You are on page 1of 12

ISLAMIC BANKING SYSTEM

By

SATHIKBASHA.A

LOGO

What is Islamic Banking?

Islamic banking refers to a system of banking or banking activity


which is consistent with Islamic law (Sharia) principles and guided by Islamic economics. Islamic law prohibits usury, the collection and payment of interest, also commonly called riba.

Inception of Islamic Banking


Dubai Islamic Bank - 1975

- Modest beginnings
- Initiated by businessmen who didnt want to deal with interest based system - Hostile environment - Challenged by conventional banking system

- Lack of public awareness

Important Reasons for Global Interest in Islamic Banking

Good opportunity for investment Challenge to the conventional interest-based Capitalistic System Demand of Muslim population in many countries outside the Muslim world.

Success Story
300 + Islamic financial institutions

$ 500 - 800 bn in funds


Post graduate degrees offered in Islamic banking by major academic institutions Important database system (HIFIP) Standards for the Industry (AAOIFI)

Recognition by IMF, World Bank and Basel Committee

Geographic distribution of Islamic Banks

Basic Difference between Islamic and Conventional Mode of Finance

Conventional
money Bank Client

money + money (interest)

Basic Difference between Islamic and Conventional Mode of Finance

Islamic

Bank

Goods & Services

Client

money

Differences
Islamic Banking
Functions and operations are based on shariah principles
Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Aim at maximising profit but subject to Sharia'h restrictions No right of profit if there is no risk involved. The profit and loss sharing depositor may lose money in case of loss.

Conventional Banking
Functions and operations are based on fully man made principles
Investor is assured of pre-determined rate of interest

Aim at maximising profit without any restrictions


It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.

Business Practices in Islamic Banking

1.

Collect of Deposit - Current Account


- Investment Account

2.

Financing Contracts
- Murabaha (mark-up sale)
- Musharaka (profits and loss sharing system)

Questions?

LOGO

You might also like