ISLAMIC BANKING : DEPOSIT PRODUCTS

GROUP MEMBERS
NIDA FAROOQ FAIZAN AHMAD NOUMAN FAREED TAIMOUR SHOUKAT ASFUND ALI ABBAS

ISLAMIC BANKING

HISTORY AND DEVELOPMENT

The objectives of Islamic banking:

To promote and develop the application of Islamic principles, law and traditions to business and commercial affairs.
To promote commercial activities that are consistent with Shariah principles. To safeguard the Islamic communities from activities which are forbidden in Islam.

HISTORY AND DEVELOPMENT

The advantages of Islamic banking :

Do not deal with loans (except Qardh hasan). Practice the principles of Musharakah and Mudharabah. Prohibition of interest (usury) in all transaction.

HISTORY AND DEVELOPMENT

The advantages of Islamic banking :

Prohibition of monopoly and hoarding. Emphasize in fair and legitimate profit in business activities.

PHILOSOPHY OF ISLAMIC BUSINESS AND BANKS

Based on the principles of mudharabah.

Free from usury. Making profit and conform to Islamic business principles. Practice honesty, justice and equity.

PHILOSOPHY OF ISLAMIC BUSINESS AND BANKS

To balance between earning and spending.

earning must be lawful. Spending for the welfare of the people-not for wasteful or pleasurable activities.

OBJECTIVES OF ISLAMIC BANKS

To promote, foster and develop the banking services and products based on Islamic principles.
To promote the establishment of investment companies or business enterprises-the activities are not forbidden in Islam.

OBJECTIVES OF ISLAMIC BANKS

Prohibition of interest, fair and legitimate profit undertaking.

Profit and morality principles.

To give alms tax.

To promote and develop the Islamic community.

To develop an environment beneficial to the society.

ISLAMIC BANKING DEPOSIT PRODUCTS

CONTRACT OF WADIAH

CONTRACT OF WADIAH

Wadiah is a contract ( akad ) between the owner of goods and custodian of the goods.
To protect the goods from being stolen, destroyed etc. To ensure the safe custody of the goods

CONTRACT OF WADIAH

OWNER

CUSTODIAN

Owner Deposits Goods (Assets, Money Valueables &/or Documents etc.)

APPLICATION OF THE WADIAH

Operates under the contract of Wadiah Yad Dhamanah (guaranteed custody).

The bank accepts deposits from its customers looking for safe custody and convenience. The bank requests permission to make use of the customers funds for investment purposes.

APPLICATION OF THE WADIAH

The customers may withdraw their balances at any time.

Profit generated from the use of the customers funds belongs to the bank. However, the bank may at its absolute discretion rewards the customers by declaring profits to them.

APPLICATION OF THE WADIAH

Discretionary Reward Under the contract of Wadiah, the custodian i.e. the Bank is not allowed to mention or to promise any reward on the deposit received.
The

owner/depositors too cannot demand any rewards or return from their Bank on their savings.
Wadiah

is purely a contract on safe custody of goods without any promise on rewards or returns.

CONTRACT OF QARDH

QARDH CONTRACT

Qardh literally means a debt or loan without interest.

There should be no promise of return or reward either by the borrower or the lender. The Bank may use an appropriate portion of its fund to provide benevolent loans to certain selected customers.

QARDH CONTRACT

This is an act of social responsibility to help a person who is in need.

The borrower is obliged to pay only the principal amount of the loan. The Bank cannot demand the borrower to pay anything above the principal loan amount.

CONTRACT OF MUDHARABAH

CONTRACT OF MUDHARABAH

Mudharabah is a contract between two parties, i.e. the owner of the capital and the entrepreneur.

CONTRACT OF MUDHARABAH

The depositor, who is the owner of the capital places a specified sum of money with the Bank, (who acts as the entrepreneur) for the purpose of participating in the profits made from the utilization of the fund. TRUST PROFIT

OWNER OF CAPITAL

ENTREPRENEUR (EXPERTISE)

APPLICATION OF MUDHARABAH

Operates under the contract of Mudharabah (Trustee Profit Sharing). The Bank accepts deposits from its customers looking for investments opportunities. The customer is the Capital Provider, while the Bank acts as the entrepreneur. Both parties agree with the profit distribution / sharing ratio.

APPLICATION OF MUDHARABAH

The customer does not participate in the management of the funds.

In the event of a loss, the customer bears all the losses. Profits generated from the use of the customers funds will be distributed according to the predetermined ratio.

APPLICATION OF MUDHARABAH
Types of Mudharabah
In

term of the powers / authority given to the entrepreneur, Mudharabah may be categorized into: 1. Unrestricted Mudharabah 2. Restricted Mudharabah