...this research is to find out if Islamic Banking is a better alternative to the Western, Conventional Banking. The information provided will reveal various Islamic Banking principles that would have prevented previous major economic crises and if applied globally today could prevent a major economic collapse. Islamic Banking is banking system based on Shari'a (Islamic) Law on which it developed its unique characteristics that will be discussed in this paper. Shari'a Law does not allow the use of Interest (Riba), trading in financial risk, and investing in businesses that are considered unlawful according to the Quraan and Islamic scholars. Shari'a law in Islamic Banking is meant to promote economic and development through the means of disciplined investing, fair risk sharing, and profit or loss sharing (Warde, 2000). The literature that will be examined in this paper will show that Islamic Banking is a good alternative to the current global banking system, however, it will be near impossible to revamp the existing banking system and replace it with Islamic Banking because it goes against many of the core principles of conventional banking that the global economy is built on which has been around for decades. Brief History The main goal of Islamic banks was to promote social and economical welfare in society through guiding investors and offering financial assistance to businesses by engaging in profit sharing transactions (Warde, 2000). Islamic banks were thought of as more...
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...BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS Mohamed Hashem Rashwan1 The British University in Egypt ABSTRACT This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate. INTRODUCTION Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More than 200 Islamic Banks...
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...Islamic Banking Malek Alraddadi 02-24-2014 FIN-610 Introduction This study debates upon the history of Islamic banking. What are the ethical issues involved in the implementation of Islamic banking. Since the birth of Islam what type of steps are taken and by whom these measurements were taken. Besides this this paper also declares the response and customers point of view regarding Islamic banking with the help of different studies. History of Islamic banking The term Islamic banking got regular in the 1960's, however the systems and thoughts of the framework were suggested and operated since the beginning of Islam. Numerous studies and explores have indicated that Islamic money components were utilized within the Muslim world all around the Middle Ages; in leading exchange and business exercises. Charging investment on credits was not regular in those days. The first run through investment bearing credits were generally utilized within the Muslim world, particularly in the Middle East, was throughout the Ottoman Empire's governed in the fifteenth century. Mehmet Ebusuud Efendi, the senior Islamic minister of the Ottoman Empire, issued a fatwa (decision) permitting the charging of investment and thinking of it halal (allowable) as long as it was underneath 10%. Despite the fact that it was clear in The Holy Quran that investment was strictly disallowed, practically nobody could challenge the senior Islamic priest's decision since testing him might mean testing the...
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...Farhan Ilyas Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics. The Basic Difference between Capitalist and Islamic Economy Islam does not deny the market forces and market economy. Even the profit motive is acceptable to a reasonable extent. Private ownership is not totally negated. Yet, the basic difference between capitalist and Islamic economy is that in secular capitalism, the profit motive or private ownership are given unbridled power to make economic decisions. Their liberty is not controlled by any divine injunctions. History of Islamic Banking: Since the beginning of the 18th century, banking has been conducted on an interest-based system of lending money to those in need. With no other alternative available, people had no choice but to borrow money at often high interest rates. This lead to the formation of an unfair system that brought unnecessary hardship on people It was this need for a fair financial system that brought about the birth of Islamic banking in the mid-1970s. Its objective was to provide a financial alternative that was fair, transparent and above all, a source of economic upliftment for all those in need Islamic banking, enlightened with the guidance of Islamic Shari‘ah principles, emerged as an alternative financial system that neither gave nor took interest, thereby introducing a fair system of social justice and equality...
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...Contents 1 2 10 12 What is Islamic banking? Islamic banking in Malaysia Observing Shariah principles Shariah concepts in Islamic banking Frequently asked questions Glossary This booklet tells you about the basic concepts and principles of Islamic banking. What is Islamic banking? Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad). Islamic banking in Malaysia • The first Islamic bank was established in Malaysia in 1983. • In 1993, commercial banks, merchant banks and finance companies begun to offer Islamic banking products and services under the Islamic Banking Scheme (IBS banks). • The IBS banks have to separate the funds and activities of the Islamic banking transactions from the nonIslamic banking business (conventional banking). • You can identify an Islamic bank or an IBS bank from the logo below: 1 bankinginfo info perbankan Observing Shariah principles All Islamic banks and IBS banks have set up Shariah Committees to guide them on Shariah matters and to make sure that they function in a manner that is in line with the Shariah. In addition, the advice of the Shariah Advisory Council which is the highest Shariah body set up at Bank...
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...35-52 COMPARATIVE ANALYSIS OF LOAN RECOVERY AMONG NATIONALIZED, PRIVATE AND ISLAMIC COMMERCIAL BANKS OF BANGLADESH Ezaz Ahmed Department of Management and Business BRAC University, Dhaka, Bangladesh and Ziaur Rahman IITM, Dhaka, Bangladesh and Rubina I. Ahmed Department of Business Administration East West University, Dhaka, Bangladesh ABSTRACT Bangladesh has a unique Banking system with multiple types of Banking with Nationalized Commercial Banks (NCBs), Private Commercial Banks (PCBs), Foreign Commercial Banks (FCBs), Islamic Commercial Banks (ICBs), Specialized Development Banks and the Cooperative Banks. Currently the magnitude of loan default is quite enormous in the Banking sector. However, the general perception and belief regarding the Islamic Banking is better recovery rate of loans and advances. This paper attempts to discuss the issues that govern the banking practices in Bangladesh and it also paints a picture of the lending practices followed by NCBs, PCBs and ICBs in Bangladesh. From the analysis presented in this case, it comes to light that ICBs lending practices with Islamic banking instruments mirrors the lending practices of conventional banks having synonymous counterpart products. The paper also unfolds some strategically weak links in the development of the banking sector, which has obstructed the overall economic development of the country. In this diversified Banking system, an attempt is made in the paper to analyze the issues governing the...
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...MODULE 1 ; ISLAMIC ECONOMIC SYSTEM LESSON 4 ; THE BASIC PROHIBITIONS EXPLAIN WHY RIBA AND GHARAR IS PROHIBITED IN ISLAMIC ECONOMIC SYSTEM , GIVING AND EXAMPLE . Technically RIBA includes all forms of income which is not earned by an individual { un earned income } it is not restricted to usury . Islam has categorically prohibited unearned income , for the sake of convenience we can only site the source of prohibition {QURAN 2:278-279}. Some scholars have gone on to distinguish between interest on load { RIBA AL NASIAH } and interest that is over and above {excessively } the load paid in kind { RIBA AL FADL} . The first type of RIBA is fixed in advance for waiting. SHARIAH wishes to extinguish all forms of exploitation , those with financial capital should not use their financial muscle to exploit the rest . Moreover SHARIAH wishes to eliminate all forms of unjust exchanges that may result in business transactions . In making trade permissible and making interest illegal Islam has put it clear that the two are different . the principle source of difference is the nature of profit gained from charge interest is different from the one gained from trading . The person in debt can not extinguish the burden unless he pays off the entire loan , as long as the loan or part of it still remains , the cumulative effect is to add on the interest charge...
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...I. History of Islamic Banking in Malaysia Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. 1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia. The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The committee...
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...Assignment on: Islamic Banking Submitted to: Md. Alamgir Hossen Assistant Professor IBA – JU Submitted by: Tanjim Mahmud 21st Batch ClassID – 1564 Institute of Business Administration Date of submission: 14/05/2014 Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad). Shariah concepts in Islamic banking: The common Shariah concepts are as follows: Wadiah (Safekeeping) : Wadiah means custody or safekeeping. In a Wadiah arrangement, customer will deposit cash or other assets in a bank for safekeeping. The bank guarantees the safety of the items kept by it. Here is how it works: 1) Customer places money in a bank and the bank guarantees to return the money to customer. 2) Customers are allowed to withdraw the money anytime. 3) Bank may charge customer a fee for looking after customers money and may pay hibah (gift) to customer if it deems fit. 4) This concept is normally used in deposit-taking activities, custodial services and safe deposit boxes. Mudharabah (Profit sharing) Mudharabah is a profit sharing arrangement between two parties, that is, an investor and the entrepreneur. The investor will supply the entrepreneur with funds for his business...
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...ISLAMIC BANKING INDUSTRY Course Title Instructor Institution City and State Date Abstract Islamic banking is on a steep rise in western countries. The increase is due to the management and the demand of Islamic financial products from both the Muslim and the non-Muslim residents in the United Kingdom. Another contributor to the increase in Islamic financing is the fact that the opponents are slowly joining and investing in the Islamic financial products due to their high demand. The United Kingdom has emerged to be the core of Islamic banking for over thirty years now. The reason behind the tremendous performance in the Islamic banking industry is the fact the Islamic population is greatly increasing offering ready market for the financial products. The purpose of this paper is to examine in details the major contributors to the expanding Islamic banking industry as well as the major setbacks that face the Islamic banking industry mostly in the United Kingdom. The findings were collected from random questionnaires given and also interview conducted on four major groups which are; Islamic banking staff, the Islamic banking competitors, the clients and also the non-clients. Background The paper presents the general background of the Islamic banking industry in the United Kingdom as well as the challenges. The Islamic banking started as a result of the Egyptians’ Mit Shamir, who opted to share profits and losses back in the year 1963. After three years of operation...
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...Arabian Journal of Business and Management Review Vol. 1, No.4; November 2011 THE SURVIVAL OF ISLAMIC BANKING VIS-À-VIS NON-INTEREST BANKING IN NIGERIA, AN OVERVIEW DR. AKINYEMI BALOGUN,* Head of Department, Accounting and Banking &Finance/Business Administration, Achievers University, Owo, Ondo State, Nigeria ABSTRACT This Paper Examines and gives an Overview of the Survival of Islamic Banking visà-vis Non-Interest Banking In the Nigerian Economy, its background and Origin, a review on non-interest banking system in Nigeria compared with other countries, arguments from different analyst on Non-interest banking System, the implication of statutory auditor, the implication, the role of auditor, the laws and guidelines guiding non-interest banking in Nigeria, differences between Islamic banking system and conventional banking System, its benefit, timing, profit sharing and problem. KEYWORDS: Non-interest Banking, Islamic Banking, Statutory Auditors, Guidelines, Conventional Banks, Nigerian Economy, Overview, Benefits and profit sharing. *Dr. Akinyemi Balogun is a multi professional, a financial expert, a manager of repute, a chartered banker and associate chartered institute of marketing, fellow national institute of marketing, associate chattered institute of management. Dr. Akinyemi Balogun is the head of department of Business Administration, college of social and management sciences (COSMAS), in Achievers University, Owo. The views expressed in the paper are purely...
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...Proposal on Islamic Banking Table of Contents TOC \o 1-2 1) Research Title PAGEREF _Toc \h 3 2) Introduction to the Research Topic and Main Research Question PAGEREF _Toc1 \h 3 3) Literature Review Outline and Detailed Research Questions PAGEREF _Toc2 \h 5 3.1) Introduction PAGEREF _Toc3 \h 5 3.2) Background of Islamic Banking PAGEREF _Toc4 \h 5 3.3) Features of Islamic Banking PAGEREF _Toc5 \h 6 3.4) Determination of Whether Islamic Banking is a Matter of Semantics PAGEREF _Toc6 \h 8 3.5) Detailed Research Questions PAGEREF _Toc7 \h 10 4) Ethical Considerations PAGEREF _Toc8 \h 10 References PAGEREF _Toc9 \h 12 Bibliography PAGEREF _Toc10 \h 17 1) Research Title “Islamic Banking: A Matter of Semantics?” 2) Introduction to the Research Topic and Main Research Question Islamic banking is denoted as a banking system, which is mainly governed by the principles that have been formulated by the Islamic Shariah (Hasan, 2012). In general, the term Islamic banking is not only typically based on evading internet-based transactions that are strictly prohibited under the law of Shariah, but also discards any sort of unsocial or unethical practices (Ahmed, 2011). With this concern, it can be affirmed that Islamic banking is regarded as the procedure of transforming predictable money lending into transactions that are fundamentally based upon real as well as tangible services (El-Gamal, 2006). This banking system, if...
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...Meezan Bank’s Guide to Islamic Banking Meezan Bank’s Guide to Islamic Banking 1 Meezan Bank’s Guide to Islamic Banking Meezan Bank’s Guide to Islamic Banking Written by Dr. Muhammad Imran Ashraf Usmani Ph. D. Islamic Finance Assistance in translation, editing and compilation by Zeenat Zubairi DARUL-ISHAAT Urdu Bazar Karachi Ph: 021-2631861 2 Meezan Bank’s Guide to Islamic Banking Copyright Regd. No. Publications Rights Reserved with DARUL - ISHAAT KARACHI FIRST EDITION 2002 PRINTED AT ILMI GRAPHICS PUBLISHER DARUL - ISHAAT URDU BAZAR KARACHI-1 PAKISTAN. E-mail : ishaat@digicom.net.pk Ph: 021-2631861 AVAILABLE AT IDARATUL MA’ARIF, DARUL ULOOM, KORANGI, KARACHI DISTRIBUTOR IN U.K. AZHAR ACADEMY LTD., at continenta (London) Ltd.. Cooks Road, London E-15 2pw This copy cannot be sold in the U.K., unless sold by or authorised by the 3 Meezan Bank’s Guide to Islamic Banking TABLE OF CONTENTS Preface 7 SECTION I INTRODUCTION TO ISLAMIC ECONOMIC SYSTEM 1 2 3 Chapter 1: Chapter 2: Chapter 3: The Islamic Economic System Factors of production in Islam The objectives of the distribution of wealth in Islam 11 19 29 SECTION II RIBA, ITS PROHIBITION & CLASSIFICATIONS 4 5 6 7 8 Chapter 4: Chapter 5: Chapter 6: Chapter 7: Chapter 8: Riba in the Qur'an Riba in Hadith Riba and its types Commercial interest and usury Simple and compound interest 34 36 42 53 62 SECTION III ISLAMIC CONTRACT 9 10 11 12 Chapter 9: Chapter 10: Chapter...
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...1. Islamic banking is banking activity that is consistent with the principles of Sharia- Islamic law and participates actively in achieving the goals and objectives of an Islamic economy. Sharia prohibits the interest-based transactions and Investing in businesses that provide goods or services considered contrary (vrazrez) to Islamic principles, for example alcohol, pork, gambling (igra na birze,azartnaja igra), or businesses that produce media such as gossip columns or pornography. The aim of this is to engage in only ethical investing, and moral purchasing. 2. Interest-free banking seems to be of very recent origin. The earliest references to the organisation of banking on the basis of profit sharing rather than interest are found in 1946. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. In The early 1970s were held several conferences on Islamic Economics and banking. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process. It was set up with the mission to provide funding to projects in the member countries. The efforts undertaken in the 1980’s to Islamize the economy at national level are considered as pioneering...
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...1.0 INTRODUCTION In Malaysia, there are numerous financial instruments and concepts available for customers to choose, which one is suited to them. Financial instruments that available in Islamic Banks in Malaysia are divided into two main components which are known as deposit; and loans and advances. Bay’Bithaman Ajil (BBA) and Murabahah are 2 types of Islamic financing product offered by banks in Malaysia and were introduced in 1983. The Islamic financing product of Murabahah was introduced to meet the above Quranic verse interpretation. It should be noted that BBA is a Murabahah product but the product name of BBA was given by BBMB to differentiate between a short term (below 12 months) and long-term (above 12 months) tenor financing products. Murabahah is for short term meanwhile BBA is for a long term financing products. 2.0 BAI’ BITHAMAN AJIL (BBA) 2.1 DEFINITION The Majallah refers to BBA as the Bai’ al Muajjal. In Pakistan the term is called Bai’ al-Muajjal, in Bangladesh it called bay’al-Muazaal. BBA means a "deferred payment sale". It is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. It can be implicated in any sale contract, including Musawamah and Murabahah but it is not applicable for a Salam contract, as the payment of Salam must be settled in full at the beginning of the contract...
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