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Introduction to Islamic Banking 1
Introduction
To
Islamic BankingA Direction to the human on a right pathfor good life..!
By
P V V Rama Raju
President & CEO
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Introduction to Islamic Banking2
General Introduction.
The Islamic Economic System
The economic philosophy of
Islam vis--vis interest
Distribution of wealth.
What is Islamic Banking ? And
Why is Islamic Banking.
What is RIBA its prohibition
Regulations and Legal
framework.
Shariah Principles.
Contents Course Objectives
Relationship with Religion and
Banking.
Shariah Laws in Islamic
Banking
Sources and Application of
funds under Islamic Banking.
Various Islamic banking
products
Various International IslamicFinancial Institutions.
Conclusion.
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Introduction to Islamic Banking3
Islam is not only a religion in the ordinary sense of
the world, but also a complete system of life.
While other religious codes provide general guidanceonly for the relation between man and his Creator,
Islam guides man in his relationship with God andgives him the norms which govern his temporal
existence.
Islam is concerned with the spiritual, political, socialeconomic, moral and all other material aspects of thehuman being.
General Introduction
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Introduction to Islamic Banking4
General Introduction contd.
Every social system has its own economic system.
Islam being a comprehensive and distinct social
system, possesses a corresponding economic
system of its own.
Islamic economics is fast developing into a different
and distinct paradigm of economics.
Therefore, a number of Islamic financial institutions
have been emerging in various Muslim as well as insome non-Muslim countries.
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Introduction to Islamic Banking5
The Islamic Economic System
One of the forms of capitalism, which has been flourishingin non-Islamic societies, is the interest-based investment.
There are normally two participants in such transactions.
One is the investor who provides capital on loan and the otherManager who runs the business.
The investor has no concern whether the business runs into
profit of loss, he automatically gets an interest (Riba) in both
outcomes at a fixed rate on his capital.
Islam prohibits this kind of transactions and the Holly Prophet
(pbuh) enforced the ruling, not in the form of some moral
teaching, but in the form of law of land.
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Introduction to Islamic Banking6
The economic philosophy of Islam
vis--vis Interest
The economic philosophy of Islam has no concept ofRiba because
according to Islam, Riba is that curse in society, which accumulates
money around handful of people, and it results inevitably in creating
monopolies, opening doors for selfishness, greed, injustice and
oppression.
Deceit and fraud prospers in the world of trade and business. Islam, on
the other hand, primarily encourages highest moral ethics such as
universal brotherhood, collective welfare and prosperity, social fairness
and justice.
Due to this reason, Islam renders Riba as absolutely haram and strictlyprohibits all types of interest based transactions. The prohibition ofRiba in
the light of economic philosophy of Islam can be explained with the cost of
distribution of wealth in a society.
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Introduction to Islamic Banking7
Distribution of wealth
The distribution of wealth is one of the most important and most
controversial subjects concerning the economic life of man, which has
given birth to global revolutions in todays world, and has affected every
sphere of human activity from international politics down to the private life
of the individuals.
No doubt, Islam is opposed to monasticism, and views the economic
activities of man quite lawful, meritorious, and some times even obligatory
and necessary.
According to materialistic economics, livelihood is the fundamental
problem of man and economic developments are the ultimate end of
human life
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Introduction to Islamic Banking8
Distribution of wealth Contd.
The fundamental principle, which can help to solve theproblem of the distribution of wealth, is the concept of wealth
in Islam.
According to the illustration of the Holy Quran wealth in all
its possible forms is a thing created by Allah, and is, in
principle His property.
Allah delegates the right of property over a thing, which
accrues to man, to Him.
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Introduction to Islamic Banking9
History and Development
Islamic banking generally aims to promote and develop the applicationof Islamic principles, law and traditions to the transactions of financial,banking and related business and commercial affairs.
It also promotes business and commercial activities that are acceptable
and consistent within Shariah principles, safeguarding the Islamiccommunities and societies from activities which are forbidden in Islam.
An advantage of Islamic banking is that Islamic banks do not deal withloans (except for benevolent loans underQardh Hasan).
Instead, Islamic banking introduces the principles ofMusharakah(partnership) and Mudharabah (profit sharing), which make theinvestments of Islamic banks depend on the usefulness and feasibility ofthe projects in which the money are invested.
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Introduction to Islamic Banking10
History and Development ..Contd
The main principles of Islamic banking are the prohibition of interest
(usury) in all transactions, the undertaking of business and trade activities
on the basis of fair and legitimate profit and the prohibition of monopoly
and hoarding.
Nevertheless, it must be remembered that Islamic banks, like conventional
banks, are profitable organisations.
Their aim is to gain profit but they are not allowed to deal with interest or
to engage in any trade or business prohibited by Islam.
Whilst conventional banking is believed to have begun in the middle of thetwelfth century, Islamic banking first emerged only in the late seventies and
early eighties, although the history of Islamic banking activities can be
traced back to the birth of Islam.
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Introduction to Islamic Banking11
What is Islamic Banking ?
Islamic banking is defined as banking system which is in consonance
with the spirit, ethos and value system of Islam and governed by the
principles laid down by Islamic Shariah.
Interest free banking is a narrow concept denoting a number of bankinginstruments or operations which avoid interest.
Islamic banking, the more general term, is based not only to avoid
interest-based transactions prohibited in Islamic Shariah but also to avoid
unethical and un-social practices.In practical sense, Islamic Banking is the transformation of conventional
money lending into transactions based on tangible assets and real
services.
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Introduction to Islamic Banking12
What is the philosophy
of
Islamic Banking ?
The philosophy of Islamic banking takes and lead from Islamic Shariah.
According to Islamic Shariah, Islamic Banking cannot deal in transactions
involving interest/riba (an increase stipulated or sought over the principal
of a loan or debt).
Further, they cannot deal in the transactions having the element of Gharar
or Maiser.
Moreover, they cannot deal in any transaction, the subject matter of which
is invalid (haram in the eyes of Islam).
Operating within the ambit of Shariah, the operations of Islamic bankingare based on sharing the risk which may arise through trading and
nvestment activities using contract of various Islamic modes of finance.
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Introduction to Islamic Banking13
Why Islamic Banking and Finance ?
There may be opposing views that Islamic Finance is in many ways
very similar to (some times technical with) conventional finance.
Some may feel that this similarity is an attempt to dilute the
Islamic teachings to simplify our lives, while others may feel that
the Islamic legal distinctions between Islamic and regular finance
are artificial means of creating an industry where none is needed.
It is also mentioned that the terms Islamic banking or Islamic
Finance can be quite misleading given the many similarities
between Islamic and conventional financial contracts.
Islamic banks or Islamic financial institutions try to ensure that alltheir contracts adhere to Islamic legal requirements as well as state
requirements.
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Introduction to Islamic Banking14
Definition of Islamic Banking and Finance
Islamic finance is an ethical and equitable mode of finance that
derives its principles from the sacred law of Islam (the shariah).
The Islamic bank basically implements a new banking concept in
that it adheres strictly to the ruling of shariah in the fields of finance and other dealings.
The foundation of Islamic banking is based on the Islamic faith.
All the actions and deeds of its practitioners are bound by thelimits of Islamic law or the shariah.
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Introduction to Islamic Banking
Distinctive features of
Islamic finance
The most distinctive features of Islamicfinance are;
the prohibition of interest, whether
nominal or excessive, simple or compound, fixed or floating.
the prohibition of gambling;
dealing only in lawful (halal) things and;
the elimination of uncertainty andambiguity (gharar) in business contracts.
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Introduction to Islamic Banking
Islamic Banking Foundations
Any predetermined payment over and above the actual amount ofprincipal is prohibited. (prohibition ofriba - interest).
The lender must share in the profits or losses arising out of theenterprise for which the money was lent. (profit and loss sharing)
Making money from money is not Islamically acceptable. Money mustwork as capital not as debt.
Gharar(uncertainty, risk or speculation) in transactions is prohibited.
Investment should be confined to products and services that are notforbidden.
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Introduction to Islamic Banking17
What is meant by RIBA ?
The word Riba means excess, increase or addition, which correctlyinterpreted according to Shariah terminology, implies any excesscompensation without due consideration (consideration does not includetime value of money).
This definition of Riba is derived from the Quran and is unanimouslyaccepted by all Islamic scholars.
Riba literally means an increase. Technically it is any increase (large orsmall, nominal or real) received on loan.
In Islamic jurisprudence it is defined as an increase in one of two
homogeneous equivalents being exchanged without this increase beingaccompanied by a return.
Riba has been understood throughout Muslim history as being equivalentto interest paid on a loan.
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Introduction to Islamic Banking
Prohibition of RIBA
In Islamic law riba is regardless of the purpose of a loan, forbidden
because of four different revelations in the Quran:
First revelation underlines that God deprives riba of all blessing,
The second describes interest as the unjust appropriation of others
property,
The third discourages Muslims from interest for their own welfare, and;
Finally the fourth revelation urges Muslims to only ask for the principal
sum when lending money. (The Holy Quran 2:275-80)
There are numerous traditions of the Prophet Muhammad (pbuh) which
detail the prohibition ofriba. Says the Prophet (pbuh)
Gold for gold, silver for silver, wheat for wheat, barley for barley,dates for dates, and salt for salt; like for like, hand to hand, in
equal amounts; and any increase isRiba.(Muslim)
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Introduction to Islamic Banking 19
Prohibition of RIBA Contd
The prohibition ofriba essentially implies that the fixing in advance
of a positive return on a loan as reward for waiting is not permitted in
shariah.
It is a big source of gross inequalities of income. Interest transfers
wealth from the poor to rich, increasing the inequality in the
distribution of wealth.
Interest transfers income from the masses of depositors to the
industrialists. This lead to the concentration of income and wealth in
the society which is against the spirit of Islam.
Interest limits investment, while profit sharing increases it.
Interest on productive loan increases the cost of production.
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Introduction to Islamic Banking20
Prohibition of RIBA Contd
According to modern view, interest is the
price of capital.
Islam rejects this notion. Capital itself is not
productive, and it is the application of human
efforts to a stock of capital which generates
output and income.
The reward of capital cannot be fixed inadvance, unlike interest rates, but can only be
determined proportionately
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Introduction to Islamic Banking21
Prohibition of RIBA Contd.
In an interest based system the major criteria for the
distribution of credit is the creditworthiness of the borrower.
In a profit sharing system, the productivity of the project is
more important. Therefore, the finances go to more
productive projects.
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Introduction to Islamic Banking22
Legal Frame work and Regulations
Islamic banks have to confirm to two types of law, Shariah and
positive law.
While Shariah law is based on religious foundations, positive law
is promulgated by the monetary authorities to safeguard public
interest.
There is no uniformity in the laws followed by Islamic banks
around the world.
In most Muslim countries, special laws have been passed prior to
the establishment of Islamic banks and this law specifies the
rules and regulations for the institutions which engages in
banking businesses based on Islamic principles. Since Islamic banks were established as private or public limited
companies, the requirements stipulated in a countrys company
laws are applicable to them.
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Introduction to Islamic Banking24
LEGISLATION ON ISLAMIC BANKS
A specific law refers to legislation enacted by the
concerned regulatory authorities to govern a particular
Islamic bank.
At present, Da Afghanistan Bank, banking regulatoryauthority of Afghanistan, and the Government of Islamic
Republic of Afghanistan, have initiated steps for bringing
specific Islamic Banking Legislation / Regulations.
In the times to come, Da Afghanistan Bank may come out
with specific Islamic Banking Regulations in order to
control and regulate the Islamic Banking practices in
Afghanistan.
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Introduction to Islamic Banking25
REGULATION AND SUPERVISION
OF ISLAMIC BANKS
It should be borne in mind that in the conventional
banking system, there are five major goals for regulation.
Ensuring a safe, sound and secure banking system.
Provide competition
Efficient allocation of credit with prudent norms
Customer protection
Basis for monetary policy.
Islamic banks, being part of the financial system, are also subject
to the regulations and supervision of the monetary authorities of their
respective countries. The tasks of regulating and monitoring a
countrys financial system are normally given to the Central Bank of
the country (Da Afghanistan Bank in Afghanistan). There are many
similarities in terms of powers vested to central banks of Muslim
countries in regulating and supervising Islamic banks.
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Introduction to Islamic Banking26
Shariah Principles
Tawhid(the doctrine of the Unity ofAllah) is the basis by which thewhole system of Islamic teachings pertaining to all aspects of life.
It provides the foundation of the economics of Islam. Muslimtheologians have classified Tawhidinto three parts: viz Tawhiduluhiyah, Tawhid Asma was sifatand Tawhid rububuyah.
Relevant to Islamic banking and finance is the Tawhid rububiyahwhich has two aspects.
One concerns the relationship amongst men themselves and the other,
mens relations toAllah.
It implies thatAllah is the creator and that men are equal partners and brothersto other men. In other words, rububiyah (divinity) in a Muslim society is only for
Allah.
According to this doctrine, no man has the right to claim a biggershare since he does not create or generate natural powerindependently.
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Introduction to Islamic Banking27
Shariah Principles Contd
Basically, there are four sources of Islamic laws:
The Quran
The Sunnah
The Ijma, and
The Qias
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Introduction to Islamic Banking28
The Quran
From the Islamic perspective, the Quran embodies the divine law
and is, therefore, superior to any man-made law.
The Quran in general draws the larger boundaries of the Islamic
law within which all human actions can be confined.
It provides the framework within which humanity should
structure their legal, social, economic, political and
administrative system.
The Quran prohibits behaviour such as drinking of alcoholic
beverages, engaging in games of chance, committing murder,
stealing, committing adultery, exacting usury and worshipping
anything or anyone other thanGod.
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Introduction to Islamic Banking29
The Sunnah
The Sunnah (orHadith) literally means the path, the road or the
way of the Prophet Muhammad and is used to denote the
Prophets action, deeds and utterances.
It explains and amplifies the principles of law embodied in the
Quran and adds to it new legislations and sanctions which areconsidered important by the Prophet.
Muslims believe that the Sunnah is a source of law which
supplements the Holy Quran.
Muslim scholars generally agree that accepting the Sunnah of the
Prophet is a pre-requisite of being a Muslim.
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Introduction to Islamic Banking30
The Ijma,
Ijma means the consensus of opinion. There arefour types ofIjma, namely: the regularIjma of the companions of the Prophet (the
highest authority)
the irregularIjma of the companions which represent theopinions of a few companions which are not repudiatedby the rest.
The Ijma of the mujtahids of the later ages on questions
arising after the time of the companions of the Prophet.. The Ijma of the jurists of the later ages on a question
about which there were differences of opinion amongstthe companions.
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Introduction to Islamic Banking
The Qias
Qias means analogy.
As all rules are based on objectives and interests, such
objectives and interests are causes for such rules.
When addressing a particular problem, the same rule to another
problem where the causes for both were identical can be appliedby analogy.
The Shariah is the legal aspect of Islam as understood
from the four fundamental sources of the Islamic
religion as mentioned above.
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Introduction to Islamic Banking
MEANING AND CONCEPT OF
SHARIAH
Islamic laws are also known as Shariah laws, sometimes referred
to as Islamic jurisprudence.
The original meaning of the word Shariah orsharis the path or
the road leading to the water and the verb sharaa literally means
to chalk out or mark out a clear road to water. In a religious sense, it means the highway of good life.
In other words, Shariah is the way which directs mans life to the
right path.
From the words the right path, therefore, came the meaning
law.
The word Shariah also has its correlation with the word din
which literally means submission or following.
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Introduction to Islamic Banking
MEANING AND CONCEPT OF
SHARIAH
Shariah is the ordination of the Way and its proper subject isGod,
whereas din is the following of that Way and its subject is man.
Therefore, as far as Quranic idioms go, one may speak ofShariah
and din interchangeably.
According to Muslim belief, the concept of Shariah is not only togovern man in the conduct of life in order to realise the Divine
Will, but covers all behaviour-spiritual, mental, physical.
Therefore, Shariah principles are more than law, covering the total
way of life including faith and practices, personal behaviour, legal
and social transactions. In other words, in the Muslim religion of Islam, Shariah is a
comprehensive principle of a total way of life.
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Introduction to Islamic Banking
MEANING AND CONCEPT OF
SHARIAH
Practical aspects ofShariah affecting the daily life of a Muslim
can be further divided into two, namely Ibadat(relation between
God and man) and Muamalat(relationship between man and
man).
Ibadatis concerned with the practicalities of a Muslims worshipofAllah in the context of man-to-Allah relationship,
whereas Muamalatis concerned with the practicalities of his
mundane daily life, in the context of various forms of man-to man
relationship.
The Islamic banking system, therefore, being part of economic
activities is linked to Shariah principles throughMuamalat.
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Introduction to Islamic Banking
Relationship between the
Banking system andReligion
within Islam:
In other words, a significant segment ofMuamalat is the conduct of a
Muslims economic activities within his economic system.
within this economic system is the banking and financial system within
which he conducts his banking and financial services.
Thus Islamic banking and finance, being part of a Muslims economic
activities, is a Muslims link to Muamalat, to Shariah, to Islam, and finallytoAllah.
This is the foundation of the purpose or the root of Islamic banking and
finance.
Within the Islamic scheme of life and Shariah framework, Islam imposes
its akkam(laws) representing norms or values on its believers. These laws or values are not man-made but ordained byAllah.
These laws are derived from the sources ofShariah, the two
primary sources being theAl-Quran andAl-Sunnah.
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Introduction to Islamic Banking
SHARIAHLAWs IN
ISLAMIC BANKING SYSTEM
As stated above, the objective ofShariah is to construct life on the basisof virtues and to cleanse it of vices.
Shariah is, therefore, expected to provide not only the right path but also
to govern all activities of the Muslims toward the betterment of the whole
community.
In reality, however, instead of being governed by the Shariah, Muslims
are constantly bound by customary and positive laws.
The emergence of Islamic banking in the 1960s and 1970 served as an
impetus for the reestablishing of the Shariah in commercial activities.
This was largely because banking laws in all Muslim countries were
conventional banking laws or interest based laws.
But then, interest is prohibited by Quran and the Hadith. In order to allow Islamic banks to operate, governments of Muslim
countries commissioned Muslim jurists to promulgate laws which
are applicable to this new style of banking.
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Introduction to Islamic Banking
SHARIAHLAWs IN
ISLAMIC BANKING SYSTEM
In the process of reestablishing Shariah law in
banking, it was inevitable for Muslim jurists to refer to
the primary source ofShariah i.e the Quran and
Hadith.
The Quran, however, being primarily a book ofreligious and moral principles and exhortations, is not
a legal document.
With regards to Islamic banking, the Quran has given
clear and implicit guidelines that its operations shouldbe free from any element of interest.
As an ordinary business entity, the Islamic bank is
expected to conform to the rules and guidelines given
by Quran.
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Introduction to Islamic Banking
SHARIAHPRINCIPLES USED
IN ISLAMIC BANKING
Muslim jurists and scholars have suggested a
number ofShariah principles to be adopted by
Islamic banks in delivering their products and
services. Among the most widely used Shariah
principles recommended by these scholars
are mudarabah, Musharakah, murabahah, bai-
muazzal, ijara wa-iktina, qard hassan, wadiahand rahn
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Introduction to Islamic Banking
Categories ofShariah principles
Profit and loss sharing principles
Mudarabah
Musharakah
Fees or charges based principles
M
urabahah Bai muazzal
Ijara
Ijara wa-iktina
Free service principles
Qard hassan Ancillary principles.
Wadiah
Rahn
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Introduction to Islamic Banking
General Principles of Shariah
Islamic banks, being institutions founded on Islamic doctrines,confirm to Islamic rules and regulations known as Shariah lawswhich consist ofibadatand muamalat.
As Islamic banking business mobilizes material resources andare part of economic activities, Islamic banks are governed by
Shariah through the components ofmuamalat. The Shariah governing the operations of Islamic banks originate
from four sources, that is, the Quran, Hadith, Ijma and Qiyas.
The Quran and Hadith are the primary sources ofShariah, whilstIjma and Qiyas are secondary sources which are only appliedwhen no solution on the matter in question is found in theprimary sources.
Since Islamic banking is relatively new, Muslim countries haveyet to promulgate complete sets ofShariah laws to govern theentire Islamic banking system.
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Introduction to Islamic Banking
General Principles of Shariah
In most countries, the only Shariah component in
Islamic banking law is the prohibition of interest in the
operation of Islamic banks.
Instead of interest used in conventional banks,
Islamic banks adopt principles such as profit-loss
sharing (example, mudarabah and Musharakah), fees
or charges based (example, murabahah, bai-muazzal,
ijara wa-iktina), free service (example, qard hassan)and ancillary principles (example wadiah and rahn).
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Introduction to Islamic Banking
Islamic Banking
Source of Funds(Liabilities)
Shareholders equity (contract: al-Musharakah or joint
venture on profit sharing).
Customers deposits in current accounts (contract:Al
Wadiah Yad Dhamanah or guaranteed custody).
Customers deposits in savings accounts (contract:
Al-Wadiah Yad Dhamanah or guaranteed custody)
Customers deposits in general investment accounts
(contract:Al-Mudharabah or trustee profit-sharing).
Customers deposits in special investment accounts
(contract:Al-Mudharabah or trustee profit-sharing)
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Introduction to Islamic Banking
Islamic Banking
Application of funds (Assets)
Statutory reserve (contract: Al Wadiah Yad Dhamanah oguaranteed custody)
Liquidity requirements (contract: Al-Qardh Al-Hassan orbenevolent loan.
After meeting the statutory reserve requirements and holding the
required level of liquid assets, the Islamic bank is free to applythe remainder of their funds for banking operations. The varioustypes of financing facilities include:
Project financing (contract:Al-Mudharabah or trustee profit-sharing)
Project financing (contract:Al-Musharakah or joint venture profitsharing)
Financing the acquisition of assets (contract:Al-Bai BithamanAjilor deferred instilment sale)
Financing the use of services of assets (contract:Al-Ijarah orleasing)
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Introduction to Islamic Banking
Islamic Banking
Application of funds (Assets)
Loan syndication services (contract:Al-Ujror fee) Securitization and debt-trading (contract: Bai-al Dayn
or Debt-trading)
Trade financing: letter of Credit (contract:Al-Wakalah or agency)
letter of credit (contract:Al-Musharakah or joint venture profit-sharing)
letter of credit (contract:Al-Murabahah or deferred lump sum saleof cost plus)
Letter ofGuarantee (contract:Al-Kafalah orguarantee)
Working capital financing (contract:Al-Murabahah ordeferred lump sum sale of cost plus)
Securitisation and Islamic Accepted Bill (IAB)(contract: Bai al-Dayn or debt-trading)
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Introduction to Islamic Banking
Islamic Banking
various products
Deposit products :
Product / Services Applicable Islamic principles
and concepts
Savings Account Mudharabah / Wadiah yad Dhamanah
Current Account Mudharabah / Wadiah yad Dhamanah
General Investment Account (Term
Deposits)
Mudharabah
Special Investment Account Mudharabah
Specific Investment Account Mudharabah
I l i B ki
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Introduction to Islamic Banking
Islamic Banking
various productsFinancing (Loan) products:
Product / Services Applicable Islamic principles and conceptsTerm financing Bai Bithaman Ajil
Working capital financing Murabahah / Bai Bithaman Ajil
Syndicate finance Istisna / Bithaman Ajil / ijarah thumma Bai
Project financing Bai Bithaman Ajil / istisna / ijarah
Plant & machinery financing Bai Bithaman Ajil/ istisna / variable rate ijarah
Personal financing Bai Bithaman Ajil / Bai inah / Mudharabah
Fixed asset financing Bai Bithaman Ajil
Housing finance Bai Bithaman Ajil / Istisna / variable rate ijarah
Industrial hire purchase Ijarah Thumma Bai
Land financing Bai Bithaman Ajil
Leasing finance Ijarah
Cash line facility Bai inah / Bai Bithaman Ajil / Murabahah
Computer financing Bai Bithaman Ajil
Education finance Murabahah / Bai Bithaman Ajil / Bai inah
Bridge finance Istisna / Bithaman Ajil
Equipment finance Bai Bithaman Ajil
Hire purchase Wakalah
Benevolent loan Quard Hassan
Block discounting Bai Dayan
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Introduction to Islamic Banking
Islamic Banking
various products
Trade Finance
Product / Services Applicable Islamic principles
and concepts
Accepting Bills Murabahah / Bai Dayn
Bank Guarantee Kafalah
Export Credit refinancing Murabahah / Bai Dayn
Letter of Credit Wakalah / Murabahah / ijarah / Bai
Bithaman Ajil
Shipping Guarantee Kafalah
Trust Reciept Wakalah / Murabahah
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Introduction to Islamic Banking
Islamic Banking
various products
Treasury / Money Market Investment
Product / Services Applicable Islamic principles and
concepts
Islamic Treasury bills Bai al-inah
Negotiable debt certificates Bai Bithaman Ajil
Foreign Exchange Ujr
Commercial papers Murabahah
Negotiable instrument of deposit Mudaharabah
Government investments issues /
certificates
Bai al-Inah
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Introduction to Islamic Banking
Islamic Banking
various products
Banking Services
Product / Services Applicable Islamic principles and
concepts
ATM services Ujr
Cashiers Order Ujr
Demand Draft Ujr
Standing instructions Ujr
Stock-broking services Ujr
TT / Funds transfer Ujr
Travellers Cheques Ujr
Tele Banking Ujr
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Introduction to Islamic Banking
Islamic Banking
various products
Card Services
Product / Services Applicable Islamic principles and
concepts
Debit Card Ujr
Credit Card Bai Inah / Bai Bithaman Ajil
Charge Card Quard Hasan
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Introduction to Islamic Banking
International Islamic
Financial Institutions
With the emergence of Islamic finance,some international financial institutions
also have come on to the scene.
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Introduction to Islamic Banking
Islamic Development Bank
(IDB)
The Islamic Development Bank (IDB)-basedin Jeddah Saudi Arabia- is a multilateraldevelopment bank serving Muslim
countries. The purpose of the Bank is to foster the
economic development and socialprogress of member countries and Muslim
communities individually and collectivelyin accordance with the principles of shari'ah.
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Introduction to Islamic Banking
The Accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI)
AAOIFI is an Islamic international autonomous thatprepares accounting, auditing, governance, ethics andshari'ah standards for Islamic financial institutions.
The objectives of AAOIFI include:
To develop accounting, auditing, governance andethical thought relating to the activities of Islamicfinancial institutions.
To harmonize the accounting policies and proceduresadopted by Islamic financial institutions through thepreparation and issuance of accounting standards and
the interpretations of the same to the said institutions. To prepare, promulgate and interpret accounting and
auditing standards for Islamic financial institutions.
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Introduction to Islamic Banking
International Islamic
Financial Market (IIFM)
The International Islamic Financial Market (IIFM) aimsto facilitate international secondary market trading ofIslamic financial products and instruments byproviding independent shariah enhancement and
issuing guidelines for new products andinstruments.
The core product of IIFM is the shariah endorsementor enhancement of existing and new Islamic financial
products and instruments which are offered byIslamic financial institutions, conventional banks withIslamic banking subsidiaries windows and so forth.
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Introduction to Islamic Banking
International Islamic
Rating Agency (IIRA)
The basic aim of the IIRA (Bahrain) is to support
shariah compatible banks and mutual funds and help
them penetrate the international market.
It rates Islamic banks and their financial instruments,
sukuk, to help them offer 'credible products' in the
international market.
It also provides complementary rating information on
Islamic banks to that produced by other rating
agencies, including measures of their compliancewith shariah law.
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Introduction to Islamic Banking
Liquidity Management Center
(LMC)
The LMC, established in Bahrain in 2002, seeks to
develop an active secondary market for short-term
shariah compliant treasury products. The key
objectives of the LMC include:
to facilitate the creation of an interbank money market
that will allow Islamic Financial Services Institutions
("IFSIs") to effectively manage their asset liability
mismatch;
to provide short-term liquid, tradable, asset-backedtreasury instruments (sukuks) where IFSIs can invest
their surplus liquidity.
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Introduction to Islamic Banking
Conclusion
On the whole, the Islamic banking system is far from
comprehensive.
It appears that the elimination of interest from the banking
system remains top priority.
The main difficulties faced by Islamic Banks are the lack of Islam
based investment opportunities.
Timely support and guidance of the regulatory authorities,
Shariah board members and other Islamic scholars and jurists is
the need of the hour in order to set the right path for the
introduction of Islamic Banking in Islamic Republic ofAfghanistan.
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Khudah Hafez
With the limited knowledge and other constrains, the aboveattempt had been made with utmost sincerity and high respect
to the religious sentiments. Hope, any little mistake / ignorancefound in this attempt, could be excused as it is unintentional.
By
P V V Rama Raju
President & CEO
I sincerely convey my thanks for the noble opportunity to
stand before learned dignitaries for presenting the little
attempt on Islamic Banking before international banking
experts.