12/08/2023

PRINCIPLES OF ISLAMIC
Topic 1: FINANCIAL INSTITUTIONS
Introduction Based on Shari'ah
to Islamic “ALLAH HAS PERMITTTED
Financial System TRADE AND HAS
PROHIBITED RIBA”
Accounting for Islamic Bank
(AL BAQARAH, 275)
‫َّللاُ ْالبَ ْي َع َو َح ََّّ ََ ب‬
... َََّ‫ال‬ َّ ‫ َوأ َ َح َّل‬...
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PRINCIPLES OF ISLAMIC DEVELOPMENT OF

FINANCIAL INSTITUTIONS
Free from interest (riba), gambling (al-maisir)
and uncertainty (al-gharar)
Promotion of Socio-Economic justice via
Zakat
Participation and risk sharing
Avoid goods and services that are harmful
to human kind (ethical business)
ISLAMIC FINANCE
Barclays Bank opens its Cairo branch in the
Pre-1950s 1890s to process the financial transactions
related to the construction of the Suez Canal.
Mit- Ghamr Bank in The first Islamic bank in the world has already
1950s-60s Egypt and Pilgrimage been founded in 1963. The Mit-Ghamr Local
Savings Bank was Egypt's first Islamic bank,
Fund in Malaysia are founded in 1963 by Egyptian economist Dr.
Ahmad El Naggar.

established.
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DEVELOPMENT OF DEVELOPMENT OF
ISLAMIC FINANCE ISLAMIC FINANCE
First Islamic commercial bank, Dubai Islamic AAOIFI is established (1991)
1970s bank opens in 1974.
Islamic insurance (Takaful) is introduced. Islamic
Equity Funds are established.
Islamic Development Bank is established in 1975. The 1990s Dow Jones Islamic Index and The Financial Times Stock
Exchange (FTSE) Index of Shari’ah compatible stocks are
developed.
Islamisation of economies in Islamic Republic of Iran, Pakistan
and Sudan where banking systems are converted to interest
free banking systems. Islamic Financial Services Board (IFSB) is established
Islamic Research and training institute (IRTI) is established in to deal with regulatory and supervisory and corporate
The 1980s 1981 2000-recent governance issues of the Islamic financial industry.
Bahrain and Malaysia promote Islamic banking parallel to Sukuk (Islamic bonds) are launced.
the conventional banking system

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DUAL VIS A VIS SINGLE

FINANCIAL SYSTEM
ISLAMIC FINANCIAL
SYSTEMS & INSTITUTIONS
Dual Banking Full Fledge Islamic Windows
Malaysia, Bahrain, Sudan,
UAE, Indonesia, Singapore, UAE, Bahrain
Saudi Arabia, *Iran, *Pakistan Qatar, Indonesia,
Kuwait, Qatar, (*short experience)
Brunei & UK Saudi Arabia

Shari’ah Compliance
Non Financial
Conversion Activities (local)
Institution
UAE Malaysia, Brunei &
Malaysia & UAE
Indonesia

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ISLAMIC BANKING SCENE Islamic Banking:

Since the 1970s -
New reality with establishment of Islamic Conformity to the Islamic
banking of which its practical application is Law (Shari’ah)
based on developed framework of Islamic Principles and philosophies
Economics. outlined in the Holy Qur’an
and sunnah of Prophet
Muhammad (p.b.u.h) more
than 1400 years ago
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ISLAMIC BANKING – IN MALAYSIA

Today, Islamic banking:
Regulated by
Developed into full-fledged system In Malaysia: Central Bank
dual banking
and discipline of Malaysia
system regime (Bank Negara)
Practiced in over 75 countries

About 550 Islamic financial

Islamic Banking runs parallel with conventional banking
institutions in the field
(non- Islamic Bank)

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FULL-FLEDGED ISLAMIC
BANKS IN AFGHANISRTAN:

Islamic Bank of Afghanistan

Islamic Banks In the World

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https://www.thebanker.com/Investment-
Banking/Islamic-Finance/The-Banker-s-Top-
Islamic-Financial-Institutions-2022

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AMONG THE CHALLENGES….

● Legal Support
● Islamic Prudential Regulations THE NEED FOR ISLAMIC
● Risks
● Benchmark ACCOUNTING FOR ISLAMIC
● Shari’ah Based Products
FINANCIAL INSTITUTION
● Nature Of Islamic Banking

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The emergence of Islamic

Accounting will have
banks in late 1970s prompted
an impact on the researchers to consider the
accounting implications.
society welfare.
There is a need for
Accounting practices based
i.e. Having socio-
on Shari'ah principles to
economic consequences cater for Islamic banks.

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Developments of Existing financial reporting standards on

Islamic Banking conventional financial institutions are not adequate
demand financial to address the information needs of Islamic financial
reporting Institutions.
framework and
information Nature of Islamic banking emphasizes importance of
useful for lawful and equitable banking business and financial
investors and activities - require accounting treatment of unique
stakeholders.
features of IFI activities

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ISLAMIC ACCOUNTING Features of Islamic Accounting

Clear distinction of Different users

The system of accounting which
No difference Accounting Objectives information need
enable Muslims to discharge their (legitimate and
in terms of i.e. religious obligation
accountabilities to Allah, by vs. commercial equitable transactions
recording
providing relevant information obligation (different and wealth vs.
(double entry
on the compliance of the company significance of maximization of
system) wealth and economic
to Shari'ah Principles. financial statements)
consequences)

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Compliance with the principles and rules of The end of Topic 1…

Shari’ah

Different Islamic contractual relationships

Thank you for listening.
(mudarabah instrument; murabahah etc.)
Shukran Jazilan.
Distinct accountability relationships (to Allah
SWT and Ummah) Terima Kasih.
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