Professional Documents
Culture Documents
Finance
and Products.
Mohammed Saleem .OA
salimvettom@gmail.com
Objective of the Study
Primary objective
To study the Islamic financial system, its
products and merits.
Secondary objective
To study the use these financing techniques
To analyze the feature of Islamic products with
conventional financial products.
Financial System
The system that allows the transfer of money
between savers and borrowers.
Instruments & Institutions to transfer funds from
saving surplus units to saving deficit units in the
most efficient manner.
It facilitates intermediation between savers (fund
provider) and investors ( fund user)
Financial System Efficiency
Promotion of efficiency is the primary goal of every
Financial System.
It is measured in terms of efficiency achieved in
mobilizing savings from saving surplus units in the
economy and in allocating these funds among
saving deficit units.
Increase in the range of financial assets and
instruments would improve efficiency in
mobilization of funds.
For Improving Allocational
Efficiency it Needs
Less transaction cost
Gharar : which is uncertainity about the terms of contract or the subject matter, eg.
Prohibits selling something which one does not own.
•
Key objective is to ensure SOCIAL JUSTICE
•
Money is only a medium of exchange, no value in
itself.
•
Therefore should not be allowed to give rise to more
money, via fixed interest payments, simply by being
put in a bank or lent to someone else
•
Results in concentration of wealth
l Interest can leads to injustice and exploitation in
society.
Principle of Islamic
Finance
Freedom to contract
Freedom from Riba
Freedom from Algharar
Freedom from gambling and unearned
income
Freedom from price control and
manipulation
Mutual cooperation and solidarity
Global Islamic Finance Industry
1963: Mit Gamir Project, Egypt.
1975: IDB, Jeddah
1975: Dubai Islamic Bank
Growth Rate : 10-15%
300 Institutions over 75 countries USD 800 billion under
management.
Expected tocontinue with assets growing USD 1 trillion by
2010.
Islamic Window : ABNAmro, HSBC, City Bank
Islamic Finance Products
Investment Financing
Trade Financing
Lending
Musharakah ( Joint Venture)
Musharaka is similar to a joint venture, whereby two parties
(an Islamic Financial Institution and a Client) provide capital
for a project which both may manage.
Client Bank
Business Venture
Profit / Loss
Mudaraba – Trustee Partnership
Business Venture
Profit Loss
Murabaha ( Mark upSales)
The client orders an Islamic Bank to purchase
certain goods at a specific cash price
The Bank purchase these goods from the supplier
and sells to the client at a marked – up price ( Cost
+ Profit).
The differed price may be paid up on lump sum or
in installment
Cost + Profit
Goods / Ownership
Cost
Client Ban
k
Ijara ( Lease)
A contract under which an Islamic bank finances
equipment, building or other facilities for the client
against an agreed rental. The ownership remains
with the lessor bank and can be transferred on
predetermined basis.
Salam ( Forward Selling)
•
Transactions are asset-based
•
It is socially-responsible banking because it
operates under Shariah restrictions
•
Does not permit financing of prohibited goods /
Industries
•
It starves evil out of the society
•
Ethics and moral values play a major role in
investment decisions. Not a choice but a must
Distinguishing Features
Conventional
money
Bank Client
Islamic
money
Performance of Islamic Finance
In comparison with conventional banking systems,
Islamic bank’s assets and deposits have grown at
GR of 20-22% while those of conventional banks
have grown at a rate of 11% for the period 2002 –
2005.
Key Isuues