Fundamental of Islamic Banking - Overview of Financial System
Islamic Banking Overview
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Transcript of Islamic Banking Overview
© 2015 RM Applications Sdn. Bhd. (The information contained herein is subject to change without notice)
Islamic Banking Overview Banking on Faith Based Products
By Lokesh Gupta Head, Business & Technology Consulting
By
RM Applications Sdn. Bhd.
No.69-1 Medan Setia 1
Bukit Damansara
50490 Kuala Lumpur
Tel: +603-20932677
Fax: +603-20932607
Website : www.rma.com.my
Email : [email protected]
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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What is Islamic Banking ?
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What is Islamic Banking?
Isamic Banking is based on the principles of
‘Trade and Commerce’
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Islamic Banking Principles
Riba Free
Isamic
Banking
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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Islamic & Conventional Banking Comparison
Based on Man made Principles Functions & Operations
It promotes equity participation
& trading
Risk Ownership
One of the service-oriented
functions to be a Zakat
Collection Centre
Zakat (Religious Tax)
No provision to charge any
extra money Penalty
More importance to the public
interest to ensure growth with
equity.
Social Welfare
Greater emphasis on viability of
the project related to economic
development
Economic Development
Based on Shariah Based
Principles
Pre-determined returns are
assured
One of the service-oriented
functions to be a Zakat
Collection Centre
Charge additional money
(Penalty + Compound Interest)
More often, Bank’s own interest
becomes more prominent
Greater emphasis on client’s
credit worthiness
Conventional Bank Functions Islamic Bank
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Islamic & Conventional Banking Comparison
Varies due to compounding
interest element Fixed Repayment
Buyer / Seller or Lessor /
Lessee or Investor /
Entrepreneur
Relationship
Muslims & Non-Muslims Customers’
Shariah Supervisory Board +
Bank Negara Malaysia
Corporate Governance
Selling Price is fixed
Debtor / Creditor
Not permissible for Muslims
due to interest element involved
Bank Negara Malaysia
Conventional Bank Functions Islamic Bank
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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Saving A/C – Wadiah (Trustee / Safekeeping)
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Fixed Deposit – Mudharabah (Profit Sharing)
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House Financing – Bai Bithaman Ajil (Deferred Payment Sale)
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Murabaha – Mark Up Financing
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Hire Purchase – Ijarah (Rental)
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Project Financing – Musharakah (Equity Participation)
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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Evolution of Islamic Finance in Malaysia
Phase I - 1983
− Wadiah Saving
− Wadiah Current
− Mudharabah Investment
− BBA Financing
Phase 2 - 1993
− Islamic Interbank Money Mkt
− Murabahah Working Capital
− Trade Financing
− Asset Securitization (Mudharabah)
Phase 3 - 1998
− Istisna Financing
− Bai Innah Financing
− Rahnu
− Bai al Dayn
− Ijarah / AITAB
− Islamic Bonds / PDS
− Qardh Hassan
Current Stage
− Musharakah
− Diminishing Musharakah
− Bai Salam
− Mudharabah Financing
− Commodity Murabaha
− Istijrar
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Source : www.ifsb.orgy / Islamic Financial Service Industry Stability Report 2013
Key Statistics
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Points to Share
1-. Islamic Banking Overview
2-. Comparison
3-. Key Islamic Product Structure
4-. Evolution of Islamic Banking
5-. Closing Thoughts
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Islamic Banking Challenges
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Critical Success Factors
Stress on Ethical Marketing
Create Awareness via branding and promotion
Offer convenience and easy access to information and banking online via e-
channels for SME & Corporate via Cash Management, EIPP etc.
Introduce Sophisticated Islamic products & services such as Wealth
Management, Halal Supply Chain Financing etc
Returns from Islamic instruments vs. conventional products
Standardization of Terms / Contracts
Transformation of traditional client service model for Islamic banks
Key drivers will be Innovation NOT Migration, infrastructure and regulatory
improvement.
Islamic Financing product with stress on economic development e.g.
Microfinance
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Thank You [email protected]
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