Islamic Banking
Vivek S. Kanojiya (78)
1
INTRODUCTION TO ISLAMIC BANKING
Islamic Banking refers to a system of banking or banking activity that is consistent with the principles of Islamic
law
(Shariah) .Shariah prohibits Riba. . i.e. interest free business.
It is based on the Islamic economic system.
It is not restricted to Muslims only.
2
EVOLUTION OF ISLAMIC BANKING
Islamic banks are seen to involve themselves as financial intermediaries and investment oriented institutions in bringing about wellbeing of the community, society and the
economy in the light of Shariah.
ORIGIN
The Prophet himself acted as an agent for his wife's trading operations. 3
NATURE OF BANKING SERVICES
• Same as conventional Bank.
• Clearing mechanisms, bank drafts, bills of exchange, travelers cheques, Loans etc.
• Current accounts, savings accounts, and investment accounts.
4
PRINCIPLES OF ISLAMIC BANKING
• Justice, equality and solidarity.
• Property (wealth) should be used in a rational but fair Way.
• Prohibits the payment of charges for the renting of money.
• Rules of Permissibility.
• Profit-and-Loss Sharing.
•
Making money from money is not Islamically acceptable.
• Gharar (Uncertainty, Risk or Speculation) is also prohibited.
5
OBJECTIVES OF ISLAMIC BANKS
• To help Muslims, execute their financial dealings in social values of the Shariah.
• To Serve all Muslim communities in mobilizing and utilizing
the financial resources.
• To serve the Islamic communities strengthening the economic ability. 6
How does it Works ?
• The bank entirely depends upon the fixed deposits and does not borrows money from the central bank.
• Bank gives loan on basis of mutual agreement.
• Majorly focuses on sales transaction.
7
Business Model of a Conventional Bank
8
Business Model of a Islamic Bank
9
BASIC TENETS OF ISLAMIC BANKING
1. Prohibition of interest-based (RIBA) transactions.
Trade is [just]
1
INTRODUCTION TO ISLAMIC BANKING
Islamic Banking refers to a system of banking or banking activity that is consistent with the principles of Islamic
law
(Shariah) .Shariah prohibits Riba. . i.e. interest free business.
It is based on the Islamic economic system.
It is not restricted to Muslims only.
2
EVOLUTION OF ISLAMIC BANKING
Islamic banks are seen to involve themselves as financial intermediaries and investment oriented institutions in bringing about wellbeing of the community, society and the
economy in the light of Shariah.
ORIGIN
The Prophet himself acted as an agent for his wife's trading operations. 3
NATURE OF BANKING SERVICES
• Same as conventional Bank.
• Clearing mechanisms, bank drafts, bills of exchange, travelers cheques, Loans etc.
• Current accounts, savings accounts, and investment accounts.
4
PRINCIPLES OF ISLAMIC BANKING
• Justice, equality and solidarity.
• Property (wealth) should be used in a rational but fair Way.
• Prohibits the payment of charges for the renting of money.
• Rules of Permissibility.
• Profit-and-Loss Sharing.
•
Making money from money is not Islamically acceptable.
• Gharar (Uncertainty, Risk or Speculation) is also prohibited.
5
OBJECTIVES OF ISLAMIC BANKS
• To help Muslims, execute their financial dealings in social values of the Shariah.
• To Serve all Muslim communities in mobilizing and utilizing
the financial resources.
• To serve the Islamic communities strengthening the economic ability. 6
How does it Works ?
• The bank entirely depends upon the fixed deposits and does not borrows money from the central bank.
• Bank gives loan on basis of mutual agreement.
• Majorly focuses on sales transaction.
7
Business Model of a Conventional Bank
8
Business Model of a Islamic Bank
9
BASIC TENETS OF ISLAMIC BANKING
1. Prohibition of interest-based (RIBA) transactions.
Trade is [just]