Agenda What does “Islamic banking” stand for?

Islamic framework provides solutions for key limitations of conventional banking system

• IFI solutions

• Conventional banking issues

• Growing consumer indebtedness
• Growing and unhedged risks pose systemic problems

• Speculation leading to crises
• 1997 East Asia Crisis
• 1998 Russia
• 1999 Argentina

• Channeling the funds to “real” investment needs

• Prevention of speculation
• Ownership is prerequisite of sale
• Excessive risks are prohibited

• Equitable distribution of risk and reward

• Asset/need-based approach to financing

• An alternative banking model in development

• Liabilities

• Assets

• Investments

• Deposits

• Equity financing

• mudaraba & musharaka

• Debt financing

• ijarah, murabaha,
• salam, istisna‘

• Profit, not interest, becomes the basis for financial intermediation

• Suppliers of capital

• Productive economic actors with capital needs

• Reducing debt-based products
• Islam permits commercial debt for productive ends
• Debt-based consumer products permitted on basis of need

• Building income-sharing products
• Musharaka is preferred form of financing

• Key internal issues that need addressing…