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Interest Free Interest Free BankingBanking
Prepared By: Lalit Kumar Agarwal ([email protected]) 2
Interest Free Banking is a interest free system Interest Free Banking is a interest free system which depends upon the system of profit & loss which depends upon the system of profit & loss sharing.sharing.
Interest free banking encourages people to Interest free banking encourages people to invest their money and to become partners in invest their money and to become partners in order to share profits and risks in the business order to share profits and risks in the business instead of becoming creditors. instead of becoming creditors.
The purpose of interest free banking is not only The purpose of interest free banking is not only the making profits but also more developing the making profits but also more developing the easiness in business & life of peoples.the easiness in business & life of peoples.
Profit is a partial thing, produced as the result of Profit is a partial thing, produced as the result of business. According to interest free system, this business. According to interest free system, this profit is divided into participants respectively.profit is divided into participants respectively.
India's global competitor China has also India's global competitor China has also permitted interest free banking. If India do permitted interest free banking. If India do not start this banking, then We can not run not start this banking, then We can not run ahead than china.ahead than china.
Interest free banking do not centralize the Interest free banking do not centralize the money and remove economic disbalance money and remove economic disbalance among peoples. While capatilist economy is among peoples. While capatilist economy is a interest based system, in which elite a interest based system, in which elite group get more & more rich and poor group get more & more rich and poor peoples loss more & more money.peoples loss more & more money.
In this 21st century, we can not run ahead In this 21st century, we can not run ahead while ignoring this banking.while ignoring this banking.
Prepared By: Lalit Kumar Agarwal ([email protected]) 3
Prepared By: Lalit Kumar Agarwal ([email protected]) 4
Interest free banking is a banking of Aam Interest free banking is a banking of Aam Aadmi.Aadmi.
Interest free banking is a balanced and totally Interest free banking is a balanced and totally transparent system. transparent system.
Making profit-loss sharing and careness of Making profit-loss sharing and careness of each other are the basic principles of interest each other are the basic principles of interest free banking.free banking.
75 countries of world have started 1300 75 countries of world have started 1300 interest free banks.interest free banks.
If developing countries like India take loan If developing countries like India take loan from interest free banks instead of capatilist from interest free banks instead of capatilist banks, then capatilist economy would start to banks, then capatilist economy would start to collapse.collapse.
Prepared By: Lalit Kumar Agarwal ([email protected]) 5
By 2016, interest free economy of world By 2016, interest free economy of world would became of 1 trillion dollar with 15% would became of 1 trillion dollar with 15% progress rate.progress rate.
Interest free banking can help to establish Interest free banking can help to establish peace and economic prosperity for the whole peace and economic prosperity for the whole mankind.mankind.
First complete Interest free bank was First complete Interest free bank was established in Dubai, 1995.established in Dubai, 1995.
Interest free banking is becoming a very Interest free banking is becoming a very popular amongst international investor. It is popular amongst international investor. It is not a closed system. It has no regional, ethnic not a closed system. It has no regional, ethnic or class affiliations. or class affiliations.
Interest free banking is less prone to Interest free banking is less prone to inflation.inflation.
Interest free banking finance is based on Interest free banking finance is based on the belief that the provider of capital and the belief that the provider of capital and the user of capital should equally share the user of capital should equally share the risk of business ventures, whether the risk of business ventures, whether those are industries, farms, service those are industries, farms, service companies or simple trade deals.companies or simple trade deals.
Interest free banking is an instrument of Interest free banking is an instrument of banking in a natural way, which has came banking in a natural way, which has came recently before peoplesrecently before peoples
Prepared By: Lalit Kumar Agarwal ([email protected]) 6
Prepared By: Lalit Kumar Agarwal ([email protected]) 7
Difference between Difference between conventional banking and conventional banking and
Interest Free bankingInterest Free banking
Prepared By: Lalit Kumar Agarwal ([email protected]) 8
Bank Client
money
money + money (interest)
Conventional
Banking System
Prepared By: Lalit Kumar Agarwal ([email protected]) 9
Bank ClientGoods & Services
money
Interest Free Banking System
Prepared By: Lalit Kumar Agarwal ([email protected]) 10
Conventional BanksConventional Banks Interest Free Banks BanksMoney is a commodity besides medium of Money is a commodity besides medium of exchange and store of valueexchange and store of value
Money is not a commodity thought it Money is not a commodity thought it is used as a medium of exchange and is used as a medium of exchange and store of valuestore of value
Time value is the basis for charging Time value is the basis for charging interest on capitalinterest on capital
Profit on trade of goods for charging Profit on trade of goods for charging on providing service is the basis for on providing service is the basis for earning profitearning profit
Interest is charged even in case the Interest is charged even in case the organization suffers losses by using organization suffers losses by using bank's fundbank's fund
Interest Free bank operates on the bank operates on the basis of profit and loss sharingbasis of profit and loss sharing
While disbursing cash finance, running While disbursing cash finance, running finance or working capital, no agreement finance or working capital, no agreement for exchange of goods & services is made.for exchange of goods & services is made.
The execution of agreements for the The execution of agreements for the exchange of goods & services is a exchange of goods & services is a must while disbursing funds under must while disbursing funds under contractscontracts
Conventional banks use money as a Conventional banks use money as a commodity which leads to inflationcommodity which leads to inflation
Interest Free banking tends to create banking tends to create link with the real sector of the link with the real sector of the economic system by using trade economic system by using trade related activities.related activities.
Prepared By: Lalit Kumar Agarwal ([email protected]) 11
Conventional banksConventional banks Interest Free Banks BanksThe investor is assured of a pre The investor is assured of a pre determined rate of interestdetermined rate of interest
In contract it promotes risk sharing In contract it promotes risk sharing between provider of capital (investor) between provider of capital (investor) and the user of funds (entrepreneur)and the user of funds (entrepreneur)
Lending money and getting it back Lending money and getting it back with compounding interest is the with compounding interest is the fundamental functions of the fundamental functions of the conventional banksconventional banks
Compounding calculation is strictly Compounding calculation is strictly prohibited under prohibited under Interest Free banking banking systemsystem
It can charge additional money incase It can charge additional money incase of defaultersof defaulters
The The Interest Free banks have no banks have no provision to charge any extra money provision to charge any extra money from the defaulters.from the defaulters.
Conventional banks invest their Conventional banks invest their deposit in interest based modesdeposit in interest based modes
Interest Free banking only deals in Halal banking only deals in Halal products and servicesproducts and services
The status of a conventional bank, in The status of a conventional bank, in relations to its clients, is that of relations to its clients, is that of creditors and debtors.creditors and debtors.
The status of The status of Interest Free bank in bank in relation to its clients is that of Partners, relation to its clients is that of Partners, Investors, and Trader, Buyer and Seller.Investors, and Trader, Buyer and Seller.
A conventional bank has to guarantee A conventional bank has to guarantee of all its deposits.of all its deposits.
Interest Free banks cannot guarantee of banks cannot guarantee of all its deposits.all its deposits.
Prepared By: Lalit Kumar Agarwal ([email protected]) 12
Basic Principles of Interest Basic Principles of Interest Free BankingFree Banking
Prepared By: Lalit Kumar Agarwal ([email protected]) 13
Sanctity of contracts.Sanctity of contracts. Risk sharing.Risk sharing. No Interest.No Interest. Economic purpose / activity.Economic purpose / activity. Fairness.Fairness. No valid subject matter.No valid subject matter.
Prepared By: Lalit Kumar Agarwal ([email protected]) 14
Interest Free Banking Fare vis-à-Interest Free Banking Fare vis-à-vis Conventional Bankingvis Conventional Banking
The approach of Interest Free banking to The approach of Interest Free banking to satisfy the business needs of the customers satisfy the business needs of the customers is entirely different from that of the is entirely different from that of the approach adopted by conventional banking. approach adopted by conventional banking. Basically Interest Free banking satisfies the Basically Interest Free banking satisfies the business needs of the entrepreneurs by the business needs of the entrepreneurs by the following two methods.following two methods.
Profit and loss sharing modesProfit and loss sharing modes
Debt creating modes (financing the purchase Debt creating modes (financing the purchase of commodities on credit with a mark-up)of commodities on credit with a mark-up)
