to be regional hub for Islamic
financial services
– Thailand: approved draft bill for the
establishment of an Islamic bank in 2001

6. ISLAMIC BANKING INISLAMIC BANKING IN
PAKISTANPAKISTAN
• In 2004 the State Bank of Pakistan (SBP)
established a dedicated Islamic Banking
Department (IDB) and established a
Shariah Board to regulate and approve
guidelines for the emerging Islamic
Banking industry.

7. FIVE SOURCES OF ISLAMICFIVE SOURCES OF ISLAMIC
FINANCEFINANCE
• Five sources are as follows:
1: Mudarba
2: Musharka
3: Murahaba
4: Ijara
5: Sukuk

8. MUDARBAMUDARBA
• Mudarba is the arrangement in which one
party bring capital called RAB-UL-MALL
and other party bring expertise called
mudarib.
• Profit can be distributed in any ratio.
• Loss can be bear by only RAB-UL-MALL.

9. 2:MUSHARKA2:MUSHARKA
• Its like a partnership in which all partners
bring capital and start business.
• Profit can be distributed in any ratio but
loss can be according to their capital

10. 3:Murahaba3:Murahaba
• It is a sale contract where the bank buys
the product on behalf of the client and
resells the product to the same client by
clearly mentioned the profit in the contract
• Physically ownership of asset
• Its like a trade credit loan

11. CONTD.CONTD.
• Profit is agreed between the parties
• No discount allow for early payment and
no penalty is charged for delayed payment

12. 4:IJARA4:IJARA
• It is just like a leasing
• Characteristics of ijara contract is use of
lease asset must be mentioned in contract
e.g where to use it
• Maintenance cost is bared by lessor

13. 5:Sukuk5:Sukuk
• Its is Islamic bonds in which
• No voting rights
• Securities are needed
• Include interest
• Interest is paid before distribution of profit

14. CONTDCONTD
• Islamic bond holders are partial owner of
underlying assets
• The profit is linked to the performance of
underlying assets this means sukuk
holders are owner of assets and has right
to profit as well as bear any loss if it is
happen.

15. MAJOR CHALLENGES FACED BY ISLAMICMAJOR CHALLENGES FACED BY ISLAMIC
BANKING & FINANCEBANKING & FINANCE
• The first challenge relates to building the capacity to
manage the increasing uncertainties generated by
financial innovation, the increasing prominence of the
non-regulated sector and the increasing
interconnectedness between financial institutions and
markets. developments have not only resulted in the
emergence of such new risks to the financial system but
have also changed the dynamics of how risks in the
financial system are transmitted to the real economy.

16. CONTDCONTD
• The Second challenge relates to the increasingly and highly
complex financial and economic integration associated with
globalization.
• This has resulted in a significant expansion in cross-border financial
recent crisis raised many issues for which clear solutions, or even
consensus, have yet to emerge, suitable approaches to cross-
border resolutions, and the significant challenge of coordinating
policies across different legal and institutional frameworks.
• Operational and legal issues in cross-border resolution arise where
the regulatory frameworks of different countries do not provide for a
common solution in areas such as the unwinding of financial
transactions and the enforceability of secured parties' rights to
collateral in the foreign jurisdiction

17. CONTDCONTD
• The Third challenge in Islamic Banking & finance is
accounting & auditing standards. The Accounting and
Auditing Organization for Islamic Financial Institutions
has made an important regulatory beginning. It seeks to
support the faith of Islam by developing accounting
standards for Islamic investment vehicles and by
conducting related training and publicity. It also expects
to strengthen the effectiveness of Sharia committees by
facilitating evaluation of emerging financing instruments
and by aiding in the implementation of Islamic ethics.The
agency merits close monitoring by Western bankers and
their accountants, given the rapidly growing asset base
of Islamic financial institutions.