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