ISLAMIC BANKINGISLAMIC BANKINGSummary

The project is based on the study of Islamic Banking. An Islamic concept of banking which is based on profit & loss sharing and forbids interest (Riba) and thus is totally different than the conventional banking which is based on interest.

As dealing in interest has been forbidden In Islam this type of banking has been very popular in the Muslim populated countries like those in Middle East and has also grown interest in Europe & America although in India it is still in the embryonic stage.

The project gives details on why Islamic banking is practised, the history of Islamic banking when it started and also describes the tools on which the banking system operates like Mudarabaha, Musharaka, Wadia, Ijarah, Istisna etc. The project also speaks about Equity funds & its application while being in the constraints of islam, and also sheds some light on Taqaful the Islamic way of insurance which can act very similar to the present insurance concept of insuring human lives and commodities while being in the boundaries of Sharia.

To see all these Islamic financial techniques working in practice a study on ADCB AMANAH was made. ADCB AMANAH is a global financial division of ADCB Group working on Islamic principles and serving to the needs of people in Middle east, Europe, USA & some Asian countries ( not available in India).ADCB Amanah has developed very competitive financial services compared to conventional banks by using various Islamic financial techniques. It has also developed Islamic Credit Cards which are one of there popular products. ADCB Amanah is also considered to be one of the banks strictly following the Islamic Sharia and has a board of Islamic scholars on its panel to take care of its activities.

Islamic banking was chosen as a project to know the best of it and also to introduce this rather alien topic to masses here.

Chapter 1: Introduction

Islamic banks appeared on the world scene as active players over two decades ago. But "many of the principles upon which Islamic banking is based have been commonly accepted all over the world, for centuries rather than decades". The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest).Since the mid 1970s Islamic banks have been growing at a very fast rate. This banks were not only established in the countries were Islam is the major religion like Egypt, Syria , Jordan ,United Arab Emirates, Bahrain ,Kuwait Tunisia & Malaysia. But also in the United Kingdom, Denmark & Philippines where it is a minority religion. An International Islamic bank, The Islamic Development Bank, whose share holders are the members of the Organisation of Islamic Conference (OIC), acts as the sponsor of Islamic banking and finance in the wider Muslim world. This is in addition to the efforts made in the early 1980s by Pakistan and Iran to transform the entire financial systems to interest- free (Islamic) systems.The Islamic Banking institution is a new and constantly evolving concept. In relation to the Western way of banking, the Islamic Banking system is free of interest. One might wonder what the incentive to lend money would be. Others may not understand what benefits could be had by putting their savings into a bank account. While Muslims do not believe in charging or earning interest, they have developed a very complex alternative that is being implemented all over the eastern world. Started from just an idea, this new way of banking quickly spread through the Muslim countries, and has continued to expand all over Europe and Asia. Although the system is proving to the West that it can work, it is still trying to iron out some of the inefficiencies that it currently has. Once the system is more efficient, it will be better able to provide its members with a stock market that works in the same efficient way as it does here in the West. While a basic tenant of Islamic banking - the outlawing of Riba, a term that encompasses not only the concept of usury, but also that of interest - has seldom been recognised as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

1.1The Basic PrincipalIslamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).All Islamic Banks have three kinds of deposit accounts: current, savings, and investment. In the case of current accounts, the deposit is guaranteed. In terms of savings accounts, they can be dealt with in a number of ways. In some, the banks are allowed to use the depositors money but they are guaranteed to get the full amount back from the bank. In others, it is thought of as more of an investment type account. The capital is not guaranteed, but the money is invested in low-risk securities, which could also provide a profit. For an investment account, deposits are accepted for a fixed or unlimited period of time. The investors in these types of cases agree in advance to share with the bank their profit or loss. Their capital is not guaranted.Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. 1.2 Largest Islamic banksShariah-compliant assets reached about $400 billion throughout the world in 2009, according toStandard & Poors Ratings Services, and the potential market is $4 trillion.Iran,Saudi ArabiaandMalaysiahave the biggest sharia-compliant assets. In 2009Iranian banksaccounted for about 40 percent of total assets of the world's top 100 Islamic banks.Bank Melli Iran, with assets of $45.5 billion came first, followed by Saudi Arabia'sAl Rajhi Bank,Bank Mellatwith $39.7 billion andBank Saderat Iranwith $39.3 billion.Iran holds the world's largest level of Islamic finance assets valued at $235.3bn which is more than double the next country in the ranking with $92bn. Six out of ten top Islamic banks in the world are Iranian. In November 2010,The Bankerpublished its latest authoritative list of the Top 500 Islamic Finance Institutions with Iran topping the list. Seven out of ten top Islamic banks in the world are Iranian according to the list.

1.3Difference between Islamic banking and Conventional banking

Lets first discuss about the Conventional banking. Conventional banking does not follow one pattern. In Anglo-Saxon countries, commercial banking dominates, while in Germany, Switzerland, the Netherlands, and Japan, universal banking is the rule. Naturally, then, a comparison between banking patterns becomes inevitable.

Commercial banking is based on a pure financial intermediation model, whereby banks mainly borrow from savers and then lend to enterprises or individuals. They make their profit from the margin between the borrowing and lending rates of interest. They also provide banking services, like letters of credit and guarantees. A proportion of their profit comes from the low-cost funds that they obtain through demand deposits. Commercial banks are prohibited from trading and their shareholding is severely restricted to a small proportion of their net worth. Because of the fractional reserve system, they produce derivative deposits, which allow them to multiply their low-cost resources. The process of bank lending is, however, subject to some problems that can make it inefficient. Borrowers usually know more about their own operations than lenders. Acting as lenders, banks face this information asymmetry. Because borrowers are in a position to hold back information from banks, they can use the loans they obtain for purposes other than those specified in the loan agreement exposing banks to unknown risks. They can also misreport their cash flows or declare bankruptcy fraudulently. Such problems are known as moral hazard. The ability of banks to secure repayment depends a great deal on whether the loan is effectively used for its purpose to produce enough returns for debt servicing.

Even at government level, several countries have borrowed billions of dollars, used them unproductively for other purposes and ended up with serious debt problems. Banks can ascertain the proper use of loans through monitoring but it is either discouraged by clients or is too costly and, hence, not commercially feasible. Hence, why the purpose for which the loan is given plays a minimal role in commercial banking. It is the credit rating of the borrower that plays a more important role.By contrast, universal banks are allowed to hold equity and also carry out operations like trading and insurance, which usually lie beyond the sphere of commercial banking. Universal banks are better equipped to deal with information asymmetry than their commercial counterparts. They finance their business customers through a combination of shareholding and lending. Shareholding allows universal banks to sit on the boards of directors of their business customers, which enables them to monitor the use of their funds at a low cost. The reduction of the monitoring costs reduces business failures and adds efficiency to the banking system.

Following the above logic, many economists have given their preference to universal banking, because of its being more efficient. Commercial banks are not allowed to trade, except within the narrow limits of their own net worth. As we have noticed, many Islamic finance modes involve trading. The same rule cannot, therefore, be applied to Islamic banks. It may be possible for Islamic banks to establish trading companies that finance the credit purchase of commodities as well as assets. Those companies would buy commodities and assets and sell them back to their customers on the basis of deferred payment. However, this involves equity participation.

We may, therefore, say that Islamic banks are closer to the universal banking model. They are allowed to provide finance through a multitude of modes including the taking of equity. Islamic banks would benefit from this by using a combination of shareholding and other Islamic modes of finance. Even when they use trade-based, debt creating modes, the financing is closely linked to real sector activities. Credit worthiness remains relevant but the crucial role is played by the productivity/profitability of the project financed.

Chapter 2 Islamic Bank Products/ Financing TechniquesThere are many types of Islamic financing techniques with very specific requirements in for them to be legal under the Islamic Law. Some of them are discussed as below;2.1 Mudarabah (Profit Sharing)Mudarabah is an arrangement or agreement between the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. The entrepreneur provides expertise, labor and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor's profits 2.2 Murabahah (Cost Plus)Murabaha is defined as a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. As the requirement includes an 'honest declaration of cost', murabaha is one of three types of bayu-al-amanah ('fiduciary' sale)[Other two types of bayu-al-amanah are Tawliyah (sale at cost) and Wadiah (sale at specified loss)].It is one of the most popular modes used by banks in Islamic countries to promote riba-free transactions. The ratio in which this instrument is being used varies from bank to bank. Typically Murabaha is used in asset financing, Property, Micro Finance as well as in import / export of commodities. Use of the instrument of Murabaha is however restricted only to those cases where Mudarabah and Musharakah are not practicable. In reality there are risks associated with profit sharing, and banks are not guaranteed any income from these modes of financing. As a result, Murabaha with its fixed margin attached, offers lenders (ie the banks) with a more predictable income stream.There are, however practical guidelines in place which aim to ensure that the transaction between the bank and the customer is one based on trade and not merely a financing transaction. For instance, it is a requirement that the bank takes constructive or actual possession of the good before selling to the customer. Whilst it can be justified to charge an additional margin to the customer to reflect the time value of money in terms of actual payment not being received from the customer at time zero, any penalties for late payments can only be imposed if the bank agrees to purify this by donating this to charity.The accounting treatment of Murabaha and its disclosure and presentation in the financial statements also varies from bank to bank.2.3 Musharaka ( Joint venture)Musharakah is a relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata. This is often used in investment projects, letters of credit, and the purchase or real estate or property. In the case of real estate or property, the bank assesses an imputed rent and will share it as agreed in advance. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. This concept is distinct from fixed-income investing2.4 Istisna Istisna is another form of Islamic financing. It is a form of sale where the transaction of buying and selling a commodity happens before the commodity comes into existence. A manufacturer agrees to manufacture a specific commodity for a specific purchaser by a specific, agreed upon date. The price must be a fixed price that is agreed upon by the manufacturer and the purchaser. Also, the specifications of the commodity must be agreed upon before production begins. One of the main uses of istisna as financing is the house-purchasing sector. If a client has his or her own land and seeks financing for the construction of a house, the financer may undertake the 'contract' to construct the house on the basis of istisna. If the client has no land and wishes to also buy land, the financer may undertake to provide him a constructed house on a specified piece of land.It is not necessary for the financer to actually construct the house. A third-party istisna may be formed. The cost of the contract is fixed into the cost in calculating of the istisna. The financer is responsible for all specifications of the house or project and if there are any variations the financer is responsible for making the corrections in accordance with the istisna contract. As long as the parties are in agreement, payments may be fixed in whatever manner that the parties wish. Payments may in one lump sum or they may be made in installments. If the financer wishes, he or she may keep the title deeds for the house or property until the final payments are made as security for the payments.

2.5 Ijarah (Rent)The second form of Islamic financing is ijarah literally meaning to give something on rent, In terms of financing it is equivalent to the English term leasing. The rules of leasing are very much like the rules of sale because something of value is being transferred. The rules of leasing are also very equivalent to the rules of leasing in the United States. Advantages of IjarahThe following are the advantage of Ijarah to lessee:1.Ijarah conserves capital as it may provide 100% financing.2.Ijarah enables the Lessee to have the use of the equipment on payment of the first rental. This is important since it is the use (and not ownership) of the equipment that generates income.3.Ijarah arrangements are flexible because the terms and rental provision may be tailored to suit the needs of the Lessee. Therefore, it aids corporate planning and budgeting4.Ijarah is not borrowing and is therefore not required to be disclosed as a liability in the Balance Sheet of the Lessee. Being an "off-balance-sheet" financing, it is not included in the computation of gearing ratios imposed by bankers. The borrowing capacity of the Lessee is therefore not impaired when leasing is resorted to as a mean of financing.5.All payments of rentals are treated as payment of operating expenses and are therefore, fully tax-deductible. Leasing therefore offers tax-advantages to profit making concerns.6.There are many types of equipment, which become obsolete before the end of their actual economic life. This is particularly true in high technology equipment like computers. Thus the risk is passed onto the Lessor who will undoubtedly charge a premium into the lease rate to compensate for the risk. A Lessee may be willing to pay the said premium as an insurance against obsolescence.7.If the equipment use is for a relatively short period of time, it may be more profitable to lease than to buy.8.If the equipment is for short duration and the equipment has a very poor second hand value (resale value), leasing would be the best method for acquisition.Ijarah Thumma Al Bai' (Hire Purchase)These are variations on a theme of purchase and lease back transactions. There are two contracts involved in this concept. The first contract, an Ijarah contract (leasing/renting), and the second contract, a Bai contract (purchase) are undertaken one after the other. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed rental over a specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed price.In effect, the bank sells the product to the debtor, at an above market-price profit margin, in return for agreeing to receive the payment over a period of time; the profit margin on the lease is equivalent to interest earned at a fixed rate of return.This type of transaction is particularly reminiscent of contractum trinius, a complicated legal trick used by European bankers and merchants during the Middle Ages, which involved combining three individually legal contracts in order to produce a transaction of an interest bearing loan (something that the Church made illegal). The combination of different contracts is also prohibited according to Shariah.

2.6 Takaful ( Insurance)Takaful comes from the Arabic root work Kafala means guarantee.. Taqaful is all about mutual protection and joint guarantee.Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers.In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance which spreads the risk among many people. The concept of insurance where resources are pooled to help the needy does not contradict Shariah. However, conventional insurance involves the elements of uncertainty (Al-gharar) in the contract of insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies that contravene the rules of Shariah. It is generally accepted by Muslim jurists that the operation of conventional insurance does not conform to the rules and requirements of Shariah.MAJOR DIFFERENCE b/w INSURANCE & TAKAFUL

Conventional InsuranceTakaful

1. 2. 1. Commutative contract

2.Two parties. Insurer (company), Insured (Policy holders)

3. The premium comes in theownership of company.

4. Covering of risk is duty of company

5. There is only one contract i.e.commutative contract.

6. Only insurance company is insurer

7. Accounting Difference i.e. based onone contract

8. Surplus is not returned to policy holders totally or partially

9. Pool of Insurance company is not a legal identity

10. There is one relation in insurance.

1. Non Commutative contract

2. Three parties company, policy holder,pool

3. Takaful company does not becomeowner of premium

4. Covering of risk is duty of company.

5. There is a bunch of contracts. (Fourcontracts as described before)

6. Takaful company is not insurer butpolicy Holders are insurers & insuredamong themselves.

7. Accounting based on bunch ofcontracts

8. Surplus is returned to policy holders.

9. Pool of Takaful Company is a legal Identity

10. there are a different relations atdifferent stages in Takaful

AL-Wadiah (Safekeeping)

Savings accounts in Islam are operated on an al-wadiah basis, meaning a safekeeping basis. The bank may pay its depositors a positive return periodically based on profits of the bank. These payments are legal in Islam since the payments are not predetermined and they are not a condition of lending. The depositors are allowed to withdraw money at anytime they please. Investment accounts are based on the mudarabha, or profit-sharing, principle. The deposits are term deposits, which means that there is a set date to maturity, and cannot be withdrawn before maturity. The rate of return can be positive or negative but in most cases they are positive and comparable to rates the conventional banks offer on their term deposits. Sukuk ( Islamic Bonds) Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.Conservative estimates by the Ten-Year Framework and Strategies suggest that over $700 billion of assets are managed according to Islamic investment principles.[1] Such principles form part of Shari'ah, which is often understood to be Islamic Law, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam.Sharia-compliant assets worldwide are worth an estimated $500 billion and have grown at more than 10 per cent per year over the past decade, placing Islamic finance in a global asset class all of its own. In the Gulf and Asia, Standard & Poor's estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile.With its Arabic terminology and unusual prohibitions, Sukuk financing can be quite mystifying for the outsider. A good analogy is one of ethical or green investing. Here the universe of investable securities is limited by certain criteria based on moral and ethical considerations. Islamic Finance is also a subset of the global market and there is nothing that prevents the conventional investor from participating in the Islamic mark

BaisalamIslamic banks also use pre-paid goods, baisalam, as a means to finance production. The delivery takes place at a future date from the time of the contract and it is at this time of the contract the price is paid. Normally, no sale can be take place unless the goods are in existence at the time of the bargain. Since, in baisalam the date of delivery is defined and the goods are defined the sale can take place and be exception to this rule. Payment must be made in advance in order for this to be considered a legal sale. This is done because it allows the entrepreneur to sell his output to the bank at a price determined in advance. Banks use this form of financing normally in the agricultural market. They pay farmers in advance for a share of their crop, which the bank in turn will sell on the market. In the entrepreneurial sense, baisalam is used when a manufacturer needs capital to manufacture a good. In return for providing the capital, the entrepreneur will receive a reduced price on the goods being produced if he or she wishes to purchase them.

Bai muajjal (Credit Sale)

Literally bai muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

Chapter 3. Islamic Equity FundBasic principle: The term 'Islamic Investment Fund" in this chapter means a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shariah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rata profits actually earned by the Fund. These documents may be called 'certificates', 'units'. 'shares' or may be given any other name, but their validity in terms of Shariah, will always be subject to two basic conditions: Firstly, instead of a fixed return tied up with their face value, they must carry a pro-rata profit actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns huge profits, the return on their subscription will increase to that proportion. However, in case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the management, and not the Fund, will be liable to compensate it

Secondly, the amounts so pooled together must be invested in a business acceptable to Shariah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles. Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment which are discussed briefly in the following paragraphs Equity Fund In an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly derived through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also earned through dividends distributed by the relevant companies.

It is obvious that if the main business of a company is not lawful in terms of Shariah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement of the share holder in that prohibited business. Similarly the contemporary Shariah experts are almost unanimous on the point that if all the transactions of a company are in full conformity with Shariah, which includes that the company neither borrows money on interest nor keeps its surplus in an interest bearing account, its shares can be purchased, held and sold without any hindrance from the Shariah side. But evidently, such companies are very rare in the contemporary stock markets. Almost all the companies quoted in the present stock markets are in some way involved in an activity which violates the injunctions of Shariah. Even if the main business of a company is hall, its borrowings are based on interest'. On the other hand, they keep their surplus money in an interest bearing account or purchase interest-bearing bonds or securities.

The case of such companies has been a matter of debate between the Shariah experts in the present century. A group of the Shariah experts is of the view that it is not allowed for a Muslim to deal in the shares of such a company, even if its main business is hall. Their basic argument is that every share-holder of a company is a shark (partner) of the company, and every shark, according to the Islamic jurisprudence, is an agent for the other partners in the matters of the joint business. Therefore, the mere purchase of a share of a company embodies an authorization from the share-holder to the company to carry on its business in whatever manner the management deems fit. If it is known to the share-holder that the company is involved in an un-Islamic transaction, and still he holds the shares of that company, it means that he has authorized the management to proceed with that UN-Islamic transaction. In this case, he will not only be responsible for giving his consent to an UN-Islamic transaction, but that transaction will also be rightfully attributed to himself, because the management of the company is working under his tacit authorization. Moreover, when a company is financed on the basis of interest, its funds employed in the business are impure. Similarly, when the company receives interest on its deposits an impure element is necessarily included in its income which will be distributed to the share-holders through dividends.

However, a large number of the present day scholars do not endorse this view. They argue that a joint stock company is basically different from a simple partnership. In partnership, all the policy decisions are taken through the consensus of all the partners, and each one of them has a veto power with regard to the policy of the business. Therefore, all the actions of a partnership are rightfully attributed to each partner. Conversely, the policy decisions in a joint stock company are taken by the majority. Being composed of a large number of share-holders, a company cannot give a veto power to each share-holder. The opinions of individual share-holders can be overruled by a majority decision. Therefore, each and every action taken by the company cannot be attributed to every share-holder in his individual capacity. If a share-holder raises an objection against a particular transaction in an Annual General Meeting, but his objection is overruled by the majority, it will not be fair to conclude that he has given his consent to that transaction in his individual capacity, especially when he intends to refrain from the income resulting from that transaction.

Therefore, if a company is engaged in a hall business, but also keeps its surplus money in an interest-bearing account, wherefrom a small incidental income of interest is received, it does not render all the business of the company unlawful. Now, if a person acquires the shares of such a company with clear intention that he will oppose this incidental transaction also, and will not use that proportion of the dividend for his own benefit, how can it be said that he has approved the transaction of interest and how can that transaction be attributed to him?

The other aspect of the dealings of such a company is that it sometimes borrows money from financial institutions. These borrowings are mostly based on interest. Here again the same principle is relevant. If a share-holder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him. Moreover, even though according to the principles of Islamic jurisprudence, borrowing on interest is a grave and sinful act, for which the borrower is responsible in the Hereafter; but, this sinful act does not render the whole business of the borrower as harm or impermissible. The borrowed amount being recognized as owned by the borrower, anything purchased in exchange for that money is not unlawful. Therefore, the responsibility of committing a sinful act of borrowing on interest rests with the person who willfully indulged in a transaction of interest, but this fact does render the whole business of a company as unlawful

Conditions for investment in Shares

In the light of the foregoing discussion, dealing in equity shares can be acceptable in Shariah subject to the following conditions: 1. The main business of the company is not violative of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as companies manufacturing, selling or offering liquors, pork, harm meat, or involved in gambling, night club activities, pornography etc.

2. If the main business of the companies is hall, like automobiles, textile, etc. but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the share-holder must be given in charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given in charity.

4. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money they cannot be purchased or sold except at par value, because in this case the share represents money only and the money cannot be traded in except at par.

Ijarah Fund Another type of Islamic Fund may be an ijrah fund. Ijrah means leasing the detailed rules of which have already been discussed . In this fund the subscription amounts are used to purchase assets like real estate, motor vehicles or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rata to the subscribers.

Each subscriber is given a certificate to evidence his proportionate ownership in the leased assets and to ensure his entitlement to the pro rata share in the income. These certificates may preferably be called 'sukk' -- a term recognized in the traditional Islamic jurisprudence. Since these sukk represent the pro rata ownership of their holders in the tangible assets of the fund, and not the liquid amounts or debts, they are fully negotiable and can be sold and purchased in the secondary market. Anyone who purchases these sukk replaces the sellers in the pro rata ownership of the relevant assets and all the rights and obligations of the original subscriber are passed on to him. The price of these sukk will be determined on the basis of market forces, and are normally based on their profitability. However, it should be kept in mind that the contracts of leasing must conform to the principles of Shariah which substantially differ from the terms and conditions used in the agreements of conventional financial leases. The points of difference are explained in detail in the third chapter of this book. However, some basic principles are summarized here:

1. The leased assets must have some usufruct, and the rental must be charged only from that point of time when the usufruct is handed over to the lessee.

2. The leased assets must be of a nature that their hall (permissible) use is possible.

3. The lessor must undertake all the responsibilities consequent to the ownership of the assets.

4. The rental must be fixed and known to the parties right at the beginning of the contract. In this type of the fund the management should act as an agent of the

subscribers and should be paid a fee for its services. The management fee may be a fixed amount or a proportion of the rentals received. Most of the Muslim jurists are of the view that such a fund cannot be created on the basis of mudrabah, because mudrabah, according to them, is restricted to the sale of commodities and does not extend to the business of services and leases. However, in the Hanbali school, mudrabah can be effected in services and leases also. This view has been preferred by a number of contemporary scholars.

Commodity Fund Another possible type of Islamic Funds may be a commodity fund. In the fund of this type the subscription amounts are used in purchasing different commodities for the purpose of their resale. The profits generated by the sales are the income of the fund which is distributed pro rata among the subscribers. In order to make this fund acceptable to Shariah, it is necessary that all the rules governing the transactions of sale are fully complied with . For example: 1. The commodity must be owned by the seller at the time of sale, because short sales in which a person sells a commodity before he owns it are not allowed in Shariah.

2. Forward sales are not allowed except in the case of salam and istisn (For their full details the previous chapter of this book may be consulted).

3. The commodities must be hall. Therefore, it is not allowed to deal in wines, pork or other prohibited materials.

4. The seller must have physical or constructive possession over the commodity he wants to sell. (Constructive possession includes any act by which the risk of the commodity is passed on to the purchaser).

5. The price of the commodity must be fixed and known to the parties. Any price which is uncertain or is tied up with an uncertain event renders the sale invalid. In view of the above and similar other conditions, more fully described in the second chapter of this book, it may easily be understood that the transactions prevalent in the contemporary commodity markets, specially in the futures commodity markets do not comply with these conditions. Therefore, an Islamic Commodity Fund cannot enter into such transactions. However, if there are genuine commodity transactions observing all the requirements of Shariah, including the above conditions, a commodity fund may well be established. The units of such a fund can also be traded in with the condition that the portfolio owns some commodities at all times.

Murabahah Fund 'Murabahah' is a specific kind of sale where the commodities are sold on a cost-plus basis. This kind of sale has been adopted by the contemporary Islamic banks and financial institutions as a mode of financing. They purchase the commodity for the benefit of their clients, then sell it to them on the basis of deferred payment at an agreed margin of profit added to the cost. If a fund is created to undertake this kind of sale, it should be a closed-end fund and its units cannot be negotiable in a secondary market. The reason is that in the case of murabahah, as undertaken by the present financial institutions, the commodities are sold to the clients immediately after their purchase from the original supplier, while the price being on deferred payment basis becomes a debt payable by the client. Therefore, the portfolio of murabahah does not own any tangible assets. It comprises either cash or the receivable debts, Therefore, the units of the fund represent either the money or the receivable debts, and both these things are not negotiable, as explained earlier. If they are exchanged for money, it must be at par value.

Bai-al-dain Here comes the question whether or not bai-al-dain is allowed in Sharah. Dain means 'debt' and Bai means sale. Bai-al-dain, therefore, connotes the sale of debt. If a person has a debt receivable from a person and he wants to sell it at a discount, as normally happens in the bills of exchange, it is termed in Sharah as Bai-al-dain. The traditional Muslim jurists (fuqah) are unanimous on the point that baial-dain with discount is not allowed in Shariah. The overwhelming majority of the contemporary Muslim scholars are of the same view. However, some scholars of Malaysia have allowed this kind of sale. They normally refer to the ruling of Shfiite school wherein it is held that the sale of debt is allowed, but they did not pay attention to the fact that the Shfiite jurists have allowed it only in a case where a debt is sold at its par value. In fact, the prohibition of bai-al-dain is a logical consequence of the prohibition of 'riba' or interest. A 'debt' receivable in monetary terms corresponds to money, and every transaction where money is exchanged for the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to 'riba' and can never be allowed in Shariah. Some scholars argue that the permissibility of bai-al-dain is restricted to a case where the debt is created through the sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as the sale of a commodity. The argument, however, is devoid of force. For, once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller. What the seller owns is nothing other than money. Therefore if he sells the debt, it is no more than the sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity. That is why this view has not been accepted by the overwhelming majority of the contemporary scholars. The Islamic Fiqh Academy of Jeddah, which is the largest representative body of the Shariah scholars and has the representation of all the Muslim countries, including Malaysia, has approved the prohibition of bai-al-dain unanimously without a single dissent.

4. ADCB Amanah

ABOUT ADCB AMANAH ADCB Amanah is the global Islamic banking division of the ADCB Group, and was established in 1998 with the aim of making ADCB the leading provider of Islamic banking worldwide. With more than a hundred professionals serving the Middle East, Asia Pacific, Europe and the Americas, ADCB Amanah represents the largest Islamic banking team of any international bank.The ADCB Group is one of the largest banking and financial services organisations in the world. With operations in twenty OIC member states, no international bank is more widely represented in the Muslim world than ADCB. Nor has any made a greater investment in Islamic banking. Headquartered in London, the Groups international network comprises about 10,000 offices with almost 110 million customers in 77 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With a rich history of community banking and a commitment to meet the particular needs of our diverse customers, we are the world's local bank.

VISION ADCB has a rich tradition of community banking, and ADCB Amanah was established to serve the particular financial needs of Muslim communities. mission statement and corporate values reflect this vision.The ADCB Amanah mission statement: ADCB Amanah is committed to improving the lives of customers worldwide by providing them with the highest quality Islamic banking solutions.Shariah commitment Shariah commitmentIn developing ADCB products and services, are committed to the highest Shariah standards in the Islamic banking industry.Corporate citizenshipADCB maintain high ethical standards in their business relationships and invest in the future of communities. Shariah supervisionAll ADCB Amanah products and transactions are developed in consultation with independent Shariah scholars and approved by them prior to distribution.ADCB Amanah Shariah CommitteesADCB Amanah operations are closely supervised by four Regional Shariah Committees (RSCs) in addition to a Central Shariah Committee (CSC). The CSC supervises ADCB Amanah businesses as well as operations in UAE, Qatar, UK, USA and Bangladesh. The CSC comprises of following well-known scholars:ADCB Amanah considers Shariah compliance of its business operations as its most important & strategic priority. This is reflected in its Corporate Values, "In developing our products and services, we are committed to the highest Shariah standards in the Islamic banking industry." In addition to Global Shariah Advisory Board and Regional Shariah Committees, ADCB Amanah employs a team of qualified professionals to ensure that the guidance and advice received from the Shariah Committees is implemented in letter and spirit.ADCB Amanah Global Shariah Advisory BoardTheGlobal Shariah Advisory Board (GSAB) advises ADCB Amanah on research activities intended for further development of the Islamic finance industry. GSAB comprises of representative scholars from all Regional Shariah Committees (RSC) of ADCB Amanah in addition to other Shariah scholars of international standing. The presence of renowned scholars from various geographies at GSAB will provide an opportunity to achieve further harmonization of Shariah standards and practices of Islamic Finance Industry. The following independent Shariah scholars are currently members of GSAB. Sheikh Nizam Yaquby Sheikh Dr. Mohamed Ali Elgari Sheikh Dr. Muhammad Imran Ashraf Usmani PeopleMansoor Shakil works in Dubai as Manager Shariah Compliance. He joined ADCB in July 2004 after graduating from Harvard Law School. Mansoor enjoys reading up on Islamic law.ADCB Amanah brings together the largest team of any international Islamic financial services provider. ADCB are widely recognised as a market leader in terms of global reach, innovative products and services and investment in industry building initiatives. With more than 100 people in eight countries, the ADCB Amanah family continues to grow.Global FunctionsHSADCB Amanahsglobal functions are responsible for the following:Central Onshore Banking comprises of Personal Financial Services, Commercial Bank and Takaful businesses. The Central Onshore Banking team provides strategic direction to the various Amanah geographies, and acts as a centre-of-excellence for product development, product management, provides structuring and Shariah guidance to ADCB Group entities for the development of ADCB Amanah onshore businesses. Asset Finance Advisory Group originates, structures and executes institutional transactions in liaison with CIBM structured finance units and specific corporate functions in ADCB. Wealth Management Group develops Islamic funds in a variety of asset classes for ADCB retail channels, ADCB Private Bank and Islamic institutional clients. Institutional Distribution distributes AFAG transactions and Wealth Management products to a dedicated Islamic institutional client base. Treasury and Risk Management looks after the treasury requirements of our institutional clients. Amanah Private Banking provides Islamic solutions for high-net-worth individuals globally. Amanah Central Team comprises Shariah Compliance, Marketing, HR, Strategy, and Finance functions. ADCB Amanah has presence in nine countries: Bangladesh, Brunei, Indonesia, Malaysia, Saudi Arabia, Singapore, UAE, UK and USA. ADCB Amanahs global functions are split between London, Dubai and New York.

SERVICES OFFERED BY ADCB AMANAHOFFRERD TO IMDIVIDUALAmanah Current Account ADCB Amanah Current Account is a relationship checking account available in AED, EURO, GBPand USD. It is designed to comply with Shariah (Islamic law) guidelines while also providing the regular convenience and security of a current accountWith a monthly minimum average balance of AED 5,000, EURO 3,000,GBP 3,000or USD 3,000, it offers you:A separate monthly Amanah Account statement to help keep track of transactionsOther account related services to facilitate transaction needs such as Autopay, Standing Instructions, Third Party Funds Transfers, Phone Banking, Internet Banking etc.

What makes ADCB Amanah Current Account a Shariah compliant product?ADCB has an international team of professionals with Islamic financial expertise dedicated to developing Shariah approved financial solutions for customers. ADCB Amanah Current Account has also been developed in consultation with and approved by the ADCB Shariah Supervisory Committee. Funds deposited in this account are used only in a Shariah compliant manner as per the guidelines of ADCB Shariah Supervisory Committee.Amanah Non Checking AccountWhen it comes to taking care of investments, it needs a trusted partner like ADCB Amanah. ADCB understand values first, and then give customer services and products that meet the highest global standards, reflecting ADCB concern for customer investments, ADCB is committed to providing financial services tailored to meet customer requirements across the world. At ADCB we understand need for investment products that are fully compliant with principles of Islamic Shariah. The result: an innovative investment product that recognizes your values and offers you the financial solutions you require.What is ADCB Amanah Term Investment?It is a Shariah-compliant short to medium-term investment solution that allows customers to earn returns in a Shariah-compliant manner.Customer funds in this product will be invested in commodities (metals) which they will sell to the Bank on the basis of Murabaha contract - sale of assets at a cost plus stated profit

Features&BenefitsShariah-compliant short to medium-term investment opportunity with ADCBFree ADCB Amanah Gold/Classic Charge Card(s) for the 1st year* Flexibility to invest in Arab Emirate Dirhams, US Dollars, Euros or Pounds Sterling currenciesMinimum Investment Amount of AED 25,000 US Dollars 10,000, EURO or GBP 10,000Competitive Murabaha profit ratesOption to automatically re-invest the investment amount and Murabaha profit for an additional termOption to avail a Shariah-compliant Amanah Current Account for customer banking transactionsAmanah Premium Deposit PlusSecurity plus growth in a Shariah compliant mannerShariah compliant product that offers the potential to earn profits linked to the booming growth in emerging markets, in addition to offering principal protection? Then look no further than the Amanah Premium Deposit Plus.The Amanah Premium Deposit Plus is a three year term deposit designed to offer:100% Principal protectionFinal profit linked to any positive performance of a basket of equally weighted BRIC(brazil, Russia ,India, China) stocks, determined at the end of the three-year term.Any profit paid at the end of the three-year deposit term will be equal to a participation rate of 100% of the increased performance of the basket with a maximum end of term profit capped at 25%, multiplied by the principal deposit amount.The minimum deposit amount for the Amanah Premium Deposit Plus is AED 37,000 or USD 10,000. You cannot deposit any more money into your Amanah Premium Deposit Plus account once your application has been accepted. You can, however, hold more than one Amanah Premium Deposit Plus accounts should you wish to deposit further.Amanah Premium Deposit Plus has been approved by the ADCB Amanah Shariah Committee,an independent committee of Shariah experts of international repute.1 ADCB 'Emerging Markets Primal Knowledge: After Goldilocks: is Humpty going to fall?' Feb 2008

WorkingTerm: Three-year termBasket of stocks: Equally weighted basket comprising global companies operating in the BRIC countriesBenefits: Amanah Premium Deposit Plus will pay a profit equal to a participation rate of 100% of the increased performance of the basket of shares with a maximum end of term profit capped at 25%, multiplied by the principal deposit amount.Minimum deposit: AED 37,000 or USD 10,000Closing date: 23rd July, 2008 or earlier if fully subscribed. Accounts are issued on a first come, first served basis. No advance notice of closure will be given.Commencement date: 1st August, 2008Early closure of offer: This offer may be withdrawn at any time before the closing date.Account maturity date: Third anniversary of the commencement date. The maturity date will be 25th July, 2011 and the final payment date is 1st Aug, 2011. Should this date fall on a holiday, the reading/maturity date will be taken as the next business day.Charges: An agency fee of up to 15% of the surrendered amount will be charged only in the case of early withdrawal. However, the agent may waive part or the full amount of the agency fee at its sole discretion. In addition, the agent may also deduct such costs it may have to incur as a result of making an early payment. These charges will be deducted from the surrendered amount.Withdrawals: If you want to withdraw your investment before the termination date, you need to write to your local ADCB Bank Middle East Limited branch. You should note that you may receive an amount less than your original deposit due to early withdrawal. Please refer to clause 3 & 4 of the Agency Letter for more information.Principal Protection: The Amanah Premium Deposit Plus is structured to return the initial principal plus any profit, only at maturity i.e. three years, and the initial deposit amount may not be returned in full if the deposit is encashed before maturity

Amanah PortfoliosShariah-compliant Amanah Portfolios offer the flexibility to choose from three portfolios. Customer can invest in any one or a combination of two or three portfolios, spreading your investment amount to strike the balance thats right for you.

The Amanah Portfolios aim to provide you with long-term capital growth from a wide selection of investments, taken from among the best Shariah-compliant investment funds in the market.

The Amanah Portfolios are issued and managed by the Saudi British Bank (SABB) which is an associate of the ADCB Group.

Portfolio OptionsAmanah Defensive Portfolio This portfolio is designed for investors who want a low to medium risk portfolio which invests in Shariah compliant fixed income funds and some exposure to Shariah compliant equity funds.Amanah Balanced Portfolio This portfolio is for investors looking for medium risk growth potential from their investments through a greater concentration of equity holdings and a substantial exposure to fixed income instruments to help balance the risk.

Amanah Growth Portfolio This portfolio is primarily invested in equity funds. This provides investors the potential to earn higher returns than Amanah Balanced or Amanah Defensive Portfolio, in return for a greater degree of risk.

Amanah Personal Finance

Islamic FinanceBased on its Shariah compliant mechanism, ADCB Amanah Personal Finance offers an Islamic alternative to a conventional loan.Shariah-approved and certified by ADCB Amanah Shariah CommitteeLiquidity to meet genuine need offinance for permissible useExtended Finance Payment Terms up to 96 months*Discounted Agency Service feesCompetitive Murabaha profit ratesZero down payment on your finance

Amanah Personal Accident TakafulFinancial assurance in times of uncertainty Personal Accident Takaful is a Shariah compliant protection plan that provides you and your loved ones with compensation in the event of accidental death, disablement or injuries. Accidents can occur without warning, and you or your family impact on may be left to deal with a significant financial burden, in addition to your grief. ADCB Amanahs new Personal Accident Takaful solution allows you to minimise the financial impact on your family should such an accident occur. This product is brought to you by Enaya, the regional Takaful solutions arm of AIG. This solution is created with the Shariah approved concept of Takaful. This product and the associated processes have been approved by a Shariah Advisory Committee, a team of respected scholars with impeccable credentials and international repute.Why choose Amanah Personal Accident Takaful?In addition to reimbursing the medical expenses incurred as a result of an accident, you are also covered for accidental death and disability due to an accident. 24 hour world-wide protection, 365 days a year. Cover for you and your family without providing any medical evidence. Convenient payment of premiums by credit card.The table below is an example of monthly and annual contributions.

AdvantageGuaranteed acceptance for you, your spouse and children subject to meeting the age requirement.Convenient payment of premium by credit card.Accepted by all European Union countries for Schengen Visa.Travel Protection Plan Benefits and Premium Table Insured EventSum Insured

Emergency Medical Expenses (Accident and Sickness) Deductible: USD 100USD 50,000

Emergency Medical EvacuationUSD 25,000

Flight Delay (Maximum per hour: USD 50, Excess 12 Hours)USD 250

Death repatriation*USD 5,000

Baggage Loss (Per bag: USD 250, per item: USD 50) Baggage Delay (Per Hour: USD 25, Excess: 4 hours)USD 500

AIG AssistanceCovered

Annual PremiumAED 239

Amanah Home FinanceOwning a home as a symbol of a solid foundation for your family does not need to be a distant goal any longer. It can become a reality with ADCB Amanah Home Finance. Shariah complaint, flexible and simple to arrange, our team of advisors will guide you through the entire process, from start to finish. This will provide you the peace of mind that comes with adherence to your principles, and the combination of the local experience and global resources that ADCB Amanah offers you.So whether your wish to obtain financing in order to buy a house, or financing against the value of your completed property, or transfer your existing home loan orfinance (from another financial institution), ADCB Amanah HomeFinance makes it all possible through the Shariah compliant Ijarah contract.Islamic Home FinanceShariah approved and certified by the ADCB Amanah Shariah Committee(Maximum lease period of up to 25 years for Villas and Townhouses (subject to repayment before 65th birthday)You can apply on a single or joint basisProperty age should be less than 10 years oldA discount in the Ijarah profit rate will be offered to customers transferring their salaries to the BankCompetitive Ijarah profit rates reviewed and updated only once in every six months (on 01Jan and 01Jul every year)Balance transfer from existing home finance provider at convenient termsPre-approved ADCB Amanah Al Wafaa Gold Credit CardADCB Amanah Current Account with minimum balance waived

ADCB Amanah Al Wafaa Credit CardsADCB Amanah Al Wafaa Gold Credit Cards transparent Islamic Credit Card which combines Shariah Compliance with global acceptance and a multitude Al Wafaa, Shariah-compliant Credit Cards from ADCB Amanah. Your unique financial needs require a Shariah compliant credit card that combines sophisticated services with worldwide acceptance; Al Wafaa Credit Cards from ADCB Amanah offer you just that.

Going shopping with your Al Wafaa Gold Credit Card does have its distinct advantages. It is accepted at over 32 million outlets worldwide. It also offers you a grace period of up to 50 days on repayment and cash advances of up to 60% of your credit limit. What's more, you also benefit from a host of unbeatable rewards and benefits.

COMMERICAL BANKING SERVICESAccount ServicesAccount and transaction services can be tailored to create practical, workable and, above all, cost effective solutions.ADCB offer Accounts, which are in compliance with Shariah principles and approved by ADCB AmanahShariah Committee.ADCB product range includes both conventional and Islamic Accounts:Corporate Current AccountCall Deposit AccountFixed Deposit AccountAmanah Current AccountAmanah Term InvestmentCorporate Current AccountADCB local and foreign currency Corporate Current Account is a low-cost operating Account to satisfy all of basic banking needs.Corporate Current Accounts are offered in UAE Dirhams and major foreign currencies.A minimum average balance of UAE Dirhams 20,000 or foreign currency equivalent is required.Call Deposit AccountA high yield Investment Account for corporate customers that permits electronic transfers/payments to be made with just one day prior notice. Call deposits are offered in UAE Dirhams and other major foreign currencies. Funds deposited attract interest on a daily basis at published rates. Prevailing interest rates are available on request.Deposit period is not fixed - withdrawal is subject to one-day notice.Interest is calculated on the daily cleared balance and credited every month.Minimum deposit is AED 50,000. If the balance falls below the minimum requirement, no interest will be accrued during that period.Fixed Deposit AccountA Fixed Deposit allows to deposit money for a set period of time thereby earning you a higher rate of interest.Deposit of funds can be for a pre-specified period at a fixed interest rate.Deposit periods range from one month to twelve months (1, 2, 3, 6, 9, 12 months). Customers may choose the maturity dates as required.Interest rate is fixed based on InterBank Money Market rates.Interest payment is done upon maturity.Automatic rollover facility upon maturity for the same period of deposit is available.Penalties will be charged for premature withdrawalsLoans and FinanceWith ADCB you'll get the right financing for your business, when and how you need it. We'll help you with financing for seasonality, growth, cash management, consolidation, international and domestic market expansion, acquisitions, receivables and any other financing that will help your business thrive.OverdraftsAn overdraft can be a cost-effective way of borrowing money as and when you need it for short-term requirements.A convenient way to fund working capitalQuick and easy to set upPay interest only on the amount you borrowPerformance BondsWhen principals are successful in their tenders for contracts, they will usually be required to provide Performance Bonds, often based on a percentage of the value of the contracts.Maintenance Bonds (Retention Money Bonds)It is common practice for beneficiaries of bonds to withhold amounts from progress payments to meet the costs of any construction/performance deficiencies arising during a specified period (maintenance period) after completion to principals.Advance Payment GuaranteesCivil engineering contracts sometimes include provisions which allow principals to receive advance payments from beneficiaries for purposes such as mobilising plants and equipment.Financial GuaranteesThese provide customers with the means of obtaining facilities, in whatever form from the beneficiaries of guarantees, who may, if the need arises, claim under such guarantees up to a maximum specific amount and within a set period of timeTrade and Supply ChainADCB, have focused on international trade for many years and are able to offer an extensive range of trade-related services and other international services throughout the Middle East region as well as the globe. ADCB aim is to ensure that Customer import and export transactions are managed effortlessly and effectively, providing customer business with the best possible opportunities to grow.As one of the largest Trade and Supply Chain organisations in the world, ADCB provide operational expertise as well as trade specialists and technical consultants to support customer wherever they want to do their business. Factoring ServicesADCB offers Factoring Services in the UAE. Their Factoring team has the experience, resources and technical capabilities to support the needs of customer business from local to global.What is Factoring?Factoring combines sales-linked finance, bad debt protection, payment collection and transmission services that helps businesses to compete with local suppliers on equal trading terms. Quite simply, if a business is trading with another business on open account credit terms, ADCB Factoring Services has the potential to help grow business sales, speed up cash flow, collect payment on invoices and, in selected cases, even protect business from the risk of bad debt.Cash ManagementCash Management in the Middle delivers cost-effective solutions, end-to-end service and quality, combined with first class delivery to meet our customers needs.ADCB -Cash management solutions cover four key areas:Account ManagementTransaction ManagementLiquidity ManagementDelivery ManagementCorporate Current AccountRequire financial assistance to fulfil your business banking needs? Amanah Current Bank Account combines our global expertise with Shariah principles. Amanah Current Account is a relationship checking account offered to business entities. It is designed to comply with Shariah (Islamic Law) guidelines while also providing the regular convenience and security of a current account.The account can be opened in AED, USD, GBP and EURO currenciesA monthly minimum average balance of AED 20,000 or equivalent in foreign currencyA separate monthly Account statementAmanah Import FinanceAmanah Import Finance is a Shariah compliant solution to assist import requirements of assets and merchandise. It is a Murabaha based product that caters to both sight and usance irrevocable DCs.Amanah Musataha ADCB Amanah provides Shariah-compliant solutions to the construction sector. ADCB understand financing requirements and provide project finance according to specific needs. Amanah Musataha covers various types of projects including residential and commercial. The product structure is flexible and consists of the following key benefits:Ownership of the land remains with you all the timeFlexible pricingFlexible tenorConvenient lease rentalsAmanah Goods MurabahaAmanah Goods Murabaha is a Shariah compliant product that provides short-to-medium term financing for your working capital requirements and purchase of assets. It involves the Bank purchasing goods/asset at customer request and selling the same to customer at a sale price on deferred payment basis. It is a Shariah requirement that the breakup of cost and profit in the sale price is disclosed.This product is designed to support customer needs of local purchase requirements. Examples include financing of: raw materialsspare parts, machinery/ equipmentfinished goods and other trading stocksshares

5. FINANCIAL RATIOS

Comparision Between SBI and ADCB (Data as of March 2013)

PARTICULARSSBIADCB

Operational & Financial Ratios

Earnings Per Share (Rs)206.20186.76

DPS(Rs)41.5035.76

Book NAV/Share(Rs)1445.602750.85

Margin Ratios

Yield on Advances11.4432.10

Yield on Investments8.0712.74

Cost of Liabilities5.494.77

NIM2.93

Interest Spread5.95

Performance Ratios

ROA(%)0.971.99

ROE(%)15.4314.63

ROCE(%)11.6116.54

Efficiency Ratios

Cost Income Ratio48.5153.87

Core Cost Income Ratio49.4165.30

Operating Costs to Assets1.870.99

Growth Ratio

Core Operating Income Growth2.403.12

Operating Profit Growth-23.751.35

Net Profit Growth20.4826.43

BVPS Growth15.559.65

Advances Growth20.5224.97

EPS Growth(%)18.1914.42

Liquidity Ratios

Loans/Deposits(x)0.14.64

Total Debt/Equity(x)0.05.8

Current Ratio(x)0.29.51

Quick Ratio(x)14.0728.35

Interest Cover(x)

Total Debt/Mcap(x)0

Net NPA in Rs. Million0

6. CONTROVERSYInIslamabad,Pakistan, on June 16, 2004: Members of leadingIslamistpolitical party in Pakistan, theMuttahida Majlis-e-Amal(MMA) party, staged a protest walkout from theNational Assembly of Pakistanagainst what they termed derogatory remarks by a minority member oninterestbanking:Taking part in the budget debate, M.P. Bhindara, a minority MNA [Member of the National Assembly]...referred to a decree by anAl-Azhar University's scholar that bank interest was not un-Islamic. He said without interest the country could not get foreign loans and could not achieve the desired progress. A pandemonium broke out in the house over his remarks as a number ofMMAmembers...rose from their seats in protest and tried to respond to MrBhindara's observations. However, they were not allowed to speak on a point of order that led to their walkout.... Later, the opposition members were persuaded by a team of ministers...to return to the house...the government team accepted the right of the MMA to respond to the minority member's remarks.... SahibzadaFazalKarim said the Council of Islamic ideology had decreed that interest in all its forms washaramin an Islamic society. Hence, he said, no member had the right to negate this settled issue. Some Islamic banks charge for thetime value of money, the common economic definition ofInterest(Riba). These institutions are criticized in some quarters of the Muslim community for their lack of strict adherence to Sharia.The concept of Ijarah is used by some Islamic Banks (the Islami Bank in Bangladesh, for example) to apply to the use of money instead of the more accepted application of supplying goods or services using money as a vehicle. A fixed fee is added to the amount of the loan that must be paid to the bank regardless if the loan generates a return on investment or not. The reasoning is that if the amount owed does not change over time, it is profit and not interest and therefore acceptable under Sharia.Islamic banks are also criticized by some for not applying the principle of Mudarabah in an acceptable manner. Where Mudarabah stresses the sharing of risk, critics point out that these banks are eager to take part in profit-sharing but they have little tolerance for risk. To some in the Muslim community, these banks may be conforming to the strict legal interpretations of Sharia but avoid recognizing the intent that made the law necessary in the first place.The majority of Islamic banking clients are found in the Gulf states and in developed countries. With 60% of Muslims living in poverty, Islamic banking is of little benefit to the general population. The majority of financial institutions that offer Islamic banking services are majority owned by Non-Muslims. With Muslims working within these organizations being employed in the marketing of these services and having little input into the actual day to day management, the veracity of these institutions and their services are viewed with suspicion. One Malaysian Bank offering Islamic based investment funds was found to have the majority of these funds invested in the gaming industry; the managers administering these funds were non Muslim. These types of stories contribute to the general impression within the Muslim populace that Islamic banking is simply another means for banks to increase profits through growth of deposits and that only the rich derive benefits from implementation of Islamic Banking principles.Hence, the controversy that surrounds Islamic Banking continues. The question of whether or not Islamic banking really is Islamic is still a matter of debate among the Muslim academia.

6. STATUS IN INDIA

In India, Islamic banking is facing hurdles. There are efforts being made to establish a full fledge Islamic bank for the inclusion of the second largest population of the country which is reluctant of interest based investments. Islamic financial institutions exist in India, in the form of Non-banking financial institutions and Muslim Funds [Bagsiraj (2002)]. Bagsiraj in his comprehensive study on Islamic Financial Institutions in India, has classified the Muslim Non-Banking Financial Institution into four forms -

Muslim financial Societiesthese are charitable trusts like Deoband Muslim Fund, Najibabad Muslim Fund etc.These societies are un-operable because they are based on charity and non-self sustainable institutions. There is a problem of managing the workforce and there is absence of standard system of operations.

Muslim Financial Associations by personsthese are the associations made by individuals in various parts of the countries. Some of the famous associations areBarkat Association, Belgaum; Shantapuram Islamic Finance Corporation, Pattikadu; Interest-free Society, Pune ;Millat Welfare Society, Faizabad; Mutual Benefit Group, Bhatkal.Financial Associations of Persons (FAPs) are unregistered, privately operated, smaller functional groups operating in mosques, educational institutions or markets, throughout the country, in mosques or Anjumans.They have taken the form of smaller Bait-ul-Maals whereinZakahfunds are mobilized along with membership fees and donations, and interest-freeQard-e-Hassanloans are also extended. In the educational institutions they have taken the form of interest-free Chit Funds wherein groups of 25 to 30 staff members contribute a monthly fixed sum.

Islamic Co-operative Credit societiesThese societies are formed with 10-15 persons. These societies are providing assistance to the group members. The problems with these societies are different regulations in the different states prevailing, so a standard system could not be formed.Some of the societies are-The Patni Co-operative Credit Society Ltd., Surat. Bait-un-Nasr Urban Co-operative Credit Society Ltd., Mumbai; Bait-ul-Maal Urban Co-operative Credit Society Ltd., Mumbai; Nehru College Staff Co-operative Credit Society Ltd., Hubli; and Al-Ansar Co-operative Credit Society Ltd., Hyderabad.

Islamic investment and Financial Companies of India (Islamic NBFCs)Generally most of the income is earned by IIFCs of India fromIjarai.e Leasing Investments. Hire Purchase andMurabahahi.e. mark up pricing or Cost plus finance which involves a contract in which a lient wishing to purchase equipment or goods requests the Company to purchase these items and resell them to him at Cost plus a reasonable profit payable on the terms agreed to between the parties, is another important source of IIFCs of Indias earnings.Musharakahi.e. Trust or joint project financing,Mudarabahor Joint Venture financing on profit and loss sharing basis are also employed as source of earnings, though on a lesser scale. Investments in Equity Shares of the blue chipd Companies and in real estate or housing finance are other income earning avenues of IIFCs of India. Some of the famous companies are - Barkat Leasing and Financial Service Ltd., Mumbai; Al-Barr / Al-Baraka Finance House Ltd., Mumbai; Al-Ameen Islamic Finance and Investment Corporation Ltd., Bangalore; SeyadShariat Finance Ltd. Tirunelveli; Al-NajeebMilli Mutual Benefits Ltd. Najibabad.In the recent developments there are some conventional financial institutions and banks has introduced Shariah window to target the Muslims as their market in India. Some consultancies like TASIS and Taurus are working for investment guidance in Shariah compliant companies and Financial Products. The Shariah Index established in BSE, responsible for screening Shariah compliant companies.

7.SUGGESTION

ISLAMIC BANKING need be start here in INDIA as a full fledge running banks as conventional banks

They also want ISLAMIC BANKING in INDIA

ISLAMIC BANKING is very much good for the Muslims and also to other

The RESERVE BANK OF INDIA need to be introduce ISLAMIC BANKING concept in Indian Baking Sector

8. CONCLUSIONIslamic banking is a very young concept. Yet it has already been implemented as the only system in two Muslim countries; there are Islamic banks in many Muslim countries, and a few in non-Muslim countries as well. Despite the successful acceptance there are problems. These problems are mainly in the area of financing. With only minor changes in their practices, Islamic banks can get rid of all their cumbersome, burdensome and sometimes doubtful forms of financing and offer a clean and efficient interest-free banking. All the necessary ingredients are already there. The modified system will make use of only two forms of financing -- loans with a service charge and Mudaraba participatory financing -- both of which are fully accepted by all Muslim writers on the subject. Such a system will offer an effective banking system where Islamic banking is obligatory and a powerful alternative to conventional banking where both co-exist. Additionally, such a system will have no problem in obtaining authorisation to operate in non-Muslim countries. Participatory financing is a unique feature of Islamic banking, and can offer responsible financing to socially and economically relevant development projects. This is an additional service Islamic banks offer over and above the traditional services provided by conventional commercial banks.

BIBLIOGRAPHY

BOOKS

Handbook of Islamic Banking

Islamic finance

WEB SITES

www.islamic-banking.com

www.google.com

www.yahoo.com

www.ADCB.com

www.brupt.com

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