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Islamic banking


alsarhani yahya ch 3 * – PowerPoint PPT presentation

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Title: Islamic banking

Islamic banking
  • CH 3

  • The meaning of Islamic banking are the
    ( brokerage institution) that is not
    working with interest. So that the Muslims had
    reached nearly a century of almost that bank
    interest is the essence of (Riba) is forbidden,
    because the increase of the loan is the basis of
    conventional banks work .

  • Muslims after Independence after the occupation
    trying to establish an Islamic banking system
    which is in line with the provisions of the law.
    They have realized that financial broker it is
    very important function in the life of

  • As the transmission of funds from the surplus
    category process (ie individuals and institutions
    that have the extra financial resources which is
    more then what they needs) to the disability
    category group (ie the group which need financial
    resources over what now possesses) was done in
    the by using the (MOTHARABA ) method.

  • Muslims seek to find other version for the
    traditional bank which give the support
    function for financial broker without being
    dependent on borrowing from depositors and then
    lending to the lenders and get benefits, they
    found a (MOTHARABA) a solid base in the which can
    be based on this alternative model.

  • And the banks or any financial institutions must
    move away of all prohibited transaction in the
    law and in particular cleared of (REBA), so, any
    Islamic bank may not work with benefit, taking
    and giving may not take any action contrary to
    the provisions of Islamic law.

  • Also, the Islamic banks must operating depending
    on the legitimacy formulas known, such as
    (MOTHARABA) ,(MOSHARAKA), ( Istisna'a)
    , futures sales and the sale of (Murabaha) and
    other developed contracts that do not contravene
    the provisions of Islamic Sharia.

Rules and principles work for Islamic banks
  • There are a number of legal rules that the work
    of Islamic banks from other traditional banks
    because of the special nature of these banks,
    which are governed primarily Shariah, the
    following are the most important of these rules

Sharia rules
  • (Do no harm)
  • Take care for the rights and duties and to
    avoid causing harm and damage to others or their
  • (ALGANM for gram)
  • Any person does not guarantee the return and
    deliver a loss rests with others.

  • Things its purposes
  • That any action it is of purpose , for example
    if any contract have legal purpose so the
    contract are possible but if the contract are
    illegal purpose so the contract was invalid.

  • The normal habit
  • Any action return to custom if the lack of a
    source of Islamic law, and require that does not
    violate custom Shara or morals.
  • Abscess warranty
  • the owner of money get profit by using his
    money in (MOTHARABA) ,and get profit as his work.

Banking rules
  • Not dealing with benefit
  • This rule is one of the hallmarks of the
    activity of Islamic banks where it does not deal
    benefit whatever its forms, taking or giving.

  • Abide by the rules of Islamic law
  • The Islamic banks provide services in the
    framework of the law, and not investments direct
    to prohibition activities.
  • Each Islamic bank have Sharia Islamic Council to
    check about the extent of the bank's commitment
    to Islamic law in all its activities.

  • Adopting the principle of participation in the
    profit and loss
  • It is the basis of the relationship between
    the customer and the Islamic banks, Islamic
    banks, where investors receive funds to speculate
    with a view to making a profit which is
    distributed after inspecting "actually" between
    them and the owners of investment accounts as
    agreed. The parties also bear the loss if there
    is no default by one of the parties.

  • Good selection for whom have a good finance
  • Where it is supposed that the Islamic banks
    are making the effort to choose those who manage
    the funds to ensure proper management and
    conservation of the loss with full maintaining
    the confidentiality of customer transactions.

The concept of the Islamic Bank
  • IDB monetary financial institution working to
    attract the cash resources of the members of the
    community and the main employers employ them
    effectively optimize and ensure its growth under
    stable Islamic law rules and to serve the nation
    and the people working on the development of
    their economies.

  • It is for this definition is clear to us that
    there are several key elements adhere to Islamic
    banks, including the commitment of stable Islamic
    law rules the IDB should adhere to the
    provisions of Islamic sharia law in all of its
    business dealings in to and only has the elements
    of existence, credo Islamic provide a
    comprehensive and integrated system governs
    everything in the economy represented in the
    production activities, distribution, consumption,
    savings and relate to other non-economic
    activities are associated with them

  • and their acts of worship to make Islam our
    valuable be a proper not tainted or done wrong in
    the hands of his successor, not in front of it,
    and that the correlation banking Islamic economic
    thought religion reinforced blessed verses in the
    book of Allah and the Sunnah of His Messenger,
    peace be upon him cleared and assumptions that
    distinguished scientists, and that the economic
    rules governing the banking business and the
    clear and explicit should the Islamic Bank
    pursued and cherished. The most important of
    these rules include

A) commitment in its dealings Halal and away
removed from the fields and the Grand doubtful
  • Since the Islamic Bank derives its legitimacy
    from the embodiment of Islamic thought, it is
    fully committed to the application and Haram
    muslim base in all his dealings, and adherence to
    the ethics and etiquette of Islam in these
    transactions totalitarian in nature, which
    extends to all areas of human activity by the
    bank to deal with it.

  • It can not be for the Bank to offer his services
    to the activities included in the prohibition
    circuit because of the serious damage to society,
    such as the liquor industry activities, and
    tables, gambling, drugs, prostitution and
    industries that are based on the rearing and
    slaughter and sale of pork or dead or blood,

  • and stay away from any activity that involves
    dealing in which the Lord, deceit or fraud or
    monopoly or fraud or exploitation to the needs of
    the people or the solicitation or tricked or
    facilitator or a bribe or corrupt receivables and
    vandalism for souls or any activity tainted the

  • and then all bank transactions within the muslim
    circle be, taking into account severely
    principles of religion religion there is no
    unfairness or injustice in wages for workers and
    the confiscation of their livelihoods or
    servitude in exchange for slaves to feed them and
    clothe them.

  • Islamic Bank is is based on the Islamic faith and
    draws them of his being the intellectual and the
    elements of the banking deal has or become
    transactions, all in the context of this
    intellectual entity that is that God is the
    creator of the universe,

  • and that the property in this universe to God
    alone, God is the owner of all existing in it
    Almighty effecting and that King owner and humans
    Mstkhalaf it and then the use of these assets,
    including money made under the terms of the
    succession and for this it is necessary that the
    products and services

  • that the bank deals with or funded projects in
    the muslim circle, he may not be the supplying
    plant for the production of wine, or to mobilize
    pork company not permissible for him to fund a
    nightclub or a club gambling, but confined to his
    mission in this world architecture, he says he
    brought you forth from the land and Astamrkm
    (61) (Hud) Hence accommodate all bank
    transactions to include all aspects of economic
    activity and is necessary for the economic age of
    the earth.

(B) not to deal with riba
  • Not dealing in riba are characteristic of the
    Islamic Development Bank in order to cleanse the
    money from the suspicion of injustice and
    exploitation, which is a key feature of usurious
    loans attributes carried out by the Non-Islamic

  • This does not mean that the Islamic bank does not
    aim to make a profit, but it aims to him and work
    on augmentation, but in the context of specific
    Islamic controls is determined by which the
    source of profit, and that profit is just not
    inordinate, flawless exploitation, not be the
    source of any unfairness and the monopoly, but
    through a truly Islamic Investment formats where
    all the production elements synergize

C) good selection of their money management
  • The IDB should all necessary efforts to make sure
    good selection of individuals who will manage
    funds both among its staff, or among the
    customers who will be making the funds available
    to them to manage it, where you must not entrust
    the management of these funds is anyone who is
    not fit to do the job.

(D) openness and honesty and clarity in
  • Islamic Bank is committed in its dealings with
    honesty and candor, clarity and full disclosure
    between the bank and its clients, as well as
    dealers as long as these transactions were
    private and not the same customer to other
  • Hence, it is not intended and openness and
    disclosure statement is the client of the
    secrets, but Islamic banks maintain the privacy
    of their customers transactions does not seek to
    harm them and their interests in the context of
    religious and legal legitimacy of the ruling
    system for banking transactions.

  • There Sharia Supervisory Board of Islamic Bank
    are selected members of senior Muslim scholars
    and some scholars of Islamic economics is
    following up on all the bank's business to make
    sure it takes place within the framework of the
    provisions of Islamic Sharia

(E) Not to lock up money and blocked from trading
  • The IDB should work on the development of money
    and excitement as Mstkhalafa where and agent for
    the owners and employed effective employment for
    the benefit of society, originally as one of the
    assets that need to be developed, not withheld
    and depriving society and individuals who need

(F) The Supervision of Islamic Banking internal
and external
  • The external construction through a Shari'a Board
    are selected members of the established in the
    science of religion are known for their high
    integrity and diligence.

(G) pay of Zaka imposed Sharia on all bank
transactions and business results
  • Islamic banks collects the distribution of Zakat
    funds from bank transaction and their clients
    whom want paing the ZAKA from Muslims, Islamic
    banks are spending it in the legitimate recipients

(H) Achieve a balance between the different JOB
  • The balance is between the areas of short-term
    and the medium-term and long-term, and between
    different distributed money areas, where
    geographical balance is achieved, accordance with
    Islamic priorities
  • - Necessities.
  • - Needs.
  • - Luxuries.
  • - And the balance between social return and ROI

  • The islamic banking came to meet the desire of
    Muslim societies in finding a formula for dealing
    banking away from the REBA and without use of
    interest rate.

  • The first attempt to create an Islamic bank in
    1963, came where he was the establishment of the
    so-called local savings banks, which was held in
    Egypt, which was founded by and this experience
    lasted around three years.
  • Then after that create the Nasser Social Bank,
    where is the first bank in Egypt created on the
    non deal with beneficial taking or giving of the
    law, and the nature of the bank's transactions
    social activity and not banking job.

  • The real interest of the establishment of Islamic
    banks operating in accordance with the provisions
    of Islamic law in the recommendations of the
    Islamic Foreign Ministers Conference in Jeddah,
    Saudi Arabia in 1972.

  • in 1974 began the Islamic Development Bank
    activity in 1977 in Jeddah, Saudi Arabia, and is
    characterized by the bank that the governments of
    the Bank does not deal with individuals in the
    banking aspects.

  • The creation of the first fully fledged Islamic
    bank to deal in accordance with the provisions of
    Islamic law in 1975, a Dubai Islamic Bank, where
    the Bank offers all banking and investment
    services to individuals in accordance with the
    provisions of Islamic Sharia.

The properties of Islamic banks,
  • Islamic banking has many of the characteristics
    of conventional banks which including
  • 1 Follow of the provisions of Islamic Sharia in
    all banking and investment transactions.
  • 2 - The application process for participation in
    the profit or loss in transactions.
  • 3 - Commitment qualities (development,
    investment, positive) in the investment and
    banking transactions.

  • 4 - Apply Brokerage, based upon the method of
  • 5 - application of Islamic values ??and ethics in
    the banking business.
  • 6 - As Islamic banks is characterized by
    providing a range of activities not offered by
    traditional banks, namely
  • 1 - The Hassan loan.
  • 2 - Zakat Fund.
  • 3 - Cultural banking activities.

The goals of Islamic banks
  • In order to achieve the message of the Islamic
    bank, there are many goals that lead to the
    achievement of that message we will talk about
    one of important goal

financial goals
  • The Islamic bank in the first place an
    institution shall carry out the role of financial
    intermediation principle of participation, they
    have many financial goals that reflect how well
    they perform this role in the light of the
    provisions of Islamic law, and these goals are

  • Bring the deposits
  •  This is the goal of the most important goals of
    Islamic banks as it represents the first part of
    the financial broker process.

  • The importance of this goal it is applied to the
    base of legitimacy and it is the divine not to
    disrupt the money and investing them in returning
    profits to the Muslim community and its members,
    and is the main source of deposits for the
    sources of funds in the Islamic Bank, whether in
    the form of deposits to invest, or demand
    deposits current or savings accounts and
    deposits a mixture of current accounts and
    deposits investment.

  • Investment Money
  •      Represents the investment of money the
    second part of the financial broker process,
    which is the main objective of Islamic banks, and
    there are many legitimate investment formulas
    that can be used in Islamic banks to invest
    shareholders' and depositors' money,

  • To get Profit
  •      Profits are earned resulting from the
    activity of the Islamic bank, which is the result
    of investment banking operations that are
    reflected in the form of dividends distributed to
    shareholders and depositors process, add to this
    that the increase in bank profits lead to
    increased market value of the shares of

The main trammels which facing the Islamic
banking sector
  • a lot of clients say that there no differences
    between Islamic and other products and customers
    feeling the lack of religious commitment among
    some workers in the financial banking
    institutions may be the reason for this is that
    85 of workers in the Islamic financial
    institutions have backgrounds work in the
    traditional sector.

  • The limited number of qualified Shariah scholars
    around the world to assess the ration of new
    products, the lack of the necessary competencies
    of scientists is an obstacle to innovation and
    new product development.
  • Demand for financial products conforming to
    Islamic law significantly exceeds supply,and the
    number of subscribers are more then available
    instruments .

  • The absence of standards and harmony between
    fatwas legitimate bodies, contrast, difference.
  • The absence of market for financial activities
    for Islamic banking which help Islamic banks to
    Provide financial resources .

Actions required to develop and improve the
performance of Islamic banks
  • More intensive and sophisticated cooperation
    between the authorities and regulators and
    financial institutions in the market.
  • The need to expand and innovate to put more
    financial products compliant with the provisions
    of the law, so as to accommodate the large
    liquidity available with Islamic banks.

  • The establishment of a financial system that have
    experience and flexibility has efficiency and
    competitiveness, which strongly contributes to
    the growth process.
  • Training and qualification of human resoures to
    assume leading positions  

  • That there should be uniform standards for
    Islamic fatwas and so determined the role of the
    Fatwa banks over matching cases presented with
    internationally agreed standards.
  • Should the Islamic financial institutions to
    offer their financial reports to the public
    inquiry for financial transparency.
  • The need for a new legislation unifies standards
    followed by the Islamic financial market to
    contribute to its more vital role at the global

THE Sources of Islamic banks
  • Sources of Islamic banks are divided into two
    sources Internal sources include internal
    sources of funds in Islamic banks on
    shareholders' equity (capital and reserves and
    retained earnings), and provisions, and some
    other sources, including, for example, funding
    from shareholders at the disposal of the capital
    increase, and interest-free loans from

  • Foreign sources external sources of funds in
    Islamic banks include 1 - demand deposits,
    current accounts 2 - savings deposits accounts 3
    - Deposits investment accounts

  • 4. investment instruments. 5 - Islamic savings
    books. 6 - Deposits Islamic financial
    institutions. 7 - instruments Muqarada common or
    custom. 8. Certificates of Deposit. 9. investment

Islamic investment methods
  • The most important activities practiced by the
    Islamic bank is to open investment accounts and
    deposits and operate on the basis of MOTHARABA as
    well as the sale and leasing which make economic

  • A - Funding for traders by goods and equipment
    through the sale of Murabaha and the postponement
    of the price, taking into account the legitimate
    conditions of the original statement of the price
    or cost, profit, and for acquisitions prior to
    the sale.

  • B - The Bank also enable owners of agricultural
    and industrial activities from obtaining raw
    materials and equipment for the road to peace was
    held, where to buy their products with the
    postponement of delivery, and accelerates the
    price to obtain the liquidity that allows them to
    continuing their farming activities or industrial

  • also doing some investment activities,
    including   1 - International sales in the
    goods.   2 - trading in foreign currencies.   3 -
    International investment in real estate.   4 -
    establishment of companies and participation in
    their capital.

  • C - The Bank funded fixed to provide equipment
    and devices to the owners of the industrial
    activities of assets through the Capital Leases,
    he held a lease established by the bank with the
    client after it acquires the bank equipment,
    gives the tenant the right,

  • by dating to own those paid equipment at the end
    of the lease period or in during which a price is
    known to be agreed upon with a commitment to the
    provisions of the lease throughout the
    establishment, and not to require the sales are
    even dating him only.

  • D - as the Islamic Bank is also financing fixed
    assets, as referred to with the bank's commitment
    to the installation of the hardware and run it
    through the contract (operating lease), which may
    also end up with ownership the former style.

  • E - The Bank financed the construction of
    buildings, factories, exploited real estate, by
    holding Istisna'a (contract) terms to be agreed
    to establish a so by the bank, custom-tailored
    and deferred ... and the bank in turn uses
    contractors to set up the account and
    relationship separate from the first contract and
    without tying them.