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Project And Group

Profile
Group Members:
•Noureen Mushtaq
•Sadia Ahmed
Submitted to: •Hafsa Tariq
Sir Javed Kareem •Saliha Anum
The importance of banks cannot be denied in the
development of the economy of any country…..
The involvement of Interest in the current conventional
system of banking has closed several doors of
opportunities for not only Muslims, but also for the world
development of economic sustainability ….
In such times, the need of an
Islamic Ideal Body is obvious….
Let us try to know the reasons
and basics upon which islamic
banking is considered as Halal…
and different from
Interest/conventional banking….
Islamic Banking

A step forward, towards Islamic Economic System


Introduction
Islamic banking has the same purpose as
conventional banking except that it operates in
accordance with the rules of Shariah,
known as:
 Fiqh al-Muamalat
(Islamic rules on transactions).
Basics of Islamic Banking
The basic principle of Islamic banking is:

• The sharing of Profit and Loss

• The prohibition of Riba (usury)


Definition
“Islamic banking has been defined as banking in
consonance with the ethos and value system of
Islam and governed, in addition to the
conventional good governance and risk
management rules, by the principles laid down
by Islamic Sharia’h”
What are We Focusing Upon?

We will be focusing on the Concept of Islamic


Banking and upon which bases, it has been
considered as Halal and Permissible
on the basis of Shariah
History
• Interest-free banking seems to be of very recent origin.
• The earliest references to the reorganization of banking on the basis
of
• Anwar Qureshi (1946),
• Naiem Siddiqi (1948)
• Mahmud Ahmad (1952)
• Mawdudi (1950)
• Muhammad Hamidullah (1962)
• They have all recognized the need for commercial banks and their
perceived "necessary evil" have proposed a banking
system based on the concept of Mudarabha - profit and loss sharing
Philosophy of Islamic Banking & Finance
risk-sharing
owning
handling of physical goods
involvement in the process of trading
leasing and construction contracts using
various Islamic modes of finance
Need of a New System
Why Islamic Banking needed?
Before explaining the concept
“what is Islamic Banking”
the elaboration of concept
“why Islamic Banking”
is very important.
Principles Governing

Islam

Aqidah Shariah Akhlaq


(Faith and Belief) (Practices and Activities) (Moralities and Ethics)
Objectives of Islamic Banking
• Main Objectives of Islamic Banking:

(Banking Without Riba)

“The main objective of an Islamic Bank is to Prohibit


Muslims from dealing with interest or usury (Riba)
which has been strictly prohibited by Allah and to
protect them from one of the biggest sins”.
Riba
What is Riba or interest?
Before moving to an easier definition of riba, for a definition of
interest we can refer to the work of J M Keynes:

“Interest in economics denotes the price paid on


money in exchange for the use of a sum of
money, the premium, obtained on current cash
over deferred cash”
(Keynes, 1937)
No Interest than???
What to do then?
• There is nothing wrong in the business of banking. A modern society can
not do without it.
• All we have to do is to change the business as to make it acceptable in
Islamic framework.
• Islam not only stresses on acceptability of
what we do (The Ends),
it also emphasizes on
how we do ( The Means)
certain things.
From Haram to Halal
How to change it?
1stwe simply remove those aspects of banking that
contradict Islamic standards.
2ndwe can keep those elements of banking that don't
violate Islamic norms.
3rdwhile making these changes, we refer to a set of
Islamic norms, collectively known as Shariah, which
is based on the:
Quran and The Sunnah (the Prophet’s tradition.
Importance of Trade in Islam
Islam has given an immense importance to trade.
• The nobility of this profession is obvious from
the fact that it was the chosen profession of
prophet Muhammad (S)
Most important Islamic Teachings
Related to Business
• The Prophet (PBUH) said:

“The
truthful honest merchant is with the
Prophets, the truthful and martyrs (in the day
of judgment)”
Narrated by Al-Tirmidhi)
Forms of Businesses Allowed by
Islam
1. Joint ventures based on sharing of risks &
profits
2. Provision of services through trading, both cash
and credit,
3. Leasing activities.
Uniqueness of Islamic Banking
Commingling between Finance and Religion and ethics
Sharia Supervisory Boards (SSB)
 Studies Articles of associations and by laws
 Approval of all contracts
Islamic Banking
 Audit the actual implementations
 Issuance of Fatwas (Responses)
 Conferences – Research - Training
Finance Religion Ethics
Structure of Hierarchy
Shari’ah Supervisory Board
Shariah Advisory
Council/Consultant
Basis of Shariah Approval
Terminologies
• Bai' al 'inah • Ijarah
• Bai' bithaman ajil • Musharakah
• Bai' muajjal • Qard hassan/
• Musharakah Qardul hassan
• Mudarabah • Sukuk
• Murabahah
• Takaful
• Musawamah
• Bai salam • Wadiah
• Hibah • Wakalah
Major Contracts Used in
Islamic Banking

• Mudaraba: Investment management


• Musharaka: Partnership
• Ijarah: Leasing
• Wakalah: Agency
• Istisna’: Contract of works
• Wadiah : safekeeping
Basic Difference between Islamic
and Conventional Modes of Finance
Conventional Bank
Money

Bank Client

Money + Money
(interest)
Islamic Bank
Islamic

Bank Client
Goods
And
Services

Money
Islamic Banking Conventional
Banking
1) Functions and operations are based on 1) Functions and operations are based on
Sharia’h principles fully man made principles
2) Promote risk-sharing between provider 2) Investor is assured of pre-determined
of capital (investor) and user of funds rate of interest
(entrepreneurs) 3) Aim at maximizing profit without any
3) Aim at maximizing profit but subject to restrictions
Sharia'h restrictions 4) Creditor-Debtor relationship
4) Partners, investor and traders, buyer or 5) Based on money trading. Money is a
seller relationship medium of exchange and not a
5) Encourage asset-based financing and commodity, its sale and purchase is
based on commodity trading prohibited in Islam.
6) No right of profit if there is no risk 6) It is almost risk free banking and
involved. The profit and loss sharing depositor has no risk of losing its
depositor may lose money in case of money because interest is guaranteed.
loss.
Deposit Products
Current Account

– It is organized as wadiah or safe-keeping.


– The deposits are held in trust and utilized by the
bank at its own risk.
– There is no big difference here between
conventional and Islamic banks, as normally no
interest is paid on such account.
Savings Account
• This account is based on Mudharaba principle.
• Depositors are owners of funds and the bank is
owner of labor.
• Profits are shared by both parties as per pre-
agreed ratio fixed through negotiation.
• If loss occurs, it is borne by depositor only as
owners of fund. The bank loses its effort.
Investment Account
Core deposits of an Islamic bank. Based on the concept of
Mudharaba Islamic counterpart of the Islamic
counterpart of the conventional fixed deposit products.
1. General Investment Deposits: 
Open to any project as selected by the bank.
2. Special Investment Deposit: 
Tied to any specific project agreed upon by both
parties.
Islamic Banking Global Scenario
Focus Areas
Worldwide Statistics
Market Performance
Interest Vs. Rent
Profit and Fees
• Not every known income is interest.
 Rent is a known payment to use a leased item.
 Fees are a known payment to buy services.
 Interest is a known payment to use money.
• Profit is the difference between revenue and costs. It is,
however, not known in advance. It is therefore not fixed, but
variable.
• Interest forms part of production costs. Profits are the
difference between revenues and costs.
So “Loan” can’t be a business
tool!
• Islam does not allow anyone to give and take anything
extra on a loan.
• But, today banks make money from the loan business.
• Depositors receive interest on their loan to banks.
Banks receive interest on their loans to Entrepreneurs
(Finance-seekers).
• Islamic banks can’t make use of such loans.
Fatwaat
Jamia Darul 'Ulum Karachi remains firm upon its previous fatwa. It is
permissible to perform financial transactions with banks which are
not based on interest that are working under the supervision of
authentic scholars while keeping with the principles of the Shari'a.
The profit earned from such transactions is halal (lawful) and it is
not interest or haram (unlawful).

Mufti Taqi Usmani


Mufti Afzal Ali Rabbani
Mufti Abdurrauf Sakkharwi
Mufti Mahmud Ashraf Usmani
Mufti Muhammad Abdul Mannan
Dr. Zakir Naik
• In Islam there is no different entity such as
capital and organization, on land you pay rent,
to labour, you pay wage, capital has profit and
loss sharing and same is for organization while
modern banking defines interest for capital.
This is the basic difference of modern banking
and Islamic banking
Guidance from Rules of Islamic Jurisprudence-
Rule of Positive Approach:

“Everything in this world is Halal except that


which is declared as Haram”
And then we looked at the Pakistani
scenario now….
The Islamic Banking Customer
Definition:

“People who don’t want to compromise on their


principles, But they want Top Quality, High
Standard Shariah Compliant Products/Services
from Institutions that care for the community
as a whole”
Professor Saleem says
"There is a good future for Islamic banks,
provided they improve services and focus on
real economy, infrastructures and do not invest
in credit cards and derivatives,"
"Conventional banks encourage people to spend
more. Islamic banks can put a break on this
negative trend,"
Criticism
• Many Muslim scholars are not happy with the present Islamic banking system due to the
absence of a comprehensive law.

"Islamic banks should prove that they are totally different from conventional ones to attract
faithful Muslims,"

• Muhammad Yousuf Saleem told Arab News that

“At present there is no law defining what is Islamic banking and finance. We need a
complete set of rules and regulations. In the absence of such a law, discrepancies will
continue,“
• The deficiency of educated and qualified scholars in the field of banking, one of the expert
said:

“"These bankers think the mothers are going to give born graduated sharia scholars,
obviously we need to develop them ”
Conclusion
• On the basis of the above it can be said that supply
and demand of capital would continue in an
interest free scenario with additional benefit of
greater supply of risk-based capital along with
more efficient
• Allocation of resources and active role of banks
and financial institutions as required in asset based
Islamic theory of finance.

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