Key Elements Of Islamic Financing - Possibilities For Integration Of Internationally Accepted Financial Products

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Table of Contents

CHAPTER # 1: INTRODUCTION: OVERVIEW OF ISLAMIC FINANCE AND BANKING MARKET5

Introduction5

Islamic banking instruments: idea and practice8

Profit and decrease distributing (PLS) instruments8

Murabaha (deferred fee sale): idea and practice10

Ijarah (lease financing): idea and practice11

Bai salam (advance payment) and bai istisna (procurement engagement)12

Problems and trials for Islamic banking (banks)12

CHAPTER #2: PURPOSE, DESIGN, METHODOLOGY OF THE STUDY16

Purpose16

Research Design16

Methodology16

Data Analysis17

CHAPTER #3: BACKGROUND OF THE STUDY19

Subchapter #1. Key elements of Islamic Financing19

Takaful Insurance19

Model Mudharabah (profit sharing)19

Islamic Bond (SUKUK)20

Subchapter #2. Overview of Islamic Financial System; foundation, principles of Islamic Finance and banking21

The Islamic banking paradigm21

Subchapter#4. Islamic24

Subchapter# 3. Detailed explanation of Islamic Products26

Mudarabah (Profit Loss Sharing)26

Musharakah (Joint Venture)26

Murabahah (Cost Plus)26

Bai' Bithaman Ajil (Deferred Payment Sale)27

Wakalah (Agency)27

Qardul Hassan (Benevolent Loan)27

Ijarah Thumma Al Bai' (Hire Purchase)28

Bai' al-Inah (Sell and Buy Back Agreement)28

Hibah (Gift)29

Subchapter #4. Comparison of Islamic Finance and Conventional Finance29

Principles of Islamic Finance30

Two important characteristics31

Financial Economics Vs Real Economy32

Economics and Financial Institutions Strengthened32

CHAPTER #4: POSSIBILITIES FOR THE INTEGRATION OF INTERNATIONALLY ACCEPTED FINANCIAL PRODUCTS36

Subchapter #1. Are there any possibilities for the integration of internationally accepted financial product? If yes, what are they?36

Islamic banks regardless of the global financial crisis37

Islamic banks fared better during the financial crisis38

Subchapter#2. Case Studies: at least two case studies:40

Case Study one. Islamic Finance and banking in European countries: USA,UK, Germany.40

Germany40

United Kingdom41

United States and Canada42

Case Study two. Islamic Finance and banking in Muslim countries: Malaysia, Pakistan, other muslim countries.43

Islamic banking in practice: a case study of Pakistan43

CHAPTER # 5: FINDINGS & DISCUSSION45

Scheduled banks data45

Islamic banks' balance sheets46

Risk, liquidity, and asset performance47

Earning and profitability ratios49

Liquidity ratios49

Solvency and risk exposure ratios50

Liabilities and Opportunities50

Criticism and Concerns50

1. Incongruent Goals and Results50

Islamic Moral Hazard52

Arbitrage and Innovation52

Operating in a Conventional International System54

Regulations and Organizations55

CHAPTER # 6: CONCLUSION57

REFERENCES59

GLOSSARY69

Chapter # 1: Introduction: overview of Islamic Finance and banking market

Introduction

            The conceptual development of Islamic banking profited impetus after the mid-1940s. Islamic scholars for example Qureshi (2007), Ahmad (2009), Uzair (2010), Maududi (2008), Al-Arabi (2008), Siddiqi (2007) and Al-Sadr (2007) made important assistance to the evolution of the Islamic banking model. The gigantic influx of petrodollars from the late 1970s supplied a powerful impetus to the development of some Islamic banks in the Middle East. Other Muslim nations established their own Islamic economic organisations over time. Islamic banking has made stable advancement over latest decades. In latest years it has appeared as the fastest-growing segment of international finance due to consistently high oil charges in worldwide markets and other favourable socio-political factors. It is flourishing in Africa, Asia, Europe and North America. There are about 300 Islamic economic organisations over 70 nations, retaining capital investments worth US$500-800bn, with an mean yearly development of 15 percent (Arekat, 2008). It has been approximated that Islamic banking will have a market worth of US$4 trillion by 2010 (Cader, 2007). It is anticipated to arrest about 40-50 per cent of the total savings of 1.3 billion Muslims worldwide inside the next eight to 10 years (Alam, 2008).

            There has been an unprecedented development and deepening of ...