Global Overview Islamic Banking

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Salient Features of Islamic Banking

•Prohibition of transaction on a Riba basis.•Man, acting as the vicegerent, of Allah.•Wealth should be directed in the Halal (religiously permitted)channels.•Consumption should be rationalized and expenditure should beconducted with thrift, avoiding extravagance.•Funds should not be employed to monopolize the resources.•Zakah must be deducted from wealth and given to the poor and theneedy.•Money is not to be treated as a commodity in itself but as a unit of account and measure of value.•A fixed charge on capital is unjust.•Making money out of money is contrary to Islamic Law.

Distinct characteristics of Islamic Banks

•The relationship between Islamic Banks and their customers is of participation.•There is no previously fixed return on the funds invested with thebank.•Islamic Banks work as Mudarib / Partner fund manager.•Islamic Banks do not provide finance by offering cash loans.•Islamic Banks are multipurpose banks, as they play role of commercial banks and investment banks, as well as developmentbanks.•Islamic Banking is primarily equity based.•Whereas the Islamic System is value oriented.•Islamic Banks are subjected to additional reviews by the religioussupervisory boards to ensure that funds are being raised andinvested in ways that conform to Islamic Principles.

Why Islamic Banking and Finance?

•20% of the world population is Muslims.•15 million Muslims residing in non-Islamiccountries in Europe, mostly in France, Germanyand in UK. And members of this communitywere not getting benefit from the conventionalbanking.•Sizable proportion who will only avail financialservices if assurance of Shariah Approval isgiven.•The Oil Rich Middle East, which has a hugepotential for investing in a Shariah approvedfinancial system.

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