This document provides an overview of Islamic banking, including: - Defining Islamic banking and comparing it to conventional banking. - Describing common Islamic financing techniques like Murabaha, Musharakah, and Mudarabah. - Explaining how Islamic banks currently operate and the sectors they typically finance, with many relying heavily on Murabaha contracts.

1. WHAT IS Islamic BANKING? Concept, Instruments Issues, Theory and Practice AUSAF AHMAD Azerbaijan State Economics University Baku April 7-11, 2008

2. In the name of Allah, the most Beneficent, the Most Merciful.

8. THE FIRM FINANCIAL MARKET FINANCIAL INTERMEDIARIES INDIVIDUALS Indirect financing Indirect financing

9. DIRECT FINANCING Households Businesses Flow of Real goods Financial Flow

10. Indirect Financing Business Financial Institutions Households Financial Resources Financial Resources Return on Investment Return on Investment Goods Goods goods

11. STRUCTURE OF FINANCIAL MARKETS Supervisory Bodies Direct Finance Indirect Finance Bonds Equities Primary Markets Secondary Markets Investment Banks Dealers and Brokers Stock Exchanges Over-the-Counter Exchange Depository Institutions Contractual Savings Institutions Investment I ntermediaries Commercial Banks Saving & Loan Associations Cooperatives Insurance Companies Mutual Funds Pension Funds Finance Companies

12. Islamic Banks and Other businesses ALL BUSINESSES Financial Institutions All Banks Islami Banks

13. Theoretical considerations

18. Practices of Islamic banking

30. TYPES OF CONTRCTS Contracts Muawadat Contracts against Payment Musharakat Contracts of Partnerships Tabarruat Contracts of Charity

48. Financing By Modes for 10 Islamic Banks 1994-96 12.61 11.2 Other 3.73 4.84 Ijarah 8.17 7.29 Mudarabah 9.83 6.49 Musharakah 65.66 70.19 Murabaha Weighted Average Simple Average Modes

49. Mode wise Finance of Islamic Bank, Bangladesh 4.32 3.56 Qard Hasan 3.18 3.87 Musharaka 7.22 7.18 Purchase and Negotiation 16.66 14.57 Hire purchase 18.34 17.28 Deffered sale 50.28 53.54 Murabah 1996 1995 Mode

50. Sector Wise Distribution of Finance 1984 73.01 - - 26.10 0.83 Islamic Bank Bangladesh 90.34 9.35 - - - Qatar Islamic Bank 32.79 25.67 1.00 39.79 0.53 Jordan Islamic Bank Trade Real estate SSI Mfg. Agriculture Name Of the Bank

51. Sectoral Financing by Nine Islamic Banks, 1994-96 19.4 19.1 Other 14.8 12.9 Real Estate 19.7 11.2 Services 9.2 11.0 Industry 2.7 2.4 Agriculture 34.1 42.4 Trade Weighted Average Simple average Sector

53. Financing By Modes for 10 Islamic Banks 1994-96 12.61 11.2 Other 3.73 4.84 Ijarah 8.17 7.29 Mudarabah 9.83 6.49 Musharakah 65.66 70.19 Murabaha Weighted Average Simple Average Modes

54. Mode wise Finance of Islamic Bank, Bangladesh 4.32 3.56 Qard Hasan 3.18 3.87 Musharaka 7.22 7.18 Purchase and Negotiation 16.66 14.57 Hire purchase 18.34 17.28 Deffered sale 50.28 53.54 Murabah 1996 1995 Mode

55. Sector Wise Distribution of Finance 1984 73.01 - - 26.10 0.83 Islamic Bank Bangladesh 90.34 9.35 - - - Qatar Islamic Bank 32.79 25.67 1.00 39.79 0.53 Jordan Islamic Bank Trade Real estate SSI Mfg. Agriculture Name Of the Bank

56. Sectoral Financing by Nine Islamic Banks, 1994-96 19.4 19.1 Other 14.8 12.9 Real Estate 19.7 11.2 Services 9.2 11.0 Industry 2.7 2.4 Agriculture 34.1 42.4 Trade Weighted Average Simple average Sector