CONTENTS

1. Introduction
1.1 Islamic Banking System
1.2 Need for an Islamic Banking System
1.3 Concept of Islamic Banking
1.4 Major Channels of an Islamic Bank
1.4.1 Mudharabah (A Method of Trust Financing)
1.4.2 Musharakah (Which Covers Equity Participation and Decreased Participation)
1.4.3 Murabaha (Cost plus Profit Margin in Trade or Other Financing)
1.5 Functions and Dimensions of an Islamic Bank
1.6 Conventional Banks versus Islamic Banks
1.6.1 Similarities
1.6.2 Differences
1.7 Structure of Islamic Banks
1.7.1 Banking Operations
1.7.2 Investment and Financing
1.7.3 Legal and Fiqhi Jurisprudence
1.7.4 Financial Control
1.7.5 Administration (including Training and O&M)
1.7.6 Planning, Research and Development
1.7.7 Control
1.7.8 Social Activities and Community Services
1.8 Islamic Bank: Some Critical Issues
1.8.1 Marketing
1.8.2 Partnership Balances
1.8.3 Financial Standards and Reporting
1.8.4 Relationship with Regulatory Authority
1.8.5 Aspects of Relationship
1.8.6 Interest-free Commercial Banking
1.8.7 Quality in Service

2. Islamic Banking: Theoretical Framework
2.1 Introduction
2.2 Models of Islamic Banking
2.3 Viability of Islamic Banking
2.4 Socio-economic Consequences of Islamic Banking
2.4.1 Effects on Saving and Investment
2.4.2 Impact on the Rate and Pattern of Growth
2.4.3 Impact on Allocative Efficiency
2.4.4 Consequences for the Stability of the Banking System
2.4.5 Effects on the Stability of the Economic System
2.5 The Practice of Islamic Banking
2.5.1 Practice of Islamic Banking: Individual Entities
2.6 Conclusion

3. Islamic Banking: Conceptual and Empirical Framework
3.1 Evolution of Islamic Banking
3.1.1 Shari’ah Principles
3.2 Essential Feature of Islamic Banking
3.3 Anatomy of Islamic Banking
3.4 Islamic Banking: Conceptual Framework
3.4.1 Islamic Banking
3.4.2 Riba
3.4.3 Mudarabah (Passive Partnership)
3.4.4 Musharakah (Active Partnership)
3.4.5 Diminishing Partnership
3.4.6 Murabahah (Sales Contract at a Profit Mark-up)
3.4.7 Ijara (Leasing)
3.5 Islamic Banking: An Empirical Framework
3.6 Conclusion

4. Islamic Financial Institutions/Banks: A Global View
4.1 Introduction
4.2 Performance of Islamic Financial Institutions (IFIs)
4.2.1 Number of Islamic Financial Institutions
4.2.2 Geographical Spread of Islamic Financial Institutions
4.2.3 Progress in the Establishment of IFIs
4.3 Evaluation of Islamic Financial Institutions
4.3.1 IFIs Total Assets
4.3.2 IFIs Assets: Country-wise
4.3.3 IFIs Assets: Institution-wise
4.3.4 Total Deposits in IFIs
4.3.5 Growth of Current Accounts
4.3.6 IFIs Shareholders’ Equity
4.3.7 IFIs Shareholders’ Equity: Country-wise
4.3.8 IFIs Shareholders’ Equity: Institution-wise
4.3.9 IFIs Net Profit and Reserves
4.3.10 IFIs Total Investments
4.3.11 IFIs Return on Equity ROE
4.3.12 ROE: Regional and Country-wise
4.4 Performance of Islamic Banks: The Case of Bank Islam Malaysia Berhad (BIMB)
4.4.1 Variations in Financial Performance Indicators of BIMB
4.4.2 Growth Trends in Financial Performance Indicators of BIMB
4.5 Conclusion

5. Islamic Banking in India: Issues and Constraints
5.1 Promotion of Interest-free Banking and Finance in India
5.1.1 Global Islamic Banking: An Overview
5.1.2 Status in India
5.1.3 Financial Freedom
5.1.4 Virtual Debt Slaves
5.2 Reasons for Interest-free Banking in India
5.2.1 Increased Flow of Funds
5.2.2 International Finance
5.2.3 Interest-free Micro Finance
5.2.4 Entrepreneurship Development
5.3 Growth of Islamic Banking in India
5.4 Multi-dimensional Approach of Islamic Finance in India
5.5 Issues and Constraints in Establishing Islamic Banks in India
5.5.1 Britain
5.5.2 United States of America
5.5.3 Singapore
5.5.4 Sri Lanka
5.5.5 Proposal for Introduction of Islamic Banks in India

6. Summary and Conclusion
6.1 Summary
6.2 Suggestions for Improvement of Islamic Banks
6.3 Suggestion for Establishment of Islamic Banking in India
6.4 Conclusion
6.4.1 Future Outlook
6.5 Suggestions for Further Research in Islamic Banking

Bibliography

Index

Commercial banks and other financial institutions are an integral part of present economies. Individuals as well as public and private institutions can hardly operate without the institution of banking. Modern banking operations are primarily interest-centric. Banks receive money and lend it on interest. This is prohibited in Islam. Since interest permeates all the operations of the banking system, the whole banking system is repugnant to Muslims.

Islamic banking—as an alternative to the Western capitalist banking system—prohibits any kind of speculation, interest, and immoral investments (e.g. casinos). Islamic banks have to make a profit. They do this by buying assets on behalf of the customer, who has to repay the loan and a fee for using the asset. When the loan is paid off, the asset’s ownership is transferred to the borrower. The advantage of this arrangement is that the bank shares not only the profit but the risk as well. For this reason, it gets the opportunity to have a close look at the potential borrowers.

This book deals with conceptual, theoretical and empirical framework of Islamic banking system. It also provides a performance review of Islamic banks in global perspective. More importantly, it explains and examines the practices of Islamic banking in India, focusing on issues and constraints. Finally, it suggests the need for establishment of Islamic banks in India and areas of further research in the subject.