Mohammad.Ali.Mian

1. WHAT IS Islamic
BANKING?
Concept, Instruments Issues, Theory and Practice
mohammad ali main
iqra University may 7-11,20138

2. This presentation includes:
 What is Islamic banking?
 Basic functions
 An Introduction to Islamic financing
techniques.
 Practices of Islamic Banking and
Finance
 Observations on some common
misconceptions.

3. What is Islamic banking?
 System of banking or banking
activity that is consistent with
the principles of Islamic Law
(Shariah)
 Its practical application
through the development of
Islamic Economics

4. Clarification on
Nomenclature
Islamic Banking is known by several names:
 Interest free banking (Iran)
 PLS Banking (Pakistan)
 Islamic Banking (Gulf)
 Special Finance Houses (Turkey)
All expressions are used interchangeably.
Is it a contradiction in terms?
 Some people prefer Islamic Finance House instead of
Islamic bank. (Beit ul tamweel)
 while the mainconcept remain same

5. Basic functions:
Primary Objectives of Islamic
Economic System
Equal Distribution of Money
Social Justice

6. Islamic financing
techniques.
 Shariah laws and values that comprehensively guide
individuals’ in (ritual and non-ritual) life.
 Dealings with haram (unlawful) services and commodities,
such as gambling, liquors, etc. are prohibited.
 Contracts should be based upon profit and risk sharing;
and in the forms of buyer
1. Seller (Murabaha),
2. Lessor – leasee (Ijarah),
3. Partnership (Musharakah),
4. Debtor – Creditor (qard hasan) relationship.

7. Similarities between Islamic and
contemporary banks
 Same purpose: Financial intermediation
 Same Objective: Profit
 Successful Operation of Islamic banks has shown that financial
intermediation is possible even without interest.

8. Mohammad Ali MIAN
DIFFERENCE BETWEEN ISLAMIC AND
CONVENTIOANL BANKING
Islamic Banking
1) Functions and
operations are
based on Shariah
principles
Conventional Banking
1)Functions and
operations are
based on fully man
made principles

9. Mohammad ALI mian
DIFFERENCE BETWEEN ISLAMIC AND
CONVENTIOANL BANKING
Islamic Banking
2) No right of
profit if there is
no risk involved.
The profit and loss
sharing depositor
may lose money in
case of loss.
Conventional
Banking
2) It is almost risk
free banking and
depositor has no
risk of losing its
money because
interest is
guaranteed.

10. Mohammad Ali Mian
DIFFERENCE BETWEEN ISLAMIC AND
CONVENTIOANL BANKING
Islamic Banking
7) one of the service-
oriented functions of the
Islamic banks to be a
Zakat Collection Centre
and they also pay out
their Zakat.
Conventional Banking
7) It does not
deal with
Zakat.

11. Difference In Products
 Current Account
 Saving Accounts
 Investment Acc
 Special Invest. Acc
 Murabaha
 Musharakah
 Mudarabah
 Ijarah
 Qard Hasan

12. Social and Moral Norms
 Should not indulge in
Riba
 Should not involve
Gharar
 Should not indulge in
fraudulent behavior
 Should not coerce
 Should assure fairness
to all parties.
 Should not resort to
morally reprehensible
practices such as
cheating, bribing,
fraudulent practices.

13. AVOIDANCE OF GHARAR
 Definition of Gharar:
 any bargain in which the result of it is hidden.
 cheating in business) and ghabn

14. ADVANTAGES OF Islamic Banking Over
Contemporary banks
 Interest free loan
 Islamic teaching and Shariah
 Knowledge on Islam and religious
environment in the city
 Financial position of Asosiates rises
 Economic benefits and better
facilities.
 ISLAMIC BANKING REPLACES INTEREST
RATE WITH PROFIT AND THAT IS ALL.

15. PRESENT SCENE
 Islamic Banks in the Government Sector
 Pakistan, Sudan, Iran
 Islamic Banks in the Mixed Sector
 - Malaysia
 Islamic Banks in the Private Sector
 Gulf
 Non Banking Financial Institutions
 Al Ameen [ Bangalore, India]
 Islamic Financing by standard Commercial Banks in the
Domestic Sector
 Saudi British, NCB, Saudi American, Misr Bank
 Islamic financing by Commercial banks in the foreign
sector.
 Islamic Banks established by multinational Banks
Citibank, HSBC Amanah Bank,

16. Other Classifications
 Islamic Banks in the Government Sector
Pakistan, Sudan, Iran
 Islamic Banks in the Mixed Sector
Malaysia
 Islamic Banks in the Private Sector
Gulf
 Non Banking Financial Institutions
 Islamic Financing by standard Commercial
Banks

17. Financing Techniques
 Musharakah Finance
 Both the Bank and the customer contributes
towards the capital of the enterprise
 Under a “diminishing” musharakah, the
customer buys out the bank's share over a
period of time.
 The customer and the bank share in the
profits according to the agreed proportions,
which may be different from the proportions
of capital contributed. Any losses of the
enterprise will be borne by the customer and
the bank according to their capital
contributions.

18. Responding Islamic Banks
1. Jordan Islamic Bank (1979)
2. Faisal Islamic Bank, Egypt (1977)
3. Islamic Bank for Western Sudan (1981)
4. Tadamon Islamic Bank, Sudan (1981)
5. Qatar Islamic Bank (1983)
6. Islamic Bank International Denmark
(1983)
7. Islamic Bank, Bangladesh (1983)
8. Sudanese Islamic Bank, Sudan (1983)