Islamic Banking

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Islamic Banking

A system of banking that only offers products that conform to the sharia, or Islamic law. For example, in Islamic banking, checking and savings deposits do not accrue interest. They either lie dormant until withdrawal or are invested. Because this involves higher risk than conventional banking services, various highly technical products have been developed to mitigate risk and generally imitate "regular" banks as much as possible while still complying with Islamic law. Considerable debate exists as to whether these Islamic banking products are in fact sharia-compliant.
References in periodicals archive ?
Maputo, June 11 (ONA) The Sultanate and the Islamic Development Bank (IDB) signed today Istisna'a and Istisna'a Agency agreements according to which IDB will provide the Sultanate with $176 million worth loan (equivalent to almost RO 68 million) to finance 86% of the cost of water supply project from Wadi Dhaiqah to Muscat and Quriyat, which costs RO 79 million.
Islamic modes of financing like Murabaha, Musharaka, Mudaraba, Ijara, Salam, Istisna'a and other Islamic modes of financing pose unique risk factors to Islamic Banks, which may be summarised as: Liquidity originated market risk ; transformation of credit risk to market risk and market risk to credit risk at various stages of a contract; bundling of credit risk and market risk, market risk arising from owning the underlying non-financial asset until maturity of a contract or until the ownership is transferred to customer and treatment of default As a result, there are unique balance sheet features of Islamic Banks from a Market risk perspective.
Moreover, we can get involved in issuing mudharba, leasing and istisna'a bonds and other financial instruments.
The loan was arranged through the so-called Istisna'a, a Shariah mode of financing widely used by Islamic banks and financial institutions.
It provides Islamic financing such as Murabaha, Sukuk, Mudaraba, Musawama, Musharaka, Ijarah and Istisna'a.
The Istisna'a and forward Ijara agreement was signed at ADIB offices by Aqeel A.
Abu Dhabi Islamic Bank (ADIB), a leading regional Islamic bank, will provide AED 367 million or USD 100 million Istisna'a and forward Ijara facility to National Petroleum Construction Company (NPCC) to fund the construction of a new SEP 450 self elevating accommodation and crane barge.
The net proceeds of the issue of such certificates will be used to purchase a portfolio of sukuk assets which may comprise ijara assets, murabaha contracts, istisna'a contracts and Islamic Development Bank's (IDB or the Bank) investments in equity and sukuk certificates.
Other services on offer include: saving accounts; investment deposits, which offer the chance to invest in remunerative businesses, with profits awarded at the end of the deposit term according to the investments' performance; and real estate financing to help a customer own a new house through Murabaha, Ijara and Istisna'a that cover up to 80 per cent of the value of the property over a maximum period of 20 years.
Although Islamic financial products are not explicitly mentioned in Basel II, the CBB has introduced, effective this year, a comprehensive Basel II compliant framework which provides for appropriate capital treatment of products such as Murabaha, Ijara, Istisna'a, amongst others, he added.
A Two-step Sukuk with Combination of Istisna'a and Ijarah
Islamic bankers have developed a number of such methods, including murabaha (cost-plus financing), ijara (lease financing), musharaka (partnership finance), mudaraba (venture capital finance), and istisna'a (construction or manufacturing finance).

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