Presentation of Rama Raju

8/8/2019 Presentation of Rama Raju

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Introduction to Islamic Banking 1

Introduction

To

Islamic BankingA Direction to the human on a right pathfor good life..!

By

P V V Rama Raju

President & CEO


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Introduction to Islamic Banking2

General Introduction.

The Islamic Economic System

The economic philosophy of

Islam vis--vis interest

Distribution of wealth.

What is Islamic Banking ? And

Why is Islamic Banking.

What is RIBA its prohibition

Regulations and Legal

framework.

Shariah Principles.

Contents Course Objectives

Relationship with Religion and

Banking.

Shariah Laws in Islamic

Banking

Sources and Application of

funds under Islamic Banking.

Various Islamic banking

products

Various International IslamicFinancial Institutions.

Conclusion.


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Islam is not only a religion in the ordinary sense of

the world, but also a complete system of life.

While other religious codes provide general guidanceonly for the relation between man and his Creator,

Islam guides man in his relationship with God andgives him the norms which govern his temporal

existence.

Islam is concerned with the spiritual, political, socialeconomic, moral and all other material aspects of thehuman being.

General Introduction


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General Introduction contd.

Every social system has its own economic system.

Islam being a comprehensive and distinct social

system, possesses a corresponding economic

system of its own.

Islamic economics is fast developing into a different

and distinct paradigm of economics.

Therefore, a number of Islamic financial institutions

have been emerging in various Muslim as well as insome non-Muslim countries.


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The Islamic Economic System

One of the forms of capitalism, which has been flourishingin non-Islamic societies, is the interest-based investment.

There are normally two participants in such transactions.

One is the investor who provides capital on loan and the otherManager who runs the business.

The investor has no concern whether the business runs into

profit of loss, he automatically gets an interest (Riba) in both

outcomes at a fixed rate on his capital.

Islam prohibits this kind of transactions and the Holly Prophet

(pbuh) enforced the ruling, not in the form of some moral

teaching, but in the form of law of land.


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The economic philosophy of Islam

vis--vis Interest

The economic philosophy of Islam has no concept ofRiba because

according to Islam, Riba is that curse in society, which accumulates

money around handful of people, and it results inevitably in creating

monopolies, opening doors for selfishness, greed, injustice and

oppression.

Deceit and fraud prospers in the world of trade and business. Islam, on

the other hand, primarily encourages highest moral ethics such as

universal brotherhood, collective welfare and prosperity, social fairness

and justice.

Due to this reason, Islam renders Riba as absolutely haram and strictlyprohibits all types of interest based transactions. The prohibition ofRiba in

the light of economic philosophy of Islam can be explained with the cost of

distribution of wealth in a society.


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Distribution of wealth

The distribution of wealth is one of the most important and most

controversial subjects concerning the economic life of man, which has

given birth to global revolutions in todays world, and has affected every

sphere of human activity from international politics down to the private life

of the individuals.

No doubt, Islam is opposed to monasticism, and views the economic

activities of man quite lawful, meritorious, and some times even obligatory

and necessary.

According to materialistic economics, livelihood is the fundamental

problem of man and economic developments are the ultimate end of

human life


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Distribution of wealth Contd.

The fundamental principle, which can help to solve theproblem of the distribution of wealth, is the concept of wealth

in Islam.

According to the illustration of the Holy Quran wealth in all

its possible forms is a thing created by Allah, and is, in

principle His property.

Allah delegates the right of property over a thing, which

accrues to man, to Him.


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History and Development

Islamic banking generally aims to promote and develop the applicationof Islamic principles, law and traditions to the transactions of financial,banking and related business and commercial affairs.

It also promotes business and commercial activities that are acceptable

and consistent within Shariah principles, safeguarding the Islamiccommunities and societies from activities which are forbidden in Islam.

An advantage of Islamic banking is that Islamic banks do not deal withloans (except for benevolent loans underQardh Hasan).

Instead, Islamic banking introduces the principles ofMusharakah(partnership) and Mudharabah (profit sharing), which make theinvestments of Islamic banks depend on the usefulness and feasibility ofthe projects in which the money are invested.


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History and Development ..Contd

The main principles of Islamic banking are the prohibition of interest

(usury) in all transactions, the undertaking of business and trade activities

on the basis of fair and legitimate profit and the prohibition of monopoly

and hoarding.

Nevertheless, it must be remembered that Islamic banks, like conventional

banks, are profitable organisations.

Their aim is to gain profit but they are not allowed to deal with interest or

to engage in any trade or business prohibited by Islam.

Whilst conventional banking is believed to have begun in the middle of thetwelfth century, Islamic banking first emerged only in the late seventies and

early eighties, although the history of Islamic banking activities can be

traced back to the birth of Islam.


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What is Islamic Banking ?

Islamic banking is defined as banking system which is in consonance

with the spirit, ethos and value system of Islam and governed by the

principles laid down by Islamic Shariah.

Interest free banking is a narrow concept denoting a number of bankinginstruments or operations which avoid interest.

Islamic banking, the more general term, is based not only to avoid

interest-based transactions prohibited in Islamic Shariah but also to avoid

unethical and un-social practices.In practical sense, Islamic Banking is the transformation of conventional

money lending into transactions based on tangible assets and real

services.


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What is the philosophy

of

Islamic Banking ?

The philosophy of Islamic banking takes and lead from Islamic Shariah.

According to Islamic Shariah, Islamic Banking cannot deal in transactions

involving interest/riba (an increase stipulated or sought over the principal

of a loan or debt).

Further, they cannot deal in the transactions having the element of Gharar

or Maiser.

Moreover, they cannot deal in any transaction, the subject matter of which

is invalid (haram in the eyes of Islam).

Operating within the ambit of Shariah, the operations of Islamic bankingare based on sharing the risk which may arise through trading and

nvestment activities using contract of various Islamic modes of finance.


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Why Islamic Banking and Finance ?

There may be opposing views that Islamic Finance is in many ways

very similar to (some times technical with) conventional finance.

Some may feel that this similarity is an attempt to dilute the

Islamic teachings to simplify our lives, while others may feel that

the Islamic legal distinctions between Islamic and regular finance

are artificial means of creating an industry where none is needed.

It is also mentioned that the terms Islamic banking or Islamic

Finance can be quite misleading given the many similarities

between Islamic and conventional financial contracts.

Islamic banks or Islamic financial institutions try to ensure that alltheir contracts adhere to Islamic legal requirements as well as state

requirements.


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Definition of Islamic Banking and Finance

Islamic finance is an ethical and equitable mode of finance that

derives its principles from the sacred law of Islam (the shariah).

The Islamic bank basically implements a new banking concept in

that it adheres strictly to the ruling of shariah in the fields of finance and other dealings.

The foundation of Islamic banking is based on the Islamic faith.

All the actions and deeds of its practitioners are bound by thelimits of Islamic law or the shariah.


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Introduction to Islamic Banking

Distinctive features of

Islamic finance

The most distinctive features of Islamicfinance are;

the prohibition of interest, whether

nominal or excessive, simple or compound, fixed or floating.

the prohibition of gambling;

dealing only in lawful (halal) things and;

the elimination of uncertainty andambiguity (gharar) in business contracts.


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Islamic Banking Foundations

Any predetermined payment over and above the actual amount ofprincipal is prohibited. (prohibition ofriba - interest).

The lender must share in the profits or losses arising out of theenterprise for which the money was lent. (profit and loss sharing)

Making money from money is not Islamically acceptable. Money mustwork as capital not as debt.

Gharar(uncertainty, risk or speculation) in transactions is prohibited.

Investment should be confined to products and services that are notforbidden.


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What is meant by RIBA ?

The word Riba means excess, increase or addition, which correctlyinterpreted according to Shariah terminology, implies any excesscompensation without due consideration (consideration does not includetime value of money).

This definition of Riba is derived from the Quran and is unanimouslyaccepted by all Islamic scholars.

Riba literally means an increase. Technically it is any increase (large orsmall, nominal or real) received on loan.

In Islamic jurisprudence it is defined as an increase in one of two

homogeneous equivalents being exchanged without this increase beingaccompanied by a return.

Riba has been understood throughout Muslim history as being equivalentto interest paid on a loan.


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Prohibition of RIBA

In Islamic law riba is regardless of the purpose of a loan, forbidden

because of four different revelations in the Quran:

First revelation underlines that God deprives riba of all blessing,

The second describes interest as the unjust appropriation of others

property,

The third discourages Muslims from interest for their own welfare, and;

Finally the fourth revelation urges Muslims to only ask for the principal

sum when lending money. (The Holy Quran 2:275-80)

There are numerous traditions of the Prophet Muhammad (pbuh) which

detail the prohibition ofriba. Says the Prophet (pbuh)

Gold for gold, silver for silver, wheat for wheat, barley for barley,dates for dates, and salt for salt; like for like, hand to hand, in

equal amounts; and any increase isRiba.(Muslim)


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Introduction to Islamic Banking 19

Prohibition of RIBA Contd

The prohibition ofriba essentially implies that the fixing in advance

of a positive return on a loan as reward for waiting is not permitted in

shariah.

It is a big source of gross inequalities of income. Interest transfers

wealth from the poor to rich, increasing the inequality in the

distribution of wealth.

Interest transfers income from the masses of depositors to the

industrialists. This lead to the concentration of income and wealth in

the society which is against the spirit of Islam.

Interest limits investment, while profit sharing increases it.

Interest on productive loan increases the cost of production.


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Prohibition of RIBA Contd

According to modern view, interest is the

price of capital.

Islam rejects this notion. Capital itself is not

productive, and it is the application of human

efforts to a stock of capital which generates

output and income.

The reward of capital cannot be fixed inadvance, unlike interest rates, but can only be

determined proportionately


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Prohibition of RIBA Contd.

In an interest based system the major criteria for the

distribution of credit is the creditworthiness of the borrower.

In a profit sharing system, the productivity of the project is

more important. Therefore, the finances go to more

productive projects.


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Legal Frame work and Regulations

Islamic banks have to confirm to two types of law, Shariah and

positive law.

While Shariah law is based on religious foundations, positive law

is promulgated by the monetary authorities to safeguard public

interest.

There is no uniformity in the laws followed by Islamic banks

around the world.

In most Muslim countries, special laws have been passed prior to

the establishment of Islamic banks and this law specifies the

rules and regulations for the institutions which engages in

banking businesses based on Islamic principles. Since Islamic banks were established as private or public limited

companies, the requirements stipulated in a countrys company

laws are applicable to them.


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LEGISLATION ON ISLAMIC BANKS

A specific law refers to legislation enacted by the

concerned regulatory authorities to govern a particular

Islamic bank.

At present, Da Afghanistan Bank, banking regulatoryauthority of Afghanistan, and the Government of Islamic

Republic of Afghanistan, have initiated steps for bringing

specific Islamic Banking Legislation / Regulations.

In the times to come, Da Afghanistan Bank may come out

with specific Islamic Banking Regulations in order to

control and regulate the Islamic Banking practices in

Afghanistan.


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REGULATION AND SUPERVISION

OF ISLAMIC BANKS

It should be borne in mind that in the conventional

banking system, there are five major goals for regulation.

Ensuring a safe, sound and secure banking system.

Provide competition

Efficient allocation of credit with prudent norms

Customer protection

Basis for monetary policy.

Islamic banks, being part of the financial system, are also subject

to the regulations and supervision of the monetary authorities of their

respective countries. The tasks of regulating and monitoring a

countrys financial system are normally given to the Central Bank of

the country (Da Afghanistan Bank in Afghanistan). There are many

similarities in terms of powers vested to central banks of Muslim

countries in regulating and supervising Islamic banks.


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Shariah Principles

Tawhid(the doctrine of the Unity ofAllah) is the basis by which thewhole system of Islamic teachings pertaining to all aspects of life.

It provides the foundation of the economics of Islam. Muslimtheologians have classified Tawhidinto three parts: viz Tawhiduluhiyah, Tawhid Asma was sifatand Tawhid rububuyah.

Relevant to Islamic banking and finance is the Tawhid rububiyahwhich has two aspects.

One concerns the relationship amongst men themselves and the other,

mens relations toAllah.

It implies thatAllah is the creator and that men are equal partners and brothersto other men. In other words, rububiyah (divinity) in a Muslim society is only for

Allah.

According to this doctrine, no man has the right to claim a biggershare since he does not create or generate natural powerindependently.


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Shariah Principles Contd

Basically, there are four sources of Islamic laws:

The Quran

The Sunnah

The Ijma, and

The Qias


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The Quran

From the Islamic perspective, the Quran embodies the divine law

and is, therefore, superior to any man-made law.

The Quran in general draws the larger boundaries of the Islamic

law within which all human actions can be confined.

It provides the framework within which humanity should

structure their legal, social, economic, political and

administrative system.

The Quran prohibits behaviour such as drinking of alcoholic

beverages, engaging in games of chance, committing murder,

stealing, committing adultery, exacting usury and worshipping

anything or anyone other thanGod.


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The Sunnah

The Sunnah (orHadith) literally means the path, the road or the

way of the Prophet Muhammad and is used to denote the

Prophets action, deeds and utterances.

It explains and amplifies the principles of law embodied in the

Quran and adds to it new legislations and sanctions which areconsidered important by the Prophet.

Muslims believe that the Sunnah is a source of law which

supplements the Holy Quran.

Muslim scholars generally agree that accepting the Sunnah of the

Prophet is a pre-requisite of being a Muslim.


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The Ijma,

Ijma means the consensus of opinion. There arefour types ofIjma, namely: the regularIjma of the companions of the Prophet (the

highest authority)

the irregularIjma of the companions which represent theopinions of a few companions which are not repudiatedby the rest.

The Ijma of the mujtahids of the later ages on questions

arising after the time of the companions of the Prophet.. The Ijma of the jurists of the later ages on a question

about which there were differences of opinion amongstthe companions.


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The Qias

Qias means analogy.

As all rules are based on objectives and interests, such

objectives and interests are causes for such rules.

When addressing a particular problem, the same rule to another

problem where the causes for both were identical can be appliedby analogy.

The Shariah is the legal aspect of Islam as understood

from the four fundamental sources of the Islamic

religion as mentioned above.


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MEANING AND CONCEPT OF

SHARIAH

Islamic laws are also known as Shariah laws, sometimes referred

to as Islamic jurisprudence.

The original meaning of the word Shariah orsharis the path or

the road leading to the water and the verb sharaa literally means

to chalk out or mark out a clear road to water. In a religious sense, it means the highway of good life.

In other words, Shariah is the way which directs mans life to the

right path.

From the words the right path, therefore, came the meaning

law.

The word Shariah also has its correlation with the word din

which literally means submission or following.


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SHARIAH

Shariah is the ordination of the Way and its proper subject isGod,

whereas din is the following of that Way and its subject is man.

Therefore, as far as Quranic idioms go, one may speak ofShariah

and din interchangeably.

According to Muslim belief, the concept of Shariah is not only togovern man in the conduct of life in order to realise the Divine

Will, but covers all behaviour-spiritual, mental, physical.

Therefore, Shariah principles are more than law, covering the total

way of life including faith and practices, personal behaviour, legal

and social transactions. In other words, in the Muslim religion of Islam, Shariah is a

comprehensive principle of a total way of life.


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SHARIAH

Practical aspects ofShariah affecting the daily life of a Muslim

can be further divided into two, namely Ibadat(relation between

God and man) and Muamalat(relationship between man and

man).

Ibadatis concerned with the practicalities of a Muslims worshipofAllah in the context of man-to-Allah relationship,

whereas Muamalatis concerned with the practicalities of his

mundane daily life, in the context of various forms of man-to man

relationship.

The Islamic banking system, therefore, being part of economic

activities is linked to Shariah principles throughMuamalat.


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Relationship between the

Banking system andReligion

within Islam:

In other words, a significant segment ofMuamalat is the conduct of a

Muslims economic activities within his economic system.

within this economic system is the banking and financial system within

which he conducts his banking and financial services.

Thus Islamic banking and finance, being part of a Muslims economic

activities, is a Muslims link to Muamalat, to Shariah, to Islam, and finallytoAllah.

This is the foundation of the purpose or the root of Islamic banking and

finance.

Within the Islamic scheme of life and Shariah framework, Islam imposes

its akkam(laws) representing norms or values on its believers. These laws or values are not man-made but ordained byAllah.

These laws are derived from the sources ofShariah, the two

primary sources being theAl-Quran andAl-Sunnah.


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SHARIAHLAWs IN

ISLAMIC BANKING SYSTEM

As stated above, the objective ofShariah is to construct life on the basisof virtues and to cleanse it of vices.

Shariah is, therefore, expected to provide not only the right path but also

to govern all activities of the Muslims toward the betterment of the whole

community.

In reality, however, instead of being governed by the Shariah, Muslims

are constantly bound by customary and positive laws.

The emergence of Islamic banking in the 1960s and 1970 served as an

impetus for the reestablishing of the Shariah in commercial activities.

This was largely because banking laws in all Muslim countries were

conventional banking laws or interest based laws.

But then, interest is prohibited by Quran and the Hadith. In order to allow Islamic banks to operate, governments of Muslim

countries commissioned Muslim jurists to promulgate laws which

are applicable to this new style of banking.


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SHARIAHLAWs IN

ISLAMIC BANKING SYSTEM

In the process of reestablishing Shariah law in

banking, it was inevitable for Muslim jurists to refer to

the primary source ofShariah i.e the Quran and

Hadith.

The Quran, however, being primarily a book ofreligious and moral principles and exhortations, is not

a legal document.

With regards to Islamic banking, the Quran has given

clear and implicit guidelines that its operations shouldbe free from any element of interest.

As an ordinary business entity, the Islamic bank is

expected to conform to the rules and guidelines given

by Quran.


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SHARIAHPRINCIPLES USED

IN ISLAMIC BANKING

Muslim jurists and scholars have suggested a

number ofShariah principles to be adopted by

Islamic banks in delivering their products and

services. Among the most widely used Shariah

principles recommended by these scholars

are mudarabah, Musharakah, murabahah, bai-

muazzal, ijara wa-iktina, qard hassan, wadiahand rahn


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Categories ofShariah principles

Profit and loss sharing principles

Mudarabah

Musharakah

Fees or charges based principles

M

urabahah Bai muazzal

Ijara

Ijara wa-iktina

Free service principles

Qard hassan Ancillary principles.

Wadiah

Rahn


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General Principles of Shariah

Islamic banks, being institutions founded on Islamic doctrines,confirm to Islamic rules and regulations known as Shariah lawswhich consist ofibadatand muamalat.

As Islamic banking business mobilizes material resources andare part of economic activities, Islamic banks are governed by

Shariah through the components ofmuamalat. The Shariah governing the operations of Islamic banks originate

from four sources, that is, the Quran, Hadith, Ijma and Qiyas.

The Quran and Hadith are the primary sources ofShariah, whilstIjma and Qiyas are secondary sources which are only appliedwhen no solution on the matter in question is found in theprimary sources.

Since Islamic banking is relatively new, Muslim countries haveyet to promulgate complete sets ofShariah laws to govern theentire Islamic banking system.


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General Principles of Shariah

In most countries, the only Shariah component in

Islamic banking law is the prohibition of interest in the

operation of Islamic banks.

Instead of interest used in conventional banks,

Islamic banks adopt principles such as profit-loss

sharing (example, mudarabah and Musharakah), fees

or charges based (example, murabahah, bai-muazzal,

ijara wa-iktina), free service (example, qard hassan)and ancillary principles (example wadiah and rahn).


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Islamic Banking

Source of Funds(Liabilities)

Shareholders equity (contract: al-Musharakah or joint

venture on profit sharing).

Customers deposits in current accounts (contract:Al

Wadiah Yad Dhamanah or guaranteed custody).

Customers deposits in savings accounts (contract:

Al-Wadiah Yad Dhamanah or guaranteed custody)

Customers deposits in general investment accounts

(contract:Al-Mudharabah or trustee profit-sharing).

Customers deposits in special investment accounts

(contract:Al-Mudharabah or trustee profit-sharing)


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Islamic Banking

Application of funds (Assets)

Statutory reserve (contract: Al Wadiah Yad Dhamanah oguaranteed custody)

Liquidity requirements (contract: Al-Qardh Al-Hassan orbenevolent loan.

After meeting the statutory reserve requirements and holding the

required level of liquid assets, the Islamic bank is free to applythe remainder of their funds for banking operations. The varioustypes of financing facilities include:

Project financing (contract:Al-Mudharabah or trustee profit-sharing)

Project financing (contract:Al-Musharakah or joint venture profitsharing)

Financing the acquisition of assets (contract:Al-Bai BithamanAjilor deferred instilment sale)

Financing the use of services of assets (contract:Al-Ijarah orleasing)


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Islamic Banking

Application of funds (Assets)

Loan syndication services (contract:Al-Ujror fee) Securitization and debt-trading (contract: Bai-al Dayn

or Debt-trading)

Trade financing: letter of Credit (contract:Al-Wakalah or agency)

letter of credit (contract:Al-Musharakah or joint venture profit-sharing)

letter of credit (contract:Al-Murabahah or deferred lump sum saleof cost plus)

Letter ofGuarantee (contract:Al-Kafalah orguarantee)

Working capital financing (contract:Al-Murabahah ordeferred lump sum sale of cost plus)

Securitisation and Islamic Accepted Bill (IAB)(contract: Bai al-Dayn or debt-trading)


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Islamic Banking

various products

Deposit products :

Product / Services Applicable Islamic principles

and concepts

Savings Account Mudharabah / Wadiah yad Dhamanah

Current Account Mudharabah / Wadiah yad Dhamanah

General Investment Account (Term

Deposits)

Mudharabah

Special Investment Account Mudharabah

Specific Investment Account Mudharabah

I l i B ki


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Islamic Banking

various productsFinancing (Loan) products:

Product / Services Applicable Islamic principles and conceptsTerm financing Bai Bithaman Ajil

Working capital financing Murabahah / Bai Bithaman Ajil

Syndicate finance Istisna / Bithaman Ajil / ijarah thumma Bai

Project financing Bai Bithaman Ajil / istisna / ijarah

Plant & machinery financing Bai Bithaman Ajil/ istisna / variable rate ijarah

Personal financing Bai Bithaman Ajil / Bai inah / Mudharabah

Fixed asset financing Bai Bithaman Ajil

Housing finance Bai Bithaman Ajil / Istisna / variable rate ijarah

Industrial hire purchase Ijarah Thumma Bai

Land financing Bai Bithaman Ajil

Leasing finance Ijarah

Cash line facility Bai inah / Bai Bithaman Ajil / Murabahah

Computer financing Bai Bithaman Ajil

Education finance Murabahah / Bai Bithaman Ajil / Bai inah

Bridge finance Istisna / Bithaman Ajil

Equipment finance Bai Bithaman Ajil

Hire purchase Wakalah

Benevolent loan Quard Hassan

Block discounting Bai Dayan


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Islamic Banking

various products

Trade Finance

Product / Services Applicable Islamic principles

and concepts

Accepting Bills Murabahah / Bai Dayn

Bank Guarantee Kafalah

Export Credit refinancing Murabahah / Bai Dayn

Letter of Credit Wakalah / Murabahah / ijarah / Bai

Bithaman Ajil

Shipping Guarantee Kafalah

Trust Reciept Wakalah / Murabahah


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Islamic Banking

various products

Treasury / Money Market Investment

Product / Services Applicable Islamic principles and

concepts

Islamic Treasury bills Bai al-inah

Negotiable debt certificates Bai Bithaman Ajil

Foreign Exchange Ujr

Commercial papers Murabahah

Negotiable instrument of deposit Mudaharabah

Government investments issues /

certificates

Bai al-Inah


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Islamic Banking

various products

Banking Services


concepts

ATM services Ujr

Cashiers Order Ujr

Demand Draft Ujr

Standing instructions Ujr

Stock-broking services Ujr

TT / Funds transfer Ujr

Travellers Cheques Ujr

Tele Banking Ujr


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Islamic Banking

various products

Card Services


concepts

Debit Card Ujr

Credit Card Bai Inah / Bai Bithaman Ajil

Charge Card Quard Hasan


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International Islamic

Financial Institutions

With the emergence of Islamic finance,some international financial institutions

also have come on to the scene.


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Islamic Development Bank

(IDB)

The Islamic Development Bank (IDB)-basedin Jeddah Saudi Arabia- is a multilateraldevelopment bank serving Muslim

countries. The purpose of the Bank is to foster the

economic development and socialprogress of member countries and Muslim

communities individually and collectivelyin accordance with the principles of shari'ah.


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The Accounting and Auditing Organization

for Islamic Financial Institutions (AAOIFI)

AAOIFI is an Islamic international autonomous thatprepares accounting, auditing, governance, ethics andshari'ah standards for Islamic financial institutions.

The objectives of AAOIFI include:

To develop accounting, auditing, governance andethical thought relating to the activities of Islamicfinancial institutions.

To harmonize the accounting policies and proceduresadopted by Islamic financial institutions through thepreparation and issuance of accounting standards and

the interpretations of the same to the said institutions. To prepare, promulgate and interpret accounting and

auditing standards for Islamic financial institutions.


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Financial Market (IIFM)

The International Islamic Financial Market (IIFM) aimsto facilitate international secondary market trading ofIslamic financial products and instruments byproviding independent shariah enhancement and

issuing guidelines for new products andinstruments.

The core product of IIFM is the shariah endorsementor enhancement of existing and new Islamic financial

products and instruments which are offered byIslamic financial institutions, conventional banks withIslamic banking subsidiaries windows and so forth.


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Rating Agency (IIRA)

The basic aim of the IIRA (Bahrain) is to support

shariah compatible banks and mutual funds and help

them penetrate the international market.

It rates Islamic banks and their financial instruments,

sukuk, to help them offer 'credible products' in the

international market.

It also provides complementary rating information on

Islamic banks to that produced by other rating

agencies, including measures of their compliancewith shariah law.


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Liquidity Management Center

(LMC)

The LMC, established in Bahrain in 2002, seeks to

develop an active secondary market for short-term

shariah compliant treasury products. The key

objectives of the LMC include:

to facilitate the creation of an interbank money market

that will allow Islamic Financial Services Institutions

("IFSIs") to effectively manage their asset liability

mismatch;

to provide short-term liquid, tradable, asset-backedtreasury instruments (sukuks) where IFSIs can invest

their surplus liquidity.


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Conclusion

On the whole, the Islamic banking system is far from

comprehensive.

It appears that the elimination of interest from the banking

system remains top priority.

The main difficulties faced by Islamic Banks are the lack of Islam

based investment opportunities.

Timely support and guidance of the regulatory authorities,

Shariah board members and other Islamic scholars and jurists is

the need of the hour in order to set the right path for the

introduction of Islamic Banking in Islamic Republic ofAfghanistan.


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Khudah Hafez

With the limited knowledge and other constrains, the aboveattempt had been made with utmost sincerity and high respect

to the religious sentiments. Hope, any little mistake / ignorancefound in this attempt, could be excused as it is unintentional.

By

P V V Rama Raju

President & CEO

I sincerely convey my thanks for the noble opportunity to

stand before learned dignitaries for presenting the little

attempt on Islamic Banking before international banking

experts.

Presentation of Rama Raju

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