ISLAMIC BANKING

Islamic Banking

The Iranian banking industry has completely been regulated by Sharia principles and is by far the world’s largest center of Islamic banking. Conventional banking in Iran was converted into Islamic banking in 1979 and since then the entire banking system in Iran has been Shariah-compliant. In 1983, the law of usury-free banking dubbed Law for Usury (Riba) Free Banking of the Islamic Republic of Iran was passed urging local banks to rebuild their business models within the Sharia-compliant framework.

The main concept of Islamic finance is based on the model of profit-and-loss sharing (PLS) basis such as Qard-al-Hassanah accounts and term deposits with no Riba (interest). In regard to lending, banks offer various models of financing using Islamic contracts, mostly in form of civil partnership, without a pre-determined lending rate (settlement is based on the real rate of return after the implementation of projects and ventures) and with banks’ supervision as partners in projects or ventures.

SHARIAH COUNCIL OF MONEY MARKET

The Shariah Council of the CBI, comprising three erudite scholars professional in Islamic finance, three members from the CBI, two experts in legal and economic fields, one representative on behalf of the banks in Iran, and one member of the parliament, is in charge of developing Islamic banking products and also making sure that the entire banking processes and procedures are compliant with Shariah principles.

ISLAMIC BANKING SERVICES IN IVBB

In addition to non-interest bearing (Riba-free) accounts, IVVB offers the following Islamic contrasts to its customers in the form of partnership or fixed profit models.


Based on this model, banks provide the entire or part of the funding required for a specific economic activity. The profit accrued is shared between banks and customers based on the contract terms.

Civil Partnership

Banks provide funds for customers (legal or individual) who co-invest in cash or kind in a specific economic activity, mostly in fields of construction, manufacturing, commerce and service industry. Profit accrued is shared between the two parties.

Mudharabah

A form of partnership where one party (the bank) provides the funds while the other provides expertise and management. Any profit accrued is shared between the two parties.

Banks provide the entire or part of the funds required by customers for specific projects or ventures. Unlike, partnership contracts, banks’ profits are fixed at the time of signing the contracts.

Jo'aleh

In this model, one party purchases another party's services for a specified commission. Banks may enter into the contract as either side of the parties.

Salam Contracts

A form of contract whereby banks purchase goods produced by customers. Banks pays the price in cash in advance fully and receives the goods in the future.

Leasing Ended with Ownership

This contract allows the bank to buy buildings, machinery, and equipment and then lease them. At the end of the leasing period, the lessor (the bank) transfers the property (movable or immovable) ownership to the lessee if the terms of the contract are met.

Istisna Contracts

A long-term contract whereby a party undertakes to manufacture, build or construct assets, with an obligation from the manufacturer or producer to deliver them to the customer upon completion.

Credit sales

In this contract, goods are delivered (sold) at the beginning of the contract, but payments are made gradually by installments. Banks are the sellers in this contract.

Murabaḥah Contracts

In this contract, banks are the suppliers of goods or services and sell them to customers with an added percentage as profits. The payment is done either in cash or by installments.


Below there is a comparison between IVBB’s portfolio composition in terms of Islamic contract types between two spans of time 2019/03/20 to 2020/03/19:




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