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  • Islamic Banking

  • Goodness is the only INVESTMENT which never fails

  • History of Islamic Banking

  • Islamic Banking is a system of banking that operates in accordance with the

    rules of Shariah (Islamic Law), known as Fiqh al-Muaamalaat (Islamic

    Commercial Law). Islamic Banking is based on Islamic Commercial Law, which

    was founded over 1400 years ago. Therefore Islamic Banking was existent at

    that time.

    Modern Islamic Banking grew due to the desire of Muslims to fashion all

    aspects of their life in accordance with principles of their faith.

    History of Islamic Banking

  • History of Islamic Banking

    The first modern experiment with Islamic Banking was undertaken in Mit Ghamr, Egypt by Dr Ahmad Elnaggar. The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in 1963.

    In 1971, the Mit Ghamr Savings project became part of Nasser Social Bank.

    In 1975, the Islamic Development Bank was initiated with the mission of providing funding to projects in the OIC member countries. The first modern commercial Islamic Bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and replicated conventional banking functions in a Shariah compliant manner.

    Within a ten year period 1975-1985, 27 more Islamic Banks were established. Also by 1985, many conventional banks offered Islamic Banking products or opened Islamic window banks.

    By the year 2000 there were more than 200 Islamic

    Financial Institutions worldwide

  • Demographics

    How many and where:

    Islam is a major world religion.

    The Muslim population ranges from 1.3 billion to 1.8 billion.

    Muslims are found all over the world, of every nation, colour and race.

    Between 3040 countries are Muslim-majority and Arabs account for around 20% of all Muslims worldwide.

    South Asia and Southeast Asia contain the most populous Muslim countries, with Indonesia, India, Pakistan, and Bangladesh having more than 100 million adherents each.

    There are approximately 20 million Muslims in China.

    In the Middle East, the non-Arab countries of Turkey and Iran are the largest Muslim-majority countries.

    In Africa, Egypt and Nigeria have the most populous Muslim communities.

    Islam is the second largest religion and the fastest

    growing religion in the world.

  • So What is Islamic Finance?

    Islam

    Aqidah

    (Faith & Belief)

    Shariah

    (Practices & Activities)

    Ibadah

    (Man-to-God worship)

    Muamalat

    (Man-to-Man

    Relationships)

    Political Activities

    Economic Activities

    Other Economic Activities

    Banking & Financial Activities

    Social

    Activities

    Akhlaq

    (Moralities & Ethics)

  • Shariah

    Quraan Primary Source

    Sunnah Primary Source

    Ijtihaad Secondary Source

    Ijma Secondary Source

  • Islamic Banking Values, Ethics & Principles of Islamic Economics

  • General Islamic commercial ethics:

    Ensure honesty & fair trade, abstain from hoarding, cheating & illegal activities.

    Do not lie, or make false promises to sell your goods.

    Do not deceive others.

    Abstain from goods and services that have a negative influence on society.

    Maintain justice in all dealings, and treat all equally.

    Disclose the faults of goods been sold.

    Avoid hoarding and creating a monopoly.

    Avoid the sale of Haraam (prohibited) items.

    Islamic Banking Values, Ethics & Principles of Islamic Economics

  • 1. Freedom to contract.

    2. Freedom from price control.

    3. Entitlement to equal, adequate and accurate information.

    4. Freedom from Riba.

    5. Freedom from Gharar.

    6. Avoid hoarding.

    7. Avoid selling forbidden (Haraam) items.

    Important principles of Islamic Economics

  • The Salient Features

    Interest Free

    The need for an Underlying Asset

    Avoidance of Uncertainty or Gambling

    Profit & Loss Sharing

    Shariah Compliance

    Prohibition on Unlawful Goods & Services

    Rights & Responsibilities of both banks & customers

    IFS enjoys features not found in conventional

    banking:

  • Islamic Finance The Basic Equation

    Islamic Principles

    & the Assertion

    of Religious Law

    Risk & Profit

    Sharing

    Substance Over Form: Real Economic

    Transaction & Asset Backed

    Social Justice &

    Ethical Value

    Prohibited Activities &

    Elements

    Islamic Finance

  • Four Influential Islamic Organisations in the development of the Islamic Finance Industry

    The Islamic Fiqh Academy of Jeddah (IFA)

    The Islamic Fiqh Academy of India (IFA)

    The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

    Islamic Financial Services Board (IFSB)

  • Operating structures of Islamic Banks

    Fully - Fledged Islamic Banks

    Subsidiaries

    Branches

    Windows

    Model

    There are four operating structures of Islamic Banks currently:

  • Islamic Finance Industry Steady Progress

  • Market Potential-Positioned for Growth

  • SA Islamic Financial Services Landscape

    Islamic Banks:

    Absa Islamic Banking

    FNB Islamic Finance

    HBZ Bank

    Albaraka Bank

    Islamic Asset Managers:

    Stanlib

    Kagiso

    Element Investment Managers

    Futuregrowth/Omigsa

    Advantage Asset Managers

    27Four Investment Managers

    Oasis Asset Management

    Symmetry

    Sentio

    Sanlam Private Investment Managers

    Banks offering a Shariah compliant service/product:

    Nedbank Capital

    Standard Bank

    Invested

    Macquarie

    Islamic Insurance:

    Absa Takaful

  • Shariah Compliance

    Shari'ah Compliance

  • Shariah Compliance

    AAOFI Resolution

    Governance standard no.1:

    Definition of a Shariah Supervisory Board

    A Shariah Supervisory Board is an independent body of specialized jurists in Fiqh al-

    Muaamalaat (Islamic commercial jurisprudence). However, the Shariah Supervisory

    Board may include a member other than those specialized in Fiqh al-Muaamalaat, but

    who should be an expert in the field of Islamic Financial Institutions and with knowledge

    of Fiqh al-Muaamalaat. The Shariah Supervisory Board is entrusted with the duty of

    directing, reviewing and supervising the activities of the Islamic Financial Institution in

    order to ensure that they are in compliance with Islamic Shariah rules and principles. The

    fatwas and rulings of the Shariah Supervisory Board shall be binding on the

    Islamic Financial Institution.

  • Appointment of a Shariah Supervisory

    Board and fixing its Remuneration

    Every Islamic Financial Institution shall have a Shariah Supervisory Board to be appointed by the shareholders in their annual general meeting upon the recommendation of the Board of Directors taking into consideration the local legislation and regulations. Shareholders may authorise the Board of Directors to fix the remuneration of the Shariah Supervisory Board. The Shariah Supervisory Board and the Islamic Financial Institution should agree on the terms of engagement. The agreed terms would need to be recorded in the appointment letter. The Shariah Supervisory Board should ensure that the Islamic Financial Institution documents and confirms the Shariah Supervisory Boards acceptance of appointment. The letter of appointment of Shariah Supervisory Board should generally include reference to the compliance of the Islamic Financial Institution with Shariah rules and principles. The Shariah Supervisory Board shall appoint from among its members or any other person a supervisor(s) to help in performing its duties.

  • The Shariah Supervisory Board shall consist of at least three members. The

    Shariah Supervisory Board may seek the service of consultants who have

    expertise in business, economics, law, accounting and/or others. The Shariah

    Supervisory Board should not include directors or significant shareholders of

    the Islamic Financial Institution.

    The dismissal of a member of the Shariah Supervisory Board shall require a

    recommendation by the Board of Directors and be subject to the approval of

    the shareholders in the general meeting.

    Composition, Selection and Dismissal of a Shariah Supervisory Board

  • The Independence of the SSB

    The IFSB states: "To safeguard the credibility and integrity of the Islamic

    Financial Services industry at large and the Islamic Financial Institution in

    particular, the professionalism and independence of the Shari'ah Scholars

    must be upheld with the highest respect."

    Practice

    The rulings issued by the SSB will be binding on the Islamic Financial

    Institutions. These rulings may also be made available to the public, and

    Islamic Financial Institutions may also allow customers access to the rulings

    issued by their SSB as part of their customer service.

  • Roles & Responsibilities of the Shariah Supervisory Board

    1. The SSB will review and approve the legal and operational structure of the p