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7/30/2019 F.I Article Presentation

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ISLAMIC BANKING

Islamic Banking is a financial institution that

operates with the objective to implement and

materialise the economic and financialprinciples of Islam in the banking arena.


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WHAT IS AN ISLAMIC BANK?

The Organisation of Islamic cooperation (OIC)

defined an Islamic Bank as

A financial institution whose statutes,

rules and procedures expressly state itscommitment to the principles of Islamic

Shariah and to the banning of the receipt

and payment of interest on any of its

operations.


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LIMITATIONS AND PROBLEMS

Liquidity

Legal Framework

Standardization

Lack of capital markets and financial Instruments

Financial Products yielding stable income flows

Government and industry needs

Migration from Riba based banking to Riba-free

banking Training of professionals

Public Awareness


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LIQUIDITY

Liquid Assets

Smaller range of available liquid assets

Resalable Long Term Assets

Long term assets such as Sukuk can be

sold Others only saleable if the contract states

so


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LIQUIDITY

(CONT) Lender of The Last Resort

Some central banks do not offershariah

compliant lender of last resort funding.


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LEGAL FRAMEWORK

Laws should be reviewed

Presently, working without proper legal cover

Registration requirements for agreements

need to be simplified


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STANDARDIZATION

Urgently needed in the following:

1. Vocabulary of Islamic banking2. Financial instruments and their

documentation

3. Pricing formulas of Islamic products


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1. VOCABULARY OF ISLAMIC BANKING

No universal terminology

Usage of Arabic Terms

Each bank has its our terminology


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2. ISLAMIC INSTRUMENTS AND THEIR

DOCUMENTATION

Difficult to form an identical documentation

But there should be a set standard

Will help in speedy adoption of Islamic

Banking


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3. PRICING FORMULAS FOR ISLAMIC

FINANCIAL PRODUCTS

Should have a standard set in the light of

Shariah principles

Will increase the efficient working of the

Islamic financing model

Help promotion of Islamic financing


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LACK OF CAPITAL MARKET AND FINANCIAL

INSTRUMENTS

Lack instruments for investment of their

surplus liquidity

Availability of Islamic capital market and

instruments help growth of these banks


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FINANCIAL PRODUCTS YIELDING STABLE

INCOME FLOW

Need for fixed income schemes

Most popular with pensioners, widows andorphans


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GOVERNMENT NEEDS

Large user of credit in any country

Usually borrows through treasury-bills

Islamic banks can not participate due tointerest

There is a need forShariah compliant

financial instruments through which Islamic

banks can also participate


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MIGRATION FROM RIBA TO RIBA-FREE

BANKING

Dual banking system adopted in many

countries

Needs to be carefully handles

Protection against mismanagement byIslamic bank and mixing with Interest-based

operations of conventional banks


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TRAINING OF BANKING PROFESSIONALS

One of the biggest hurdles

No training institute to meet manpower needs

Most banks hire employees formconventional bans with no or little knowledge

of Islamic Banking

A short training course should be provided


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PUBLIC AWARENESS

Even some Muslims are not aware of the

services offered by Islamic banks

Pubic education campaigns

Inclusion of Islamic banking concepts in

school curriculum

Use effective media to publicise their

activities


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WHAT CAN BE DONE?

Heavy investments in Research and

Development is needed

Employees need to be trained in Islamic

Banking

Procedures should be set out the under

which central banks can act as a lender of

last resort People need to be educated about Islamic

Banking

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