Islamic Banking Final1

8/14/2019 Islamic Banking Final1

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ISLAMIC BANKINGISLAMIC BANKING

ISLAMIC BANKING

Presented By.

Rushabh Doshi Surjeet Ghorpade Vinod Hande Pradhyna Hanjankar Manoj Ghode


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IntroductionIntroduction

Fact & FiguresFact & Figures

TrendsTrendsFuture ProspectsFuture Prospects

Case StudyCase Study


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Fact & FigureFact & Figure




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Islamic Banking refers to a system of banking or bankingIslamic Banking refers to a system of banking or bankingactivity that is consistent with Islamic law (Sharia)activity that is consistent with Islamic law (Sharia)principles.principles.

First modern theoretical literature on Islamic BankingFirst modern theoretical literature on Islamic Bankingappeared in from the 1940s through the 60s. Modestappeared in from the 1940s through the 60s. Modestpractical steps in the 1960s were followed by thepractical steps in the 1960s were followed by theestablishment of several Islamic Banking in the privateestablishment of several Islamic Banking in the privatesector in the 1970s. During the 1980s, Pakistan, Iran,sector in the 1970s. During the 1980s, Pakistan, Iran,Sudan, and Malaysia adopted the new system officiallySudan, and Malaysia adopted the new system officially.

Introductionntroduction


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Rules govern investment behavior:Rules govern investment behavior:

the absence of interest-basedthe absence of interest-based (riba)(riba) transactions;transactions; the avoidance of economic activities involving speculation;the avoidance of economic activities involving speculation; the discouragement of the production of goods and service whichthe discouragement of the production of goods and service which

contradict the value pattern of Islamcontradict the value pattern of Islam (haram).(haram).

The common Islamic concepts used inThe common Islamic concepts used in IBIB are :are :

MudharabahMudharabah (profit sharing)(profit sharing) WadiahWadiah (safekeeping)(safekeeping) MusharakahMusharakah (joint venture)(joint venture)

MurabahahMurabahah (cost plus)(cost plus) LjarahLjarah (leasing)(leasing)



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ISLAMIC BANKINGISLAMIC BANKINGIntroductionntroduction

BenefitsBenefits

The very idea of The very idea of IBIB brings in ethical values to center of banking practices.brings in ethical values to center of banking practices.

It has increased banking habit in the Muslim community. Islamic investmentIt has increased banking habit in the Muslim community. Islamic investmentcompanies have brought out some hoarded wealth, encouraged people tocompanies have brought out some hoarded wealth, encouraged people tosave more and helped Muslim entrepreneurs.save more and helped Muslim entrepreneurs.

At the community level, it brings them closer to the rest of humanity as it isAt the community level, it brings them closer to the rest of humanity as it isopen to all.open to all.

As per scholars, Islamic finance is less prone to inflation and lessAs per scholars, Islamic finance is less prone to inflation and lessvulnerable to speculation.vulnerable to speculation.

Islamic finance is more efficient in that it allocates investable funds on theIslamic finance is more efficient in that it allocates investable funds on thebasis of the expected value productivity of projects rather than on thebasis of the expected value productivity of projects rather than on thecriterion of the creditworthiness of those who own the projects.criterion of the creditworthiness of those who own the projects.

Profit sharing principle more beneficial for depositor Profit sharing principle more beneficial for depositor


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CriticismCriticism

IB cost more due to smaller size of these institutions which makesIB cost more due to smaller size of these institutions which makesthem incur higher unit overhead coststhem incur higher unit overhead costs

Default in payment blacklisting of customer : not satisfactory solutionDefault in payment blacklisting of customer : not satisfactory solution

High training costsHigh training costs

Technical and organisational problemsTechnical and organisational problems

Inadequate sensitivity to customer satisfactionInadequate sensitivity to customer satisfaction

Unsuitable supervision standards both internally and externally byUnsuitable supervision standards both internally and externally bycentral bankscentral banks

Difficulty in accessing financial services, whether that beDifficulty in accessing financial services, whether that begeographically or culturally (language barriers)geographically or culturally (language barriers)



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Difference between Conventional banking and IBDifference between Conventional bankin g and IB

Concept of InterestConcept of Interest

Control on utilisation of funds provided by bankControl on utilisation of funds provided by bank

Principles of financial servicesPrinciples of financial services

Awareness about the absolute cost to be incurredAwareness about the absolute cost to be incurred

Repayment of loanRepayment of loan



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ISLAMIC BANKINGISLAMIC BANKINGIntroductionntroduction

DEPOSITORS/INVESTORS

BANK

PROFIT

FINANCING ANDINVESTMENT

ACTIVITIES

LOSS

30%

70%

100%

INVEST FUNDS

(MUDHARABAH)

Pre-agreed Profit-Sharing Ratio


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Fact & FiguresFact & Figures




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ISLAMIC BANKINGISLAMIC BANKINGact & Figureact & Figure

There are around 270 IB worldwide with a market capitalisation in

excess of US$13 billion. These banks operate in 45 countriesencompassing most of the Muslim world, along with Europe, NorthAmerica and various offshore locations.

Assets of IB worldwide are estimated at more than US$265 billionand financial investments above US$400 billion.

Global Deposits: IB deposits are estimated at over US$202 billionworldwide with average growth between 10 and 20%.

Some projectIB

will account for 40% to 50% of total savings of theMuslim population worldwide within 8 to 10 years.


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ISLAMIC BANKINGISLAMIC BANKINGact & Figureact & FigureThe main fiveThe main five IBIB have maintained high rates of growth over thehave maintained high rates of growth over thefirst half of the year, according to results declared so far.first half of the year, according to results declared so far.

Topping the list was Dubai IB with net profit of Dh1.5 billioncompared to Dh707 million during the same period in 2006. Thebank's assets rose by 51 per cent to Dh75.5 billion as opposed toDh49.9bn over the same period last year.

Abu Dhabi IB posted a profit of Dh346 million, or a growth of 19 per cent, compared to Dh292m over the same period last year. Assetsgrew to Dh41.1bn, or 39 per cent over the Dh29.6bn in the sameperiod in 2006.

Sharjah IB achieved Dh121.1m in the first half of this year, a 33 per

cent increase over the previous period's Dh91.3m.

Dubai Bank increased net profit 237 per cent to Dh81.2m over Dh24.1m in the first half of 2006.

Emirates IB netted Dh 76m compared to last year's Dh 48m.


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In countries like Malaysia, which took the lead in introducing Islamicfinance some thirty years ago, Islamic investments now account for 11% of the total banking assets. The Malaysian IB industry is firmlypositioned to capture 15% of the market share by 2007, and istargeting 20% share by 2010.

According to Standard & Poors, the growth rate of IB servicesoutpaced that of conventional banking during the past decade,making it one of the most dynamic areas in international finance.The annual growth of Islamic financial institutions (IFI) has beenan estimated 10% in the Gulf and almost 15% worldwide over thepast 10 years, report says. IFIs assets and funds under management are estimated at about $200bn-$300bn. Islamicbanking activities are expected to grow even more rapidly in theforeseeable future.


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Presence of Islamic Bank - Country Overview

NoIslamicBank

Islamic Banks

MarginalPresence

Small

MarketShare

Medium

MarketShare

High

MarketShare

GovernmentLegislation

Iraq Algeria Malaysia Bahrain Kuwait IranLibya Lebanon Turkey Egypt Qatar Pakistan

Morocco Tunisia Yemen Jordan SudanOman SaudiSyria UAE


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ISLAMIC BANKINGISLAMIC BANKINGTrendsTrends

Islamic banking and conventional banking are quicklyconverging in the Gulf region

As conventional investors gain more comfort withIslamic structures, cost differential between Islamic

products and conventional products have almostdisappeared

As a result, Islamic products may be more practical

because they appeal to both Islamic and conventionalinvestors


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In Non-Islamic Countries, conventional banks began torespond to requests from Muslim clients to offer products that complied with Islamic law

As the size of the potential market became clear,conventional banks responded with the creation of divisions dedicated to Islamic banking


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Conventional International Banks with Islamic Windows incountry like China, UK, Germany, Luxembourg etc:

Citigroup HSBC Deutsche Bank UBS ABN AMRO Standard Chartered Bank

Arab investors hold approximately $800 billion of assetsin European banks, with a growing trend to invest thatmoney in Islamic products


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ISLAMIC BANKINGISLAMIC BANKINGFuture ProspectsFuture Prospects

Islamic banking and financing has gained a footholdboth nationally in Muslim countries and internationally inthe financial world.

Islamic banking industry faces issues of a different sort.That is, how to

(1) consolidate the gains made so far and sustainitself,

(2) protect against any meltdown and

(3) grow.


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Survival of Islamic banking depends on the following: its economic viability, -

Economic viability of Islamic banking/financing is not anissue for two reasons:

> Islamic banking is just another way of banking.> Islamic banking offers a better financial

architecture, on economic grounds.

(2) Its stability,

> During d ownswing in an interest-based economy,depositors existing claims remain a liability of

the banking system.> Islamic banking has advantage that bank obligations

to depositors automatically adjust, both in downswing andrecovery phases,


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Likely Shape of Islamic Banking & Finance inFuture

Islamic Banks as Pure Financial Institutions

Islamic Banks will primarily be Economic Institutions

Standardization of Islamic Financial Products

Structure of Islamic Finance Industry


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Future Challenges for Islamic Banking & Finance

Financial Innovation in Critical Areas

Competition Misuse of Islamic Banking


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Highly ethical, well-regulated and beneficial Islamicfinancial architecture is possible. Indeed, working in thisfield with more transparency, with effective corporategovernance and with better interaction with relevantinternational, regional and national institutions, willdefinitely help all [those] who want to contribute to thewelfare of their community as well as to the welfare of the

world as a whole.Dr. Tahir Memmi of the IDB, Jeddah.


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ISLAMIC BANKINGISLAMIC BANKINGCase StudyCase Study

Islamic Development Bank (IDB) IDB is an international financial institution and it was

formally opened on 20 th Oct 1975 with main office inSaudi Arabia with three regional offices.

Staff at start was 78, now 942.

Official Language is Arabic, but English and French areused. Currently the bank has 56 member countries, member

countries must also be a member of Organization of

the Islamic Conference. Bank purpose is to support the economic development

and social progress of member countries and Muslimcommunities.


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Islamic Development Bank (IDB) Bank receive deposits and mobilize financial resources

through method acceptable accordingly to Sharia. Bank provide technical assistance to member countries

and assist in training personnel working with

development activities in Muslim countries. Authorized capital of Bank is 15 billion Islamic Dinar

and the subscribed capital is 8.1 billion Islamic Dinar.

IDB Subscriber


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Islamic Development Bank (IDB) During the period 1975 Jan 2007, IDB had financed

5272 projects for $ 45.9 billion.


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ISLAMIC BANKINGISLAMIC BANKINGQuestion ????Question ????

Islamic Banking Final1

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