1. Towards a Better of Understanding ISLAM..
Focus on…
 Islamic banking
 Presented by: alh. Remi
Adeseun
September 11, 2011

2. Disclosures & Disclaimers…
 Remi ADESEUN..
 IS
 A Passionate Muslim &
 Humanist
 IS NOT
 An Expert in…
 Banking, nor
 Shari‟ah!
September 11, 2011

3. Approach…
 Target Audience:
 Non-Muslims
 Muslims
 Goal:
 Encourage Enquiry & Foster Understanding
 Strategy:
 Provide Facts & Debunk Myths
September 11, 2011

4. Understanding Islam….
 Islam
 Permissibility & prohibition
 Islamic view of life & wealth
 principles of Islamic banking
 Global perspectives
 Recommendations & Conclusion
September 11, 2011

5. General Introduction
• Islam is not only a religion in the ordinary sense of
the word, but indeed a complete system of life.
• Islam guides man in his relationship with God and
gives him the norms which govern his temporal
existence.
• Islam is concerned with the
spiritual, political, social economic, moral and all
other material aspects of the human being.
5

6. Basic Principles of Permissibility (HALAL) &
Prohibition (HARAM) in Islam
 The first rule established by Islam is that the things which Allah
has created and the benefits derived from them are essentially for
man's use, and hence are permissible halal .
 Nothing is haram except what is prohibited by a sound and
explicit evidence (either a verse of the Qur'an or a
clear, authentic, and explicit sunnah-practice or saying- of
Prophet Muhammad.)
 If the evidence is not sound, as for example in the case of a weak
hadith, or if it is not explicit in stating the prohibition, the original
principle of permissibility applies.

7. Halal & Haram…
 Allah says: It is He who created all that is in
the earth for you.... (2:29)
 He has subjected to you, from Himself, all that
is in the heavens and all that is on the earth....
(45:13)
 In Islam the sphere of prohibited things is very
small, while that of permissible things is
extremely vast.
 There is only a small number of sound and
explicit texts concerning prohibitions.

8. Prohibition is Due to Impurity
and Harmfulness
 It is the right of Allah, the One Who created
human beings and bestowed innumerable gifts
on them, to legalize or prohibit as He deems
proper, and to place obligations and
responsibilities upon them as He sees fit.
 He makes things halal and haram for a
reason, with peoples' well-being in view.
 Accordingly, He has neither permitted anything
except what is pure nor has He prohibited
anything except what is impure.

9. Economics & Its Problems
 What is economics?
“To utilize the limited resources in a way that maximum needs and wants
are met to ensure the well being of all members of the human society.”
 The four basic economic problems:
1. Determination of Priorities
2. Allocation of Resources (Land, Labor, Capital, Entrepreneur)
3. Distribution of Income
4. Development
We will compare how Capitalism, Socialism and Islamic Economic system
addresses to these problems.

10. Comparison of Capitalism & Socialism
Capitalism Socialism
• Every individual has • No individual has the
1. Determination right to participate in
unconditional right to
of Priorities participate in any any business
business to maximize independently.
profits • State will determine the
• Concept of Selfish priorities as per the
Interest overall planning.
• Supply & Demand will • Concept of collective
determine the priorities. interest.
2. Allocation of • Market forces will • Govt. will decide
Resources decide where to where to allocate
invest resources resources
3. Development
• Market forces will
decide • Govt. will decide

11. Comparison of Capitalism & Socialism
Capitalism Socialism
4. Distribution of • Land - Rent • Land – Rent fixed by
Govt.
Income • Labor - Wages
• Labor – Wages fixed by
• Capital- Interest
Govt.
• Entrepreneur- Profits
.

12. Flaws of Capitalism
 No bindings/ restrictions while maximizing profits.
 Blindly follows market forces that creates exploitation of labor &
poor people.
 No moral value limitations.
 Monopolies & Cartels are created that exploit the society as a
whole.
 Government & Industrialists join hands for unholy alliances

13. Flaws of Socialism
 The other extreme of not even giving the natural freedom.
 Perfect Planning is assumed by Govt. ?
 Governments are assumed to be angels which can’t commit a
deliberate mistake.
 Cannot work without forceful dictatorship.

14. What is Islamic Economics?
 Islam is a complete way of life which gives guidance for
 Aqidah (Faith & Belief)
 Ibadah (Worshipping our creator)
 Akhlaq (Morals, Character & Ethics)
 Mu’amalat (Dealings with Fellow Man)
 Economic Activities fall under the purview of Mu’amalat.
 Informal Dealings
 Formal, Contractual/Institutional Islamic Finance
 Banking
 Insurance
 Money Market
 Carpital Market
 Islam is a DEEN for well being.
 Spiritual satisfaction.

15. MEANING AND CONCEPT OF SHARI’AH:
Shari’ah= Aqidah+Ibadah+Akhlaq+Muamalat!
 Islamic laws are also known as Shariah laws, sometimes
referred to as Islamic jurisprudence.
 The original meaning of the word Shariah or shar „is the
path or the road leading to the water‟ and the verb shara’a
literally means „to chalk out or mark out a clear road to
water‟.
 In a religious sense, it means „the highway of good life‟.
 In other words, Shariah is the way which directs man‟s life
to the right path.
 The word Shariah also has its correlation with the word
“deen” which literally means „submission‟ or „following‟.
 The two primary sources Shariah are the Al-Qur’an and Al-
Sunnah.

16. Important Concepts in Islamic Economics:
Considerations & Prohibitions
 Islam encourages:  Everyone is allowed to
trade as they like with
 the free market
exception of:
economy
 Development of the  Riba
entire community & (Usury/Interest)
eradication of
concentration of wealth  Uncertainty
 Partners share the risk (Gharar)
of reward & loss
 Gambling (Maisir)
 Money as a medium of
exchange and not as a  Unlawful
commodity by itself Products/Services
 Financing must be
asset-backed and not
 Unlawful
money on money! Contracts

17. Islamic Economic System- The
prohibitions & considerations
1. Divine Prohibitions:
Islam has prohibited some economic activities that are not allowed
at any time at any place.( Interest, Gambling, Gharar)
2. Govt. Restrictions:
Islam allows Govt. to intervene where it feels appropriate , but
these restrictions are temporary as per the need of the time.
3. Moral Considerations & Restrictions
Maximum benefit in the life for hereafter.

18. Factors of Production of Production in
Islamic Economic System
 In Islam there are three factors of production
1.Land 2. Labor 3. Entrepreneur
 Entrepreneur & Capital is a single factor of production.
 As interest is Haram hence the risk of profit & loss is with the
capital.
 Anyone investing capital must also take the risk of the investment.

19. Right to Wealth in Islam
 In both Capitalism & Socialism the right to wealth is with those
factors of production only that have taken part directly in the
process of production.
 Islam believes that the original ownership of everything is with
Allah and without Allah’s “Taufeeq” no factor of production can
produce anything.
ALLAH
Factors of Production Zakat, Ushr
Wirasat, Sadqaat
Qurbani,Khiraj
Secondary owners of wealth

20. COMPREHENSIVE ISLAMIC FINANCIAL SYSTEM

21. What is “Islamic Banking” ?
• Islamic banking is defined as “banking system which is in
consonance with the spirit, ethos and value system of Islam and
governed by the principles laid down by Islamic Shariah”.
• Interest-free banking is a narrow concept denoting a number
of banking instruments or operations which avoid interest.
•Islamic banking, the more general term, is based not only to
avoid interest-based transactions prohibited in Islamic Shariah
but also to avoid unethical and un-social practices.
•In practical sense, Islamic Banking is the transformation of
conventional money lending into transactions based on tangible
assets and real services.
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22. Why Islamic Banking?
• In response to the needs of Muslim community
• Acts as a catalyst to fill the gap to mobilise funds for
productive purposes, in particular for Muslim communities
• Significant untapped business potential
• Proven to be a viable financial intermediation channel in
supporting economic growth
• Fulfils the demands of not only Muslims but non-Muslim
population as well
September 11, 2011

23. Distinctive features of Islamic finance
 The most distinctive features of
Islamic finance are;
 the prohibition of interest, whether
nominal or excessive, simple or
compound, fixed or floating.
 the prohibition of gambling;
 dealing only in lawful (halal) things
and;
 the elimination of uncertainty and
ambiguity (gharar) in business
contracts.

24. Global Trends in Islamic Banking
 Modern Islamic Banking is growing rapidly across the world
 Distinct Phases of Development in Islamic Banking:
 Initiation (1960 through 1975): Oil Boom in this period was the
biggest contributor leading to increased wealth and liquidity in the
Gulf States and also in North Africa
 Progress (1976 to the Early 1980s) Spread from the Gulf States to
Malaysia and Europe
 Growing Maturity (1983 to the Present)
 Size of the Industry
 Over 300 Islamic Banks & Financial Institutions worldwide
 Estimated Assets of up to $750 billion
 Projected to grow to $1.6 trillion by 2012
 Almost 25% of Islamic Financial Institutions operate in Non-Muslim
dominated/Western countries
 Dow Jones/FTSE Islamic Index
September 11, 2011

25. ROLEROLE OF BANK NEGARA MALAYSIA
OF CENTRAL BANK (MALAYSIA example)
Islamic Banking Act 1983
Islamic financial system Takaful Act
Islamic banks
Takaful operators
Money market Capital market
Non-banking
institutions Supervisory
objective
• Financial
stability
• Consumer
BNM protection
- Separate Malaysia Deposit
clearing and Insurance
settlement Corporation
Customer system
Dispute resolution
- Liquidity
management  Judicial
system
 Specific
monetary  KL Regional
policy Arbitration
instruments Centre
Conventional banks
Insurance  Financial
companies Money market Capital market
Mediation
Non-banking Bureau
institutions
BAFIA 1989
Conventional financial system Insurance Act 1996

26. MALAYSIA AT A GLANCE
MALAYSIA AT A GLANCE
•Population – 26.1 m
• Muslim – 15.4 m (59%)
• Religion
Malaysia is a multi-
religious society and
Christianity, Buddhism, T
aoism, Hinduism and
Sikhism are openly &
freely practiced.

28. September 11, 2011

29. September 11, 2011

36. Categories of Shariah principles
– Profit and loss sharing principles
• Mudarabah
• Musharakah
– Fees or charges based principles
• Murabahah
• Bai mu’azzal
• Ijara
• Ijara wa-iktina
– Free service principles
• Qard hassan
– Ancillary principles.
• Wadiah
• Rahn

39. STAGES OF DEVELOPMENT
RECOMMENDED: Gradual and pragmatic approach
Milestones
Full-fledged Islamic banks, e.g. JAIZ
Conventional banks offering Islamic Banking window
Islamic
subsidiary
Islamic money markets
Takaful
Operators Takaful Operators
.. significant milestones in building comprehensive and integrated Islamic financial
system with diversity of players….

40. DEVELOPMENTAL FOCUS
RECOMMENDED: DEVELOPMENTAL FOCUS
Institutional & Regulatory
development
Enhancement of
Product and market
knowledge and
development
expertise
Legal and Shariah
framework

41. ENABLING INFRASTRUCTURE
RECOMMENDED: ENABLING INFRASTRUCTURE
Legal
 Ensure legislation exists for Islamic banking
institutions to exist side-by-side with the
conventional banks.
 Establish Legal Redress Framework
Shariah
 Shariah governing committees
• National Shariah Advisory Council
at Central Bank
• Shariah committee at Islamic
financial institution
Regulatory
 Adopt international standards
 IFSB (Islamic Financial Services Board)
 AAOIFI (Accounting & Auditing
Organisation for Islamic Financial
Institutions)

42. Recommended: Human Capital Development in
Human Capital Development in Islamic Finance
Islamic Finance
Level of knowledge: Level of knowledge: Focus:
Elementary Intermediate & Leadership programs
advanced
Focus:
Short training courses Focus:
to meet industry‟s International
needs professional
certification and post-
graduate programs
Institution Other
s of higher training
learning providers
Meeting the education needs of all levels of Islamic finance
practitioners

43. CONCLUSION:
• Islamic banking is founded on Shariah principles which express an
explicit intention to meet the financial needs of participants with
integrity and in a manner that is just, fair, trustworthy and
honest, while ensuring a more equitable wealth distribution.
• Islamic banking upholds the principles of
integrity, transparency, fairness and good corporate governance in
financial dealings.
• "The ethical principle of which Islamic finance is based may bring
bankers close to their clients in the true spirit which should mark
every financial service..[Osservatore Romano, Vatican Official
Newspaper, March 4, 2009. ]
• This presentation has been made with utmost sincerity, evensuccess.
Good Communication between all stakeholders is key for if limited
knowledge, and with the greatest respect to the varying religious
sentiments of the audience. The author therefore craves God’s forgiveness
& the indulgence of the audience in the event of any unintended error.