SR.

NO TOPIC PAGENO

1 INTRODUCTION

INTRODUCTION TO THE PROBLEM 1

RATIONALE AND SCOPE OF STUD 2
OBJECTIVE OF STUDY 2
RESEARCH METHODOLOGY 3
CONSTRUCT & CONCEPTS 3
POLITICO-LEGAL PERSPECTIVE 4
THE EXPERT’S PERSPECTIVE 4
THE PEOPLE PERSPECTIVE 4-5
AREAS OF RESEARCH 5
REVIEW OF LITERATURE 6
INTRODUCTION 6
ISLAMIC BANKING 6
HISTORY OF ISLAMIC BANKING 6
LARGEST ISLAMIC BANKS 10-12
SHARIAH ADVISORY 13
COUNCIL/CONSULTANT
ISLAMIC FINANCIAL TRANSACTION 14
TERMINOLOGY
BAI' AL-INAH (SALE AND BUY-BACK 14
AGREEMENT
BAI' BITHAMAN AJIL (DEFERRED 14
PAYMENT SALE
BAI MUAJJAL (CREDIT SALE) 15
MUSHARAKAH 15
MUDARABAH 15
MURABAHA 16
MUSAWAMAH 16
BAI SALAM 17
HIBAH (GIFT) 19
IJARAH 20
IJARAH THUMMA AL BAI' (HIRE PURCHASE) 21
 IJARAH-WAL-IQTINA 21
MUSHARAKAH (JOINT VENTURE) 22
QARD HASSAN/ QARDUL HASSAN (GOOD ) 22
SUKUK (ISLAMIC BONDS) 22
TAKAFUL (ISLAMIC INSURANCE) 23
WADIAH (SAFEKEEPING) 23
WAKALAH (POWER OF ATTORNEY) 23
ISLAMIC EQUITY FUNDS 24
ISLAMIC LAWS ON TRADING 25
MICROFINANCE 26
CONTROVERSY 26-27
SUKUK 28
TERMINOLOGY 29-31
SUKUK SECONDARY MARKET 32
CONTROVERSY 32-33
THE FOUNDATIONS 33
RECENT HISTORY 33-34
ADVANTAGES AND DISADVANTAGES 34-35
BASIC DESCRIPTIVE STATISTICS (NON- 36
MUSLIMS)
COMPARISION OF RESULTS OF THE TWO 37-56
GROUPS
RESULTS OF INTERVIEW WITH IMAMS 57
SPECIAL RESULTS FROM SPSS 58
SECONDARY RESEARCH 59-63
VARIOUS VEIWS BY RENOWNED SCHOLARS 64-65
RECOMMENDATIONS AND CONCLUSIONS 66
 1 INTRODUCTION TO THE PROBLEM

The banking Industry all over the world is witnessing new challenges in the Neo-
Globalized world, one of the most recent one being the Economic Recession which
has hit U.S (Early 2009) & later on the whole world. In wake of these emerging
trends ,the world is waking up to new forms of banking which are considered to be
based on more strong foundations of ethical principles and have shown
significantly lesser signs of stress during crisis as compared to conventional
banking. Islamic finance & banking is one of those types of banking which are
considered to be shock-proof and are becoming a cause of debate in emerging
Asian economies like India, not predominantly because these countries have
substantial Muslim population to cater to Islamic Banking but because of the other
reasons cited above.

We in this study are only focusing on feasibility of India as the next destination for
Islamic Finance& Banking in the coming recent years. In this study we seek to
understand the perception of Indian –
1) Politico-legal system
2) Muslim sects (Clerics & Experts)
3) Muslim Middleclass
4) Non-Muslim Middleclass
On the basis of their point of views ,understanding , likability & acceptability
(as a concept) and other minor differences in the concepts regarding Islamic
finance , So as to project the future picture of Islamic finance in India and to
Suggest ways & models to regularize it as an option along with conventional
ban
2 RATIONALE AND SCOPE OF STUDY

As per a financial analysis by Moody’s Investors Service expressed in

ifinanceexpert.wordpress.com, Islamic financial institutions had total assets in
2009, despite a gloomy international economic environment, of $US950 billion
($1.03 trillion).But it estimated that the sector’s potential was “worth at least at
least $US5.0 trillion ($5.43 trillion) and the industry is continuing to expand
globally.”Islamic banking has been left relatively unscathed by the global
financial crisis, largely because of rules forbidding engagement in the kind of
risky business that sank mainstream institutions like Lehman Brothers.
India has a Muslim population of some 150 million, making it the state with the
second-largest Muslim population in the world after Indonesia. This Muslim
population is ready- made untapped customer base for the growing Islamic
banking industry. We also believe and strive to verify by this project that
Islamic finance instead of being promoted and marketed as a Religion- based
system, if marketed purely on its features as a new banking system to Non-
Muslims, would be acceptable and to what extent if it is?
The general public in this respect is taken to be from the Muslim & Non-
Muslim Population in the middle class bracket of India which is believed to
form one of the largest growing strata of population and which can readily
understand the Concepts of contacts in Islamic Finance.

The study is limited to the Northern region of India as far as collection of

primary data is concerned in face to face interview with the experts. We have
tried to reduce this limitation by taking the opinion of various sects as we
assume that local regional culture have little or no effect on the financial rules
governing a particular Islamic sect.

The time period of the project is of 12 weeks. The first 3 weeks were dedicated
to the collection, and assimilation of secondary data and preparing the
questionnaire for the study purpose. The next 5 weeks have passed arranging the
appointments for interview for the next month with the experts and clerics.The
collection of data from different places of North India will be conducted either
by direct interview or by mailed questionnaire.

3 OBJECTIVE OF STUDY
The main objective of this project is to look at the various perspectives which
are carried by various people or organizations or sects about Islamic banking in
India and to arrive at a common conclusion as to how the modern Islamic banks
form policies at strategic and tactical level so as to accommodate all these
perspectives and build a sustainable business model in Asian countries like
India. Thus, the feasibility analysis of Islamic banking and its products
/contracts in India is the main aim. The scope of secondary findings from such
an exploratory model always exist and any such critical & contingent finding
which falls near or around the purview of our primary objective will always be a
4 RESEARCH METHODOLOGY
4.1 CONSTRUCT & CONCEPTS

A brief description of division of our research areas in which we hope to carry

research as tohow Islamic finance is viewed from different perspectives is
shown in the figure 1.0 below

Figure 1

PERSPECTIVES AND
FEASIBILITY

EXPERT SECTORAL GENERAL PUBLIC

POLITICO-LEGAL
(DIRECT INTERVEIW OR (ONLINE FEEDBACK OR
(SECONDARY ANALYSIS) SECONDARY ANALYSIS) DIRECT INTERVEIW)

NON-
GOVERNME
SUNNI SHIA OTHERS MUSLIM MUSLIM
RBI NT SEBI

GENERAL IMAM OR
AHELEHADI PERSON
DEOBANDI BARELVI MIDDLE
TH ENJOYING
CLASS OR
HIGHER SAY IN
PUBLIC

The areas of research are based on clearly demarcated perceptual differences in

the opinions of various organizations or sects or social groups of people on
various facets of Islamic finance. The three major perspectives which are taken
into account are that of
1) Politico-legal perspective ( Exploratory)
2) The expert’s perspectives from different sects. (Exploratory)
3) The perspective of people or their representatives. (Descriptive and causal)
4.1.1 POLITICO-LEGAL PERSPECTIVE –
The major part of this will be covered by the secondary analysis of Media
reports and other data from 3 areas in this field i.e. the RBI (Reserve bank of
India) , SEBI (Securities Exchange BoardOf India) and the Present
Government in general. The plot would be exploratory in nature and the
approach would be to find a fresh perspective as to how Islamic finance can be
accommodated in the politico-legal system of India. The contraventions to the
Banking Regulations Act 1949, of India and the subsequent recommendations
for change in it.

4.1.2 THE EXPERT’S PERSPECTIVE –

This would be based on secondary analysis of Records (Written paper, article,
journal etc. or electronically recorded review in the form of an audio-video
recording) of Previous interviews by various experts or religious heads or
person holding substantial knowledge in the respective field. The other method
will include face to face interview (Primary Data) or review of literature written
by these experts. The sects have been broadly divided into Sunni (majorly
belonging to hanafi-madhab) and Shia categories. An additional category of
“others” is also added to include perspective of sects like Shafiyah, Malakiyah
and Hanbaliyah which are in minority. The Sunni category is again divided into
two major schools of thoughts i.e. Deobandis and Barelvis. The minority sect of
Ahle-Hadith is also taken into consideration. There are some major as well as
minor differences of opinion which still exist with respect to Islamic finance
within these categories. The method will largely be exploratory in this respect
too.
4.1.3 THE PEOPLE PERSPECTIVE –
This category is divided into two broad categories as Islamic finance is still
largely unknown to the general public in India and no large scale Islamic
banking project has been successfully implemented despite having second
largest Muslim population in the world. The research population is divided into
two broad categories and the nature of the research will largely be descriptive
and causal. The sampling technique will be judgment sampling in which we
will focus on Middle class Muslims and Non-Muslims or of Socio-economic
classification belonging to higher category. The reason for doing this is because
the lower income group doesn’t follow any guidelines except for not
participating in conventional banking but they don’t have any access to
systematic Islamic banking either. To compensate for the same we will take into
consideration the feedback of an imam or a person holding substantial favor
of locals for his
. opinion on such matters in the sample assuming that majority of population
under him goes byhis dictum on Islamic Finance.

4.2 AREAS OF RESEARCH

The major areas of research regarding Islamic finance will include topics like
1) Arbun: Earnest money/Down payment,
2) Gharar: Uncertainty such as short selling, speculation and derivatives,
3) Ijara: An Islamic lease agreement,
4) Istisna: Salam contracts applied to manufacturers, with the possibility

of payment ininstallments,
5) Maysir: Gambling, speculation, conventional insurance and derivatives,
6) Mudaraba: Investment partnership,
7) Murabaha: Purchase and resale,
8) Musharkah: Profit and loss sharing,
9) Riba: Interest,
10) Salam: commodity forward,
11) Sukuk: Islamic bond,
12) Takaful: Islamic insurance,
13) Tawarruq: Reverse murabahah,
14) Urboon: Depositing small fraction of price in a deal to be

concluded in the futureand others with varying degree of

5 REVIEW OF LITERATURE

5.1 INTRODUCTION
5.1.1 ISLAMIC BANKING
Islamic banking refers to a system of banking or banking activity that is
consistent with the principles of Islamic law (Sharia) and its practical
application through the development of Islamic economics. Sharia prohibits the
payment or acceptance of interest fees for the lending and accepting of money
respectively, (Riba, usury) for specific terms, as well as investing in businesses
that provide goods or services considered contrary to its principles (Haraam,
forbidden). While these principles were used as the basis for a flourishing
economy in earlier times, it is only in the late 20th century that a number of
Islamic banks were formed to apply these principles to private or semi-private
commercial institutions within the Muslim community.

5.1.2 HISTORY OF ISLAMIC BANKING

5.1.2.1 CLASSICAL ISLAMIC BANKING
During the Islamic Golden Age, early forms of proto-capitalism and free
markets were present in the Caliphate,[1] where an early market
economy and an early form of mercantilism were developed between the 8th-
12th centuries, which some refer to as "Islamic capitalism".[2] A vigorous
monetary economy was created on the basis of the expanding levels of
circulation of a stable high-value currency (the dinar) and the integration of
monetary areas that were previously independent.

A number of innovative concepts and techniques were introduced in early

Islamic banking, including bills of exchange, the first forms of partnership
(mufawada) such as limited partnerships (mudaraba), and the earliest forms
of capital (al-mal), capital accumulation (nama al-mal),[3] cheques, promissory
notes,[4] trusts(see Waqf), startup
companies,[5], transactional
accounts, loaning, ledgers and assignments.[6]Organizational enterprises similar
to corporations independent from the state also existed in the medieval Islamic
world, while the agency institution was also introduced during that time.[7][8]
Many of these early capitalist concepts were adopted and further advanced in
medieval Europe from the 13th century onwards.[3]

5.1.2.2 RIBA
The word "Riba" means excess, increase or addition, which correctly
interpreted according to Shariah terminology, implies any excess compensation
without due consideration (consideration does not include time value of
money). The definition of riba in classical Islamic jurisprudence was "surplus
value without counterpart." or "to ensure equivalency in real value" and that
"numerical value was immaterial." During this period, gold and silver currencies
were the benchmark metals that defined the value of all other materials being
traded. Applying interest to the benchmark itself (ex natura sua) made no
logical sense as its value remained constant relative to all other materials: these
metals could be added to but not created (from nothing).

Applying interest was acceptable under some circumstances. Currencies that

were based on guarantees by a government to honor the stated value (i.e. fiat
currency) or based on other materials such as paper or base metals were allowed
to have interest applied to them.[9] When base metal currencies were first
introduced in the Islamic world, no jurist ever thought that "paying a debt in a
higher number of units of this fiat money was riba" as they were concerned
with the real value of money (determined by weight only) rather than the
numerical value. For example, it was acceptable for a loan of 1000 gold dinars
to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in
terms of weight had to be same because all makes of coins did not carry exactly
similar weight).
5.1.2.3 MODERN ISLAMIC BANKING
The first modern experiment with Islamic banking was undertaken in Egypt
under cover without projecting an Islamic image—for fear of being seen as a
manifestation of Islamic fundamentalism that was anathema to the political
regime. The pioneering effort, led by

Ahmad Elnaggar, took the form of a savings bank based on profit-sharing in the
Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready
1981), by which timethere were nine such banks in the country.[10]

In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank
which, till date, is still in business in Egypt. In 1975, the Islamic Development
Bank was set-up with the mission to provide funding to projects in the member
countries. The first modern commercial Islamic bank, Dubai Islamic Bank,
opened its doors in 1975. In the early years, the products offered were basic and
strongly founded on conventional banking products, but in the last few years the
industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10-15% per year and with signs of
consistent future growth[11]. Islamic banks have more than 300 institutions
spread over 51 countries, including the United States through companies such as
the Michigan-based University Bank, as well as an additional 250 mutual funds
that comply with Islamic principles. It is estimated that over US$822 billion
worldwide shariah-compliant assets are managed according to The
Economist.[12]. This represents approximately 0.5% of total world estimated
assets as of 2005[13].

The World Islamic Banking Conference, held annually in Bahrain since 1994, is
internationally recognized as the largest and most significant gathering of
Islamic banking and finance leaders in the world.

The Vatican has put forward the idea that "the principles of Islamic finance may
representa possible cure for ailing markets."[14]
5.1.3 LARGEST ISLAMIC BANKS
5.1.3.1 Islamic Development Bank
Shariah-compliant assets reached about $400 billion throughout the world in
2009, according to Standard & Poor’s Ratings Services, and the potential
market is $4 trillion.[15][16] Iran, Saudi Arabia and Malaysia have the biggest
shariah-compliant assets.[17]

In 2009 Iranian banks accounted for about 40 percent of total assets of the
world's top 100 Islamic banks. Bank Melli Iran, with assets of $45.5 billion
came first, followed by Saudi
Arabia's Al Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran
with $39.3 billion.[18][19]

5.1.3.2 Principles
Islamic banking has the same purpose as conventional banking except that it
operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat
(Islamic rules on transactions). The basic principle of Islamic banking is the
sharing of profit and loss and the prohibition of riba(usury). Common terms
used in Islamic banking include profit sharing (Mudharabah), safekeeping
(Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing
(Ijarah).
In an Islamic mortgage transaction, instead of loaning the buyer money to
purchase the item, a bank might buy the item itself from the seller, and re-sell it
to the buyer at a profit, while allowing the buyer to pay the bank in installments.
However, the bank's profit cannot be made explicit and therefore there are no
additional penalties for late payment. In order to protect itself against default, the
bank asks for strict collateral. The goods or land is registered to the name of the
buyer from the start of the transaction. This arrangement is called Murabaha.
Another approach is EIjara wa EIqtina, which is similar to real estate leasing.
Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a
higher-than-market price to the debtor and then retaining .
In an Islamic mortgage transaction, instead of loaning the buyer money to
purchase the item, a bank might buy the item itself from the seller, and re-sell it
to the buyer at a profit, while allowing the buyer to pay the bank in installments.
However, the bank's profit cannot be made explicit and therefore there are no
additional penalties for late payment. In order to protect itself against default,
the bank asks for strict collateral. The goods or land is registered to the name of
the buyer from the start of the transaction. This arrangement is called
Murabaha. Another approach is EIjara wa EIqtina, which is similar to real
estate leasing. Islamic banks handle loans for vehicles in a similar way (selling
the vehicle at a higher-than-market price to the debtor and then retaining
ownership of the vehicle untilthe loan is paid).

An innovative approach applied by some banks for home loans, called

Musharaka al- Mutanaqisa, allows for a floating rate in the form of rental. The
bank and borrower form a partnership entity, both providing capital at an agreed
percentage to purchase the property. The partnership entity then rents out the
property to the borrower and charges rent. The bank and the borrower will then
share the proceeds from this rent based on the current equity share of the
partnership. At the same time, the borrower in the partnership entity also buys
the bank's share of the property at agreed installments until the full equity is
transferred to the borrower and the partnership is ended. If default occurs, both
the bank and the borrower receive a proportion of the proceeds from the sale of
the property based on each party's current equity. This method allows for
floating rates according to the
current market rate such as the BLR (base lending rate), especially in a dual-
banking system like in Malaysia.
There are several other approaches used in business transactions. Islamic banks
lend their money to companies by issuing floating rate interest loans. The
floating rate of interest is pegged to the company's individual rate of return.
Thus the bank's profit on the loan is equal to a certain percentage of the
company's profits. Once the principal amount of the loan is repaid, the profit-
sharing arrangement is concluded. This practice is called Musharaka.
Further, Mudaraba is venture capital funding of an entrepreneur who provides
labor while financing is provided by the bank so that both profit and risk are
shared. Such participatory arrangements between capital and labor reflect the
Islamic view that the borrower must not bear all the risk/cost of a failure,
resulting in a balanced distribution of income and not allowing lender to
monopolize the economy.

Islamic banking is restricted to Islamically acceptable transactions, which

exclude those involving alcohol, pork, gambling, etc. The aim of this is to
engage in only ethical investing, and moral purchasing.

In theory, Islamic banking is an example of full-reserve banking, with banks

achieving a 100% reserve ratio.[20] However, in practice, this is not the case, and
no examples of 100 percent reserve banking are observed.[21]

Islamic banks have grown recently in the Muslim world but are a very small
share of the global banking system. Micro-lending institutions founded by
Muslims, notably Grameen Bank, use conventional lending practices and are
popular in some Muslim nations, especially Bangladesh, but some do not
consider them true Islamic banking. However, Muhammad Yunus, the
founder of Grameen Bank and microfinance banking, and other supporters of
microfinance, argue that the lack of collateral and lack of excessive interest in
micro-lending is consistent with the Islamic prohibition of usury
(riba).[22][23]
5.1.4 SHARIAH ADVISORY COUNCIL/CONSULTANT
Islamic banks and banking institutions that offer Islamic banking products and
services (IBS banks) are required to establish a Shariah Supervisory Board
(SSB) to advise them and to ensure that the operations and activities of the bank
comply with Shariah principles.

On the other hand, there are also those who believe that no form of banking can
ever comply with the Shariah.[24]

In Malaysia, the National Shariah Advisory Council, which additionally set up

at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the
operations of these institutions and on their products and services. (See: Islamic
banking in Malaysia). In Indonesia the Ulama Council serves a similar purpose.

A number of Shariah advisory firms (either standalone or subsidiaries of larger

financial groups) have now emerged to offer Shariah advisory services to the
institutions offering Islamic financial services. Issue of independence,
impartiality and conflicts of interest have also been recently voiced .WDIBF
World Database for Islamic Banking and Finance has been Developed to
provide complete knowledge about all the websites related to this type of
banking.
5.2 ISLAMIC FINANCIAL TRANSACTION TERMINOLOGY
5.2.1 BAI' AL-INAH (SALE AND BUY-BACK AGREEMENT)
The financier sells an asset to the customer on a deferred-payment basis, and
then the asset is immediately repurchased by the financier for cash at a discount.
The buying back agreement allows the bank to assume ownership over the asset
in order to protect against default without explicitly charging interest in the
event of late payments or insolvency. Some scholars believe that this is not
compliant with Shariah principles.[25][26] There is an another definition of this bai
as per the Imam ibn-e-Hijam if three persons are involved in this Sale (buy back
finance) than, this bai Inah change into bai Tawarruq. He defines this bai as ;
suppose Zhaid is in need of 2000 Rs, and he(Zhaid)goes to Jamshed for
2000Rs,In answer to this Jamshed says I will not give u qard (Loan)instead u
can buy this item for Rs 2500 from me,so Zhaid buys this item from Jamshed
for Rs 2500,immediately Aslam (3rd)person buys the same item from Zhaid for
Rs 2000 and take the possession of the item and handover the item to Seller i.e
(Jamshed) the amount which is due to be paid to Zhaid by Aslam is now
referred to seller no 1 i.e Jamshed , Jamshed after receiving back the same item
from Aslam(which was sold to Zhaid for 2500)pays Zhaid Rs 2000 and writes
Rs 2500 in his book against Zhaid.In this way Jamshed earns a interest of Rs
500 This is termed as bai Tawarruq .

5.2.2 BAI' BITHAMAN AJIL (DEFERRED PAYMENT SALE)

This concept refers to the sale of goods on a deferred payment basis at a price,
which includes a profit margin agreed to by both parties. This is similar to
Murabahah, except that the debtor makes only a single installment on the
maturity date of the loan. By the application of a discount rate, an Islamic bank
can collect the market rate of interest
5.2.3 BAI MUAJJAL (CREDIT SALE)
Literally bai muajjal means a credit sale. Technically, it is a financing technique
adopted by Islamic banks that takes the form of murabaha muajjal. It is a
contract in which the bank earns a profit margin on the purchase price and
allows the buyer to pay the price of the commodity at a future date in a lump
sum or in installments. It has to expressly mention cost of the commodity and
the margin of profit is mutually agreed. The price fixed for the commodity in
such a transaction can be the same as the spot price or higher or lower than the
spot price. (Deferred-payment sale)

5.2.4MUSHARAKAH
Musharakah ( joint venture with capital )is an arrangement or agreement
between two or more partners ,whereby each partner provides funds to be used
in a venture. Profits made are shared between the partners according to the
invested capital. In case of loss, each partner looses the capital in the same ratio
.If the Bank is providing capital , same conditions apply. It is this financial risk,
according to the Shariah, that justifies the bank's claim to part of the profit. All
the parnters may or may not participate in carrying out the business. The
parnter/s who is also working, gets greater profit ratio as compared to the
sleeping partner. The Difference b/w Musharkah and Madharaba is that, in
Musharaka, each partner participates with some capital, whereas in Madharaba,
there is a capital provider, ie. a financial institution and an enterpreneur, who
has zero financial participation. Note that Musharaka and Madharaba are
commonly overlapping. [27]

5.2.5MUDARABAH
"Mudarabah" is a special kind of partnership where one partner gives money to
another for investing it in a commercial enterprise. The investment comes from
the first partner who is called "rabb-ul-mal", while the management and work is
an exclusive responsibility of the other, who is called "mudarib".
The Mudarabah (Profit Sharing) is a contract, with one party providing 100
percent of the capital and the other party providing its specialist knowledge to
invest the capital and manage the investment project. Profits generated are
shared between the parties according to a pre-agreed ratio. Compared to
Musharaka, in a Mudaraba only the lender of the money has to take losses.

5.2.6 MURABAHA
This concept refers to the sale of goods at a price, which includes a profit
margin agreed to by both parties. The purchase and selling price, other costs,
and the profit margin must be clearly stated at the time of the sale agreement.
The bank is compensated for the time value of its money in the form of the
profit margin. This is a fixed-income loan for the purchase of a real asset (such
as real estate or a vehicle), with a fixed rate of profit determined by the profit
margin. The bank is not compensated for the time value of money outside of the
contracted term (i.e., the bank cannot charge additional profit on late payments);
however, the asset remains as a mortgage with the bank until the default is
settled.

This type of transaction is similar to rent-to-own arrangements for furniture or

appliances that are very common in North American stores.

5.2.7 MUSAWAMAH
Musawamah is the negotiation of a selling price between two parties without
reference by the seller to either costs or asking price. While the seller may or
may not have full knowledge of the cost of the item being negotiated, they are
under no obligation to reveal these costs as part of the negotiation process. This
difference in obligation by the seller is the key distinction between Murabaha
and Musawamah with all other rules as described in Murabaha remaining the
same. Musawamah is the most common type of trading negotiation seen in
Islamic commerce.
5.2.8 BAI SALAM
Bai salam means a contract in which advance payment is made for goods to be
delivered later on. The seller undertakes to supply some specific goods to the
buyer at a future date in exchange of an advance price fully paid at the time of
contract. It is necessary that the quality of the commodity intended to be
purchased is fully specified leaving no ambiguity leading to dispute. The
objects of this sale are goods and cannot be gold, silver, or
currencies based on these metals. Barring this, Bai Salam covers almost
everything that iscapable of being definitely described as to quantity, quality,
and workmanship.
5.2.8.1 BASIC FEATURES AND CONDITIONS OF SALAM

1. The transaction is considered Salam if the buyer has paid the purchase
price to the seller in full at the time of sale. This is necessary so that the
buyer can show that they are not entering into debt with a second party in
order to eliminate the debt with the first party, an act prohibited under
Sharia. The idea of Salam is to provide a mechanism that ensures that the
seller has the liquidity they expected from entering into the transaction in
the first place. If the price were not paid in full, the basic purpose of the
transaction would have been defeated. Muslim jurists are unanimous in
their opinion that full payment of the purchase price is key for Salam to
exist. Imam Malik is also of the opinion that the seller may defer
accepting the funds from the buyer for two or three days, but this delay
should not form part of the agreement.
2. Salam can be effected in those commodities only the quality and quantity
of which can be specified exactly. The things whose quality or quantity is
not determined by specification cannot be sold through the contract of
salam. For example, precious stones cannot be sold on the basis of salam,
because every piece of precious stones is normally different from the
other either in its quality or in its size or weight and their exact
specification is not generally possible.
3. Salam cannot be effected on a particular commodity or on a product of a
particular field or farm. For example, if the seller undertakes to supply
the wheat of a particular field, or the fruit of a particular tree, the salam
will not be valid, because there is a possibility that the crop of that
particular field or the fruit of that tree is destroyed before delivery, and,
given such possibility, the delivery remains uncertain. The same rule is
applicable to every commodity the supply of which is not certain.
4. It is necessary that the quality of the commodity (intended to be
purchased through salam) is fully specified leaving no ambiguity which
may lead to a dispute. All the possible details in this respect must be
 5. It is also necessary that the quantity of the commodity is agreed upon in
unequivocal terms. If the commodity is quantified in weights according
to the usage of its traders, its weight must be determined, and if it is
quantified through measures, its exact measure should be known. What is
normally weighed cannot be quantified in measures and vice versa.
6. The exact date and place of delivery must be specified in the contract.
7. Salam cannot be effected in respect of things which must be delivered at
spot. For example, if gold is purchased in exchange of silver, it is
necessary, according to Shari'ah, that the delivery of both be
simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for
barley, the simultaneous delivery of both is necessary for the validity of
sale. Therefore the contract of salam in this case is not allowed.

5.2.9 HIBAH (GIFT)

This is a token given voluntarily by a debtor to a creditor in return for a
loan. Hibah usually arises in practice when Islamic banks voluntarily pay
their customers a 'gift' on savings account balances, representing a
portion of the profit made by using those savings account balances in
other activities.

It is important to note that while it appears similar to interest, and may, in

effect, have the same outcome, Hibah is a voluntary payment made (or
not made) at the bank's discretion, and cannot be 'guaranteed.' However,
the opportunity of receiving high Hibah will draw in customers' savings,
providing the bank with capital necessary to create its profits; if the
ventures are profitable, then some of those profits may be gifted back to
its customers as Hibah.[28]
5.2.10 IJARAH
Ijarah means lease, rent or wage. Generally, Ijarah concept means selling
the benefit of use or service for a fixed price or wage. Under this concept,
the Bank makes available to the customer the use of service of assets /
equipments such as plant, office automation, motor vehicle for a fixed
period and price.
5.2.10.1 ADVANTAGES OF IJARAH
1. Ijarah provides the following advantages to the Lessee:
2. Ijarah conserves the Lessee' capital since it allows up to 100% financing.
3. Ijarah gives the Lessee the right to access the equipment on payment of
the first installment. This is important as it is the access and use (and not
ownership) of equipment that generates income.
4. Ijarah arrangements aid corporate planning and budgeting by allowing the
negotiation of flexible terms
5. Ijarah is not considered Debt Financing so it does not appear on the
Lessee' Balance Sheet as a Liability. This method of "off-balance-sheet"
financing means that it is not included in the Debt Ratios used by bankers
to determine financing limits. This allows the Lessee to enter into other
lease financing arrangements without impacting his overall debt rating.
6. All payments towards Ijarah contracts are treated as operating expenses
and are therefore fully tax-deductible. Leasing thus offers tax-advantages
to for-profit operations.
7. Many types of equipment (i.e computers) become obsolete before the end
of their actual economic life. Ijarah contracts allow the transfer of risk
from the Lesse to the Lessor in exchange for a higher lease rate. This
higher rate can be viewed as insurance against obsolescence.
8. If the equipment is used for a relatively short period of time, it may be
more profitable to lease than to buy.
9. If the equipment is used for a short period but has a very poor resale
value, leasing avoids having to account for and depreciate the equipment
under normal accounting principl
5.2.11 IJARAH THUMMA AL BAI' (HIRE PURCHASE)
Parties enter into contracts that come into effect serially, to form a complete
lease/ buyback transaction. The first contract is an Ijarah that outlines the terms
for leasing or renting over a fixed period, and the second contract is a Bai that
triggers a sale or purchase once the term of the Ijarah is complete. For example,
in a car financing facility, a customer enters into the first contract and leases the
car from the owner (bank) at an agreed amount over a specific period. When the
lease period expires, the second contract comes into effect, which enables the
customer to purchase the car at an agreed to price.

The bank generates a profit by determining in advance the cost of the item, its
residual value at the end of the term and the time value or profit margin for the
money being invested in purchasing the product to be leased for the intended
term. The combining of these three figures becomes the basis for the contract
between the Bank and the client for the initial lease contract.

This type of transaction is similar to the contractum trinius, a legal maneuver

used by European bankers and merchants during the Middle Ages to sidestep
the Church's prohibition on interest bearing loans. In a contractum, two parties
would enter into three concurrent and interrelated legal contracts, the net effect
being the paying of a fee for the use of money for the term of the loan. The use
of concurrent interrelated contracts is also prohibited under Shariah Law.
5.2.12 IJARAH-WAL-IQTINA
A contract under which an Islamic bank provides equipment, building, or other
assets to the client against an agreed rental together with a unilateral
undertaking by the bank or the client that at the end of the lease period, the
ownership in the asset would be transferred to the lessee. The undertaking or
the promise does not become an integral part of the lease contract to make it
conditional. The rentals as well as the purchase price are fixed in such manner
that the bank gets back its principal sum along with profit over the period of
lease.
5.2.13 MUSHARAKAH (JOINT VENTURE)
Musharakah is a relationship between two parties or more, of whom contribute
capital to a business, and divide the net profit and loss pro rata. This is often
used in investment projects, letters of credit, and the purchase or real estate or
property. In the case of real estate or property, the bank assess an imputed rent
and will share it as agreed in advance.[27] All providers of capital are entitled to
participate in management, but not necessarily required to do so. The profit is
distributed among the partners in pre-agreed ratios, while the loss is borne by
each partner strictly in proportion to respective capital
contributions. This concept is distinct from fixed-income investing (i.e. issuance
of loans).[citation needed]

5.2.14 QARD HASSAN/ QARDUL HASSAN (GOOD LOAN/BENEVOLENT

LOAN) This is a loan extended on a goodwill basis, and the debtor is only
required to repay theamount borrowed. However, the debtor may, at his or her
discretion, pay an extra amountbeyond the principal amount of the loan
(without promising it) as a token of appreciationto the creditor. In the case
that the debtor does not pay an extra amount to the creditor,this transaction is
a true interest-free loan. Some Muslims consider this to be the only typeof loan
that does not violate the prohibition on riba, since it is the one type of loan
thattruly does not compensate the creditor for the time value of money.[29]
5.2.15 SUKUK (ISLAMIC BONDS)
Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic
equivalent of bond. However, fixed-income, interest-bearing bonds are not
permissible in Islam. Hence, Sukuk are securities that comply with the Islamic
law (Shariah) and its investment principles, which prohibit the charging or
paying of interest. Financial assets that comply with the Islamic law can be
classified in accordance with their tradability and non- tradability in the
secondary markets.
5.2.16 TAKAFUL (ISLAMIC INSURANCE)
Takaful is an alternative form of cover that a Muslim can avail himself against
the risk of loss due to misfortunes. Takaful is based on the idea that what is
uncertain with respect to an individual may cease to be uncertain with respect to
a very large number of similar individuals. Insurance by combining the risks of
many people enables each individual to enjoy the advantage provided by the law
of large numbers.

5.2.17 WADIAH (SAFEKEEPING)

In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits
funds in the bank and the bank guarantees refund of the entire amount of the
deposit, or any part of the outstanding amount, when the depositor demands
it. The depositor, at the bank's
discretion, may be rewarded with Hibah (see above) as a form of appreciation
for the use offunds by the bank.

5.2.18 WAKALAH (POWER OF ATTORNEY)

This occurs when a person appoints a representative to undertake transactions
on his/her behalf, similar to a power of attorney.
5.3 ISLAMIC EQUITY FUNDS
Islamic investment equity funds market is one of the fastest-growing sectors
within the Islamic financial system. Currently, there are approximately 100
Islamic equity funds worldwide. The total assets managed through these funds
currently exceed US$5 billion and is growing by 12–15% per annum. With the
continuous interest in the Islamic financial system, there are positive signs that
more funds will be launched. Some Western majors have just joined the fray or
are thinking of launching similar Islamic equity products.

Despite these successes, this market has seen a record of poor marketing as
emphasis is on products and not on addressing the needs of investors. Over the
last few years, quite a number of funds have closed down. Most of the funds
tend to target high net worth individuals and corporate institutions, with
minimum investments ranging from US$50,000 to as high as US$1 million.
Target markets for Islamic funds vary, some cater for their local markets, e.g.,
Malaysia and Gulf-based investment funds. Others clearly target the Middle
East and Gulf regions, neglecting local markets and have been accused of
failing to serve Muslim communities.

Since the launch of Islamic equity funds in the early 1990s, there has been the
establishment of credible equity benchmarks by Dow Jones Islamic market
index (Dow Jones Indexes pioneered Islamic investment indexing in 1999) and
the FTSE Global Islamic Index Series. The Web site failaka.com monitors the
performance of Islamic equity funds and provide a comprehensive list of the
Islamic funds worldwide.
5.4 ISLAMIC LAWS ON TRADING
The Qur'an prohibits gambling (games of chance involving money) and insuring
ones' health or property (also considered a game of chance). Thehadith, in
addition to prohibiting gambling (games of chance), also prohibits bayu al-
gharar (trading in risk, where the Arabic word gharar is taken to mean "risk" or
excessive uncertainty).

The Hanafi madhab (legal school) in Islam defines gharar as "that whose
consequences are hidden." The Shafi legal school defined gharar as "that whose
nature and consequences are hidden" or "that which admits two possibilities,
with the less desirable one being more likely." TheHanbali school defined it as
"that whose consequences are unknown" or "that which is undeliverable,
whether it exists or not." Ibn Hazm of theZahiri school wrote "Gharar is where
the buyer does not know what he bought, or the seller does not know what he
sold." The modern scholar of Islam, Professor Mustafa Al-Zarqa, wrote that
"Gharar is the sale of probable items whose existence or characteristics are
not certain, due to the risky nature that makes the trade similar to gambling."
There are a number of hadith that forbid trading in gharar, often
giving specific examples of gharhar transactions (e.g., selling the birds in
the sky or the fish in the water, the catch of the diver, an unborn calf in its
mother's womb etc.). Jurists have sought many complete definitions of the term.
They also came up with the concept of yasir (minor risk); a financial transaction
with a minor risk is deemed to be halal (permissible) while trading in non-
minor risk (bayu al-ghasar) is deemed to be haram.[30]

What gharar is, exactly, was never fully decided upon by the Muslim jurists.
This was mainly due to the complication of having to decide what is and is not a
minor risk. Derivatives instruments (such as stock options) have only become
common relatively recently. Some Islamic banks do provide brokerage services
for stock trading.
5.5 MICROFINANCE
Microfinance is a key concern for Muslims states and recently Islamic banks
also. Islamic microfinance tools can enhance security of tenure and contribute to
transformation of lives of the poor.[31] Already, several microfinance institutions
(MFIs) such as FINCA Afghanistan have introduced Islamic-compliant
financial instruments that accommodate sharia criteria.

5.6 CONTROVERSY
In Islamabad, Pakistan, on June 16, 2004: Members of leading Islamist political
party in Pakistan, the Muttahida Majlis-e-Amal (MMA) party, staged a
protest walkout from the National Assembly of Pakistan against what they
termed derogatory remarks by a minority member on interest banking:

Taking part in the budget debate, M.P. Bhindara, a minority MNA [Member of
theNational Assembly]...referred to a decree by an Al-Azhar University's
scholar that bankinterest was not un-Islamic. He said without interest the
country could not get foreign loansand could not achieve the desired progress.
A pandemonium broke out in the house overhis remarks as a number of
MMA members...rose from their seats in protest and tried torespond to Mr
Bhindara's observations. However, they were not allowed to speak on apoint
of order that led to their walkout.... Later, the opposition members were
persuadedby a team of ministers...to return to the house...the government team
accepted the right ofthe MMA to respond to the minority member's remarks
Sahibzada Fazal Karim said the Council of Islamic ideology had decreed that
interest in all its forms was haram in anIslamic society. Hence, he said, no
member had the right to negate this settled issue.[32]

Some Islamic banks charge for the time value of money, the common economic
definition of Interest (Riba). These institutions are criticized in some quarters of
the Muslim community for their lack of strict adherence to Sharia.
The concept of Ijarah is used by some Islamic Banks (the Islami Bank in
Bangladesh, for example) to apply to the use of money instead of the more
accepted application of supplying goods or services using money as a vehicle.
A fixed fee is added to the amount of the loan that must be paid to the bank
regardless if the loan generates a return on investment or not. The reasoning is
that if the amount owed does not change over time, it is profit and not interest
and therefore acceptable under Sharia.

Islamic banks are also criticized by some for not applying the principle of
Mudarabah in an acceptable manner. Where Mudarabah stresses the sharing of
risk, critics point out that these banks are eager to take part in profit-sharing but
they have little tolerance for risk. To some in the Muslim community, these
banks may be conforming to the strict legal
interpretations of Shari’ a but avoid recognizing the intent that made the law
necessary in the first place.

The majority of Islamic banking clients are found in the Gulf States and in
developed countries. With 60% of Muslims living in poverty, Islamic banking is
of little benefit to the general population. The majority of financial institutions
that offer Islamic banking services are majority owned by Non-Muslims. With
Muslims working within these organizations being employed in the marketing
of these services and having little input into the actual day to day management,
the veracity of these institutions and their services are viewed with suspicion.
One Malaysian Bank offering Islamic based investment funds was found to
have the majority of these funds invested in the gaming industry; the managers
[33]
administering these funds were non Muslim. These types of stories
contribute to the general impression within the Muslim populace that Islamic

banking is simply another means for banks to increase profits through growth of
deposits and that only the rich derive benefits from implementation of Islamic
Banking principles.
5.7 SUKUK
Sukuk (Arabic: ‫صكوك‬, plural of‫ صك‬Sakk, "legal instrument ,deed ,check )"is the
Arabic name for a financial certificate, but commonly refers to the Islamic
equivalent of bond. Since fixed income, interest bearing bonds are not
permissible in Islam, Sukuk securities are structured to comply with the Islamic
law and its investment principles, which prohibits the charging, or paying of
interest. Financial assets that comply with the Islamic law can be classified in
accordance with their tradability and non-tradability in the secondary markets.

Conservative estimates by the Ten-Year Framework and Strategies suggest that

over $1.2 trillion of assets are being managed according to Islamic investment
principles.[1] Such principles form part of Shari'ah, which is often understood to
be ‘Islamic Law’, but it is actually broader than this in that it also encompasses
the general body of spiritual and moral obligations and duties in Islam. In the
Persian Gulf and Asia, Standard & Poor's estimates that 20 per cent of banking
customers would now spontaneously choose an Islamic financial product over a
conventional one with a similar risk-return profile.
Sukuk financing resembles the similarly religious concept of gemach or Jewish
interest-free loans, which subscribe to both the positive Torah commandment of
lending money and the Torah prohibition against charging interest on a loan.
Such religiously-inspired non- interest loan systems can be quite mystifying for
outsiders. A good analogy is one of ethical or green investing. Here the universe
of investable securities is limited by certain criteria based on moral and ethical
considerations. Islamic finance is also a subset of the global market and there is
nothing that prevents the conventional investor from participating in the Islamic
market
5.7.1 TERMINOLOGY
Although often written in English media as "sukuk" (singular) and "sukuks"
(plural), sukuk is actually a plural word. The correct Arabic forms are "sakk"
(singular) and "sukuk" (plural).

5.7.2 HISTORY
In classical period Islam Sakk (sukuk) – which is cognate with the European
root "cheque" from Persian '(‫ )چک‬pronounced check' - meant any
document representing a contract or conveyance of rights, obligations or
monies done in conformity with the Shariah. Empirical evidence shows
that sukuk were a product extensively used during medieval Islam for the
transferring of financial obligations originating from trade and other
commercial activities.

The essence of sukuk, in the modern Islamic perspective, lies in the concept of
asset monetization - the so called securitisation - that is achieved through the
process of issuance of sukuk (taskeek). Its great potential is in transforming an
asset’s future cash flow into present cash flow. Sukuk may be issued on existing
as well as specific assets that may become available at a future date.

5.7.3PRINCIPLE
Sukuk can be structured alongside different techniques. While a conventional
bond is a promise to repay a loan, Sukuk constitutes partial ownership in a debt
(Sukuk Murabaha),
asset (Sukuk Al Ijara), project (Sukuk Al Istisna), business (Sukuk Al
Musharaka), or investment (Sukuk Al Istithmar).

Most commonly used Sukuk structures replicate the cash flows of conventional
bonds. Such structures are listed on exchanges, commonly
Luxembourg Stock Exchange and London Stock Exchange in Europe, and
made tradable through conventional organisations like Euroclear or
Clearstream. A key technique to achievecapital protection without amounting to
a loan is a binding promise to repurchase certain assets, e.g. in the case of
Sukuk Al Ijara, by the issuer. In the meantime a rent is being paid, which is often
benchmarked to an interest rate like LIBOR (which is disliked by Sharia
Scholars).

From a Sharia perspective, certificates of debt are not tradable (although a

different view is held by many in Malaysia), and certain structuring elements for
Sukuk Al Musharaka, Sukuk Al Mudaraba and Sukuk Al Istithmar faced
severe criticism in late 2007 by Sheik Muhammad Taqi Usmani, followed by
a meeting of the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI).

The most accepted structure, which is tradable, is thereafter the Sukuk Al Ijara.
Debt certificates can be only bought before the finance occurs and then held to
maturity from an Islamic perspective, which is critical on debt trading at market
value regarding any difference to be like the prohibited Riba (interest on
money).

From a Sharia perspective, certificates of debt are not tradable (although a

different view is held by many in Malaysia), and certain structuring elements for
Sukuk Al Musharaka, Sukuk Al Mudaraba and Sukuk Al Istithmar faced
severe criticism in late 2007 by Sheik Muhammad Taqi Usmani, followed by
a meeting of the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI).

The most accepted structure, which is tradable, is thereafter the Sukuk Al Ijara.
Debt certificates can be only bought before the finance occurs and then held to
maturity from an Islamic perspective, which is critical on debt trading at market
value regarding any difference to be like the prohibited Riba (interest on
money).
From a Sharia perspective, certificates of debt are not tradable (although a
different view is held by many in Malaysia), and certain structuring elements for
Sukuk Al Musharaka, Sukuk Al Mudaraba and Sukuk Al Istithmar faced
severe criticism in late 2007 by Sheik Muhammad Taqi Usmani, followed by
a meeting of the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI).

The most accepted structure, which is tradable, is thereafter the Sukuk Al Ijara.
Debt certificates can be only bought before the finance occurs and then held to
maturity from an Islamic perspective, which is critical on debt trading at market
value regarding any difference to be like the prohibited Riba (interest on
money).

This principle is widely understood to mean uncertainty in the contractual terms

and/or the uncertainty in the existence of an underlying asset in a contract,
which causes issues for Islamic scholars when considering the application of
derivatives. Sharia also incorporates the concept of maslahah or "public
benefit", denoting that if something is overwhelmingly in the public good, it
may yet be transacted – and so hedging or mitigation of avoidable
business risks, may fall into this category, but there is still much discussion yet
to come on this issue.
5.7.4 SUKUK SECONDARY MARKET
Sukuk securities tend to be bought and held and, as a result, little of the
securities enter the secondary market (allowing them to be traded).
Furthermore, only public Sukuk are able to enter this market, as they are listed
on stock exchanges.

The secondary market whilst developing remains a niche segment with virtually
all of the trading done at the institution level. The size of the secondary market
remains unknown, though LMC Bahrain state they traded $55.5 million of
Sukuk in 2007.[2] The European Islamic Investment Bank (EIIB) in an interview
published on Sukuk.net stated "Secondary market trading volume has contracted
significantly in the first half of 2008 when compared to 2007 where Sukuk with
a nominal value of approximately $0.5bn was traded."[3]

"Sukuk bonds" are designed to get around religious laws banning the payment
of interest for money lending. But one of the most volatile debts in the Dubai
World standstill is a
$3.5bn Islamic bond due to be repaid in December.

HSBC estimates there is $822bn Islamic finance debt outstanding in the world.[4]

5.7.5CONTROVERSY
Sukuk are widely regarded as controversial due to their perceived purpose of
evading the restrictions on Riba. Conservative scholars do not believe that this
is effective, citing the fact that a Sakk (Islamic bond) effectively requires
payment for the time-value of money. This can be regarded as the fundamental
test of interest. Sukuk offer investors fixed return on their investments which is
also similar in appearance to interest in that the investor's return is not
necessarily dependent on the risks of that particular venture. However, banks
that issue Sukuk are investing in assets--not currency. The return on such assets
takes the form of rent, and is evenly spread over the rental period. The
productivity of the asset forms the basis of the fixed income stream and the
return on investment. Given that there is an asset underlying the value of the
certificate, there may be, depending on the value of the asset, more security for
the investors involved, accounting for the additional appeal of Sukuk as a
method of financing for investors.

Outline of Lectures on Islamic Banking and Finance

5.7.6THE FOUNDATIONS
From its beginning, Islam gave a positive approach to wealth creation,
recognized private property, and emphasized fulfillment of contracts and fair
dealings. It set limits to freedom of enterprise designed to protect similar
freedom of other individuals and protect social interest. Prohibition of interest is
one of those limits as well as prohibition of gambling, fraud and hoarding. In
early Islamic history, Muslims managed their finances with the help of such
contracts as partnership, profit sharing, and prepaid future contracts. When
Muslims came out of colonial rule in mid-twentieth century, they adapted these
contracts into a new way of financial intermediation and investment
management.
5.7.7 RECENT HISTORY
The first modern theoretical literature on Islamic banking appeared in Urdu,
Arabic, and English from the 1940’s through the 60’s. Modest practical steps in
the 1960’s were followed by the establishment of several Islamic banks in the
private sector in the 1970’s. The Islamic Development Bank was
established in 1975. During the 1980’s, Pakistan, Iran, Sudan, and
Malaysia adopted the new system
officially. Indonesia too launched an Islamic Bank in the 90’s. Many
conventional banks started offering interest free Islamic products and some
even opened Islamic branches. Currently, there are approximately 200 Islamic
financial institutions managing over 100 billion dollars in deposits and funds
across the world.

5.7.8 ADVANTAGES AND DISADVANTAGES

The third lecture will consider two recent changes in the financial environment:
1) the decline in financial intermediation and ascendance of aggressive

investment management; and 2) worldwide financial integration. In principle

both are advantageous for Islamic finance, but in practice they pose great
challenges. Current research in risk management in Islamic framework is very
underdeveloped. However, the apparent

Q4. IF AN ISLAMIC BANK PAYS YOU LESS AS COMPARED TO

CONVENTIONALBANK, WOULD YOU STILL GO FOR IT?
1. YES
2. NO

Q5. IF AN ISLAMIC BANK COMES TO YOUR DOORSTEP, WHAT

WOULD BE YOURPOSITION?
1. I WILL PUT ALL MY MONEY IN AN
ISLAMIC BANKI WILL PUT ONLY A
PART OF MY MONEY
2. I WILL NOT PARK MY MONEY AT ALL
3. I WILL WAIT & WATCH BEFORE DECIDING TO INVEST

Q6. WHAT IS YOUR LEVEL OF FAITH ON ISLAMIC BANKING?

1. MAXIMUM
2. SOMEWHAT MORE
3. TO AN EXTENT
4. SOMEWHAT LESS
5. LEAST
Q7. ISLAMIC BANKING IS RECESSION-PROOF AND HENCE
LEAST RISKY. HOW LIKELY THIS STATEMENT DOES LEADS TO
AN INCREASE IN THE FEELING OF ASSOCIATION WITH AN
ISLAMIC BANK?
1. MAXIMUM
2. SOMEWHAT MORE
3. TO AN EXTENT
4. SOMEWHAT LESS
5. LEAST

Q8. HOW MUCH IMPORTANCE DOES ISLAMIC BANKING HAVE IN YOUR

MIND?
1. MAXIMUM
2. SOMEWHAT MORE
3. TO AN EXTENT
4. SOMEWHAT LESS
5. LEAST

Q9. WHAT IS MOST IMPORTANT TO YOU REGARDING A BANK?

1. RETURNS/INTEREST
2. SERVICES
3. POLICY/ETHICS
4. CONVINIENCE/NEARNESS
5. OTHERS(PLEASE SPECIFY)
6 PRIMARY RESEARCH
6.1 BASIC DESCRIPTIVE STATISTICS
The basic descriptive statistics explains the various results of the project
NCY OF A AR NE S

which are vital to explain the final conclusions. The descriptive statistics
along with the questions posed is asfollows -
6.1.1 Q1:
DO YOU KNOW ISLAMIC BANKING ALL IN ALL?
1. YES
2. TO SOME EXTENT
3. HAVE HEARD OF IT
4. NO-WHAT IS IT?

COMBINED
AWARENESS RESULT
7
0
6
0
TO HAVE NO-
SOME HEARD WHAT IS
COMBINED 5

COMBINED
12
YES
13 36
TO SOME
39 EXTENT

The combined results shows that a maximum of respondents ( 39%+36%=

75%) believe that they have a fair idea about Islamic Banking .This may be due
to the fact that most of the respondents belonged to high socio-economic class
FREQUENCY OF AWARENESS OF

with good education background.

MUSLIMS ABOUT ISLAMIC

(GROUP 1) AWARENESS RESULT

BANKING

50
40
30
20
10
0
YES TO SOME HAVE HEARD NO-WHAT IS
EXTENT OF IT IT?
GROUP 1 AWARENESS RESULT 39 30 6 7
 (GROUP 2) AWARENESS
RESULT
3
0
TO HAVE NO-WHAT
SOME HEARD IS
GROUP 2 AWARENESS 9

(GROUP 2) AWARENESS
YES
24 TO SOME
% 37
EXTENTHAVE

The awareness level of group 1 (48%) was clearly higher than that of group 2
(12%) as far as clear perception of understanding is concerned but If we
consider “to some extent” and “have heard of it” as the middle categories then
they are more in group 2(54%) as compared to group1(44%).
Q2
IF AN ISLAMIC BANK COMES IN INDIA, WHAT WILL MATTER TO YOU THE
MOST?
MIC
NCY F A AR NES OF

1. PRINCIPLES & ETHICS

2. HIGHER RETURNS / LOWER PAYMENT OF LOAN
B N ING

3. LESS RISK
4. NONE

REASON FOR CHOICE(COMBINED)

0
100
FREQUENCY FOR REASON

PRINCI HIGH LESS NO

80 PLES RETURN RISK NE
REASON FOR 60 50 91 31 4
CHOICE(COMBINED)
40

20

REASON FOR CHOICE(COMBINED)

2%

18% PRINCIPLES
28%
HIGH RETURN
LESS RISK
NONE
52%

The combined results show that high return / low payment of loan is the
expectation of people ingeneral (52%). Then comes Principles and lesser risk
in decreasing order.
 REASON FOR CHOICE(GROUP 1)
040
PRINCI HIGH LESS NO
30 PLES RETURN RISK NE
REASON FOR20 35 30 13 4
CHOICE(GROUP 1S)
10

REASON FOR CHOICE(GROUP 1)

5%
PRINCIPLES
16% HIGH RETURN
43%
LESS RISK
36%
NONE

The group 1 shows a high percentage of people voting in favour of principles

(43%) followed byhigh returns which shows that principles matter a lot for
group 1.
 FREQUENCY FOR REASON

REASON FOR CHOICE (GROUP 2)

35
0
30 PRINCI HIGH LESS NO
25
PLES RETURN RISK NE
REASON FOR 20 33 21 2
20
CHOICE (GROUP 2S)
15
10
5

REASON FOR CHOICE (GROUP 2)

3%

26%
28% PRINCIPLES
HIGH RETURN
LESS RISK
NONE

43%

The group 2 results are showing a high tendency towards returns

(43%).followed by principlesand risk in decreasing order.
6.1.3 Q3
HOW LIKELY WOULD YOU PUT YOUR MONEY IN AN ISLAMIC BANK, IF IT
OPENS?
1. MAXIMUM
2. SOMEWHAT MORE
3. TO AN EXTENT
4. SOMEWHAT LESS
5. LEAST

PERCIEVED LIKELIHOOD FOR ISLAMIC BANK

60
50
LIKELIHOOD ACCEPTANCE

40
30
20
10
0
MAXIMUM SOMEWHAT TO AN SOMEWHAT
LESS LEAST
MORE EXTENT
PERCIEVED LIKELIHOOD FOR
ISLAMIC BANK 55 40 24 21 18

PERCIEVED LIKELIHOOD FOR ISLAMIC BANK

12% MAXIMUM
SOMEWHAT MORE
13%
35%
TO AN EXTENT
15%
25% SOMEWHAT LESS
LEAST

The overall effect is more and more people are willing to put their money
positively in anIslamic bank may it be from group 1 or from group 2.This
is because of pareto effect.
 PRINCIPLE PERCEPTION(GROUP 1)
PERCEPTION OF ISLAMIC BANK ON

80
70
PRINCIPLES()

60
50
40
30
20
10
0
YES NO
PRINCIPLE PERCEPTION(GROUP 1) 67 15
PRINCIPLE PERCEPTION(GROUP 1)
18%
YES
NO
82%
 PRINCIPLE PERCEPTION(GROUP 2)
PERCEPTION OF ISLAMIC BANK ON
PRINCIPLES(NON-MUSLIM) 40

35

30

25

20

15

10

0
YES NO
PRINCIPLE PERCEPTION(GROUP 2 1) 38 38

PRINCIPLE PERCEPTION(GROUP 2 )

YES
50% 50%
NO
6.1.4 Q5

INVESTMENT PLAN
70
FREQUENCY OF POSITIONING

60

50
40

30
20
10
0
ALL PART NOT WAIT
INVESTMENT PLAN 26 64 23 45

INVESTMENT PLAN

16%
28%
ALL
PART
NOT
WAIT
15% 41%
FREQUENCY OF POSITION

INVESTMENT PLAN(GROUP 1)
35
30

25
20
15
10

5
0
ALL PA N WA
RT OT IT
INVESTMENT 20 31 5 26
PLAN INVESTMENT PLAN(G ROUP 1)

24%
32% ALL
PART
NOT
WAIT
6%
38%
6.1.5 6

FAITH
80
70
60
FREQUENCY

50
40
30
20
10
0
SOMEWHAT
MAXIMUM TO AN EXTENT SOMEWHAT LESS LEAST
MORE
FAITH 28 76 21 24 9

FAITH

6%
18%
15% MAXIMUM
SOMEWHAT MORE
TO AN EXTENT
13%
SOMEWHAT LESS
LEAST
48%
 FAITH(GROUP
4
FREQUENCY

5
4
0
3
5
3
0
2
5
2
SOMEWHA
MAXIMUM TO AN EXTENT SOMEWHAT LESS LEAST
TMORE
FAITH 10 41 20 9 2

FAIT
3%

11% 12%

MAXIMUM
SOMEWHAT

24% TO AN EXTENT
SOMEWHAT
LEAST
50%
 FAITH(GROUP 2)
35
30
25
FREQUENCY

20
15
10
5
0
TO AN
SOMEWHA SOMEWHA LEAST
MAXIMUM EXTENT
T MORE T LESS
FAITH 9 32 5 21 9

FAITH

12% 12%

MAXIMUM
SOMEWHAT MORE

28% TO AN EXTENT
SOMEWHAT LESS
42% LEAST

6%
6.1.6 Q7

ASSOCIATION
80
70
60
FREQUENCY

50
40
30
20
10
0

SOMEW TO AN SOMEW
MAXIM LEAST
HAT EXTENT HAT
UM
MORE LESS
ASSOCIATION(GROUP 1) 28 76 21 24 9

ASSOCIATION

6%
18%
15% MAXIMUM
SOMEWHAT MORE
TO AN EXTENT
13%
SOMEWHAT LESS
LEAST
48%
 ASSOCIATION(GROUP 1)
45
40
35
FREQUENCY

30
25
20
15
10
5
0
SOMEW TO AN SOMEW
MAXIM LEAST
HAT EXTENT HAT
UM LESS
MORE
ASSOCIATION(GROUP 1) 24 41 16 1 9

ASSOCIATION(GROUP 1)

1%
10%
26% MAXIMUM

18% SOMEWHAT MORE

TO AN EXTENT
SOMEWHAT LESS
LEAST

45%
 ASSOCIATION(GROUP 2)
4%
7%

30% MAXIMUM
SOMEWHAT MORE

30% TO AN EXTENT
SOMEWHAT LESS
LEAST
29%

ASSOCIATION(GROUP 2)
25

20
FREQUENCY

15

10

SOMEW TO AN SOMEW
MAXIM LEAST
HAT EXTENT HAT
UM LESS
MORE
ASSOCIATION(GROUP 2) 23 22 23 3 5
6.1.7 Q8

IMPORTANCE LEVEL
25

20
FREQUENCY

15

10

SOMEW TO AN
MAXIMU SOMEW LEAST
HAT EXTENT
M HAT LESS
MORE
IMPORTANCE LEVEL 23 22 23 3 5

IMPORTANCE LEVEL
4%
7%

30% MAXIMUM
SOMEWHAT MORE

30% TO AN EXTENT
SOMEWHAT LESS
LEAST
29%
 IMPORTANCE LEVEL(GROUP 1)
40
35
30
FREQUENCY

25
20
15
10
5
0
TO AN
MAXIMU SOMEWH SOMEWH LEAST
EXTENT
M AT MORE AT LESS
IMPORTANCE
LEVEL(GROUP 1) 35 29 6 8 4

IMPORTANCE LEVEL(GROUP 1)

5%
10%
MAXIMUM
7% SOMEWHAT MORE
43%
TO AN EXTENT
SOMEWHAT LESS

LEAST
35%
 IMPORTANCE LEVEL(GROUP 2)
30
25
FREQUENCY

20
15
10
5
0
TO AN
MAXIMU SOMEWH SOMEWH LEAST
EXTENT
M AT MORE AT LESS
IMPORTANCE
LEVEL(GROUP 2) 4 27 7 16 22

IMPORTANCE LEVEL(GROUP 2)

5%

29% MAXIMUM
SOMEWHAT MORE
36% TO AN EXTENT
SOMEWHAT LESS
LEAST
21%
9%
 DECIDING FACTOR(GROUP 1)
60

50

40
FREQUENCY

30

20

10

0
RETURNS/INTE CONVINIENCE/
SERVICES POLICY/ETHICS OTHERS
REST NEARNESS
DECIDING FACTOR 0 23 51 4 4

DECIDING FACTOR (GROUP 1)

0%

5% 5%
28% RETURNS/INTEREST
SERVICES
POLICY/ETHICS
CONVINIENCE/NEARNESS
OTHERS
62%
 DECIDING FACTOR
80
70
60
FREQUENCY

50
40
30
20
10
0
RETURNS CONVINI
POLICY/E
/INTERES SERVICES ENCE/NE OTHERS
THICS
T ARNESS
DECIDING FACTOR 13 52 72 20 1

DECIDING FACTOR
1%

8%
13%
RETURNS/INTEREST
SERVICES
33% POLICY/ETHICS
CONVINIENCE/NEARNESS

45% OTHERS
6.2 RESULTS OF INTERVIEW WITH IMAMS
QUE

We Interview approximately 12 imams from different Masajids in Delhi region .

1. Almost of them expressed substantial interest and have agreed to the fact
that they would beenthused to the fact that an Islamic bank would open up
in India, If at a large level.
2. 3 of them showed apprehension due to cases of fraud for example the case
of Al-Falah bank in the late 1990’s which was opened with the concept of
Islamic banking but later ran away with allthe money.
3. The overall result of the interview points towards a great success and
support for a large scaleIslamic banking intervention from the Imams of
masjids on the basis of this sample survey

Subject to the conditions that it had to suffer initial scrutiny of 25% of the
sample for managingproper ethical standards.
6.3 SPECIAL RESULTS FROM SPSS

Group
Statistics

R N Mean Std. Std. Error

A Deviation Mean
Q1 MUSLIM 69 1.43 .49936 .06012
48
NON-MUSLIM 89 1.03303 .10950
2.43
82
Q2 MUSLIM 69 1.81 .77223 .09297
16
NON-MUSLIM 89 .81686 .08659
1.94
38
Q3 MUSLIM 69 2.00 .84017 .10114
00
NON-MUSLIM 89 1.61502 .17119
2.73
03
Q4 MUSLIM 69 1.11 .32250 .03882
59
NON-MUSLIM 89 .49744 .05273
1.42
70
Q5 MUSLIM 69 2.34 1.18602 .14278
78
NON-MUSLIM 89 .95587 .10132
2.70
79
Q6 MUSLIM 69 2.17 .72673 .08749
39
NON-MUSLIM 89 1.31756 .13966
2.62
92
Q7 MUSLIM 69 1.76 .66741 .08035
81
NON-MUSLIM 89 1.10679 .11732
2.15
73
Q8 MUSLIM 69 1.79 1.09248 .13152
71
NON-MUSLIM 89 1.39027 .14737
3.10
11
Q9 MUSLIM 69 2.76 .62178 .07485
81
NON-MUSLIM 89 .95360 .10108
2.55
06

The mean comparision will give you a brief narrative of the psychology of
muslims and non-muslims.Please check the numbering of options as they may
be reverse.
1 Equal
varian
ces 44.063 .000 -7.421 156 .000 -1.00342
assu
med

Equal
varian
ces
-8.033 133.362 .000 -1.00342
not
assu
med

Q2 Equal
varian
ces .000 .988 -1.033 156 .303 -.13223
assu
med

Equal
varian
ces
-1.041 149.953 .300 -.13223
not
assu
med

Q3 Equal
varian
ces 104.247 .000 -3.414 156 .001 -.73034
assu
med

Equal
varian
ces
-3.673 138.345 .000 -.73034
not
assu
med

Q4 Equal
varian
ces 105.704 .000 -4.509 156 .000 -.31102
assu
med
 Equ
al
vari
an
ces
not
assu
med
Q5 Equ
al
vari
an
ces 5.333 .022 -2.113 156 .036 -.36004
ass
u
me
d
Equ
al
vari
-2.056 128.543 .042 -.36004
an
ces
not
assu
med
Q6 Equ
al
vari
an
ces 50.585 .000 -2.581 156 .011 -.45530
ass
u
me
d
Equ
al
 vari -2.763 142.265 .006 -.45530
an
ces
not
assu
med
Q7 Equ
al
vari
an 14.539 .000 -2.579 156 .011 -.38919
ces
assu
med
 Equ
al
vari
-2.737 147.824 .007 -.38919
an
ces
not
assu
med
Q8
Equ
al
.000 -6.406 156 .000 -1.30402
varian
ces 19.349
ass
u
me
d
Equ
al
vari
-6.602 155.965 .000 -1.30402
an
ces
not
assu
med
Q9 Equ
al
vari
an
ces 23.123 .000 1.643 156 .102 .21755
ass
u
me
d
Equ
al
vari
1.730 151.874 .086 .21755
an
ces
not
assu
med

First test the levins coeeficient , if it is significant.then test “equal variances not
assumed” if it issignificant too ,then the group is affecting their factors like
Q9,Q8,Q7 etc.
7 SECONDARY RESEARCH

7.1 VARIOUS VEIWS BY RENOWNED SCHOLARS-

Some of the few renowned scholars who have unstoppably produced their own
views in favour as well as against Islamic Banking are hereby discussed with only
their final verdicts and inclinations. The introduction of these scholars has not
been included as they are so well knownthat they don’t need an introduction. No
significant difference was found in the practices of the four maslaks regarding
banking accept some of the interpretations of A-Hadiths ,So we have notincluded
the small sectoral differences in this study as they were not found to be so
significant too. The scholars are -

DR. ZAKIR NAIK – “There is no other country like Saudi Arabia in the world. He
alsoapplauded the system of Islamic interest-free banking system in various
countries”
http://www.islamicity.com/forum/forum_posts.asp?TID=10506

But he has also shown some apprehension on the methods adopted by some of
the banks practicing Islamic banking. He still is in support of the concept but
have advised to use 100%ethics. He also laid emphasis on not using the similar
profit rates as that of the prevailing conventional interest rates.
http://www.youtube.com/watch?v=Aau1P3lITKc

SHEIKH IMRAN HOSEIN – A renowned “Islamic finance and international

relations” is very harsh on the present day practice of Islamic banking and asks to
refrain from the same but still clarifies some basic features of banking which can
be used for the same. He calls it a kind of deception too. He is one of the harshest
critiques of Islamic banking. This video has been seen bythe people all around
20000 (approx.) and is increasingly seen.
http://www.youtube.com/watch?v=apr4Wju62XY

TAKI USMANI – A world renowned Mufti and scholar of Islamic finance is

pushing Islamic banking to all corners of the world. The most comprehensive
explanations have been given byhim in a study with deloitte.

http://www.deloitte.com/view/en_XD/xd/viewpoint/071c30373e997210VgnVCM10
0000ba42f0 0aRCRD.htm
MUHAMMAD S AL-MUNAJJID - Has presented a balanced view on Islamic
banking by favoring those who are on the right path and prohibiting those who are
on the wrong path But hehaven’t described the right and wrong financial paths in
his writings and left it on the discretion of the readers only. He however has given
substantial details on the use of credit cards which is agreat insight .

According to him, there is nothing wrong with using a credit card if it is free of
the followingthings that are forbidden according to shariah:

1- Stipulating payment of interest or a penalty in the event of late payment.

2- Charging fees for issuing an uncovered card that are greater than the
actual costsinvolved.

3- Charging a percentage of money withdrawn if the card is not covered. It is

permissible tocharge the actual costs only; anything more than that is riba.

4- Buying gold, silver and other currencies with it.

5- Seller adding a percentage that the bank requires him to take from the
purchaser, withoutthe purchaser being aware of that.

-http://www.islam-qa.com/en/ref/105062/islamic%20banking
8 RECOMMENDATIONS ANDCONCLUSIONS

But he has also shown some apprehension on the methods adopted by some of
the banks practicingIslamic banking. He still is in support of the concept but
have advised to use 100%ethics. He also laid emphasis on not using the
similar profit rates as that of the prevailing conventional interest rates.

Some of the few renowned scholars who have unstoppably produced their own
views in favour as well as against Islamic Banking are hereby discussed with
only their final verdicts and inclinations. The introduction of these scholars has
not been included as they are so well knownthat they don’t need an introduction.
No significant difference was found in the practices of the four maslaks
regarding banking accept some of the interpretations of A-Hadiths ,So we have
notincluded the smallsectoral differences in this study as they were not found to
be so significant too. The scholars are

MUHAMMAD S AL-MUNAJJID - Has presented a balanced view on Islamic

banking by favoringthose who are on the right path and prohibiting those who
are on the wrong path But hehaven’t described the right and wrong financial
paths in his writings and left it on the discretion of the readers only. He
however has given substantial details on the use of credit cards which is agreat
insight
9 APPENDIX 1
Ijara: Leasing.

Istisna: Salam contracts applied to manufacturers, with the possibility of payment

in installments.

Mudaraba: Profit-sharing between financier and entrepreneur.

Murabaha: A sale agreement under which the seller purchases goods desired by
the buyer and sells it to them at an agreed marked up price, payment
being generally deferred. Also referred to as Bay’ Muajjal or Bay’ bi
Thaman Aajil.

Musharika: Partnership; all business partners supply capital and participate in

management.

Riba: Interest; payment over and above the sum borrowed. Also covers
exchange ofunequal quantities of similar fungibles in a barter
transaction.

Salam: Payment on the spot for goods to be delivered in the future

with the price being agreed now (e.g. paying now for wheat that is yet
to be grown). This is similar to a commodity forward.

Shariah: Refers to divine guidance as given by the Qur’an and the example of
Prophet Muhammad and embodies all aspects of the Islamic faith,
including beliefs and practices.
Urboon: Depositing small fraction of price in a deal to be concluded in the
future. It binds the seller to wait but allows the buyer to back out of
the deal, with the seller keeping the deposit.
SOME MORE TERMS
Amanah:
Trust, with associated meanings of trustworthiness, faithfulness and honesty. As an
important secondary meaning, the term also identifies a transaction where one
party keeps another's funds or property in trust. This is in fact the most widely
understood and used application of the term, and has a long history of use in
Islamic commercial law. By extension, the term can also be used to describe
different financial or commercial activities such as deposit taking, custody or goods
on consignment.

Arbun:

Earnest money/Down payment; a non-refundable deposit paid by the client (buyer)

to the seller upon concluding a contract of sale, with the provision that the contract
will be completed during the prescribed period.

Gharar:
Uncertainty. One of three fundamental prohibitions in Islamic finance (the other
two being riba and maysir). Gharar is a sophisticated concept that covers certain
types of uncertainty or contingency in a contract. The prohibition on gharar is often
used as the grounds for criticism of conventional financial practices such as short
selling, speculation and derivatives.
Islamic banking:
Financial services that meet the requirements of the Shariah, or Islamic law. While
designed to meet the specific religious requirements of Muslim customers, Islamic
banking is not restricted to Muslims: both the financial services provider and the
customer can be non-Muslim as well as Muslim. Also called Islamic finance or
Islamic financial services.

Ijara:
An Islamic lease agreement. Instead of lending money and earning interest, Ijarah
allows the bank to earn profits by charging rentals on the asset leased to the
customer. Ijarah wa iqtinah extends the concept of ijarah to a hire and purchase
agreement.

Maysir:
Gambling. One of three fundamental prohibitions in Islamic finance (the other two
being riba and gharar). The prohibition on maysir is often used as the grounds for
criticism of conventional financial practices such as speculation, conventional
insurance and derivatives.

Mudaraba:
A Mudarabah is an Investment partnership, whereby the investor (the Rab ul Mal)
provides capital to another party/entrepreneur (the Mudarib) in order to undertake a
business/investment activity. While profits are shared on a pre-agreed ratio, loss of
investment is born by the investor only. The mudarib loses its share of the expected
income.
Mudarib:
The mudarib is the entrepreneur or investment manager in a mudarabah who
invests the investor's funds in a project or portfolio in exchange for a share of the
profits. For example, a mudarabah is essentially similar to a diversified pool of
assets held in a Discretionary Asset Management Portfolio.

Murabaha:
Purchase and resale. Instead of lending out money, the capital provider purchases
the desired commodity (for which the loan would have been taken out) from a third
party and resells it at a predetermined higher price to the capital user. By paying
this higher price over instalments, the capital user has effectively obtained credit
without paying interest.
Musharkah
Profit and loss sharing. It is a partnership where profits are shared as per an agreed
ratio whereas the losses are shared in proportion to the capital/investment of each
partner. In a Musharakah, all partners to a business undertaking contribute funds
and have the right, but not the obligation, to exercise executive powers in that
project, which is similar to a conventional partnership structure and the holding of
voting stock in a limited company. This equity financing arrangement is widely
regarded as the purest form of Islamic financing.
Riba:
Interest. The legal notion extends beyond just interest, but in simple terms riba
covers any return of money on money - whether the interest is fixed or floating,
simple or compounded, and at whatever the rate. Riba is strictly prohibited in the
Islamic tradition.
Shariah:
Islamic law as revealed in the Quran and through the example of Prophet
Muhammad (PBUH). A Shariah compliant product meets the requirements of
Islamic law. A Shariah board is the committee of Islamic scholars available to an
Islamic financial institution for guidance and supervision in the development of
Shariah compliant products.
Shariah advisor:
An independent professional, usually a classically trained Islamic legal scholar,
that advises an Islamic bank on the compliance of its products and services with the
Shariah, or Islamic law. While some Islamic banks consult individual Shariah
advisors, most establish a committee of Shariah advisors (often know as a Shariah
board or Shariah committee).

Shariah compliant:
An act or activity that complies with the requirements of the Shariah, or Islamic
law. The term is often used in the Islamic banking industry as a synonym for
"Islamic" for example, Shariah compliant financing or Shariah compliant
investment.

Sukuk:
Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic
equivalent of bond. However, fixed income, interest bearing bonds are not
permissible in Islam, hence Sukuk are securities that comply with the Islamic law
and its investment principles, which prohibits the charging, or paying of interest.
Sukuk is a certificate of equal value representing undivided shares in ownership of
tangible assets, usufruct and services or (in the ownership of) the assets of
particular projects or investment activity.

Takaful:
Islamic insurance. Structured as charitable collective pool of funds based on the
idea of mutual assistance, takaful schemes are designed to avoid the elements of
conventional insurance (ie, interest and gambling) that are problematic for
Muslims.
Tawarruq:
Reverse murabahah. As used in personal financing, a customer with a genuine need
buys something on credit from the bank on a deferred payment basis and then
immediately resells it for cash to a third party. In this way, the customer can obtain
cash without taking aninterest-based

lo
10 APPENDIX 2

QUESTIONNAIRE ON ISLAMIC BANKING

INFO.1. NAME
INFO.2. AGE
INFO.3.GENDER
INFO.4. RELIGION
INF0.5. LOCATION
Q1.DO YOU KNOW ISLAMIC BANKING ALL IN ALL?
5. YES
6. TO SOME EXTENT
7. HAVE HEARD OF IT
8. NO-WHAT IS IT?

Q1a. DO YOU KNOW MUDARBAH? 1.

YES 2.NO Q1b. DO YOU KNOW
MURARBAH? 1. YES 2.NO Q1c. DO YOU
KNOW IJRAH? 1. YES 2.NO
Q2. IF AN ISLAMIC BANK COMES IN INDIA, WHAT WILL MATTER
TO YOU THEMOST?
5. PRINCIPLES & ETHICS

6. HIGHER RETURNS / LOWER PAYMENT OF LOAN

7. LESS RISK
8. NONE

Q3.HOW LIKELY WOULD YOU PUT YOUR MONEY IN AN ISLAMIC

BANK, IF ITOPENS?
6. MAXIMUM
7. SOMEWHAT MORE
8. TO AN EXTENT
9. SOMEWHAT LESS
10. LEAST

Q4. IF AN ISLAMIC BANK PAYS YOU LESS AS COMPARED TO

CONVENTIONALBANK, WOULD YOU STILL GO FOR IT?
3. YES
Q5. IF AN ISLAMIC BANK COMES TO YOUR DOORSTEP, WHAT WOULD
BE YOURPOSITION?
4. I WILL PUT ALL MY MONEY IN AN ISLAMIC BANK
5. I WILL PUT ONLY A PART OF MY MONEY
6. I WILL NOT PARK MY MONEY AT ALL
7. I WILL WAIT & WATCH BEFORE DECIDING TO INVEST

Q6. WHAT IS YOUR LEVEL OF FAITH ON ISLAMIC BANKING?

6. MAXIMUM
7. SOMEWHAT MORE
8. TO AN EXTENT
9. SOMEWHAT LESS
10. LEAST

Q7. ISLAMIC BANKING IS RECESSION-PROOF AND HENCE LEAST

RISKY. HOW LIKELY THIS STATEMENT DOES LEADS TO AN
INCREASE IN THE FEELING OF ASSOCIATION WITH AN ISLAMIC
BANK?
6. MAXIMUM
7. SOMEWHAT MORE
8. TO AN EXTENT
9. SOMEWHAT LESS
10. LEAST

Q8. HOW MUCH IMPORTANCE DOES ISLAMIC BANKING HAVE IN YOUR MIND?
6. MAXIMUM
7. SOMEWHAT MORE
8. TO AN EXTENT
9. SOMEWHAT LESS
10. LEAST

Q9. WHAT IS MOST IMPORTANT TO YOU REGARDING A BANK?

6. RETURNS/INTEREST
7. SERVICES
8. POLICY/ETHICS
9. CONVINIENCE/NEARNESS
10. OTHERS(PLEASE SPECIFY)