Chapter # 7

Islamic Banking System

Prof. Dr. Md. Abu Sina
 Definition of Islamic Banking
Islamic banking refers to a system of banking that is consistent
with the principles of Islamic law (Shariah) and its practical
application through the development of Islamic economics.
An Islamic Banking is a financial institution that operates with the
objective to implement and materialise the economic and
financial principles of Islam in the banking arena.
The Organisation of Islamic conference (OIC): Islamic Bank is
a financial institution whose statutes, rules and procedures
expressly state its commitment to the principles of Islamic
Shariah and to the banning of the receipt and payment of interest
on any of its operations.
Islami Banking Act 1983 of Malaysia: An Islamic Bank is a
company which carries on Islamic Banking business. Islamic
Banking business means banking business whose aims and
operations do not involve any element which is not approved by
the religion Islam.
 Riba
The word "Riba" means excess, increase or addition,
which correctly interpreted according to Shariah
terminology, implies any excess compensation without
due consideration (consideration does not include time
value of money). The definition of Riba in classical
Islamic jurisprudence was "surplus value without
counterpart“. During Prophetic period, gold and silver
currencies were the benchmark metals that defined the
value of all other materials being traded.
As per Hadith if homogeneous item(s) is/or exchanged
and any additional amount is charged, then the
addition will be called Riba. It may be money, gold,
silver, or other material or product.
Riba: literally means “increase” or “excess”

An increase in a loan transaction or exchange of
commodity accrues to the owner (lender) without giving
an equivalent counter-value or recompense in return.
“Same exchange value” illustrations:-
i) Exchanging 1kg of grapes with 1.5kg of grapes that
are of the same type, quality and value.
ii) BDT100 exchangeable for BDT110.
Hence, if items are the same then any differences
(incremental or otherwise) in their exchange value is
riba‘.
Other considerations:
i) A contractual difference in value of 2 (or more items)
of different type, quality and value when exchanged is
not riba’.
ii) If agreed differences is changed post-transaction, the
changed amount is riba‘.
Distinguishing Characteristics of Islamic Banking
An Islamic bank has several distinctive features as
compared to its conventional counterpart. Six essential
features are as fillows:
I. Abolition of Interest (Riba): Since Riba is prohibited
in the Holy Quran and interest in all its form is prohibited,
the first distinguishing feature of an Islamic bank must be
that it is interest-free, while the abolition of Riba would be
the first and essential difference between the
conventional interest-based commercial banks and
Islamic banks.
II. Adherence to Public Interest: Activity of commercial
banks being primarily based on the use of public funds,
public interest rather than individual or group interest will
be served by Islamic commercial banks. The Islamic
banks should use all deposits, which come from the
public for serving public interest and realizing the relevant
socio-economic goals of Islam.
III. Multi-Purpose Bank: Another substantial
distinguishing feature is that Islamic banks will be
universal or multi-purpose banks and not purely
commercial banks. These banks are conceived to be a
hybrid of commercial and investment banks, investment
trusts and investment management institutions and
would offer a variety of services to their customers.
IV. More Careful Evaluation of Investment Demand:
Another very important feature of an Islamic bank is its
very careful attitude towards evaluation of applications
for equity oriented financing. It is customary that
conventional banks evaluate applications, considers
collateral and avoids risks as far as possible. Their
main concern does not go beyond ensuring the security
of their principle and interest receipts. Since the Islamic
bank has in built mechanism of risk-sharing, it would
need to be careful more careful. It adds a healthy
dimension in the whole lending business and eliminates
a whole range of undesirable lending practices.
V. Work as Catalyst of Development: It helps
develop financial expertise in non-financial firms also
enables the banks to assume the role technical
consultants and financial advisors and act as catalysts
in the process of industrialization and development.
The bank would take care of all the responsible and
agreed financial needs of their clients thus relieving
them of the need to run around for funds to overcome
their normal liquidity shortages.
vi. Profit-Loss Sharing: Profit-Loss-Sharing being a
distinctive characteristic of an Islamic bank, it fosters
closer relations between banks and entrepreneurs.
Main modes of Islamic banking are Mudarabah and
Musharakah which establish profit-loss sharing in
business.
Objectives of Islamic Banking
The primary objective of establishing Islamic bank all
over the world is to promote, foster and develop the
application of Islamic principles, law and tradition to the
transaction of financial, banking and related business
affairs and to promote investment companies,
enterprises and concerns which shall themselves be
engaged in business as are acceptable and consistent
with Islamic principles, law and traditions. But the
objective of Islamic bank when viewed from the context
of its role in an economy, its specific objectives may be
enlisted as following:
1. To offer contemporary financial services in
conformity with Islamic Shariah;
2. To contribute towards economic development and
prosperity within the principles of Islamic justice;
3. To facilitate efficient allocation of resources;
4. To help achieving stability in the economy;
1. Offer Financial Services: Interest-based banking
considered to be practicing R iba in financial transaction has
Islamic banking is clearly meant for creation of provision for
Shariah approved financial transactions without Riba.
2. Islamic Banking for Development: Islamic banking is
claimed to be more development oriented than its
conventional counterpart. The mechanism of Profit-Sharing
is build-in development promoter since it establishes a
direct relationship between the benefit of the bank and the
entrepreneurs.
3. Optimum Allocation of Recourses: Another important
objective of Islamic banking is the optimum allocation
resources. The basic mechanism of Islamic banking system
is such that financial resources are allocated to projects
which are considered to be more profitable.
4. Islamic Banking for Equitable Distribution of
Resources: Another important objective of Islamic banking
is to ensure equitable distribution of income and resources
among the participating factors: the bank, the depositors
and the entrepreneurs.
Objectives
 Difference between Conventiona and Islamic banking
Conventional Banking Islamic Banking
1. Money is a commodity besides 1. Money is not a commodity though it is
medium of exchange and store of used as a medium of exchange and store
value. Therefore, it can be sold at a of value. Therefore, it cannot be sold at a
price higher than its face value and price higher than its face value or rented
it can also be rented out. out.
2. Time value is the basis for 2. Profit on trade of goods or charging on
charging interest on capital. providing service is the basis for earning
profit.
3. Interest is charged even in case 3. Islamic bank operates on the basis of
profit and loss sharing. In case, the
the organization suffers losses by
using bankâ’s funds. Therefore, it is businessman has suffered losses, the
bank will share these losses based on
not based on profit and loss the mode of finance used (Mudarabah,
sharing. Musharakah).
4. While disbursing cash finance, 4. The execution of agreements for the
running finance or working capital exchange of goods & services is a must,
finance, no agreement for exchange while disbursing funds under Murabaha,
of goods & services is made. Salam & Istisna contracts.
5. Islamic banking tends to create link
5. Conventional banks use money with the real sectors of the economic
as a commodity which leads to system by using trade related activities.
inflation. Since, the money is linked with the real
assets therefore it contributes directly in
the economic development.
 Differences between Islamic Bank and Traditional Bank
No. Elements of The Islamic Bank The Traditional Bank
Comparison
Legitimate principle to clean .Personal materialism
1 Establishm
ent
the Banking business off
usurious interest and tendency to deal in cash
legitimate irregularities and maximize wealth

One of the cash monetary

market which deals in cash
Financial Banking institution credit and it’s principle
accepts money on the base of work thru accepting
Understand abscesses security and pay on deposits to be used in
2 ing profitability for trading and banking operation such as
investing according to sharia commercial document
intensions and detailed discount and buying and
rulings selling and loans offering
and other credit
operations
Not a neutral mediator role
neutrally but practiced the Intermediate financial
3 Nature
role
of profession of banking
Brokerage investment tools
institutions between the
savers / the depositors and
where a salesman and a buyer the investors.
and a partner.
4 Financing It is based on the production
base according to the principle It is based on the principle of
Base of profit and loss borrowing with an interest rate
- current account holder based - Depositor and savor thus
on Al-Hassan(good) loan and he/she is a lender and a
Client's secured pay. creditor or a borrower an a
5 -Investment account
Characteri is a money lord. holder he debtor all based on interest.
stics -Buyer/seller- renter/tenant in all -services
A renter of some banking
Hala(legitimate) sales like safe deposits
- Partner boxes
-prohibited from exercising
commerce and industry.
-prohibited from buying real-
Permissible to practice estate other than what is
Prohibited commerce and industry and needed for exercising his
goods ownership and buying of business.
6 and
permissible real-estate and trade in the -permissible for him to buy for
commercial companies stocks his own other commercial
according to Shariaa regulations companies stocks within fixed
percentages from his own
funds or in prior Central Bank
approval.
Personal May issue public and private
7 financial investment instruments in a May issue preferred shares
resources project or a certain sector
 Investment account on the basis
External of absolute speculation or Deposits and loans on the
8 financial restricted speculation. basis of interest
resources And agencies in investment
absolute or restricted.
The Majority of funds will be
9 Money financed on the basis of Islamic The majority of funds is used
usages financing formats of selling and
partnerships and speculations in lending with interest.
and others.
Speculator in absolute
speculations considering all
10 Main
Duties
depositors are money lords. Basically and normally accepts
And the money lord and business deposits and offer loans for
owners(investors) are speculator others based on interest.
in exercising his activities.

Saving is post ponding urgent According to the implemented

Saving spending to a later time thus it's a theory saving is the surplus
behavioral process that is why from income after consumption
and
11 savings the Islamic bank seeks funds with that is why the traditional bank
awarenes all individuals rich and poor and seeks funds with the rich at the
cares about in the development expense of the development of
s of savings awareness for all for the savings awareness with all
their own motives. individuals in generals
 Trading Based on funds investment and Based on the lending only
12 on trading with it according to sharia according to the interest rate
property formats and tools to accomplish returns
It is checked from the
13 Profit Applied by legitimate causes such as:difference between the
funds- business –collaterals payable and relievable
according to the legitimate standards interest in the bank operation
Borne by the bank if he is the money Borne by the borrower alone
14 Loss lord in speculation, The capital is even if he has nothing to do
estimated in partnerships with reasons
15 Elements The relative importance of the client
of personality is more. The relative importance of the
granting Attention to the productive capacity collaterals is more.
credit and the nature of its work and Attention to the capital and the
activities carried out by the production capacity is less.
mechanism in practice more.
16 MonitoringThree types of monitoring: the Two types of monitoring: from
Shariaa monitoring, and by the the general assembly and the
General Assembly and the auditor, auditor and the monetary
and the monetary authorities authorities
17 Zakat fundOne of the pillars in applying the
Islamic economical curriculum and Has no Place in it
social solidarity thus it's one of the
strong benefits of competition
18 Shariaa The most important determinants
purposes mechanism of work and exercising Has no place in it even if there
was some agreement which
and
priorities activities partial
 Modes of Investment
1. Bai' al-inah (sale and buy-back agreement): The
financier sells an asset to the customer on a deferred-
payment basis, and then the asset is immediately
repurchased by the financier for cash at a discount. The
buying back agreement allows the bank to assume
ownership over the asset in order to protect against
default without explicitly charging interest in the event
of late payments or insolvency. Some scholars believe
that this is not compliant with Shariah principles.[26][27]
2. Bai' bithaman ajil (deferred payment sale): This
concept refers to the sale of goods on a deferred
payment basis at a price, which includes a profit margin
agreed to by both parties. This is similar to Murabahah,
except that the debtor makes only a single installment
on the maturity date of the loan. By the application of a
discount rate, an Islamic bank can collect the market
rate of interest.
3. Bai muajjal (credit sale): Literally bai muajjal means a
credit sale. 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.
4. Musharakah: Musharakah (joint venture with capital) is
an arrangement between two or more partners, whereby
each partner provides funds to be used in a venture.
Profits made are shared between the partners according
to the invested capital. In case of loss, each partner loses
the capital in the same ratio. All the partners may or may
not participate in carrying out the business. The partner(s)
who is/are also working, gets greater profit ratio as
compared to the sleeping partner. The Difference
between Musharaka and Madharaba is that, in
Musharaka, each partner participates with some capital,
whereas in Madharaba, there is a capital provider, ie. a
financial institution and an entrepreneur, who has zero
financial participation.
Types of Musharaka
Musharaka may take two forms:
i) Permanent Musharaka and
ii) Diminishing Musharaka.
These are discussed below (ABIIB 1995).
i) Permanent Musharaka: In this case, the bank
participates in the equity of a company and receives an
annual share of the profits on a pre-rate basis. The
period of termination of the contract is not specified.
This financing technique is also referred to as
continued Musharaka. The contributions of the partners
under this mode may be equal or unequal percentages
of capital. In this arrangement, each participant owns a
permanent share in the capital structure and receives
his share of the profits accordingly. This type of a
partnership is intended to continue until the company is
dissolved.
ii) Diminishing Musharaka: Diminishing or Digressive
Musharaka is a special form of Musharaka, which
ultimately concludes in the ownership of the asset or
the project by the client. It operates in the following
manner.
The Bank participates as a financial partner, in full or in
part, in a project with a given income forecast. An
agreement is signed by the partner and the bank, which
stipulates each party's share of the profits. However,
the agreement also provides payment of a portion of
the net income of the project as repayment of the
principal financed by the bank. The partner is entitled to
keep the rest. In this way, the bank's share of the equity
is progressively reduced and the partner eventually
becomes the full owner.
When the bank enters into a Diminishing Musharaka its
intention is not to stay in the partnership until the
company is dissolved.
5. Definition of Istisna'a Sale: The Istisna'a sale is a
contract in which the price is paid in advance at the time
of the contract and the object of sale is manufactured and
delivered later. The majority of the jurists consider
Istisna'a as one of the divisions of Salam, Therefore, it is
subsumed under the definition of Salam. But the Hanafie
school of Jurisprudence classifies Istisna'a as an
independent and distinct contract. The jurists of the
Hanafie school have given various definitions to Istisna'a
some of which are:
"That it is a contract with a manufacturer to make
something" and "It is a contract on a commodity on
liability with the provision of work". The Purchaser is
called 'Mustasnia' contractor and the seller is called
'Sania' maker or manufacturer and the thing is called
'Masnooa', manufactured, built, made.
Islamic banks can utilize Istisna'a in two ways.
i) It is permissible for the bank to buy a commodity
on Istisna'a contract then sell it after receipt for cash
or deferred payment.
ii) It is also permissible for the bank to enter into a
Istisna'a contract in the capacity of seller to those
who demand a purchase of a particular commodity
and then draw a parallel Istisna'a contract in the
capacity of a buyer with another party to
manufacture the commodity agreed upon in the first
contract.
Each transaction is deemed a separate contract
with payment being made in cash either
immediately or on a deferred basis. Any
disagreements that may arise are settled under
each contract separately according to the provisions
therein.
6. Mudarabah: "Mudarabah" is a special kind of
partnership where one partner gives money to another
for investing it in a commercial enterprise. The
investment comes from the first partner who is called
"rabb-ul-mal“ or “Sahib-al-Mal”, while the management
and worker is an exclusive responsibility of the other,
who is called "mudarib".
The Mudarabah (Profit Sharing) is a contract, with one
party providing 100 percent of the capital and the other
party providing its specialist knowledge to invest the
capital and manage the investment project. Profits
generated are shared between the parties according to
a pre-agreed ratio. Compared to Musharaka, in a
Mudaraba only the lender of the money has to take
losses.
7. Murabahah: This concept refers to the sale of
goods at a price, which includes a profit margin
agreed to by both parties. The purchase and selling
price, other costs, and the profit margin must be
clearly stated at the time of the sale agreement.
This is a fixed-income loan for the purchase of a
product or asset (such as real estate or a vehicle),
with a fixed rate of profit determined by the profit
margin. The bank is not compensated for the time
value of money outside of the contracted term (i.e.,
the bank cannot charge additional profit on late
payments); however, the asset remains as a
mortgage with the bank until the default is settled.
Types of Murabaha
In respect of dealing parties Bai-Murabaha may be of two
types (IBBL 1986, pp.1-2):
i) Ordinary Bai-Murabaha, and
ii) Bai-Murabaha order on and Promise.
i) Ordinary Bai-Murabaha is a direct transaction
between a buyer and a seller. Here, the seller is an
ordinary trader who purchases goods from the market in
the hope of selling these goods to another party for a
profit. In this case, the seller undertakes the entire risk of
his capital investment in the goods purchased. Whether
or not he earns a profit depends on his ability to find a
buyer for the merchandise he has acquired.
ii) Bai-Murabaha order on and Promise involves three
parties - the buyer, the seller and the bank. Under this
arrangement, the bank acts as an intermediary trader
between the buyer and the seller. In other words, upon
receipt of an order and agreement to purchase a certain
product from the buyer, the bank will purchase the
product from the seller to fulfill the order.
8. Musawamah: Musawamah is the negotiation of a selling
price between two parties without reference by the seller to
either costs or asking price. While the seller may or may not
have full knowledge of the cost of the item being negotiated,
they are under no obligation to reveal these costs as part of
the negotiation process. This difference in obligation by the
seller is the key distinction between Murabaha and
Musawamah with all other rules as described in Murabaha
remaining the same. Musawamah is the most common type
of trading negotiation seen in Islamic commerce.
9. Bai salam: Bai salam means a contract in which
advance payment is made for goods to be delivered later
on. The seller undertakes to supply some specific goods to
the buyer at a future date in exchange of an advance price
fully paid at the time of contract. It is necessary that the
quality of the commodity intended to be purchased is fully
specified leaving no ambiguity leading to dispute. Bai Salam
covers almost everything that is capable of being definitely
described as to quantity, quality, and workmanship.
10. Ijarah: Ijarah means lease, rent or wage. Generally,
Ijarah concept means selling the benefit of use or
service for a fixed price or wage. Under this concept,
the Bank makes available to the customer the use of
service of assets/equipment such as plant, office
automation, motor vehicle for a fixed period and price.
11. Ijarah-wal-iqtina: A contract under which an Islamic
bank provides equipment, building, or other assets to
the client against an agreed rental together with a
unilateral undertaking by the bank or the client that at
the end of the lease period, the ownership in the asset
would be transferred to the lessee. The undertaking or
the promise does not become an integral part of the
lease contract to make it conditional. The rentals as
well as the purchase price are fixed in such manner
that the bank gets back its principal sum along with
profit over the period of lease.
12. Ijarah thumma al-bai' (hire purchase): Parties
enter into contracts that come into effect serially, to form
a complete lease/ buyback transaction. The first
contract is an Ijarah that outlines the terms for leasing or
renting over a fixed period, and the second contract is a
Bai that triggers a sale or purchase once the term of the
Ijarah is complete. 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
amount 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
to price.
The bank generates a profit by determining in advance
the cost of the item, its residual value at the end of the
term and the time value or profit margin for the money
being invested in purchasing the product to be leased
for the intended term.
13. Qard hassan/ Qardul hassan (good
loan/benevolent loan): This is a loan extended
on a goodwill basis, and the debtor is only
required to repay the amount borrowed. In the
case that the debtor does not pay an extra amount
to the creditor, this transaction is a true interest-
free loan. Some Muslims consider this to be the
only type of loan that does not violate the
prohibition on riba, since it is the one type of loan
that truly does not compensate the creditor for the
time value of money.
14. Hire-purchase under Shirkatul Melk or
Ijarah Muntahib Bil TamliK: Hire-Purchase under
Shirkatul Melk has been developed through
practice. Actually, it is a synthesis of three
contracts: (a) Shirkat; (b) Ijarah, and (c) Sale.
These may be defined as follows:
Definition of Shirkatul Melk: 'Shirkat' means
partnership. Shirkatul Melk means share in ownership.
When two or more persons supply equity, purchase an
asset and own the same jointly and share the benefit as
per agreement and loss in proportion to their respective
equity, the contact is called Shirkatul Melk. In the case
of Hire Purchase under Shirkatul Melk, Islamic banks
purchase assets to be leased out, jointly with client
under equity participation, own the same and share
benefit jointly till the full ownership is transferred to the
client.
Definition of Ijara: The term 'Ijara' has been defined as
a contract between two parties, the lessor and the
lessee, where the lessee enjoys or reaps a specific
service or benefit against a specified consideration or
rent from the asset owned by the lessor. It is a lease
agreement under which a certain asset is leased out by
the lessor or to a lessee against specific rent or rental
for a fixed period.
Definition of Sale contract: This is a contract between a
buyer and a seller under which the onwnership of certain
goods or asset is transferred by the seller to the buyer
against agreed upon price paid by the buyer. In the case of
Hire Purchase under Shirkatul Melk, the lessor bank sells or
transfers its title to the asset under a sale contract on
payment of sale price.
Thus in Hire Purchase under Shirkatul Melk mode, both the
bank and the client supply equity in equal or unequal
proportion for purchase of an asset like land, building,
machinery, transports, etc., purchase the asset with that
money, own the same jointly, share benefit as per
agreement and bear the loss in proportion to their
respective equity. The share/part or portion of the asset
owned by the bank is leased out to the client partner for a
fixed rent per unit of time for a fixed period. Lastly, the bank
sells and transfers the ownership of its share/part/portion to
the client against payment of price fixed for that part either
gradually part by part or as a whole within the lease period
or on expiry of the lease agreement.
15. Bai-Istijrar: The term "Bai-Istijrar" has been derived
from Arabic words ‫ بيع‬and ‫( جر‬Bai and Zarra). The word
‫ بيع‬means to purchase and to sell and the word ‫جر‬
means to hoist, to lift up, pick up, bring up. "Istijrar"
(‫ ) استجرار‬means to purchase goods from time to time in
different quantities. In Islamic jurisprudence ‘Istijrar’ is
an agreement where a buyer purchases something
under a single agreement in different instalments.
However, no offer and acceptance or bargain is
required each time. The deal will be considered as a
single agreement where all terms and conditions are
finalized.
"Bai-Istijrar" is called such a buying and selling where a
person keeps on taking delivery of required
commodities part by part from time to time from a
supplier and no offer(Ijaab) & acceptance (Qobul) and
bargaining between them is taken place each time of
making and taking delivery.
16. 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
(Shariah) and its investment principles, which prohibit
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.
Wakalah (power of attorney): This occurs when a
person appoints a representative to undertake
transactions on his/her behalf, similar to a power of
attorney.
Problem Related to Micro Operation
of the Islamic Banks
1. Increased Cost of Information
2. Control over Cost of Funds.
3. Mark-up Financing and Corrupted Mark-up
4. Excess Resort to the Murabaha Mode of Financing
5. Utilization of Interest Rate of fixing the Profit Margin
in Bai-Modes
6. Financing Social Concerns.
7. Lack of Positive Response to the Requirement of
government Financing.
8. Failure of Islamic Banks to Finance High Return
Projects.
9. Sacrifice of allocative Efficiency
10 Loss of Distributive Efficiency.
11. Depression of Profit.
12. Lack of Full-fledged Shariah Audit.
13. Fraud-Forgery or corruption in Islamic Banks.
14. Minimum Budget for Research and Development.
15. Working Environment.
16. Issuance of Letter of Guarantee (L/G)
17. Minimum Budget for Research and Development.
18. Lack of Shariah Manual or Guidelines.
19. Islamic Investment Risk Analysis and measurement
Methodology.
20. Non-exemption of Stamp Duty for Purchasing
Property by Banks.
21. Lack of Co-operation between Islamic Banks and
Islamic NGOs for extending Microcredit.
22. Lack of Establishment of Links with other Training
Institutes and Shariah Supervisory Bodies.
23. Lack of Intention of the Management to be strict
with Shariah Guidelines.
 Problems Related to Macro Operation of the Islamic Banks
1. Liquidity and Capital
2. Valuation of bank Assets
3. Financial Stability
4. The Ownership of Banks
5. Lack of Capital Market and Interest-free Financial
Instruments
6. Insufficient Legal protection
7. Controlling and Supervision by the Central bank on the
Basis of Islamic Shariah
8. Lack of Unified Shariah Rulings
9. Absence of Islamic Inter-Bank Money Market
10. New Banking Regulations
11. Accounting principles and Procedures
12. Shortage of Supportive and Link Institutions
13. Shortage of Skilled and Trained Manpower in Islamic
Shariah banking
14. Lack of Co-operation among the Islamic Banks
15. Lack of Familiarity by International Financial and Non-
financial Sector with Islamic Products and procedures.
16. Severe Competition in the Financial Sector
17. Economics slowdown and Political Situation of the
Country
18. Inadequate Track Record of Islamic Banking
19. Absence of Infrastructure for International Islamic Trade
Financing
20. Defaulting Culture of the Borrowers
21. Short-term Asset Concentration in the Islamic Banks
22. Lack of Course or paper on Islamic Economics, Banking
and Finance at the Educational Institutions.
23. Lack of Uniform Operational procedure of Islamic
Banking
24. Lack of Specialised Islamic Banks and Non-Bank
financial Institutions
25. Lack of Consortium or Syndication of the Islamic Banks
26. Lack of Harmonization of Islamic financial Practices
27. Lack of Inter-country Study on the practical Operations
of Islamic Banking
28. Lack of Secondary Securitisation Market
29. Lack of Coordinated Research Work on Islamic
Economics, Banking and finance
30. Lack of Apex Training Institute for the Islamic Banks.
 Questions
1. What is meant by Islamic banking? 02
2. Explain the term “Riba and Profit”. 02
3. What are the distinguishing characteristics
of Islamic banking? 03
4. Differentiate between conventional and
Islamic banking. 03/09
5. What are the objectives of Islamic banking? 04
6. Explain the different modes of investment
of Islamic banking. 16
7. What are the problems relating to micro
operation of the Islamic banks? 06
8. What are the problems relating to macro
operation of the Islamic banks? 08
 THANK
YOU
SO MUCH