BY

AKSHI TA MOI K1 oBISo1

AMIISH BI SAI RA K1 oBISo
ANI TA SLON K1 oBISo
SANIIP KLMAR K1 oBISo
ROHI T KLMAR K1 oBISq
lslamlc 8anklng
Introduct|on
Go|den Age of Is|am
O sLem of banklng or banklng acLlvlL LhaL ls conslsLenL wlLh Lhe
prlnclples of lslamlc law (5botlo)
O harla prohlblLs Lhe pamenL or accepLance of lnLeresL fees for
loans of mone (8lba usur) for speclflc Lerms as well as
lnvesLlng ln buslnesses LhaL provlde goods or servlces consldered
conLrar Lo lLs prlnclples (Paraam forbldden)
O 1here are an esLlmaLed 161 bllllon Musllms worldwlde maklng
lslamlc 8anklng Lhe fasLesL growlng segmenL of Lhe flnanclal
lndusLr
LVCLU1ICN CI ISLAMIC 8ANkING
O lslamlc banks are seen Lo lnvolve Lhemselves as flnanclal
lnLermedlarles and lnvesLmenL orlenLed lnsLlLuLlons ln brlnglng
abouL well belng of Lhe communlL socleL and Lhe econom ln
Lhe llghL of harl'ah
O eL of banklng servlces are same as ConvenLlonal 8ank
O Clearlng mechanlsms bank drafLs bllls of exchange Lravelers'
cheques eLc are offered
O CurrenL accounLs savlngs accounLs and lnvesLmenL accounLs are
offered b convenLlonal banks as well as lslamlc 8ank
9r|nc|p|es of Is|am|c 8ank|ng
O usLlce equallL and solldarlL
O orbldden ob[ecLs and creaLures
O AcqulslLlon of properL rlghLs
O roperL (wealLh) should be used ln a raLlonal buL falr
Wa
O -o galn wlLhouL elLher efforL or llablllL
u|es of Is|am|c 8ank|ng
O An predeLermlned pamenL over and above Lhe acLual amounL
of prlnclpal ls prohlblLed
O 1he lender musL share ln Lhe proflLs or losses arlslng ouL of Lhe
enLerprlse for whlch Lhe mone was lenL
O Maklng mone from mone ls noL lslamlcall accepLable
O Charar (uncerLalnL 8lsk or peculaLlon) ls also prohlblLed
O lnvesLmenLs should onl supporL pracLlces or producLs LhaL are
noL forbldden or even dlscouraged b lslam
8as|c Iramework 9roh|b|t|on of |ba
|ba as per lslamlc [urlsprudence was surplus value wlLhouL
counLerparL or Lo ensure equlvalenc ln real value and LhaL
numerlcal value was lmmaLerlal"
|ba as |nterest (d|fferences among Mus||ms)
lnLeresL ln all forms prohlblLed
All lnLeresLbased LransacLlons should be avolded
lnLeresLbased LransacLlons are seen as 'un[usL' rlsk on Lhe
borrower
Cb[ect|ves of Is|am|c 8anks
O 1he flrsL and foremosL ob[ecLlve of lslamlc 8anklng ls Lo prohlblL
Musllms from deallng wlLh lnLeresL or usur (8l8A) whlch has
been sLrlcLl prohlblLed b Allah and Lo proLecL Lhem from one
of Lhe blggesL sln
O 1o help Musllms execuLe Lhelr flnanclal deallngs ln soclal values
of Lhe harlah
O 1o serve all Musllm communlLles ln moblllzlng and uLlllzlng Lhe
flnanclal resources
O 1o serve Lhe lslamlc communlLles sLrengLhenlng Lhe economlc
ablllL
9r|mary character|st|cs of Is|am|c 8anks
O rohlblLlon of lnLeresL
O Low consumer Lendlng
O roflL and Loss sharlng
O Plgh real secLor lnvesLlng
1ypes of Account
CULN1 ACCCUN1
CurrenL accounLs are an lnLeresLfree loan b Lhe accounL
holder Lo Lhe lslamlc bank whlch malnLalns Lhese funds and
pas Lhem Lo Lhe cusLomer on demand 1hese accounLs are
slmllar Lo a loan ln guaranLee and Lhe pamenL of Lhe same
amounL An ll has Lhe rlghL Lo lnvesL Lhe funds lL ls holdlng ln
currenL accounLs wlLhouL Lhe cusLomer bearlng an loss or
Lhls reason Lhe cusLomer does noL geL an proflL on Lhls Lpe
of accounL buL he also does noL bear an loss
INVLS1MLN1 SAVINGS ACCCUN1
Man lslamlc banks offer savlngs accounLs Lo Lhelr cusLomers
1hls accounL allows Lhe accounL holder Lo place funds ln a safe
envlronmenL Llll such Llme when Lhe ma wlsh Lo wlLhdraw
Lhem
roflLs and losses under lnvesLmenL savlngs accounLs accrue on
Lhe mlnlmum monLhl balance roflLs are pald or losses are
deducLed afLer Lhe explr of Lhe flnanclal ear and Lhe neL proflLs
are deLermlned
An accounL holder auLhorlzes Lhe lslamlc bank Lo lnvesL Lhe
proflLs made from Lhe momenL Lhe are reglsLered ln hls own
accounL wlLh Lhe lslamlc bank
SIPARATI LAW IS NIII IOR
ISLAMIC BANKING IN INIA
8eserve 8ank of lndla Covernor u ubbarao sald lslamlc
banklng ln lndla ls noL posslble now wlLh Lhe currenL banklng
prlnclples based on lnLeresL pamenL buL lL can be done Lhough
a separaLe leglslaLlon
WlLh Lhe presenL seL of 8anklng 8egulaLlon AcL lslamlc banklng
[usL cannoL Lake place because man of Lhe banklng prlnclples ln
place are based on lnLeresL pamenLs
TIRMINOLOGY IN ISLAMIC BANKING
O 8a| a| |nah (sa|e and buyback agreement)
8al al lnah ls a flnanclng faclllL wlLh Lhe underllng bu and sell
LransacLlons beLween Lhe flnancler and Lhe cusLomer
O 8a| mua[[a| (cred|t sa|e)
ol moojjol means a credlL salelL ls a conLracL ln whlch Lhe bank
earns a proflL margln on Lhe purchase prlce and allows Lhe buer
Lo pa Lhe prlce of Lhe commodlL aL a fuLure daLe ln a lump sum
or ln lnsLallmenLs
ConLd..
O 8a| sa|am
8al salam means a conLracL ln whlch advance pamenL ls made
for goods Lo be dellvered laLer on
O |bah (g|ft)
1hls ls a Loken glven volunLarll b a debLor ln reLurn for a loan
O I[arah
l[arah means lease renL or wage Cenerall l[arah concepL
means selllng Lhe beneflL of use or servlce for a flxed prlce or
wage
ConLd..
O I[arah thumma a| ba| (h|re purchase)
arLles enLer lnLo conLracLs LhaL come lnLo effecL serlall Lo form
a compleLe lease/ buback LransacLlon
O Musharakah ([o|nt venture)
,osbotokob ls a relaLlonshlp beLween Lwo parLles or more of
whom conLrlbuLe caplLal Lo a buslness and dlvlde Lhe neL proflL
and loss pro raLa
Contd
O Sukuk (Is|am|c bonds)
5okok ls Lhe Arablc name for flnanclal cerLlflcaLes LhaL are Lhe
lslamlc equlvalenL of bonds
O 1akafu| (Is|am|c |nsurance)
@okofol ls an alLernaLlve form of cover LhaL a Musllm can avall
hlmself agalnsL Lhe rlsk of loss due Lo mlsforLunes
ConLd..
O Jaka|ah (power of attorney)
1hls occurs when a person appolnLs a represenLaLlve Lo
underLake LransacLlons on hls/her behalf slmllar Lo a power of
aLLorne
O Jad|ah (safekeep|ng)
ln Jad|ah a bank ls deemed as a keeper and LrusLee of funds
Is|am|c banks' modes of I|nanc|ng
Some importunt terms
O Musharakah
,osbotokob ([olnL venLure) ls an agreemenL beLween Lwo or
more parLners whereb each parLner provldes funds Lo be used
ln a venLure
O Mudarabah
Mudarabah ls a speclal klnd of parLnershlp where one parLner
glves mone Lo anoLher for lnvesLlng lL ln a commerclal
enLerprlse
Advantages of Is|am|c 8ank|ng
,70L sI,70 oI sI,2. B,nng
Reuson und need oI Islumic Bunking in
Indiu
O lslamlc banks can glve lncluslve growLh along wlLh
conLrol over lnflaLlon
O LqulL flnance ls exLended b lower cosL of credlL
O lL provldes equlLable share of proflL
O lL provldes small amounL of loans
Cha||enges for Is|am|c 8anks
O LsLabllshlng approprlaLe rlsk and llquldlL managemenL
Lechnlques
O Achlevlng conslsLenL harl'ah supervlslon
O Managlng Lhe LalenL pool
O Addresslng legal and Lax resLrlcLlons
IIIIRINCI BITWIIN CONVINTIONAL
AN ISLAMIC BANKING
lslamlc LransacLlons are creaLed ln vlew of Lhe [urlsLlc rules of
lslamlc harl'ah and Lhe dlfferences can be hlghllghLed as
follows
O ;ur'anlc rule lf Lhe debLor ls ln a dlfflculL granL hlm Llme Llll lL
ls eas for hlm Lo repa" Powever lf he ls procrasLlnaLlng Lhe
bank applles harl'ah compllanL rules Lo guaranLee lLs rlghL buL
wlLhouL resorLlng Lo lnLeresL
O unds musL be lnvesLed ln lawful areas LhaL achleve soclal and
economlc developmenL Areas ouLlawed b harl'ah musL be
avolded 1he caplLal ls lnvesLed on a parLnershlp basls beLween
Lhe bank or enLrepreneur and Lhe caplLal provlder
Conc|us|on
O lslamlc banklng belng a oung concepL can help
developmenL of poor econom
O 1hough havlng few draw backs lL has lLs own
advanLages Lo sLand on
O ome lslamlc banks charge for Lhe Llme value of
mone Lhe common economlc deflnlLlon
of lnLeresL (8lba) 1hese lnsLlLuLlons are crlLlclzed ln
some quarLers of Lhe Musllm communlL for Lhelr lack
of sLrlcL adherence Lo harla
1hank ou !!!