Week

Content

Focus of Discussion

Suggested Reading

1

Introduction

Course Overview

An overview of Banking and Non-Banking Financial Institutions 

-          The Need for Financial Intermediation

-          The role of Banks in Financial Intermediation

-          The difference between Banking and Non-Banking Financial Institutions

This week content focuses on the need of Banking. Key questions such as why banking is necessary when one-to-one borrowing/lending is also possible? What type of costs are reduced through banking intermediation? Why banks are efficient in money management? What are the differences between banking and non-banking financial institutions?  

Chapter 3

Notes will be provided

2

Understanding Bank’s activities from Balance Sheet

-          The Liabilities of a Bank

-          Assets of Bank

-          Reserve Requirements

-          Capital Adequacy

This week’s course builds upon the previous week’s discussion. Here we will discuss the activities of the banks from their balance sheet.

Chapter 3

Notes will be provided

3

Understanding Islamic Banking

-               The difference from conventional Banking

-               The key Elements of Shariah Compliance

Once the technicalities of the banking system are discussed the content in this week will cover the differences between Conventional and Islamic banking through the lens of Shariah Compliance.

Suggested readings

4

Sources of Shari’ah and its application in Islamic Banking

•         Quran

•         Sunnah

•         Ijma

•         Qiyas

•         Maslahah

Five categories of Islamic Law

Islamic financial system is a rule-based system which means that it must follow certain rules. These rules are derived from Shari’ah (the divine law). In this week we will discuss the Shari’ah meanings and the sources of Shari’ah law that govern the life including business and financial dealings.

(Quiz 1 covering first three weeks content)

Notes will be provided

5

Shariah Governance Framework

-               Understanding Shariah Governance

-               Understanding Shariah Non-compliance Risk

-               Tackling Shariah Non-compliance Risk

In this week we will cover the importance of shariah governance framework for banking institutions and the role of shariah scholars in managing non-shariah compliance risk.

Chapter 2+Notes

6

Islamic Law of Contract

-         Contract and its Importance in Islamic Finance

-         Shari’ah perspective of contracts

-         Conditions and Types

-         Key features of Islamic Financial Contracts

-         Categories of Islamic Contracts

-         Common Islamic financial contracts

Before discussing Islamic banking and financial operations, it is important to understand the Islamic law of contract. In fact, all the contracts in Islamic banking and finance must adhere to these rules. Therefore, in this week we will discuss the rules that make a contract valid or void.

Chapter 5

7

Murabahah

-          Introduction to Murabahah

-          Difference between Murabahah and Musawamah

-          Basic Rules of Murabahah

-          Argument Against Murabahah

-          Common Mistakes in Murabahah Financing

-          Applications of Murabahah

-          Sale of Deferred Payment Basis (Bai’ Muajjal)

-          Tawarruq

-          Bai’ Inah

Murabaha contract and its application on the asset side of the Islamic Banking will be discussed. Also, bai al inah and Tawarruq contracts, its application and key issues will be discussed in this week as well.

QUIZ 2 (Covering all previous chapters)

(Assignment 1)

Chapter 6

8

Salam and Istisna’a

-            Introduction to Salam

-            Important characteristics of Salam contract

-            Risks and benefits of Salam contract

-            Parallel Salam

-            Introduction to Istisna’a

-            Difference between Istisna’a & Salam

-            Istisna’a as a Mode of Financing

Salam and Istisna’a both are future contracts, however, there is difference between both. In this week we will cover detailed theoretical information about both contracts.

(Case Study 1)

Chapter 7

9

Ijarah

-       Ijarah and its types

-       Basic Rules for Ijarah

-       Difference between Ijarah and Murabahah

-       Difference between Ijarah and Istisna’a

-       Benchmarking and Penalty related Issues

-       Termination of Ijarah Contract

-       Residual Value of Leased Asset

Ijarah is a Shari’ah compliant lease contract, we will discuss Ijarah and its types along with all related rules.

Chapter 8

10

Mudarabah 

-          Introduction to Mudarabah

-          Types of Mudarabah

-          Shari’ah conditions related to Mudarabah

-          Distribution of profit & loss

-          Termination of Mudarabah contract

-          Applications of Mudarabah

Mudarabah is widely used Shariah compliant contract in the global banking and financial industry. In this week we will discuss the Mudarabah contract and its types in detail.

(Assignment 2)

Chapter 9

11

Musharakah

-          Introduction to Musharakah

-          Types of Musharakah

-          Basic Rules of Musharakah

-          Termination of Musharakah

-          Difference between conventional financing and Musharakah

-          Difference between Musharakah and Mudarabah

-          Issues in Musharakah

-          Tenure of Musharkah

-          Application of Musharakah

-          Diminishing Musharakah on the basis of Shirkat ul Milk 

Musharakah is the second equity-based contract after Mudarabah. In this lecture we will focus on the concept of Musharaka, rules of Musharakah, and types of Musharakah contract. We will also discuss about diminishing Musharakah which is the most common type of partnership contract used by Islamic banks for home financing and car financing in Pakistan.

(Assignment 3)

Chapter 10

-           

12-14

Risk and Risk Management in Islamic Banking

-          Understanding Key risks in Islamic banking

-         Management of Risk

Upon discussing all the activities of Islamic Banking on the assets and liabilities side, this topic will cover the key risks that banks face and how such risks are managed.

Suggested Readings

Final Exam