Islamic Finance
Course Topics:
1. Islamic Banking – Introduction, Background & Global Scenario
Islamic Shariah
• Shariah; key to understanding Islamic banking
• Sources of Shariah
• The concept of lawful and unlawful as per Shariah
Islamic Economic System
• Architecture of Islamic Financial 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 free and fair market system in Islam
2. Concept of Riba, Gharar and Qimar and Other Prohibited Activities
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Riba – Quran, Hadith, definition and types
Arguments against commercial interest
Gharar, Qimar and Gambling
3. Islamic Law of Contract
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Basic elements of contract Void and valid conditions
Uqood Muawadha and Ghair Muawadha
4. Islamic Law of Sale
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Subject matter, price, delivery & possession
Bai Batil, Bai Fasid, Bai Makrooh
Prohibited transactions in Islam
Khayar, Iqala
5. Comparison of Islamic and Conventional Banking
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Conceptual difference between Islamic and conventional banking
Difference between the governing principles
Business model differentiation
Product level differentiation
Features of Islamic banking (Liability/Assets)
Concept of reward and risk under shariah
6. Categories of Islamic Modes of Finance
Trade based modes
Participation based modes
Rental based modes
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
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7. Islamic products
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
• Difference between Murabaha based financing and conventional bank lending
• Risks for Islamic banks in Murabaha transactions
• Scope and application of Murabaha
Ijarah
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Basic rules of Ijarah
Lease as a mode of Islamic financing
Rights and Obligations of lessor and lessee
Conditions of Ijarah/Lease
Differentiating Islamic Ijarah from conventional leasing
Sharia alternative to the finance lease-Ijara Muntahia Bitamleek
Musharakah
• Terminology and characteristics of Musharakah
• Type and basic rules of Mushrakah
• Termination of Musharakah
• Constructive liquidation of Musharakah
• Security/collateral in Musharakah
• Profit/loss distribution
• Application of Muharakah as a mode
• Problems and risks for banks in Mushrakah financing
Diminishing Mushrakah
• Concept of diminishing Musharakah
• Basic features of diminishing Mushrakah
• Steps in a diminishing Mushrakah transaction
• Lease rentals in diminishing Musharakha
• Unilateral promise and transfer of ownership title
• Diminishing Mushrakah as a financing mode
Mudarabah
• Mudarabah defined
• Mudarabah capital
• Profit/loss distribution
• Unrestricted and restricted Mudarabah
• Difference between Mudarabah and Mushrakah
• Termination of Mudarabah
• Scope of Mudarabah for banking system
• Problems and risks for Islamic banks providing Mudarabah based financing
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
• 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
• Application of Istisna in Islamic corporate finance
8. Liability products of Islamic banks
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Deposit (Liability) management in Islamic Banks
Profit calculation mechanism and weight ages
9. Concept of Takaful (Islamic Insurance)
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Basic concept of Takaful
How it is different from insurance
Models of Takaful
10. Overview of Securitization and Sukuk
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Securitization of Musharakah, Mudarabah & Ijarah Liquidity management through securitization
Sukuk Al-Ijara
Corporate finance transactions with live examples
Islamic asset and fund management
11. Introduction to AAOIFIstandards
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Overview of salient features of Accounting Standards of various modes
Adaptation of AAOIFI Standards by ICAP
Islamic banking framework given by SBP