Handbook for Directors of Financial Institutions

Handbook for Directors of Financial Institutions

Elgar original reference

Edited by Benton E. Gup

Offers advice from existing directors, scholars and regulators about what good directors need to know. The Handbook for Directors of Financial Institutions offers the practitioner and the scholar a comprehensive guide to what it takes to survive and thrive as a director of a financial institution. The authors comprise current directors of banks, credit unions, insurance companies and other organizations, bank regulators, lawyers and academics. They provide unique insights and advice about corporate social responsibility, legal risks, starting a new bank, D & O insurance, sub prime lending, Islamic banking, and other timely issues.

Chapter 11: A Simple Guide to Islamic Banking and Finance

Mohamed Ariff

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, law - academic, corporate law and governance, finance and banking law


11 A simple guide to Islamic banking and finance Mohamed Ariff This chapter is a guide to the essential principles and practices of Islamic banking in some 70 countries. The guide is a simplified introduction to what constitutes this special form of banking; the special form arising from its profit-seeking through profit and loss sharing deposits and loan contracts and fee and mark-up based lending for purchasing real assets, both modes replacing conventional, interest-based banking practices. The chapter describes the way in which this niche banking, which began in 1963, has grown to the present size of about US$500 billion in equity capital, successfully making profits in some 50-odd legal jurisdictions. The organization, the working principles, and selected key terms used in this form of banking are explained. Also included are the philosophical basis on which this different form of banking is constructed and brief comments on other forms that are yet to be experimented with. Introduction This chapter provides a simple introduction – a beginner’s guide – to the current practices of Islamic banking and finance, which is found in about one-third of the countries in the world.1 Islamic financial institutions are legal entities that are licensed under banking laws of a given legal jurisdiction in a country, or economic entities that are authorized to operate in one or more of the following areas: banking, insurance, treasury, bond, equity, mutual funds and bills markets. These institutions originate and transact financial activities that are designed with...

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