ISLAMIC BANKING

Islamic banking is a banking activity which is consistent with the Islamic law
(Shariah). Islamic banking is carried out in accordance with the rules of Shariah,
known as fiqh muamalat (Islamic rules on transactions). It does not allow the paying
and receiving of riba’ (interest) and promotes greater degree of fairness and equity in
the conduct of banking business

The first Islamic bank was established in Malaysia in 1983. In 1993, commercial
banks, merchant banks and finance companies were allowed to offer Islamic banking
products and services under the Islamic Banking Scheme (IBS banks). The IBS
banks are required to ensure that the funds and activities of the Islamic banking
transactions are separated from the conventional banking business.
All licensed Islamic banks and IBS banks are required to display the Islamic banking
logo as shown below:

SHARIAH PRINCIPLES IN ISLAMIC BANKING

The rules and norms of fiqh muamalat emanated from two primary sources of Shariah
namely the Quran and the Sunnah and other secondary an

Islamic banking operates under a number of contracts under fiqh muamalat.

Amongst the widely used concepts in Islamic banking include profit sharing
(Mudharabah), safekeeping (Wadiah), joint venture (Musyarakah), cost plus
(Murabahah) and leasing (Ijarah).

SHARIAH COMMITTEE
The Islamic banks and IBS banks must ensure that their operations comply with the
principles of Shariah. Each institution is therefore required to set up a Shariah
Committee to provide advice on Shariah issues and to ensure that its operations and
activities comply with the Shariah principles. In addition, the Shariah Advisory
Council set up at Bank Negara Malaysia (BNM) is the highest Shariah authority set
up to provide advice on the Shariah matters pertaining to Islamic banking and takaful
in Malaysia.

SHARIAH CONCEPTS IN ISLAMIC BANKING

Wadiah (Safekeeping)
For deposit product or Wadiah contract, a bank is the custodian and trustee of funds.
A person deposits funds in the bank and the bank guarantees refund of any part or
the whole amount of the deposit when requested by the depositor. The depositor, at
the bank's discretion, may be given 'hibah' (gift) as a form of appreciation for the use
of funds by the bank. As a trustee of the items, the custodian may charge a fee to
the customer.
Mudharabah (Profit Sharing) Mudharabah is a profit sharing arrangement or
agreement between a capital provider and an entrepreneur. The entrepreneur is
provided with funds by the capital provider to undertake a business activity. Any
profits made will be shared between the capital provider and the entrepreneur
according to the pre-determined profit-sharing ratio. However, losses shall be borne
by the capital provider.
Musyarakah (Joint Venture) This concept is normally applied for business
partnerships or joint ventures. The profits made are shared on an agreed ratio while
losses incurred, will be divided based on the equity participation ratio.

Murabahah (Cost Plus)

The selling of goods at a price, which includes a profit margin agreed by both parties.
The purchase and selling price, other costs and the profit margin must be clearly
stated at the time of the sale agreement.
Bai' Bithaman Ajil (Deferred Payment Sale)
The selling of goods on a deferred payment basis at a price, which includes a profit
margin agreed by both parties.

Wakalah (Agency)
This is the situation when a person appoints a representative or delegates a duty to
another party to undertake transactions on his behalf. As an agent, the bank will be
paid a fee for the services it provided.

Qard (Interest-free Loan)

A loan extended on a goodwill basis and the borrower is only required to repay the
amount borrowed. However, the borrower may, at his discretion, pay extra (without
promising it) as a token of appreciation.
Ijarah Thumma Bai' (Hire Purchase)
There are two contracts involved in this concept: Ijarah contract (leasing/renting) and Bai'
contract (purchase). The contracts are undertaken one after the other. For example, in a car
financing facility, a customer enters into the Ijarah contract to lease the car from the owner
(financier) at an agreed rental for a specific period. When the leasing period ends, the Bai’
contract comes into effect, to enable the customer to purchase the car from the owner at an
agreed price.
Objectives
An attempt is made in this research:
• To highlight salient features of Islamic banking system.
• To compare Islamic banking system with conventional banking
system.
• To investigate whether Islamic banking is at least as viable as
conventional banking system on economic grounds.
• To simulate future prospects of Islamic banking system, if people are
10
made aware of the difference between Islamic banking system and
conventional banking system.
• To simulate future prospects of Islamic banking system, if people are
made aware of the viability of Islamic banking system

COMPANY PROFILE

Company History
Reliance Capital Limited (RCL) was incorporated in year 1986 at Ahmedabad in Gujarat
as Reliance Capital & Finance Trust Limited. The name RCL came into effect from
January 5, 1995. In 2002, RCL shifted its registered office to Jamnagar in Gujarat before
it finally moved to Mumbai in Maharashtra, in 2006.

In 2006, Reliance Capital Ventures Limited merged with RCL and with this merger the
shareholder base of RCL rose from 0.15 million shareholders to 1.3 million.

RCL entered the Capital Market with a maiden public issue in 1990 and in subsequent
years further tapped the capital market through rights issue and public issues. The equity
shares were initially listed on the Ahmedabad Stock Exchange and The Stock Exchange
Mumbai. Presently the shares are listed on The Stock Exchange Mumbai and the National
Stock Exchange of India.

RCL in the initial years engaged itself in steady annuity yielding businesses such as
leasing, bill discounting, and inter-corporate deposits. Later, in 1993 diversified its
business in the areas of portfolio investment, lending against securities, custodial
services, money market operations, project finance advisory services, and investment
banking.

RCL was accredited a Category 1 Merchant banker by the Securities Exchange Board of
India (SEBI). It had lead managed/co-managed 15 issues of an aggregate value of Rs. 400
crore and had underwritten 33 issues for an aggregate value of Rs. 550 crore. All these
companies were listed on various exchanges.
RCL obtained its registration as a Non-banking Finance Company (NBFC) in December
1998. In view of the regulatory requirements RCL surrendered its Merchant Banking
License.

RCL has since diversified its activities in the areas of asset management and mutual fund;
life and general insurance; consumer finance and industrial finance; stock broking;
depository services; private equity and proprietary investments; exchanges, asset
reconstruction; distribution of financial products and other activities in financial services.

Vision
Reliance Capital's vision is that:

By 2012, it will be a company that is known as:

"The largest, most profitable, innovative, and most trusted financial services company in
India and in the emerging markets".

In doing so, the company expects to reach the following targets by 2012:

1. 50 million customers.
2. 75,000 employees
3. A profit after tax of Rs. 5,000 crore for that financial year.
4. A valuation of Rs. 100,000 crore for the company and its subsidiary businesses.

In achieving this vision, the company will be both customer-centric and innovation-
driven.

Business Overview
Reliance Capital, a constituent of S&P CNX Nifty and MSCI India, is a part of the
Reliance Anil Dhirubhai Ambani Group (www.relianceada.com). It is one of India's
leading and most valuable financial services companies in the private sector.

Reliance Capital has interests in asset management and mutual fund; life and general
insurance; consumer finance and industrial finance; stock broking; depository services;
private equity and proprietary investments; exchanges, asset reconstruction; distribution
of financial products and other activities in financial services.

Reliance Mutual Fund is India's largest Mutual Fund with over seven million investor
folios. Reliance Life Insurance is amongst the top four private sector insurers. Reliance
General Insurance is among the top four private sector insurers. Reliance Money is one of
India’s leading retail broking houses and distributors of financial products and services.

Reliance Capital has a net worth of Rs. 7,803 crore (US$ 2 billion) and total assets of Rs.
27,234 crore (US$ 6 billion) as on June 30, 2010.
Click here to view the latest financial results

Top Management Profile

Reliance Capital is anchored by a team of experienced and committed visionaries who
are dedicated towards scaling the company to greater heights through innovation and
excellence; thereby creating value for all our stakeholders.

Click on the executive names to access their profiles

Amit Bapna (Chief Financial Officer, Reliance Capital)

K. A. Somasekharan (Chief Executive Officer, Reliance General Insurance)

K. V. Srinivasan (Chief Executive Officer, Reliance Consumer Finance)

Lav Chaturvedi (Chief Risk Officer, Reliance Capital)

Madhusudan Kela (Head - Equity Investments, Reliance Capital Asset Management)

Malay Ghosh (President, Reliance Life Insurance)

Rajnikant Patel (President and Chief Executive Officer, Reliance Spot Exchange)

Sam Ghosh (Chief Executive Officer, Reliance Capital)

Sandeep Phanasgaonkar (Chief Technology Officer, Reliance Capital)

Sanjay Jain (Chief Marketing Officer, Reliance Capital)

Sundeep Sikka (Chief Executive Officer, Reliance Capital Asset Management)

Vikrant Gugnani
(Chief Executive Officer, International Business- Reliance Capital)

V. R. Mohan (Company Secretary, Reliance Capital)

Chairman's Profile
Regarded as one of the foremost corporate leaders of contemporary
India, Shri Anil D Ambani, 50, is the chairman of all listed
companies of the Reliance ADA Group, namely, Reliance
Communications, Reliance Capital, Reliance Infrastructure,
Reliance Natural Resources, Reliance Power and Reliance Big
Entertainment. He is also Chairman of the Board of Governors of
Dhirubhai Ambani Institute of Information and Communication
Technology, Gandhi Nagar, Gujarat.

An MBA from the Wharton School of the University of

Pennsylvania, Shri Ambani is credited with pioneering several financial innovations in
the Indian capital markets. He spearheaded the country's first forays into overseas capital
markets with international public offerings of global depositary receipts, convertibles and
bonds. Under his chairmanship, the constituent companies of the Reliance ADA group
have raised nearly US$ 3 billion from global financial markets in a period of less than 15
months.

He is a member of:

• Wharton Board of Overseers, The Wharton School, USA

• Central Advisory Committee, Central Electricity Regulatory Commission
• Board of Governors, Indian Institute of Management, Ahmedabad
• Board of Governors Indian Institute of Technology, Kanpur
In June 2004, he was elected for a six-year term as an independent member of the Rajya
Sabha, Upper House of India's Parliament a position he chose to resign voluntarily on
March 25, 2006.

Awards and Achievements

• Conferred the 'CEO of the Year 2004' in the Platts Global Energy Awards
• Rated as one of 'India's Most Admired CEOs' for the sixth consecutive year in the
Business Barons - TNS Mode opinion poll, 2004
• Conferred 'The Entrepreneur of the Decade Award' by the Bombay Management
Association, October 2002

Statement of problem by exposure

1. What is Islamic banking system with respect to its principles and
instruments?
2. How Islamic banking system is different from conventional one?
3. What are the advantages of Islamic banking system, and what is its
future?
4. Why Islamic banking is more viable than conventional banking
system?

METHODOLOGY
Primary data;
this method collected from the personal discussion with the authorities clerks and general
public in the form of questionare

Secondary data;
This method includes the data collected from magazines newspaper and news and
websites

Limitations of the Study

The research is conducted within the following limitations:

• To keep the study manageable research is conducted on limited

grounds.
• The study is conducted on small level and only the important aspects
are
considered.
• There was a shortage of time that’s why limited data is collected. Still
the
researcher has tried to collect sufficient data to make an effective
analysis

NAME: ABUBAKAR BIN AHMED

BAKULKA
CLASS: MBA
SECTION; B
ROLLNO ;19