Fundamentals Of Islamic Banking & Finance: Fill & Download for Free

You have to understand that Islamic baking is not ‘deceptive’, as you claim; that’s a harsh term used to judge something you don’t understand.The fundamental principal of Islamic banking is, to function in accordance with the sharia. This mainly entails not charging interest rates on loans, and not investing or benefiting from companies that conduct “haram” (alcohol, cigarettes, pork, porn, gambling etc). As per Ernst & Young, Islamic banking assets grew annually by 17.6 % from 2009 - 2013 - back when the global economy was still in recession and experiencing it’s after affects. It is also expected to grow at 19.7% annually till 2018.An industry that is expected to grow at ~20%, and avoids benefiting from businesses that harm the society, is far from being wrong or ‘deceptive’.So how does the bank make money? By asking the borrower to pay a small fee, which does not compound over time. This ensures that the borrower does not burn themselves into debt. In the case of mortgage for example, the bank can buy the property and ask the person to pay the market rent.People may not know this but, Islamic finance exists in developed countries such as Japan, United Kingdom and France, and has been for a number of years now. In 2014, the treasury of United Kingdom sold GBP 200 Million worth of ‘sukuk’, which is Islamic finance’s version of bonds, similarly, Société Générale and Bank of Tokyo-Mitsubishi UFJ, from France and Japan have done the same and accepted Islamic finance.To allow you to understand the significance of Islamic Banking, it has funded the completion of the Shard, Chelsea Barracks, Harrods and the Olympic Village in London.If Islamic finance was so bad, Ernest & Young, the British Treasury and the French and Japanese banks would be alienating themselves from it, not aligning themselves with it.Edit: People seem to be worried about the non-interest aspect of Islamic Banking, but American Express has been issuing interest free cards known as charge cards for decades now. It is available in India and you can apply here: Charge Cards | American Express IndiaIt isn’t only Muslims who are buying ethical products with rising returnsNo Idea About Islamic Banking? Here's Six Things You Need To KnowOur new mortgage productBig interest, no interest

Islamic banking means providing loans without charging any interest.RBI wants it so that it can boost the Indian economy because interest free loans will become affordable for majority of population in India which is mostly middle class.In some developed countries there is no interest for home loans,so RBI wants to try this method in India.Here's some stuff compiled from various sources -What is Islamic banking?Islamic banking is a banking system in accordance with the Shariat. In Islam, money has no intrinsic value – money, therefore, cannot be sold at a profit and is permitted to be used as per shariat only. The Islamic Law or Shariat prohibits paying any fee for renting of money (called riba) for specific periods of time. It also prohibits any sort of investment in businesses that are considered haraam or against the principles of Islam. It is largely believed that these principles have been derived from the Quran and have been in practice since then.How did modern Islamic banking evolve?The first successful example of an Islamic Bank was perhaps a financial institution called Tabung Haji in Malaysia which originally came into being due to high demand of interest-free money for pilgrimage (Hajj) since this was not possible by way of conventional banking system. Thus, in 1963 Tabung Haji came into being with a total of 1,281 depositors which increased to 8,67,220 depositors and with deposits over one billion Malaysian dollars. This paved the way for creation of more Islamic banks especially in Egypt where small scale Islamic Banks existed in the 1960s, catering primarily to the rural areas. The success of these banks led to the formation of the Naseer Social Bank in Cairo in the year 1972. In the same decade an International Islamic Bank for Trade and Development was proposed, which led to the creation of Islamic Development Bank with a view to promote economic development of the Muslim community in accordance with the Shariat laws.How can banks function without taking interest?Islamic Banks work on the principles of an interest free banking. Riba or interest under Islamic Law basically means anything in “excess” – the investor should not make an “undue” profit from the hard work of the other. But it is permitted to follow a system of reasonable profit and return from investment where the investor takes a risk that is well calculated. Thus, Islamic banks make available accounts which provide profit or loss instead of interest rates. The banks use this money collected by them and invest in something that isshariat compliant, that is not haraam and does not involve high risks. Thus, businesses involving alcohol, drugs, war weapons etc. as well as all other high risk and speculative activities are prohibited. Islamic Banking, therefore, acts as an agent by collecting the money on behalf of its customers, investing them inshariat compliant projects and sharing the profits or losses with them. The Dow Jones Islamic Market Index came into being in the year 1999 for investors willing to invest in shariat compliant projects.There are various products in Islamic Banking that cover the needs and requirements of the consumers. Some of them are Mudarbah (profit sharing – one party provides finances, the other provides expertise), Musharaka (joint venture – both parties share everything equally), Murabaha (cost plus profit), Ijara(letting on lease), Istisna amongst others.Really? Banking without interest? Come on.The concept of Islamic banking has often been criticised by both purists as well as modern conventional bankers. It is stated that the instruments in Islamic banking are essentially the same as the ones in traditional banking and have the same purpose with merely different terminology. It is often stated that in today’s time of profit maximisation there is a thin line between riba and profit. The modern Islamic Banks have found ways to work around the conventional instruments and include them in Islamic banking instruments. One such example is an instrument calledmudarabah, which is essentially nothing else but a mortgage and the banker ends up earning an interest in the form of mortgage interest rate on it. There are arguments that Islamic Banking was based on high ethical principles which no longer remain the same. AWorld Bank paper states that conventional and Islamic banking methods are very similar to each other. Another criticism is that the Islamic bankers find their way around the system and “manage” to get ashariatcompliance certificate from a scholar to invest in.However, Islamic banking across the globe is at a comparatively nascent stage and there are plenty of interpretations given by scholars worldwide with regard to various Islamic finance instruments. One cannot completely stick to the purist approach, as the Islamic finance system is centuries old and the modern Islamic Banking system is a recent evolution. The Islamic finance system has to evolve with time without violating the fundamentals of Islamic Finance system as per theshariat.India isn’t an Islamic country. So why have Islamic banking here?While Islamic Banking is prevalent and is common in Islamic countries, there are plenty of non-Islamic countries that are now opening Islamic “windows” in conventional banks. These are departments within the banks and they offer shariat compliant products to the customers. China, United Kingdom, United States, Germany are some of the countries that offer Islamic windows.The US has the American Finance House LARIBA which is a riba free and shariat complaint financial institution that is involved in auto, business, trade financing, hedge fund investing etc.The United Kingdom was the first non-Islamic country to permit a complete shariat compliant bank called the Islamic Bank of Britain to operate. In fact, UK was the first Non-Islamic country to have introduced Islamic Bonds known as sukuk in the year 2014.So how does India benefit from Islamic banking?Introduction of Islamic Banking was mooted by Raghuram Rajan in his report on the Financial Sector in the year 2008 where he recommended that interest-free banking techniques should be operated on a larger scale so as to give access to those who are unable to access banking services, including those belong to economically disadvantaged section of the society.There are many advantages in introducing an Islamic window in the banks. For instance, majority of companies in the Stock Exchange are shariat compliant (this number is more than the shariat complaint companies on the Stock Exchange in Malaysia), thus this would result in attracting huge funds in the domestic market alone.An Islamic Banking window will encourage many from the Muslim community to come forward and invest in projects thereby mobilising huge amount of capital which they may not be willing to put in the banks. This also means that India will be able to attract huge investments from West Asia and from those who invest only in shariat compliant projects.However, the Indian banking laws will have to be amended so as to incorporate the provisions relating to Islamic banking. For example, the Banking Regulation Act requires payment of interest which is against the principles of Islamic Banking. The Act also specifies “banking” to mean accepting deposits of money from public for lending or investment, thus excluding within its ambit the instruments of Islamic banking that promote profit and loss.The recent proposal of RBI for opening of an Islamic Banking window has received mixed reactions from many especially in the light of the recent Uniform Civil Code debate and is likely to take a political angle instead of a financial one.It is pertinent to highlight that investing in shariatcompliant projects though Islamic Banking windows is something that is mandatory in nature for Muslims, unlike personal laws. For everyone, it will just be an additional financial investment opportunity. It is important to remember that using banking services of one kind need not interfere with the use of another.

Islamic Banking refers to a method of banking that is based on Islamic Law (Shariah) which prohibits interest based banking‘ and permits only profit sharing based banking. It also disallows the usage of derivatives, and investment in certain activities like pornography and alcohol etc which it considers sinful!Islamic Banking has unfortunately been misunderstood in India as a religious charitable venture restricted to the country‘s poverty-ridden and economically downtrodden Muslim community, although the whole world is now looking at it as an alternate financial system and not just as a rudimentary, indigenous and outdated method of finance!An IMF working paper argued that “holding constant the level of financial development and other growth determinants, countries where Islamic banking is present and hence its impact on growth is measurable, experience faster economic growth than others.” (Imam and Kpodar, 2015)“Conventional banking has many weaknesses—its excessive dependence on leverage being one of them. Islamic banking is based on risk-sharing, making its activities more closely related to the real economy than conventional finance; it is also more flexible against shocks and more inclusive with regards to growth. Not only doesIslamic finance help to stimulate growth, but it also appears less prone to risks such as bubbles, because speculative usages of derivatives are prohibited” (Dridi and Maher, 2011).Ernst & Young estimated that Islamic banking assets would grow by an average of 19.7% a year to 2018.The point being, rather than looking at it as an alien system trying to invade something more pious and pure, we should look at it as an alternate design of banking. After all, choice is fundamental to a vibrant economy.For people with religious concerns:Every muslim doesn’t participate in Islamic Banking and Islamic Banking deals with non-muslims as well.If eating Mughlai food doesn’t make you a Muslim, Islamic Banking won’t either.To sum up, I will say that the best economy is one that gives you choices - the more the better. No one is forcing you to bank with these banks, while some others might be interested. What’s the harm?