The document presents an overview of Islamic banking, defining it as a system based on Islamic law that prohibits interest and promotes profit-sharing. It discusses the global landscape of Islamic banks, their specific operational principles, and various products and services like mudarabah, musharakah, and murabaha. Additionally, the presentation highlights the differences between Islamic and conventional banking, and the status of Islamic banking in Pakistan, emphasizing its role in economic development and stability.

1. ISLAMIC
BANKING
Presentation by:
Iqtidar Ali
Branch Manager Bank Al Habib

2. MAIN POINTS
• Definition of Islamic Banking
• Islamic banks around the world.
• Specificities of Islamic Banking
• Islamic Banking Products & Services
• Difference Between Islamic Banking and Conventional Banking.
• Islamic Banks in Morocco.

3. DEFINITION
Islamic banking is a banking system that is based on the principles
of Islamic law.
Two basic principles behind Islamic banking:
The sharing of
profit and loss
The prohibition
of the collection
and payment of
interest by
lenders and
investors

4. ISLAMIC BANKS AROUND THE
WORLD
 Participation banking continues to show strong growth of 16%, despite political and
economic volatility in the major regions.
 It is projected to grow by an average of 19.7% a year to 2018

5. ISLAMIC BANKS AROUND THE
WORLD
Saudi Arabia Qatar
United Arab Emirates
Egypt

6. ISLAMIC BANKS AROUND THE
WORLD
Pakistan
Malaysia
China
ASIA
Indonesia India

7. ISLAMIC BANKS AROUND THE
WORLD
In Europe
Britain Luxemburg
Germany
France (Halal
Current Account)
Islamic Window Russia

8. SPECIFICITIES OF ISLAMIC BANKING
Islamic banks perform differently financial
intermediation.
For instance, Islamic banks’ depositors undergo true
investors’ risk  Depositors share losses as well as
profits related to each Sharia’a compliant
investment project financed through their own
funds

9. SPECIFICITIES OF ISLAMIC BANKING
Islamic banks’ depositors are not aware of the
exact rate of return related to the undertaking
transaction.
No guarantee on the principal and neither on
the returns.
Depositors are treated like the banks’
investors.

10. SPECIFICITIES OF ISLAMIC BANKING
Islamic banks are prohibited from engaging
in sinful transactions such as weapons,
alcohol, drugs, pornography, and the porcine
industry.
Islamic banks’ contracts, operations, and
products must be clearly announced and
explained to different transaction parties.

11. ISLAMIC BANKS: PRODUCTS&SERVICES
MUDARABAH
Profits are shared between the capital provider and the
manager in a predetermined ratio, while losses are borne
solely by the capital provider
 The capital provided by the rabb al maal is returned by
the manager/mudarib when the contract ends.
In Islamic banking, capital provider is the while the
manager is the bank.

12. ISLAMIC BANKS: PRODUCTS&SERVICES
MUDARABAH
Mudarabah is an equity-based contract offered
by Islamic banks, where one partner provides
money to another and the latter manages the
money by investing it in commercial projects in
order to earn profit which is shared among the
two in a predetermined ratio.

13. ISLAMIC BANKS: PRODUCTS&SERVICES
MUSHARAKA
Musharakah is a partnership-based contract or
an investment product with a partnership
structure for sharing profits and losses, It
involves investment from all the partners and
an agreement to share profits in a
predetermined ratio and to share losses in the
ratio of contribution.

14. ISLAMIC BANKS: PRODUCTS&SERVICES
MUSHARAKA
The special conditions for Musharakah are
 The commodity: every partner should be capable of agency
The ratio of profit sharing should be predetermined; and along
with the profits, losses should also be shared in the ratio of
contribution towards the contract
Defining absolute value or fixed value is not permissible,
instead, ratios or percentages must be determined

15. ISLAMIC BANKS: PRODUCTS&SERVICES
MURABAHA
Refers to the sale of goods at a price which
includes a profit margin, i.e. cost plus. A
Murabahah contract has an honest declaration
of cost and the expenses incurred on the
product, along with the profit mark up being
taken by the seller, which is the bank in this
case.

16. ISLAMIC BANKS: PRODUCTS&SERVICES
MECHANISM OF MURABAHA
SUPPLIERS OF
GOODS
CUSTOMERS
ISLAMIC BANKS
Sale of assets
Sale of assets
Payment of purchase
price
Payment of purchase
price + Premium

17. ISLAMIC BANKS: PRODUCTS&SERVICES
PILLARS OF MURABAHA
Product and selling price
Contracting parties
Offer and acceptance
No riba trading shall be involved
The initial contract must be valid

18. ISLAMIC BANKS: PRODUCTS&SERVICES
SUKUK
Shares in the ownership of tangible
assets.
The element of debt is non-existent, bond
holders share the beneficial ownership of
the asset or the project that the bonds
represent

19. ISLAMIC BANKS: PRODUCTS&SERVICES
IJARA
Providing products or services on a lease or
rental basis.
A person or party is given the right to use
the object (the usufruct) for a period of time;
the owner retains the ownership of the assets.

20. ISLAMIC BANKS: PRODUCTS&SERVICES
TYPES OF IJARA
Lease-ending ownership (ijara wa iqtina/ ijara muntahia bitamleek): the
lessee owns the leased asset at the end of the lease period.
Operating lease (operating ijara): doesn’t include the promise to purchase
the asset at the end of the contract. Basically, this setup is a hire arrangement
with the lessor.

21. ISLAMIC BANKS: PRODUCTS&SERVICES
DIFFERENCE BETWEEN LEASING AND
IJARA
The lessor must own the assets for the full lease period.
If the lessee defaults on payments or delays payments, the
lessor can’t charge compound interest.
The leased asset’s use is specified in the contract.

22. DIFFERENCE BEWTWEEN ISLAMIC
BANKING & CONVENTIONAL BANKING
Conventional Banks Islamic Banks
•The functions and operating modes of
conventional banks are based on fully
manmade principles (largely capitalism
theory)
•The functions and operating modes of
Islamic banks are based on the principles of
Islamic Shariaa
•It promotes risk sharing between
provider of capital (investor) and the
user of funds (entrepreneur)
•Unrestricted profit maximization
illustrated by derivative trading.
•Aims at maximizing profit but subject to
Shariaa restrictions.
•The investor/lender is guaranteed of a
predetermined rate of interest or
returns.

23. DIFFERENCE BEWTWEEN ISLAMIC
BANKING & CONVENTIONAL BANKING
Conventional Banks Islamic Banks
•It does not deal with Zakat
•Conventional banks use money as a
commodity which leads to inflation.
•It has become one of the service-
oriented functions of the Islamic banks
to be a Zakat Collection Centre and
they also pay out their Zakat.
•Money is linked with the real
assets therefore it contributes
directly in the economic
development.
•While disbursing cash finance,
running finance or working capital
finance, no agreement for exchange
of goods & services is made.
•The execution of agreements for the
exchange of goods & services is a must,
while disbursing funds under
Murabaha, Salam & Istisna contracts.

24. ISLAMIC BANKS
IN PAKISTAN

25. ISLAMIC BANKING IN PAKISTAN
The STATE BANK OF PAKISTAN has
planned to form an Islamic interbank
market and encouraged the government to
issue regular sukuk (Islamic bonds) to
ensure the industry’s liquidity

26. ISLAMIC BANKING IN PAKISTAN
Encouraging stability in investments
By performing intensive audits and
analyses, Islamic finance promotes the
reduction of risk and creates the space for a
greater investment stability.

27. ISLAMIC BANKING IN PAKISTAN
Accelerating economic development
Islamic finance companies certainly have
profit creation and growth as their objectives.
 Islamic Banks choose to invest in
businesses based on their potential for
growth and success.
High return on investments both for the
bank and the depositors.

28. CONCLUSION
Thank you for your attention.