Introduction to Islamic Banking

AN INTRODUCTION

TO

ISLAMIC BANKING

Kuwait

November 23, 2008

PREFACE

This write up is a humble attempt to give an introduction about ‘Islamic Banking’ to those who are new to the subject.

Attempt has been made to explain the basic differences between Conventional and Islamic Banking, which may help to get rid of the general feeling that the only difference between ‘Conventional’ and ‘Islamic Banking’ is related with ‘interest’. Also the common Islamic products have been briefly explained in a simple manner.

This brief write up ‘An Introduction to Islamic Banking’ is an extract from one of my academic thesis works and it is presented with gratitude to ‘Path Solutions’, from where initially I heard about Islamic Banking, learned the basics and advanced a little bit. This cannot be considered as an authoritative document, still I believe that for the newcomers this will be helpful to get an insight into ‘Islamic Banking’.

TABLE OF CONTENTS

Introduction 4

Islamic Banking – Origin And Development 7

Islamic Banking Products 11

Deposit accounts 11

Modes of financing 13

Murabaha 14

Mudaraba 15

Musharaka 17

Ijara 19

Salam and Parallel Salam 21

Istisna’a and Parallel Istisana’a 22

Differences Between Conventional And Islamic Banks-A Summary 25

Appendix 30

Islamic Banks And Financial Institutions In Different Countries 30

INTRODUCTION

Islamic Banking is comparatively a new banking concept which was emerged in 1960s and further developed in 1970s. Still it is in the developing phase and more and more Islamic banks and products are emerging, while conventional banks were started functioning in different forms, since centuries. Over the last decade, Islamic banking has experienced a global growth rates of 10 -15 percent per annum, and has been moving into an increasing number of conventional financial systems at such a rapid pace that Islamic financial institutions are present today in over 51...