Description
It also differentiates between conventional banking and islamic banking. It also highlights the risks and pitfalls of islamic banking.
Islamic Banking
Facts and Figures
? Islamic banking grew to around 822 b $ in 2008, ? ?
?
?
?
around 6 percent of the total banking assets 15-20 % YOY growth since the last decade More than 500 institutions covering 51 countries including the U.S Set to reach 1.6 t $ by 2012, wholesale banking to constitute 66% Wall street now features an Islamic index and Islamic mutual fund Indian muslims alone lose around Rs 66,700 crores annually due to lower credit deposit ratio
WHAT’S BEHIND THE GROWTH??
? Desire to do retail banking as per personal and
religious beliefs
? 1.2 b Muslims and growing ? 1.5 t $ in the form of petro dollars floating in the
Middle East waiting to be invested
? An alternative form of banking
What is Islamic banking
? Banking activity consistent with the principles of
Islamic(Sharia) law.
As per the Sharia principles:
Trade is lawful but Riba(Interest) is haraam The Quran states : ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ? ???? ???????? ??????? ?????? ??? ????????? ????? ??? ???? ????? ???????? ????????? ????? ???????? ?????????? ? O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. ?????? ????? ?????? ???? ????? ???? ? ?? ? ? ? ? ? ? ?? ? ? Allah has permitted trade and has forbidden interest
? ? ? ? ?? ? ? ? ? ? ? ? ???????? ?????? ??? ????????? ????? ??? ???? ????? ???????? ?????????? O you who seek to profit, do not indulge in alcohol,pork, arms, pornography or gambling, but fear Allah that you may succeed
A ban on investing in prohibited businesses such as trading in alcohol, pork, arms, pornography or gambling
Real Estate Prices shooting up!!! Realty prices doubling each month
Gharar(uncertainty, risk or speculation) is prohibited
?????? ????? ?????? ???? ????? ???? ? ?? ? ? ? ? ? ? ?? ? ? Allah has forbidden uncertainty, risk and speculation.
Islamic Financing
? Cost plus financing(Murabaha)
? Fixed income loan for the purchase of a fixed asset ? Profit margin is decided at the time of agreement
? Banks cant charge for delay of payments
? Asset remains as mortgage
? Profit Sharing(Mudaraba)
? One party provides 100% capital and the other party
provides expertise to invest capital
? Profits generated are distributed as per a
predetermined ratio, but aren’t guaranteed
? Loss is borne by the provider of capital ? Often used for investment funds in which investors
provide money to the Islamic bank to invest
? Partnership Financing(Musharaka)
? Each partner provides funds to be used in a venture ? Profits/Loss are shared as per as invested capital ? All partners may or may not be involved in carrying out
the business
? Leasing(Ijara)
? Bank buys and leases out assets for a certain period of
time
? Ownership remains with the bank
? Cost of capital plus a profit margin is recovered through
rental payments
Conventional Banking la
Fractional Reserve Banking Time Value of Money
Islamic Banking
Full Reserve Banking Money is intrinsically worthless Bearing of Risk Base Lending Rates Greater emphasis on the viability of
Elimination of Risk Prime Lending Rates Greater emphasis on credit-worthiness of the
How Islamic Banking could have saved the day!!
? Full reserve Banking ? Riba – No subprime loans made ? Pure speculative loans prohibited ? Risk Management
Risks and pitfalls
? ? ? ?
Attracting Deposits Dearth of Sharia scholars No single, absolute set of rules Legal hassles
doc_859105572.pptx
It also differentiates between conventional banking and islamic banking. It also highlights the risks and pitfalls of islamic banking.
Islamic Banking
Facts and Figures
? Islamic banking grew to around 822 b $ in 2008, ? ?
?
?
?
around 6 percent of the total banking assets 15-20 % YOY growth since the last decade More than 500 institutions covering 51 countries including the U.S Set to reach 1.6 t $ by 2012, wholesale banking to constitute 66% Wall street now features an Islamic index and Islamic mutual fund Indian muslims alone lose around Rs 66,700 crores annually due to lower credit deposit ratio
WHAT’S BEHIND THE GROWTH??
? Desire to do retail banking as per personal and
religious beliefs
? 1.2 b Muslims and growing ? 1.5 t $ in the form of petro dollars floating in the
Middle East waiting to be invested
? An alternative form of banking
What is Islamic banking
? Banking activity consistent with the principles of
Islamic(Sharia) law.
As per the Sharia principles:
Trade is lawful but Riba(Interest) is haraam The Quran states : ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ? ???? ???????? ??????? ?????? ??? ????????? ????? ??? ???? ????? ???????? ????????? ????? ???????? ?????????? ? O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. ?????? ????? ?????? ???? ????? ???? ? ?? ? ? ? ? ? ? ?? ? ? Allah has permitted trade and has forbidden interest
? ? ? ? ?? ? ? ? ? ? ? ? ???????? ?????? ??? ????????? ????? ??? ???? ????? ???????? ?????????? O you who seek to profit, do not indulge in alcohol,pork, arms, pornography or gambling, but fear Allah that you may succeed
A ban on investing in prohibited businesses such as trading in alcohol, pork, arms, pornography or gambling
Real Estate Prices shooting up!!! Realty prices doubling each month
Gharar(uncertainty, risk or speculation) is prohibited
?????? ????? ?????? ???? ????? ???? ? ?? ? ? ? ? ? ? ?? ? ? Allah has forbidden uncertainty, risk and speculation.
Islamic Financing
? Cost plus financing(Murabaha)
? Fixed income loan for the purchase of a fixed asset ? Profit margin is decided at the time of agreement
? Banks cant charge for delay of payments
? Asset remains as mortgage
? Profit Sharing(Mudaraba)
? One party provides 100% capital and the other party
provides expertise to invest capital
? Profits generated are distributed as per a
predetermined ratio, but aren’t guaranteed
? Loss is borne by the provider of capital ? Often used for investment funds in which investors
provide money to the Islamic bank to invest
? Partnership Financing(Musharaka)
? Each partner provides funds to be used in a venture ? Profits/Loss are shared as per as invested capital ? All partners may or may not be involved in carrying out
the business
? Leasing(Ijara)
? Bank buys and leases out assets for a certain period of
time
? Ownership remains with the bank
? Cost of capital plus a profit margin is recovered through
rental payments
Conventional Banking la
Fractional Reserve Banking Time Value of Money
Islamic Banking
Full Reserve Banking Money is intrinsically worthless Bearing of Risk Base Lending Rates Greater emphasis on the viability of
Elimination of Risk Prime Lending Rates Greater emphasis on credit-worthiness of the
How Islamic Banking could have saved the day!!
? Full reserve Banking ? Riba – No subprime loans made ? Pure speculative loans prohibited ? Risk Management
Risks and pitfalls
? ? ? ?
Attracting Deposits Dearth of Sharia scholars No single, absolute set of rules Legal hassles
doc_859105572.pptx