banking - an islamic perspective

BANKING:
AN ISLAMIC PERSPECTIVE
A PRESENTATION BY:
Dr. Serajul Haque Faizi
Research Associate, Department of Chemistry
IIT Kanpur
Starting in the Name of Allah, The Most Beneficent, The Most Merciful
Honorable Guest, Participants, Ladies & Gentlemen.
Thank you for giving me the honor of presenting an
overview of Islamic Banking
OUTLINE
Islamic Banking Products And Services
Difference Between Islamic And
Conventional Banking
Principles of Islamic banking
Why Islamic Banking
ISLAM
AQIDAH
(Belief)
SHARIAH
Ibadat
(man to Allah)
Muamalat
(man to man)
POLITICAL
ACTIVITIES
ECONOMIC
AVTIVITIES
BANKING & FINANCIAL
ACTIVITIES
SOCIAL

ACTIVITIES
AKHLAK

Islam has given an immense
importance to trade

The nobility of this profession is
obvious from the fact that it was the
chosen profession of prophet
Muhammad (PBUH).
Importance of Trade in Islam
Before explaining the concept “what
is Islamic Banking” the elaboration
of concept “why Islamic Banking”
is very important.
Islam is a complete code of life that
provides guidance regarding each
aspect of life.
Why Islamic Banking
The Primary Objectives of Islamic
Economic System are as under.

Equal Distribution of wealth

Social justice
These objectives can never be achieved in
Interest/Riba based economic systems.
Why Islamic Banking
Now we come to our core

question
“Islamic banking has been defined as banking in
consonance with the ethos and value system of
Islam and governed, in addition to the conventional
good governance and risk management rules, by
the principles laid down by Islamic Sharia’h”
What Is Islamic Banking
•
Prohibition of riba (interest)
•
Profit sharing (mudharabah)
•
Safekeeping ( wadiah)
•
Joint venture ( musharakha)
•
Cost plus ( murabahah)
•
Leasing ( ijarah )
Principles of Islamic banking
Free from
Gambling
Free from
Gharar (Ambiquity)
Entitlement to
Equal, Adequate,
Accurate Info.
Free from
Dharar (Detrimental)
Free from

Riba (Usury)
Promote Public
Interest
(Maslahah)
Free from
Price control &
Manipulation
Freedom to
Contract
Entitlement to
Transaction at
Fair Price
Characteristics of Shariah-
compliant Banking and Financial
System
Promote
Equity
A system grounded
on moral and
ethics

In Islamic banking, all transactions are asset-based that gives rise
to the economic activity.

Globally, the Islamic banking is growing 50% faster than the
overall banking sector.

The size of Islamic banking industry has grown to $1.63 Trillion
with the annual growth rate of more than 20%. The size is

forecasted to reach US$1.8 Trillion in 2013 and beyond the
milestone of US$ 2.0 Trillion by 2014.

Globally the Islamic financial industry comprises 430 Islamic
banks and financial institutions and around 191 conventional
banks with Islamic banking windows operating in more than 75
countries
Islamic Banking
1) Functions and
operations are
based on Sharia’h
principles
Conventional
Banking
1)Functions and
operations are
based on fully man
made principles
Difference Between Islamic And
Conventional Banking
Islamic Banking
2) Promote risk-
sharing between
provider of capital
(investor) and user of
funds (entrepreneurs)
Conventional
Banking
2) Investor is
assured of pre-

determined rate of
interest
Difference Between Islamic And
Conventional Banking
Islamic Banking
3) Aim at
maximising profit
but subject to
Sharia'h
restrictions
Conventional Banking
3) Aim at
maximising profit
without any
restrictions
Difference Between Islamic And
Conventional Banking
Islamic Banking
4) Partners,
investor and
traders, buyer or
seller relationship
Conventional Banking
4) Creditor-Debtor
relationship
Difference Between Islamic And
Conventional Banking
Islamic Banking
5) Encourage
asset-based

financing and
based on
commodity trading
Conventional Banking
5) Based on money
trading. Money is a
medium of
exchange and not a
commodity, its sale
and purchase is
prohibited in Islam.
Difference Between Islamic And
Conventional Banking
Islamic Banking
6) No right of profit
if there is no risk
involved. The profit
and loss sharing
depositor may lose
money in case of
loss.
Conventional Banking
6) It is almost risk
free banking and
depositor has no
risk of losing its
money because
interest is
guaranteed.
Difference Between Islamic And

Conventional Banking
Which One is Better??
Islamic or Conventional Banking
Currently available Islamic Banking Products and
services are
a) Partnership based modes of financing
Musharaka Finance, Mudaraba Finance,
c) Trade based modes of financing
Murabaha Finance, Salam finance
e) Rental based modes of financing
Ijarah Finance, Diminishing Musharaka Finance
ISLAMIC BANKING PRODUCTS AND SERVICES
Asset
Classes in
Islamic
Finance
Sukuk
Real Estates (I-
REITs)
Islamic
Private Equity
Takaful
Islamic
Hedge
Funds
Islamic ETFs
Islamic
Equities (unit
trust, index
funds etc.)

Islamic
Financing
Islamic
Structured
Instrument
Asset Classes in Islamic Finance
List of Financial Institutions Offering Islamic
Banking Services
(CBB, 2008)
The Islamic banks are not the only financial institutions
involved in Islamic banking. Other financial institutions also
offer Islamic banking services through the "Islamic Banking
Scheme".
•
Islamic Banks
•
Commercial Banks
•
Merchant Banks
•
Discount Houses
•
Development Financial Institutions Offering
Islamic Banking Services
Islamic Development Bank (IDB) Group
Islamic
Development Bank
(IDB)
Foster the economic
development and

social progress of MCs
and Muslim
communities.
International Islamic
Trade Financing
Corporation (ITFC)
Promote and enhances
intra-trade and trade
cooperation through
trade finance and
promotion programs
Islamic Corporation
for the Development
of the Private Sector
(ICD)
Promote development
of private sector
development.
Islamic Research &
Training Institute
(IRTI)
Undertake applied &
basic research in
Islamic Economics and
Finance.
Islamic Corporation
for Insurance of
Investment &
Export Credit (ICIEC)
Provide Shariah-

compatible export
credit insurance,
political risk insurance,
technical assistance.
Shari’ah Compliance
1975 1981 1994 1999
2008
The development of the Islamic finance industry
has been fuelled by pioneering institutions and
industry building organisations
Riba Free Islamic Banking