islamic banking

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ISLAMIC BANKING Hosted by: SBAI Imane BENJILALI Maroua

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Page 1: Islamic banking

ISLAMIC BANKINGHosted by:SBAI ImaneBENJILALI Maroua

Page 2: Islamic banking

PROBLEM

Obasanjo, Ex-President of Nigeria.

Homebuyers, United Kingdom.

College students in USA

Page 3: Islamic banking

MAIN POINTS

• Definition of Islamic Banking• Islamic banks around the world.• Specificities of Islamic Banking• Islamic Banking Products & Services• Difference Between Islamic Banking and Conventional

Banking.• Islamic Banks in Morocco.

Page 4: Islamic banking

DEFINITION

Islamic banking is a banking system that is based on the principles of Islamic law.

Two basic principles behind Islamic banking:

The sharing of profit and

loss

The prohibition of the collection and payment

of interest by lenders

 and investors

Page 5: Islamic banking

ISLAMIC BANKS AROUND THE WORLD

Participation banking continues to show strong growth of 16%, despite political and economic volatility in the major regions.

It is projected to grow by an average of 19.7% a year to 2018

Page 6: Islamic banking

ISLAMIC BANKS AROUND THE WORLD

Saudi Arabia QatarUnited Arab Emirates

Egypt

Page 7: Islamic banking

ISLAMIC BANKS AROUND THE WORLD

Pakistan

Malaysia

China

ASIA

Indonesia India

Page 8: Islamic banking

ISLAMIC BANKS AROUND THE WORLD

In Europe

Britain LuxemburgGermany

France (Halal Current Account)

Islamic Window Russia

Page 9: Islamic banking

SPECIFICITIES OF ISLAMIC BANKING

Islamic banks perform differently financial intermediation.

For instance, Islamic banks’ depositors undergo true investors’ risk Depositors share losses as well as profits related to each Sharia’a compliant investment project financed through their own funds

Page 10: Islamic banking

SPECIFICITIES OF ISLAMIC BANKING

Islamic banks’ depositors are not aware of the exact rate of return related to the undertaking transaction.No guarantee on the principal and neither on the returns.Depositors are treated like the banks’ investors.

Page 11: Islamic banking

SPECIFICITIES OF ISLAMIC BANKING

Islamic banks are prohibited from engaging in sinful transactions such as weapons, alcohol, drugs, pornography, and the porcine industry.

Islamic banks’ contracts, operations, and products must be clearly announced and explained to different transaction parties.

Page 12: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

MUDARABAHProfits are shared between the capital provider and the manager in a predetermined ratio, while losses are borne solely by the capital provider The capital provided by the rabb al maal is returned by the manager/mudarib when the contract ends.In Islamic banking, capital provider is the while the manager is the bank.

Page 13: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

MUDARABAHMudarabah is an equity-based contract offered by Islamic banks, where one partner provides money to another and the latter manages the money by investing it in commercial projects in order to earn profit which is shared among the two in a predetermined ratio.

Page 14: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

MUSHARAKAMusharakah is a partnership-based contract or an investment product with a partnership structure for sharing profits and losses, It involves investment from all the partners and an agreement to share profits in a predetermined ratio and to share losses in the ratio of contribution.

Page 15: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

MUSHARAKAThe special conditions for Musharakah are The commodity: every partner should be capable of agencyThe ratio of profit sharing should be predetermined; and along with the profits, losses should also be shared in the ratio of contribution towards the contractDefining absolute value or fixed value is not permissible, instead, ratios or percentages must be determined

Page 16: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

MURABAHA Refers to the sale of goods at a price which includes a profit margin, i.e. cost plus. A Murabahah contract has an honest declaration of cost and the expenses incurred on the product, along with the profit mark up being taken by the seller, which is the bank in this case.

Page 17: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICESMECHANISM OF MURABAHA

SUPPLIERS OF GOODS CUSTOMERSISLAMIC BANKS

Sale of assets Sale of assets

Payment of purchase price

Payment of purchase price + Premium

Page 18: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

PILLARS OF MURABAHAProduct and selling priceContracting partiesOffer and acceptanceNo riba trading shall be involvedThe initial contract must be valid

Page 19: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

SUKUKShares in the ownership of tangible assets.

The element of debt is non-existent, bond holders share the beneficial ownership of the asset or the project that the bonds represent

Page 20: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

IJARAProviding products or services on a lease or rental basis.

A person or party is given the right to use the object (the usufruct) for a period of time; the owner retains the ownership of the assets.

Page 21: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

TYPES OF IJARALease-ending ownership (ijara wa iqtina/ ijara muntahia bitamleek): the lessee owns the leased asset at the end of the lease period.

Operating lease (operating ijara): doesn’t include the promise to purchase the asset at the end of the contract. Basically, this setup is a hire arrangement with the lessor.

Page 22: Islamic banking

ISLAMIC BANKS: PRODUCTS&SERVICES

DIFFERENCE BETWEEN LEASING AND IJARA

The lessor must own the assets for the full lease period.

If the lessee defaults on payments or delays payments, the lessor can’t charge compound interest.

The leased asset’s use is specified in the contract.

Page 23: Islamic banking

DIFFERENCE BEWTWEEN ISLAMIC BANKING & CONVENTIONAL BANKING

Conventional Banks Islamic Banks

•The functions and operating modes of conventional banks are based on fully manmade principles (largely capitalism theory)

•The functions and operating modes of Islamic banks are based on the principles of Islamic Shariaa

•It promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur)

•Unrestricted profit maximization illustrated by derivative trading.

•Aims at maximizing profit but subject to Shariaa restrictions.

•The investor/lender is guaranteed of a predetermined rate of interest or returns.

Page 24: Islamic banking

DIFFERENCE BEWTWEEN ISLAMIC BANKING & CONVENTIONAL BANKING

Conventional Banks Islamic Banks

•It does not deal with Zakat

•Conventional banks use money as a commodity which leads to inflation.

•It has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat.•Money is linked with the real assets therefore it contributes directly in the economic development.

•While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

•The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts.

Page 25: Islamic banking

ISLAMIC BANKS IN MOROCCO

Page 26: Islamic banking

ISLAMIC BANKING IN MOROCCO

CIH is partnering with Qatar International Islamic Bank and Morocco’s CDG to establish an Islamic bank subsidiary.

Morocco’s BCP chose Guidance Financial Group to establish Islamic windows and Islamic bank subsidiary.

Page 27: Islamic banking

ISLAMIC BANKING IN MOROCCO

The central bank has planned to form an Islamic interbank market and

encouraged the government to issue regular sukuk (Islamic bonds) to ensure the industry’s liquidity

Page 28: Islamic banking

ISLAMIC BANKING IN MOROCCO

Encouraging stability in investmentsBy performing intensive audits and analyses, Islamic finance promotes the reduction of risk and creates the space for a greater investment stability.

Page 29: Islamic banking

ISLAMIC BANKING IN MOROCCO

Accelerating economic developmentIslamic finance companies certainly have profit creation and growth as their objectives. Islamic Banks choose to invest in businesses based on their potential for growth and success. High return on investments both for the bank and the depositors.

Page 30: Islamic banking

CONCLUSIONThank you for your attention.