ISLAMIC BANKING AND FINANCE

Objective

Islamic Banking – Introduction, Background & Global Scenario

Islamic Shariah

· Shariah; key to understanding Islamic banking

· Resources of Shariah

· The concept of Lawful and unlawful as per Shariah

Islamic Economic System

· Objectives of Islamic Economics and Finance vs. Capitalism and Socialism

· The Concept of Wealth in Islam

· Objectives of Distribution of Wealth in Islam

· Factors of Production in Islam and their compensations

Concept of Riba, Gharar and Qimar and Other Prohibited Activities

· Riba – Quran, Hadith, Deficition and Types

· Arguments against commercial interest

· Gharar, Qimar and Gambling

Islamic Law of Contract

· Basic Elements of Contract

· Void and Valid Conditions

· Uqood Muawadha and Ghari Muawadha

Islamic Law of Sale and Purchase

· Subject matter, Price & Delivery & Possession

· Bai Batil, Bai Fasid, Bai Makrooh

· Prohibited Transactions in Islam

· Khayar, Iqala

Comparison of Islamic and Conventional Banking

· Nature of Relationship between Customers and Bnak

· Documentation

· Concept of Risk

Categories of Islamic Modes

· Trade Based Modes

· Investment Based Modes

Rules of Agency Contracts (Al Wakalah)

· Disclosed Agent, Non disclosed Agent

· Wakalatul Istismar Contract (Portfolio Management)

· Differeniate Waadah (unilaterial promise), Muawadah (bilateral promise), Aqd (contract)

Dhamanat

· Guarantee, Mortgage, liquidated Damages, Letter of Guarantee, Collateral

Murabaha

· Introduction to Murabaha

· Murabaha as a Financing Mode

· Murabaha terminology and its variants

· Characteristics and essentials of Shariah compliant Murabaha

· Practical steps for Murabaha transactions

· Issues and mistakes in Murabaha: Rebate in early payment, penalty on late payment

· Roll over of the transaction etc.

· Difference between Murabaha based financing and conventional bank lending

· Risks for Islamic banks in Murabaha transactions

· Scope and application of Murabaha

· Overview of a Model Agreement of Murbaha and Case Study

Ijarah

· Basic rules of Irarah

· Lease as a mode of Islamic financing

· Rights and Obligations of Lessor and Lessee

· Conditions of Ijrah/Lease

· Differentiating Islamic Ijarah from Conventional Leasing

· Overview of a Model Agreement of Ijarah

Salam

· Salam : Definition and Concept

· Background and purpose of Salam

· Rules for Valid Salam Contract

· Difference between Salam and Murabaha

· Taking delivery of Salam goods

· Parallel Salam

· Application of Salam and parallel Salam

· Risks in Salam application

· Penalty for non performance

· Scope and Potential Salam

Istisna

· Concept and definition of Istisna

· Rules for valid Istisna contract

· Payment in Istisna

· Defference between Salam and Istisna

· Parallel Istisna

· Application of Istisna and Parallel Istisna

· Risks associated with Istisna

· Istisna as Mode of Financing

Shirkah and Musharakah

· Terminology and Characteristics of Musharakah

· Type and Basic Rules of Mushrakah

· Termination of Musharakah

· Constructive liquidation 0of Musharakah

· Security/collateral in Musharakah

· Profit/Loss Distribution

· Application of Muharakah as a mode

· Problems and Risks for banks in Mushrakah Financing

Mudarabah

· Mudarabah defined

· Mudarabah Capital

· Profit/Loss distribution

· Unrestricted and Restricted Mudarabah

· Difference between Mudarabah and Mushrakah

· Termination of Mudarabah

· Scope of Mudarabha for banking system

· Problems and Risks for Islamic banks providing Mudarabah based financing

Diminishing Mushrakah

· Concept of Diminishing Musharakah

· Basic features of Diminishing Mushrakah

· Steps in a Diminishing Mushrakah Transaction

· Lease rentals in Dimnishing Musharakha

· Unilateral Promise and transfer of ownership title

· Diminishing Mushrakah as a financing mode

Advance Application of Islamic Mode of Finance

· Deposit (Liability) Management in Islamic Banks

· Trade Finance

· Corporate Finance Transactions with live examples

Concept of Takaful (Islamic Insurance)

· Basic concept of Takaful

· How it is different from Insurance

· Models of Takaful

Overview of Securitization and Sukuk

· Securitization of Musharakah, Mudarabah & Ijarah

· Liquidity Management through Securitization

AAOIFI’s Accounting, Auditing and Governance Standards Accounting

· Overview of salient features of Accounting Standards of various modes

· Adaptation of AAOIFI Standards by ICAP

Core Readings

1.     Pakistan, State Bank of                             Islamic Banking and Finance Theory and Practice

        Muhammad Ayub

2.    Usmani, Muhammad Taqi                         An Introduction to Islamic Finance

3.    Usmani, Muhammad Imran                      Meezan Bank’s Guide to Islamic Banking

4.    Siddiqui, M.N.                                                          Issues in Islamic Banking, Islamic Foundation   U.K.

Supplementary Readings

1.         Pakistan, Institute of Bankers                Business Ethics in the Banking Sector

2.         Pakistan, Institute of Bankers                Interest Free Banking

3.         Pakistan, Institute of Bankers                Legal Framework for Islamic Banking –

                                                                        Pakistan’s Experience

4.         Uzair, Dr. Mohammad              Interest Free Banking

5.         Shaikh Salimuddin                                Model Islamic Bank on Shariah Percept

6.         Dr. Habib-ur-Rehman                           Islamic Financial Instruments

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