Principles of Islamic banking and finance/PIBF202/Islamic banking products/Overview

Islamic banking products are aimed at investors who want to comply with the Shari`ah. The most distinguishing component of Islamic finance as illustrated in the Shari`ah is the banning of interest. Other components include the emphasis on equitable contracts, the linking of finance to productivity, the desirability of profit and loss sharing, and the prohibition of gambling.

Deposit as a common term in banking and finance industry is backed by the motive of safekeeping. The Shari`ah also deals with the perception of deposit under the amanah (or wadi`ah) framework. However, the banks' intention while accepting money as deposits is not the safekeeping but to return it in full on demand after its utilization. In this section you will be introduced to deposits from Islamic banking perspectives, as well different categories and features of deposit products in Islamic banking. We will explore the equity-based Islamic financing products namely the mudharaba and musharaka, which falls under the category of profit-and-loss sharing (PLS). We will also discuss here in details how musharaka mutanaqisa, an updated form of musharaka practically works in modern Islamic banking.

Learning outcomes
By the end of this chapter, you should be able to:


 * Distinguish between the various categories of deposits used by of Islamic banks and financial institutions.


 * Explain the nature and types of deposit products.


 * Know the relevant conditions of musharaka and mudaraba to be fulfilled to become the valid Islamic financial products.


 * To discuss how the mode of musharakah mutanaqisah works as an updated form of musharakah.


 * Distinguish between the various categories of deposits used by of Islamic banks and financial institutions.


 * Explain the nature and types of deposit products.