f.i article presentation
TRANSCRIPT
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ISLAMIC BANKING
Islamic Banking is a financial institution that
operates with the objective to implement and
materialise the economic and financialprinciples of Islam in the banking arena.
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WHAT IS AN ISLAMIC BANK?
The Organisation of Islamic cooperation (OIC)
defined an Islamic Bank as
A financial institution whose statutes,
rules and procedures expressly state itscommitment to the principles of Islamic
Shariah and to the banning of the receipt
and payment of interest on any of its
operations.
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LIMITATIONS AND PROBLEMS
Liquidity
Legal Framework
Standardization
Lack of capital markets and financial Instruments
Financial Products yielding stable income flows
Government and industry needs
Migration from Riba based banking to Riba-free
banking Training of professionals
Public Awareness
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LIQUIDITY
Liquid Assets
Smaller range of available liquid assets
Resalable Long Term Assets
Long term assets such as Sukuk can be
sold Others only saleable if the contract states
so
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LIQUIDITY
(CONT) Lender of The Last Resort
Some central banks do not offershariah
compliant lender of last resort funding.
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LEGAL FRAMEWORK
Laws should be reviewed
Presently, working without proper legal cover
Registration requirements for agreements
need to be simplified
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STANDARDIZATION
Urgently needed in the following:
1. Vocabulary of Islamic banking2. Financial instruments and their
documentation
3. Pricing formulas of Islamic products
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1. VOCABULARY OF ISLAMIC BANKING
No universal terminology
Usage of Arabic Terms
Each bank has its our terminology
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2. ISLAMIC INSTRUMENTS AND THEIR
DOCUMENTATION
Difficult to form an identical documentation
But there should be a set standard
Will help in speedy adoption of Islamic
Banking
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3. PRICING FORMULAS FOR ISLAMIC
FINANCIAL PRODUCTS
Should have a standard set in the light of
Shariah principles
Will increase the efficient working of the
Islamic financing model
Help promotion of Islamic financing
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LACK OF CAPITAL MARKET AND FINANCIAL
INSTRUMENTS
Lack instruments for investment of their
surplus liquidity
Availability of Islamic capital market and
instruments help growth of these banks
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FINANCIAL PRODUCTS YIELDING STABLE
INCOME FLOW
Need for fixed income schemes
Most popular with pensioners, widows andorphans
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GOVERNMENT NEEDS
Large user of credit in any country
Usually borrows through treasury-bills
Islamic banks can not participate due tointerest
There is a need forShariah compliant
financial instruments through which Islamic
banks can also participate
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MIGRATION FROM RIBA TO RIBA-FREE
BANKING
Dual banking system adopted in many
countries
Needs to be carefully handles
Protection against mismanagement byIslamic bank and mixing with Interest-based
operations of conventional banks
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TRAINING OF BANKING PROFESSIONALS
One of the biggest hurdles
No training institute to meet manpower needs
Most banks hire employees formconventional bans with no or little knowledge
of Islamic Banking
A short training course should be provided
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PUBLIC AWARENESS
Even some Muslims are not aware of the
services offered by Islamic banks
Pubic education campaigns
Inclusion of Islamic banking concepts in
school curriculum
Use effective media to publicise their
activities
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WHAT CAN BE DONE?
Heavy investments in Research and
Development is needed
Employees need to be trained in Islamic
Banking
Procedures should be set out the under
which central banks can act as a lender of
last resort People need to be educated about Islamic
Banking