Diploma in Islamic Banking & Finance

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Diploma in Islamic Banking & Finance Course Structure Contents

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Brentwood Open Learning College

Diploma in Islamic Banking & Finance

(Level 4)

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Diploma in Islamic Banking & Finance Course Structure Contents

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Unit 1

Introduction to Islamic Banking & Finance

The unit 1 covers the following topics:



Introduction

 Basics of Islamic Banking(why Islamic banking: the reason,Rules of islamic Finance: The Basic,)

 Prohibition of Riba(Definition of Riba,Reason for Prohibition)

 Prohibition of Gharar(Prohibition of Maysir,Profit sharing contracts)

 Overview of Islamic Financial Contracts(Musharaka “Partnership”,Mudaraba “finance by way of trust,Murabaha “cost-plus financing”,Ijara “Leasing,salam “advance purchase”,Bai bi thamin ajil “deferred payment financing”,Istisnaa “ commissioned manufacture”,sukuk “participation securities”)

 Financial Services Offered by Islamic Banks (Investment or PLS account,Saving Accounts,Transaction Accounts or Current Accounts,Quard Hasan

Accounts,Borrowings,Problems of PLS Funding)

 The Demand for Islamic Financial Products

Unit 2

History of Islamic Banking and Finance

 Introduction (Various Manifestation of the Islamic Financial Industry)

 Country Experiences with Islamic Banking (Pakistan,Iran,Sudan,Bahrain,Malaysia)

 Islamic Banks and Financial Institutions Working in Mixed Environments(Islamic Banks, Islamic Banking Practices by Conventional Banks)

 International Islamic Financial Institutions

 The Accounting and Auditing Organization for Islamic Financial Institutions

 General Council for Islamic Banks and Financial Institutions (International Islamic Financial Market, The Islamic Financial Services Board, The International Islamic Rating Agency)

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Diploma in Islamic Banking & Finance Course Structure Contents

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Unit 3

The Philosophy of Islamic Finance



Introduction

 The Philosophy of Islamic Finance (Avoid Interest, Avoid Gharar, Avoid Gambling and Games of Chance)

 Alternative Financing Principles (Additional Risks Faced by Islamic Banks, Debt Verses Equity, Islamic Banking: Business Versus Benevolence, Exchange Rules, Time Value of Money in Islamic Finance, Monetary Policy and Islamic Finance, Status of Paper Money, Trading in Currencies, Creation of Money from the Islamic Perspective, Currency Rate Variation and Settlement of Debts)

Unit 4

The Islamic Banking Model

 What is Islamic Banking: the Model (Two-Tier Mudarabah,One-Tier Mudarabah Combined with

Multiple Investment Instruments,Musharakah “Partnership”,Mudarabah “Passive

Partnership”,Diminishing Partnership,Bay Al-Murabahah ,Ijarah “ Leasing”, Salam

 An Islamic Bank Working as an Agent “Wakil”, How Islamic Banking Works in Practice,

 How is Islamic Banking Different from Conventional Banking: the Significant Features, Risk-Sharing,Emphasis on Productivity as Compared to Credit-Worthiness,Moral Dimension,Wider Set of Products,Closer Links between the Monetary and Real Sectors)

 What does the Islamic Banking Model Promise(More Equitable,Improved Allocative Efficiency, Stability of the Banking System,Promotion of Growth)

Unit 5

The Islamic Economic System

 Introduction

 Islamic Shari’a and Its Objectives (Sources of Shari’a Tenets, Objectives (Maq¯asid) of Shari’a,

Primary Objectives,Secondary Objectives)

 Why Study Islamic Economics?, Islamic Economics: What Should It Be?, Islamic Economics Defined, Paraphernalia of Islamic Economics, Ownership of Resources and Property Rights, Islamic Welfare Approach,The Factors of Production,Restrained Individual Freedom)

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Diploma in Islamic Banking & Finance Course Structure Contents

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Unit 6

Islamic Law of contract & Business Dealings

 Introduction

 Defining Various Related Terms (Mith¯aq,‘Ahd or W‘adah,‘Aqd (Contract)

 General Framework of Contracts

 Elements of a Contract (Offer and Acceptance: Form of the Contract,Elements of the Subject Matter, Precise Determination of Subject Matter, Possession and Certainty of Delivery of the Subject Matter)

 Broard Rules for the Validity of Mu’amala’t (Free Mutual Consent, Prohibition of Gharar, Avoiding Riba,Prohibition of Two Mutually Contingent Contracts,Conformity of Contracts with the Maqasid of Shari’a, Profits with Liability, Permissibility as a General Rule, Token Money (Hamish Jiddiyah) and ‘Arb¯un)



Type of Contracts (Valid Contracts, Contracts Effective Instantly or from a Future Date,Mawquf (Suspended) Contracts,Binding (L¯azim) and nonbinding Contracts, Voidable (F¯asid) Contracts, Causes of Irregularity in Voidable (F¯asid) Contracts, Legal Status of the F¯asid (Voidable) Contract, Void (Batil) Contracts, Commutative and Non commutative Contracts, Uqood-e-Mu‘awadha (Commutative Contracts), Uqood Ghair Mu‘awadha (Tabarru‘) or Gratuitous Contracts, Legal Status of Commutative and Non commutative Contracts, Conditional or Contingent Contracts)

Unit 7

Islamic Finance – Products and Procedures

 Overview of Financial Institutions and Products: Conventional and Islamic (Introduction, The Need for Islamic Banks and NBFIS)

 The Structure of Islamic Banking, The Deposits Side of Islamic Banking, Current Deposits, Savings Deposits/Investment Deposits/ Term Deposits, Instruments on the Assets Side, Modes

for Financing Trade, Agriculture and Industry, Household, Personal Finance, Consumer Banking,

Treasury Operations – Liquidity and Fund Management, Foreign Exchange Operations,

Government/Public Sector Financing, Alternatives to Foreign Loans, The Issue of Mode Preference, Islamic Investment Banking, Islamic Financial Markets and Instruments, Islamic Funds, Asset Management through Equity Funds,Screening and Purification Criteria,Principles Relating to Stocks, Investment Sukuk as Islamic Market Instruments, Trading in Financial Instruments, Inter-bank Funds Market, Islamic Forward Markets, Foreign Exchange Market in the Islamic Framework,Derivatives and Islamic Finance)

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Diploma in Islamic Banking & Finance Course Structure Contents

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Unit 8

Murabaha and Musawamah

 Introduction (BAI‘ MURABAHA in Classical Literature, The Need for Murabaha, Specific Conditions of Murabaha,Bai‘ Murabaha and Credit Sale (Murabaha–Mu’ajjal),

 Possible Structures of Murabaha,Direct Trading by Bank Management,Bank Purchases through a Third Party/Agent, Murabaha through the Client as Agent, MURABAHA to Purchase Order (MPO), MPO – A Bunch of Contracts, MPO – The Customer as the Bank’s Agent to Buy and Related Matters, Pre-Promise Stage – Facility Approval, Promise Stage – Master Murabaha Facility Agreement, Purchase Requisition, Agency Stage, Purchasing Stage, Acquisition of Title and Possession of the Asset, Execution of Murabaha Stage – Offer and Acceptance, Security/Collateral against Murabaha Price, Issues in MURABAHA, Avoiding Buy-back, Khiyar (Option to Rescind the Sale) in Murabaha,Time of Executing Murabaha,Defaults by the Clients, Rebates on Early Payment, Rollover in Murabaha, Murabaha through Shares, Commodity

Murabaha,Precautions in MURABAHA Operations,

 MUSAWAMAH (Bargaining On Price), Musawamah as a Mode of Financing)

Unit 9

Forward Sales: Salam and Istisna‘a

 Introduction (BAI‘SALAM/SALAF,Benefits Of Salam And The Economic Role Of Bai‘ Salam)

 Features of a Valid Salam Contract (Subject Matter of Salam,Salam in Currencies,Payment of Price: Salam Capital,Mode of Payment,Period and Place of Delivery,Khiyar (Option) in Salam, Amending or Revoking the Salam Contract,Penalty for Non performance,Security, Pledge And Liability Of The Sureties)

 Disposing of the Goods Purchased on Salam (Alternatives for Marketing Salam Goods, Agency Contract,Parallel Salam,Getting Promise for Purchase)

 Salam-Post Execution Scenarios (Supply of Goods as Per Contract, Failure in Supply of Goods, Supply of Inferior Goods)

 Salam-Based Securitization-Salam Certificates/Sukuk

 Istisna’a(Order to Manufacture)( Definition and Concept, Subject Matter of Istisna‘a, Price in Istisna‘a, Penalty Clause: Delay in Fulfilling the Obligations, The Binding Nature of an Istisna‘a Contract, Guarantees, Parallel Contract – Subcontracting, Istisna‘a and Agency Contract, Post Execution Scenario,Work in Progress,Delivery and Disposal of the Subject Matter,The Potential of Istisna‘a,Risk Management in Istisna‘a)

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Unit 10

Ijarah – Leasing

 Introduction (Ijarah and Bai‘ Compared,

 General Juristic Rules of Ijarah (Determination of Rent, Sub-lease by the Lessee, Security/Guarantee in Ijarah,Liabilities of the Parties,Termination/Amendment of the Contract and Implications,Failure in Payment of Due Rent.

 Modern Use of Ijarah,Financial Lease or Hire–Purchase,Security or Financing Lease,Operating Lease,Appraisal of Conventional Leases from the Shar¯ı´ah Angle,Combining Two Contracts.

 Takaful/Insurance Expenses, Islamic Banks’ Ijarah Muntahia-Bi-Tamleek, Procedure for Ijarah Muntahia-bi-Tamleek,Sale and Lease-back Arrangement, Destruction/Theft of the Asset,Issues Concerning Modern Use of Ijarah,Assignment of the Leased Assets and Securitization of Leases.

Unit 11

Takaful

 Introduction (Why Modern Insurance is prohibited, Main Aim of the Takaful System, How the Takaful System Works, Models of Takaful, Issues in the Mudarabah Model, Issues in Wakalah and Wakalah–Mudarabah Models, Takaful and Conventional Insurance Compared, Status and Potential of the Takaful Industry,

Unit 12

Loan & Debt in Islamic Banking

 Introduction (The Terms Defined, Illegality of Commercial Interest, Loaning and the Banking System, Guidance from the Holy Qur’an on Loans and Debts, The Substance of Loans, Repayment of the Principal Only,Time Value of Money in Loans and Debts,Instructions for the Debtor,Instructions for the Creditor,Husnal Qadha (Gracious Payment of Loan/Debt),Remitting a Part of a Loan and Prepayment Rebate,Penalty on Default,Insolvency of the Debtor, Hawalah

(Assignment of Debt), Security/Guarantee (Kafalah) In Loans, Risk and Reward in Pledge, Benefits from Pledge, Bai‘ Al Dayn (Sale Of Debt/Debt Instruments), Impact of Inflation on Loans/Debts)

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Diploma in Islamic Banking & Finance Course Structure Contents

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Unit 13

Islamic Business Ethics

 Introduction (What is Ethics)

 Business Ethics, Freedom of Enterprise, Islamic Tenets Concerning Business Transactions,

Keenness to Earn Legitimate (Halal) Earnings, Justice and Fair Dealing,Honesty and Gentleness:, Prohibition of Najash, Prohibition of Khalabah (Misleading Marketing) Disclosure, Transparency and Facilitating Inspection (Fulfilling the Covenants and Paying Liabilities, Mutual Cooperation and Removal of Hardship,Free Marketing and Fair Pricing, Freedom from Dharar (Detriment), Justice and Fair Dealing,Honesty and Gentleness,Prohibition of Najash,Prohibition of Khalabah

(Misleading Marketing)

Unit 14

Globalization of Islamic Banking

 International Islamic financial institutions (Introduction)

 Islamic Development Bank Group, Islamic Development Bank (IDB), Objectives, Structure, Resources,Activities, Instalment sale,Leasing,

 Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), Objectives, Activities,

 Export Credit Insurance Programme, Foreign investment insurance services, Reinsurance facility,Investment promotion,

 Islamic Corporation for the Development of the Private Sector (ICD), Objectives, Activities, Direct financing, Lines of financing, Corporate finance,Asset management,Structured finance, Advisory services, Priority sectors and project types, Greenfield projects, Expansion projects, Existing projects under restructuring/rehabilitation,Privatization operations,

 Accounting and Auditing Organization for Islamic Financial Institutions, Objectives, Structure, Activities,

 Islamic Financial Services Board,Objectives,Structure,Activities,International Islamic Financial Market,Objectives,Activities,

 International Islamic Rating Agency, International Islamic Centre for Reconciliation and Commercial Arbitration for Islamic, Finance Industry, Objective, Structure, General Council of Islamic Banks and Financial Institutions,Objectives,Activities)

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