Islamic Banking PPT_1

8/3/2019 Islamic Banking PPT_1

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ISLAMIC BANKINGISLAMIC BANKING

ISLAMIC BANKING

Presented By.

Aditya Singh (806)

Dipeeka Thikekar (817)

Govinda Chhangani (820)

Mayur Kotak (834)

Prem Chhatani (846)


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Is this

about Islam

Or

about Banking ?

What has religion got to do withEconomics & Banking ?


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Introduction Islamic Banking refers to a system of banking or banking activity that is

consistent with Islamic law (Sharia) principles.

The first modern theoretical literature on Islamic Banking started in the1940s and the theoretical literature ended in the 1960s.

Modern practical approach towards banking started in the 1960s andwere followed by the establishment of several Islamic Banks in theprivate sector in the 1970s.

During the 1980s, Pakistan, Iran, Sudan, and Malaysia adopted thenew system officially.


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OBJECTIVES The humanitarian goal of achieving the well being of all members of

the human family cannot be attained by concentrating primarily on thematerial constituents of well-being and making maximization of wealthas the main objective of Economics.

It is also necessary to raise the spiritual content of well being andreduce all the symptoms of anomie, like family disintegration, heavyinterest based debt payments, conflict and tensions, crime, alcoholism,drug addiction, and mental illness, all indicating lack of inner happiness and contentment in the life of individuals.

Capitalism as well as Socialism have both failed to lead mankind tosuch an overall well-being. It is therefore, necessary to lay down thecontours of a new system which could help optimize human well-beingas per the divine guidelines of Allah.

Introduction


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Rules Govern Investment Behavior:

The absence of interest-based (riba) transactions;

The avoidance of economic activities involving speculation;

The discouragement of the production of goods and service which

contradict the value pattern ofIslam (haram).

Introduction


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Difference between ConventionalBanking and Islamic Banking

Concept ofInterest

Deals in Money/Asset

Participation in Business Evaluation of Projects.

Introduction


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ISLAMIC BANKINGISLAMIC BANKINGMarketing Mix

DEPOSITORS/INVESTORS

BANK

PROFIT

FINANCING ANDINVESTMENT

ACTIVITIES

LOSS

30%

70%

100%

INVEST FUNDS

(MUDHARABAH)

Pre-agreed Profit-Sharing Ratio


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Products of Islamic Banking

Mudharabah (Profit Sharing)

Wadiah (Safe Keeping)

Musharakah (JointV

enture) Murabahah (Cost Plus)

Ljarah (Leasing)

Takaful (Insurance)

Marketing Mix


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Supplier

Customer

Bank

3. Customerbuys thegoods asBanks agent.

Cost: $100

1. ExecutionofMurabaha

Agreement.

4. Disbursementof the Facility.Facility Amount:

$100

5. Under the Murabaha Agreement the Bank willimmediately sell the goods at $110 (cost plus a profitmargin) payable on a deferred payment terms.

Sale

Features:

Fixed rate financingonly

Uses:

InventoryFinancingFinancingcommodity purchase

Tenor:

12-18 monthsRisks:

Credit Risk

2. Bankappoints theCustomer as itsagent to buy

the goods.

Murabahah Agreement


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Promotion Parsoli Corporation Ltd. does the marketing ofIslamic Banking by

conducting conferences and seminars in Muslim populated states inIndia.

The conferences are then telecast on CN

BC to create awareness tomass people.

Microfinance institutions shall emerge not only for economicconsiderations but also as part to government strategy to exploit thepotential of micro-financing for poverty alleviation.

Marketing Mix


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Marketing EnvironmentMICRO MACRO

Customers Political

Competitors Economic

Social

Technological


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Market Opportunities

Muslim population in India is about 15 crores

Worldwide Muslim population

Grail Research Need to compete for funds with conventional banks

Stock market

Mutual funds (Equity funds, Sector funds, Index funds, Growth

fund)


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Reasons for Growth of Islamic banking

Is in response to the needs of Muslim community

Acts as a catalyst to fill the gap to mobilise funds for productive

purposes, in particular for Muslim communities

Significant untapped business potential.

Proven to be a viable financial intermediation channel in supporting

economic growth.


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Reasons for Growth of Islamic bankingCont..

Fulfilled the demands of not only the Muslims but non-Muslimpopulation as well.

Unaffected by the sub prime mortgage crisis

Tame the liquidity and inflation problems

Rating of complete investment risks instead of mere credit risks


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International Scenario The size ofIslamic Financial Industry has reached US$ 500 Billionand its growing annually @ 15% per annum.

42 countries have Islamic Banking Institutions

27 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia,Brunei and Pakistan

15 non-Muslim countries including USA, UK, Canada, Switzerland,South Africa and Australia

Leading foreign Banks have opened Islamic Banking windows orsubsidiaries such as:

Standard Chartered Bank Citibank

HSBC

ABN AMRO

UBS


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In Feb 1999, Dow Jones introduced the Dow Jones IslamicMarket Index (DJIM) of 600 companies world wide whosebusiness complies with Islamic Shariah laws

At present there are more than 105 Islamic Fundsoperational through out the world with a total fund base ofover USD 3.50 billion

Governments of Bahrain ,Malaysia and now Pakistan haveissued Islamic Bonds (Sukuk) in order to facilitate Islamic

Banks in managing their liquidity. Issuance of these bonds has also paved the way for Shariah

compliant Government borrowings.

Institutions like Accounting and Auditing Organization forIslamic Financial Institutions (AAOIFI) and Islamic FinanceServices Board (IFSB) have been formed.

These institutions are playing a key role in setting up andstandardizing Shariah , Financial and Accounting standardsforIslamic Financial Institutions.

Due to these collective efforts Islamic banking is nowrecognized by IMF, World Bank and Basel Committee.

International Scenario


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In countries like Malaysia, which took the lead in introducing Islamicfinance some thirty years ago, Islamic investments now account for 11% ofthe total banking assets. The Malaysian IB industry is firmly positioned tocapture 20% share by 2010.

According to Standard & Poors, the growth rate ofIB services outpacedthat of conventional banking during the past decade, making it one of the

most dynamic areas in international finance.

The annual growth of Islamic financial institutions (IFI) has been anestimated 10% in the Gulf and almost 15% worldwide over the past 10years, report says. IFIs assets and funds under management areestimated at about $500bn. Islamic banking activities are expected to grow

even more rapidly in the foreseeable future.

International Scenario


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United States: 20-Al Manzil Financial Services

- American Finance House

- Failaka Investments

- HSBC

- Ameen Housing Cooperative

Germany: 3- Bank Sepah

- Commerz Bank

- Deutsche Bank

Switzerland: 6UK: 26 (primarilybranches of Gulf and

global banks)

- HSBC Amanah Finance

- Al Baraka International Ltd

- Takafol UK Ltd- The Halal Mutual

Investment Company

- J Aron & Co Ltd (Goldman

Sachs)

Bahrain: 26- Bahrain Islamic Bank

- Al Baraka

- ABC Islamic Bank

- CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks (Bank

Islam, Bank Muamalat)Rest - conventional banks

Saudi Arabia: 10- Al Rajhi

- SAMBA

- Saudi Hollandi

- Riyadh Bank

UAE: 9- Dubai Islamic Bank

- Abu Dhabi Islamic Bank

- HSBC Amanah

Qatar: 4- QatarIslamic Bank

- QatarInternational Islamic

Kuwait: 5- Kuwait Finance House

Iran: 8

Egypt: 7-Alwatany Bank of Egypt

- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5India: 3

Bangladesh: 3Turkey: 7- Faisal Finance

Institution

- Ihlas Finance House

Yemen: 5

United States: 20-Al Manzil Financial Services

- American Finance House

- Failaka Investments

- HSBC

- Ameen Housing Cooperative

Germany: 3- Bank Sepah

- Commerz Bank

- Deutsche Bank

Switzerland: 6UK: 26 (primarilybranches of Gulf and

global banks)

- HSBC Amanah Finance

- Al Baraka International Ltd

- Takafol UK Ltd- The Halal Mutual

Investment Company

- J Aron & Co Ltd (Goldman

Sachs)

Bahrain: 26- Bahrain Islamic Bank

- Al Baraka

- ABC Islamic Bank

- CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks (Bank

Islam, Bank Muamalat)Rest - conventional banks

Saudi Arabia: 10- Al Rajhi

- SAMBA

- Saudi Hollandi

- Riyadh Bank

UAE: 9- Dubai Islamic Bank

- Abu Dhabi Islamic Bank

- HSBC Amanah

Qatar: 4- QatarIslamic Bank

- QatarInternational Islamic

Kuwait: 5- Kuwait Finance House

Iran: 8

Egypt: 7-Alwatany Bank of Egypt

- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5India: 3

Bangladesh: 3Turkey: 7- Faisal Finance

Institution

- Ihlas Finance House

Yemen: 5


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Islamic Banking in India Confined to the co-operative sector.

Operate on small scale missing the economies of scale.

Function underNon Banking Finance Companies Reserve Bank Directives1997 RBI (Amendment) Act 1997-(Eg-Parsoli )

Reveal its potential to build infrastructure for agriculture sector andunorganized sector

Nationalized banks

Corporate sectors

To counter Terrorism

Raghuram Rajan Committee Regulatory issues need to be sorted


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Future Prospects

Islamic banking and financing has gained a foothold both nationally in

Muslim countries and internationally in the financial world.

Islamic banking industry faces issues of a different sort. That is, how to

(1) Consolidate the gains made so far and sustain itself,

(2) Protect against any meltdown and

(3) Grow.


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ISLAMIC BANKINGISLAMIC BANKINGFuture Prospects

Survival ofIslamic banking depends on the following:

Its Economic Viability, -

Economic viability ofIslamic banking/financing is not an

issue for two reasons:

> Islamic banking is just another way of banking.

> Islamic banking offers a better financial

architecture, on economic grounds.

Its Stability,

> During downswing in an interest-based economy, depositors

existing claims remain a liability of the banking system.

> Islamic banking has advantage that bank obligations

to depositors automatically adjust, both in downswing and

recovery phases,


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ISLAMIC BANKINGISLAMIC BANKINGFuture Prospects

Future Challenges for Islamic Banking

& Finance

Financial Innovation in Critical Areas

Competition

Misuse ofIslamic Banking


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Conclusion

The Islamic Banking is still very new.

Few minor changes is required to work.

A vastly complicated concept.


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ISLAMIC BANKINGISLAMIC BANKINGQuestion ????Question ????

Documents

Islamic Banking PPT_1