Final Thesis Islamic Banking
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ISLAMIC BANKING SYNOPSIS1. INTRODUCTIONObjectives of the Study Methodology of the Study Significance and Benefits of the Study The Plan of the Study
INTEREST-FREE BANKING : A NEW PHENOMENONThe Background. Islamic said Conventional Banking: A Comparison Operational Differences between Islamic and Conventional Banking Concept of interest Origins and History Concept from be Philosophical and Religious Point of View Interest Concept of Money and Capitol
3. SHARI'AH THE LEGAL FOUNDATION OF ISLAMIC BANKINGWhat Islam stands for? The Sources of Shari'ah Islamic Economy Its Characteristic Features Distributive Justice: An Islamic Perspective (a) Concept of Ownership in Islam (b) Islamic Objectives of Distribution (c) The Islamic Strategy for Distribution (d) Zakah and Distributive Justice
4. PRINCIPLES OF SHARI`AH LAW IN ISLAMIC BANKINGPrinciples of Islamic Finance The Shari`ah Principles for Services and Products of Islamic Banks The Shari`ah Principles of Operation in Islamic Banks (a) Mudarabah (b) Musharakah (c) Murabahah (d) Ijarah (e) Bai`Muajjal (f) Bai`al-salam (g) Istisna`
5. DOCTRINE OF RIBA: AN OVERVIEWWhat is Riba? The Prohibition of Riba in the Qur`an The Prohibition of Riba in the Sunnah Modernists Versus Conservatives Views on Riba
6. ISLAMIC BANKING: THEORY AND PRACTICEIslamic Banking in Theory: A literature Survey Islamic Banking in Practice The Objectives and Philosophy of Islamic Banking The Problems and Challenges Faced by Islamic Banking
7. ISLAMIC BANKING IN INDIA 8. CONCLUSION AND RECCOMMENDATIONSSummary Conclusion Some Recommendations
9. GLOSSARY OR ARABIC TERMS 10. BIBLOGRAPHY 11. APPENDICES
INTRODUCTIONChapter I INTRODUCTION1.1 Objective of the Study The primary objective of this study is to analyse the theoretical foundation of Islamic Banking in the light of the experience of Islamic banks around the world and its application for the Indian Financial system. Scheme of analysis involves the main factors that have contributed to the rapid emergence and growth of Islamic banking around the world. The differences between the Islamic and conventional banking are critically examined in this study. Furthermore, it dealt with the problems, challenges and prospects of Islamic banking in India from different perspectives. In dealing with these issues, the study aims to achieve the following objectives: 1. To give historical background on the origin and growth of Islamic banking and to explain the services they render, the products they use and the functions they carry out. 2. To identify the similarities and differences in the structure and practices of Islamic and conventional banks. 3. To introduce the sources of shari`ah or Islamic legal system as the foundation for Islamic banking laws and regulations, which have shaped the evolution of modern Islamic finance. 4. To examine the feasibility and development of Islamic banking in India. 5. To investigate the issues of the prohibition of riba (interest)1, from the legal and moral standpoint as enriched in al-Qur`an and the Sunnah, and as prevalent in the literature on Islamic banking. 6. To identify the challenges and problems in Islamic banking practice and evaluate the performance of Islamic banks in India, and to suggest an approach to these challenges and problems. 7. To offer some attractive suggestions on the subject based on the findings of the research. 1.2 Methodology of the Study The methodology adopted for this study involves the following: 1. The collection of material on Islamic banking and Islamic economics, from various sources including primary and secondary sources. 2. Survey of the available literature related to the research to analyse the theoretical aspects of the working mechanism of Islamic banking. 3. Use of the two major sources of Islamic Law (shari`ah)-namely al-Qur`an and the sunnah. 4. Examination of the secondary data on the subject through study of dissertations, annual reports, journals, periodicals, bulletins, newspapers, balance sheets etc. 5. Conducting interviews and field work in Mumbai. 1.3 Significance and Benefits of the Study Islamic banking is a subject about which many people including Muslims, know very little about. The theory of interest-free banking itself is a revolutionary idea in the banking1
4 business of a country. The aspect often gives rise to confusion and misconceptions about operations of Islamic banking. The growth of Islamic banking partly reflects demand from Muslims clients for Islamic deposit facilities and fund management services which involve shari`ah compliance. At the same time, Islamic banking methods are viewed as a challenge and opportunity by conventional bankers, many of whom have sought to get involved in this growing industry. In client driven societies there is a willingness by those in financial services to learn from the experiences of Islamic banks. Further, the globalisation of trade necessitates the conducting of affairs of Islamic bank with non-Islamic banks, and vise-versa. Such integrated international trade demands that the business communities, banks and other trade regulatory bodies of both Muslim and non-Muslim countries should gain some understanding of the principles of Islamic banking. The knowledge of modern Islamic banking as compared to the conventional banking is very significant for economists, bankers, administrators and other peoples involved with international trade and commerce. Moreover, the increasing number of Islamic banks in various countries made it a necessity for banking communities to have some insight into the workings of Islamic banks. Therefore, the present comparative research will familiarize the readers with the principles of shari`ah and will provide an insight into the rules and principles of Islamic banking as well. In spite of the fact that the Islamic banks are operating successfully alongside other conventional banks and playing an increasing role in the economy, there has been little comprehensive research on Islamic banking in India.
5 1.4 The Plan of the Study The dissertations is divided into eight chapters. The first chapter is an introduction to the study. It explains the objectives, methodology, significance and plan of the study. Chapter II provides the background to interest-free banking. In particular, it reviews Islamic and conventional banking, and provides a comparative analysis of these two systems. It discusses the concept, origin and history of interest, and provides a comparison of the Islamic and capitalistic concept of money and capital. It also discusses the notion of riba (interest) from the theological and philosophical point of view. The third chapter is a broad introduction to Islamic shari`ah as the legal foundation of Islamic banking. It discusses elaborately the four major sources of shari`ah- the Islamic legal system i.e. Al-Qur`an, the Hadith or sunnah, Ijma` and Qiyas. It summarises the characteristic features of an Islamic economy and its relationship to Islamic banking and finance. It also discusses the concept of ownership in Islam. The chapter concludes by illustrating the objectives and strategy of distributive justice from the Islamic point of view with special reference to the role of zakah in distributive justice. Chapter IV focuses on the principles of shari`ah law in Islamic banking in general and on those principles for services, products and the operation of Islamic banks in particular. Chapter V critically analyses the prohibition of riba in two primary sources of shari`ah and the modern controversies surrounding the interpretation of riba focusing on Modernists and Conservatives views. Chapter VI reviews and assess the Islamic banking both in its theoretical and practical aspects. A brief literature survey is made in its regards. It also discusses the objectives and philosophy of Islamic banking. The chapter ends by outlining the problems and challenges faced by Islamic banking. Chapter VII attempts to provide a general appraisal of Islamic banking in India. The conventional Indian banking system is compared with Islamic banking. This chapter concludes by giving some recommendations for developing Islamic banking in India. Chapter VIII of the thesis provides a summary and conclusion, and recommendations of the study. The thesis ends with the relevant appendices, glossary of Arabic terms and the bibliography.
Chapter II INTEREST-FREE BANKING: A NEW PHENOMENON
Chapter II INTEREST-FREE BANKING: A NEW PHENOMENON2.1 The Background Islam is not a religion in the common meaning of the word, confining its scope to the private life of an individual. It is a complete way of life, catering for all the fields of human existence. It provides guidance for all aspects of human behaviour including economic activities. As such, it casts a comprehensive look at the economic problems. God in Islam is the God of the entire world and the Prophet is a Messenger for the whole of mankind according to the Islamic view, God has made the resources of this earth available to humanity who has the responsibility to make use of them, to mould them and transform them according to their needs. But humanity is supposed to observe certain limits in the exercise of their freedom. God created the universe and made humanity Gods vicegerent to use and develop the wealth in the best way to their benefit and well being. This belief fills humanity with an enthusiasm to proceed continually in their pursuit to discover, understand, live and enjoy this world in a bid to prepare him for a life after death where human beings will be rewarded or punished according to their deeds. It is because of this basis, that Muslim jurists and scholars have built up the social, political and economic dimensions of an Islamic system. On the other hand, Islam has never discou