Islamic Main Project

8/6/2019 Islamic Main Project

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Project on :Project on :--

FINANACIALFINANACIALMANANAGEMENTMANANAGEMENT


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INTRODUCTIONINTRODUCTION

Islamic finance is finance under Islamic law (orIslamic finance is finance under Islamic law (or

ShariahShariah) principles.) principles.

The basic sources ofThe basic sources of ShariahShariah are the Quran and theare the Quran and the

Sunna, which are followed by the consensus of theSunna, which are followed by the consensus of the

jurists and interpreters of Islamic law.jurists and interpreters of Islamic law.


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WHAT IS ISLAMIC FINANCE?WHAT IS ISLAMIC FINANCE?

Islamic finance started as a small cottage industryIslamic finance started as a small cottage industry

in some Arab countries in the late 1970s.in some Arab countries in the late 1970s.

Its growth has been accelerating ever since, in termsIts growth has been accelerating ever since, in terms

of the number of countries in which it operates, asof the number of countries in which it operates, as

well as the areas of finance in which it haswell as the areas of finance in which it hasventured.ventured.


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(i) Financial professionals who are familiar with conventional(i) Financial professionals who are familiar with conventional

financial products, as well as the demand for Is-lamicfinancial products, as well as the demand for Is-lamic

analogues of those products within vari-ous Muslimanalogues of those products within vari-ous Muslimcommunities around the world,communities around the world,

(ii) Islamic jurists who help Islamic financial pro-viders to find(ii) Islamic jurists who help Islamic financial pro-viders to find

precedent financial procedures in classical writings, uponprecedent financial procedures in classical writings, uponwhich contemporary an-alogues of conventional financialwhich contemporary an-alogues of conventional financial

products can be built, andproducts can be built, and

(iii) lawyers who assist both groups in structuring Islamic(iii) lawyers who assist both groups in structuring Islamic

analogue financial products, while ensuring their complianceanalogue financial products, while ensuring their compliance

with all applica-ble and relevant legal and regulatorywith all applica-ble and relevant legal and regulatory

constraints.constraints.


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HISTORICAL ROOTS OF ISLAMICHISTORICAL ROOTS OF ISLAMIC

FINANCEFINANCE

In the late 19th Century, the Ottomans intro-ducedIn the late 19th Century, the Ottomans intro-duced

westernwestern--style banking to the Islamic world to financestyle banking to the Islamic world to financetheir expenditures. While some Islamic jurists approvedtheir expenditures. While some Islamic jurists approved

of modern banking practices, the majority found thoseof modern banking practices, the majority found those

practices to be violations of Islamic prohibitions againstpractices to be violations of Islamic prohibitions againstusury .usury .


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This resentment continued through the EuropeanThis resentment continued through the European

colonial period, which lasted into the midcolonial period, which lasted into the mid--20th20th

Century. Islamic revival played a central role in theCentury. Islamic revival played a central role in the

intellectual and social foundations of inde-pendenceintellectual and social foundations of inde-pendence

movements of the midmovements of the mid--20th Century. To many20th Century. To manyintellectual founders of the movement, politicalintellectual founders of the movement, political

independence was to be supplemented with economicindependence was to be supplemented with economic

independence, through the defi-nition of an Islamicindependence, through the defi-nition of an Islamiceconomic system.economic system.


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HOWIS ISLAMIC FINANCEHOWIS ISLAMIC FINANCE

PRACTICED?PRACTICED?

The core concept of Islamic finance is its definitionThe core concept of Islamic finance is its definition

of usury and risk.of usury and risk.

Risk sharing as part of raising capital has beenRisk sharing as part of raising capital has been

made mandatorymade mandatory


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LAWPROHIBITS THE SALE AND PURCHASELAWPROHIBITS THE SALE AND PURCHASE

OF SUCH ITEMS THE EXISTENCE OFWHICHOF SUCH ITEMS THE EXISTENCE OFWHICHIS UNCERTAINIS UNCERTAIN..

This category of items may includeThis category of items may include::

Premiums to insure against something that may or mayPremiums to insure against something that may or may

not occur.not occur.Derivatives that are used to hedge against possibleDerivatives that are used to hedge against possible

outcomesoutcomes..


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DEVELOPMENTDEVELOPMENT

One of the first Islamic banks was set up in EgyptOne of the first Islamic banks was set up in Egypt

in 1963.in 1963.

The Islamic Development Bank(IDB) wasThe Islamic Development Bank(IDB) wasestablished in 1975 and gave momentum to theestablished in 1975 and gave momentum to the

Islamic banking movement.Islamic banking movement.

The first private Islamic commercial bank, theThe first private Islamic commercial bank, the

Dubai Islamic Bank, was founded in 1975.Dubai Islamic Bank, was founded in 1975.


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MAIN PRINCIPLES.MAIN PRINCIPLES.

the prohibition of taking or receiving interest;the prohibition of taking or receiving interest;

capital must have a social and ethical purpose beyond pure, unfetteredcapital must have a social and ethical purpose beyond pure, unfetteredreturn;return;

investments in businesses dealing with alcohol, gambling, drugs orinvestments in businesses dealing with alcohol, gambling, drugs oranything else that theanything else that the ShariahShariah considers unlawful are deemed undesirableconsiders unlawful are deemed undesirableand prohibited;and prohibited;

a prohibition on transactions involvinga prohibition on transactions involving masirmasir (speculation or gambling);(speculation or gambling);andand

a prohibition ona prohibition on gharargharar, or uncertainty about the subject, or uncertainty about the subject--matter and termsmatter and termsof contractsof contracts this includes a prohibition on selling something that onethis includes a prohibition on selling something that one

does not own.does not own.


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TRADITIONALLY AN ISLAMIC BANKTRADITIONALLY AN ISLAMIC BANK

OFFERS TWO KINDS OF SERVICES:OFFERS TWO KINDS OF SERVICES: those for a fee or a fixed charge, such as safethose for a fee or a fixed charge, such as safe

deposits, fund transfer, trade financing, propertydeposits, fund transfer, trade financing, property

sales and purchases or handling investments; andsales and purchases or handling investments; and

those that involve partnerships in investments andthose that involve partnerships in investments and

the sharing of profits and losses.the sharing of profits and losses.


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THE SHARIAH BOARDTHE SHARIAH BOARD

One distinct feature of the modern Islamic bankingOne distinct feature of the modern Islamic bankingmovement is the role of themovement is the role of the ShariahShariah board, whichboard, which

forms an integral part of an Islamic bankforms an integral part of an Islamic bank

These boards include some of the most respectedThese boards include some of the most respectedcontemporary scholars ofcontemporary scholars of ShariahShariah and the opinionsand the opinionsof these boards are expressed in the form of fatwasof these boards are expressed in the form of fatwas


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THERE ARE SEVERAL METHODSTHERE ARE SEVERAL METHODS

OF ISLAMIC FINANCINGOF ISLAMIC FINANCING


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1.1. Murabaha (costMurabaha (cost--plus financing)plus financing)

2.2. Mudaraba (profit sharing)Mudaraba (profit sharing)

3.3. Musharaka (partnership financing)Musharaka (partnership financing)

4.4. Ijara (leasing)Ijara (leasing)

5.5. Istisnaa (commissioned manufacture)Istisnaa (commissioned manufacture)


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THE RISK AND PITFALLS OFTHE RISK AND PITFALLS OF

ISLAMIC FINANCEISLAMIC FINANCE1.1. Uncertainty.Uncertainty.

2.2. Ownership risk/tax.Ownership risk/tax.

3.3. Security/recourseSecurity/recourse

4.4. Default.Default.

5.5. Documentary complexity.Documentary complexity.


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TYPOLOGY OF ISLAMICTYPOLOGY OF ISLAMIC

FINANCIAL PRODUCTSFINANCIAL PRODUCTS (1) Financing products(1) Financing products

Profit sharing financing products:Profit sharing financing products:

MusharakahMusharakah

MudarabahMudarabah

Qard HasanQard Hasan

WakalahWakalah

HawalahHawalah


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2) DEPOSIT PRODUCTS2) DEPOSIT PRODUCTS

WadiahWadiah

MudarabahMudarabah

Qard alQard al--HasanahHasanah


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(3) INSURANCE PRODUCTS(3) INSURANCE PRODUCTS

Tadamun, TakafulTadamun, Takaful

Which meansWhich means

Islamic insurance with joint riskIslamic insurance with joint risk--sharingsharing


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ISLAMIC FINANCE IN ACTIONISLAMIC FINANCE IN ACTION

The principal answer is that Islamic financeThe principal answer is that Islamic finance

provides an opportunity to tap into theprovides an opportunity to tap into the

significant funds of Islamic investors seekingsignificant funds of Islamic investors seeking

ShariahShariah compliant investments.compliant investments.

Islamic finance can be combined withIslamic finance can be combined with

conventional funding sources and exportconventional funding sources and export

credit agency (ECA) support.credit agency (ECA) support.


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Retaining conventional style documentationRetaining conventional style documentation

and a bankable governing law together with aand a bankable governing law together with agreater consistency in approach among thegreater consistency in approach among the

ShariahShariah boards seem to be key aspects in theboards seem to be key aspects in the

growth of Islamic finance.growth of Islamic finance. Islamic finance has now moved into theIslamic finance has now moved into the

mainstream, with specialised regional Islamicmainstream, with specialised regional Islamic

institutions experiencing a significant growthinstitutions experiencing a significant growthand global banksand global banks


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THANK YOUTHANK YOU

Islamic Main Project

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