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Islamic banking provides services to its customers free from interest, and the giving and taking of interest have prohibited in all transaction. Islam bans Muslims from taking or giving interest (the Arabic term for which is Riba), and this prohibition makes an Islamic banking system differ fundamentally from a conventional banking system.

What is Islamic Banking?

Islamic Banking is interest free Asset Based banking governed by the principles of Islamic Shariah It is not restricted to Muslims only.

Islamic shariah is not a set of codied laws but a series of principles derived from ve separate sources: (1) The Holy Quran; Allah has permitted trade & has prohibited riba Al Baqarah 275(2) The practice and teachings of Prophet Muhammad, known as the sunnah; (3) Comparisons of similar issues if a clear-cut judgment cannot be found in the Quran or sunnah (practice known as qiyas); (4) The judgment of scholars through reasoning and logic (called ijtehad); and

What is Riba?
Riba is the surplus income which the lender receives from the borrower in excess of the principal amount .

Why is Riba Prohibited?

Riba is unfair Riba is exploitative Riba is unproductive

The Basic principles of Islamic Banking/Finance(ICARE)

Interest Free Transactions Contractual Certainty Asset & Service Backing Risk Sharing Ethical Banking

Musharakah (Joint venture)

In the context of business and trade, Musyarakah refers to a partnership or a joint business venture to make prot. Prots made will be shared by the partners based on an agreed ratio which may not be in the same proportion as the amount of investment made by the partners. However, losses incurred will be shared based on the ratio of funds invested by each partner.

(Hire purchase)

You pick a car you would like to have. 2) You ask the bank for Ijarah of the car, pay the deposit for the car and promise to lease the car from the bank after the bank has bought the car. 3) Bank pays the seller for the car. 4) Seller passes ownership of the car to the bank. 5) Bank leases the car to you. 6) You pay Ijarah rentals over a period. 7) At end of the leasing period, the bank sells the car to you at the agreed sale price.

Islamic products and services offered by 300+ Financial Institutions around the world
Germany: 3 United States: 20
- Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative - Bank Sepah - Commerz Bank - Deutsche Bank

UAE: 9
- Dubai Islamic Bank - Abu Bahrain: 26 Dhabi Islamic Bank - HSBC Amanah Kuwait: 5 - Bahrain Islamic Bank - Kuwait Finance - Al Baraka House Qatar: 4 - ABC Islamic Bank - CitiIslamic Investment Bank - Qatar Islamic Bank - Qatar International Islamic

Switzerland: 6

UK: 26 (primarily branches

Iran: 8 of Gulf and glo Pakistan: 5 bal banks) India: 3 - HSBC Amanah Finance - Al Baraka International Ltd Turkey: 7 Bangladesh: - Takafol UK Ltd - Faisal Finance 3 - The Halal Mutual Investment Sudan: 9 Institution Malaysia: 49 Company - Ihlas Finance -J Aron & Co Ltd (Goldman SaudiHouse Arabia: 10 2 - Pure Islamic Banks Egypt: 7 Sachs) (Bank Islam, Bank - Alwatany Bank of Egypt - Al Rajhi -Britain Islamic Bank Muamalat) - Egyptian Saudi Finance - SAMBA Rest - conventional banks - Saudi Hollandi Indonesia: 4 - Riyadh Bank Yemen: 5
Planning to go for Islamic Banking

Difference between Islamic and Conventional Modes of Finance

Bank money + money (interest) Client


Difference between Islamic and Conventional Modes of Finance

Bank Client



Difference between Conventional Banks & Islamic Banks

1. The functions and operating modes of conventional banks are based on fully manmade principles. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. In the Conventional bank the investor is assured of a predetermined rate of interest. In contrast, Islamic bank promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. Conventional bank does not deal with Zakat.

4. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customers business very well. 5. The status of a conventional bank, in relation to its clients, is that of creditor and debtors.
The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller. 6.Since income from the advances is fixed, it gives little importance to developing expertise in project


Modern banking, based on interest and biased in favors of the capitalists and rich. Islamic Banks operate on Islamic principles of profit and loss sharing and other approved modes of Investment. It strictly avoids interest which is the root of all exploitation and is responsible for large scale inflation and unemployment. This will lead to a just distribution of income and wealth, mutual cooperation, equal opportunity, balance economic growth and development, and others.

Social Welfare
It lay down certain regulations for the maintenance of equity such as distinction between lawful and unlawful means of income, right of free enterprise for individuals and right to keep the lawfully earned wealth. The discouragement of the production of goods and services which contradict the Islamic value (haram) When money is lent out on the basis of interest, more often that it leads to some kind of injustice. The first Islamic principle underlying for such kind of transactions is deal not unjustly, and ye shall not be dealt with unjustly

How do Islamic banks and IBS banks reward their depositors since payment of interest is not allowed?
In Shariah, there are many ways to share prot or returns between a bank and its customers. For example, in a deposit product, prots from a deposit arrangement will be shared between a bank and its depositors based on an agreed ratio and paid as dividends. Shariah also allows a bank to give hibah (gift) to its depositors as it deems t.

Why there is no Loss in Islamic Banking ?

Taking risk does not imply that loss must occur in a transaction or business. They go for a project and business having minimum risk. Different portfolio choices with Islamic Bank.

What will be the solution incase of mortgage or default?

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.


Islamic Banking or Islamic Finance is one of the fastest growing sectors in the global financial industry. In defiance of the credit crunch, the global islamic finance market has grown about 15% in each of the past 3 years and is now worth about $700 billion worlwide. Outstanding global and domestic Islamic sovereign & Corporate Sukuk exceeded US$50 billion in 2006, US$82 billion in 2007 and expected to surpass US$150 billion by 2010. Currently, there are nearly 300 Islamic banks and financial institutions worldwide and its assets are predicted to grow to $1 trillion by 2013.

Islamic banking is Riba free and trade oriented banking system. Islamic banking is based on profit and loss sharing mechanism. Now the most of the conventional banks are willing to Islamic banking network. The commercial banks are also opening the new separate branches of Islamic banking under separate head. Due to globalization the Islamic banking network has moved to the other Muslim and non-Muslim countries such as UK, USA, Canada, Malaysia, Spain, Qatar, Kuwait, Iran etc. this also proves that Islamic banking system will be flourished in future over the world. The expansion of this is the only reason that it is interest free .