Islamic banking

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Transcript of Islamic banking

ISLAMIC BANKINGHosted by:SBAI ImaneBENJILALI Maroua

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PROBLEM

Obasanjo, Ex-President of Nigeria.Homebuyers, United Kingdom.College students in USA

MAIN POINTSDefinition of Islamic BankingIslamic banks around the world.Specificities of Islamic BankingIslamic Banking Products & ServicesDifference Between Islamic Banking and Conventional Banking.Islamic Banks in Morocco.

DEFINITIONIslamic banking is a banking system that is based on the principles of Islamic law.Two basic principles behind Islamic banking:

ISLAMIC BANKS AROUND THE WORLD

Participation banking continues to show strong growth of 16%, despite political and economic volatility in the major regions. It is projected to grow by an average of 19.7% a year to 2018

ISLAMIC BANKS AROUND THE WORLD

Saudi ArabiaQatarUnited Arab Emirates

Egypt

ISLAMIC BANKS AROUND THE WORLDPakistan

Malaysia

ChinaASIA

Indonesia

India

ISLAMIC BANKS AROUND THE WORLDIn Europe

BritainLuxemburgGermany

France (Halal Current Account)

Islamic Window

Russia

Russia: Amal Financial House

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SPECIFICITIES OF ISLAMIC BANKING

Islamic banks perform differently financial intermediation.

For instance, Islamic banks depositors undergo true investors risk Depositors share losses as well as profits related to each Shariaa compliant investment project financed through their own funds

SPECIFICITIES OF ISLAMIC BANKING

Islamic banks depositors are not aware of the exact rate of return related to the undertaking transaction.No guarantee on the principal and neither on the returns.Depositors are treated like the banks investors.

SPECIFICITIES OF ISLAMIC BANKING

Islamic banks are prohibited from engaging in sinful transactions such as weapons, alcohol, drugs, pornography, and the porcine industry.

Islamic banks contracts, operations, and products must be clearly announced and explained to different transaction parties.

ISLAMIC BANKS: PRODUCTS&SERVICES

MUDARABAH

Profits are shared between the capital provider and the manager in a predetermined ratio, while losses are borne solely by the capital providerThe capital provided by the rabb al maal is returned by the manager/mudarib when the contract ends.In Islamic banking, capital provider is the while the manager is the bank.

ISLAMIC BANKS: PRODUCTS&SERVICES

MUDARABAH

Mudarabah is an equity-based contract offered by Islamic banks, where one partner provides money to another and the latter manages the money by investing it in commercial projects in order to earn profit which is shared among the two in apredetermined ratio.

ISLAMIC BANKS: PRODUCTS&SERVICES

MUSHARAKA

Musharakah is a partnership-based contract or an investment product with a partnership structure for sharing profits and losses,It involves investment from all the partners and an agreement to share profits in a predetermined ratio and to share losses in the ratio of contribution.

ISLAMIC BANKS: PRODUCTS&SERVICES

MUSHARAKA

The special conditions for Musharakah are The commodity: every partner should be capable of agencyThe ratio of profit sharing should be predetermined; and along with the profits, losses should also be shared in the ratio of contribution towards the contractDefining absolute value or fixed value is not permissible, instead, ratios or percentages must be determined

ISLAMIC BANKS: PRODUCTS&SERVICES

MURABAHA

Refers to the sale of goods at a price which includes a profit margin, i.e. cost plus. A Murabahah contract has an honest declaration of cost and the expenses incurred on the product, along with the profit mark up being taken by the seller, which is the bank in this case.

ISLAMIC BANKS: PRODUCTS&SERVICES

MECHANISM OF MURABAHASUPPLIERS OF GOODSCUSTOMERSISLAMIC BANKSSale of assets Sale of assets Payment of purchase pricePayment of purchase price + Premium

ISLAMIC BANKS: PRODUCTS&SERVICES

PILLARS OF MURABAHA

Product and selling priceContracting partiesOffer and acceptanceNo riba trading shall be involvedThe initial contract must be valid

ISLAMIC BANKS: PRODUCTS&SERVICES

SUKUK

Shares in the ownership of tangible assets.

The element of debt is non-existent, bond holders share the beneficial ownership of the asset or the project that the bonds represent

ISLAMIC BANKS: PRODUCTS&SERVICES

IJARA

Providing products or services on a lease or rental basis.

A person or party is given the right to use the object (theusufruct) for a period of time; the owner retains the ownership of the assets.

ISLAMIC BANKS: PRODUCTS&SERVICES

TYPES OF IJARALease-ending ownership (ijara wa iqtina/ ijara muntahia bitamleek): the lessee owns the leased asset at the end of the lease period.

Operating lease (operating ijara):doesnt include the promise to purchase the asset at the end of the contract. Basically, this setup is a hire arrangement with the lessor.

ISLAMIC BANKS: PRODUCTS&SERVICES

DIFFERENCE BETWEEN LEASING AND IJARAThe lessor must own the assets for the full lease period.

If the lessee defaults on payments or delays payments, the lessor cant charge compound interest.

The leased assets use is specified in the contract.

DIFFERENCE BEWTWEEN ISLAMIC BANKING & CONVENTIONAL BANKINGConventional Banks

Islamic Banks

The functions and operating modes of conventional banks are based on fully manmade principles (largely capitalism theory)The functions and operating modes of Islamic banks are based on the principles of Islamic ShariaaIt promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur)Unrestricted profit maximization illustrated by derivative trading.Aims at maximizing profit but subject to Shariaa restrictions.The investor/lender is guaranteed of a predetermined rate of interest or returns.

DIFFERENCE BEWTWEEN ISLAMIC BANKING & CONVENTIONAL BANKINGConventional Banks

Islamic Banks

It does not deal with ZakatConventional banks use money as a commodity which leads to inflation.

It has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.Money is linked with the real assets therefore it contributes directly in the economic development.While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts.

ISLAMIC BANKS IN MOROCCO

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ISLAMIC BANKING IN MOROCCO

CIH is partnering with Qatar International Islamic Bank and Moroccos CDG to establish an Islamic bank subsidiary.

Moroccos BCP chose Guidance Financial Group to establish Islamic windows and Islamic bank subsidiary.

ISLAMIC BANKING IN MOROCCO

The central bank has planned to form an Islamic interbank market and encouraged the government to issue regular sukuk (Islamic bonds) to ensure the industrys liquidity

ISLAMIC BANKING IN MOROCCO

Encouraging stability in investmentsBy performing intensive audits and analyses,Islamic financepromotes the reduction of risk and creates the space for a greater investment stability.

ISLAMIC BANKING IN MOROCCO

Accelerating economic developmentIslamic financecompanies certainly have profit creation and growth as their objectives. Islamic Banks choose to invest in businesses based on their potential for growth and success. High return on investments both for the bank and the depositors.

CONCLUSIONThank you for your attention.

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