Islamic Banking Main Terms Riba

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Islamic Banking

Main Terms • • Riba = excess that the banker gets Haraam = unethical financing Maysir = risk Gharar = speculation Forbidden by shariah

Key Dates • Year 600 A. D. – usury criticized in the Koran • Mid 1940 -ies – Islamic banking established. New tendencies • Early 70 -ies – institutional involvement. First interest-free banks • 1975 – the Islamic Bank of Development and the Islamic Bank of Dubai established

Development and Prospects* • • • 300 bank establishments 51 countries 250 investment funds $822 billion of assets all over the world 0. 5% of the world’s assets *in 2005, according to “The Economist”

The Biggest Islamic Banks 1. Iran – (40% of Islamic assets) – Assets estimated as $235. 3 billion – 7 of 10 best Islamic banks (“The Banker, 2009) 2. Saudi Arabia 3. Malaysia Potential market - $4 trillion

• Mudarabah Rabb-ul-mal (the investor) + mudarib (the financial manager) • Musharakah – a kind of joint venture – Musharaka al-Mutanaquisa • Murabahah A fixed sum due to be payed instead of interest – Eljara wa Elqtina

Other Notions • Musawamah The details and the aim of borrowing are not to be revealed • • Bai salam = 100% prepayment Hibah = gift from the bank Wadiah = responsible storage “till called for” Ijarah thumma al bai’ = leasing 1. Ijarah (covers terms and dates) 2. Bai (entails purchasing)

Other Notions • Ijarah-wal-iqtina The actual price is included into rent • Quard Hassan (“kind credit”) • Sukuk = Islamic obligation

Drawbacks • Low efficiency for the poor • Risk of doing Haraam by non-Muslim bankers • Muslims’ distrust

• SSB - Shariah Supervisory Board • Microcrediting – Grameen Bank

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