Chapter 1:

Overview of Islamic
Finance and Shariah
Dr. Omar Alaeddin
 INTERNATIONAL
ISLAMIC BANKING & FINANCING

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 INTERNATIONAL ISLAMIC BANKING & FINANCING

• The global Islamic finance

industry reached
approximately USD 2.1 tln
in 2014, witnessing double
digit growth rates across all
sectors of the Islamic
financial services industry.

• Islamic banking and sukuk

sectors continue to
dominate industry with
respective 80% (USD1.7tln)
and 14% (USD300bln)
shares in aggregate assets
as at end 2014 3
 INTERNATIONAL ISLAMIC BANKING & FINANCING

There is increasing interest in Islamic finance from non-Muslim

countries

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Islamic Financial Assets Growth

5
Market Size – Islamic Banking

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 Which Countries have the best developed
Islamic Economy for Islamic Finance?

** CRITERIA
1. Financial (Size of Islamic Finance Assets and Number of Islamic Finance Institutions)
2. Governance (e.g. Regulation for Islamic Finance and Disclosure Index Score)
3. Awareness (Number of Related News Articles, Islamic Finance Education Institutions,
Research papers, and events)
4. Social (Value of Zakat and Charity and CSR Disclosure Index Score) 7
 Component of Islamic Financial market

Islamic
Banking

Islamic Islamic Islamic

Wealth
Management Financial Insurance
(TAKAFUL)
Market

Islamic
Capital
market
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 Overview of
Islamic Banking

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Journey of Global Islamic Finance

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 Fundamentals Of Islamic Banking
Fundamentals Of Islamic Banking

Prohibition of Interest (Riba)

No Gharar

No Gambling (Mayser)

No prohibited commodity

Risk Sharing

Fairness and Justice

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 Pillars & Conditions of Shariah contracts

The prerequisites
of Shariah contract

Subject The two Statement of

Price Matter goods seller contracting buyer offer Contract Acceptance
of contract parties (Sighah)

Capability
Clarity of
Known to be Conformation Connection
Must be offer
To both handed Puberty Sanity Maturity Use Past of offer of
Be legal in and
Parties Over/ ( Age) (Akil) (Rushd)) Tense And acceptance
existence acceptance
specification delivery acceptance With offer

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 Role of Bank- Conventional Banking

SURPLUS UNIT INTERMEDIARY DEFICIT UNIT

DEPOSITOR BANK BORROWER

Interest is paid to the Interest Interest is charged on

depositor spread for the borrower
the bank
3% 5%
2%

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 Role of Bank - Islamic Banking System

SURPLUS UNIT INTERMEDIARY DEFICIT UNIT

SAVERS/ CUSTOMER BEING

INVESTOR
BANK FINANCED

Hibah(Gift) or Dividend is Bank earns profit either

paid depending on the through profit margin or
types of contract profit sharing depending
on contract types
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Nature of Islamic Banking Balance Sheet

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Key Contracts in
ISLAMIC BANKING & FINANCING

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 Overview of
Islamic Capital Market

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 Islamic Capital Market
Components of Islamic Capital Market…

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The Differences between
Sukuk and Bonds

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 Islamic Equity Market

1. Business must be halal i.e. not involved in

prohibited activities like gambling, alcohol, riba.
2. Must be structured according to Shariah,
whereby the features must follows the rules of
specific underlying contracts.
3. Profits should be shared on pro-rata basis.
Neither the principal nor profit can be
guaranteed.

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Malaysian Islamic Capital Market

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Global Islamic Capital Market Overview

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Malaysian Islamic Capital Market Overview

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 Overview of
Islamic Insurance (TAKAFUL)

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Global Takaful Overview

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 Takaful Overview

What Is Takaful?
It is a system of Islamic insurance based on the principle of Ta’awun
(mutual assistance) and Tabarru’ (donation) where the risk is
shared collectively by the group of participant voluntarily.

Why Insurance is prohibited ?

That Insurance is a business transaction which is voidable because
it contradicts the Islamic business principles in view that the
contract contains the elements of :
• Gharar (uncertainty)
• Maisir (gambling)
• Riba (usury)

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 BASIC MECHANISM OF TAKAFUL

* General Takaful (Mudharabah)

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The avoidance of maysir (gambling)
• Involves the creation of risk for the sake of risk
• A combative relationship between two contracting
parties, each of whom undertakes the risk of loss
and the loss of one means gain for the other
• Apply to all games of pure chance (Zero sum Game)
• Gambling is gharar in its worst scenario.
• Prohibited by al-Qur’an in Surah al-Maidah (5:90)
Thanks
 Pillars & Conditions of Shariah contracts

The prerequisites
of Shariah contract

Subject The two Statement of

Price Matter goods seller contracting buyer offer Contract Acceptance
of contract parties (Sighah)

Capability
Clarity of
Known to be Conformation Connection
Must be offer
To both handed Puberty Sanity Maturity Use Past of offer of
Be legal in and
Parties Over/ ( Age) (Akil) (Rushd)) Tense And acceptance
existence acceptance
specification delivery acceptance With offer