final islamic bank

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Assignment

OnWhy bank with an Islamic bank? Business, Religion, or what?

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Submitted to,

Abdullah M Noman,

Assistant Professor

School of Business Studies

Southeast University

Submitted by,

Name ID Batch

Azharul Haque 2006110000250 13th (G)

Al-asma chawddhury Ripa 2006110000034 13th (G)

Course Name: Islamic Economics and BankingCourse Code: FIN-324

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Date of Submission: August 10, 2007

SOUTHEAST UNIVERSITY


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July 6th, 2008

Abdullah M Noman,

Assistant Professor

School of Business StudiesSoutheast University

Dear Sir,

We are very grateful to you that you have given a wonderful opportunity to acquire a

huge knowledge by the term paper you have given us. Here, when we working this

assignment we have gone some places and meet many people. We talk with them, discus

with them about some matters. They helped us very much. By this process, we learned

how to communicate with the people and how a discussion goes on. Now, we know how

a company is ruined with its own employees, get together with authorized member or

director committee and also we learn that, when a company needs any kinds of meeting

or any other internal and external problem to solve then what kinds of step they take. So,

it was a pleasant work for all of us and by this we learn a lot but loose nothing, all of this

is done only for you. And for that reason we think all credit goes to you.

Here, we want a special thank you for your kindness help us and have taught us an

interesting and not monotones way.

Yours Sincerely

Name ID Batch

Azharul Haque 2006110000250 13th (G)

2006110000034 12th (G)

particularly we are thankful to the almighty Allah for best owing us and to give us the

effort to complete this task.

Secondly, we are truly thankful to my parents for providing moral and adequate financial

support. Preparing this assignment would have impossible without their help and

guidance at different level.

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Islamic Economics and Banking is really an interesting course and attending an

assignment like this leaves one with a store of knowledge. Teaching a course like this is

not at all an easy job and that too within a little less than four months. Again, assigning

this assignment and guiding each and every one really needed a great deal of patience.

For that we thank our course teacher Abdullah M Noman, Assistant Professor for

teaching us this critical but interesting course in a very easier way and guiding us till the

completion of this assignment, with patience and care.

My thanks also go to, Md nijam uddin Ahmed, Assistant Manager, Human Recourse

Management, Islamic bank of bangladessh.We also would like to thank our batch mates,

students of other departments, teachers and executives of all the offices who helped us by

answering the questionnaire. Very special thanks to our classmates for lend their hand for

my favors.

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TABLE OF CONTENT

Title Page no

Title Fly I

Title page Ii

Acknowledgement IiiLetter of Transmittal Iv

Serial no: Chapter Title Sub-point and Title Page no

1 Chapter 1 Introductory part 1.1 Introduction

1.2 Methodology

1.3 Scope or limitation

1.4 Objective of assignment

1

2

3

3

2 Chapter 2 Theoretical frame work 2.1 Introduction

2.2 Definition2.3 Objectives:

2.4 Principles

2.5 History of Islamic bank

2.6 Bangladesh perspective

4

55

5

6

8

3 Chapter 3 Islamic banking system 3.1Banking system 10-12

4 Chapter 4 Key Islamic Financial

Instruments

Key Islamic Financial

Instruments

13-16

5 Chapter-5 Finding And Analysis of

Study:

Finding And Analysis of

Study:

17-25

6 Chapter 6 Problems and Conclusion

and

6.1Problems of Islamic Bank

6.1 Conclusion

26

27

Reference 28


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Chapter 1

Introductory part1.1 Introduction

Banking is an art. Now-a-days Islamic banking stands very important role for launchingor promoting a product and create the. Islamic banking of product becomes very difficult

and definitely so tough .because of lunching a new product, first of all the main problem

is the competitors of that particular product .If the Islamic banking activities are right,

only this product can be Businesses successfully. In modern world, 85% of other banks

are product failed to build its image .Because they do not know how to lunch the product

proper way in globally. On other hand they do not know what is causing in the Business

research process. So it is absolute difficult to identifying the choose of Islamic banking in

our country.

The name bank derives from the Italian word banco, desk, used during the

Renaissance by Florentines bankers, who used to make their transactions above a desk

covered by a green tablecloth.

A bank is a commercial or state institution that provides financial services,

including issuing money in form ofcoins,banknotes ordebit cards, receiving deposits of

money, lending money and processing transactions. A commercial bankaccepts deposits

from customers and in turn makes loans based on those deposits. Some banks (called

Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial

services to make additional profit; for example, most banks also rent safe deposit boxes

in their branches.

A bank generates a profit from the differential between what level of interest it

pays for deposits and other sources of funds, and what level of interest it charges in its

lending activities. This difference is referred to as the spread between the cost of funds

and the loan interest rate. Historically, profitability from lending activities has been cyclic

and dependent on the needs and strengths of loan customers. In recent history, investors

have demanded a more stable revenue stream and banks have therefore placed more

emphasis on transaction fees, primarily loan fees but also including service charges on

array of deposit activities and ancillary services (international banking, foreign exchange,

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http://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Coinhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Debit_cardhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Safe_deposit_boxhttp://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Renaissancehttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Coinhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Debit_cardhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Safe_deposit_box


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insurance, investments, wire transfers, etc.). However, lending activities still provide the

bulk of an Islamic banks income.

This paper is divided into section. The first section contains introduction, methodology,

and objective. Section two is designed to focus on the conceptual analysis of spices. In

the third section, an overview of the findings and data analysis. Section fourth is focus on

the recommendation and conclusion. Finally, the write up ends with concluding reference

and appendix.

1.2 Methodology of my assignment

Introduction:

Methodology is the method of collecting data for doing a specific project.

Data Collection:

For doing a specific project someone use primary data and someone use secondary data

and someone use both primary and secondary data. The definition of primary and

secondary data has given below:

Primary data:

Primary data comes from direct field operations, which may be either a census or a

specially design or survey.

Secondary data:

Secondary data are usually procured from already published or unpublished document

rather than undertaking first hand investigation.

We are using both the data for doing my assignment Why bank with an Islamic bank?

Business, Religion, or what?

Data Analysis:

Statistics method.

Excel.

Computer based diagram.

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Pie chart.

Area Surveyed:

The study was confined to Banani in Dhaka city. The Banani of Dhaka City has been

selected because it is near of our varsity and in this area has both consumers like teacher,

doctor, business man, and other services holder and Banani is main center of private

business concerns of Dhaka. Time and cost were other important considerations for

selection of area.

1.3: Limitation of the study:

It is a common phenomenon that any analysis about assignment of Islamic banking isconfronted with a verity of obstacles. In this case we also encountered with many

problems, these are

a. The major difficulties were the time constraints. The time which is required

for this type of study was not enough.

b. Very few people know about the response of questionnaires. So we get very

little information from other people.

c. We do not get available computer to use internet in our lab.

d. There is no specialized book about the response of questionnaires in our

library.

1.4: Objective of the report:

In this research we have tried to identify customers of Islamic bank to enter into a

transaction with them: business, religion, or what? And customers satisfaction about our

country of Islamic banking. By this assignment our normal objectives are-

1. To know the customers satisfaction regard to the quality of service.

2. To know why customer choose the Islamic banking for transaction with them?

3. To define customer services and facilities.

4. To know the behavior of employees who works in the Spices company

5. Under standing the topics and the issues related with questionnaire.

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6. Gives the knowledge about a questionnaire analysis and findings.

7. Gives the knowledge about a survey.

Chapter-02

Theoretical frame work2.1 Introduction:Islamic banks appeared on the world scene as active players over two decades ago. But

"many of the principles upon which Islamic banking is based have been commonlyaccepted all over the world, for centuries rather than decades". The basic principle of

Islamic banking is the prohibition of Riba- (Usury - or interest).

"While a basic tenant of Islamic banking - the outlawing of riba, a term that encompassesnot only the concept of usury, but also that of interest - has seldom been recognised as

applicable beyond the Islamic world, many of its guiding principles have. The majority of

these principles are based on simple morality and common sense, which form the basesof many religions, including Islam.

"The universal nature of these principles is immediately apparent even at a cursory glanceof non-Muslim literature. Usury was prohibited in both the Old and New Testaments of

the Bible, while Shakespeare and many other writers, particularly those writing in the

19th century, have attacked the barbarity of the practice. Much of the morality

championed by Victorian writers such as Dickens - ranging from the equitabledistribution of wealth through to man's fundamental right to work - is clearly present in

modern Islamic society.

"Although the western media frequently suggest that Islamic banking in its present form

is a recent phenomenon, in fact, the basic practices and principles date back to the early

part of the seventh century." (Islamic Finance: A Euromoney Publication, 1997)

It is evident that Islamic finance was practiced predominantly in the Muslim world

throughout the Middle Ages, fostering trade and business activities. In Spain and the

Mediterranean and Baltic States, Islamic merchants became indispensable middlemen fortrading activities. It is claimed that many concepts, techniques, and instruments of

Islamic finance were later adopted by European financiers and businessmen.

The revival of Islamic banking coincided with the world-wide celebration of the adventof the 15th Century of Islamic calendar (Hijra) in 1976. At the same time financial

resources of Muslims particularly those of the oil producing countries, received a boost

due to rationalization of the oil prices, which had hitherto been under the control of

foreign oil Corporations. These events led Muslims' to strive to model their lives inaccordance with the ethics and philosophy of Islam.

Disenchantment with the value neutral capitalist and socialist financial systems led not

only Muslims but also others to look for ethical values in their financial dealings and in

the West some financial organisations have opted for ethical operations. Islam not only

prohibits dealing in interest but also in liquor, pork, gambling, pornography and anything

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else, which the Shariah (Islamic Law) deems Haram (unlawful). Islamic banking is an

instrument for the development of an Islamic economic order.

2.2 Definition:

An Islamic Banking is a financial institution that operates with the objective toimplement and materialise the economic and financial principles of Islam in the banking

arena.

The Organisation of Islamic conference (OIC) defined an Islamic Bank as a financialinstitution whose statutes, rules and procedures expressly state its commitment to the

principles of Islamic Shariah and to the banning of the receipt and payment of interest on

any of its operations.According to Islami Banking Act 1983 of Malaysia, an Islamic Bank is a company

which carries on Islamic Banking business....... Islamic Banking business means banking

business whose aims and operations do not involve any element which is not approved by

the religion Islam.

2.3 Objectives:

The objective of Islamic Banking is not only to earn profit, but to do good and bring

welfare to the people, Islam upholds the concept that money, income and property belong

to Allah and this wealth is to be used for the good of the society.Islamic Banks operate on Islamic principles of profit and loss sharing and other approved

modes of Investment. It strictly avoids interest which is the root of all exploitation and is

responsible for large scale inflation and unemployment.An Islamic Bank is committed to do away with disparity and establish justice in the

economy, trade, commerce and industry; build socio-economic infrastructure and create

employment opportunities.

2.4 Principles

Islamic banking has the same purpose as conventional banking except that it operates inaccordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on

transactions). The basic principle of Islamic banking is the sharing of profit and loss and

the prohibition ofriba (usury). Amongst the common Islamic concepts used in Islamicbanking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture

(Musharakah), cost plus (Murabahah), and leasing (Ijarah).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the

item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit,while allowing the buyer to pay the bank in installments. However, the fact that it is

profit cannot be made explicit and therefore there are no additional penalties for late

payment. In order to protect itself against default, the bank asks for strict collateral. Thegoods or land is registered to the name of the buyer from the start of the transaction. This

arrangement is called Murabaha. Another approach is EIjara wa EIqtina, which is similar

to real-estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the

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http://en.wikipedia.org/wiki/Shariahhttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Profit_sharinghttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Murabahahttp://en.wikipedia.org/wiki/Leasinghttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/w/index.php?title=EIjara_wa_EIqtina&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Real_estate_leasing&action=edit&redlink=1http://en.wikipedia.org/wiki/Shariahhttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Profit_sharinghttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Murabahahttp://en.wikipedia.org/wiki/Leasinghttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/w/index.php?title=EIjara_wa_EIqtina&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Real_estate_leasing&action=edit&redlink=1


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vehicle at a higher-than-market price to the debtor and then retaining ownership of the

vehicle until the loan is paid).

There are several other approaches used in business deals. Islamic banks lend theirmoney to companies by issuing floating rate interest loans. The floating rate of interest is

pegged to the company's individual rate of return. Thus the bank's profit on the loan is

equal to a certain percentage of the company's profits. Once the principal amount of theloan is repaid, the profit-sharing arrangement is concluded. This practice is called

Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who

provides labor while financing is provided by the bank so that both profit and risk areshared. Such participatory arrangements between capital and labor reflect the Islamic

view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced

distribution of income and not allowing lender to monopolize the economy.

And finally, Islamic banking is restricted to Islamically acceptable deals, which excludethose involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable

form of investment, and moral purchasing is encouraged. Islamic banking is an example

of full-reserve banking, with banks achieving a 100% reserve ratio.[2] However, in

practice, this is not always the case.[3]Islamic banks have grown recently in the Muslim world but are a very small share of the

global banking system. Micro-lending institutions founded by Muslims, notably GrameenBank, use conventional lending practices and are popular in some Muslim nations,

especially Bangladesh, but some do not consider them true Islamic banking. However,

Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and othersupporters of microfinance, argue that the lack ofcollateral and lack of excessive interest

in micro-lending is consistent with the Islamic prohibition ofusury (riba).

2.5 History of Islamic banking

Classical Islamic bankingDuring the Islamic Golden Age, early forms of proto-capitalism and free markets werepresent in the Caliphate,[1] where an early market economy and early form ofmerchant

capitalism was developed between the 8th-12th centuries, which some refer to as "Islamic

capitalism".[2]A vigorous monetary economy was created on the basis of the expandinglevels of circulation of a stable high-value currency (the dinar) and the integration of

monetary areas that were previously independent.

A number of innovative concepts and techniques were introduced in early Islamicbanking, including contracts,bills of exchange, long-distance international trade, the first

forms ofpartnership (mufawada) such as limited partnerships (mudaraba), and the

earliest forms ofcredit,debt,profit, loss, capital (al-mal), capital accumulation (nama al-

mal),[3]

circulating capital, capital expenditure, revenue, cheques, promissory notes,[4]

trusts (see Waqf), startup companies,[5]savings accounts, transactional accounts, pawning,

loaning, exchange rates, bankers,money changers, ledgers,deposits, assignments,[6]and

lawsuits.[7]Organizationalenterprises similar to corporations independent from the statealso existed in the medieval Islamic world, while the agency institution was also

introduced.[8][9] Many of these early capitalist concepts were adopted and further

advanced in medieval Europe from the 13th century onwards.[3]

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http://en.wikipedia.org/wiki/Venture_capitalhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Labor_(economics)http://en.wikipedia.org/wiki/Ethical_investinghttp://en.wikipedia.org/wiki/Moral_purchasinghttp://en.wikipedia.org/wiki/Full-reserve_bankinghttp://en.wikipedia.org/wiki/Reserve_ratiohttp://faculty.capebretonu.ca/mchoudhu/money.htmhttp://web.archive.org/web/20070716151628/http:/www.islamibankbd.com/page/ih_12.htmhttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Muslimhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Muhammad_Yunushttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Islamic_Golden_Agehttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Caliphatehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-0http://en.wikipedia.org/wiki/Islamic_banking#cite_note-0http://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Merchant_capitalismhttp://en.wikipedia.org/wiki/Merchant_capitalismhttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-1http://en.wikipedia.org/wiki/Islamic_banking#cite_note-1http://en.wikipedia.org/wiki/Monetary_economyhttp://en.wikipedia.org/wiki/List_of_circulating_currencieshttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Dinarhttp://en.wikipedia.org/wiki/Monetaryhttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Bills_of_exchangehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Partnershiphttp://en.wikipedia.org/wiki/Limited_partnershiphttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Profithttp://en.wikipedia.org/wiki/Losshttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_accumulationhttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-Banaji-2http://en.wikipedia.org/wiki/Circulating_capitalhttp://en.wikipedia.org/wiki/Capital_expenditurehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-3http://en.wikipedia.org/wiki/Islamic_banking#cite_note-3http://en.wikipedia.org/wiki/Trustshttp://en.wikipedia.org/wiki/Waqfhttp://en.wikipedia.org/wiki/Startup_companieshttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-4http://en.wikipedia.org/wiki/Savings_accounthttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Pawnhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Money_changerhttp://en.wikipedia.org/wiki/Ledgerhttp://en.wikipedia.org/wiki/Deposithttp://en.wikipedia.org/wiki/Assignment_(law)http://en.wikipedia.org/wiki/Islamic_banking#cite_note-5http://en.wikipedia.org/wiki/Islamic_banking#cite_note-5http://en.wikipedia.org/wiki/Lawsuithttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-6http://en.wikipedia.org/wiki/Islamic_banking#cite_note-6http://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Enterprisehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Statehttp://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Islamic_banking#cite_note-7http://en.wikipedia.org/wiki/Islamic_banking#cite_note-7http://en.wikipedia.org/wiki/Islamic_banking#cite_note-8http://en.wikipedia.org/wiki/Medieval_Europehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-Banaji-2http://en.wikipedia.org/wiki/Venture_capitalhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Labor_(economics)http://en.wikipedia.org/wiki/Ethical_investinghttp://en.wikipedia.org/wiki/Moral_purchasinghttp://en.wikipedia.org/wiki/Full-reserve_bankinghttp://en.wikipedia.org/wiki/Reserve_ratiohttp://faculty.capebretonu.ca/mchoudhu/money.htmhttp://web.archive.org/web/20070716151628/http:/www.islamibankbd.com/page/ih_12.htmhttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Muslimhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Muhammad_Yunushttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Islamic_Golden_Agehttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Caliphatehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-0http://en.wikipedia.org/wiki/Market_economyhttp://en.wikipedia.org/wiki/Merchant_capitalismhttp://en.wikipedia.org/wiki/Merchant_capitalismhttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-1http://en.wikipedia.org/wiki/Monetary_economyhttp://en.wikipedia.org/wiki/List_of_circulating_currencieshttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Dinarhttp://en.wikipedia.org/wiki/Monetaryhttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Bills_of_exchangehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Partnershiphttp://en.wikipedia.org/wiki/Limited_partnershiphttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Profithttp://en.wikipedia.org/wiki/Losshttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_accumulationhttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-Banaji-2http://en.wikipedia.org/wiki/Circulating_capitalhttp://en.wikipedia.org/wiki/Capital_expenditurehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-3http://en.wikipedia.org/wiki/Trustshttp://en.wikipedia.org/wiki/Waqfhttp://en.wikipedia.org/wiki/Startup_companieshttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-4http://en.wikipedia.org/wiki/Savings_accounthttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Pawnhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Money_changerhttp://en.wikipedia.org/wiki/Ledgerhttp://en.wikipedia.org/wiki/Deposithttp://en.wikipedia.org/wiki/Assignment_(law)http://en.wikipedia.org/wiki/Islamic_banking#cite_note-5http://en.wikipedia.org/wiki/Lawsuithttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-6http://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Enterprisehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Statehttp://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Islamic_banking#cite_note-7http://en.wikipedia.org/wiki/Islamic_banking#cite_note-8http://en.wikipedia.org/wiki/Medieval_Europehttp://en.wikipedia.org/wiki/Islamic_banking#cite_note-Banaji-2


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The common view ofriba(usury) among classical jurists ofIslamic law and economics

during the Islamic Golden Age was that it is only riba and therefore unlawful to apply

interest to money exnatura suaexclusively gold and silvercurrenciesbut that it is notriba and is therefore acceptable to apply interest to fiatmoneycurrencies made up of

othermaterials such as paperorbase metalsto an extent.[10] The definition of riba in

classical Islamic jurisprudence was "surplus value without counterpart." When"currencies of base metal were first introduced in the Islamic world, no jurist ever

thought that paying a debt in a higher number of units of this fiat money was riba" as they

were concerned with the real value of money (determined by weight only) rather than thenumerical value. For example, it was acceptable for a loan of 1000 gold dinars to be be

paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had

to be same because all makes of coins did not carry exactly similar weight). The rationale

behind riba according to classical Islamic jurists was "to ensure equivalency in realvalue" and that the "numerical value was immaterial (or it was not of any concern at that

time).

Modern Islamic banking

Islamic banking emerged as a response to both religious and economic exigencies. Whilereligious exigency calls for avoiding any transaction based on interest, economic

exigencies, on the other hand, provide a new outlook to the role of banking in promotinginvestment / productive activities, influencing distribution of income and adding stability

to the economy. Islamic banking is thus perceived as an improved system in all

dimensionsThe first attempt

Interestingly, the concept of Islamic Banking is several decades old. The first attempt to

establish an Islamic financial institution took place in Pakistan in the late 1950s with the

establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlordswho deposited funds at no interest, and then loaned to small landowners for agricultural

development initiated the experiment. The borrower did not pay interest on the credit

advanced, but a small charge was levied to cover the bank's operational expenses. Thecharge was far lower than the rate of interest. Although the experience was encouraging,

two main factors were responsible for its failure. First, the depositors' landlords regarded

the deposits as a one-time event. With the increasing number of borrowers the gapbetween available capital and credit demanded was huge. Secondly, the bank staff did not

have complete autonomy over its operation; depositors showed considerable interest in

the way their money was lent out (Ibid).

The second attemptThe first modern experiment with Islamic banking was undertaken in Egypt under cover

without projecting an Islamic imagefor fear of being seen as a manifestation of Islamic

fundamentalism that was anathema to the political regime. The pioneering effort, led byAhmad El Najjar, took the form of a savings bank based on profit-sharing in the Egyptian

town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 1981), by which

time there were nine such banks in the country.

In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which, till date,

is still in business in Egypt. In 1975, the Islamic Development Bank was set-up with the

mission to provide funding to projects in the member countries. The first modern

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13/34

commercial bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the

prodcuts offered were basic and stongly founded on conventional banking products, but

in the last few years the industry is starting to see strong development in new productsand services

Tabung Hajji: a successful attemptIslamic banking, with a very different approach contemporary to that in Egypt, emerged

in Malaysia. It was a financial institution developed for the pilgrims of Malaysia. These

institutions were established in response to what was the contention of the MalaysianMuslims that money spent on pilgrimage must be clean and untainted with 'Riba'. Since

this was not possible by depositing money with the ordinary banks, a special financial

institution had to be created. Consequently, Pilgrims Saving Corporation was established

in 1963, which was later on incorporated into the Pilgrims Management Fund Board(Tabung Hajji) in 1969 (A. Ahmad 1993).

2.6 Bangladesh perspective

In August 1974, Bangladesh signed the Charter of Islamic Development Bank andcommitted itself to reorganise its economic and financial system as per Islamic Shariah.

In January 1981, Late President Ziaur Rahman while addressing the 3rd Islamic Summit

Conference held at Makkah and Taif suggested, ''The Islamic countries should develop aseparate banking system of their own in order to facilitate their trade and commerce.''

This statement of Late President Ziaur Rahman indicated favourable attitude of theGovernment of the People's Republic of Bangladesh towards establishing Islamic banks

and financial institutions in the country. Earlier in November 1980, Bangladesh Bank, the

country's Central Bank, sent a representative to study the working of several Islamicbanks abroad.

In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to

participate in establishing a joint venture Islamic bank in the private sector. They found alot of work had already been done and Islamic banking was in a ready form for

immediate introduction. Two professional bodies -Islamic Economics Research Bureau

(IERB) and Bangladesh Islamic Bankers' Association (BIBA) made significantcontributions towards introduction of Islamic banking in the country. They came forward

to provide training on Islamic banking to top bankers and economists to fill-up the

vacuum of leadership for the future Islamic banks in Bangladesh. They also held

seminars, symposia and workshops on Islamic economics and banking throughout thecountry to mobilise public opinion in favour of Islamic banking.

Their professional activities were reinforced by a number of Muslim entrepreneursworking under the aegis of the then Muslim Businessmen Society (now reorganised as

Industrialist & Businessmen Association). The body concentrated mainly in mobilising

equity capital for the emerging Islamic bank. At last, the long drawn struggle to establishan Islamic bank in Bangladesh became a reality and Islami Bank Bangladesh Limited

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was established in March 1983 in which 19 Bangladeshi national, 4 Bangladeshi

institutions and 11 banks, financial institutions and government bodies of the Middle East

and Europe Including IDB and two eminent personalities of the Kingdom of SaudiArabia joined hands to make the dream a reality. Later, other three Islamic Banks were

established in the country.

Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in

Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited

liability under the companies Act 1913. The bank began operations on March 30, 1983.

IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by

the Islamic Development Bank and financial institutions like-Al-Rajhi Company for

Currency Exchange and Commerce, Saudi Arabia, Kuwait Finance House, Kuwait,Jordan Islamic Bank, Jordan, Islamic Investment and Exchange Corporation, Qatar,

Bahrain Islamic Bank, Bahrain, Islamic Banking System International Holding S. A.,

Luxembourg, Dubai Islamic Bank, Dubai, Public Institution for Social Security, Kuwait

Ministry of Awqaf and Islamic Affairs, Kuwait and Ministry of Justice, Department ofMinors Affairs, Kuwait. In addition, two eminent personalities of Saudi Arabia namely,

Fouad Abdul Hameed Al-Khateeb and Ahmed Salah Jamjoom are also the sponsors ofIBBL. The total number of branches as of December 2001 stood at 121. The authorized

capital of the bank is Tk. 500 million and subscribed capital is Tk. 160 million.

Al-Baraka Bank Limited, often called the second Islamic bank in Bangladesh,

commenced banking business as a scheduled bank on May 20, 1987. It is a joint venture

enterprise of Al-Baraka Investment and Development Company a renowned financial and

business house of Saudi Arabia, Islamic Development Bank, a group of eminentBangladesh industrialists and the Government of Bangladesh. The authorized capital of

the bank is Tk 600 million and the paid up capital is Tk. 204.07 million. The Bank

currently operates 34 branches throughout the country. Apart from extendingconventional commercial banking facilities to its customers, the bank has also given

substantial financial support to the development of industrial and real estate projects.

Al-Arafa Islami Bank Bangladesh Limited commenced its business as a scheduled bank

on September 27, 1995. The authorized capital of the bank is Tk. 1,000 million while its

paid up capital is Tk. 101.20 million. The Bank follows the Shariah principles in

investment and invests its funds under Mudaraba, Musharaka, Bai-Muajjal, Bai-Salam,etc. Up to 2001, the Bank has been operating its business through 40 branches all over the

country.

Social Investment Bank Limited is another bank guided by the Islamic principles. It

started its journey in November 1995. Its authorized capital is Tk. 1,000 million and paid-

up capital is Tk. 118.36 million. Up to September 2001, the Bank has been operating itsbusiness through 15 branches.

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Chapter-3

Islamic banking system:

Banking System (Modern) Although there is no formal evidence of the existence ofbanks in Bengal during the period before 400 BC, traders of this period were known to

have carried out activities to provide financial assistance among themselves. The wealthy

people of that period used to put their surplus money and valuables under the soil inbrass-made pitchers and maintained accounts for them by writing on the body of dishes

made of gold or silver. The VEDAS mentions the practice of informal banking in the formof borrowing and lending during the Vedic period. Such activities, however, were centred

in temples and other religious places. Borrowing and lending gave way to banking during

the period of Manu, who believed that wise men should deposit money with a personbearing good moral character, having respectable and rich relatives, and well conversant

with law. Koutilya'sArtha Shastra also suggests the existence of banking and payment of

interest on deposits in the Vedic period.

During the Mughal period, there were different types of gold coins in circulation thatencouraged people to engage in monetary transactions and profit-motivated financial

activities. Many individuals and some families attained special reputation in trading and

in finance. One such family, that ofJAGATSHETH, had branches of its monetary business

in DHAKA, Hughli and MURSHIDABAD. Mughal rulers patronised the banking business of

Jagat Sheth family and others, and also used to borrow money from them when needed.People could convert their valuables, mostly gold and silver, into currency with minimum

cost at Mughal mints. Monetary transactions and transfer through hundi (BILL OF

EXCHANGE), along with cash transaction, was in vogue during the Mughal period. The

revenue received from ZAMINDARs and dues therefrom were sent to the government

treasury through family-based financial or banking institutions. People from differentclasses were also involved in monetary trading which helped the evolution of banking in

that period. A major landmark was the establishment of the Hindustan Bank in 1700 AD

at CALCUTTA. After the stewardship of Bengal, Bihar and Urissha was assumed by the

EAST INDIA COMPANY, Jagat Sheth's family and other traders in money and financesuffered great losses in their business because of the activities of a new elite subservientto British rulers. The decline in banking brought some instability in the economy of that

time and, upon quick realisation of the fact, the British set up the English Agency House.

Established in 1784, the Bengal Bank was the first British-patronised modern bank in

India. Dhaka Bank started to operate as a commercial bank in 1806. The Bengal Bank

opened its first branch in Dhaka by purchasing Dhaka Bank in 1862. In 1873, it openedits two branches in SIRAJGANJ and CHITTAGONG. Another branch of Bengal Bank was

opened in CHANDPUR in 1900. Six branches of Bengal Bank were in operation in the

Bangladesh region until the PARTITIONOFBENGAL in 1947 and these branches were

located at Dhaka, Chittagong, MYMENSINGH, RANGPUR, Chandpur and NARAYANGANJ.

The three Presidential banks that followed the establishment of the Bengal Bank were the

Bank of Calcutta (1806), Bank of Bombay (1840) and Bank of Madras (1843).

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Combining these three banks, the Imperial Bank of India was set up in 1921. The Reserve

Bank of India came into being in 1935. In addition to the above, there were other banking

and financial institutions throughout British India, including the territory of Bengal.Other banking institutions established in East Bengal during the British period were the

loan offices at FARIDPUR(1865), BOGRA (1872), BARISAL (1873), Mymensingh (1873),

Nasirabad (1875), JESSORE(1876), MUNSHIGANJ (1876), Dhaka (1878), SYLHET (1881),PABNA (1882), KISHOREGANJ (1883), NOAKHALI (1885), KHULNA (1887), MADARIPUR

(1887), TANGAIL (1887), NILPHAMARI(1894) and Rangpur (1894). Banks established in

this period included the Kurigram Bank (1887), Kumarkhali Bank (1896), Mahaluxmi

Bank, Chittagong (1910), Dinajpur Bank (1914), Comilla Banking Corporation (1914)and Comilla Union Bank (1922). Major Indian banks of the period having branches in the

territory were the National Bank of India (1864), Bengal Central Bank (1918), New

Standard Bank (1920), Imperial Bank of India (1921), Pioneer Bank (1923), Bank ofCommerce (1929), United Industrial Bank (1940), Habib Bank (1941) and United

Commercial Bank (1942).

After the birth of Pakistan in 1947, the State Bank of Pakistan, the central bank of thecountry, came into being in 1948. Later, the National Bank of Pakistan, a commercialbank was set up in 1949. In all, 36 scheduled commercial banks were in operation

throughout Pakistan. Most of these banks were owned by Pakistanis. Only three of them,

namely, National Bank of Pakistan, Habib Bank, and the Australasia Bank had a branchin East Pakistan in 1949. During 1950-58, three other Pakistani-owned banks, the

Premier Bank, Bank of Bawalpur and Muslim Commercial Bank had opened branch

offices in East Pakistan. Four Pakistani-owned banks, the United Bank, Union Bank,Standard Bank and Commerce Bank conducted business in the province during 1959 -

1965. The province had only two banks owned by local business groups and with

headquarters at Dhaka, the Eastern Mercantile Bank (now PUBALIBANK) and Eastern

Banking Corporation (now UTTARABANK), established in 1959 and 1965 respectively.

The banking system in the territory of Bangladesh grew slowly during the British and

Pakistan periods. There were only 25 bank branches in 1901 and the number grew to 668in 1946. Creation of Pakistan was a deterrent in the sector as was evidenced by the

closure of bank branches, which came down to 148 in 1950. In 1965, the number rose

again to 545. Subsequent years, however, showed dramatic changes in the situation andthe number of bank branches increased to 1,025 in 1970. The banking system in

Bangladesh started functioning with 1,130 branches of 12 banks inherited from Pakistan.

Subsequently, these banks were nationalised and renamed after being merged into six

banks. The new names of the banks were the SONALI BANK (The National Bank of

Pakistan, The Bank of Bawalpur, The Premier Bank), AGRANI BANK (Habib Bank,Commerce Bank), JANATABANK (United Bank, Union Bank), RUPALIBANK (Muslim

Commercial Bank, Standard Bank), PUBALIBANK (Australasia Bank, Eastern Mercantile

Bank) and UTTARABANK (Eastern Banking Corporation).

BANGLADESHBANK, the central bank of the country, was set up on 16 December 1971 bythe Bangladesh Bank Order 1972. The government accepted the assets and liabilities of

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the Deputy Governor's office of the State Bank of Pakistan in Dhaka and declared the

Bangladesh Bank as a fully effective and permanent central bank.

Bangladesh Bank is empowered to regulate the issue of currency, maintain reserves, andmanage the monetary and credit system with a view to stabilising domestic currency,

maintaining a high level of production, reducing UNEMPLOYMENT, and increasing realincome. It is also responsible for fostering the growth and development of the country's

productive resources. The bank has the responsibility of overseeing and regulating the

country's banking system. In addition, the head office at Dhaka, Bangladesh Bank has

nine branch offices, two in Dhaka city (Motijheel and Sadarghat) and one each in

Chittagong, Khulna, RAJSHAHI, Sylhet, Bogra, Rangpur and Barisal. The paid up capital

of Bangladesh Bank is Tk 30 million divided into 300,000 shares of Tk 100 each. The

total share capital is fully paid by the government. A nine-member board of directorsheaded by a Governor as the chief executive oversees the affairs of the bank.

To conduct banking in Bangladesh, all banks have to have licenses from the Bangladesh

Bank under the Bank Companies Act 1991. To be able to get a license, all intendingbanks have to be registered with the Registrar of Joint Stock Companies under the

COMPANIES ACT 1994, and collect Certificate of Incorporation. Moreover, to collectcapital through public offerings of shares, intending banks have to obtain permission

from the country'sSECURITIESANDEXCHANGECOMMISSION.

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Chapter-04

Key Islamic Financial Instruments

MudarabaUnder the principle of no pain no gain, no one is entitled to any addition to the principal

sum if he does not share in the risks involved. The capital provider or rabbulmal may

'invest' through an entrepreneur borrower or Mudarib, hence the name of the structure;profits are shared on a pre-agreed basis but losses, if an are wholly suffered by the

rabbulmal. This financing structure is called Mudaraba and is similar to non-recourse

project finance. Mudaraba has also been called Shirka.

Musharaka

Financing through equity participation is called Musharaka. Here the partners or

shareholders use their capital through a joint venture, Limited Partnership to generate a

profit. Profits or losses will be split between the shareholders according to some agreedpre-formula depending on the investment ratio.

Mudaraba and Musharaka represent the desired forms of Islamic banking even thoughtheir current use is not significant. Islamic bank depositors act as Rabbulmals and place

funds with the bank. The bank is the Mudarib on its liability side with respect to the

depositors.The bank uses the funds on the Mudaraba or Musharaka basis or any other Islamically

approved basis with clients in search of funding. Here the bank is the Rabbulmal with

respect to the end users of the funds. Under such a scenario the bank acts as a principal.

The bank may also act in an off-balance sheet capacity as a fee earning agent on behalf ofthe fund providers and/or fund seekers or as a traditional fund manager investing in a

diversified portfolio of Musharaka contracts

Retail Islamic Banking Products

At a retail level, Islamic banks provide current, savings, and investment accounts.The current account is basically a safekeeping or Alwadiah account and used for day-to-

day cash management. It is very similar to such accounts in conventional banks. No

return is paid to depositors. The instant access accounts allow the depositors to withdraw

their money on demand and permit the bank to use the depositors' money. Cheque-booksare provided along with bill payment facilities, bank drafts, bills of exchange and

travellers cheques. Credit cards are unlikely to be provided but debit cards do not seem to

be a problem. Most banks have no charges for such accounts. Alwadiah structures arealso used for higher return savings accounts. Banks may, as they see fit, pay the savers a

return depending on their own profitability. This seems to be allowed as the bank's

payment, if any, is level and is not determined in advance. Savings account holders donot have the same level of service as current account holders but get savings books and

instant or short notice access. There may or may not be a service charge incurred. Losses

are not, in practice, passed on to depositors and are absorbed through the banks' reserves.

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The investment accounts use the Mudaraba format. Deposits are fixed term and cannot be

cashed in before maturity. The profit-sharing ratio varies between institutions and could

be a function of the bank's profitability or that of the portfolio of end borrowers. Inpractice there is only profit sharing and no loss sharing for retail investors. The lower risk

means a lower profit share.

There are considerable variations on the Mudaraba principle. The Islamic Bank of

Bangladesh has been offering Profit and Loss sharing Deposit Accounts, PLS Special

Notice Deposit Accounts, and PLS Term Deposit accounts. Bank Islam Malaysiaprovides wholesale and retail investment accounts both on the PLS principle.

The frequency of payment is another variable. Profits are declared and distributed

monthly in Malaysia, whilst in Egypt there is a quarterly distribution. In Bangladesh andPakistan distributions tend to be half-yearly.

A common thread is the short-term liquid nature of the deposits. Long-term mortgage-

type finance is hard to come by. The longest term deposits appear to be raised inMalaysia. Even there almost all the deposits are under two years in maturity.

Baimuajjal

It is deemed acceptable to charge higher prices for deferred payments. Such transactionsare regarded as trades and not loans. Property financing on such a deferred payment basis

is called Baimuajjal.

Ijara

An Islamic form of leasing is called Ijara. Here the banks buy machinery or other

equipment and lease it out under instalment plans to end-users. As in Western leasing

there may be an option to buy the goods built into the contracts. The instalments consistof rental for use and part-payment

Baisalam

When a manufacturer seeks to finance the production of goods he seeks Baisalam

financing. This involves the bank paying for the producer's goods at a discount before

they have been delivered or even made . It is similar the Bankers' Acceptance financing

in the West.

Prizes and bonuses

Iran and Pakistan have both attempted to fully Islamise their entire banking systems. Iran

converted to Islamic banking in August l983 with a three-year transition period. In Iran

banks accept current and savings deposits without paying any return. The banks arepermitted to offer bonuses and prizes on these deposits very similar to the UK's premium

bonds. This is apparently not regarded as gambling by the Iranian Islamic banking units.

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'Gifts'

Gifts to depositors are given entirely at the discretion of the Islamic banks on the basis of

the minimum balance. These gifts may be monetary or non-monetary are based on thebanks returns.

Interest freeThe avoidance of interest has been abused by those who merely seek to be seen to be

Islamic bankers. Many convert interest into capital gains and find a Koranic justification.

The rules have been tightened progressively as they have been in tax avoidance.

Trade related

It is unfair to criticise devices converting interest to capital gains as all such instruments

have to show some underlying commercial need and therefore probably go some waytowards the Islamic objectives. There are Western parallels with Commercial paper and

Bankers Acceptances which also have to be trade related. Many emerging markets, under

their exchange control regimes, insist that all overseas financing or foreign exchange

transactions have to be trade related.

Equity related

It has been suggested that 'pure Islamic banking' involves profit and loss sharing or equity

participation in the Mudaraba and Musharaka forms. There is no pre-determined interest

income for the lender or, in this case, the investor. The investor's return is uncertain:Sounds good and just the sort of venture capital financing many in the West have been

demanding of their risk-averse banks.

Devices can be created so that pre-determined interest can be made to look like pre-

determined capital gains. Also a tiny bit of uncertainty may be introduced into theequation. But there is also a requirement to avoid exploitation. If under a profit-sharing

arrangement, because of the entrepreneur's poor bargaining position and the banker's

monopoly status, the bank received 95 per cent of a ventures' profits. Would this bedeemed Islamic? Perhaps. There do not appear to be rules that determine fair sharing

ratios of profits.

Ethical investments

Islamic investments have to avoid undesirable sectors. This little different from many

Western Ethical investment funds. Ethical guidelines include: environmental protection,

charitable giving, community involvement, human dignity and sanctity of life, exclusionof companies involved in pornography, alcohol and gaming. Such objectives are

remarkably similar to the objectives of many an Islamic investment fund.

Riba

The word riba has been used in the Holy Quran on several occasions. So it is necessary

to know what it means or what it really stands for. Riba has been extracted from Raba. Itmeans addition, increasei[11]. So, riba literally means to increase, to grow to rise, to add,

to swell. It is, however, not every increase or growth which has been prohibited by

Islam. In the Shariah, riba technically refers to the premium that must be paid by the

borrower to the lender along with the principal amount as a condition for the loan or for

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an extension in its maturity. In this sense riba has the same meaning as interest in

accordance with the consensus of all jurists without any exception ii[12]. So the Holy

Quran and the Hadith do not make any such difference between usury and interest.Interest and usury both are taken as synonymous for the Arabic word riba.

Types Of Riba

Althought the Quran did not specify any particular kind of riba, it is generally held that

the word al-riba in the Quran is that kind of dealing which had been in vogue during thepre-Islamic daysiii[13]. Muslim jurists have classified riba in two types: 1. riba al-nasiah,

and 2. riba al-fadl.

Riba Al- Nasiah The term nasiah means to postpone or to wait and it refers to the time

period that is allowed for the borrower to repay the loan in return for the addition of thepremium. Hence it refers to the interest on loans. The prohibition of riba al nasiah

essentially implies that the fixing in advance of a positive return on a loan as a reward for

waiting is not permitted by the Shariahiv[14].

Riba al-fadl is the excess over and above the loan paid in kind. It lies in the payment of

an addition by the debtor to the creditor in exchange of commodities of the same kind.The following tradition of the Prophet Muhammad (saw) is cited v[15] as evidence. It is

related that Abu Said al-Khurdi said: the Prophet Muhammad (saw) has said that gold in

return for gold, silver for silver, wheat for wheat, barley for barley, dates for dates andsalt for salt, can be traded if and only if they are in the same quantity and that is should be

hand to hand. If someone gives more or takes, then he is engaged in riba and accordingly

has committed a sin.

Gharar

Uncertainty. One of three fundamental prohibitions in Islamic finance (the other two

being riba and maysir). Gharar is a sophisticated concept that covers certain types of

uncertainty or contingency in a contract. The prohibition on gharar is often used as thegrounds for criticism of conventional financial practices such as short selling, speculation

and derivatives.

Halal

That which is permissible. The concept of halal has spiritual overtones. In Islam there are

activities, professions, contracts and transactions which are explicitly prohibited (haram)

by the Qur'an or the Sunnah. Barring them, all other activities, professions, contracts, and

transactions etc. are halal. This is one of the distinctive features of Islamic economics vis-a-vis Western economics where no such concept exists. In Westem economics, all

activities are judged on the touchstone of economic utility. In Islamic economics, other

factors, mostly spiritual and moral are also involved.An activity may be economically sound but may not be allowed in the Islamic society if it

is not permitted by the Shari'ah.

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Chapter- 5

Finding and Analysis of study:

Table-01: Frequency and percentage of the gender:

Gender Frequency Percentage %) Ranking

Male 17 85% 1

Female 03 15% 2

Total 20 100%

Source: Filed survey, 2008.

The table-1 shows that although there has 03 female and 17 men out of 20 respondent of

Islamic bank in our survey. Actually banking is interrelated to the male. In Islamic bank

have more male customers then female customers. The research show that 85% of female

consumers are Islamic banking and 15% female customers is banking in Islamic

perspective. Generally we are told that the male customers are well known about the

Islamic banks.

Frequency

Frequency,

Male, 17, 85%

Frequency,Female, 3, 15%

Male

Female

The grape are present that the situation of gender, which are banking in Islamic bank. So

that we can say that both gender female as well as male are customer are know that why

banks are related to the Islam.

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Table- 02: Frequency, ranking and percentage of the customer profession

Occupation Frequency Percentage % Ranking

Student 04 20% 02

Services 16 80% 01

Housewife 00 00%

Business 00 00%

others 00 00%

Total 20 100%

The tables also represent, what type occupation peoples are transaction of money in

Islamic based bank, which professional persons is our respondents of our research. We

can also see those 4 students, 16 services holder respondents are to our studies.

4, 20%

16, 80%

0, 0%0, 0%0, 0%

Student

Services

Housewife

Businessothers

Here, the pie chart show that,20% students, 80% services and others services people is

the choose the Islamic bank in our country. So we can say that services are the most

popular customers in our country of banking.

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Test of Hypothesis on occupation of our respondent:

Let the null hypothesis be that the variance of the distribution of occupation of

transaction in Islamic banking from 20 respondents. i.e.

Subject Frequency (x) (x-x) (x-x)2

Student 04 -12 02

Services 16 00 01

Housewife 00 16 256

Business 00 16 256

others 00 16 256

Total 20 (x-x)= 36 (x-x)2= 912

Mean (x) = x/n

= 20/5 = 4

x = (x-x)/

= 912/20

= 45.6

Here, n-1 = (5-1) = 4

The table value of x for 3f.d at 5% level of significance is 9.49. Since the calculated value

of x is greater then the tabulated value of x it is significant and the null hypothesis is

rejected. Hence, we conclude that the data are consistent with the hypothesis be that the

variance of the distribution of occupation of transaction in Islamic banking from 20

respondents

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Table- 03: Frequency and percentage of frequently of Religion

It has already been mention that spices can buy a number frequently.

Item Frequency Percentage % Ranking

Islam 20 100 01Hindu 00 00 02

Boddu 00 00 03

Others 00 00 04

Total 20 100.00

Here, the table shows that maximum Muslim people are transaction of money in Islamic

bank. Our is the one of Muslim country so that Islamic based bank is most popular. Islam

religion people are most like of Islamic or shariah based bank as well as 100%.

Table- 04: Frequency and percentage of the reason of bank with an Islamic bank:

Reason Frequency Percentage % Ranking

Business 05 25 2

Religion 05 25 2

Both 10 50 1

Others 00 00 0

Total 20 100%

It has already been mention that bank with an Islamic bank because business and religion

are both. Our survey represent that 50% people are agree thats bank with an islamic bank

for business and religion. 25% people are agree bank with an islamic bank only for

business as well as religion.

Business, 5 Religion, 5

Both, 10

Others, 00

2

4

6

8

10

12

Business Religion Both Others

Series1

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Hypothesis test on reason:

T-test:

Null hypothesis H: = 10, Assuming the reason of the bank with an Islamic bank, the

appropriate statistic x and s can be compute from the sample values.

t= (x- )/s

Reason Frequency x (x-10)= d d

Business 05 5 25

Religion 05 5 25

Both 10 0 00

Others 00 10 100

d = 20 d =150

Mean (x)= A+ d/ N

= 10 + 20/4

= 15

S =

==

=

==

t = (x- )=

=

==

The table value t for (n-1) = 3 of freedom at 5% significance is 2.353. Since the

computed value of t = is less then the table value. We are the accept the nullhypothesis. Hence the reasons are accepted for bank with an Islamic bank.

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Table- 05: Frequency and percentage of have any account in any Islamic based

bank.

Subject Frequently Percentage % Ranking

Yes 19 95 01

No 01 05 02Total 20 100

This table represent that 95% peoples have account in the Islamic based bank. Our survey

also show that 5% who have not account in islamic based bank. From the survey we can

say that islamic bank is most popular in our country.

Frequently

Yes, 19, 95%

No, 1, 5%

Yes

No

Table: 6 : Frequency, Percentage and ranking of the satisfaction level for Islamicbanking services

Subject Frequency Percentage % Ranking

Yes 19 95 01

No 01 05 02

Total 20 100

This table represent that 95% peoples satisfied for Islamic banking. Our survey also show

that 5% people who are not satisfied Islamic banking services. From the survey we can

say that Islamic banking is most sweet able in our country.

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Frequency

Yes, 19

No, 10

2

4

6

8

1012

14

16

18

20

Frequency

Frequency 19 1

Yes No

Table: 07 Frequency and average of criteria that are used people for islamic bank.

Item Average Ranking

No interest 4.70 3

Profit sharing 4.55 5

Well services 4.75 2

Islamic rules 4.90 1

Advertisement 2.80 6

Company reputation 4.65 4

Our research show that islamic rules is most important criteria for choose the islamic

based bank, which ranking is 1. second important criteria is well services, then no

interest. Islamic bank is interest free bank.

4.7 4.554.75 4.9

2.8

4.65

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

No interest Well services Advertisement

Average

Average

Table: 8: Frequency, Percentage and ranking of attractive services in islamic bank.

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This table shows that 12 peoples as well as 60% peoples think that a deposit is more

attractive product of islamic based bank. And 35% peoples think thats a savings account

is more popular products:

Frequency

Current account, 0,

0%

Savings, 7, 35%

Deposits, 12, 60%

Others, 1, 5%

Other, 13, 65%

Current accountSavings

Deposits

Others

This graphical chart shows that the value and percentage of the more attractive product

have Islamic bank thats provide to the customers. Here 60% or 12 people out of 20

peoples are agreeing that deposits are the most important services of Islamic bank.

Hypothesis test on islamic banking products:

The null hypothesis is that the criteria of services occur equally frequently in the

directory. The expected frequency for each of the respondent 20. Arrange the ovserved

and expected frequencies in the following table:

x = (O-E)/E = 49.7

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Items Frequency Percentage % Ranking

Current account 00 00 4

Savings 07 35 2

Deposits 12 60 1

Others 01 5 3Total 20 100

Items Frequency, O E (O-E) (O-E)/E

Current account 00 20 400 20

Savings 07 20 169 8.45Deposits 12 20 64 3.20

Others 01 20 361 18.05

(O-E)/E =49.7


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The table of x for v = (n-1) = 3 d.f at 5% level of significance is 7.81. The computed of x

is much greater then the table value. The null hypothesis is rejected. Thus it can conclude

that the Islamic banking services are not properly distributed in the customers.

Table: 9: Frequency, Percentage and Ranking ACI Pure Products

Subject Frequency Percentage % ranking

Low 0 0

High 0 0

Reasonable 0 0

No interest 20 100

Total 20 100%

This table also be show that the Islamic based bank dont provide interest to customer. So

that Islamic bank is interest free bank in our country. Interest is strictly prohibited in

islamic shariah.

Table: 12 Frequency and percentage of rules and regulation are follow of islamic

bank:

Subject Frequency Percentage %

Yes 11 55

No 09 45

total 20 100

The table represent that the 11 people or 55% are think thats every islamic bank in

Bangladesh is follow the islamic rules and regulation properly. But others 45% people

think thats islamic based bank do not follow the rules and regulation.

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Chapter-6

6.1 Problem Specific to Islamic Banking

1. Absence of Islamic Money Market

In the absence of Islamic money market in Bangladesh, the Islamic banks cannot invest

their surplus fund i.e., temporary excess liquidity to earn any income rather than keeping

it idle. Because all the Government Treasury Bills, approved securities and Bangladesh

Bank Bills in Bangladesh are interest bearing. Naturally, the Islamic banks cannot invest

the permissible part of their Security Liquidity Reserve and liquid surplus in those

securities. As a result, they deposit their whole reserve in cash with Bangladesh Bank.

Similarly, the liquid surplus also remains uninvested. On the contrary, the conventional

banks of the country do not suffer from this sort of limitations. As such, the profitability

of the Islamic banks in Bangladesh is adversely affected.

2. Absence of Suitable Long-term Assets

The absence of suitable long term assets available to Islamic banks is mirrored by lack of

short term tradable financial instruments. At present there is no equivalent of an inter-

bank market in Bangladesh where banks could place, say, over night funds, or where they

could borrow to satisfy temporary liquidity needs. Trading of financial instruments is also

difficult to arrange when rates of return are not know until maturity. Furthermore, it is not

clear whether Islamic banks in Bangladesh can utilise more exotic instruments, such as

derivatives, that are becoming increasingly popular with conventional banks. Obviously,

these factors place Islamic banking in Bangladesh at a distinct disadvantage compared to

its conventional banking counterpart.

3. Shortage of Supportive and Link Institutions

Any system, however well integrated it may be, cannot thrive exclusively on its built-in

elements. It has to depend on a number of link institutions and so is the case with Islamic

banking. For identifying suitable projects, Islamic banking can profitably draw the

services of economists, lawyers, insurance companies, management consultants, auditors

and so on. They also need research and training forums in order to prompting

entrepreneurship amongst their clients. Such support services properly oriented towards

Islamic banking are yet to be developed in Bangladesh.

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4. Organizing Relationship with Foreign Banks

Another important issue facing Islamic banks in Bangladesh is how to organise their

relationships with foreign banks, and more generally, how to conduct international

operations. This is, of course, an issue closely related to the creation of financial

instruments, which would be simultaneously consistent with Islamic principles and

acceptable to interest-based banks, including foreign banks.

5. Long-term Financing

Islamic Banks stick very closely to the pricing policies of the government. They can not

benefit from hidden costs and inputs, which elevate the level of prices by certain

entrepreneurs without any justification. On the other hand, Islamic banks as financial

institutions are even more directly affected by the failure of the projects they finance.

This is because the built in security for getting back their funds, together with their

profits, is in the success of the project. Islamic ally, it is not lawful to obtain security from

the partner against dishonesty or negligence, both of which are very difficult if not

impossible to prove.

6.2 Conclusion:

Islamic banking is a very young concept. Yet it has already been implemented as the only

system in two Muslim countries; there are Islamic banks in many Muslims countries and

a few in non-Muslims countries as well. Deposits the successful acceptance there are

problems. These are mainly in the area of financing.

With only minor changes in their practices, Islamic banks can get rid of all theircumbersome, burdensome and sometimes doubtful forms of financing and offer clean and

efficient interest-free banking. All the necessary ingredients are already there. The

modified system will make use of only two forms of financingloans with services

charges and Mudaraba participatory financingboth of which are fully accepted by all

Muslim writers on the subject. Such a system will offer an effective banking system

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where Islamic banking is obligatory and a powerful alternative conventional banking

where both co-exist. Additionally, such a system will have no problem in obtaining

authorization to operate in non-Muslim countries.

Participatory financing is a unique feature of Islamic banking, and can offer responsible

financing to socially and economically relevant development projects. This is an

additional service Islamic banks offer over and above the traditional services provides by

conventional commercial banks.

Reference:

Reference:

Ahmed, A. (1992). Contemporary Experiences of Islamic Banks. Journal of

Objective Studies.

Ahmed, A. (1993). Contemporary Practices of Islamic Financing Techniques.

Jeddah: Islamic Research and Training Institute, Islamic Development Bank.

Allais, M. (1993). The Monetary Conditions of an Economy of Markets, Jeddah:

Islamic Research and Training Institute

Ashker, A. A. F. (1987). The Islamic Business Enterprise. London: Croom Helm.

Saud, M. A. (1986). Contemporary Economic Issues - Usury and Interest, Ohio:

Zakah and Research Foundation.

Wilson, R. (1983). Banking and Finance in Arab Middleast. London: Macmillan

Publisher Ltd.

Main article: Islamic economics in the world,Early reforms under Islam

http://www.usc.edu/dept/MSA/quran/002.qmt.ht

Syed Ashraf Ali & R.A Howlader, banking law and practices

www.ibbl.com/bd

www.wekpedia.islam.com

www.islamicbank.com

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http://en.wikipedia.org/wiki/Islamic_economics_in_the_worldhttp://en.wikipedia.org/wiki/Early_reforms_under_Islamhttp://www.usc.edu/dept/MSA/quran/002.qmt.htmlhttp://www.wekpedia.islam.com/http://www.islamicbank.com/http://en.wikipedia.org/wiki/Islamic_economics_in_the_worldhttp://en.wikipedia.org/wiki/Early_reforms_under_Islamhttp://www.usc.edu/dept/MSA/quran/002.qmt.htmlhttp://www.wekpedia.islam.com/http://www.islamicbank.com/


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