Professional Documents
Culture Documents
Islami Bank Bangladesh Limited (IBBL) the first interest free bank in
Southeast Asia was incorporated in 1983.
HISTORY OF MODERN ISLAMIC BANKING
In 80s different initiatives were taken in Pakistan, Iran & Sudan.
In 90s AAOIFI, Harvard Islamic Finance Forum, Dow Jones Islamic Index
were established.
Over 40 Shari'ah & Accounting Standards for Islamic financial institutions (by
AAOIFI)
Islamic Funds
AAOIFI
IFSB
IIRA
CIBAFI
AAOIFI
Accounting & Auditing Organization
of Islamic Financial Institutions
Nadwah al-Barakah .
“We must work our destiny in our own way and present to
the world an economic system based on true Islamic
concept of equality of manhood and social justice.
History
1947 Pakistan Resolution.
1949 Objectives Resolution.
1962 Creation of Council of Islamic Ideology (CII) in 1962.
1979 Pakistan adopted a policy of gradual transformation of its banking
system.
1980 A 15 member committee of CII prepared a report on elimination of
banking & commercial interest from Pakistan and outlining the
Islamic modes of financing.
1980 Introduction of zakat system.
1983 Introduction of Ushr system.
1985 Introduction of mark-up based financing system in banks.
1991 Federal Shariat Court (FSC) Declared mark-up procedure un-Islamic.
ISLAMIC BANKING – IN PAKISTAN
1999 Shari'ah Appellate Bench of Supreme Court rejected all appeals against
the previous and called for the establishment of an interest free
financial system.
2008 SBP issue Instruction & Guidelines for Shari'ah Compliance in Islamic
banks.
2008 Government of Pakistan issue Ijarah based sukuk to finance its needs.
2010 6 Full fledged Islamic banks & 14 Islamic banking windows were
operating and have over 5% market share in a very short span of time
plan………
ISLAMIC BANKING – IN PAKISTAN
CURRENT STATUS
Meezan Bank .
Burj Bank.
The needs of the people are same that’s why Islamic financial
institution products economic reality looks similar to the conventional
counterparts.
Islamic Banks have the good product range available for the un
tap agriculture industry such as Muzariat etc. Agriculture is the 70% of
the GDP of Pakistan's economy.
WHAT DISTINGUISHES ISLAMIC
BANKING
Islamic banking Conventional banking
Transactions are asset- Transactions are money
based/backed. lending and Riba based.
It is socially-responsible banking Involve in many impermissible
because it operates under transactions like Short selling,
Shari’ah restrictions. Sale of Debt, Speculation,
artificial financial transactions,
no sanctity for Islamic law of
contract.
Does not permit financing of Permit financing of prohibited
prohibited goods / Industries. goods / Industries like alcohol,
casinos etc.
Al Baqarah 275
“Those who devour Riba shall rise up before Allah like men whom Shaitan has
demented by his touch; for they claim that trading is like Riba. But Allah has
permitted trading and forbidden Riba. He that receives an admonition from his
Rabb and mends his ways may keep what he has already earned; his faith is in
the hand of Allah. But he that pays no heed shall be among the people of fire and
shall remain in it forever.”
PROHIBITION OF RIBA IN AHADITH
“O you who believe, Fear Allah and give up what remains of your demand
for Interest, if you are indeed a believer. If you do not, then you are
warned of the declaration of war from Allah and His Messenger; But if you
turn back you shall have your principal: Deal not unjustly and you shall not
be dealt with unjustly.”
PROHIBITION OF RIBA IN AHADITH
Conventional System
money
Bank Client
money + money (interest)
Whereas Allah has permitted trading
Islamic System
Money (Price)
DEFINITION OF RIBA
For example:
Profit on trading.
Rent on property.
KEY MISCONCEPTIONS
For example Liter is the same measure for milk and petrol.
KEY MISCONCEPTIONS
The Holy Quran says “And Allah has permitted trade”. (2:275)
It is further mentioned “ But let there be among you traffic and trade by
mutual goodwill”. (4:29)
The contract of pledge is binding on the debtor who provides it, even if the
asset so pledged is not possessed by the creditor.
Pledges derives their legitimacy from the following Qura’nic verse: “if ye
are on a journey, and cannot find a scribe, a pledge with possession (may
serve the purpose)”.(Bqarah V283)
And the practice of the prophet (peace be upon him) since it is known that
the prophet (Peace be upon him) died while his shield was still held as
security for a mortgage.(Bukhari 3/1068).
Imam Al-Ghazali pointed this out 900 years ago in the following
words:
"Riba (interest), is prohibited because it prevents people from undertaking
real economic activities. This is because when a person having money is
allowed to earn more money on the basis of interest, either in spot or in
deferred transactions, it becomes easy for him to earn without bothering
himself to take pains in real economic activities. This leads to hampering the
real interests of the humanity, because the interests of the humanity cannot
be safeguarded without real trade skills, industry and construction.”
You could say that if you laid all those dollar bills end to end, they
would stretch from here to the sun 1,238 times, or to the moon 485,625
times.
“Too big to Fail strategy” had not worked because AAA rating from
S&P Financial institution are filled for bankruptcy.
THE WAY FORWARD