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Topic1B: Introduction to IBF - Coggle Diagram
Topic1B: Introduction to IBF
The principles of Islamic banking business
Al-Riba: Any excess, increase, expansion and growth
Al-Maysir: Any acts of gambling or speculation that relate to the financial instrument (Casino)
The Forbidden: Any forbidden items such as short guns
Gharar - uncertainty
Histrocial of IBF
The early days transactions
The Era of the Prophet
Shirkah (partnership) based on profit and loss sharing
Al qard AL hasan (benevolent loan)
Salam (forward) contract
Sarf (exchange of money) - gold for gold
Ijarah (leasing)
Trans-regional trade involved trade caravans from Mecca to Syria and vice versa
The Period of Orthodox Caliphate (632-661)
Abu Bakr Assidique (632-634):
Failure of a segment of the Islamic state to pay the compulsory alms known as zakat
Umar ibn Al-Khattab (634-64):
Dramatic reforms in the economic policy of the state & the introduction and permanent Bait almal (the treasury house)
Uthman ibn Affan (644-656)
: The introduction of the first Muslim coins "
Ali ibn Abi Talib (656-661):
Period of the Noble Companions and the Succeding Generations
Building on the reforms introduced by the Prophet (PBUH)
Increase in commercial interaction between merchants in the Islamic state and elsewhere
Further development of Fiqh (Islamic jurisprudence)
Advanced economic reforms based on self-exerted judgment (ijtihihad)
The Umayyad ad Abbasid Area
Issuance of the 1st Islamic dirham (containing the star and bismillah)
The Treasury House still significant during the Abbasid period and Mamluk era
The dinar and dirham still used as mediums of exchange
The modern-day experiments
The Ottoman Empire's fall resulting in fragmentation of Muslim nation into different countires
Prevalence of interest-based banking and finance system
Lack of awareness among Muslim communities across nations on whether to return to Islamic roots
Experiments in Islamic finance in Egypt, Malaysia & Pakistan: the basis of modern Islamic banking & finance
The fundamentals of IBF
Interest-free
Ethical
Asset-based and Asset-backed
Partnership investment based on profit and loss sharing between financer and entrepreneur
The major components of IBF
Islamic banking
Deposit-taking & finance of institutions to meet needs of Muslim customers and investors. In the form of fully fledged Islamic banks, Islamic Subsidiaries or Windows of conventional banks
Takaful
Based on mutual cooperation, common welfare & general good of society
Takaful & retakaful significant in managing & mitigating risks in IBF
Islamic capital markets
A special market where investment activities don't contradict the principles of the Shariah
Free riba, gharar and maysir
The market players include:
Brokerage houses, investments banks, fund management institutions and Islamic asset management institutions
Islamic non-bank financial institutions
Support liquidity needs of major agents in the economy
play a facilitative role in Islamic society ensuring economic development through non-bank financing
include finance companies, islamic housing cooperatives, islamic microfinance institutions