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Islamic Financial System

Course Outline

1. Financial System: Concept, Structure, Role, Financial Institutions, Instruments and Markets, IslamicFinancial System & its Principles, Distinguish between Conventional and Islamic Financial System.

2. Islamic Banking: Definition, Goals, Objectives, History and Present Status in Bangladesh and aroundthe world.

3. Islamic Economics: Concept, Definition, Principles, Goals, Objectives, Worldview and Strategies.

4. Shariah: Concepts, Principles, Goals, and Objectives (Maquasid-al-Shariah), Characteristics, Sourcesof Shariah, Shariah Vs Man-made Law, Role of Shariah in Islamic Financial Institutions.

5. Commercial Banking Operations under Islamic Framework: Rational of Islamic Banking, DepositMobilization Principles, Deposit Products, Weightage, Mechanism of distribution of Profit among

Mudaraba Funds and Calculation thereof.

6. Riba: Meaning, Definition, Classification, Prohibition of Ribas in the Quran, Hadith & Fiqh, Socal-

Economic Impact of Riba, Concept of Bai, Rent, Profit and Differences thereof.

7. Modes of Investment under Islamic Mechanism: Conventional Loans & Advances, Investments

Products under Islamic Banking, Bai, Ijara and Shirkat and Differences among various Investment

Mechanism. Ethics in Islamic Business.

8. Export and Import Financing under Islami Framework.

9. Superiority of Islamic Banking over the Conventional Banking- Conventional Banking Vs Islamic

Banking- Misconceptions about Islamic Banking and how to address these.

10. Accounting: Philosophy, Ethics and Principles: Islamic Perspective, Cash and Accrual Basis of

Accounting, Islamic Accounting System Vs Conventional, Capital Adequacy Ratio and RiskWeighted Assets.

11. Islamic Financial Instruments and Institutions: Instruments: Mudaraba Perpetual Bond (MPB),Bangladesh Government Islamic Investment Bond (BGUB) and Institutions: Islamic Development

Bank (IDB), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI),

International Association of Islamic Banks (IAIB), Central Shariah Board for Islamic Banks ofBangladesh (CSBIB/CSB), Islamic Banks Consultative Form (IBCF), Islamic Finance and

Investment Companies Ltd.

12. Central Banking and Monetary Management under Islamic Framework: Role of Central Bank in anIslamic Economy. Monetary Policy and Fiscal Policy in Islam, Objectives and Instruments,

Comparison between Islamic and Conventional System of Fiscal Policy.

13. Islamic Insurance (Takaful): Definition, Salient Features, Differences between Islamic Insurance and

Conventional Insurance, Re-Insurance, Prospect and Problems of Takaful in Bangladesh.

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Concept of Financial System:

It is a set of organised institutional set-up through which surplus units transfer their fund to deficit units.

An efficient financial system performs the function of financial intermediation allocating resources in line

with national priorities at lower cost.

Structure of Financial System

Financial Institutions/ Intermediaries:

o Bank : Commercial: Nationalized, Private; Specialized Banks and Foreign Banks

o Specialized Financial Institutions: BSB, BSRS, BKB, RAKUB, Ansar VDP Unnoyan

Bank, Bangladesh Cooperative Bank, Employment Bank.

o Non-bank financial intermediaries:

Investment Intermediaries (Investment Banks, Securities Brokers, Mutual Funds)

Contractual Savings Institutions (Insurance companies, and pension funds).

Non-bank financial institutions of Bangladesh: ICB, Merchant banks. Leasing

Companies, HBFC, SABINCO, VANIK and other finance companies mutual

funds.

Financial Instruments (Two types):

o Primary (bills, bonds, loans and advance, shares, debentures etc.)

o Secondary ( bank deposits, life insurance policies, mutual fund unit certificates)

o In addition may be classified into Money Market (The instruments: Treasury Bills,

Certificate of Deposit etc.) and Capital Market (The instruments: Stocks, Corporate

Bonds, Govt. Securities and Consumer and Bank Commercial Loans.)

Financial Markets: (Two types)

o Money Market: Bill of exchange, Treasury bills and Short-term government

bonds.

o Capital Market: Shares and debentures of industrial concerns, debentures and

bonds of quasi-government organizations and bonds and promissory notes of the

government are used in capital market.

Composition of Money Market: It is composed of several sub markets are as follows;

Call money market: To cover the short term liquidity obligation banks prefer this kind ofinvestment from other banks in terms of interest.

Acceptance Market: It refers to the market for bankers acceptances which arise out of trade-both

inland and foreign.

Bill Market and Discount Market: It refers to the market where short-dated bills and other paper

are discounted.

Institutions in the Money Market

The Central Bank: It is the lender of last resort. It lends money to CBs at the time of fund Crisis.

Commercial Banks: They invest money in various forms of assets (which comes from the public

in the form of deposits repayable on demand) which are considered the secondary reserve for the

bank are closely linked with the money market.

Institutional Investors: They include savings banks, insurance companies, trust companies and

investments trusts.

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Private individuals, Partnerships and Companies: If the interest rates become attractive, they maydivert a portion of their funds kept invested liquid assets finds its way into the money market.