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Presented By

- Zeenat Khatri

- Ahsan Ali Sultan

1.

Risk sharing - The customer and the bank share the risk of any
investment on agreed terms, and divide any profits or losses between them

2.

No Interest/ Riba Cannot lend money to earn additional


amount on it.

3. 4. 5.

Materiality - Real transaction must exist No exploitation - no exploitation of the contractual parties No financing for sinful activities activities forbidden by
Islamic Law.

Commercial Banking

Islamic Banking
Goods and Services

Money

Client

Client

Money +

Bank

Interest

Bank

Money

There were no major effects on Islamic Banking. However, the profitability did come down after Dubai

Crises.

2oth century

Criticizing capitalist economy


Spreading of Islam Need for interest free banking

Islamic Financial Institutes


Islamic Development Bank

From the late 70s onwards, Pakistan has a protracted

history of Islamic banking. As from July 1st, 1985 all commercial banking in Pak Rupees were made interest free. The first Islamic bank license was awarded to Meezan Bank back in 2002 Some of the Islamic Banks of Pakistan
AlBaraka Islamic Bank

BankIslami Pakistan Limited


Burj Bank Emirates Global Islamic Bank

Individual Deposit Accounts

Term Certificates
Certificate of Islamic Investment Monthly Mudarabah Certifcates

Ijarah
Car Ijarah

Business Deposit Accounts


Karobari Munafa

Business Plus

Sharia Based
Musharka Mudarba

Sharia Compliance
Murabaha Ijara Diminishing Musharka Bai Salam Bai Muajjal Istana

Murabaha
Cost Plus sale contract Profit usually linked with KIBOR Disclosure of cost Sale must be instant Deferred Payment

Ijarah
Rental Contract Ownership Risk borne by bank Rent is linked with KIBOR

Bai Salam
Sale Contract Delivery of product at Future date

Bai Muajjal
Similar to Murabaha Only difference is that the cost of product is not disclose

Istana
Sale contract Existence of subject matter

Mudaraba
A form of partnership in which one partner provides the fund and other his labor. Two types of Mudarabah Al-Mudarabah-Al-Muqayyada Al-Mudaravah-Al-Mutlaqah

Musharaka
A joint enterprise in which all partners contribute in form of cash and assets Sleeping partner cannot get more than his percentage of investment.

Diminishing Musharaka
Type of partnership between IFI and client

ISLAMIC BANKING VS COMMERCIAL BANKING


Islamic Banking Commercial Banking Concept of Money
Medium of Exchange

Its a commodity Interest vs. Profit Sharing

They share profit & loss

They charge you interest Risk Sharing

Both Investor & entrepreneur bear the Only borrower bear it risk

Islamic Banking Return varies Risk is share with depositors Murabaha Participation Term Certificate Bai Muajjal Istisna Musharaka Mudaraba Ijara Bai Salam Diminishing Musharaka

Commercial Banking Deposit Fixed return No sharing of risk with depositor Financing Credit Cards Overdraft Short-term loan Working Capital Financing Receivable Discounting Financing for Inventory Personal Loans Medium term Loan Long term Loan Leasing Agricultural Loans House Financing etc

Islamic Banking

Commercial Banking
Investment

Cannot invest in government, companies bonds etc Not free to Invest in Equity KMI Skuks Bonds Can Invest in Islamic Mutual Funds

Can invest in government, companies bonds, equity, mutual funds etc

Punishment for Delay in Payment Penalty Interest Relationship with Clients Investor & trader, buyer & seller Creditor & debtor

Challenges
Legal Support Benchmark Islamic banking Laws Lack of public awareness Lack of standard