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ASAD RAZA
SUHAIB MANSHA
HAFIZ SHABBIR SEHRISH HINA ASHRAF NOOR UL AIN
Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) . Sharia prohibits, (Riba, usury) . i.e, interest free business.
conventional Bank. Clearing mechanisms, bank drafts, bills of exchange, travelers cheques, etc. are offered. Current accounts, savings accounts, and investment accounts. are offered by conventional banking
Iqtisaduna
Written by Muhammad Baqir al-Sadr.
banking.
Continued
They have all recognised the need for
commercial banks and a banking system based on the concept of Mudarabha - profit and loss sharing. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young `Muslim economists.
Continued
The early 1970s saw greater institutional
involvement. The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image. This experiment lasted until 1967 , by which time there were nine such banks in country.
sharia-compliant assets. Seven out of ten top Islamic banks in the world are Iranian.
the Chairman of the International Bank of Azerbaijan announced that his bank would expand into Islamic banking services. The expansion will take place in countries around Azerbaijan, such as Russia and Kazakhstan.
Principles
The basic principle of Islamic banking is based on
Pakistan issues Islamic Financial Accounting Standards (IFAS) for Islamic Mode of financing.
IFAS 1 (issued in 2005)
Based on Shariah
Shariah prohibits what is called "Maysir" and
"Gharar". Islamic law prohibits usury Islamic law prohibits investing in businesses that are considered unlawful, or haraam
operating in all the nationalized commercial banks, and one foreign bank (Bank of Oman) on January 1, 1981 to mobilize deposits on profit and loss sharing basis.
Government is committed to eliminate Riba
practice of Islamic banking by banks and financial institutions as subsidiary operations of their main operations.
2. Consultations and exchanges are
Cont..
3. Amendments in HBFC Act are being made in line with the directive of the Supreme Court. 4. Shariah compliant modes of financing like Musharaka and Mudaraba will be encouraged so that familiarity and use of such products is enhanced and their adoption at a wider scale made possible.
Asad Raza
MB-10-9059
Criteria to convert
Camel s rating as fair Islamic banking license Shariah advisers certificate 3 years plan & employees training guideline Informed to clients 4 weeks before
Commercial Bank
Vision
To make Islamic banking, the banking of first choice for the providers and users of financial service
Mission Statement
To promote and develop Islamic banking industry in line with best international practices, ensuring Shariah compliance
Cont
Coordinate with BID(Banking Inspection
Department)
conflict resolution Conduct awareness programs Publication of Islamic banking bulletin Human resource capacity building
Extension of outreach
Strong Shariah compliance mechanism Regulatory framework
Banks (MFBs)
Hina Ashraf
MB-10-936
PRODUCT TREE
Islamic Modes
Musharaka Mudaraba
Musharakah
Characteristics
All parties share in the capital All parties share profits as well as losses Profits are distributed as per agreed ratio Loss is borne by the parties as per capital ratio
MUSHARAKAH
PROFIT Rs. 100 May be in any agreed ratio Rs. 40
Rs. 60
Rs.1000
Rs.1000
PARTNER A
VENTURE
PARTNER B
Rs. 50
Mudarabah
One partner (Rab al Mal) contributes capital
and the other (Mudarib) contributes his skills or services to the venture Venture may for a fixed period or purpose Both share profit in pre-agreed ratio Loss is borne by Rab al Mal only, Mudarib loses his services
MUDARABAH
PROFIT 60 % 40 %
CAPITAL
SERVICES
RABBUL MAL
VENTURE
MUDARIB
LOSS OF SERVICES
Murabahah:
Murabahah is simply a sale contract which fixes the price in terms of the sellers cost plus a specified percentage markup. The seller must disclose all items of expense which are included in the cost ie. All direct expenses incurred in acquiring that goods trust relationship between bank and the clkient.
Uses of Murabaha
Sale of raw material Sale of equipment Sale of agricultural inputs Sale of real estate and vehicles
Process Flow:
Approval of Credit Facility
Negotiation/Approval of overall limit MOU/Murabahah Facility Agreement Requisition + Undertaking + Security Deposit
2
Bank
MOU/Facility Agreement
Client
Approval of Limit
1 3
Bank Bank
Client
2 1
Supplier
3 2
Uses:
Purchase of commodities (financing for
Wisdom of allowing Salam Beneficial for both seller and purchaser Three major problems
Islamic mode_Ijarah
customers.
The assets would be purchased by IsMFB either directly or through the agency agreements with the customer The asset would remain in the ownership and risk of IsMFB through out the lease period Application Include agri machinery,farming tools, small shops, carts, transport & other related equipments.
Sources of funds Besides their own capital and equity, Islamic banks rely on two main sources of funds, a) transaction deposits, which are risk free but yield no return and, b) investment deposits, which carry the risks of capital loss for the promise of variable. In all, there are four main types of accounts:
Current accounts Current accounts are based on the principle of alwadiah (safe keeping), whereby the depositors are guaranteed repayment of their funds. At the same time, the depositor does not receive remuneration for depositing funds in a current account, because the guaranteed funds will not be used for PLS ventures
Savings accounts Savings accounts also operate under the al-wadiah principle. Savings accounts differ from current deposits in that they earn the depositors income: depending upon financial results, the Islamic bank may decide to pay a premium , hiba ,at its discretion, to the holders of savings accounts.
Investment accounts An investment account operates under the mudaraba al-mutlaqa principle, in which the mudarib( active partner) must have absolute freedom in the management of the investment of the subscribed capital. Special investment accounts Special investment accounts also operate under the mudaraba principle, and usually are directed towards larger investors and institutions
"guaranteeing each other". It is a system of Islamic insurance based on the principle of TA-AWUN (mutual assistance) and Tabarru (Voluntarily) where the risk is shared collectively by the group Voluntarily. This is a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage to any of them as defined in the pact.
US$ 1 trillion. Standard & Poor's estimates global Islamic finance market have growing trend 20 per cent annually between 2011-15 1. Young, fast-growing Muslim populations 2. Robust macroeconomic environments 3. Large infrastructure projects that require
Cont
Out of US$ 1.1 trillion industry shares, the
OIC member countries have 98 percent shares. The largest centre's for Islamic finance remain concentrated in Middle East
Iran billion
$ 388
and clearance systems Support facility providers, legal institutions and framework, safety net, liquidity support providers Regulators and supervisors including monetary authorities/central banks, licensing authorities and industry regulators Governance infrastructure, including Sharia governance institutions Standard setters for financial supervision and infrastructure, including financial reporting, accounting and auditing and capital adequacy & solvency
592
Balochista n 44
KP 100
AJK 11
Islamaba d 50
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