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Islamic Banking concept and its importance in todays world

Transcript of Islamic banking

  • 1. ISLAMIC BANKING by N A U S H A D S u l t a n Ta l u k d a r A S L A M PA R V E Z

2. Rules Islams shariah law, taken from the Quran andthe Sunnah. Making money out of money is contraryto Islamic law ModerationOh Children of Adam! Beautify yourselves for every act of worship, and eat and drink (freely) but do not waste. Verily, He does not love the wasteful. Wealth should directed in the Halal (religiously acceptable) way 3. ISLAMIC BANKING PRACTICES1. Deposit Accounts2. Mode of Financing 4. ISLAMIC BANKING PRACTICESDeposit Accounts1.1) Current Account1.2) Savings Account1.3) Investment Account 5. ISLAMIC BANKING PRACTICESMode of Financing2.1 Investment Financing2.2 Trade Financing2.3 Lending 6. ISLAMIC BANKING PRACTICESInvestment Financing2.1.1 Musharaka Joint Venture2.1.2 Mudarabha- Profit Sharing2.1.3 Financing on the basis of an Estimatedrate of return 7. ISLAMIC BANKING PRACTICESTrade Financing2.2.1 Leasing2.2.2 Hiring Purchase2.2.3 Sell-and- Buy-Back 8. The Purpose of Shariah (Islamiclaw) To promote the welfare of the people which lies on: Safeguarding of their faith Their life Their intellect Their posterity and Their Wealth Ethical banking 9. Impact of 9/11 Reverse Capital Flight Perception of hostile climate in many Westernjurisdictions, in particular, the United States, led torepatriation of dollars by Arab investors to MiddleEastern banks Islamic banks, along with conventional banks in theregion, benefited from this reverse flight of capital Increase in Oil Prices Led to Dramatic Increase inLiquidity in the Gulf 10. Conventional Bank as lender 1. Loan2. Cash Payment BCS 4. REPAYMENT 3. The Thing (Principal + interest)Islamic Bank as Trader 4.Deferred Payment*1.Cash Payment BCS 3. The Thing 2. The Thing *cash price+ bank marginB- BankC-ClientS-Seller 11. Riba in The Quran That which you give as interest to increase the peoples wealth increases not with God;but that which you give in charity, seeking the goodwill of God, multiplies manifold(chapter-30:verse 39) 12. Two types of Riba to be avoidedRiba al-NasiyahRiba al Nasiyah defined as: any excess compensation over andabove the principal which is without due consideration.Riba al- FadlRiba al- Fadl means the excess which is taken in exchange ofspecific homogenous commodities, such as selling gold withanother gold, whereby one has more weight than the other 13. Queries on Theories of Islamic BankingIs there any scope for banking business in Islamic Economy?Are Islamic Banks able to surpass the shariah rule prohibiting riba?Should Islamic Bank act as traders? 14. Criticism with respect to IslamicBanking Excessive murabahah mode of transaction neglecting other legitimate financingUtilization of interest rate for fixing profit marginsIndifference towards the social aspect of financingLack of positive response to the requirements ofgovernmental financing Failure of Islamic banks to establish co-operation among themselves 15. ISLAMIC BANKING WINDOW OR FULL- FLEDGED ISLAMIC BANKS Islamic banking windows Refers to conventional banks that offer Islamic bankingproducts and services using their existinginfrastructure, including staff and branches Full-fledged Islamic bank Refers to a bank dedicated to the offering of Islamicbanking products and services In Malaysia, a number of these banks are set up as asubsidiary to conventional banks Operations and management are clearly separatedbetween the subsidiary Islamic bank and theparent conventional bank 16. Full Fledged Islamic Banks 17. International banks offering Islamicwindow banking 18. Islamic finance industry is developing a global reach Reach and richness Mainstream relevance Niche presence Engaging with regulators Conceptual exploration 19. Factors triggering Euro Crisis and how Islamicbanks got spared ? FACTORSCONVENTIONAL ISLAMIC BANKS DESCRIPTION BANKSSpeculationsYES NO One of the triggers of globalfinancial crisis Invest in toxicYES NO -do- assets Fully assetNOYESAssisted to shield from globalbacked financing financial crisisUse of Profit and NOYES-do-Loss SharingDebt Selling andYES NO One of the triggers of globalBuyingfinancial crisis Dependent on YES NOSubprime mortgages Subprime triggered financial crisisMortgagesFaith involved in NOYESPrime factor that helpedinvestingshield global financial crisis 20. Conclusion Islamic finance and conventional finance arequickly converging in the globe. As conventional investors gain more comfortwith Islamic structures, cost differential betweenIslamic products and conventional productshave almost disappeared As a result, Islamic products may be morepractical because they appeal to both Islamicand conventional investors