UNIVERSITY OF MUMBAI

SYDENHAM COLLEGE OF COMMERCE & ECONOMICS

B ROAD, CHURCHGATE, MUMBAI-400020

BACHELOR OF BANKING & INSURANCE 2019-20

SYNOPSIS

SUBMITTED ON

TOPIC:

ISLAMIC BANKING

SUBMITTED BY

ABHISHEK SANJAY PANSARE

T.Y.B.B.I.

ROLL NO. 97

UNDER GUIDENCE OF:

DR. JHARNA KALRA

MMS, M.COM

Academic year 2019-2020

1. INTRODUCTION:

Islamic banking is the banking activity that follows the principles of Islamic law (Shariah) and
its practical application through the development of Islamic economics. Islamic banking is also
known as interest free banking which promotes profit sharing. Shariah (Islamic Law) prohibits
the charging and paying of interest which is Haraam (forbidden) in Islam. It is very interesting
that sharia banking is working without interest and is still flourishing. They are not only
profitable but are also growing at an astonishing rate in sense of capital, assets and consumers.
The biggest phase of development of Islamic financial institutions occurred in 1980s. In 1985,
the High Council of Organization of Islamic Conference (OIC) declared takaful/Islamic
insurance as Shariah compliant. The first Islamic bank was established in 1963, in MitGhamr, in
Egypt, but it did not last for long. In Gulf countries Islamic banking is common now. Islamic
banking is steadily moving into an increasing number of conventional financial systems. It is
expanding not only in nations with majority Muslim populations, but also in other countries
where Muslims are a minority. As a concept Islamic banking has gained momentum world over
and in India over the past few years. Several foreign banks operating in India, like Citibank,
Standard Chartered Bank, HBSC are operating interest-free windows in some of the West Asian
countries, Europe, and The USA.The IMF has shown great interest in bringing about
macroeconomic and financial stability for its members who have adopted Islamic banking. There
is also a growing awareness about the concept among Indian banks and it is generally felt that
there is a huge potential market in India for Islamic banking products. Several banks in the
country haveshown an inclination to undertake this form of interest-free banking. However,
unless proper regulations are in place to oversee this form of banking, it will not be possible for
scheduled commercial banks to follow the Islamic rules of banking even in a small way.
2.REVIEW OF LITERATURE:

Samad and Hassan (2000) 1evaluated inter-temporal and interbank performance in profitability,
liquidity, risk and solvency, and community involvement of an Islamic bank (Bank Islamic
Malaysia Berhad (BIMB) over 14years for the period 1984-1997. The study is inter-temporal in
that it compares the performance of BIMB between the two time period 1984-1989 and 1990-
1997. This is not a new method (Elyasiani 1994). To evaluate interbank performance, the study
compares BIMB with two conventional banks (one smaller and one larger than BIMB) as well as
with 8 conventional banks. Using financial ratios to measure these performance and F-test and T-
test to determine their significance, the results show that BIMB make statistically significance
improvement in profitability during 1984-1997, however, this improvement when compared with
conventional banks is lagging behind due to several reasons. This result is consistent with that of
Samad (1999) and Hassan (1999). Abdus Samad (2004) in his paper examined the comparative
performance of Bahrain’s interest-free Islamic banks and the interest-based conventional
commercial banks during the post Gulf war period 1991-2001. Using nine financial ratios in
measuring the performances with respect to (a) Profitability, (b) liquidity risk, and (c) credit risk,
and applying Student’s t-test to these financial ratios, the paper concludes that there exists a
significant difference in credit performance between the two sets of banks. However, the study
found no major difference in probability and liquidity performances between Islamic banks and
conventional banks

Kader and Asarpota (2007)2 utilized bank level data to evaluate the performance of the UAE
Islamic banks. Balance sheets and income statements of 3 Islamic banks and 5 conventional
banks in the time period 2000-2004 are used to compile data for the study. Financial ratios are
applied to examine the performance of the Islamic banks in profitability, liquidity, risk and

1
Samad and hassain 2000 The Impact of Macro Variables and Banks Characteristics on
Jordanian Islamic Banks Profitability”, Empirical Evidence. International Business
Research Journal, Vol. 6, No. 10, pp. 153-162.

2
Kader and asarpota Islamic and Conventional Banking in Nineties: A Comparative
Study”. Journal of Islamic Economic Studies, Vol. 8, No. 2, pp. 1-28.
solvency, and efficiency. The results of the study show that in comparison with UAE
conventional banks, Islamic banks of UAE are relatively more profitable, less liquid, less risky,
and more efficient. They conclude that there are two important implications associated with this
finding. First, attributes of the Islamic profit-and-loss sharing banking paradigm are likely to be
associated as a key reason for the rapid growth in Islamic banking in UAE. Second, UAE Islamic
banks should be regulated and supervised in a different way as the UAE Islamic banks in
practice are different from UAE conventional banks.

Munawar Iqbal (2001)3

there is a serious lack of empirical studies on Islamic banking. This research attempts to fill that
gap to some extent. Using data for the 1990-1998 periods, several hypotheses and common
perceptions about the practice of Islamic banking have been tested. The performance of Islamic
banks has been evaluated using both trend and ratio analyses. For this purpose, some objective
“benchmark” for various ratios has been developed for the first time. The performance of Islamic
banks has also been compared with a ‘control group’ of conventional banks. It has been found
that in general Islamic banks have done fairly well during the period under study.

3
3.1 RESEARCH METHODOLOGY;

The word research is derived from the French word ‘researcher’ meaning to serch back .
Islamic banking is one of the most rapidly emerging trends in finance in today‟s world. It not
only provides an alternative to interest-ridden forms of banking but also provides a more stable
and less risk-prone option when compared to the conventional banking

3.1.2 SECONDARY DATA:

The present research of child plan policies is based on primary and secondary data for the
purpose of study.

SOURCES OF DATA:
Primary data is collected by distributing Questionnaire to the Consumers.
Secondary data from the various sources, journals, Internet, Magazines and newspapers,
reference

4.1 OBJECTIVES OF THE STUDY:

The objectives of this paper are-

 To explore the basic principles and concepts in Islamic Banking;

 To study Islamic banking by understanding various Islamic financial products.

 To analyze the advantages of Islamic banking in India.

 To understand the challenges for Islamic banking in India.

4.2 LIMITATIONS OF THE STUDY:

 Time constraints

 The Study is based on Secondary Data

 All the data’s cannot be generalized

5.FINDING

The benefits highlighted in the paper suggests that Islamic banking has many advantages over
conventional banking and the major being that it has the potential to increase financial inclusion
which is crucial if India wants to become an economic giant in the near future. India, however,
has been shying away from Islamic banks. The reason for the same is probably more political
than economic.The SWOT analysis undertaken for Islamic banking in India also reveals that
India should open its doors to Islamic banking as the strengths and opportunities far out-weigh
the weaknesses and threats. Thus, Islamic banking would be another alternative mode of banking
that would strengthen market efficiencies with innovations and competition.
6.REFERENCES:

 Viverta, B. K.andSkully, M. (2007), “Efficiency Analysis of Islamic Banks in Africa, Asia and
the Middle East”, Review of Islamic Economics, Vol. 11, No. 2, pp. 5-16.

 Majid, K. (2012), “Efficiency Analysis by Using Data Envelopment Analysis Model: Evidence
from Indian Banks”. International Journal of Latest Trends in Finance andEconomics Science,
Vol. 2, No. 3, pp. 238-237.

 Iqbal, M. (2001),“Islamic and Conventional Banking in Nineties: A Comparative Study”.

Journal of Islamic Economic Studies, Vol. 8, No. 2, pp. 1-28.

 Al-Qudah, A. M., &Jaradat, M. A. (2013),“The Impact of Macro Variables and Banks

Characteristics on Jordanian Islamic Banks Profitability”, Empirical Evidence. International
Business Research Journal, Vol. 6, No. 10, pp. 153-162.

 Bhat, A. S. & Dar, A. M. (2015), “Islamic banking an emerging global industry: its scope in
Kashmir.” Retrievedfrom: http://muslimmirror.com/eng/islamicbanking-an-emerging-
globalindustry-itsscope-in-kashmir on November 11, 2016.

 Khan, M.A. &Hussin, N., 2013. Islamic Banking in India: Developments, Prospects and a
Challenges. Retrieved from: http://papers.ssrn.com/abstract=2223935 on December 1, 2016.