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Submitted by:
Name of Faculty Guide: Professor Krupesh Thakkar Name of the Student: Rituja Nair
Designation: Roll No.: PGDM182051910
Program: PGDM-IFM
Batch: IFM
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ISLAMIC FINANCE
This is to certify that the Project Work titled IMPACT OF ISLAMIC FINANCE ON INDIAN ECONOMY
(title) is a bonafide work carried out by Ms.RITUJA SUDARSHAN NAIR (name of the student) Roll No.
PGDM182051910, a student of PGDM program 2018 – 2020 of the Institute for Technology &
CONTENT
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ISLAMIC FINANCE
Certificate 2
Introduction 4
History 11-13
Literature Review 17
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ISLAMIC FINANCE
INTRODUCTION
Islamic finance is a financial system that operates according to
Islamic law (which is called sharia) and is, therefore, sharia-
compliant. Just like conventional financial systems, Islamic finance
features banks, capital markets, fund managers, investment firms,
and insurance companies. However, these entities are governed
both by Islamic law and the finance industry rules and regulations
that apply to their conventional counterparts.
But political and social turmoil put the brakes on Islamic finance for
a very long time; only in the 20th century did Muslim scholars and
academics seriously begin to revisit these topics (and, in doing so,
set the stage for the modern Islamic finance industry to emerge in
the 1970s).
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At the same time, Muslims have the right to enjoy whatever wealth
they acquire and spend in sharia-compliant ways; they don’t need
to feel shame about being wealthy as long as their behavior aligns
with Islam.
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The core concepts of Islamic finance date back to the birth of Islam
in the 6th century; Muslims practiced a version of Islamic finance for
many centuries before the Islamic empire declined and European
nations colonized Muslim nations. The modern Islamic finance
industry emerged only in the 1970s, in large part because of efforts
by early 20th-century Muslim economists who envisioned
alternatives to conventional Western economics (whose interest-
based transactions violate Islamic law).
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Here are some of the key events in the short history of the modern
Islamic financial industry:
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A core concept of Islam is that Allah is the owner of all wealth in the
world, and humans are merely its trustees. Therefore, humans need
to manage wealth according to Allah’s commands, which promote
justice and prohibit certain activities. At the same time, Muslims
have the right to enjoy whatever wealth they acquire and spend in
sharia-compliant ways; they don’t need to feel shame about being
wealthy as long as their behavior aligns with Islam.
A Muslim believes that Islam does not restrict economic activity but
instead directsit toward responsible activity that benefits other
people, protects the earth, and honors Allah. In other words, Islam
allows for a free-market economy where supply and demand are
decided in the market — not dictated by a government. But at the
same time, Islam directs the function of the mechanism by imposing
specific laws and ethics.
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Literature Review
1.Kader & Asarpota (2007): applied financial ratio analysis to
assess the performance of the Malaysian Islamic bank and UAE
Islamic banks respectively. Similarly, to measure efficiency of
Islamic banks in Bangladesh, Sarkar (1999) utilized banking
efficiency model and claimed that Islamic banks can stay alive even
within a traditional banking architecture in which Profit-and-Loss
Sharing (PLS) modes of financing are less dominated. Sarkar
(1999) further claimed that Islamic financial products have different
risk characteristics and consequently different prudential regulations
should be in place.
2.Aggarwal and Yousaf (2000):In 1963, Islamic banking
came into existence on an experiment basis on a small scale in a
small town of Egypt. The success of this experiment opened the
doors for a separate and distinct market for Islamic banking and
finance and as a result, in 1970s Islamic banking came into
existence at a moderate scale and a number of full-fledge Islamic
banks was introduced in Arabic and Asian countries. Most of these
Islamic banks were in Islamic countries. Having started on a small
scale, Islamic banks and non-banking financial institutions are now
operation even on more intensive scale. Today, Islamic banks are
operating in more than sixty countries with assets base of over
$166 billion and a marked annual growth rate of 10%-15%. In the
credit market, market share of Islamic banks in Muslim countries
has risen from 2% in the late 1970s to about 15% today. These
facts and figures certify that Islamic banking is viable and efficient
as the conventional banking.
3.Chapra and Khan: highlighted the need to establish an
institution that would help to set regulatory standards and a
framework for supervision of Islamic financial institutions. They also
stated that there is a need to train Islamic bank regulators and 21
supervisors for developing effective internal rating and control
systems and risk management culture which will in turn improve the
external rating of these banks and help them not only in utilizing
their equity capital more efficiently but also in enhancing their
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REFERENCES:
1. https://www.dummies.com
2. http://shodhganga.inflibnet.ac.in
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