Kabir - If - CH 1 Fin 411
Kabir - If - CH 1 Fin 411
Kabir - If - CH 1 Fin 411
Chapter 1
Introduction to Islamic
Banking and Finance
The Shari’ah
• Defines man-to-God and man-to-man relationships
The Qur’an
• The first source of the Shari’ah
• General and specific rules on religious, commercial, political,
economic, legal and social norms
• Emphasis on mutual consent and consensus among
consenting parties
• Prohibits exploitative measures:
– Excessive risk or uncertainty (gharar)
– Usury or interest (riba)
The Sunnah
• The second primary source of the Shari’ah
• Retail banking
• Corporate banking
• Real estate
• Investment banking
Figure 1.2:
Timeline of
Modern-day
Experiments of
Islamic banking
and finance
from 1962 to
1975
Learning Objective 1.2
Explain the historical
Conceptual Arguments for Islamic development and
conceptual arguments of
Banking and Finance Islamic banking and
finance
•Interest-free
•Ethical
•Fair risk-sharing
Learning Objective 1.2
Explain the historical
The Development of Islamic Banking development and
conceptual arguments of
and Finance Industry Islamic banking and
finance
• Islamic banking
• Takaful
Islamic Banking
• May be:
- Fully fledged Islamic banks
- Islamic subsidiaries or
- ‘Windows’ of conventional banks
Learning Objective 1.3
Understand the
Components of Islamic Banking and components and operating
structures of the Islamic
Finance Industry banking and finance
industry as well as the
process of development of
The Islamic Capital Markets (ICM) Islamic finance products.
• Fund mobilization
• Fund utilization
- Sharing modes
- Sale modes
- Leasing modes
Learning Objective 1.3
Understand the
Key Operating Mechanisms of components and operating
structures of the Islamic
Islamic Banking and Finance banking and finance
industry as well as the
process of development of
Islamic finance products.
Fund mobilization
The process of raising funds to establish a viable financial
institution through the sale of shares to investors and
receiving funds from depositors. Features include:
• An ethical manner
• Net equities owned by shareholders
• Investment deposits
• Demand deposits
Learning Objective 1.3
Understand the
Key Operating Mechanisms of components and operating
structures of the Islamic
Islamic Banking and Finance banking and finance
industry as well as the
process of development of
Fund utilization Islamic finance products.