ISLAMIC BANKING PRACTICES

8/7/2019 ISLAMIC BANKING PRACTICES

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ISLAMIC BANKING MODESISLAMIC BANKING MODESOF FINANCEOF FINANCE


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Group MembersGroup Members

Syed Mazhar Ali (GL) Roll No : 43Ib rahim Saleem Roll No : 14Adil Hanif Roll No: 01Haris Ali Khan Roll No: 13Kashif Ali Roll No: 16


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Islamic EconomicsIslamic Economics

Body of Islamic studies literature that identifies andpromotes an economic order that conforms to Islamic

scripture and traditions, is an interest-free Islamicbanking system, grounded in Sharia's condemnation

of interest in the economic world


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P hilosophy in the Light of P hilosophy in the Light of QuranQuran

Sharia prohibits interest but not all gains oncapital.Sharia allows risk sharing and profits on

basis of trading.


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Islamic Banking vs.Islamic Banking vs.Conventional BankingConventional Banking

Bear T he RiskTransaction With

Consumer WithLiability

Elimination of RiskTransaction With

Consumer WithoutLiability

I SLAMICI SLAMIC CO NVENTIO NALCO NVENTIO NAL


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Islamic Banking Modes of Islamic Banking Modes of FinanceFinance

MU R ABAHA MU R ABAHA

IJA R AHIJA R AHIJA R AHIJA R AH --W A LW A L--IQT INA IQT INA MU SA W A M AHMU SA W A M AHIST ISNA A IST ISNA A MUD A R ABAHMUD A R ABAHMU SHA R AKAHMU SHA R AKAH


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MURABAHAMURABAHA

A particular kind of sale, compliant with shariah, where

the seller expressly mentions the cost he has incurred on the commodities for sale and sells it to another person by adding some profit or mark-up thereon which

is known to the buyer .


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P ROCEDURE FOR MURABAHAP ROCEDURE FOR MURABAHASALESALE

Step 1: A greement between the Client and Institution.

Step 2: Both Parties sign agreement of A gency.Step 3: Client Purchases Commodity on Behalf of

Institution.Step 4: Client informs the Institution and makes an

offer.Step 5: Institution accepts the offer for sale.


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IJARAH (Leasing)IJARAH (Leasing)

A transfer of usufruct for a consideration which is rentin case of hiring of assets and wage in case of hiring of

persons .


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P ROCEDURE FOR IJARAHP ROCEDURE FOR IJARAHStep 1: Bank (lessor) purchases specific property or

asset for a specified time.

Step 2: A sset is leased to customer (lessee) at a specificrent for duration of asset s economic life.Step 3: Bank retains the ownership and custom can

use it as long as he pay the rentals as per agreement .

Step 4: A t the end of specified time, asset reverts backto the bank. H owever, often custom is given an optionto purchase asset from bank with mutual agreement.


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IJARAHIJARAH--WALWAL--IQTINA (HireIQTINA (Hire

Purchase F inancing)Purchase F inancing)A contract under which an Islamic bank provides

equipment, building or other assets to the clientagainst an agreed rental together with a unilateral undertaking by the bank or the client that at the end of

the lease period, the ownership in the asset would be

transferred to the lessee .


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P ROCEDURE FORP ROCEDURE FOR IJARAHIJARAH--WALWAL--IQTINAIQTINA

Step 1: A greement between the Customer and Vendor.Step 2: Islamic mortgage provider purchases property

and enters into future agreement with customer.Step 3: Simultaneously, customers enters into a lease

with mortgage provider.Step 4: Customer pays mortgage provider monthly

payments which are fixed every 12 months .Step 5: Customer may purchase the property any time

from mortgage provider by paying bank the balance.


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MUSAWAMAHMUSAWAMAH

A general and regular kind of sale in which price of thecommodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost

incurred by the former .


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P ROCEDURE FORP ROCEDURE FORMUSAWAMAHMUSAWAMAH

Step 1: Customer request bank to purchase a certaincommodity.

Step 2: Bank purchase the commodity and acquire it.Step 3: A fter adding bank s profit, bank offers the

customer to purchase it.Step 4: Customer can accept, refuse or negotiate the

offer.Step 5: If customer agrees, he repays the total amount

to the bank with agreed installments.


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P ROCEDURE FOR ISTISNAAP ROCEDURE FOR ISTISNAAStep 1: Customer expresses his intention to bank to

purchase a commodity that has to be build,

manufactured or assembled at a specified price.Step 2: Bank undertakes to have the subjectcommodity manufactured and delivered to customerwithin a certain period in return for a specified price.

Step 3: Simultaneously, bank enters into a back-to-back contract with the third party to have subjectcommodity manufactured, built or assembled.


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SALAM (Advance P ayment SALAM (Advance P ayment Against Delivery)Against Delivery)

A sale whereby seller agrees to supply specified goods toa buyer by a future date in consideration of price paid

in advance at a time specified in the contract .


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MUDARABAHMUDARABAH

A form of partnership where one party provides thefunds while the other provides expertise and

management .


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Salient Features of Salient Features of MUDARABAHMUDARABAH

Investment is sole responsibility of Rabb-ul-Maal.Only Mudarib has right to participate in management.Loss is suffered by Rabb-ul-Maal Only.Liability is limited to the investment of Rabb-ul-Maal Goods purchased by Mudarib is solely owned by Rabb-ul-Maal and Mudarib can his share in the profit only.


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MUSHARAKAHMUSHARAKAH

A relationship established under a contract by themutual consent of the parties for sharing of profits and

losses in the joint business .


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Salient Features of Salient Features of MUSHARAKAHMUSHARAKAH

Investment can come from all the partners.A ll partners have the right to participate in

management.A ll partners share the loss to extent of the ratio of their investment.Liability of the partners is normally unlimited.A ll partners can benefit from the appreciation of valueof their assets in proportion to their investment.


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ISLAMIC BANKINGISLAMIC BANKINGLIMITATIONLIMITATION

P roduct development is Difficult


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FUTURE OF ISLAMICFUTURE OF ISLAMICBANKINGBANKING

1.Will Islamic banking survive?2. What shape might the Islamic banking industry take in the

future?3. What, or what type of, challenges might Islamic banking

face in the coming years?4. What changes might Islamic financing bring about in the

way people live, businesses work and governments run

public affairs?5. H ow might development of Islamic financing affect thedisciplines of Fiqh, A ccounting, Business A dministration(in particular, Finance and M arketing and BusinessM anagement), Economics and Public Policy?


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CONCLUSIONCONCLUSION

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ISLAMIC BANKING PRACTICES