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ISLAMIC BANKING

INTRODUCTION Islamic Banking is a

banking or banking activity based on principles of Islamic (Shariah)

Shariah prohibits Riba

Investment in business that provide goods or services is also known Haraam (forbidden

History

Riba The word “riba” means excess, increase or addition. It means the interest applied on loan.

Prohibition of Riba

Types of riba

Riba al-nasi’ah : Interest on loans.

Riba al-fadl : Excess over and above the loan paid in kind.

Reasons for prohibition of riba

It is unjust.

It corrupts.

It implies improper appropriation of other people’s property.

It results in negative economic growth.

In demeans and diminishes human personality.

characteristics Avoiding riba

Consuming money which comes from is condemned repeatly in Quran

Controversy about Islamic banking

There is no entity besides an individual state that may enforce a particular Islamic law.

Sharing risk

When Islamic banks invest in a business venture, they assume risk proportional to the ratio of their contribution.

Halal investment

If the forbidden items are a minor part of the business then it is considered permissible to invest as long as a portion of the profit is given to charity.

Principles

1. Any predetermined payment over and above the actual amount of principal is prohibited : qard-el-hassan (literally good loan)

2. The lender must share in the profits or losses arising out of the enterprise for which the money was lent : Shari’ah (Islamic law )

To reduce the burden of the borrower

To encourage entrepreneurs in maximizing their efforts.

3. Making money from money is not islamically accepted :

Money advanced in business as a loan is debt of the business and not capital.

They are discouraged to keep money idle.

4. Gharar (uncertainty, risk or speculation) is also prohibited :

The creditor advances the loan to win the blessings of Allah almighty.

Bai bithaman ajil (sales with advanced payment)

Istisna (contract to manufacture)

Ijara (hire contract)

5. Investment should only support practice or products that are not forbidden:

Aim is to engage in only ethical investing and moral purchasing.

MODERN ISLAMIC BANKING

Abdullah al Araby-1967

Nejatullah Siddiqui-1961,1969

Al-Najjar-1971

Baqir al sadr -1961,1971 were main contributors

First modern experiment with Islamic banking was undertaken in Egypt.

Bank based on profit sharing in the Egyptian town of Mit Ghamr in 1963

Dubai Islamic Bank (1975)

Islamic Banking is very similar to conventional Banking, but functions in accordance with the injunctions of the Sharia & Quran

Benefits and problems

benefits

Not centered only on credit worthiness & ability to repay the loans & interest.

Consideration of ethical & moral values with its banking operation.

Restricted to useful goods and services.

Relationship with depositors.

Eliminates the barriers between the one who save & the one who invest.

problems

Supports practices or products forbidden by Islamic Law.

Achieving consistent Shari'ah supervision.

Managing the pool.

Islamic Banking Vs Conventional Banking

The two major difference between Islamic Banking and Conventional Banking:

The pressure has been on RBI to introduce Islamic banking in country which would earn billions of dollars in investments.

When Conventional banks involve in transaction with consumer they do not take the liability only get the benefit from consumer in form ofinterest whereas Islamic banks bear all the liability when involve intransaction with consumer. Getting out any benefit without bearing itsliability is declared Haram in Islam.

Islamic Banking to boost green finance

Green finance : sustainable environment development facing global warming, development of water resources.

Infrastructure development can attract foreign investment if country opens up to Islamic banking.

Should RBI introduce Islamic Banking in India ?

NEW DELHI

They, however said the Bank approached RBI for offering consultancy services in this regard.

Islamic bank follows the Shari'ah law of Banking

As interest payment forms the basis of current banking principles, and therefore ,it is not possible to have Islamic Bank in India.

D.SUBBARAO, Governor of the Reserve Bank Of India

Mufti Abdul Qadir Barkatullah

The blockades in the way to introduction of islamic banking system in india

The mindset of resistance to change

Bureaucracy

The political bickering

RBI to look into Malaysian Islamic banking model

PM held a wide ranging talks on economic issues with Malaysian counterpart Mohd Abdul Razak

Space and scope of Islamic Banking in India

Working report of RBI

The 51 page report on Islamic banking was submitted in Mumbai in July 2006.

The working group was headed by Mr. Anand Sinha,executive director, RBI.

LEGAL OPINION

Example :

In Bai’Mu’ajjal, the bank resorts to purchase and resale of properties, which is not permissible as per the provisions of sections 8 and 9 of banking regulation act , 1949.

Kerala shows the way

news

Kerala HC okays Islamic Banking in India.

India says no to Islamic Banking

Islamic Banking

Islamic Banking on the upswing post-global recession : experts.

Banks from around the world :

DUBAI ISLAMIC BANK Pvt. Ltd.

1st Bank in the world.

Formed in 1975.

Recently launched 'Cash Account Manager' which offers complete business cash management solution for corporate customers.

At present DIBPL  is growing with 59 branches across Pakistan in 26 cities.

Alternate distribution channels like ATM, Cash Deposit Machines, Phone Banking, SMS Banking, Internet & Mobile Banking.

1st time in Pakistan DIBPL has posted a profit of Rs. 77.8 million before tax for the quarter ended 31st March, 2009.

MEEZAN BANK:-

It is located in Karachi, Pakistan.

Incorporated on January 27, 1997; started its operations as investment bank in August, 1997; Granted licence as commercial Islamic bank in January 2002.

The Bank's amin financial institutions are:

Pak Kuwait Investment Company.

Islamic Development Bank of Jeddah

Shamil Bank of Bahrain.

It has a 226 branches in 63 cities of Pakistan.

1st and largest bank awarded as Bes Islamic Financial Institution in Pakistan, by Global Finance magazine at its Annual Awards for The World's Best Islamic financial Institutions 2011.

It was judged on the basis on the basis of:

 Contribution to the growth of Islamic Financing in the world     

- Successfully meeting customer needs.

- Creating foundation for continued fast growth in the future.

- Growth in assets, profitability, geographic reach, strategic relationships, new business development & innovations in product.

conclusion

1. What is the meaning of the word “Shari'ah” ?

a. Fiat currency

b. Law of Islam

c. Islamic jurisprudence

2. What does riba al-nasi’ah mean ?

a. Exploitation of loan borrowers.

b.Legalized trade

c.Interest on loan

3. What does”usury” mean ?

a. Illegal interest

b. Spirit of sharing

c.Interst forbidden by islam

4. What does “Musharaka” mean ?

a. Equity financing

b. Issuing liquidity.

c.Financial instrument.

5. What does Mudaraba means ?

a.Fictitious asset

b.Trade financing

c.Legitimate trade

6. Who is the executive director of RBI ?

a.Aarti Kapadiya

b. Aamir Khan

c. Anand Sinha

7. Where is Meezan Bank located ?

a. Nigeria

b. Karachi , pakistan

c. Malaysia

8. What does “sukook ijara” mean ?

a. Islamic leasing bond.

b. Islamic bill of exchange.

c. Islamic bank rules.

9.What does “takaful” mean ?

a. Shari'ah rules.

b. Islamic insurance.

c. Jurisdiction .

10. What does “qard’el Hassan” mean ?

a. Good loan.

b. Good interest.

c. Good bank.