ISLAMIC BANKING
ISLAMIC BANKING
Presented By.
Aditya Singh Dipeeka Thikekar Mayur Kotak Prem Chhatani
(806) (817) (834) (846)
Govinda Chhangani (820)
ISLAMIC BANKING
Is this about Islam Or about Banking ? What has religion got to do with Economics & Banking ?
ISLAMIC BANKING
Introduction
Islamic Banking refers to a system of banking or banking activity that is consistent with Islamic law (Sharia) principles. The first modern theoretical literature on Islamic Banking started in the 1940s and the theoretical literature ended in the 1960s. Modern practical approach towards banking started in the 1960s and were followed by the establishment of several Islamic Banks in the private sector in the 1970s. During the 1980s, Pakistan, Iran, Sudan, and Malaysia adopted the new system officially.
Introduction
ISLAMIC BANKING
OBJECTIVES
The humanitarian goal of achieving the well being of all members of the human family cannot be attained by concentrating primarily on the material constituents of well-being and making maximization of wealth as the main objective of Economics. It is also necessary to raise the spiritual content of well being and reduce all the symptoms of anomie, like family disintegration, heavy interest based debt payments, conflict and tensions, crime, alcoholism, drug addiction, and mental illness, all indicating lack of inner happiness and contentment in the life of individuals. Capitalism as well as Socialism have both failed to lead mankind to such an overall well-being. It is therefore, necessary to lay down the contours of a new system which could help optimize human well-being as per the divine guidelines of Allah.
Introduction
ISLAMIC BANKING
Rules Govern Investment Behavior:
The absence of interest-based (riba) transactions; The avoidance of economic activities involving speculation; The discouragement of the production of goods and service which contradict the value pattern of Islam (haram).
Introduction
ISLAMIC BANKING
Difference between Conventional Banking and Islamic Banking
Concept of Interest Deals in Money/Asset Participation in Business Evaluation of Projects.
Marketing Mix
DEPOSITORS/ INVESTORS
INVEST FUNDS (MUDHARABAH)
ISLAMIC BANKING
BANK
Pre-agreed ProfitSharing Ratio
30%
FINANCING AND INVESTMENT ACTIVITIES
70% 100%
PROFIT LOSS
Marketing Mix
ISLAMIC BANKING
Products of Islamic Banking
Mudharabah (Profit Sharing) Wadiah (Safe Keeping) Musharakah (Joint Venture) Murabahah (Cost Plus) Ljarah (Leasing) Takaful (Insurance)
Murabahah Agreement
3. Customer buys the goods as Banks agent. Cost: $100 Customer 1. Execution of Murabaha Agreement. Supplier 4. Disbursement of the Facility. Facility Amount: $100 2. Bank appoints the Customer as its agent to buy the goods. Bank
ISLAMIC BANKING
Features:
Fixed rate financing
only Uses:
Inventory
Financing
Sale
Financing
commodity purchase Tenor:
12-18 months
Risks:
5. Under the Murabaha Agreement the Bank will immediately sell the goods at $110 (cost plus a profit margin) payable on a deferred payment terms.
Credit Risk
Marketing Mix
ISLAMIC BANKING
Promotion
Parsoli Corporation Ltd. does the marketing of Islamic Banking by conducting conferences and seminars in Muslim populated states in India. The conferences are then telecast on CNBC to create awareness to mass people. Microfinance institutions shall emerge not only for economic considerations but also as part to government strategy to exploit the potential of micro-financing for poverty alleviation.
ISLAMIC BANKING
Marketing Environment
MICRO Customers Competitors MACRO Political Economic Social Technological
ISLAMIC BANKING
Market Opportunities
Muslim population in India is about 15 crores Worldwide Muslim population Grail Research Need to compete for funds with conventional banks Stock market Mutual funds (Equity funds, Sector funds, Index funds, Growth fund)
ISLAMIC BANKING
Reasons for Growth of Islamic banking
Is in response to the needs of Muslim community Acts as a catalyst to fill the gap to mobilise funds for productive purposes, in particular for Muslim communities Significant untapped business potential. Proven to be a viable financial intermediation channel in supporting economic growth.
ISLAMIC BANKING
Reasons for Growth of Islamic banking Cont..
Fulfilled the demands of not only the Muslims but non-Muslim population as well. Unaffected by the sub prime mortgage crisis Tame the liquidity and inflation problems Rating of complete investment risks instead of mere credit risks
ISLAMIC BANKING
International Scenario
The size of Islamic Financial Industry has reached US$ 500 Billion and its growing annually @ 15% per annum. 42 countries have Islamic Banking Institutions 27 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia, Brunei and Pakistan 15 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as:
Standard Chartered Bank Citibank HSBC ABN AMRO UBS
International Scenario
ISLAMIC BANKING
In Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies world wide whose business complies with Islamic Shariah laws At present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion Governments of Bahrain ,Malaysia and now Pakistan have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity. Issuance of these bonds has also paved the way for Shariah compliant Government borrowings. Institutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions. Due to these collective efforts Islamic banking is now recognized by IMF, World Bank and Basel Committee.
International Scenario
ISLAMIC BANKING
In countries like Malaysia, which took the lead in introducing Islamic finance some thirty years ago, Islamic investments now account for 11% of the total banking assets. The Malaysian IB industry is firmly positioned to capture 20% share by 2010. According to Standard & Poors, the growth rate of IB services outpaced that of conventional banking during the past decade, making it one of the most dynamic areas in international finance. The annual growth of Islamic financial institutions (IFI) has been an estimated 10% in the Gulf and almost 15% worldwide over the past 10 years, report says. IFIs assets and funds under management are estimated at about $500bn. Islamic banking activities are expected to grow even more rapidly in the foreseeable future.
ISLAMIC BANKING
Germany: 3
- Bank Sepah - Commerz Bank - Deutsche Bank
UAE: 9
- Dubai Islamic Bank - Abu Dhabi Islamic Bank Bahrain: 26 Kuwait: 5 - HSBC Amanah - Bahrain Islamic Bank - Kuwait Finance House - Al Baraka Qatar: 4 - ABC Islamic Bank - Qatar Islamic Bank - CitiIslamic Investment Bank - Qatar International Islamic
United States: 20
- Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative
UK: 26 (primarily
Switzerland: 6
branches of Gulf and global banks) - HSBC Amanah Finance - Al Baraka International Ltd - Takafol UK Ltd - The Halal Mutual Investment Company - J Aron & Co Ltd (Goldman Egypt: 7 Sachs) - Alwatany Bank of Egypt - Egyptian Saudi Finance
Iran: 8 Pakistan: 5 India: 3 Bangladesh: 3 Turkey: 7
- Faisal Finance Institution Malaysia: 49 - Ihlas Finance House 2 - Pure Islamic Banks (Bank Saudi Arabia: 10 Islam, Bank Muamalat) - Al Rajhi Rest - conventional banks - SAMBA - Saudi Hollandi Indonesia: 4 - Riyadh Bank
Sudan: 9
Yemen: 5
ISLAMIC BANKING
Islamic Banking in India
Confined to the co-operative sector. Operate on small scale missing the economies of scale. Function under Non Banking Finance Companies Reserve Bank Directives 1997 RBI (Amendment) Act 1997-(Eg-Parsoli ) Reveal its potential to build infrastructure for agriculture sector and unorganized sector Nationalized banks Corporate sectors To counter Terrorism Raghuram Rajan Committee Regulatory issues need to be sorted
ISLAMIC BANKING
Future Prospects
Islamic banking and financing has gained a foothold both nationally in Muslim countries and internationally in the financial world. Islamic banking industry faces issues of a different sort. That is, how to (1) Consolidate the gains made so far and sustain itself, (2) Protect against any meltdown and (3) Grow.
Future Prospects
Survival of Islamic banking depends on the following: Its Economic Viability, -
ISLAMIC BANKING
Economic viability of Islamic banking/financing is not an issue for two reasons: > Islamic banking is just another way of banking. > Islamic banking offers a better financial architecture, on economic grounds.
Its Stability, > During downswing in an interest-based economy, depositors existing claims remain a liability of the banking system. > Islamic banking has advantage that bank obligations to depositors automatically adjust, both in downswing and recovery phases,
Future Prospects
ISLAMIC BANKING
Likely Shape Of Islamic Banking & Finance in Future
Islamic Banks as Pure Financial Institutions Islamic Banks will primarily be Economic Institutions Standardization of Islamic Financial Products Structure of Islamic Finance Industry
Future Prospects
ISLAMIC BANKING
Future Challenges for Islamic Banking & Finance
Financial Innovation in Critical Areas Competition Misuse of Islamic Banking
ISLAMIC BANKING
Conclusion
The Islamic Banking is still very new. Few minor changes is required to work. A vastly complicated concept.
Question ????
ISLAMIC BANKING
