Islamic Banking Overview

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Islamic Banking Overview Banking on Faith Based Products

By Lokesh Gupta Head, Business & Technology Consulting

By

RM Applications Sdn. Bhd.

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Points to Share

1-. Islamic Banking Overview

2-. Comparison

3-. Key Islamic Product Structure

4-. Evolution of Islamic Banking

5-. Closing Thoughts


Points to Share


2-. Comparison





What is Islamic Banking ?


What is Islamic Banking?

Isamic Banking is based on the principles of

‘Trade and Commerce’


Islamic Banking Principles

Riba Free

Isamic

Banking


Points to Share


2-. Comparison





Islamic & Conventional Banking Comparison

Based on Man made Principles Functions & Operations

It promotes equity participation

& trading

Risk Ownership

One of the service-oriented

functions to be a Zakat

Collection Centre

Zakat (Religious Tax)

No provision to charge any

extra money Penalty

More importance to the public

interest to ensure growth with

equity.

Social Welfare

Greater emphasis on viability of

the project related to economic

development

Economic Development

Based on Shariah Based

Principles

Pre-determined returns are

assured

One of the service-oriented

functions to be a Zakat

Collection Centre

Charge additional money

(Penalty + Compound Interest)

More often, Bank’s own interest

becomes more prominent

Greater emphasis on client’s

credit worthiness

Conventional Bank Functions Islamic Bank


Islamic & Conventional Banking Comparison

Varies due to compounding

interest element Fixed Repayment

Buyer / Seller or Lessor /

Lessee or Investor /

Entrepreneur

Relationship

Muslims & Non-Muslims Customers’

Shariah Supervisory Board +

Bank Negara Malaysia

Corporate Governance

Selling Price is fixed

Debtor / Creditor

Not permissible for Muslims

due to interest element involved

Bank Negara Malaysia

Conventional Bank Functions Islamic Bank


Points to Share


2-. Comparison





Saving A/C – Wadiah (Trustee / Safekeeping)


Fixed Deposit – Mudharabah (Profit Sharing)


House Financing – Bai Bithaman Ajil (Deferred Payment Sale)


Murabaha – Mark Up Financing


Hire Purchase – Ijarah (Rental)


Project Financing – Musharakah (Equity Participation)


Points to Share


2-. Comparison





Evolution of Islamic Finance in Malaysia

Phase I - 1983

− Wadiah Saving

− Wadiah Current

− Mudharabah Investment

− BBA Financing

Phase 2 - 1993

− Islamic Interbank Money Mkt

− Murabahah Working Capital

− Trade Financing

− Asset Securitization (Mudharabah)

Phase 3 - 1998

− Istisna Financing

− Bai Innah Financing

− Rahnu

− Bai al Dayn

− Ijarah / AITAB

− Islamic Bonds / PDS

− Qardh Hassan

Current Stage

− Musharakah

− Diminishing Musharakah

− Bai Salam

− Mudharabah Financing

− Commodity Murabaha

− Istijrar


Source : www.ifsb.orgy / Islamic Financial Service Industry Stability Report 2013

Key Statistics

http://www.ifsb.orgy/


Points to Share


2-. Comparison





Islamic Banking Challenges


Critical Success Factors

Stress on Ethical Marketing

Create Awareness via branding and promotion

Offer convenience and easy access to information and banking online via e-

channels for SME & Corporate via Cash Management, EIPP etc.

Introduce Sophisticated Islamic products & services such as Wealth

Management, Halal Supply Chain Financing etc

Returns from Islamic instruments vs. conventional products

Standardization of Terms / Contracts

Transformation of traditional client service model for Islamic banks

Key drivers will be Innovation NOT Migration, infrastructure and regulatory

improvement.

Islamic Financing product with stress on economic development e.g.

Microfinance


Thank You [email protected]

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believed to be reliable and accurate at the time of release.

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Islamic Banking Overview

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