ISLAMIC FINANCIAL SYSTEM

Md. Shafiqur
Rahman
Executive Vice President
& Incharge
Islami Bank Bangladesh Ltd.
Local Office,
Foreign Exchange
Department.

□ WHAT IS FINANCIAL SYSTEM?

•FINANCIAL SYSTEM IS A SET OF

ORGANIZED
INSTITUTIONAL SET-UP THROUGH
WHICH SURPLUS
UNITS TRANSFER THEIR FUNDS TO
DEFICIT UNITS.
THE TRANSACTIONS IN THE
TRADITIONAL FINANCIAL
MARKETS ARE GENERALLY DONE ON
THE BASIS OF
INTEREST & SPECULATIONS.

□ ISLAMIC FINANCIAL SYSTEM?

* TRANSATIONS BASED ON INTEREST

AND
SPECULATION ARE STRICTLY
PROBIBITED IN ISLAM.
THE ISLAMIC FINANCIAL SYSTEM
OPERATES ON THE BASIS OF
MUDARABA, MUSHARAKA, BAI-
 MURABAHA, BAI-MUAJJAL, BAI-SALAM,
IJARA, ISTISNA ETC.

ISLAMIC FINANCIAL SYSTEM

□ FINANCIAL ASSETS?

a) BANK DEPOSIT.
b) POST OFFICE SAVINGS DEPOSITS.
c) LIFE INSURANCE POLICIES.
d) PROVIDENT FUND CONTRIBUTIONS.
e) BONDS.
f) BILLS.
g) CORPORATE SHARE ETC
THESE ARE THE VEHICLES THROUGH
WHICH THE SAVINGS OF SURPLUS
SECTORS ARE MOBILIZED AND
ALLOCATED AMONG DEFICIT
SECTORS.
□ STRUCTURE OF FINANCIAL SYSTEM?
THE MAIN CONSTITUENTS OF ANY
FINANCIAL
SYSTEM ARE THE FOLLOWING:
1. FINANCIAL
INSTITUTIONS/INTERMEDIARIES.
2. FINANCIAL INSTRUMENTS.
3. FINANCIAL MARKETS.

ISLAMIC FINANCIAL SYSTEM

□ ROLE OF FINANCIAL INSITUTIONS.

* SYSTEM HELPS PRODUCTION, CAPITL
ACCUMULATION AND GROWTH BY
i) ENCOURAGING SAVINGS
ii) MOBILIZING THEM
&
iii) ALLOCATING THEM AMONG THE AL
TERNATIVE USES AND USERS.
□ CALSSIFICATION OF FINANCIAL
INSTITUTIONS.
i) BANKS (CENTRAL BANK, COMMERCIAL
 BANKS & SPECIALIZED BANKS)
ii) NON BANK FINANCIAL INTEREDIARIES.

□ COMMERCIAL BANKS.
* THE MAIN COMMERCIAL BANKING SERVICES
ARE
1. ACCEPTANCE OF MONEY ON DEPOSIT.
2. GRANT OF
LOANS/ADVANCES/INVESTMENTS TO ALL
SECTORS OF ECONOMY.
3. COLLECTION OF CHEQUES, DRAFTS, BILLS
AND OTHER INSTRUMENTS FOR THEIR
DEPOSITORS.
4. ISSUE OF PERFORMANCE AND FINANCIAL
GUARANTEE
5. REMITTANCE OF FUND BY ISSUE OF
DRAFTS, MTS & TTS.
6. PROVISION OF FACILITIES OF SAFE
CUSTODY OF DEEDS
AND SECURITIES AND SAFE DEPOSIT
VOLTS.
7. PURCHASE & SALE OF SECURITIES FOR THE
CONSTITUENTS.

ISLAMIC FINANCIAL SYSTEM

□ BANKING SECTOR OF BANGLADESH (AS
ON 30.06.2003).
1. NATIONALIZED/GOVERNMENT COMMERCIAL

BANK ------------ 4

2. SPECIALIZED BANKS

-------------- 5

3. CONVENTIONAL PRIVATE COMMERCIAL BANKS

------------- 24

4. PRIVATE COMMERCIAL ISLAMI BANKS

------------- 6

5. FOREIGN COMMERCIAL BANKS

------------- 9

TOTAL---

48

□ FINANCIAL INSTITURIONS IN BANGLADESH.

1. PUBLIC SECTOR (INDUSTRIAL PROMOTION

----------- 1
AND DEVELOPMENT COMPANY OF
BANGLADESH LTD.-IPDC)
2. PRIVATE SECTOR.
------------ 27
 TOTAL---
28

ISLAMIC FINANCIAL SYSTEM

□ FUNCTIONS OF SPECIALIZED FINANCIAL

INSTITUTIONS.

* PROVIDE MEDIUM AND LONG TERM FINANCE

* PERFORM PROMOTIONAL ROLES CONDUCIVE TO
ECONOMIC
DEVELOPMENT.

□ NON BANK FINANCIAL INSTITUTIONS ARE OF

TWO TYPES.

* INVESTMENT INTERMEDIARY
1. INVESTMENT BANKS.
2. SECURITIES BROKERS.
 3. MUTUAL FUND.

• CONTRACTUAL SAVINGS INSTITUTIONS.

1. INSURANCE COMPANIES.
2. PENSION FUND.

ISLAMIC FINANCIAL SYSTEM

□ TYPES OF FINANCIAL INSTRUMENTS.

* PRIMARY (OR DIRECT)

1. BILLS.

2. BONDS.

3. LOANS & ADVANCES.

4. SHARES.

5. DEDENTURES.
 • SECONDARY (OR INDIRECT)

1. BANK DEPOSITS.

2. LIFE INSURANCE POLICIES.

3. MUTUAL FUNDS/UNIT CERTIFICATE.

ISLAMIC FINANCIAL SYSTEM

□ CLASSIFICATION OF FINANCIAL
INSTRUMENTS.

• MONEY MARKET INSTRUMENTS

1. TREASURY BILLS.

2. CERTIFICATE OF DEPOSITS.

• CAPITAL MARKET INSTRUMENTS

 1. STOCKS. CORPORATE BONDS.

2. GOVERNMENT SECURITIES.

3. CONSUMER & COMMERCIAL LOANS OF

BANKS.

ISLAMIC FINANCIAL SYSTEM

□ MONEY MARKET

* IT IS A MARKET FOR THE LENDING AND

BORROWING OF SHORT
TERM LOANS.
 • IT DOES NOT DEAL IN CASH OR MONEY BUT
DEALS IN TRADE
• BILLS, PROMISSORY NOTES AND GOVERNMENT
PAPERS, THESE ARE CALLED NEAR MONEY.

* TRANSACTIONS ARE DONE THROUGH

TELEPHONE, TELEX, SWIFT,
FAX, E-MAIL.

* LONDON MONEY MARKET, NEW YORK MARKET

ARE THE
EXAMPLES OF INTERNATIONAL MONEY
MARKET.

* MONEY MARKET DEALERS:

GOVERNMENT, COMMERCIAL AND INDUSTRIAL
CONCERNS,
STOCK EXCHANGE BROKERS, MERCHANTS,
MANUFACTURERS,
COMMERCIAL BANKS, CENTRAL BANK.
*

ISLAMIC FINANCIAL SYSTEM

□ CAPITAL MARKET.
 * DEALS WITH LING TERM FUNDS.
* INVESTMENT BANKS, MONEY LENDERS,
BROKERS ARE THE
CONSTITUENS OF CAPITAL MARKET.

• LONG TERM SECURITIES SUCH AS SHARES &

DEBENTURES OF
INDUSTRIAL CONCERNS, DEBENTURES AND
BONDS OF QUASI GOVERNMENT ORGANIZATIONS
AND PROMISSORY NOTES OT THE COVERNMENT
ARE USED IN THE CAPITAL MARKET.

□ COMPOSITION OF MONEY MARKET

• CALL MONEY KARKET.

• ACCEPTANCE MARKET.
• BILL MARKET & DISCOUNT MARKET

THE ABOVE MARKETS ARE NOT WATER TIGHT

COMPARTMENTS. FOR EXAMPLE ACCEPTANCE HOUSE
ACCEPT BILLS WHICH ARE LATER DISCOUNTED IN THE
DISCOUNT MARKET.
 SURPLUS SURPLUS
UNITS ISLAMIC FINANCIAL
FINANCIAL SYSTEMSYSTEM UNITS
CONCEPT

FINANCIAL FINANCIAL FINANCIAL

MARKETS INSTITUTIONS INSTRUMENTS

SECONDARY
MONEY CAPITAL PRIMARY (INDIRECT)
(DIRECT)
MARKET MARKET

CALL ACCEPTANC BILL/DISCOUNT STOCK BANK DEPOSITS,

MOMEY E MARKET MARKET EXCHANGE BILLS, LIFE INS.
MARKET BONDS,LOANS & POL,MUTUAL
ADVANCES,SHA FUND/UNIT
RES,DEBENTURES CERTIFICATE

BANKS NON BANK

MONEY CAPITAL
MARKET MARKET
INSTRUMENT INSTRUMENT
CENTRAL COMMERCIAL SPECIALIZED INVESTMENT CONTRACTUAL
BANK BANKS BANK INTERMEDIARY INSTITUTION

TREASURY BILL, STOCK/CORPO

C.D. RATE BONDS,
GOVT. SEC.
INVESTMENT SECURITIES MUTUAL INSURANCE PENSION COM. LOANS
BANKS BROKERS FUND COMPANIES FUND

*CONVENTIONAL FINANCIAL SYSTEM : Run on the basis of Riba, Gharar & Maisir

: Run on the basis of profit sharing, rent sharing &

*ISLAMIC FINANCIAL SYSTEM trading avoiding Riba, Gharar & Maisir and
conforming fully to Islamic Shariah norms.