THE IIS UNIVERSITY

ASSIGNMNENTISLAMIC BANKING & DEMONETIZATION

SUBMITTED TO :
MS GEETI SHARMA

PRESENTED BY:
POOJA SHARMA
PREETAM JAIN
PRIYAL CHHIPA

ISLAMIC BANKING
AND
DEMONITISATION

CONTENTS

WHAT IS ISLAMIC BANKING ?

ISLAMIC BANKING V/S COMMERCIAL BANKING
DEMONITISATION
ISLAMIC BANKING IN INDIA BEFORE
DEMONITISATION
OPPOSITION OF DEMONITISATION BY MUSLIMS
RBI ON ISLAMIC BANKING AFTER
DEMONITISATION

WHAT IS ISLAMIC BANKING ?

Islamic Banking is a banking system that is based
on the principles of Islamic law, also referred to as
Shariah law, and guided by Islamic economics.
Two basic principles behind Islamic banking are :
Sharing of profit and loss and,
Prohibition of the collection and payment of
interest by lenders and investors.
Collecting interest or RIBA" is not permitted
under
Islamic
law.

Islamic banks follow the standards prescribed

by the Accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI).
Muslims believe that profit should be based on
effort.
Islamic banking prohibits investment in
activities considered sinful.
Thus, projects involving alcohol, tobacco, pork
products, weapons and defense , gambling and
speculation etc. are all forbidden.

ISLAMIC BANKING
V/S
COMMERCIAL BANKING

Islamic
Functions
and
Banking

operations are
based on Shariat law principles.
Earn their money by profit and
loss sharing, trading, leasing,
charging fees for services
rendered and using other sharia
contracts of exchange.
The execution of agreements for
the exchange of goods &
services is a must, while
disbursing funds under

Commercial
Banking
Functions and operations are based
on man made principles.

Earn their money by charging

interest and fees for services.

While disbursing cash finance,

running finance or working capital
finance, no agreement for exchange
of goods & services is made.

DEMONITIZATION
The demonetization of 500 and 1,000 banknotes was
a policy enacted by the Government of India on 8
November 2016,ceasing the usage of all 500 and 1,000
banknotes.
The announcement was made by the Honourable Prime
Minister of India, Shri Narendra Modi and announced the
issuance of new 500 and 2,000 banknotes in place of
old ones.
However, the banknote denominations of 100, 50,
20, 10 and 5 and 2 and 1 remained as legal
tenders and were unaffected by the policy.

ISLAMIC BANKING SYSTEM

IN INDIA
BEFORE DEMONITISATION
The Central Bank in September 2016 also in
2008(Raghuram Rajan Committee on financial
sector reforms) proposed working with the
government to introduce interest-free banking .
Mainly to tackle financial exclusion for
religious reasons, potentially opening Islamic
finance to the largest Muslim minority
population in the world.

OPPOSITION OF DEMONITISATION BY
MUSLIMS
Many
Muslim
avoids
depositing or transacting
through the modern interestbased banking system.
In
Islam, Riba (interest)
is prohibited. Any transaction
that involves interest is illegal
and receiving and paying
interest is considered one of
the major sins in Islam.

The number of Muslims in banking system is

way below their population due to religious
reasons.
They save money for marriages and Hajj
pilgrimages for years outside the banks . Thus
demonetization is a double disaster for them.
Due to demonetization they have open a bank
account as depositing of old currency notes and
made it mandatory to have a bank account something which they have abstained from there
entire life.

RBI ON ISLAMIC BANKING AFTER

DEMONITISATION
The Reserve Bank of India (RBI) has proposed opening of
"Islamic window" in conventional banks for "gradual"
introduction of Sharia-compliant or interest-free banking in the
country.

An Islamic window refers to services provided by conventional

banks but based on Islamic principles.

WHY ISLAMIC WINDOW ?

Majority of companies in the Stock Exchange
are shariat compliant thus this would result in attracting huge
funds in the domestic market alone.
An Islamic Banking window will encourage many from the
Muslim community to come forward and invest in projects
thereby mobilising huge amount of capital which they may
not be willing to put in the banks.
This also means that India will be able to attract huge
investments from West Asia and from those who invest only
in shariat compliant projects.