This portion of my thesis trades with two parts which consist of a sum-up of old researches being carried out on the Principles of Islamic Banking and its history. Second, consciousness of Islamic Banking and its chance in Mauritius.
2.1 The debut of structural reforms in the fiscal systems, the planetary integrating of fiscal markets, crisis and debut of new fiscal merchandises in the worldwide economic system has resulted in a growing of the Islamic Banking around the universe. Most states finance their concern activities by the aid external financess which consists largely of loans. The loan can be a authorities loan or foreign loan. A research done by “ Mr Fredric Mishkin ” an American Economist, has found out and defined a bank as a fiscal mediator, which receive money from one group and lends borrowers. There are two types of Bankss, conventional Bankss and Muslim Bankss. In simple words Islamic Banking is an involvement free system whereas conventional banking is a net income motivation concern.
RIIC by Prof.Khursheed explains that Islamic bankers do non do money out of involvement rates alternatively guarantee that money is invested in a feasible undertaking, and is the undertaking succeeds the banker is portion of the net income sharing so if it does non win he suffers a loss. He besides mentioned in his research that Islamic Bankss has begun to develop a scope of alternate fiscal merchandises which are surely based on Islamic rules. Islamic fiscal techniques has accomplished in doing major undertakings around the universe and which is still in an accelerated gait.
2.2 Knowledge about Islamic Bank
In Muslim communities, Islamic banking services was long ago transacted when the Prophet Muhammad was still alive. The first Islamic bank was established in Egypt, later there was many Islamic Bankss which were founded under the net income and loss sharing system, Dubai Islamic bank ( 1975 ) , Faisal Islamic bank of Egypt ( 1977 ) , the Bahrain Islamic bank ( 1979 ) and the Faisal Islamic bank of Sudan ( 1977 ) , to advert a few.
Making money from money is non islamically acceptable. Muslims considers money to be capital when it is invested in a concern consistent with shariah jurisprudence. Shariah jurisprudence besides province that any dealing should non affect uncertainness, guess or hazard. Contracting parties should be absolutely cognizant of all fortunes of the dealing and if non it is besides prohibited. Dr.Mazhir Iqbal enlightens that prohibition of riba ( involvement ) is besides in Christianity and Judaism but they do n’t follow their instruction.
Dr.Abbas Mirakhar put forward that in 1938-84, Pakistan, Iran and Sudan met the challenge that is Islamic banking and finance is a feasible fiscal system. By 1988 modern economic expert proved that there is a return on capital without bear downing an involvement rate. By early 1990 ‘s, Islamic fiscal system was proved to be a feasible system alternatively non merely theoretically feasible. The phenomenon growing of Islamic finance during the decennary of 1990 ‘s, demonstrated the empirical and practical viability of the system.
Islamic banking is a banking system which is consistent with the rules of Shariah jurisprudence. Shariah jurisprudence prohibits unequivocally the credence of specific involvement ( riba ) or drifting payment. Shariah has some Islamic instrument which are besides known as Shariah instrument. The instrument are called Musharakah, Mudharabah, Al-Bai Bithaman, Murabahah, Al-Ijrah, Qard Hasan, Al-Takjiri, Al-Kafalah, Wadiah and Al-wakalah.
There are two types of involvement ( riba ) , viz. ‘Riba Al fadl ‘ and ‘Riba An Nasiyah ‘ . ‘Riba al fadl ‘ refer to the excess of compensation without any deliberation from a sale of good and ‘Riba An-Nasiyah ‘ refer to the excess ensuing from an in agreement involvement. Shariah compliant assets reached about $ 400 billion in the twelvemonth 2009 worldwide and with a possible market of $ 4 trillion. Shariah rules besides prohibits puting in concerns which are improper or haram, particularly contrary to Islamic values for illustration intoxicant or porc concern. There are some Islamic fiscal dealing nomenclatures which are as follows:
Bai’al ‘inah is a sale and purchase back understanding between the client and the moneyman. |It is besides called a Muslim Mortgage. The moneyman can be a fiscal establishment or an single. This dealing is where the moneyman will purchase an plus from a client and the monetary value will be paid out by the in agreement term of the moneyman. When a marketer sells an plus in a Bai ‘ Al ‘inah understanding, the marketer will later purchase back the plus and the monetary value will be higher than the original monetary value. Hence, the fiscal establishment do a net income out by selling the plus to the client at a higher monetary value. A tawarruq is similar to a Bai ‘ Al ‘inah but in this instance there is a 3rd party which acts as fiscal mediator.
Bai ‘ Bithaman ajil
Bai ‘ bithaman ajil is a deferred payment including a net income border agreed by both parties. The word Bai means sale, thaman means monetary value and agil agencies deferred.
Bai ‘ muajjal
Bai ‘ muajjal is a recognition sale. This construct explains that the moneyman here let a future payment of the sale at a cost of a border charge to the monetary value as net income. Therefore, this should be agreed by both parties and the payment can be paid in installment or in a ball amount.
Mudarabah is similar to a partnership where the spouse invest in a commercial endeavor. The investment spouse is called the ‘rabb-ul-mal ‘ and the spouse who manage the hazard and duty is called the ‘mudarib ‘ . The ‘rabb-ul-mal ‘ provide 100 per centum of the investing and the other spouse provide his cognition to put the capital. The net income earned will be shared in the agreed ratio whereas a loss will do one spouse lose all his capital and the other will lose his clip and attempt.
Murabahah is the most popular manner to advance rib-free dealing in some states. It is a peculiar gross revenues where the marketer declared candidly the cost and a mark-up to the purchaser. It is preferred by most bargainers as it portions the hazard equitably between the purchaser and the marketer. The bank maintain an plus as mortgage until the default is settled and the bank can non claim extra net income on late installments.
Musawamah is the reverse of murabahah as the marketer need non to declare the cost and mark-up to the purchaser until it is required. Both parties make the dealing to an in agreement monetary value without negociating for the cost incurred. Indeed, musawamah is the most popular trading activities seen in Islamic commercialism. This type of dealing normally occurs when it becomes hard to find the cost of the merchandise. There are some limitation to a Musawamah including that the plus must be in ownership at the clip of sale, secondly the sale must take topographic point outright and the plus must be of value and useable.
Bai salam is where the merchandise is paid in progress and to be delivered subsequently on. The monetary value should be paid to the full in progress and at the clip of contract. Bai salam is restricted to some type of goods such as gold, Ag, currencies based on these metals. It is necessary that the province of the trade good is to the full specified so as to avoid difference on bringing clip.
Hibah is a transportation of a value of plus or belongings voluntarily to a client normally by bank. As clients make sedimentation, Bankss use those nest eggs in other activities and do net income. The proportion of net income may be shared with their clients as a hibah ( gift ) . Hibah is a voluntary payment made with a definite credence by the individual to whom it is gifted or given. Finally, this action will increase client ‘s economy.
Istisna is a beginning of finance to Construction Company which enable payment to be made to ease work-in-progress. Istisna is a medium to entrepreneurs to develop higher value goods and facilitate measure wise advancement in any fabrication procedure. Istisna normally finance the building of residential towers, edifice, Villas, fabricating aircrafts, machines and equipment, ships and related merchandises. We normally use istisna to carry through our funding demand and the payment is made at the clip subscribing the contract or at different phases of the building advancement.
Ijarah refers to a rental, pay or rent. This construct refers as to pay a fixed monetary value for a benefit rendered by the fiscal establishment. The benefit can be in the signifier of a service of plus, office, mechanization, motor vehicles or equipment such as works at a fixed period and monetary value.
11. Ijarah Thumma Al Bai ‘
Ijarah Thumma Al Bai ‘ refers to a hire purchase that is a bargain back dealing. At the terminal of ijarah the client is allowed to buy the plus at an in agreement monetary value. A rental contract between the client and the bank will depend on the cost of the point, the net income border and the residuary value at the terminal of the ijarah. Shariah jurisprudence prohibits coincident interconnected contracts, therefore the contract must be between the banker and the client merely.
12. Ijarah wal-iqtina
Ijarah wal-iqtina is where the bankers provides the benefit ( equipment, edifices or other assets ) to the client with an in agreement monetary value which include the chief amount with a net income border. The Price will be paid to the banker at a rental footing and ab initio at the terminal of the rental period the plus will be transferred to the leaseholder.
Musharakah refers to a joint venture. This construct explains a joint endeavor or partnership which involves in net income sharing dealing alternatively of involvement bearing loan. Each spouse is involve in sharing of net income and hazard. The net income sharing is pro rata as each spouse does non lend the same sum of capital. All spouses are dependable to take part in direction determinations hence are besides apt for losingss which is borne by each spouse harmonizing to several capital contributed. Musharakah is frequently used in the purchase or existent estate or belongings, investing undertakings or letters of recognition. It is a perfect option to the involvement based system.
14. Qard Hassan
The word qard means to cut and Hassan means kindness. Qard Hassan therefore means cutting certain portion of the bank ‘s belongings by agencies of a loan without any duty to make so, in simple words it is a benevolent loan. This construct has the aim to stress brotherhood among the Muslims community. The individual giving the loan do non anticipate any return from the borrower. The borrower is merely needed to return the sum borrowed nevertheless, if the borrower is allowed to pay an excess sum as a item of grasp to the loaner. For Muslims Qard Hassan is the true involvement free loan.
Sukuk refers to an Islamic bond which complies with shariah jurisprudence. An issuer of sukuk gives investor a certification, who rent it back on a rental fee. The issuer will besides hold to do a contractual promise to the investor to purchase back the bond at a hereafter day of the month at a par value. However, involvement bearing bond and fixed income bond are prohibited in Islamic banking. Harmonizing to planetary Islamic finance study 2012, 1.34 trillion of plus are being managed by Islamic rules. A sukuk is besides a partial ownership of debt. Luxembourg stock exchange is an illustration where sukuk are being transacted.
Takaful refers to the Islamic insurance which protect Moslems from hazard of loses due to bad lucks. The significance of takaful is vouching each other. This construct let sincere participants to donate as a joint warrant to assist and protect other participants confronting troubles. Takaful helps to extinguish uncertainness in respect subscription and compensation so it does non derived advantage at the cost of others.
Wadiah refers to an act of safekeeping. This construct aid people to lodge their money in a bank which act as a legal guardian of financess and thenceforth the depositor may demand the money as he require. The bank should vouch to return the full sum as it undertake the responsibility to safeguard the money. The depositor may offer the bank a hibah in signifier of grasp.
Wakalah refers to the power of lawyer. This construct helps an person to reassign duty and right to set about dealing on his/her behalf, in private personal businesss, concern or some other legal affairs.
2.3 Awareness about Islamic Banking
The beginnings which make people cognizant of Islamic banking are chiefly telecasting, magazine, newspapers and wireless and household members. A deficiency of consciousness about the Islamic banking system may be a ground to be an unsuccessful system in an economic system or state. For illustration as stated by Mr Gulzar Rammal and Rolf ZuRbruegg, the system has non achieved widespread success among Muslims in Australia but so for UK, in the instance of non-Muslims bulk, an addition in demand for Islamic services has convinced bank regulators to supply permission for the operation of a strictly Islamic bank.
Dr Fahim Khan a celebrated economic expert high spots that “ Islam is a complete codification of life and provides solutions to every job being faced by the human being in the society. He besides brings frontward that Islamic finance has ever report in either negative or at most impersonal due to miss of consciousness about the true nature of Islamic finance.
International Islamic fiscal services ltd ( IIFS ) is an integrated company in Mauritius since 2007 which has the chief aim to advance growing and development of Islamic finance in Mauritius. IIFS has try to procure steadfast coaction with foreign educational establishments to develop certifications and Diplomas in Islamic finance every bit good as professional making. IIFS has besides tried to advance Islamic finance classs by upbringing partnership with local preparation establishments.
Rundheersingh Bheenick the governor of the Bank of Mauritius, has put Mauritius on the universe ‘s Islamic finance map. He stated that the Hong Kong and Shanghai Bank ( HSBC ) as a bank which ever evolve to run into new challenges in our fiscal sector. He besides explains that HSBC support Mauritius to be portion of universe category Islamic fiscal service supplier. He clearly made the people aware in his address that Islamic finance is non merely for people of Muslims religion. Islamic finance offers advantages to Muslims and non-Muslims likewise. In position with the HSBC Amanah undertaking there is batch of chance for Islamic banking in Mauritius. The governor of bank of Mauritius has undertook a personal battle and duty to assist Mauritanian licences implement Islamic banking successfully.
School kids in Abu Dhabi has particular Islamic banking and economic sciences classs in the school course of study. The bank ‘s main executive, Mohammed Berro said that the bank encourage consciousness of Islamic finance among kids to convey more success in the new coevals.
The CEO of Mauritius renting company limited, Mr Ashraf Esmael brought frontward that Islamic fiscal establishment demand to procure an assistance from the authorities and private sector to increase the consciousness of these merchandises and set up reciprocally honoring partnership to widen the figure of clients. Fiscal establishment will hold to do the public aware of the competitory strength in the industry and this can be done by merchandise invention and distinction. To do Islamic banking merchandises more common in Mauritius, all Bankss will necessitate to heighten their service offering and better the degree operational excellence to be more competitory. He besides highlights that Islamic merchandises should be demystified as there are many possible clients in Mauritius who are even non-Muslims. Furthermore, some current legislative and regulative model should be clarify to allow the Islamic finance operators to further spread out their merchandise offering in the market. A deficiency of a really efficient distribution system in Mauritius is a factor of absence of cognition, therefore more instruction is required in Mauritius. The third instruction committee in our state has already Islamic banking surveies accredited programme and classs to increase consciousness for the coming coevals.
2.4 Prospect of Islamic Banking in Mauritius
Mauritius is based among the top in African states due its high degree of concern chances and it is so because it ‘s effectual and efficient regulative model, its friendly revenue enhancement system and its outstanding location. Having a multi faith population with an 18 per centum Muslim population and the other standards show that Mauritius is an ideal topographic point for Islamic fiscal establishment to do investings. An international conference in 2011 in the presence of economic experts, shariah bookmans, research workers, banking and finance experts was held in Mauritius to portion their positions on the chance of Islamic banking in Mauritius.
Taking due attention to the acceptance of Islamic finance by the community in Mauritius through assorted establishment such as HSBC, Tata fund, insurance company and Albaraka multipurpose society. An Islamic bank was planned to be set up, demoing bright hereafter of Islamic finance in Mauritius. Amendment in the banking act 2004 in grand 2008 had allowed fiscal establishment to get down supplying Islamic banking services. The immediate reaction by Bankss had showed involvement in this system and showed future chance in Mauritius.
With our assuring banking sector in Mauritius is regarded as a safe topographic point to put as it is an economically and politically stable legal power. The advantages of the Islamic fiscal establishment may hold in Mauritius is the protection of assets, protection against political or fiscal instability and no keep backing revenue enhancement on involvement, confidentiality and greater flexibleness. Mauritius had showed to be a fast moving state towards Islamic banking and is besides a member of Islamic finance services board ( IFSB ) and Islamic direction liquidness board.
Amar Bheenick is a jurisprudence individual who made a research and found out that Islamic finance is turning between 15 % and 20 % yearly. Century banking corporation ( CBC ) was the first Islamic establishment licensed by the bank of Mauritius which is a partnership between Qatari Investors through Pomasol limited and the British American Investment ( BAI ) . It has been incorporate in 2011 and today we finally have assorted establishment offering Islamic merchandises.
Mauritanian ex-finance Minister Mr. Rama Sithanen projected in 2007 that there is a possible demand for Islamic merchandises in Mauritius. He suggested that all clients and Bankss should be interested in shariah compliant merchandises as it will be competitory for bing banking merchandises offered by conventional Bankss for illustration Mauritius Commercial Bank. He saw Islamic banking as a outstanding construct as it has the possible to specify our fiscal sector and fiscal services landscape. Rama Sitahnen convey forward that Islamic banking excel in other states to re-establish their fiscal system and now it can advance economic growing, investing, efficiency and capital entree in Mauritius.
The Hong Kong and shanghai Bank ( HSBC ) is the first bank to establish Islamic banking services window in Mauritius. The Chief executive officer of the bank Mr. Sandeep Uppal focused attending in the chances in our offshore sector, and aim local every bit good as foreign clients. Mr. Bheenick Rundheersingh shows great chance for Islamic banking when he underline that Mauritius will be in the challenge when it will be an option as a finish of pick for Islamic finance.
Mr.Asraf Esmael the main executive officer of the Mauritius renting company limited on Islamic retail banking, conveying frontward that Mauritius is a platform for investors as it has outstanding location, dual revenue enhancement pact webs and great chance and preparedness of the Islamic banking services and planetary concern model. He propose that doing Islamic banking merchandises more accessible in footings of propinquity to the market and distribution will pull more clients. He besides mentioned that with an improved merchandise development rhythm and market communicating Islamic fiscal establishment will hold immense chances in Mauritius. With a deficiency of appropriate legal and regulative model it is hard for market entry by Islamic retail Bankss hence for future chances the regulative model should be amended.
Sing the history of this system the lone factor that has prevent it from being successful throughout the universe is the deficiency of consciousness of its pricicples.