ISLAMIC BANKINGISLAMIC BANKINGSummary
The project is based on the study of Islamic Banking. An Islamic
concept of banking which is based on profit & loss sharing and
forbids interest (Riba) and thus is totally different than the
conventional banking which is based on interest.
As dealing in interest has been forbidden In Islam this type of
banking has been very popular in the Muslim populated countries
like those in Middle East and has also grown interest in Europe
& America although in India it is still in the embryonic
stage.
The project gives details on why Islamic banking is practised,
the history of Islamic banking when it started and also describes
the tools on which the banking system operates like Mudarabaha,
Musharaka, Wadia, Ijarah, Istisna etc. The project also speaks
about Equity funds & its application while being in the
constraints of islam, and also sheds some light on Taqaful the
Islamic way of insurance which can act very similar to the present
insurance concept of insuring human lives and commodities while
being in the boundaries of Sharia.
To see all these Islamic financial techniques working in
practice a study on ADCB AMANAH was made. ADCB AMANAH is a global
financial division of ADCB Group working on Islamic principles and
serving to the needs of people in Middle east, Europe, USA &
some Asian countries ( not available in India).ADCB Amanah has
developed very competitive financial services compared to
conventional banks by using various Islamic financial techniques.
It has also developed Islamic Credit Cards which are one of there
popular products. ADCB Amanah is also considered to be one of the
banks strictly following the Islamic Sharia and has a board of
Islamic scholars on its panel to take care of its activities.
Islamic banking was chosen as a project to know the best of it
and also to introduce this rather alien topic to masses here.
Chapter 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 commonly accepted all over the world,
for centuries rather than decades". The basic principle of Islamic
banking is the prohibition of Riba- (Usury - or interest).Since the
mid 1970s Islamic banks have been growing at a very fast rate. This
banks were not only established in the countries were Islam is the
major religion like Egypt, Syria , Jordan ,United Arab Emirates,
Bahrain ,Kuwait Tunisia & Malaysia. But also in the United
Kingdom, Denmark & Philippines where it is a minority religion.
An International Islamic bank, The Islamic Development Bank, whose
share holders are the members of the Organisation of Islamic
Conference (OIC), acts as the sponsor of Islamic banking and
finance in the wider Muslim world. This is in addition to the
efforts made in the early 1980s by Pakistan and Iran to transform
the entire financial systems to interest- free (Islamic)
systems.The Islamic Banking institution is a new and constantly
evolving concept. In relation to the Western way of banking, the
Islamic Banking system is free of interest. One might wonder what
the incentive to lend money would be. Others may not understand
what benefits could be had by putting their savings into a bank
account. While Muslims do not believe in charging or earning
interest, they have developed a very complex alternative that is
being implemented all over the eastern world. Started from just an
idea, this new way of banking quickly spread through the Muslim
countries, and has continued to expand all over Europe and Asia.
Although the system is proving to the West that it can work, it is
still trying to iron out some of the inefficiencies that it
currently has. Once the system is more efficient, it will be better
able to provide its members with a stock market that works in the
same efficient way as it does here in the West. While a basic
tenant of Islamic banking - the outlawing of Riba, a term that
encompasses not 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 bases of many religions, including Islam.
1.1The Basic PrincipalIslamic banking has the same purpose as
conventional banking except that it operates in accordance 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 of riba (usury).
Amongst the common Islamic concepts used in Islamic banking are
profit sharing (Mudharabah), safekeeping (Wadiah), joint venture
(Musharakah), cost plus (Murabahah), and leasing (Ijarah).All
Islamic Banks have three kinds of deposit accounts: current,
savings, and investment. In the case of current accounts, the
deposit is guaranteed. In terms of savings accounts, they can be
dealt with in a number of ways. In some, the banks are allowed to
use the depositors money but they are guaranteed to get the full
amount back from the bank. In others, it is thought of as more of
an investment type account. The capital is not guaranteed, but the
money is invested in low-risk securities, which could also provide
a profit. For an investment account, deposits are accepted for a
fixed or unlimited period of time. The investors in these types of
cases agree in advance to share with the bank their profit or loss.
Their capital is not guaranted.Islamic banking is restricted to
Islamically acceptable deals, which exclude those involving
alcohol, pork, gambling, etc. 1.2 Largest Islamic
banksShariah-compliant assets reached about $400 billion throughout
the world in 2009, according toStandard & Poors Ratings
Services, and the potential market is $4 trillion.Iran,Saudi
ArabiaandMalaysiahave the biggest sharia-compliant assets. In
2009Iranian banksaccounted for about 40 percent of total assets of
the world's top 100 Islamic banks.Bank Melli Iran, with assets of
$45.5 billion came first, followed by Saudi Arabia'sAl Rajhi
Bank,Bank Mellatwith $39.7 billion andBank Saderat Iranwith $39.3
billion.Iran holds the world's largest level of Islamic finance
assets valued at $235.3bn which is more than double the next
country in the ranking with $92bn. Six out of ten top Islamic banks
in the world are Iranian. In November 2010,The Bankerpublished its
latest authoritative list of the Top 500 Islamic Finance
Institutions with Iran topping the list. Seven out of ten top
Islamic banks in the world are Iranian according to the list.
1.3Difference between Islamic banking and Conventional
banking
Lets first discuss about the Conventional banking. Conventional
banking does not follow one pattern. In Anglo-Saxon countries,
commercial banking dominates, while in Germany, Switzerland, the
Netherlands, and Japan, universal banking is the rule. Naturally,
then, a comparison between banking patterns becomes inevitable.
Commercial banking is based on a pure financial intermediation
model, whereby banks mainly borrow from savers and then lend to
enterprises or individuals. They make their profit from the margin
between the borrowing and lending rates of interest. They also
provide banking services, like letters of credit and guarantees. A
proportion of their profit comes from the low-cost funds that they
obtain through demand deposits. Commercial banks are prohibited
from trading and their shareholding is severely restricted to a
small proportion of their net worth. Because of the fractional
reserve system, they produce derivative deposits, which allow them
to multiply their low-cost resources. The process of bank lending
is, however, subject to some problems that can make it inefficient.
Borrowers usually know more about their own operations than
lenders. Acting as lenders, banks face this information asymmetry.
Because borrowers are in a position to hold back information from
banks, they can use the loans they obtain for purposes other than
those specified in the loan agreement exposing banks to unknown
risks. They can also misreport their cash flows or declare
bankruptcy fraudulently. Such problems are known as moral hazard.
The ability of banks to secure repayment depends a great deal on
whether the loan is effectively used for its purpose to produce
enough returns for debt servicing.
Even at government level, several countries have borrowed
billions of dollars, used them unproductively for other purposes
and ended up with serious debt problems. Banks can ascertain the
proper use of loans through monitoring but it is either discouraged
by clients or is too costly and, hence, not commercially feasible.
Hence, why the purpose for which the loan is given plays a minimal
role in commercial banking. It is the credit rating of the borrower
that plays a more important role.By contrast, universal banks are
allowed to hold equity and also carry out operations like trading
and insurance, which usually lie beyond the sphere of commercial
banking. Universal banks are better equipped to deal with
information asymmetry than their commercial counterparts. They
finance their business customers through a combination of
shareholding and lending. Shareholding allows universal banks to
sit on the boards of directors of their business customers, which
enables them to monitor the use of their funds at a low cost. The
reduction of the monitoring costs reduces business failures and
adds efficiency to the banking system.
Following the above logic, many economists have given their
preference to universal banking, because of its being more
efficient. Commercial banks are not allowed to trade, except within
the narrow limits of their own net worth. As we have noticed, many
Islamic finance modes involve trading. The same rule cannot,
therefore, be applied to Islamic banks. It may be possible for
Islamic banks to establish trading companies that finance the
credit purchase of commodities as well as assets. Those companies
would buy commodities and assets and sell them back to their
customers on the basis of deferred payment. However, this involves
equity participation.
We may, therefore, say that Islamic banks are closer to the
universal banking model. They are allowed to provide finance
through a multitude of modes including the taking of equity.
Islamic banks would benefit from this by using a combination of
shareholding and other Islamic modes of finance. Even when they use
trade-based, debt creating modes, the financing is closely linked
to real sector activities. Credit worthiness remains relevant but
the crucial role is played by the productivity/profitability of the
project financed.
Chapter 2 Islamic Bank Products/ Financing TechniquesThere are
many types of Islamic financing techniques with very specific
requirements in for them to be legal under the Islamic Law. Some of
them are discussed as below;2.1 Mudarabah (Profit Sharing)Mudarabah
is an arrangement or agreement between the bank, or a capital
provider, and an entrepreneur, whereby the entrepreneur can
mobilize the funds of the former for its business activity. The
entrepreneur provides expertise, labor and management. Profits made
are shared between the bank and the entrepreneur according to
predetermined ratio. In case of loss, the bank loses the capital,
while the entrepreneur loses his provision of labor. It is this
financial risk, according to the Shariah, that justifies the bank's
claim to part of the profit. The profit-sharing continues until the
loan is repaid. The bank is compensated for the time value of its
money in the form of a floating rate that is pegged to the debtor's
profits 2.2 Murabahah (Cost Plus)Murabaha is defined as a
particular kind of sale, compliant with shariah, where the seller
expressly mentions the cost he has incurred on the commodities to
be sold and sells it to another person by adding some profit or
mark-up thereon which is known to the buyer. As the requirement
includes an 'honest declaration of cost', murabaha is one of three
types of bayu-al-amanah ('fiduciary' sale)[Other two types of
bayu-al-amanah are Tawliyah (sale at cost) and Wadiah (sale at
specified loss)].It is one of the most popular modes used by banks
in Islamic countries to promote riba-free transactions. The ratio
in which this instrument is being used varies from bank to bank.
Typically Murabaha is used in asset financing, Property, Micro
Finance as well as in import / export of commodities. Use of the
instrument of Murabaha is however restricted only to those cases
where Mudarabah and Musharakah are not practicable. In reality
there are risks associated with profit sharing, and banks are not
guaranteed any income from these modes of financing. As a result,
Murabaha with its fixed margin attached, offers lenders (ie the
banks) with a more predictable income stream.There are, however
practical guidelines in place which aim to ensure that the
transaction between the bank and the customer is one based on trade
and not merely a financing transaction. For instance, it is a
requirement that the bank takes constructive or actual possession
of the good before selling to the customer. Whilst it can be
justified to charge an additional margin to the customer to reflect
the time value of money in terms of actual payment not being
received from the customer at time zero, any penalties for late
payments can only be imposed if the bank agrees to purify this by
donating this to charity.The accounting treatment of Murabaha and
its disclosure and presentation in the financial statements also
varies from bank to bank.2.3 Musharaka ( Joint venture)Musharakah
is a relationship between two parties or more, of whom contribute
capital to a business, and divide the net profit and loss pro rata.
This is often used in investment projects, letters of credit, and
the purchase or real estate or property. In the case of real estate
or property, the bank assesses an imputed rent and will share it as
agreed in advance. All providers of capital are entitled to
participate in management, but not necessarily required to do so.
The profit is distributed among the partners in pre-agreed ratios,
while the loss is borne by each partner strictly in proportion to
respective capital contributions. This concept is distinct from
fixed-income investing2.4 Istisna Istisna is another form of
Islamic financing. It is a form of sale where the transaction of
buying and selling a commodity happens before the commodity comes
into existence. A manufacturer agrees to manufacture a specific
commodity for a specific purchaser by a specific, agreed upon date.
The price must be a fixed price that is agreed upon by the
manufacturer and the purchaser. Also, the specifications of the
commodity must be agreed upon before production begins. One of the
main uses of istisna as financing is the house-purchasing sector.
If a client has his or her own land and seeks financing for the
construction of a house, the financer may undertake the 'contract'
to construct the house on the basis of istisna. If the client has
no land and wishes to also buy land, the financer may undertake to
provide him a constructed house on a specified piece of land.It is
not necessary for the financer to actually construct the house. A
third-party istisna may be formed. The cost of the contract is
fixed into the cost in calculating of the istisna. The financer is
responsible for all specifications of the house or project and if
there are any variations the financer is responsible for making the
corrections in accordance with the istisna contract. As long as the
parties are in agreement, payments may be fixed in whatever manner
that the parties wish. Payments may in one lump sum or they may be
made in installments. If the financer wishes, he or she may keep
the title deeds for the house or property until the final payments
are made as security for the payments.
2.5 Ijarah (Rent)The second form of Islamic financing is ijarah
literally meaning to give something on rent, In terms of financing
it is equivalent to the English term leasing. The rules of leasing
are very much like the rules of sale because something of value is
being transferred. The rules of leasing are also very equivalent to
the rules of leasing in the United States. Advantages of IjarahThe
following are the advantage of Ijarah to lessee:1.Ijarah conserves
capital as it may provide 100% financing.2.Ijarah enables the
Lessee to have the use of the equipment on payment of the first
rental. This is important since it is the use (and not ownership)
of the equipment that generates income.3.Ijarah arrangements are
flexible because the terms and rental provision may be tailored to
suit the needs of the Lessee. Therefore, it aids corporate planning
and budgeting4.Ijarah is not borrowing and is therefore not
required to be disclosed as a liability in the Balance Sheet of the
Lessee. Being an "off-balance-sheet" financing, it is not included
in the computation of gearing ratios imposed by bankers. The
borrowing capacity of the Lessee is therefore not impaired when
leasing is resorted to as a mean of financing.5.All payments of
rentals are treated as payment of operating expenses and are
therefore, fully tax-deductible. Leasing therefore offers
tax-advantages to profit making concerns.6.There are many types of
equipment, which become obsolete before the end of their actual
economic life. This is particularly true in high technology
equipment like computers. Thus the risk is passed onto the Lessor
who will undoubtedly charge a premium into the lease rate to
compensate for the risk. A Lessee may be willing to pay the said
premium as an insurance against obsolescence.7.If the equipment use
is for a relatively short period of time, it may be more profitable
to lease than to buy.8.If the equipment is for short duration and
the equipment has a very poor second hand value (resale value),
leasing would be the best method for acquisition.Ijarah Thumma Al
Bai' (Hire Purchase)These are variations on a theme of purchase and
lease back transactions. There are two contracts involved in this
concept. The first contract, an Ijarah contract (leasing/renting),
and the second contract, a Bai contract (purchase) are undertaken
one after the other. For example, in a car financing facility, a
customer enters into the first contract and leases the car from the
owner (bank) at an agreed rental over a specific period. When the
lease period expires, the second contract comes into effect, which
enables the customer to purchase the car at an agreed price.In
effect, the bank sells the product to the debtor, at an above
market-price profit margin, in return for agreeing to receive the
payment over a period of time; the profit margin on the lease is
equivalent to interest earned at a fixed rate of return.This type
of transaction is particularly reminiscent of contractum trinius, a
complicated legal trick used by European bankers and merchants
during the Middle Ages, which involved combining three individually
legal contracts in order to produce a transaction of an interest
bearing loan (something that the Church made illegal). The
combination of different contracts is also prohibited according to
Shariah.
2.6 Takaful ( Insurance)Takaful comes from the Arabic root work
Kafala means guarantee.. Taqaful is all about mutual protection and
joint guarantee.Takaful is an alternative form of cover that a
Muslim can avail himself against the risk of loss due to
misfortunes. Takaful is based on the idea that what is uncertain
with respect to an individual may cease to be uncertain with
respect to a very large number of similar individuals. Insurance by
combining the risks of many people enables each individual to enjoy
the advantage provided by the law of large numbers.In modern
business, one of the ways to reduce the risk of loss due to
misfortunes is through insurance which spreads the risk among many
people. The concept of insurance where resources are pooled to help
the needy does not contradict Shariah. However, conventional
insurance involves the elements of uncertainty (Al-gharar) in the
contract of insurance, gambling (Al-maisir) as the consequences of
the presence of uncertainty and interest (Al-riba) in the
investment activities of the conventional insurance companies that
contravene the rules of Shariah. It is generally accepted by Muslim
jurists that the operation of conventional insurance does not
conform to the rules and requirements of Shariah.MAJOR DIFFERENCE
b/w INSURANCE & TAKAFUL
Conventional InsuranceTakaful
1. 2. 1. Commutative contract
2.Two parties. Insurer (company), Insured (Policy holders)
3. The premium comes in theownership of company.
4. Covering of risk is duty of company
5. There is only one contract i.e.commutative contract.
6. Only insurance company is insurer
7. Accounting Difference i.e. based onone contract
8. Surplus is not returned to policy holders totally or
partially
9. Pool of Insurance company is not a legal identity
10. There is one relation in insurance.
1. Non Commutative contract
2. Three parties company, policy holder,pool
3. Takaful company does not becomeowner of premium
4. Covering of risk is duty of company.
5. There is a bunch of contracts. (Fourcontracts as described
before)
6. Takaful company is not insurer butpolicy Holders are insurers
& insuredamong themselves.
7. Accounting based on bunch ofcontracts
8. Surplus is returned to policy holders.
9. Pool of Takaful Company is a legal Identity
10. there are a different relations atdifferent stages in
Takaful
AL-Wadiah (Safekeeping)
Savings accounts in Islam are operated on an al-wadiah basis,
meaning a safekeeping basis. The bank may pay its depositors a
positive return periodically based on profits of the bank. These
payments are legal in Islam since the payments are not
predetermined and they are not a condition of lending. The
depositors are allowed to withdraw money at anytime they please.
Investment accounts are based on the mudarabha, or profit-sharing,
principle. The deposits are term deposits, which means that there
is a set date to maturity, and cannot be withdrawn before maturity.
The rate of return can be positive or negative but in most cases
they are positive and comparable to rates the conventional banks
offer on their term deposits. Sukuk ( Islamic Bonds) Sukuk is the
Arabic name for a financial certificate but can be seen as an
Islamic equivalent of bond. However, fixed income, interest bearing
bonds are not permissible in Islam, hence Sukuk are securities that
comply with the Islamic law and its investment principles, which
prohibits the charging, or paying of interest. Financial assets
that comply with the Islamic law can be classified in accordance
with their tradability and non-tradability in the secondary
markets.Conservative estimates by the Ten-Year Framework and
Strategies suggest that over $700 billion of assets are managed
according to Islamic investment principles.[1] Such principles form
part of Shari'ah, which is often understood to be Islamic Law, but
it is actually broader than this in that it also encompasses the
general body of spiritual and moral obligations and duties in
Islam.Sharia-compliant assets worldwide are worth an estimated $500
billion and have grown at more than 10 per cent per year over the
past decade, placing Islamic finance in a global asset class all of
its own. In the Gulf and Asia, Standard & Poor's estimates that
20 per cent of banking customers would now spontaneously choose an
Islamic financial product over a conventional one with a similar
risk-return profile.With its Arabic terminology and unusual
prohibitions, Sukuk financing can be quite mystifying for the
outsider. A good analogy is one of ethical or green investing. Here
the universe of investable securities is limited by certain
criteria based on moral and ethical considerations. Islamic Finance
is also a subset of the global market and there is nothing that
prevents the conventional investor from participating in the
Islamic mark
BaisalamIslamic banks also use pre-paid goods, baisalam, as a
means to finance production. The delivery takes place at a future
date from the time of the contract and it is at this time of the
contract the price is paid. Normally, no sale can be take place
unless the goods are in existence at the time of the bargain.
Since, in baisalam the date of delivery is defined and the goods
are defined the sale can take place and be exception to this rule.
Payment must be made in advance in order for this to be considered
a legal sale. This is done because it allows the entrepreneur to
sell his output to the bank at a price determined in advance. Banks
use this form of financing normally in the agricultural market.
They pay farmers in advance for a share of their crop, which the
bank in turn will sell on the market. In the entrepreneurial sense,
baisalam is used when a manufacturer needs capital to manufacture a
good. In return for providing the capital, the entrepreneur will
receive a reduced price on the goods being produced if he or she
wishes to purchase them.
Bai muajjal (Credit Sale)
Literally bai muajjal means a credit sale. Technically, it is a
financing technique adopted by Islamic banks that takes the form of
murabaha muajjal. It is a contract in which the bank earns a profit
margin on the purchase price and allows the buyer to pay the price
of the commodity at a future date in a lump sum or in installments.
It has to expressly mention cost of the commodity and the margin of
profit is mutually agreed. The price fixed for the commodity in
such a transaction can be the same as the spot price or higher or
lower than the spot price.
Chapter 3. Islamic Equity FundBasic principle: The term 'Islamic
Investment Fund" in this chapter means a joint pool wherein the
investors contribute their surplus money for the purpose of its
investment to earn halal profits in strict conformity with the
precepts of Islamic Shariah. The subscribers of the Fund may
receive a document certifying their subscription and entitling them
to the pro-rata profits actually earned by the Fund. These
documents may be called 'certificates', 'units'. 'shares' or may be
given any other name, but their validity in terms of Shariah, will
always be subject to two basic conditions: Firstly, instead of a
fixed return tied up with their face value, they must carry a
pro-rata profit actually earned by the Fund. Therefore, neither the
principal nor a rate of profit (tied up with the principal) can be
guaranteed. The subscribers must enter into the fund with a clear
understanding that the return on their subscription is tied up with
the actual profit earned or loss suffered by the Fund. If the Fund
earns huge profits, the return on their subscription will increase
to that proportion. However, in case the Fund suffers loss, they
will have to share it also, unless the loss is caused by the
negligence or mismanagement, in which case the management, and not
the Fund, will be liable to compensate it
Secondly, the amounts so pooled together must be invested in a
business acceptable to Shariah. It means that not only the channels
of investment, but also the terms agreed with them must conform to
the Islamic principles. Keeping these basic requisites in view, the
Islamic Investment Funds may accommodate a variety of modes of
investment which are discussed briefly in the following paragraphs
Equity Fund In an equity fund the amounts are invested in the
shares of joint stock companies. The profits are mainly derived
through the capital gains by purchasing the shares and selling them
when their prices are increased. Profits are also earned through
dividends distributed by the relevant companies.
It is obvious that if the main business of a company is not
lawful in terms of Shariah, it is not allowed for an Islamic Fund
to purchase, hold or sell its shares, because it will entail the
direct involvement of the share holder in that prohibited business.
Similarly the contemporary Shariah experts are almost unanimous on
the point that if all the transactions of a company are in full
conformity with Shariah, which includes that the company neither
borrows money on interest nor keeps its surplus in an interest
bearing account, its shares can be purchased, held and sold without
any hindrance from the Shariah side. But evidently, such companies
are very rare in the contemporary stock markets. Almost all the
companies quoted in the present stock markets are in some way
involved in an activity which violates the injunctions of Shariah.
Even if the main business of a company is hall, its borrowings are
based on interest'. On the other hand, they keep their surplus
money in an interest bearing account or purchase interest-bearing
bonds or securities.
The case of such companies has been a matter of debate between
the Shariah experts in the present century. A group of the Shariah
experts is of the view that it is not allowed for a Muslim to deal
in the shares of such a company, even if its main business is hall.
Their basic argument is that every share-holder of a company is a
shark (partner) of the company, and every shark, according to the
Islamic jurisprudence, is an agent for the other partners in the
matters of the joint business. Therefore, the mere purchase of a
share of a company embodies an authorization from the share-holder
to the company to carry on its business in whatever manner the
management deems fit. If it is known to the share-holder that the
company is involved in an un-Islamic transaction, and still he
holds the shares of that company, it means that he has authorized
the management to proceed with that UN-Islamic transaction. In this
case, he will not only be responsible for giving his consent to an
UN-Islamic transaction, but that transaction will also be
rightfully attributed to himself, because the management of the
company is working under his tacit authorization. Moreover, when a
company is financed on the basis of interest, its funds employed in
the business are impure. Similarly, when the company receives
interest on its deposits an impure element is necessarily included
in its income which will be distributed to the share-holders
through dividends.
However, a large number of the present day scholars do not
endorse this view. They argue that a joint stock company is
basically different from a simple partnership. In partnership, all
the policy decisions are taken through the consensus of all the
partners, and each one of them has a veto power with regard to the
policy of the business. Therefore, all the actions of a partnership
are rightfully attributed to each partner. Conversely, the policy
decisions in a joint stock company are taken by the majority. Being
composed of a large number of share-holders, a company cannot give
a veto power to each share-holder. The opinions of individual
share-holders can be overruled by a majority decision. Therefore,
each and every action taken by the company cannot be attributed to
every share-holder in his individual capacity. If a share-holder
raises an objection against a particular transaction in an Annual
General Meeting, but his objection is overruled by the majority, it
will not be fair to conclude that he has given his consent to that
transaction in his individual capacity, especially when he intends
to refrain from the income resulting from that transaction.
Therefore, if a company is engaged in a hall business, but also
keeps its surplus money in an interest-bearing account, wherefrom a
small incidental income of interest is received, it does not render
all the business of the company unlawful. Now, if a person acquires
the shares of such a company with clear intention that he will
oppose this incidental transaction also, and will not use that
proportion of the dividend for his own benefit, how can it be said
that he has approved the transaction of interest and how can that
transaction be attributed to him?
The other aspect of the dealings of such a company is that it
sometimes borrows money from financial institutions. These
borrowings are mostly based on interest. Here again the same
principle is relevant. If a share-holder is not personally
agreeable to such borrowings, but has been overruled by the
majority, these borrowing transactions cannot be attributed to him.
Moreover, even though according to the principles of Islamic
jurisprudence, borrowing on interest is a grave and sinful act, for
which the borrower is responsible in the Hereafter; but, this
sinful act does not render the whole business of the borrower as
harm or impermissible. The borrowed amount being recognized as
owned by the borrower, anything purchased in exchange for that
money is not unlawful. Therefore, the responsibility of committing
a sinful act of borrowing on interest rests with the person who
willfully indulged in a transaction of interest, but this fact does
render the whole business of a company as unlawful
Conditions for investment in Shares
In the light of the foregoing discussion, dealing in equity
shares can be acceptable in Shariah subject to the following
conditions: 1. The main business of the company is not violative of
Shariah. Therefore, it is not permissible to acquire the shares of
the companies providing financial services on interest, like
conventional banks, insurance companies, or the companies involved
in some other business not approved by the Shariah, such as
companies manufacturing, selling or offering liquors, pork, harm
meat, or involved in gambling, night club activities, pornography
etc.
2. If the main business of the companies is hall, like
automobiles, textile, etc. but they deposit their surplus amounts
in an interest-bearing account or borrow money on interest, the
share holder must express his disapproval against such dealings,
preferably by raising his voice against such activities in the
annual general meeting of the company.
3. If some income from interest-bearing accounts is included in
the income of the company, the proportion of such income in the
dividend paid to the share-holder must be given in charity, and
must not be retained by him. For example, if 5% of the whole income
of a company has come out of interest-bearing deposits, 5% of the
dividend must be given in charity.
4. The shares of a company are negotiable only if the company
owns some illiquid assets. If all the assets of a company are in
liquid form, i.e. in the form of money they cannot be purchased or
sold except at par value, because in this case the share represents
money only and the money cannot be traded in except at par.
Ijarah Fund Another type of Islamic Fund may be an ijrah fund.
Ijrah means leasing the detailed rules of which have already been
discussed . In this fund the subscription amounts are used to
purchase assets like real estate, motor vehicles or other equipment
for the purpose of leasing them out to their ultimate users. The
ownership of these assets remains with the Fund and the rentals are
charged from the users. These rentals are the source of income for
the fund which is distributed pro rata to the subscribers.
Each subscriber is given a certificate to evidence his
proportionate ownership in the leased assets and to ensure his
entitlement to the pro rata share in the income. These certificates
may preferably be called 'sukk' -- a term recognized in the
traditional Islamic jurisprudence. Since these sukk represent the
pro rata ownership of their holders in the tangible assets of the
fund, and not the liquid amounts or debts, they are fully
negotiable and can be sold and purchased in the secondary market.
Anyone who purchases these sukk replaces the sellers in the pro
rata ownership of the relevant assets and all the rights and
obligations of the original subscriber are passed on to him. The
price of these sukk will be determined on the basis of market
forces, and are normally based on their profitability. However, it
should be kept in mind that the contracts of leasing must conform
to the principles of Shariah which substantially differ from the
terms and conditions used in the agreements of conventional
financial leases. The points of difference are explained in detail
in the third chapter of this book. However, some basic principles
are summarized here:
1. The leased assets must have some usufruct, and the rental
must be charged only from that point of time when the usufruct is
handed over to the lessee.
2. The leased assets must be of a nature that their hall
(permissible) use is possible.
3. The lessor must undertake all the responsibilities consequent
to the ownership of the assets.
4. The rental must be fixed and known to the parties right at
the beginning of the contract. In this type of the fund the
management should act as an agent of the
subscribers and should be paid a fee for its services. The
management fee may be a fixed amount or a proportion of the rentals
received. Most of the Muslim jurists are of the view that such a
fund cannot be created on the basis of mudrabah, because mudrabah,
according to them, is restricted to the sale of commodities and
does not extend to the business of services and leases. However, in
the Hanbali school, mudrabah can be effected in services and leases
also. This view has been preferred by a number of contemporary
scholars.
Commodity Fund Another possible type of Islamic Funds may be a
commodity fund. In the fund of this type the subscription amounts
are used in purchasing different commodities for the purpose of
their resale. The profits generated by the sales are the income of
the fund which is distributed pro rata among the subscribers. In
order to make this fund acceptable to Shariah, it is necessary that
all the rules governing the transactions of sale are fully complied
with . For example: 1. The commodity must be owned by the seller at
the time of sale, because short sales in which a person sells a
commodity before he owns it are not allowed in Shariah.
2. Forward sales are not allowed except in the case of salam and
istisn (For their full details the previous chapter of this book
may be consulted).
3. The commodities must be hall. Therefore, it is not allowed to
deal in wines, pork or other prohibited materials.
4. The seller must have physical or constructive possession over
the commodity he wants to sell. (Constructive possession includes
any act by which the risk of the commodity is passed on to the
purchaser).
5. The price of the commodity must be fixed and known to the
parties. Any price which is uncertain or is tied up with an
uncertain event renders the sale invalid. In view of the above and
similar other conditions, more fully described in the second
chapter of this book, it may easily be understood that the
transactions prevalent in the contemporary commodity markets,
specially in the futures commodity markets do not comply with these
conditions. Therefore, an Islamic Commodity Fund cannot enter into
such transactions. However, if there are genuine commodity
transactions observing all the requirements of Shariah, including
the above conditions, a commodity fund may well be established. The
units of such a fund can also be traded in with the condition that
the portfolio owns some commodities at all times.
Murabahah Fund 'Murabahah' is a specific kind of sale where the
commodities are sold on a cost-plus basis. This kind of sale has
been adopted by the contemporary Islamic banks and financial
institutions as a mode of financing. They purchase the commodity
for the benefit of their clients, then sell it to them on the basis
of deferred payment at an agreed margin of profit added to the
cost. If a fund is created to undertake this kind of sale, it
should be a closed-end fund and its units cannot be negotiable in a
secondary market. The reason is that in the case of murabahah, as
undertaken by the present financial institutions, the commodities
are sold to the clients immediately after their purchase from the
original supplier, while the price being on deferred payment basis
becomes a debt payable by the client. Therefore, the portfolio of
murabahah does not own any tangible assets. It comprises either
cash or the receivable debts, Therefore, the units of the fund
represent either the money or the receivable debts, and both these
things are not negotiable, as explained earlier. If they are
exchanged for money, it must be at par value.
Bai-al-dain Here comes the question whether or not bai-al-dain
is allowed in Sharah. Dain means 'debt' and Bai means sale.
Bai-al-dain, therefore, connotes the sale of debt. If a person has
a debt receivable from a person and he wants to sell it at a
discount, as normally happens in the bills of exchange, it is
termed in Sharah as Bai-al-dain. The traditional Muslim jurists
(fuqah) are unanimous on the point that baial-dain with discount is
not allowed in Shariah. The overwhelming majority of the
contemporary Muslim scholars are of the same view. However, some
scholars of Malaysia have allowed this kind of sale. They normally
refer to the ruling of Shfiite school wherein it is held that the
sale of debt is allowed, but they did not pay attention to the fact
that the Shfiite jurists have allowed it only in a case where a
debt is sold at its par value. In fact, the prohibition of
bai-al-dain is a logical consequence of the prohibition of 'riba'
or interest. A 'debt' receivable in monetary terms corresponds to
money, and every transaction where money is exchanged for the same
denomination of money, the price must be at par value. Any increase
or decrease from one side is tantamount to 'riba' and can never be
allowed in Shariah. Some scholars argue that the permissibility of
bai-al-dain is restricted to a case where the debt is created
through the sale of a commodity. In this case, they say, the debt
represents the sold commodity and its sale may be taken as the sale
of a commodity. The argument, however, is devoid of force. For,
once the commodity is sold, its ownership is passed on to the
purchaser and it is no longer owned by the seller. What the seller
owns is nothing other than money. Therefore if he sells the debt,
it is no more than the sale of money and it cannot be termed by any
stretch of imagination as the sale of the commodity. That is why
this view has not been accepted by the overwhelming majority of the
contemporary scholars. The Islamic Fiqh Academy of Jeddah, which is
the largest representative body of the Shariah scholars and has the
representation of all the Muslim countries, including Malaysia, has
approved the prohibition of bai-al-dain unanimously without a
single dissent.
4. ADCB Amanah
ABOUT ADCB AMANAH ADCB Amanah is the global Islamic banking
division of the ADCB Group, and was established in 1998 with the
aim of making ADCB the leading provider of Islamic banking
worldwide. With more than a hundred professionals serving the
Middle East, Asia Pacific, Europe and the Americas, ADCB Amanah
represents the largest Islamic banking team of any international
bank.The ADCB Group is one of the largest banking and financial
services organisations in the world. With operations in twenty OIC
member states, no international bank is more widely represented in
the Muslim world than ADCB. Nor has any made a greater investment
in Islamic banking. Headquartered in London, the Groups
international network comprises about 10,000 offices with almost
110 million customers in 77 countries and territories in Europe,
the Asia-Pacific region, the Americas, the Middle East and Africa.
With a rich history of community banking and a commitment to meet
the particular needs of our diverse customers, we are the world's
local bank.
VISION ADCB has a rich tradition of community banking, and ADCB
Amanah was established to serve the particular financial needs of
Muslim communities. mission statement and corporate values reflect
this vision.The ADCB Amanah mission statement: ADCB Amanah is
committed to improving the lives of customers worldwide by
providing them with the highest quality Islamic banking
solutions.Shariah commitment Shariah commitmentIn developing ADCB
products and services, are committed to the highest Shariah
standards in the Islamic banking industry.Corporate citizenshipADCB
maintain high ethical standards in their business relationships and
invest in the future of communities. Shariah supervisionAll ADCB
Amanah products and transactions are developed in consultation with
independent Shariah scholars and approved by them prior to
distribution.ADCB Amanah Shariah CommitteesADCB Amanah operations
are closely supervised by four Regional Shariah Committees (RSCs)
in addition to a Central Shariah Committee (CSC). The CSC
supervises ADCB Amanah businesses as well as operations in UAE,
Qatar, UK, USA and Bangladesh. The CSC comprises of following
well-known scholars:ADCB Amanah considers Shariah compliance of its
business operations as its most important & strategic priority.
This is reflected in its Corporate Values, "In developing our
products and services, we are committed to the highest Shariah
standards in the Islamic banking industry." In addition to Global
Shariah Advisory Board and Regional Shariah Committees, ADCB Amanah
employs a team of qualified professionals to ensure that the
guidance and advice received from the Shariah Committees is
implemented in letter and spirit.ADCB Amanah Global Shariah
Advisory BoardTheGlobal Shariah Advisory Board (GSAB) advises ADCB
Amanah on research activities intended for further development of
the Islamic finance industry. GSAB comprises of representative
scholars from all Regional Shariah Committees (RSC) of ADCB Amanah
in addition to other Shariah scholars of international standing.
The presence of renowned scholars from various geographies at GSAB
will provide an opportunity to achieve further harmonization of
Shariah standards and practices of Islamic Finance Industry. The
following independent Shariah scholars are currently members of
GSAB. Sheikh Nizam Yaquby Sheikh Dr. Mohamed Ali Elgari Sheikh Dr.
Muhammad Imran Ashraf Usmani PeopleMansoor Shakil works in Dubai as
Manager Shariah Compliance. He joined ADCB in July 2004 after
graduating from Harvard Law School. Mansoor enjoys reading up on
Islamic law.ADCB Amanah brings together the largest team of any
international Islamic financial services provider. ADCB are widely
recognised as a market leader in terms of global reach, innovative
products and services and investment in industry building
initiatives. With more than 100 people in eight countries, the ADCB
Amanah family continues to grow.Global FunctionsHSADCB
Amanahsglobal functions are responsible for the following:Central
Onshore Banking comprises of Personal Financial Services,
Commercial Bank and Takaful businesses. The Central Onshore Banking
team provides strategic direction to the various Amanah
geographies, and acts as a centre-of-excellence for product
development, product management, provides structuring and Shariah
guidance to ADCB Group entities for the development of ADCB Amanah
onshore businesses. Asset Finance Advisory Group originates,
structures and executes institutional transactions in liaison with
CIBM structured finance units and specific corporate functions in
ADCB. Wealth Management Group develops Islamic funds in a variety
of asset classes for ADCB retail channels, ADCB Private Bank and
Islamic institutional clients. Institutional Distribution
distributes AFAG transactions and Wealth Management products to a
dedicated Islamic institutional client base. Treasury and Risk
Management looks after the treasury requirements of our
institutional clients. Amanah Private Banking provides Islamic
solutions for high-net-worth individuals globally. Amanah Central
Team comprises Shariah Compliance, Marketing, HR, Strategy, and
Finance functions. ADCB Amanah has presence in nine countries:
Bangladesh, Brunei, Indonesia, Malaysia, Saudi Arabia, Singapore,
UAE, UK and USA. ADCB Amanahs global functions are split between
London, Dubai and New York.
SERVICES OFFERED BY ADCB AMANAHOFFRERD TO IMDIVIDUALAmanah
Current Account ADCB Amanah Current Account is a relationship
checking account available in AED, EURO, GBPand USD. It is designed
to comply with Shariah (Islamic law) guidelines while also
providing the regular convenience and security of a current
accountWith a monthly minimum average balance of AED 5,000, EURO
3,000,GBP 3,000or USD 3,000, it offers you:A separate monthly
Amanah Account statement to help keep track of transactionsOther
account related services to facilitate transaction needs such as
Autopay, Standing Instructions, Third Party Funds Transfers, Phone
Banking, Internet Banking etc.
What makes ADCB Amanah Current Account a Shariah compliant
product?ADCB has an international team of professionals with
Islamic financial expertise dedicated to developing Shariah
approved financial solutions for customers. ADCB Amanah Current
Account has also been developed in consultation with and approved
by the ADCB Shariah Supervisory Committee. Funds deposited in this
account are used only in a Shariah compliant manner as per the
guidelines of ADCB Shariah Supervisory Committee.Amanah Non
Checking AccountWhen it comes to taking care of investments, it
needs a trusted partner like ADCB Amanah. ADCB understand values
first, and then give customer services and products that meet the
highest global standards, reflecting ADCB concern for customer
investments, ADCB is committed to providing financial services
tailored to meet customer requirements across the world. At ADCB we
understand need for investment products that are fully compliant
with principles of Islamic Shariah. The result: an innovative
investment product that recognizes your values and offers you the
financial solutions you require.What is ADCB Amanah Term
Investment?It is a Shariah-compliant short to medium-term
investment solution that allows customers to earn returns in a
Shariah-compliant manner.Customer funds in this product will be
invested in commodities (metals) which they will sell to the Bank
on the basis of Murabaha contract - sale of assets at a cost plus
stated profit
Features&BenefitsShariah-compliant short to medium-term
investment opportunity with ADCBFree ADCB Amanah Gold/Classic
Charge Card(s) for the 1st year* Flexibility to invest in Arab
Emirate Dirhams, US Dollars, Euros or Pounds Sterling
currenciesMinimum Investment Amount of AED 25,000 US Dollars
10,000, EURO or GBP 10,000Competitive Murabaha profit ratesOption
to automatically re-invest the investment amount and Murabaha
profit for an additional termOption to avail a Shariah-compliant
Amanah Current Account for customer banking transactionsAmanah
Premium Deposit PlusSecurity plus growth in a Shariah compliant
mannerShariah compliant product that offers the potential to earn
profits linked to the booming growth in emerging markets, in
addition to offering principal protection? Then look no further
than the Amanah Premium Deposit Plus.The Amanah Premium Deposit
Plus is a three year term deposit designed to offer:100% Principal
protectionFinal profit linked to any positive performance of a
basket of equally weighted BRIC(brazil, Russia ,India, China)
stocks, determined at the end of the three-year term.Any profit
paid at the end of the three-year deposit term will be equal to a
participation rate of 100% of the increased performance of the
basket with a maximum end of term profit capped at 25%, multiplied
by the principal deposit amount.The minimum deposit amount for the
Amanah Premium Deposit Plus is AED 37,000 or USD 10,000. You cannot
deposit any more money into your Amanah Premium Deposit Plus
account once your application has been accepted. You can, however,
hold more than one Amanah Premium Deposit Plus accounts should you
wish to deposit further.Amanah Premium Deposit Plus has been
approved by the ADCB Amanah Shariah Committee,an independent
committee of Shariah experts of international repute.1 ADCB
'Emerging Markets Primal Knowledge: After Goldilocks: is Humpty
going to fall?' Feb 2008
WorkingTerm: Three-year termBasket of stocks: Equally weighted
basket comprising global companies operating in the BRIC
countriesBenefits: Amanah Premium Deposit Plus will pay a profit
equal to a participation rate of 100% of the increased performance
of the basket of shares with a maximum end of term profit capped at
25%, multiplied by the principal deposit amount.Minimum deposit:
AED 37,000 or USD 10,000Closing date: 23rd July, 2008 or earlier if
fully subscribed. Accounts are issued on a first come, first served
basis. No advance notice of closure will be given.Commencement
date: 1st August, 2008Early closure of offer: This offer may be
withdrawn at any time before the closing date.Account maturity
date: Third anniversary of the commencement date. The maturity date
will be 25th July, 2011 and the final payment date is 1st Aug,
2011. Should this date fall on a holiday, the reading/maturity date
will be taken as the next business day.Charges: An agency fee of up
to 15% of the surrendered amount will be charged only in the case
of early withdrawal. However, the agent may waive part or the full
amount of the agency fee at its sole discretion. In addition, the
agent may also deduct such costs it may have to incur as a result
of making an early payment. These charges will be deducted from the
surrendered amount.Withdrawals: If you want to withdraw your
investment before the termination date, you need to write to your
local ADCB Bank Middle East Limited branch. You should note that
you may receive an amount less than your original deposit due to
early withdrawal. Please refer to clause 3 & 4 of the Agency
Letter for more information.Principal Protection: The Amanah
Premium Deposit Plus is structured to return the initial principal
plus any profit, only at maturity i.e. three years, and the initial
deposit amount may not be returned in full if the deposit is
encashed before maturity
Amanah PortfoliosShariah-compliant Amanah Portfolios offer the
flexibility to choose from three portfolios. Customer can invest in
any one or a combination of two or three portfolios, spreading your
investment amount to strike the balance thats right for you.
The Amanah Portfolios aim to provide you with long-term capital
growth from a wide selection of investments, taken from among the
best Shariah-compliant investment funds in the market.
The Amanah Portfolios are issued and managed by the Saudi
British Bank (SABB) which is an associate of the ADCB Group.
Portfolio OptionsAmanah Defensive Portfolio This portfolio is
designed for investors who want a low to medium risk portfolio
which invests in Shariah compliant fixed income funds and some
exposure to Shariah compliant equity funds.Amanah Balanced
Portfolio This portfolio is for investors looking for medium risk
growth potential from their investments through a greater
concentration of equity holdings and a substantial exposure to
fixed income instruments to help balance the risk.
Amanah Growth Portfolio This portfolio is primarily invested in
equity funds. This provides investors the potential to earn higher
returns than Amanah Balanced or Amanah Defensive Portfolio, in
return for a greater degree of risk.
Amanah Personal Finance
Islamic FinanceBased on its Shariah compliant mechanism, ADCB
Amanah Personal Finance offers an Islamic alternative to a
conventional loan.Shariah-approved and certified by ADCB Amanah
Shariah CommitteeLiquidity to meet genuine need offinance for
permissible useExtended Finance Payment Terms up to 96
months*Discounted Agency Service feesCompetitive Murabaha profit
ratesZero down payment on your finance
Amanah Personal Accident TakafulFinancial assurance in times of
uncertainty Personal Accident Takaful is a Shariah compliant
protection plan that provides you and your loved ones with
compensation in the event of accidental death, disablement or
injuries. Accidents can occur without warning, and you or your
family impact on may be left to deal with a significant financial
burden, in addition to your grief. ADCB Amanahs new Personal
Accident Takaful solution allows you to minimise the financial
impact on your family should such an accident occur. This product
is brought to you by Enaya, the regional Takaful solutions arm of
AIG. This solution is created with the Shariah approved concept of
Takaful. This product and the associated processes have been
approved by a Shariah Advisory Committee, a team of respected
scholars with impeccable credentials and international repute.Why
choose Amanah Personal Accident Takaful?In addition to reimbursing
the medical expenses incurred as a result of an accident, you are
also covered for accidental death and disability due to an
accident. 24 hour world-wide protection, 365 days a year. Cover for
you and your family without providing any medical evidence.
Convenient payment of premiums by credit card.The table below is an
example of monthly and annual contributions.
AdvantageGuaranteed acceptance for you, your spouse and children
subject to meeting the age requirement.Convenient payment of
premium by credit card.Accepted by all European Union countries for
Schengen Visa.Travel Protection Plan Benefits and Premium Table
Insured EventSum Insured
Emergency Medical Expenses (Accident and Sickness) Deductible:
USD 100USD 50,000
Emergency Medical EvacuationUSD 25,000
Flight Delay (Maximum per hour: USD 50, Excess 12 Hours)USD
250
Death repatriation*USD 5,000
Baggage Loss (Per bag: USD 250, per item: USD 50) Baggage Delay
(Per Hour: USD 25, Excess: 4 hours)USD 500
AIG AssistanceCovered
Annual PremiumAED 239
Amanah Home FinanceOwning a home as a symbol of a solid
foundation for your family does not need to be a distant goal any
longer. It can become a reality with ADCB Amanah Home Finance.
Shariah complaint, flexible and simple to arrange, our team of
advisors will guide you through the entire process, from start to
finish. This will provide you the peace of mind that comes with
adherence to your principles, and the combination of the local
experience and global resources that ADCB Amanah offers you.So
whether your wish to obtain financing in order to buy a house, or
financing against the value of your completed property, or transfer
your existing home loan orfinance (from another financial
institution), ADCB Amanah HomeFinance makes it all possible through
the Shariah compliant Ijarah contract.Islamic Home FinanceShariah
approved and certified by the ADCB Amanah Shariah Committee(Maximum
lease period of up to 25 years for Villas and Townhouses (subject
to repayment before 65th birthday)You can apply on a single or
joint basisProperty age should be less than 10 years oldA discount
in the Ijarah profit rate will be offered to customers transferring
their salaries to the BankCompetitive Ijarah profit rates reviewed
and updated only once in every six months (on 01Jan and 01Jul every
year)Balance transfer from existing home finance provider at
convenient termsPre-approved ADCB Amanah Al Wafaa Gold Credit
CardADCB Amanah Current Account with minimum balance waived
ADCB Amanah Al Wafaa Credit CardsADCB Amanah Al Wafaa Gold
Credit Cards transparent Islamic Credit Card which combines Shariah
Compliance with global acceptance and a multitude Al Wafaa,
Shariah-compliant Credit Cards from ADCB Amanah. Your unique
financial needs require a Shariah compliant credit card that
combines sophisticated services with worldwide acceptance; Al Wafaa
Credit Cards from ADCB Amanah offer you just that.
Going shopping with your Al Wafaa Gold Credit Card does have its
distinct advantages. It is accepted at over 32 million outlets
worldwide. It also offers you a grace period of up to 50 days on
repayment and cash advances of up to 60% of your credit limit.
What's more, you also benefit from a host of unbeatable rewards and
benefits.
COMMERICAL BANKING SERVICESAccount ServicesAccount and
transaction services can be tailored to create practical, workable
and, above all, cost effective solutions.ADCB offer Accounts, which
are in compliance with Shariah principles and approved by ADCB
AmanahShariah Committee.ADCB product range includes both
conventional and Islamic Accounts:Corporate Current AccountCall
Deposit AccountFixed Deposit AccountAmanah Current AccountAmanah
Term InvestmentCorporate Current AccountADCB local and foreign
currency Corporate Current Account is a low-cost operating Account
to satisfy all of basic banking needs.Corporate Current Accounts
are offered in UAE Dirhams and major foreign currencies.A minimum
average balance of UAE Dirhams 20,000 or foreign currency
equivalent is required.Call Deposit AccountA high yield Investment
Account for corporate customers that permits electronic
transfers/payments to be made with just one day prior notice. Call
deposits are offered in UAE Dirhams and other major foreign
currencies. Funds deposited attract interest on a daily basis at
published rates. Prevailing interest rates are available on
request.Deposit period is not fixed - withdrawal is subject to
one-day notice.Interest is calculated on the daily cleared balance
and credited every month.Minimum deposit is AED 50,000. If the
balance falls below the minimum requirement, no interest will be
accrued during that period.Fixed Deposit AccountA Fixed Deposit
allows to deposit money for a set period of time thereby earning
you a higher rate of interest.Deposit of funds can be for a
pre-specified period at a fixed interest rate.Deposit periods range
from one month to twelve months (1, 2, 3, 6, 9, 12 months).
Customers may choose the maturity dates as required.Interest rate
is fixed based on InterBank Money Market rates.Interest payment is
done upon maturity.Automatic rollover facility upon maturity for
the same period of deposit is available.Penalties will be charged
for premature withdrawalsLoans and FinanceWith ADCB you'll get the
right financing for your business, when and how you need it. We'll
help you with financing for seasonality, growth, cash management,
consolidation, international and domestic market expansion,
acquisitions, receivables and any other financing that will help
your business thrive.OverdraftsAn overdraft can be a cost-effective
way of borrowing money as and when you need it for short-term
requirements.A convenient way to fund working capitalQuick and easy
to set upPay interest only on the amount you borrowPerformance
BondsWhen principals are successful in their tenders for contracts,
they will usually be required to provide Performance Bonds, often
based on a percentage of the value of the contracts.Maintenance
Bonds (Retention Money Bonds)It is common practice for
beneficiaries of bonds to withhold amounts from progress payments
to meet the costs of any construction/performance deficiencies
arising during a specified period (maintenance period) after
completion to principals.Advance Payment GuaranteesCivil
engineering contracts sometimes include provisions which allow
principals to receive advance payments from beneficiaries for
purposes such as mobilising plants and equipment.Financial
GuaranteesThese provide customers with the means of obtaining
facilities, in whatever form from the beneficiaries of guarantees,
who may, if the need arises, claim under such guarantees up to a
maximum specific amount and within a set period of timeTrade and
Supply ChainADCB, have focused on international trade for many
years and are able to offer an extensive range of trade-related
services and other international services throughout the Middle
East region as well as the globe. ADCB aim is to ensure that
Customer import and export transactions are managed effortlessly
and effectively, providing customer business with the best possible
opportunities to grow.As one of the largest Trade and Supply Chain
organisations in the world, ADCB provide operational expertise as
well as trade specialists and technical consultants to support
customer wherever they want to do their business. Factoring
ServicesADCB offers Factoring Services in the UAE. Their Factoring
team has the experience, resources and technical capabilities to
support the needs of customer business from local to global.What is
Factoring?Factoring combines sales-linked finance, bad debt
protection, payment collection and transmission services that helps
businesses to compete with local suppliers on equal trading terms.
Quite simply, if a business is trading with another business on
open account credit terms, ADCB Factoring Services has the
potential to help grow business sales, speed up cash flow, collect
payment on invoices and, in selected cases, even protect business
from the risk of bad debt.Cash ManagementCash Management in the
Middle delivers cost-effective solutions, end-to-end service and
quality, combined with first class delivery to meet our customers
needs.ADCB -Cash management solutions cover four key areas:Account
ManagementTransaction ManagementLiquidity ManagementDelivery
ManagementCorporate Current AccountRequire financial assistance to
fulfil your business banking needs? Amanah Current Bank Account
combines our global expertise with Shariah principles. Amanah
Current Account is a relationship checking account offered to
business entities. It is designed to comply with Shariah (Islamic
Law) guidelines while also providing the regular convenience and
security of a current account.The account can be opened in AED,
USD, GBP and EURO currenciesA monthly minimum average balance of
AED 20,000 or equivalent in foreign currencyA separate monthly
Account statementAmanah Import FinanceAmanah Import Finance is a
Shariah compliant solution to assist import requirements of assets
and merchandise. It is a Murabaha based product that caters to both
sight and usance irrevocable DCs.Amanah Musataha ADCB Amanah
provides Shariah-compliant solutions to the construction sector.
ADCB understand financing requirements and provide project finance
according to specific needs. Amanah Musataha covers various types
of projects including residential and commercial. The product
structure is flexible and consists of the following key
benefits:Ownership of the land remains with you all the
timeFlexible pricingFlexible tenorConvenient lease rentalsAmanah
Goods MurabahaAmanah Goods Murabaha is a Shariah compliant product
that provides short-to-medium term financing for your working
capital requirements and purchase of assets. It involves the Bank
purchasing goods/asset at customer request and selling the same to
customer at a sale price on deferred payment basis. It is a Shariah
requirement that the breakup of cost and profit in the sale price
is disclosed.This product is designed to support customer needs of
local purchase requirements. Examples include financing of: raw
materialsspare parts, machinery/ equipmentfinished goods and other
trading stocksshares
5. FINANCIAL RATIOS
Comparision Between SBI and ADCB (Data as of March 2013)
PARTICULARSSBIADCB
Operational & Financial Ratios
Earnings Per Share (Rs)206.20186.76
DPS(Rs)41.5035.76
Book NAV/Share(Rs)1445.602750.85
Margin Ratios
Yield on Advances11.4432.10
Yield on Investments8.0712.74
Cost of Liabilities5.494.77
NIM2.93
Interest Spread5.95
Performance Ratios
ROA(%)0.971.99
ROE(%)15.4314.63
ROCE(%)11.6116.54
Efficiency Ratios
Cost Income Ratio48.5153.87
Core Cost Income Ratio49.4165.30
Operating Costs to Assets1.870.99
Growth Ratio
Core Operating Income Growth2.403.12
Operating Profit Growth-23.751.35
Net Profit Growth20.4826.43
BVPS Growth15.559.65
Advances Growth20.5224.97
EPS Growth(%)18.1914.42
Liquidity Ratios
Loans/Deposits(x)0.14.64
Total Debt/Equity(x)0.05.8
Current Ratio(x)0.29.51
Quick Ratio(x)14.0728.35
Interest Cover(x)
Total Debt/Mcap(x)0
Net NPA in Rs. Million0
6. CONTROVERSYInIslamabad,Pakistan, on June 16, 2004: Members of
leadingIslamistpolitical party in Pakistan, theMuttahida
Majlis-e-Amal(MMA) party, staged a protest walkout from theNational
Assembly of Pakistanagainst what they termed derogatory remarks by
a minority member oninterestbanking:Taking part in the budget
debate, M.P. Bhindara, a minority MNA [Member of the National
Assembly]...referred to a decree by anAl-Azhar University's scholar
that bank interest was not un-Islamic. He said without interest the
country could not get foreign loans and could not achieve the
desired progress. A pandemonium broke out in the house over his
remarks as a number ofMMAmembers...rose from their seats in protest
and tried to respond to MrBhindara's observations. However, they
were not allowed to speak on a point of order that led to their
walkout.... Later, the opposition members were persuaded by a team
of ministers...to return to the house...the government team
accepted the right of the MMA to respond to the minority member's
remarks.... SahibzadaFazalKarim said the Council of Islamic
ideology had decreed that interest in all its forms washaramin an
Islamic society. Hence, he said, no member had the right to negate
this settled issue. Some Islamic banks charge for thetime value of
money, the common economic definition ofInterest(Riba). These
institutions are criticized in some quarters of the Muslim
community for their lack of strict adherence to Sharia.The concept
of Ijarah is used by some Islamic Banks (the Islami Bank in
Bangladesh, for example) to apply to the use of money instead of
the more accepted application of supplying goods or services using
money as a vehicle. A fixed fee is added to the amount of the loan
that must be paid to the bank regardless if the loan generates a
return on investment or not. The reasoning is that if the amount
owed does not change over time, it is profit and not interest and
therefore acceptable under Sharia.Islamic banks are also criticized
by some for not applying the principle of Mudarabah in an
acceptable manner. Where Mudarabah stresses the sharing of risk,
critics point out that these banks are eager to take part in
profit-sharing but they have little tolerance for risk. To some in
the Muslim community, these banks may be conforming to the strict
legal interpretations of Sharia but avoid recognizing the intent
that made the law necessary in the first place.The majority of
Islamic banking clients are found in the Gulf states and in
developed countries. With 60% of Muslims living in poverty, Islamic
banking is of little benefit to the general population. The
majority of financial institutions that offer Islamic banking
services are majority owned by Non-Muslims. With Muslims working
within these organizations being employed in the marketing of these
services and having little input into the actual day to day
management, the veracity of these institutions and their services
are viewed with suspicion. One Malaysian Bank offering Islamic
based investment funds was found to have the majority of these
funds invested in the gaming industry; the managers administering
these funds were non Muslim. These types of stories contribute to
the general impression within the Muslim populace that Islamic
banking is simply another means for banks to increase profits
through growth of deposits and that only the rich derive benefits
from implementation of Islamic Banking principles.Hence, the
controversy that surrounds Islamic Banking continues. The question
of whether or not Islamic banking really is Islamic is still a
matter of debate among the Muslim academia.
6. STATUS IN INDIA
In India, Islamic banking is facing hurdles. There are efforts
being made to establish a full fledge Islamic bank for the
inclusion of the second largest population of the country which is
reluctant of interest based investments. Islamic financial
institutions exist in India, in the form of Non-banking financial
institutions and Muslim Funds [Bagsiraj (2002)]. Bagsiraj in his
comprehensive study on Islamic Financial Institutions in India, has
classified the Muslim Non-Banking Financial Institution into four
forms -
Muslim financial Societiesthese are charitable trusts like
Deoband Muslim Fund, Najibabad Muslim Fund etc.These societies are
un-operable because they are based on charity and non-self
sustainable institutions. There is a problem of managing the
workforce and there is absence of standard system of
operations.
Muslim Financial Associations by personsthese are the
associations made by individuals in various parts of the countries.
Some of the famous associations areBarkat Association, Belgaum;
Shantapuram Islamic Finance Corporation, Pattikadu; Interest-free
Society, Pune ;Millat Welfare Society, Faizabad; Mutual Benefit
Group, Bhatkal.Financial Associations of Persons (FAPs) are
unregistered, privately operated, smaller functional groups
operating in mosques, educational institutions or markets,
throughout the country, in mosques or Anjumans.They have taken the
form of smaller Bait-ul-Maals whereinZakahfunds are mobilized along
with membership fees and donations, and
interest-freeQard-e-Hassanloans are also extended. In the
educational institutions they have taken the form of interest-free
Chit Funds wherein groups of 25 to 30 staff members contribute a
monthly fixed sum.
Islamic Co-operative Credit societiesThese societies are formed
with 10-15 persons. These societies are providing assistance to the
group members. The problems with these societies are different
regulations in the different states prevailing, so a standard
system could not be formed.Some of the societies are-The Patni
Co-operative Credit Society Ltd., Surat. Bait-un-Nasr Urban
Co-operative Credit Society Ltd., Mumbai; Bait-ul-Maal Urban
Co-operative Credit Society Ltd., Mumbai; Nehru College Staff
Co-operative Credit Society Ltd., Hubli; and Al-Ansar Co-operative
Credit Society Ltd., Hyderabad.
Islamic investment and Financial Companies of India (Islamic
NBFCs)Generally most of the income is earned by IIFCs of India
fromIjarai.e Leasing Investments. Hire Purchase andMurabahahi.e.
mark up pricing or Cost plus finance which involves a contract in
which a lient wishing to purchase equipment or goods requests the
Company to purchase these items and resell them to him at Cost plus
a reasonable profit payable on the terms agreed to between the
parties, is another important source of IIFCs of Indias
earnings.Musharakahi.e. Trust or joint project
financing,Mudarabahor Joint Venture financing on profit and loss
sharing basis are also employed as source of earnings, though on a
lesser scale. Investments in Equity Shares of the blue chipd
Companies and in real estate or housing finance are other income
earning avenues of IIFCs of India. Some of the famous companies are
- Barkat Leasing and Financial Service Ltd., Mumbai; Al-Barr /
Al-Baraka Finance House Ltd., Mumbai; Al-Ameen Islamic Finance and
Investment Corporation Ltd., Bangalore; SeyadShariat Finance Ltd.
Tirunelveli; Al-NajeebMilli Mutual Benefits Ltd. Najibabad.In the
recent developments there are some conventional financial
institutions and banks has introduced Shariah window to target the
Muslims as their market in India. Some consultancies like TASIS and
Taurus are working for investment guidance in Shariah compliant
companies and Financial Products. The Shariah Index established in
BSE, responsible for screening Shariah compliant companies.
7.SUGGESTION
ISLAMIC BANKING need be start here in INDIA as a full fledge
running banks as conventional banks
They also want ISLAMIC BANKING in INDIA
ISLAMIC BANKING is very much good for the Muslims and also to
other
The RESERVE BANK OF INDIA need to be introduce ISLAMIC BANKING
concept in Indian Baking Sector
8. CONCLUSIONIslamic 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 Muslim countries, and a
few in non-Muslim countries as well. Despite the successful
acceptance there are problems. These problems are mainly in the
area of financing. With only minor changes in their practices,
Islamic banks can get rid of all their cumbersome, burdensome and
sometimes doubtful forms of financing and offer a clean and
efficient interest-free banking. All the necessary ingredients are
already there. The modified system will make use of only two forms
of financing -- loans with a service charge and Mudaraba
participatory financing -- both of which are fully accepted by all
Muslim writers on the subject. Such a system will offer an
effective banking system where Islamic banking is obligatory and a
powerful alternative to conventional banking where both co-exist.
Additionally, such a system will have no problem in obtaining
authorisation 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 provided by
conventional commercial banks.
BIBLIOGRAPHY
BOOKS
Handbook of Islamic Banking
Islamic finance
WEB SITES
www.islamic-banking.com
www.google.com
www.yahoo.com
www.ADCB.com
www.brupt.com
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