Islamic Banking - Ekram Attai

1. Welcome

2. - EKRAM ATTAI

3. Islamic Banking

4. Introductory
• Itroduction of Islamic Banking
• Riba or Interest
• Differnce between Islamic banking & Conventional
Banking
• Basic principles of Islamic Banking
• Islamic mode of Financing
• Nature of deposits in Islamic Banking
• Challenges & Prospects
• Growth of Islamic Banking

6. Introduction of Islamic Banking
Islamic banking is interest free banking, in which there is no fixed
rate of return.
Islamic banking is the banking system which is run in accordance with
the Islamic laws and the Shari a` board; that guides the institutions.
Islamic law prohibits usury, the collection and payment of interest,
also commonly called Riba in Islamic discourse”.

7. Islamic banking also finds its roots in Islamic finance and
all type of transactions are interest free and of risk
sharing. The interest is prohibited in Islamic ways of
banking as it is also obvious from Quran. In Quran, in
Sura Al-Imran, Al-Rum(39) , Al-Nisa(160-161)
and Al-Baqarah(275-281) of Quran.
Introduction of Islamic Banking

8. Riba and Gharar are illegal under Islamic law. Riba refers to fixed
rate of interest.
there exist dual banking structure in the Muslim countries.
Mostly the banks of conventional system are also opening their
separate Islamic banking divisions and branches.
Introduction of Islamic Banking

9. The Islamic banking has increased in terms of branches, deposits,
populations,profit.
37.000 BRANCHES ONLY IN….
Introduction of Islamic Banking

10. Riba or Interest
Riba literally means increase, addition, expansion or
growth. It is however not every increase or growth, which is
prohibited by Islam. In shariah, Riba technically refers to
the premium that must be paid without any consideration.

11. Types Of Riba
According to jurists of Islam Riba have two types.
•Riba Al-Naseah
•Riba Al-Fadl.

12. The organization of term interest dates back to 17th century
with the emergence of banking system at global level.
Interest means giving and/or taking of any excess amount
in exchange of a loan or on debt. Hence, it carries the
same meaning/ value as that of Riba is defend in the
previous question. Further, it is narrated that “ the loan
draws interest is Riba”.
Cont…

13. Riba in Quran
• In the Holy Quran, Allah (SWT) says in Sura Al-Baqarah (2-279):
“……. And if you repent, yours is your principal”
• And what ever Riba you give so that it may increase in the wealth of
the people, it does not increase with Allah. ( Sura Al-Rum 30:39)
• And because of their charging Riba while they were prohibited from it.
( Sura An-Nisa 4:161)

14. Riba in Hadith
"Every loan that derives a benefit (to the creditor)
is riba."
This Hadith is reported by Hazrat Ali Radi-AllahuAnhu

15. Difference between conventional
banking and Islamic banking

16. Bank Client
money
money + money (interest)
Conventional
Banking System

17. Bank ClientGoods &
Services
money
Islamic Banking
System

18. Conventional Banks Islamic Banks
Money is a commodity besides medium of
exchange and store of value
Money is not a commodity thought it is
used as a medium of exchange and store
of value
Time value is the basis for charging interest on
capital
Profit on trade of goods for charging on
providing service is the basis for earning
profit
Interest is charged even in case the
organization suffers losses by using bank’s fund
Islamic bank operates on the basis of
profit and loss sharing
While disbursing cash finance, running finance
or working capital, no agreement for exchange
of goods & services is made.
The execution of agreements for the
exchange of goods & services is a must
while disbursing funds under Murabaha,
salam & Istisna contracts
Conventional banks use money as a commodity
which leads to inflation
Islamic banking tends to create link with
the real sector of the economic system by
using trade related activities.

19. Conventional banks Islamic Banks
The investor is assured of a pre determined
rate of interest
In contract it promotes risk sharing between
provider of capital (investor) and the user of
funds (entrepreneur)
Lending money and getting it back with
compounding interest is the fundamental
functions of the conventional banks
Compounding calculation is strictly prohibited
under Islamic banking system
It can charge additional money incase of
defaulters
The Islamic banks have no provision to charge
any extra money from the defaulters.
Conventional banks invest their deposit in
interest based modes
Islamic banking only deals in Halal products
and services, all transactions must be in
SHARIAH COMPLIANCE
The status of a conventional bank, in
relations to its clients, is that of creditors
and debtors.
The status of Islamic bank in relation to its
clients is that of Partners, Investors, and
Trader, Buyer and Seller.
A conventional bank has to guarantee of all
its deposits.
Islamic banks cannot guarantee of all its
deposits.

20. Basic Principles of Islamic Banking

21. • Sanctity of contracts.
• Risk sharing.
• No Riba / Interest.
• Economic purpose / activity.
• Fairness.
• No valid subject matter.
Basic Principles of Islamic Banking

22. Islamic Mode of Financing

23. Contracts
• Mudarabah
• Murabaha
• Musawamah
• Salam
• Istisna
• Ijarah
• Ijarah wa Iqtina
• ( Ijarah Muntahiyyah Bitamleek)
Islamic Mode of Financing

24. Islamic Mode of Financing
Sub Contracts
• Wakalah
• Kafalah
• Rahn

25. Nature of Deposits in Islamic Banks

26. Following are the nature of deposits in Islamic banks
Deposit Nature
Current Qarz
Saving Mudarabah

27. • Qarz can be use for own need and amanah
can not be used for any purpose, that’s why
Islamic banks current accounts are based on
Qarz and not in amanah.
More detail

28. More detail
• Islamic banks offered three types of saving
accounts.
Mudarabah Saving Account
Musharakah Saving Account
Wakalah Saving Accounts

29. Current issues in Islamic Banking
• By Angelo M. Venardos
Islamic banking and Finance (IB&F) is recognized by
both Muslims and non-Muslims as an ethical
alternative,protecting against the worst excesses of
leverage whilst reinstating values, such as trust
which been lost in conventional finance.
Islamic finance is growing popularity as a result of
the current crisis and ther is scope for it to move
into financial mainstream with the sector estimated
to reach US$4.000 billion in the next five years.

30. Current issues in Islamic Banking
• US$300–US$500 billion market growing at 15%–20% per
annum (estimations)
• By 2013, there were over US$825 billion assets being
managed in over 300 banks and 250 mutual
funds around the world complying with Islamic
principles. As of 2005, sharia compliant financial
institutions represented approximately 0.5% of total
world assets.

32. CHALLENGES

33. Challenges In Islamic Banking
• Increased competitions
(international banking business such as Chase
Manhattan, Citibank, ANZ Grindlays, and
Kleinwort Benson,
along with others such as Union Bank of
Switzerland, Girozentale of Australia, and ABC
International.)

34. Challenges
• NEED TO INCREASE THE SIZE OF ISLAMIC BANKS
• FINANCIAL ENGINEERING
• SHARI‘AH ASPECTS
• TEACHING, TRAINING, RESEARCH, AND
DEVELOPMENT
• Short Term Asset Structure (M)

35. © All rightd reserved 2011
• © 2011 The President and Fellows of Harvard College. All
rights reserved.
• http://ifp.law.harvard.edu/login/contact
• F.A. Al-Omar, M. Iqbal

36. Growth of Islamic Banking in East Asia

37. Worldwide Statistics

38. THANKS
FOR PAYING
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