Project Report

(Submitted for the Degree of B.com Honours in Accounting & Finance

under the University of Calcutta)

Title of the Project

Islamic Banking and Finance : A study on the opportunities and the
challenges

Submitted by

Name of the College : Sivanath Sastri College

Supervised by
Name of the Supervisor : Saptarshi Ray

Name of the College : Sivanath Sastri College

Month & Year of Sumission

February 2024

[i]

TABLE OF CONTENTS
EXECUTIVE SUMMARY

The Islamic Banking institution is a new and constantly evolving concept. In relation to the
Western way of banking, the Islamic Banking system is free of interest. One might wonder what
the incentive to lend money would be. Others may not understand what benefits could be had by
putting their savings into a bank account. While Muslims do not believe in charging or earning
interest, they have developed a very complex alternative that is being implemented all over the
eastern world. Started from just an idea, this new way of banking quickly spread through the
Muslim countries, and has continued to expand all over Europe and Asia. Although the system
is proving to the West that it can work, it is still trying to iron out some of the inefficiencies that
it currently has. Once the system is more efficient, it will be better able to provide its members
with a stock market that works in the same efficient way as it does here in the West .

Islamic banking is a new phenomenon that has taken many observers by surprise. The whole
banking system has been islamized in both Iran and Pakistan. In addition, there are some thirty
Islamic banks in operation in other parts of the globe, including the Jeddah-based Islamic
Development Bank (IDB) but excluding numerous non-bank Islamic financial institutions.
What is more, the speed with which Islamic banks have sprung up and the rate at which they
have progressed make it worth-while to study them systematically and gauge the opportunities
along with it. Islamic banking is a system based on the principles of Shariah which has its origin
in The Quran and has the same purpose as any of conventional banking .It is against the
payment or collection of taxes . This body of work in the report will discuss the soul of the
report,highlighting the relevance of Islamic banking in today’s era of profit maximization and
whether the theory negating the investment in highly volatile securities and interest free
finance would appeal to the world.Also the myriad potentials of the Islamic Banking will be
discussed. The hypothecation and myth regarding Islamic Banking as an archetypal religious
phenomenon is a false ruse and will be elaborated.The inherent advantages as well the need for
the adaptation to suit the present financial scenario will be discussed.

Whether Islamic Banking is a practical method or a dead end ? this question will be answered
when the conclusions are drawn.The boon or bane nature of the finance will be stated. .Islamic
Banking is not a fading phenomenon but is here to stay for the long haul .Infact the conventional
banking system could learn a thing or two from its innovative ideas.The biggest perks is that
Islamic banking focuses on the viability and profitability rather than the long term
guarantee.The final conclusion will be drawn as and when the report reaches its final stage
INTRODUCTION

Islamic banking refers to a system of banking or banking activity that is consistent with the
principles of the Shari'ah (Islamic rulings) and its practical application through the development
of Islamic economics. The principles which emphasise moral and ethical values in all dealings
have wide universal appeal. Shari'ah prohibits the payment or acceptance of interest charges
(riba) for the lending and accepting of money, as well as carrying out trade and other activities
that provide goods or services considered contrary to its principles. While these principles were
used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that
a number of Islamic banks were formed to provide an alternative basis to Muslims although
Islamic banking is not restricted to Muslims.

Islamic banking has the same purpose as conventional banking except that it operates in
accordance with the rules of Shari’ah, known as Fiqh al-Muamalat (Islamic rules on
transactions). Islamic banking activities must be practiced consistent with the Shari’ah and its
practical application through the development of Islamic economics. Many of these principles
upon which Islamic banking is based are commonly accepted all over the world, for centuries
rather than decades. These principles are not new but arguably, their original state has been
altered over the centuries.

The principle source of the Shari’ah is The Qur’an followed by the recorded sayings and actions
of Prophet Muhammad (pbuh) – the Hadith. Where solutions to problems cannot be found in
these two sources, rulings are made based on the consensus of a community leaned scholars,
independent reasoning of an Islamic scholar and custom, so long as such rulings to not deviate
from the fundamental teachings in The Qur’an.

It is evident that Islamic finance was practiced predominantly in the Muslim world
throughout the Middle Ages, fostering trade and business activities. In Spain and the
Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for trading
activities. It is claimed that many concepts, techniques, and instruments of Islamic finance were
later adopted by European financiers and businessmen.

The revival of Islamic banking coincided with the world-wide celebration of the advent of the
15th Century of Islamic calendar (Hijra) in 1976. At the same time financial resources of
Muslims particularly those of the oil producing countries, received a boost due to rationalisation
of the oil prices, which had hitherto been under the control .
iilustartion 1 showing the financing options available under islamic banking and finance

A BRIEF HISTORY

The first instance of Islamic banking came into the picture in Egypt in 1963. The pioneering
efforts by Ahmad El Najjar brought this bank into existence, whose key principle was profit
sharing (non-interest based philosophy of Shariah). By the end of 1976 there were 9 such banks
in the country. These banks neither charged nor paid interest but their activities were mostly
limited to trade and industries where these banks invested directly or as partners of depositors.
Hence, functionally these banks were working more as financial institutions rather commercial
banks. In 1971, Nazir Social Banks is known to be the first commercial bank in Egypt, though its
charter never made references to Shariah. The first bank explicitly based on Shariah principles
was established by the Organization of Islamic countries (OIC) in 1974, called Islamic
Development Bank (IDB). This bank was primarily engaged in intergovernmental activities for
providing funds for development projects running into member countries. Its business model
involved fees for financial services and profit sharing finaWith time, during the 1970s several
Islamic banks came into existence, including the Dubai Islamic Bank (first Islamic private
commercial bank, 1975), the Faisal Islamic bank of Sudan (1977) and the Bahrain Islamic bank
(1979). Others from the Asia Pacific region include the Philippine Amanah Bank (PAB),
formulated under presidential decree. Pakistan also had an established Islamic banking system at
the time which unfortunately didn’t survive.
Within a decade of the first private bank coming into existence in Dubai, the global industry had
more than 50 such banks in the same country. Most banks were a result of private initiatives,
whereas the first concrete government initiative was taken by the Iranian government, when in
1985 no bank was permitted to give or take interest. Interests was replaced with service charges
of 4-8% and guaranteed minimum profits.

The true phase of development of Islamic financial institutions actually occurred in the 1980s.
Earlier initiatives were more inclined towards interest free Islamic banking, but the emergence of
financial systems has evolved in the 80s. However, non payment of interest still remains the
pivotal part of Islamic banking, whereas principles of Islamic finance such as property rights,
sanctity of contracts and the rules of sharing risk are also supported. In 1985, the High Council
of OIC (Organization of Islamic Conference) declared takaful /Islamic insurance as Shariah
compliant. The new, wider spectrum of Islamic finance covers not only banking activities but
also capital markets, capital formation and other financial instruments and intermediaries.

The biggest change in terms of adaptability came in 1991 when the Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) was established to advise on Islamic
finance standards all over the world. Later, the development of uniform standards was supported
by other organizations such as Islamic Financial Services Board (IFSB) in Malaysia in 2002.

Since then, Islamic finance is spreading all over the world at a tremendous pace from virtual
anonymity to becoming a powerful competitive force in the world today.

Table 1 showing the evolution process of Islamic banking

.
BASIC TERMINOLOGIES USED IN ISLAMIC BANKING

1. Sharia (path or way). Muslims believe that the Sharia is the sacred laws of Allah. These laws
must be abided to above all others. While the different religious sects often have separate
interpretations of these laws, they remain the guiding force of the religion.

2. Fiqh al Muamalat (Rules of Transaction). These are the Sharia laws that govern all financial
transactions. It is under these guidelines that all Islamic Banking regulations are created.

3. Riba (Interest or Usury). Riba is strictly forbidden in monetary transactions. Muslims believe
it is against Allah to collect interest on money borrowed. Therefore all financial transactions
must be performed in a very specific way so that banks can render a profit without breaking Riba
laws. Late fees are also considered a form of Riba and must not be charged by the banks.

4. Rabal-maal (lender). The bank is considered the rabal-maal in financial transactions. This is
generally only used in financial transactions con

5.Mudarib (borrower) The entrepreneur in the business is referred to as the mudarib.

6. Mudharabah (profit sharing). When an entrepreneur approaches a bank to borrow money for
a business venture they will most often enter into a Mudharabah agreement. This agreement
provides the business owner all the money necessary to start the business and the new owner
manages and runs that business. Profits are split between the parties until all the original funds
are repaid. The bank is also paid an additional amount of the profits for a specific period agreed
on to compensate for risk. If the business fails, the bank takes on full responsibility of that debt.

7. Musharakah (joint venture). This type of agreement is exactly like the Mudharabah except
there is more than one business owner involved so the profits are divided differently.

8. Wadiah (safe keeping). The bank, as part of a lending program, may require a large form of
collateral in the form of a bank deposit. This deposit is used for “safe keeping”. During the
period that the loan is out the bank is allowed to use that account to invest in other opportunities
to generate wealth for the bank. However, the bank must have the ability to repay the customer
immediately if the loan is paid. Wadiah must be returned immediately upon payment of the debt.
Banks may also offer the client Hibah as a reward.

9. Hibah (monetary gift). When another person’s money is used to generate income for the bank
the bank may offer the customer Hiba as a form of thanks. Not to be confused with interest, Hiba
is 100% at the option of the bank.

10. Bai al inah or Murabahah (sell and buy or cost plus). Both of these terms are
interchangeable in the Islamic banking field. The basis of this practice is to allow for the
purchasing of property without the charging of interest. It is the Islamic form of mortgages.
When a piece of property is to be purchased the borrower must approach the bank with details of
the sale. The bank will purchase the home for a set price from the seller. It will then resell the
property to the buyer at a higher price. This will be the final price and no interest is attached.

11. Ijarah (leasing). The banks will lease equipment or services to a business for a set price.

12. Bai salam (advance payment contract). These ventures are very tricky in Islamic banking
because they possibly involve “futures” a practice strictly forbidden in Sharia investment rules.
Bai salam can only be performed on goods that can be described specifically for quality and
quantity. A product that has any room for variance cannot be used in these contracts.

Illustration 2 showing the workings of Islamic finance

Illustration 3 showing the modes of Islamic finance categorized objectively

Table 2 showing the main basis of Islamic banking.

MAJOR ISLAMIC BANKING INSTITUTIONS ACROSS THE WORLD

It has been noted that 2008 financial year assets have increased 66% since the previous year's
survey, bucking the trend of slow growth in other markets- Asia's 300 largest banks, for
example, only grew assets 13.4% in the same period.

"Islamic finance has seen an incredible surge in popularity, based on stronger regulatory regimes
and a better international understanding of its dynamics," says Emmanuel Daniel, President and
CEO of The Asian Banker.
Islamic finance assets are largely concentrated in Iran, Kuwait, Malaysia, Saudi Arabia and
the United Arab Emirates, but growth drivers have come from all over the region, in particular
Al-Rajhi Bank, which saw assets increase 32.1%. Banks in Bahrain, Malaysia, Kuwait, Qatar,
Syria, and the UK also saw significant double- or triple-digit asset growth. Basically Islamic
Banking is not only restricted to about 1.5 bn Muslims; indeed even non-Muslims can profit
from the advantages of Shariah-compliant banking. Most of the banks offer their services to non-
Muslims as well.

Islamic banks are located in 50 countries worldwide and can be found in countries like Algeria,
Azerbaijan and Yemen. Major Islamic Banking hubs are Malaysia, Bahrain, UK and UAE.

World's largest Islamic banks by assets are concentrated in only five markets

Despite the financial turmoil in late 2008 that crippled so many large Western institutions,
Islamic banks have continued to grow in prominence and size. According to Asian Banker
Research, the world's 100 largest wholly Islamic banks ranked by assets held more than $580bn
in assets in 2008, a 66% increase from the $350bn they held in the previous year.
The top ten banks remained largely the same as the ones that dominated our previous ranking in
2008, with Bank Melli Iran (BMI) 2nd on the list and Saudi Arabia's Al Rajhi Bank in first
place, albeit catching up rapidly with a 32% surge in assets compared with BMI's negligible
growth. Iranian banks are still the biggest Islamic banking players, holding seven out of the top
10 ranks, and 12 of the 100. The Iranian banks also take up around 40% of listing's assets. The
four next-largest markets—the UAE, Malaysia, Saudi Arabia and Kuwait—each has similar
asset sizes to one another, and together carve out nearly another 40% of the ranking's assets
combined, with smaller banks in 10 other markets rounding out the
list.

Saudi Arabian banks are the most profitable in the sector

Total Assets

Type US$ %
 mm

Murabaha 84.203 43.2

Ijara 37.711 19.3

Mudaraba 35.024 18.0

Islamic Securities 14.941 7.7

Other 23.115 11.8

Despite the size of the Iranian banks, Saudi Arabian banks are much more profitable: the three
Saudi Arabian banks in the top 100 Islamic banks contributed 19% of the ranking's total income.
Al Rajhi Bank had the highest net income figure of $1.74bn, the only bank to break a billion,
which was almost three times more than the second-most profitable Islamic bank, Kuwait
Finance House. The bank also earned over five times the most profitable Iranian bank, Bank
Tejarat.
The bank that jumped the greatest in the asset ranking is Dubai's start-up lender Noor Islamic
Bank, which climbed up the ranks to 20th this year. CIMB Islamic Bank also shot up 19
positions to stand in the 22nd position with asset growth of 107.5%.
This is largely due to the growth of consumer banking, where financial assets grew by 130.2%
and deposits by 82.3%. The bank expects this segment to continue contributing positively to the
bank's bottom line. Islamic insurance (Takaful) and Islamic Banking is flourishing all around the
world. Global market size of Takaful has reached to $12 billion and Islamic Takaful institutions
have exceeded to 350.Other than Islamic finance the insurance is also now in the picture.
Islamic banking and Takaful were interdependent hence in order to strength the Islamic banking
industry,

Table 3 showing the composition of finance.

(Source:www.thebanker.com)
A picture showing the biggest Islamic bank. Al Rajhi of Saudi Arabia.

A graphical representation of the market share (source:www.islamicbankingonline.net.)

Table 4 showing the top investment banks(Source : The Asian Banker)

ISLAMIC BANKING IN THE 2OTH CENTURY

In the 1970s changes took place in the political climate of many Muslim countries which led to a
number of Islamic banks, both in letter and spirit, being established in the Middle East, e.g., the
Dubai Islamic Bank (1975), the Faisal Islamic Bank of Sudan (1977), the Faisal Islamic Bank
of Egypt (1977), and the Bahrain Islamic Bank (1979).

Islamic banking is now one of the world’s fastest-growing economic sectors, comprising over
300 institutions in over 75 countries. They are concentrated in the Middle East and Southeast
Asia (with Bahrain and Malaysia being the largest hubs), but are also appearing in Europe and
the United States. Total assets worldwide are estimated to exceed $250 billion, and are growing
at an estimated 15 percent a year.

The reasons behind the recent growth in Islamic finance are:

 the strong demand from a large number of immigrant and non-immigrant Muslims for
Sharia-compliant financial services and transactions;
 oil wealth, with demand for suitable investments soaring in the Gulf region; and
 the competitiveness of many of the products, attracting both Muslim and non-Muslim
investors.

 The following types of accounts were accepted:

a) Savings accounts
b) Investment accounts
c) Zakat accounts

 No interest was paid on savings accounts, but withdrawals could be made on demand. Small,
short-term, interest-free loans for productive purposes could be made. Funds in investment
accounts were subject to restricted withdrawals and invested on the basis of profit- sharing.
The zakat account attracted the official amount of zakat.

The Mit Ghamr project was successful, as deposits increased from 1963 to 1966. The bank was
cautious, rejecting about 60% of loan applications and the default ratio was zero in economically
good times. But project was eventually abandoned for political reasons. Nevertheless, it had
shown that commercial banking could be organised on a non-interest basis.

Map 1 showing the Islamic finance across Europe(Source:The Asian Banker)

Map 2 showing the islamic assets in the world (Source: The Banker)

A graphical representation of the market share of Islamic banking asset ( Source:The

Daily banker.)
 THE POTENTIALS OF ISLAMIC BANKING IN INDIA

The fact that India has the third largest Muslim population in the world after Indonesia and
Pakistan may come as something of a surprise to many people, who wrongly assume that
partition in 1947 effectively divided the Muslim and Hindu populations into separate nations –
the Muslim-dominated East and West Pakistan (now two states, Pakistan and Bangladesh) and
the Hindu-dominated, secular state of India. There are approximately 156million Muslims living
in India today, 13-14% of the population, although that percentage is much higher in some
regions such as in Kerala and the disputed state of Jammu and Kashmir. There are, however, no
Islamic banks in India and no conventional banks with Islamic windows.

. The Scope for Islamic Banking in India

Globalisation and the convergence of financial services mean that Indian banks will face an
increasingly tough competitive environment, but there is tremendous scope for banks,
particularly Islamic banks, because India needs major investment in its infrastructure. Islamic
banking, however, has to be positioned as professional banking and not religion-based banking,
which can have serious political implications and as a result the Indian regulatory authorities
must be approached patiently and logically. That having been said, India does offer great
promise for the development of Islamic financial services, not least because the Indian capital
market is the most liberalised in the world and On the downside some experts feel that there is a
shortage of Islamic banking expertise in the country and the general public are unaware of what
Islamic banking has to offer. In response to the problem of lack of expertise, in July 2009 the
Aligarh Muslim University (AMU) launched a course in Islamic banking and finance. Initially
the university is offering a diploma course in Islamic banking and finance, but also plans to offer
a masters' degree through the Department of Management Studies of AMU. there is a good
financial infrastructure

. Opposition to Islamic finance is not only based on religious reasons and fears that that there is
insufficient local expertise to sustain the industry, but also on a general level of ignorance about
Islamic finance. There is no barrier to non-Muslims who wish to use Islamic financial services.
Islamic finance is meant for all mankind, irrespective of religion and with its moral objectives of
promoting fairness and social development, it may also provide a solution to the problems of
unemployment and poverty in the community. In the Indian town of Maharastra more than 70
farmers committed suicide in 2008, because they had taken loans from banks to finance their
grape crop, but due to unseasonal rain their crops were destroyed and they were not in a
positionto repay the principal amount with interest. This could be avoided had there been a
system of Islamic banking present in the country. Other than this conventional banking often
takes a very oppressive and inhumane outlook
New Developments

Islamic banking has been on the rise in the Asia-Pacific region, which now accounts for 60% of
the global Islamic banking market. Despite its rise in the rest of the region, however, the
penetration of Islamic banking in India has been low. This is especially surprising with India
having approximately 156million Muslims, the third largest Muslim population in the world after
Indonesia and Pakistan. The Celent report ‘The Rise of Islamic Banking in the Asia-Pacific
Region' attributes this primarily to a regulatory block, which allows Islamic banking to operate
only in the form of a non-banking financial corporation. An amendment in the Banking
Regulation Act of India, 1949 is required to allow the Islamic banks to formally operate as fully-
fledged banks in India. The primary reason for the regulatory problem is the socio-religious
nature of the Indian political scene. This is especially evident in the report of the Committee of
Financial Sector Reforms chaired by Raghuram Rajan; this report was submitted to the Prime
Minister of India in 2010. Although the report recommended principles based on Islamic
banking, the term ‘Islamic banking' was deliberately replaced by ‘interest-free banking'. The
committee recommended that measures be taken to permit the delivery of interest-free finance on
a larger scale, including through the banking system. With this recommendation, the ball is in the
government's court and it is up to it to come up with appropriate measures to introduce these
products in the Indian banking sector. In parallel, however, a rebranding of the various Islamic
banking products is needed to achieve widespread acceptance and serve its foremost purpose of
financial inclusion. In addition to the regulations, some experts feel that the infrastructure for
Islamic banking is not yet in place and steps must be taken in that regard.

S.W.O.T. ANALYSIS OF ISLAMIC BANKING IN INDIA

When SWOT analysis of Islamic banking is done as far as India is concerned, it shows a good
that Islamic banking has high Strengths India compared to Weaknesses. The fallowing is briefly
a summary of the same.
Strengths
• Population of Muslims in India is more than Muslim population in Bangladesh, turkey, Egypt,
Iran, Nigeria, Afghanistan, Sudan, Iraq, Saudi Arabia

• Bridges the rising income disparity in India

• Demand for nitch products is increasing in India

Weaknesses
• Unawareness about the Islamic banking

• Lack of experts

• Modification in banking act regulation needed.

 Opportunities
• Indian economy would benefit from inflow of funds from GCC countries

• Would add real estate boom

• Address the issue of financial inclusion

• A large number of Muslims that are considered unworthily of credit by commercial banks or
who avoid banks due to sharia law would welcome this.
Threats
• Expected to become a political weapon

• Goes against secular fabric of nation

• May bridges financial segregation, so regulatory authority may oppose

• Micro finance is a good competitor

Illustration 4 showing a bird’s eye view of S.W.O.T. Analysis

HOW TO MOBILIZE ISLAMIC BANKING IN INDIA

Islamic banking may be in for some windfall gains if a reported move by Indian authorities to
introduce some form of interest-free banking, aimed at bringing the country’s unbanked Muslim
populations into mainstream banking, bears fruit.

If the initiative is taken to its logical conclusion, the Indian banking sector too stands to gain
significantly as it will add huge numbers of new customers, while opening up a channel for
substantial fund flow from regions such as the Gulf. Given that public sector banks account for
only 70 per cent of the overall banking sector, the country’s bank employee population is
roughly of the same size as the population of Qatar which is a profitable Islamic banking hub.
That should give an idea about the size of India’s banking sector.

Various estimates put the size of the unbanked Muslim population of India at about half of their
total population, whose members are known to prefer keeping their savings at home and,
therefore, excluded from the regular banking channels. With the world’s third largest Muslim
population, one out of every 10 Muslims in the world live in India and the country’s Muslim
population is projected to increase from 177.3 million in 2010 to 236.2 million in 2030,
accounting for over 15 per cent of India’s total population by then. These numbers would sound
like music to the ears of any banking enthusiast.
Thus to allow Islamic banking considerable amount of changes on law have to be made.
One way is to keep the current legislation applicable for existing banks and amend specific
legislations applicable for interest free banks. A new regulatory body will oversee them and help
them make and enforce accounting and auditing standards. One specific change to be made
includes the requirement that NBFCs would have to invest at least 15% of their total investment
in interest based Government securities. An easy alternative is to allow them invest in equity of
public listed companies. Another change required is the heavy taxation of return on equity
investment as opposed to interest income

Other Hindrances in the way of Islamic Banking

 Standards non-uniformity
 Manpower shortage in Islamic Banking
 Need of more products These problem need to be adressed as well the outlook has to
be broadened.Steps suchs as opening institutions to train manpower and more literaray
organizations and educationist should be introduced.One such institute is The Aligarh
Muslim University. Also innovations is neede such as national treasury to aid the
implementation process. Changes need to be made in the Negotiable Instruments Act
(1866), the Indian Banking Regulation Act (1949), The Reserve Bank of India Act
(1935) and the Cooperative Societies Act( 1866)
 Illustration 5 showing Porter’s 5 forces model in this context

. The Aligarh Muslim University provides course in Islamic Finance since 2009 to
meet the growing demand for literate manpower
 CONCLUSION

In a country where the Muslim population is more than Pakistan, after 60 years of Independence
should think about reform in banking sector to introduce Islamic banking. Raghuram Rajan
Committee on Financial Sector Next Generation Reforms made a reference to this aspect.
There has never been any public committee analyzing the effects of Islamic banking in India.
This can be attributed to the fact that Muslims in India have never demanded Islamic banking in
a prominent manner. And we never delivered it to them for which Muslims in India have only
9% of total bank accounts although they make up 12% of the populationIslamic banking can
boost Indian economy by boosting real sector economy rather than only
financial sector. There are many advantages of Islamic banking but the main reason is that the
Muslims are so poor today that we truly owe it not only to our forefathers and our current
generation to make things better, we also owe it to future generations of Indians
There are certain costs in implementing Islamic banking, but the expected value of such a reform
is quite high. Many new Shariah compliant financial instruments are being developed throughout
the world from which Indian regulators can learn and inculcate. India should take help to make
regulatory framework from foreign banks which have operations in Islamic banking
environment.
Taking all these points into consideration, India should open up for Islamic banking so that
Indian Muslims are benefitted and huge amount of FDI from Muslims worldwide comes in the

country. There is no doubt that a huge potential for Islamic banking in India exists, but, it will
need some strong policy decisions to make it a realityThere is also a fear that Muslims may come
to dominate the Islamic banking industry in India. Islamic banking, however, requires a
professional expertise beyond religious belief, because it deals with commercial projects not just
monetary credit and debit transactions. At the same time it must be borne in mind that Islamic
banking can provide immense opportunities to energise the Indian economy with the
participation of previously excluded Muslims in Shari'ah-compliant banking and at the same
time could lead to substantial inward investment to boost India's further development. The
question to be answered is whether Islamic bankins is a practical methoe or a dead end.At the
end of this report I conclude that Islamic banking is not a fading phenomenon but is here to
stay.Infact I would go ahead and say that conventional banking could learn a thing or two from
it. In a recent update in October , 2012 the Reserve Bank of India (RBI) has asked the
Ministry of Finance to amend banking laws to facilitate the introduction of Islamic banking in
the country.
A graphical representation showing that the potential scenario that Islamic Finance to
reach $ 1.1 trillion by 2012 ( Source : The International Monetary Fund )
ANNEXURE

Annexure -I

Supervisor’s Certificate
This is to certify that Ms. Saniya Javed , a student of B .Com H onours in Accounting &
Finance of Sivanath Sastri College under the University of Calcutta has been working under
my supervision and guidance for her Project Work with the title Islamic banking and
finance:A study on the opportunities and challenges.

This project report which she has submitted is her genuine and original work to the best of my
knowledge.

Place : Siganture:

Date: Name:

Designation:

Name of the College:

 (ii)

Annexure-II

Student’s Declaration
I hereby declare that the Project Work with the title ISLAMIC BANKING AND FINANCE :
A STUDY ON THE OPPORTUNITIES AND CHALLENGES submitted by me for the
partial fulfillment of the degree of B.Com Honours in Accounting & Finance under THE
University of Calcutta is my original work and has not been earlier submitted to any other
University/Institution for the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated in this
report from any earlier work done by others or by me.However, extracts of any literature which
has been duly acknowledged providing details of such literature in the references.

Place: Signature:

Date: Name:

Address:

Registration No.:

Roll No.:
 (iii)

Annexure-III
PART I
PRELIMINARY
1. Short title, commencement and application.
2. Interpretation.
PART II
LICENSING OF ISLAMIC BANKS
3. Islamic banking business to be transacted only by a
licensed Islamic bank.
4. Minister may vary or revoke condition of licence 5. Licence not to be granted in certain cases.
6. (Deleted).
7. Opening of new branches.
8. Islamic bank may establish correspondent banking
relationship with bank outside Malaysia.
9. Licence fee.
10. Restriction of the use of certain words in an Islamic
bank’s name. 11. Revocation of licence.
12. Effect of revocation of licence.
13. Publication of list of Islamic banks.
13A. Advice of Syariah Advisory Council
PART III
FINANCIAL REQUIREMENTS AND DUTIES OF
ISLAMIC BANKS
14. Maintenance of capital funds.
15. Maintenance of reserve funds.
16. Percentage of liquid assets.
17. Auditor and auditor’s report
18. Audited balance sheet.
19. Statistics to be furnished.
20. Information on foreign branches
PART IV
OWNERSHIP, CONTROL AND MANAGEMENT OF
ISLAMIC BANKS
21. Information on change in control of Islamic banks.
22. Sanction for reconstruction, etc., of bank required.
23. Disqualification of directors and employees of banks.
Annexure IV
Annexure V

The above two are extracts from the Islamic Finacial Accounting Stanndards
(Source:www.icap.org)
REFERENCES

Books
1.Syed Abdul Z ahid (2008) ‘Economics of Islamic banking in India ,’ Asia Law House, 2008

2.Brian KETTEL (2010) ‘Introduction to Islamic Banking and Finance .’

3.M.Mansoor Khan (2008) , ‘Islamic banking and finance on its way to globalization ,’
Managerial Finance, Emerald Group Publishing Ltd.(2008)

Reports

1.Raghuram Rajan Committee Report on Financial Sector Reforms,2006

Websites

1.www.wikipedia.org. 17th October ,2012.

2. www.infosys.com/finacle. 19th October,2012.

3.www.icap.org.pk. 12th January,2013