Salient Features of Islamic Banking

• Prohibition of transaction on a Riba basis.

• Man, acting as the vicegerent, of Allah.
• Wealth should be directed in the Halal (religiously permitted)
channels.
• Consumption should be rationalized and expenditure should be
conducted with thrift, avoiding extravagance.
• Funds should not be employed to monopolize the resources.
• Zakah must be deducted from wealth and given to the poor and the
needy.
• Money is not to be treated as a commodity in itself but as a unit of
account and measure of value.
• A fixed charge on capital is unjust.
• Making money out of money is contrary to Islamic Law.
 Distinct characteristics of Islamic Banks

• The relationship between Islamic Banks and their customers is of

participation.
• There is no previously fixed return on the funds invested with the
bank.
• Islamic Banks work as Mudarib / Partner fund manager.
• Islamic Banks do not provide finance by offering cash loans.
• Islamic Banks are multipurpose banks, as they play role of
commercial banks and investment banks, as well as development
banks.
• Islamic Banking is primarily equity based.
• Whereas the Islamic System is value oriented.
• Islamic Banks are subjected to additional reviews by the religious
supervisory boards to ensure that funds are being raised and
invested in ways that conform to Islamic Principles.
 Why Islamic Banking and Finance?

• 20% of the world population is Muslims.

• 15 million Muslims residing in non-Islamic
countries in Europe, mostly in France, Germany
and in UK. And members of this community
were not getting benefit from the conventional
banking.
• Sizable proportion who will only avail financial
services if assurance of Shariah Approval is
given.
• The Oil Rich Middle East, which has a huge
potential for investing in a Shariah approved
financial system.
 Global Overview
• Islamic Banking grown in size and significance in a large
number of countries throughout the world.
• At least 75 countries all over the world have some or the
other form of Islamic Financial Services available in their
territorial jurisdictions.
• 42 countries have Islamic Banking Institutions.
• 27 Muslim countries including Kuwait, Dubai, Saudi
Arabia, Iran, Malaysia, Brunei and Pakistan.
• 15 non-Muslim countries including USA, UK, Canada,
Switzerland, South Africa and Australia.
 The General Performance of
Islamic Banking in Pakistan
• Growth @ 10-15%
• The Central Bank of Pakistan has allowed the Islamic
Banking System through,
• A establishment of stand-alone Islamic Banks (presently
6 banks have been issued licenses i.e. Meezan Bank, Al-
Baraka Islamic Bank, Bank-Al-Islami, Dubai Islamic
Bank, Emirates Global and Dawood Islamic Bank.
• Setting up subsidiaries of banks for Islamic Banking.
• Setting up of Full fledged Islamic Banking Branches (i.e.
totally 218)