Introduction To Banking
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Al- Sadiq (A.S) Institute of Islamic Banking, Finance & Takaful
By: Jawaid Iqbal Rajab 8, 1429 Saturday July 12, 2008
Classification of businesses by activity
Manufacturing Business
Merchandising Business
Service Business
Classification of businesses by formation
Sole Proprietorship
Partnership
Company (Private/Public)
Bottom Line / Equation
Assets = Liabilities + Capital
The name bank derives from the Italian word banco "desk/bench“. In Italy, Florentines bankers, used to make their transactions above a desk covered by a green tablecloth. (Source: http://en.wikipedia.org/wiki/Bank)
Definition A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers, and to borrow and lend money.
Bank as a payment agent Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers„ accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, and ATM.
Bank as a borrower Banks borrow money by accepting funds deposited on current and savings accounts, accepting term deposits and by issuing debt securities such as bonds i.e. TFC‟s.
Bank as a lender Banks lend money by making advances to customers on current account, by making installment loans, and by investing in marketable debt securities and other forms of lending.
Other Functions Provide safe custody – Lockers Issue letter of credits, guarantees Issue demand drafts and pay orders Provide foreign exchange Provide reports on the creditworthiness of customers
New Concepts Telephone Banking Mobile Banking Internet Banking Branchless Banking
Rank
Entity
Score
1 Bank Of America Corporation
135,271 ($m)
2 Citigroup Inc
119,783 ($m)
3 JP Morgan Chase & Co.
115,790 ($m)
4 HSBC
114,928 ($m)
5 Mitsubishi UFJ Financial Group
81,940 ($m)
6 Royal Bank Of Scotland Group
78,730 ($m)
7 ING Groep NV
78,088 ($m)
8 Crédit Agricole
77,462 ($m)
9 Wachovia Corporation
69,716 ($m)
10 BNP Paribas
67,378 ($m) Source: Euromoney Magazine
Conventional money Bank
Client
money + money (interest)
Islamic Bank
Goods & Services
money
Client
•
What is Islamic Banking?
•
What prompted Islamic Banking?
•
Islamic Finance Perspectives
“Islamic Banking is interest free Asset Backed banking governed by the principles of Islamic Shariah”
Islamic Banking distinguishes from Conventional Banking in four basic principles: 1. 2. 3. 4.
Interest Free Transactions. Risk Sharing Asset & Service Backing Contractual Certainty( Gharar free contracts)
• Interest free banking?
• Profit and loss sharing?
• Ethical banking?
•
•
•
Emergence of Arab nationalism and the search for identity Oil shocks and petrodollars (US$ 145 per barrel) Privatization and the individual‟s right to choose
More than 350 Islamic Banks/FI‟s in 50 countries current market size US$ 700 billion
Estimated annual growth rate – 20% , total assets exceeding US$ 1 trillion by 2016.
By: Jawaid Iqbal Rajab 8, 1429 Saturday July 12, 2008
Classification of businesses by activity
Manufacturing Business
Merchandising Business
Service Business
Classification of businesses by formation
Sole Proprietorship
Partnership
Company (Private/Public)
Bottom Line / Equation
Assets = Liabilities + Capital
The name bank derives from the Italian word banco "desk/bench“. In Italy, Florentines bankers, used to make their transactions above a desk covered by a green tablecloth. (Source: http://en.wikipedia.org/wiki/Bank)
Definition A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers, and to borrow and lend money.
Bank as a payment agent Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers„ accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, and ATM.
Bank as a borrower Banks borrow money by accepting funds deposited on current and savings accounts, accepting term deposits and by issuing debt securities such as bonds i.e. TFC‟s.
Bank as a lender Banks lend money by making advances to customers on current account, by making installment loans, and by investing in marketable debt securities and other forms of lending.
Other Functions Provide safe custody – Lockers Issue letter of credits, guarantees Issue demand drafts and pay orders Provide foreign exchange Provide reports on the creditworthiness of customers
New Concepts Telephone Banking Mobile Banking Internet Banking Branchless Banking
Rank
Entity
Score
1 Bank Of America Corporation
135,271 ($m)
2 Citigroup Inc
119,783 ($m)
3 JP Morgan Chase & Co.
115,790 ($m)
4 HSBC
114,928 ($m)
5 Mitsubishi UFJ Financial Group
81,940 ($m)
6 Royal Bank Of Scotland Group
78,730 ($m)
7 ING Groep NV
78,088 ($m)
8 Crédit Agricole
77,462 ($m)
9 Wachovia Corporation
69,716 ($m)
10 BNP Paribas
67,378 ($m) Source: Euromoney Magazine
Conventional money Bank
Client
money + money (interest)
Islamic Bank
Goods & Services
money
Client
•
What is Islamic Banking?
•
What prompted Islamic Banking?
•
Islamic Finance Perspectives
“Islamic Banking is interest free Asset Backed banking governed by the principles of Islamic Shariah”
Islamic Banking distinguishes from Conventional Banking in four basic principles: 1. 2. 3. 4.
Interest Free Transactions. Risk Sharing Asset & Service Backing Contractual Certainty( Gharar free contracts)
• Interest free banking?
• Profit and loss sharing?
• Ethical banking?
•
•
•
Emergence of Arab nationalism and the search for identity Oil shocks and petrodollars (US$ 145 per barrel) Privatization and the individual‟s right to choose
More than 350 Islamic Banks/FI‟s in 50 countries current market size US$ 700 billion
Estimated annual growth rate – 20% , total assets exceeding US$ 1 trillion by 2016.
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