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$1 *i+erence "eteen -ro.t and interest /0i"aInterest is the pre-agreed additional amount of money which is paid against principal mainly
for time period without exchange of any commodity or service between the lender and the
borrower. oney here is treated as commodity which is completely against the ob8ective of
creation of money. The factors determining interest is amount of loan time period and rate of
interest. In case of transactions on interest, the principal is guaranteed to remain intact, thus
the lender doesn6t take risk of loss of capital. The interest is to be borne only by the
borrower. #ometimes interest is paid or earned both on principal and interest 3compounding
interest4. #ince rate of Interest and time for repayment of principal and interest is
predetermined, lender does not bear any risk.
:n the contrary, prot is the amount earned by deploying capital into a business. It may beearned by way of trading of goods and services or by partnering a business. The factors
determining prot is business condition, demand and supply situation, e1orts given on the
business etc. oth buyer and seller or parties involved in business bear the risk. The
principal is not guaranteed. 'oss, if any, is borne by the capital provider3s4. The prot is
distributed among the capital providers and the parties managing the business. In case of
buying and selling, prot cannot be increased only for time periods, once the price is xed.
7rot can be earned only once in case of single trade.
?owever, xed percentage does not necessarily constitute interest. In case of buying and
selling xing a percentage of prot is permissible. ut xing an assured return before getting
any result from investment is interest.
$$ Economic demerits o2 Interest
Interest deects money from its basic function.
Interest based system may result in exploitation.
Ination is co-related with Interest.
Interest exerts disastrous e1ects on the human behavior and the society.
7redetermined rate of return is not 8ustied.
Interest reinforces the tendency for wealth to accumulate in the hands of a few, and
thereby diminishes human beings to concern their fellow people.
$3 4ome Uni5ue Features o2 Is#amic Ban&in'
:perates in line with #hari6ah principles and for the welfare of the people.
;omplete avoidance of interest in all its activities
&oesn6t invest only for prot, but looks into need of the society.
@nsures fairness and 8ustice in all sorts of transactions.
@nsures optimum utili(ation of resources and help to fulll 8ustied needs of all.
?elps develop the standards of living of the poor.
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&irect participation with trade and commerce through involvement of real assets
@ncourage socially desirable enterprises and discourages socially undesirable one
@liminate disparity among the people and establish economic 8ustice
@nsures ow of recourses from rich to the poor.
@nsures maximum employment and balanced development
The relationship between banker and client is business partner not lender and the
loaned.
3! Is#amic Ban&in' in Modern a'e
The rst instance of Islamic banking in modern age came into the picture in @gypt in >AB
titled Cit %hamr 'ocal #avings ank6. The pioneering e1orts by $hmad @l Da88ar brought this
bank into existence, whose key principle was prot sharing. y the end of >AEB there were A
such banks in the country. These banks neither charged nor paid interest but their activities
were mostly limited to trade and industries where these banks invested directly or as
partners of depositors. ?ence, functionally these banks were working more as nancial
institutions rather commercial banks. Dasser #ocial ank 3>AE>4 is known to be the rst
commercial bank in @gypt, though its charter never made references to #hari6ah. The rst
bank explicitly based on #hari6ah principles was established by the :rgani(ation of Islamic
countries 3:I;4 in >AEF, called Islamic &evelopment ank 3I&4. This bank was primarily
engaged in intergovernmental activities for providing funds for development pro8ects
running into member countries. Its business model involved fees for nancial services and
prot sharing nancial assistance for pro8ects.
Gith time, during the >AE+s several Islamic banks came into existence, including the &ubaiIslamic ank 3rst Islamic private commercial bank, >AEH4, the aisal Islamic bank of #udan3>AEE4 and the ahrain Islamic bank 3>AEA4. :thers from the $sia 7acic region include the
) 7 a g e
167!s
Mit 8hamrLoca# 4avin's
Ban&, E'9-t
/1673
Lem"a'a
:a"un' ;a
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7hilippine $manah ank 37$4, formulated under presidential decree. 7akistan also had anestablished Islamic banking system at the time which unfortunately didn6t survive.
Githin a decade of the rst private bank coming into existence in &ubai, the global industryhad more than H+ such banks. ost banks were a result of private initiatives, whereas therst concrete government initiative was taken by the Iranian government, when in >AJH no
bank was permitted to give or take interest.
The true phase of development of Islamic nancial institutions actually occurred in the>AJ+s. $s part of development, Islami ank angladesh 'imited was incorporated in >AJ asthe rst #hari6ah based interest free bank in #outh and #outh-@ast $sia. @arlier initiativeswere more inclined towards interest free Islamic banking, but the emergence of nancialsystems has evolved in the J+s. In >AJH, the ?igh ;ouncil of :I; 3:rgani(ation of Islamic;onference4 declared takaful 3Islamic insurance4 as #hari6ah compliant. The new, widerspectrum of Islamic nance covers not only banking activities but also capital markets,capital formation and other nancial instruments and intermediaries.
The biggest change in terms of adaptability came in >AA> when the $ccounting and $uditing:rgani(ation for Islamic inancial Institutions 3$$:II4 was established to advise on Islamic
nance standards all over the world. 'ater, the development of uniform standards wassupported by other organi(ations such as Islamic inancial #ervices oard 3I#4 in alaysiain *++*.
! Is#amic Ban&in' around the 8#o"eIslamic anking has become an attractive banking system among the uslim and non-
uslim market participants around the globe. :bviously, this is not only driven by religious
implication but also by economic 8ustication or the benets it o1ers. The global market for
Islamic nance at the end of *+>> was worth around K>. trillion, according to the !" Islamic
inance #ecretariat. The total value of #hari6ah-compliant assets has grown by >H+ since
*++B. Islamic nancial institutions are growing at around *+ per annum, which exceeds
that of conventional nancial industry. $s can be seen over the years, Islamic banking has
gained momentum on a global scale. inancial Institutions all over the world have launched
their own Islamic banking units in trying to keep up with the pace of growing demand for
#hari6ah compliant products and services. There are more than ++ Islamic banks and
nancial institutions in more than E+ countries of $sia, $frica, @urope, and $merica including
countries like the !.", !.#.$, %ermany, $rgentina, &enmark, 'uxemburg, #wit(erland and
India. $lthough Islamic anking is not allowed as per the current regulatory system of India,
a good number of nancial institutions claim that they are working as per Islamic principles.
?! Is#amic Ban&in' in Ban'#adesh
The 8ourney of Islamic banking in angladesh was started with the incorporation of Islami
ank angladesh 'imited in >AJ which is also the rst bank in #outh-@ast $sian region.
'ater on six other banks were establishedLconverted to operate as Islami bank in the
country. In addition, a good number 3around >H4 of traditional banks including some foreign
ones have opened Islamic banking branches and windows to cater to the growing demand of
Islamic banking products and services. &uring the last decade, Islamic banks experienced
phenomenal growth in terms of deposit and investment base.
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Total deposit base of Islamic banks stood at around Tk.*F+ billion at M@ *+>> registering
around > market share. The cumulative average growth rate 3*++H-*+>>4 of deposit of
Islamic banks was more than + against industry growth rate 3excluding Islamic banks4 of
around *+.
:n the contrary, investment base stood at around Tk. *+A billion registering around >J
market share. The cumulative average growth rate 3*++H-*+>>4 of investment of Islamic
banks was also more than + against industry growth rate 3excluding Islamic banks4 of
around >F.
7! O-erationa# As-ects o2 Is#amic Ban&in'
71 4hariGah 4u-ervisor9 Committee
To decide on #hari6ah issues an Independent #hari6ah #upervisory ;ommittee is re)uired to
be established in Islamic anks consisting of prominent Islamic scholars and economic
experts. @ach and every product and their modus operandi are re)uired to be approved by
the ;ommittee. :n #hari6ah issues the decision of the committee is nal and the committee
is to en8oy full independence for proper functioning of Islamic banking. In an ideal situation
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the ;ommittee also supervise a group of #hari6ah $uditors who oversees the income
generating and other activities of the bank in line with the #hari6ah principle.
7$ Mo"i#iation o2 *e-ositH
Islamic anks focus more on welfare and nancial inclusion in deposit mobili(ation. Itencourages small depositors to save money instead of collecting big deposits from few
customers. $s such Islamic banks o1er some special deposit products like, ;ash G$N,
udaraba ?a88 #avings, udaraba ohor #avings, etc. The udaraba &epositors agree to
share prot and bear loss on the investment of their deposit. $s a result the ank en8oy
better liberty to invest in risky but more benecial ventures.
7$1 Cost Free *e-ositHIslamic anks operate this type of account under $l-Gadeah 7rinciple where the bank
commits to refund money deposited with these accounts on the demand of the customers.
:n the other hand, the banks takes permission from customers that the bank may utili(e
their money. In case of cost free deposit of conventional banks, permission from the
depositors is not taken to utili(e their money. Do prot is disbursed in these accounts and
the depositors do not bear any loss. This account is as good as Camanah6
Is#amic ModeH
Conventiona# ModeH
7$$ Cost Bearin' *e-ositHIs#amic ModeH !nderIslamic mode, the bank mobili(es deposit under mudaraba principle.
!nlike conventional banks, Islamic banks do not pay xed rate of interest rather distributes a
certain percentage 3say minimum BH4 of its investment-income earned through
deployment of mudaraba fund to the depositors.
In the above case, the principle is not guaranteedO losses if any are to be shared by the
contributors of fund Conventiona# ModeH
InvestmentH
B) 7 a g e
&epositors >. Interest free&epositL'oan
*. 7rincipal as &emanded by the
&epositors
ank
&epositors3#hahib-al-maal4
>.unds forInvestment
*. 7rincipal P #hare in 7rot
ank3udarib4
&epositors
>.Interest basedloan
*. 7rincipal P Interest
ank
&epositors >. &epositL$manah
*. 7rincipal as &emanded by the
&epositors
ank
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73 Investment /Loans and Advances in Conventiona# :ermsH
The main ob8ective of investment under Islamic principles is not earning maximum prot,rather ensuring maximum welfare. or that reason, Islamic banks are to invest in thepro8ects which create more employment. Investment in import substitute and exportoriented industries help the country to improve the balance of payments. The banks takerisky ventures giving long term benet instead of short term trading. Islamic bankingactivities emphasi(e ow of resources from the rich to poor thus its prime focus is on microand #@ investments. Islamic anks cannot invest in the products which are harmful for thepeople and discourages luxurious items. @nsuring distributive 8ustice is the key focus ofIslamic banks and thus investment is mostly need based rather than grid based.
Islamic banks deploy their funds under di1erent modes of nancing as permitted by #hari6ahwhich include trade mechanism 3Cbaiin $rabic term4, partnership mechanism 3CShirkat6 in$rabic term4, and leasing mechanism 3Ijara6 in $rabic term4.
731 :rade MechanismHTrade mechanism takes place in three modes5 CBai-Murabaha3sale on agreed upon prot4, CBai-Muajjal3sale on deferred payment basis4 and CBai-Salam37urchase of goods on deferred delivery basis4 where the bank acts as an economic agent.!nder the mechanism, nancial ows are parallel to real ows and claims of the bank on theclients are not necessarily time variant. The following diagrams depict the di1erence oftrade mechanism and that of conventional interest based mechanism5
Is#amic ModeH
Conventiona# ModeH
E) 7 a g e
ank F.7rincipal P Interest
>. 'oan ank6s
;lient
#upplier
*.;ash
7ayment
.%oods
ank .%oodsL#ervices
F. 7rice including protank6s
;lient
#upplier
>.;a
sh
7aym
ent
*.
%o
odsL#ervice
s
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:he a"ove dia'rams indicate that there is chance o2 misuse o2 2und/diversion in conventiona# s9stem hich is not -ossi"#e under Is#amicmode since "an& direct#9 -rovides 'oods and services to its c#ients
73$ Leasin' MechanismH!nder leasing agreement, bank receives rent from the lesserfor use of assets owned by it. CHire Purchase under Shirkatal Melk 3popularly known as?7#4 is a derivative product of leasing which is a synthesis of three contracts5 #hirkat, I8araand #ale. !nder the mechanism, the bank and the client 8ointly provide capital 3on pre-agreed ratio4 to buy an asset and client gives installment payments 3includes rent andprincipal4 based on which ownership is gradually transferred to him. In this mechanismnancial ows are also tied to real ows. The following diagrams depict the di1erencebetween Islamic mode and conventional mode5
Is#amic ModeH
Conventiona#H
733 Partnershi- MechanismH 7artnership mechanism can also take place in twomodes-Cmudarabaand Cmusharaka. !nder mudarabamode of nancing, bank 3here calledCSahib-al-maal)6 provides fund while client 3here called mudarib4 provides expertise andmanagement support for the enterprise. $ny prot accrued is shared between two parties onpre-agreed upon ratios while capital loss 3without negligence on the part of theclientLmudarib4 is fully borne by the bank 3capital provider4. :n the other hand, undermusharaka mode of nancing, both the bank and the client invest capital in a venture andshare prot at a pre-agreed ratio and bear losses in proportion to capital. !nlike traditionalbanking system, the banks involve in real economic activity.
$31 Mudara"a Financin' in *ia'ram
J) 7 a g e
ank *.7rincipal P Interest
>. 'oan ;lient
$sset :wner
*./entals
.!sufructof
$ssets
ank
.!se of $ssetP :wnership
F. /entalP 7rincipal ank6s
;lient
$sset :wner
>.;ash
7ayment
*.$ssets
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733$ Mushara&a Financin' in *ia'ram
Conventiona#H
:he a"ove dia'ram revea#s that under Is#amic mode the "an& direct#9 invo#ve
ith the "usiness enter-rise hich ensures sustaina"#e deve#o-ment hi#e
under conventiona# mode "an& does not direct#9 invo#ve ith economicactivit9
7 Is#amic Micro FinanceIslamic micronance 3I4 is becoming an increasingly popular mechanism for alleviating
poverty, especially in developing countries around the world. The concept of I adheres to
the principles of Islam and is a form of socially responsible investment. Investors who use
their wealth for I pro8ects under #hari6ah only involve themselves in halal pro8ects which
benet the community at large.
A) 7 a g e
ank
>. 'oan
*. 7rincipal Pixed Interest
Ban&GsC#ient
@conomic
$ctivity
.;apitalP
7rot
*.'oan;apital
ank
@nterpriseLusiness
;lient
>3a4
undP
@1ort
>3b4 unds Q @1ort
*
3
a
4
7
P
#
7
*3b4 7rincipal
P#hare in 7rot
ank
R @nterpriseL
usiness
;lient*. $pplication of und P
@1ort
. ;apital P7rot
>.Iund
F
.7P#7
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The modas operendi in I is similar to that of conventional D%:s except for collateral free
investments are given to small entrepreneurs based on #hari6ah mechanism. !nlike other
D%:s, ma8or focus is not given on recovery rather improvement of living standard of poor
people. The pro8ects are closely monitored so that the members are really benetted. They
are imparted education on literacy, cleanliness and other basic issues of human life. $
portion of the return received from the members are spent for their welfare such as
providing scholarship to their children, giving sanitary latrines, tree plantation, donation for
marriage etc.
In a nut shell, Islamic icro inance represents the merging of two growing sectors5
micronance and the Islamic nance industry. Islami ank angladesh 'td. contributes more
than H+ of the global market share of Islamic icro nance under the umbrella of /ural
&evelopment #cheme 3/ and !rban 7oor &evelopment #cheme 3!7. $lthough it
contributes only * of the total business, around *+ manpower is deployed to provide the
service.
7? Is#amic Instruments in Mone9 Mar&et7?1 Ban'#adesh 8ovt Is#amic Investment Bond /B8IIBH Islamic banks cannotparticipate in interest based treasury billsLbonds. In order to meet the #'/ re)uirement,
angladesh %ovt. Islamic Investment ond 3%II4 has been introduced in *++F by the
inistry of inance, %:. The Islamic banks buy the bonds where angladesh ank acts as a
custodian of the fund. angladesh ank invests the fund to di1erent Islamic banks and
Islamic nancial institutions. The prot received from the invested fund is distributed among
the contributory banks after deducting H-*+ of prot to meet expenditure and
reinvestment. The return on %II is not so lucrative since it gives lower return compared to
other instrument.
7?$ Is#amic InterBan& Fund Mar&et /IIFMH !nlike traditional banks, Islamic banks
cannot participate in call money market for overnight lending or borrowing. To remove the
problem, a new type of #hari6ah based money market instrument called Islamic Inter-bank
und arket 3II4 has been established with the initiative of angladesh ank to meet
overnight li)uidity re)uirement. The II is operated under mudaraba principle where the
fund taken by the bank is considered as mudarabah deposits.The Islamic ond und of the central bank will act as the custodian of the II and does not
charge any fees for the fund. If any bank has excess fund, it may invest it in the II for
overnight. $nother Islamic bank re)uiring fund may borrow the money from the II for
overnight and returns the principal with prot at the rate of three months2 term deposit
which is nally ad8usted upon nali(ation of inancial #tatements.
3 Inter"an& *e-ositH Interbank deposit among the Islamic bank and nancial
institutions is another mechanism of Islamic money market. These inter-bank deposits varyfrom one month to twelve months period. These deposits are takenLgiven on mudarabah
principle.
#teps needs to be taken to introduce some lucrative money market instruments for Islamic
banks to make it more vibrant.
=!Accountin' As-ects o2 Is#amic Ban&in'
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=1 Income 0eco'nitionIncome from investments is accounted for on accrual basis except investments under
usharaka, udaraba, ai-#alam and ai-as-#arf modes of Investment. Income from
investment under udaraba, usharaka, ai-#alam and ai-as-#arf modes is accounted for
on reali(ation basis. ecause the amount of incomeLprot from the investment under those
modes can6t be ascertained until the amount of income generated from the ultimate
deployment of invested fund at the client6s end is determined. esides, fees and commission
income are recogni(ed when earned.
Islamic banks cannot compute the Sinterest on interestS popularly known as Scompounding
interestS. or Islamic banks, unpaid prot shall remain as Sprot earned but not yet
paidS and that amount cannot become part of principal amount of the following period.
Ghile creating each dealLinvestment, in case of ai mode of investment, prot is added to
the investment cost and the full price is recovered from the clients in installments. /ebate
may be allowed to the clients if the price is paid earlier than pre-xed time.
Instead of charging interest for overdue periods, Islamic anks charge compensation at the
same rate at which prot was agreed. @ven though this income is
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?owever, udarabah und gets priority in the matters of investment over ank2s @)uity and
other ;ost-free unds. ank2s @)uity and ;ost-free unds are deployed only after full
investment of udaraba &eposits.
The gross income derived from investments during the $ccounting year, at rst, is allocated
to udaraba und and ;ost-free unds 3including ank2s @)uity4 according to their
proportion in the total investment. Then the gross income from investments applicable forudaraba und is distributed to udaraba &epositors and ank according to the pre-
determined sharing ratio say BH5H 3depositors5 bank4. The depositors2 share 3i.e. the
aforementioned BH4 is then allocated to di1erent mode of depositors according to the
eligibility of the depositors. Islamic banks strictly ensures paying at least up to the pre-
determined sharing ratio at any case but very often pays more than that to keep the return
of depositors6 competitiveness.
=3 %hat is -rovisiona# rate in Is#amic Ban&s(
Islami banks calculate a provisional rate based on past experiences, industry trends, macro-
micro economic policy of the government, growth prospects, and general economic
condition etc. with a clear proposition that the nal prot will be declared later and ad8usted
accordingly after the end of the year. onthly prot is accrued and paid to depositors but
sub8ect to ad8ustment of nal rate of prot after the year end. inal rate of prot attributable
to the udarabah &epositors can be clearly determined sub8ect to certication of
investment income by statutory auditors as well as #hari6ah $uditors. $fter nali(ation of
nal rate of prot, if nal prot rate is more than provisional rate of prot paid, then the
additional prot is paid to the udarabah &epositors. ?owever, if nal prot rate is less than
provisional rate of prot then Islamic anks usually decide not to take the additional amount
back from the depositors. #ince the provisional rate is determined after considering the
above factors, normally the nal rate falls around the provisional rate.
J.+ 4ome uni5ue issues 2or Is#amic Ban&sH
@1 :reatment o2 J;aramJ ItemsHIslamic anks all the way try their best to comply fully with #hari6ah principles but there is
some non-#hari6ah compliant items in which the Islami anks are compelled to enter in.
?owever Islami anks treat those items as follows5
Interest received from the balances held with oreign anks abroad and from oreign
;urrency ;learing $ccount with angladesh ank are not credited to income, since it is not
permissible as per #hari6ah. These are utili(ed for charitable purposes after payment of
Income Tax thereon.
oreover, Income which is irregular 3doubtful4 as per #hari6ah is not included in thedistributable income of the ank. ank charges compensation on overdue ai-urabaha and
ai-ua((al investments. #uch compensation is not permissible as per #hari6ah to take into
regular income of the ank. /eali(ed amount of &oubtful Income and ;ompensation are
utili(ed for charitable purposes. $pplicable Income Tax on these items is duly paid to the
%ovt. $ccount.
J.*Da&atH
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9akat is paid by the Islami anks at the rate of *.HJ 3instead of *.H+ as the anks
maintain its inancial #tatements following %regorian Mear4 on the closing balances of #hare
7remium, #tatutory /eserve, %eneral /eserve and &ividend @)ualisation $ccounts as per
guidelines of #hari6ah.
9akat is charged in the 7rot Q 'oss $ccount of the anks as per H dated +A.>>.*++A. 9akaton 7aid up ;apital and &eposits is not paid by the ank, since it is the responsibility of the
#hareholders and &epositors respectively.
Though 9akat is not usually allowed as expenditure by the Tax $uthority, it should be made
tax-free to encourage payment of 9akat by the Institutions which would help reduction of
poverty at a rapid rate. Islamic anks6 9akat should be treated as business expenditure
since they are bound to pay 9akat as per statute to follow #hari6ah.
A.+ Accountin' and other standards re#evant to Is#amic Ban&sH
Islamic anks in angladesh follow I/# 3International inancial /eporting #tandards4 as
adopted by Institute of ;hartered $ccountants of angladesh 3I;$4. #ome other standardsrelevant for Islamic anks are mentioned below5
61 AAOIFI 4tandardsHThe $ccounting and $uditing :rgani(ation for Islamic inancial Institutions 3$$:II4 is an
Islamic international autonomous non-for-prot corporate body that prepares accounting,
auditing, governance, ethics and #hari6ah standards for Islamic nancial institutions and the
industry. It was established on *E arch >AA> in the #tate of ahrain and till date $$:II has
issued *B $ccounting #tandards, H $uditing #tandards, E %overnance #tandards, * @thics
#tandards and FH #hari6ah #tandards 3#ee AnnexureA4. 7rofessional )ualication programs
3notably ;I7$, the #hari6ah $dviser and $uditor S;#$$S, and the corporate compliance
program4 are presented now by $$:II in its e1orts to enhance the industry6s humanresources base and governance structures.
$s an independent international organi(ation, $$:II is supported by institutional members
3*++ members from FH countries, so far4 including central banks, Islamic nancial
institutions, and other participants from the international Islamic banking and nance
industry, worldwide.
$$:II has gained assuring support for the implementation of its standards, which are now
adopted in the "ingdom of ahrain, &ubai International inancial ;entre, ordan, 'ebanon,
Natar, #udan and #yria. The relevant authorities in $ustralia, Indonesia, alaysia, 7akistan,
"ingdom of #audi $rabia, and #outh $frica have issued guidelines that are based on $$:II6s
standards and pronouncements.S
6$ IF4BThe Islamic inancial #ervices oard 3I#4 is an international standard-setting organi(ation,
formed by the central banks of Islamic countries, promotes and enhances the soundness and
stability of the Islamic nancial services industry by issuing global prudential standards and
guiding principles for the industry, broadly dened to include banking, capital markets and
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insurance sectors. The I# also conducts research and coordinates initiatives on industry
related issues, as well as organi(es roundtables, seminars and conferences for regulators
and industry stakeholders.
The Islamic inancial #ervices oard 3I#4,which is based in "uala 'umpur, was o0cially
inaugurated on rd Dovember *++* and started operations on >+th arch *++. It serves as
an international standard-setting body of regulatory and supervisory agencies that have
vested interest in ensuring the soundness and stability of the Islamic nancial services
industry. In advancing this mission, the I# promotes the development of a prudent and
transparent Islamic nancial services industry through introducing new, or adapting existing
international standards consistent with #hari6ah principles, and recommend them for
adoption.
To this end, the work of the I# complements that of the asel ;ommittee on anking
#upervision, International :rgani(ation of #ecurities ;ommissions and the International
$ssociation of Insurance #upervisors.
$s at &ecember *+>*, the >JF members of the I# comprise HH regulatory and supervisory
authorities, eight international inter-governmental organi(ations and >*> market players,
professional rms and industry associations operating in F> 8urisdictions.
alaysia, the host country of the I#, has enacted a law known as the Islamic inancial
#ervices oard $ct *++*, which gives the I# the immunities and privileges that are usually
granted to international organi(ations and diplomatic missions.
#ince its inception, the I# has issued >A #tandards, %uiding 7rinciples and Technical
Dote for the Islamic nancial services industry 3#ee Annexure K B4.
>+.+ 4ome other re#evant or'aniationsHrief introduction of some other relevant organi(ations is as follows-
1!1 8CIBAFIThe %eneral ;ouncil for Islamic anks and inancial Institutions 3%;II4 is an internationalnon-prot organi(ation formed 8ointly by the Islamic &evelopment ank and many otherIslamic nancial institutions. :peration license was obtained in The "ingdom of ahrain onay *++>.
ain ob8ectives of %;II are to5
;reate a public awareness of Islamic #hari6ah concepts, rules and provisions related
to them &evelop the Islamic nancial industry
@nhance co-operation among its members
7rovide information related to Islamic nancial institutions
;ater for the interests of its members and confront the common di0culties and
challenges.
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1!$ IIFMInternational Islamic inancial arket 3II4 is the international Islamic nancial market6sorgani(ation focused on the Islamic ;apital Q oney arket 3I;4 segment of the Islamicinancial #ervices Industry 3I#I4. Its primary focus lies in the standardi(ation of Islamicnancial products, documentation and related processes at the global level. II is based in
anama, ahrain.
II was founded with the collective e1orts of the Islamic &evelopment ank, $utoritionetari runei &arussalam, ank Indonesia, ;entral ank of ahrain, ;entral ank of#udan and the 'abuan inancial #ervices $uthority 3alaysia4 as a neutral and non-protorgani(ation.
esides the founding members, II is supported by its permanent member #tate ank of7akistan as well as by a number of regional and international nancial institutions and othermarket participants as its members.
IIFM "ene.ts to the Is#amic Financia# 4ervices Industr9H
$ddressing the product and documentation standardi(ation needs of the industry
7roviding universal platform by bringing regulatory bodies, nancial institutions, law
rms, stock exchanges, industry associations, infrastructure service providers andother market participants on a common platform through the creation of pro8ectspecic global working groups and committees
acilitate unication, #hari6ah harmoni(ation and legal reforms in Islamic nancial
markets
#hari6ah $dvisory 7anel consisting of renowned scholars, hence, ensuring wider
#hari6ah acceptance
1!3 IIC0AThe International Islamic ;entre for /econciliation and $rbitration 3II;/$4 is an international,
independent, non-protable organi(ation, and one ma8or infrastructure institutions of the
Islamic nance industry.
The center settles in all nancial or commercial disputes and conicts that arise between
nancial or business institutions that choose to apply the provisions of Islamic law O#hari6ah
principles, in resolving their disputes. :ther than, between these institutions and their
clients or between them and third parties through reconciliation or arbitration.
IIC0A has "een esta"#ishedH
- To respond to the )uantitative and )ualitative development of the Islamic nancialIndustry in the last years.
- To fulll the Islamic nancial industry needs in order to be able to settle the disputes
in accordance with the Islamic #hari6ah laws.
- To respond to the peculiarities of the Islamic nancial services concerned with the
products and contracts.
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- To ll the vacuum of the experts in the Islamic inancial Industry eld.
$t the regional and international level it can be seen many circumstances that strengthen
the position of the ;entre and the factors of the success lie on the approval of the ma8ority
member countries of the :rgani(ation for Islamic ;onference on the regional and
international accords concerned with the approval of the rulings of the arbitrators, and in
the absence of a speciali(ed international commercial arbitration ;entre in the $rab andIslamic region to settle the Islamic nancial transactions.
1! I0:IThe Islamic /esearch and Training Institute 3I/TI4 is an a0liate of the Islamic &evelopmentank %roup responsible for leading the development and sustenance of a dynamic andcomprehensive Islamic inancial #ervices Industry that supports socio-economicdevelopment in ember countries. It was established in >AJ> in #audi $rabia. The institutehas vast history of doing research in the area of Islamic banking and nance.
11! Conc#usion
The superiority of Islamic baking derives from its involvement of real economic activity.&uring nineteen fties Islamic banking concept was mere a text book word and was limited
to theoretical extravagan(a. The sixties was actually the period of experimentation and
Islamic banking started gaining momentum in seventies. The eighties and nineties
constitute the period of consolidation. $nd now it is coming up as the only 8ust and welfare-
oriented banking system of the modern world. Islamic banking system has been proved to
be superior and more resilient during the global nancial crisis due to their non-involvement
of the toxic assets in the banking system and adherence to real assets in lending which is
directly linked with economic development and prosperity of the country. y their inherent
nature and ob8ectives, Islamic banks focus on moral aspects of nancing. /apid growth of
Islamic banking in an environment of overwhelmingly dominated conventional nance
reveals the system e0ciency and superiority of Islamic anking.
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0e2erences
1. Islami Bank Babosta b! "ohammad Abdul "annan# "anaging
Director# Islami Bank Bangladesh $td.
%. Islamic "icro&nance: An Instrument of 'overt! Alleviation b!
"ohammad Abdul "annan# "anaging Director# Islami Bank Bangladesh$td.
(. Islamic )inancial S!stem: 'rinciples and *perations b! International
Shariah +esearch Academ! for Islamic )inance ,ISB- /02/(31%/
04
3. Institute of Islamic Bankinge"site htt-His#amic"an&in'com
5. Islami Bank: (6 7ears of 'rogress -u"#ished "9 Pu"#ic 0e#ation
*e-artment, Is#ami Ban& Ban'#adesh Ltd
2. 8Islamic Banking: 9he $essons and Challenges in "ala!sia Be!ond;B9*A:OG 40I DU0I 4AMA: Mana'in' *irector, Ban& Is#am Ma#a9sia Berhad
President, Association o2 Is#amic Ban&in' Institutions Ma#a9sia
/. An Alternative )inancial S!stem for Inclusive E) 7 a g e
http://www.islamic-banking.com/http://en.wikipedia.org/wiki/Islamic_bankinghttp://www.ifsb.org/http://www.aaoifi.com/http://www.irti.org/http://www.afkaronline.com/english/clients/cases/case3.htmlhttp://www.cibafi.org/http://www.iifm.net/http://www.iicra.com/http://www.islamic-banking.com/http://en.wikipedia.org/wiki/Islamic_bankinghttp://www.ifsb.org/http://www.aaoifi.com/http://www.irti.org/http://www.afkaronline.com/english/clients/cases/case3.htmlhttp://www.cibafi.org/http://www.iifm.net/http://www.iicra.com/ -
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Annexure K A
4tandards that have "een deve#o-ed "9 AAOIFI /Accountin' and Auditin'Or'aniation 2or Is#amic Financia# Institutions
Accountin' standardsH
>. :b8ective of nancial accounting forIslamic banks and nancial institution3IIs4.
*. ;oncept of nancial accounting for IIs.
. %eneral presentation and disclosure inthe nancial statements of IIs.
F. urabaha and urabaha to thepurchase orderer.
H. udaraba nancing.B. usharaka nancing.
E. &isclosure of bases for prot allocationbetween owners6 e)uity and investmentaccount holders.
J. @)uity of investment account holdersand their e)uivalent.
A. #alam and 7arallel #alam.
>+. I8arah and I8arah untahia ittamleek.
>>. 9akah.
>*. Istisna6a and 7arallel Istisna6a.
>. 7rovisions and /eserves.
>F. %eneral 7resentation and &isclosure inthe inancial #tatements of IslamicInsurance ;ompanies.
>H. &isclosure of ases for &eterminingand $llocating #urplus or &ecit in IslamicInsurance ;ompanies.
>B. Investment unds.
>E. 7rovisions and /eserves in Islamic
Insurance ;ompanies.>J. oreign ;urrency Transactions andoreign :peration.
>A. Investments.
*+. Islamic inancial #ervices :1ered by;onventional inancial Institutions.
*>. ;ontributions in Islamic Insurance;ompanies.
**. &eferred 7ayment #ale .
*. &isclosure on Transfer of $ssets.
*F. #egment /eporting.
*H. ;onsolidation.
*B. Investment in $ssociates.
Auditin' standardsH
>. :b8ective and principles of auditing.
*. The $uditor6s /eport.
. Terms of $udit @ngagement.
F. Testing for ;ompliance with #hari6a/ules and 7rinciples by an @xternal$uditor.
H. The $uditor6s /esponsibility to ;onsiderraud and @rror in an $udit of inancial#tatements.
8overnance standardsH
>. #hari6a #upervisory oard5$ppointment, ;omposition and /eport.
*. #hari6a /eview.
. Internal #hari6a /eview.
F. $udit and %overnance ;ommittee forIIs.
H. Independence of #hari6a #upervisoryoard.
B. #tatement on %overnance 7rinciples forIIs.
E. ;orporate #ocial /esponsibility.
Ethics standardsH
>. ;ode of ethics for accountants andauditors of IIs.
*. ;ode of ethics for employees of IIs.
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4hariGah standardsH
>. Trading in currencies.
*. &ebit ;ard, ;harge ;ard and ;redit;ard
. &efault in 7ayment by a &ebtor.
F. #ettlement of &ebt by #et-:1.
H. %uarantees.
B. ;onversion of a ;onventional ank toan Islamic ank.
E. ?awala.
J. urabaha to the 7urchase :rderer.
A. I8arah and I8arah untahia ittamleek.
>+. #alam and 7arallel #alam.
>>. Istisna6a and 7arallel Istisna6a.
>*. #harika 3usharaka4 and odern;orporations.
>. udaraba.
>F. &ocumentary ;redit.
>H. ua6la.
>B. ;ommercial 7apers.
>E. Investment #ukuk.
>J. 7ossession 3Nabd4.
>A. 'oan 3Nard4.
*+. ;ommodities in :rganised arkets.
*>. inancial 7apers 3#hares and onds4.
**. ;oncession ;ontracts.
*. $gency.
*F. #yndicated inancing.
*H. ;ombination of ;ontracts.
*B. Islamic Insurance.
*E. Indices.*J. anking #ervices.
*A. @thics and stipulations for atwa.
+. oneti(ation 3Tawarru)4
>. %harar #tipulations in inancialTransactions
*. $rbitration
. Ga)f
F. I8arah on 'abour 3Individuals4
H. 9akahB. Impact of ;ontingent Incidents on;ommitments.
E. ;redit $greement
J. :nline inancial &ealings
A. ortgage and its ;ontemporary$pplications.
F+. &istribution of 7rot in udarabah-based Investments $ccounts.
F>. Islamic /einsurance
F*. inancial /ights and Its &isposalanagement
F. 'i)uidity and Its Instruments
FF. ankruptcy
FH. ;apital and Investment 7rotection
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AnnexureB
4tandards that have "een deve#o-ed "9 IF4B /Is#amic Financia# 4ervicesBoard
Pu"#ished 4tandards
1. December %665: I)SB1:
8uidin' Princi-#es o2
0is& Mana'ement 2or
Institutions /other than
Insurance Institutions o+erin'
on#9 Is#amic Financia# 4ervices
/IIF4
2. December %665: I)SB%:
Ca-ita# Ade5uac9
4tandard 2or Institutions /other
than Insurance Institutions
o+erin' on#9 Is#amic Financia#
4ervices /IIF4
3. December %662: I)SB(:
8uidin' Princi-#es on
Cor-orate 8overnance 2or
Institutions o+erin' on#9
Is#amic Financia# 4ervices/Exc#udin' Is#amic Insurance
/9ak@ful Institutions and
Is#amic Mutua# Funds
. December %66/: I)SB3:
*isc#osures to Promote
:rans-arenc9 and Mar&et
*isci-#ine 2or Institutions
o+erin' Is#amic Financia#
4ervices /exc#udin' Is#amic
Insurance /9ak@ful Institutionsand Is#amic Mutua# Funds
!. December %66/: I)SB5:
8uidance on e9
E#ements in the 4u-ervisor9
0evie Process o2 Institutions
o+erin' Is#amic Financia#
4ervices /exc#udin' Is#amic
Insurance /9ak@ful Institutions
and Is#amic Mutua# Funds
". December %660: I)SB2:
8uidin' Princi-#es on
8overnance 2or Is#amic
Co##ective Investment 4chemes
#. anuar! %66: I)SB/:
Ca-ita# Ade5uac9
0e5uirements 2or Sukk,
4ecuritisations and 0ea# Estate
investment
$. December %66: I)SB0:
8uidin' Princi-#es on
8overnance 2or 9ak@ful/Is#amic
Insurance Underta&in's
%. December %66: I)SB:
8uidin' Princi-#es onConduct o2 Business 2or
Institutions o+erin' Is#amic
Financia# 4ervices
1&. December %66: I)SB16:
8uidin' Princi-#es
on Sharah8overnance
49stems 2or Institutions
o+erin' Is#amic Financia#
4ervices
11. December %616: I)SB11:
4tandard on 4o#venc9
0e5uirements
2or 9ak@ful/Is#amic Insurance
Underta&in's
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