Islamic Banking

Islamic Banking

Islamic Banking

SLIDE 1: Cover page

SLIDE 2: Introduction

This presentation explores the concept of Islamic banking and its basic Islamic instruments. Further, Global Islamic banking facts and figures are discussed briefly. Moreover, development of Islamic Banking in Pakistan is critically examined.

SLIDE 3:Discussion

Islamic Banking is based on Sharia'ah Law of Islam. There are three basic principles of Islamic banking, which are mentioned below (Homoud, 2010); Interest Free Banking

Profit & Loss Sharing

Ethical Investments

The shareholders and depositors have to bear all the risks and the revenue generated by this type of banking business. This is unlike the traditional banking system based on usury interest since all the burden lies with the borrower to repay the loan with interest regardless of the success or failure of that project. The Islamic banking helps and contributes in achieving more equitable distribution of income and wealth and capital rising in the community in general.

SLIDE 4:

The first bank explicitly based on Shariah principles was established by the Organization of Islamic countries (OIC) in 1974, called Islamic Development Bank (IDB). This bank was primarily engaged in intergovernmental activities for providing funds for development projects running into member countries. Its business model involved fees for financial services and profit sharing financial assistance for projects.

Then as years passed by, more Islamic banks were established with time. In 1980's about 20 more Islamic banks were established in different countries.

SLIDE 5:Islamic banking system has been growing ever since at a very fast pace. Not only Muslim countries, but also non Muslim countries are also establishing Islamic financial industry and offering various Islamic instruments to the public. To have a brief understanding of development of Islamic banking system, some facts are mentioned below;

The size of Islamic Financial Industry has reached US$ 250 Bln. and its growing annually @ 15% per annum.

70 countries are offering Islamic financial services, while 53 countries have Islamic Banking system

31 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan

25 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia

SLIDE 6:

Islamic banking has set different types of modes/instruments that meet with the (Shari'ah) law; each one of these instruments has different approaches in operating them in Islamic banking. Here are some of the methods discussed below: 1. Murabaha (cost plus financing);

Murabaha is a contract between an Islamic bank and a customer at the sale of a good with the profit settled between them. In Murabaha the bank purchases the good for the customer and repayment is made after the purchase has been made as an installment within a specific period of time (Thomas, 1998).

SLIDE 7:

2. Ijarah ( leasing);

Ijarah is almost the same thing as leasing. This type of Islamic leasing is well known and practically the same as conventional leasing. It is one of the most fast growing activities of Islamic financial institutions (Warde, 2000).

SLIDE 8:

5. Musharaka (Equity participation);

Musharaka is a contract between an Islamic bank and its client joining in a financing ...