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.

 Tosafeguard 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 of monopoly and hoarding.

 Emphasize 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 and morality principles.

 To give alms tax.

 To 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.