Summary
Summary ISLAMIC BANKING
- Institution
- Oxford University (OX)
- Book
- Islamic Banking
Summary study book Islamic Banking of Mervyn Lewis, Latifa M. Algaoud - ISBN: 9781000282726 (ISLAMIC BANKING)
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Seller
Follow
Content preview
LESSON IXISLAMIC BANKING
Islamic banking and other forms of Islamic finance have developed rapidly over the past
50 years. Today, Islamic banking is found mostly in the Middle East, Asia, and Africa,
where it provides banking services mostly to Moslems and to several governments and
central banks in countries where Islamic finance has official or semi-official status.
Islamic finance in some countries is large enough to affect the quality of their national
accounts, monetary and financial statistics, and indicators of the structure and
soundness of national financial systems. Important differences exist between
conventional and Islamic finance. Islamic finance must follow certain Moslem “Shariah”
legal standards, hence it is often called “Shariah-compliant”, or “SC”. There are several
schools of Islamic finance, but certain general principles are;
1. Prohibition on payment of interest or other fixed returns on investments,
2. Encouragement of investment in real economic activities or trading in goods and
services for profit,
3. Avoid profiting from trading in financial assets or “using money to make money”
4. Excessive risk taking is discouraged, which is often interpreted as prohibiting
many types of financial derivatives,
5. Lending for certain activities, such as alcohol or drugs, is prohibited,
6. Sharing profits for charitable purposes “zakah” is a religious duty,
Due to these practices the financial accounts of Islamic banks differ significantly from
those of conventional banks. Separate sets of standards have developed for Islamic
finance including accounting standards promulgated by the Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) in Bahrain and bank supervision
standards by the Islamic Financial Services Board (IFSB) in Malaysia.
Differences in structure of conventional and Islamic bank accounts
The income statement of a conventional bank (Table I) differs from that of a
nonfinancial corporation by highlighting banks’ traditional core function as a deposit-
taking financial intermediary. In particular, the income accounts are headlined by net
, interest income (interest receipts less interest payments). That is, the bank receives
interest on its funds lent and pays interest on funds received from depositors. By
lending funds, the bank acquires a claim on the borrower for repayment of the amount
lent plus interest. By receiving funds from the depositor, the bank incurs a liability to
repay the deposited funds plus interest. The income statement of a conventional bank
typically shows net interest as a separate line item at the top of the accounts. That is,
the top lines separately list interest receipts, interest payments, and net interest receipts
less payments.
Other revenue for banks (typically called noninterest income) are shown below the net
interest line. The sum of net interest and noninterest income is the gross income of the
bank. Other expenses are subtracted from gross income to derive income before
income taxes, which can also be thought of as net operating income. Expenses consist
of noninterest expenses (salaries, office expenses, utilities, etc.) and provisions for loan
losses. Taxes on income are then subtracted from net operating income to derive net
income. Dividends are paid from net income, leaving retained earnings which are then
carried over to the balance sheet as part of equity.
Table I: Income statement Extract- Conventional Banking
Revenues
Net Interest Income
Interest Income XXX
Less: Interest Expense XXX XXXX
Add: Non-Interest Income XXX
Gross Income XXXX
Less: Non Interest Expense XXX
Provision for Loan loss XXX
Income Before Income tax XXXX
Less: Income Tax XXX
Income After Tax XXXX
Less: Dividends XXX
Retained Earnings XXXX
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ProfDavi. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £8.57. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
73918 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now