Islamic Banking

ISLAMIC BANKING

HISTORY AND DEVELOPMENT 

The objectives of Islamic banking:  To

promote and develop the application of Islamic principles, law and traditions to business and commercial affairs.

 To

promote commercial activities that are consistent with Shariah principles.

 To

safeguard the Islamic communities from activities which are forbidden in Islam.

HISTORY AND DEVELOPMENT 

The advantages of Islamic banking :  Do

not deal with loans (except Qardh hasan).

 Practice

the principles of Musharakah and Mudharabah.

 Prohibition

of interest (usury) in all transaction.

HISTORY AND DEVELOPMENT 

The advantages of Islamic banking :  Prohibition  Emphasize

of monopoly and hoarding.

in fair and legitimate profit in business activities.

HISTORY AND DEVELOPMENT 

The motive of Islamic banking?

Profit or non-for-profit organization?

PHILOSOPHY OF ISLAMIC BUSINESS AND BANKS 

Based on the principles of mudharabah.



Free from usury.



Making profit and conform to Islamic business principles.



Practice honesty, justice and equity.

PHILOSOPHY OF ISLAMIC BUSINESS AND BANKS 

To balance between earning and spending.  earning

must be lawful.  Spending for the welfare of the people-not for wasteful or pleasurable activities.

OBJECTIVES OF ISLAMIC BANKS 

To promote, foster and develop the banking services and products based on Islamic principles.



To promote the establishment of investment companies or business enterprises-the activities are not forbidden in Islam.

OBJECTIVES OF ISLAMIC BANKS 

Prohibition of interest, fair and legitimate profit undertaking.  Profit



To give alms tax.  To



and morality principles.

promote and develop the Islamic community.

To develop an environment beneficial to the society.

THE UNLAWFUL INVESTMENT Trades that promote obscenity  Prostitution and adultery  Manufacture, sale and transportation of liquor  Fortune-telling and drawing lots  Business which involves usury  Making and sale of idols and services rendered in or to pagan places of worship 

THE UNLAWFUL CONDUCTS Bribery  Misappropriation  Embezzlement  Larceny  Unfair use of property of an orphan  ]gambling  Short weight and measure 

PRINCIPLES OF SYARIAH IN IB 

Profit and loss sharing principles  Mudharabah  Musyarakah



Fees or charges based principles  Murabahah  Bai

mu’azzal  Ijarah  Ijarah wa-iktina

PRINCIPLES OF SYARIAH IN IB 

Free service principle  Qard



hassan

Ancillary principles  Wadiah  Rahn

PRINCIPLES OF SYARIAH IN IB 

Mudharabah  An

agreement whereby the owner of some property (the financier) gives a specified amount of capital to another person (the entrepreneur).  The profit will be shared between both parties according to the terms of their agreement.  Losses will be borne by the financiers.  However if the losses is due to the negligence of the entrepreneur, he must be responsible for the loss.

PRINCIPLES OF SYARIAH IN IB 

Al-musyarakah A

joint venture agreement between two parties to engage in a specific business activity with an aim of making profit.  Both parties will provide capital and they will participate in the management.  In the event of loss, all parties bear the loss in proportion to their share in the financing.

PRINCIPLES OF SYARIAH IN IB 

Murabahah  The

sale of goods at a price covering the purchase price plus a profit margin agreed upon by both parties.  The lender buys goods wanted by borrower for resale to the borrower at a higher price, agreed upon by both parties.

PRINCIPLES OF SYARIAH IN IB 

Bai-mua’zzal  The

borrower is allowed to defer settlement of payment for goods purchased within the period, and in a manner determined and agreed by both parties.



Al-ijarah  The

bank purchases the asset required by the customer and then leases the asset to the customer for a fixed period on a lease rental basis, agreed by both parties.

PRINCIPLES OF SYARIAH IN IB 

Ijarah wa-iktina  The

bank purchases an asset for the purpose of renting the same to the customer against the agreed rental.  Involves agreement that the client will make payment which eventually lead to the transfer of ownership from bank to customer.

PRINCIPLES OF SYARIAH IN IB 

Qard hassan  Borrower

is obligated to repay the lender the principal sum borrowed on maturity of the loan.



Al-wadiah  The

owner of funds will deposit and give consent to the custodian to make use of their funds as long as these assets remain in the custodian’s hands.

PRINCIPLES OF SYARIAH IN IB 

Rahn A

contract of pledging a security and becomes binding when possession of the pledge has taken place.  The ownership of the security is not transferred to the pledgee.