salient features of islamic banking (1)

8/3/2019 Salient Features of Islamic Banking (1)

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Waqar Sharif

4469

Khalid Javed4475

Noman Arshad

4465

Ikram Ullah Khan4454

Muhammad Atif Hayat

4476

Mile-stones


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ISLAMIC BANKING

IN PAKISTAN


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Islamic banking refers to a system of banking or

banking activity that is consistent with theprinciples of the Shari'ah (Islamic rulings) and its

practical application through the development of

Islamic economics.

The principles which emphasize moral and ethical

values in all dealings have wide universal appeal.


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Islamic banks were formed to provide analternative basis to Muslims although Islamic

banking is not restricted to Muslims.

Basic principles of islamic banking

Elimination of Riba Economic Matters

Financing for Legal activities Islamic Objectivity


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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).

Islamic banking activities must be practiced

consistent with the Shariah and its practical

application through the development of

Islamic economics.


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Regarding principles of SHARIAH 3 modes of

financing

Lending without interest (Qard-e-Hasna)

Sale and trade

Profit and loss(musharka & modarba)

No.of Islamic banks working in Pakistanunder SBP


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FEATURES OF

ISLAMIC BANKING


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Prohibition of Interest (Riba)

Asset-Backed Financing Prohibition of Uncertainty (Gharar)

Prohibition of Speculative Behavior

Shariah Approved Activities

Risk Sharing

Social justice


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Any amount, big or small, over the

principal, in a contract of loan or

debt is Riba prohibited by theHoly Quran,

regardless of whether the loan is

taken for the purpose of

consumption or for some production

activity.


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ASSET-BACKEDFINANCING


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Under the concept of money as a potential

capital, money has on intrinsic utility.Therefore, unlike conventional financial

institutions, financing in Islam is always based

on illiquid assets which creates real assets andinventories.


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PROHIBITION OF

UNCERTAINTY

(GHARAR)


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Literal meanings: Indeterminacy, Speculation,Risk or Hazard.

Technical meanings:

Gharar takes place where the consequences

(of a transaction) are concealed.

(Imam Sarkhsi; Al Mabsut, Vol 13 p 194).


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Usually, the riskiness deals with the variation

of outcome (i.e. possibilities of profit & loss).Islamic commercial law does not disapprove

risk & uncertainty when it refers to business

outcomes as they constitute a law of nature.But Islamic commercial law requires absolute

certainty about the terms and conditions of

contractual obligations.


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Examples of Gharar:

Sale of a car which has been

stolen by someone.

Sale of goods yet to be acquired

by seller.

Sale of fish in water & birds in

the air.


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PROHIBITION OF

SPECULATIVEBEHAVIOR


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FEATURES

Every form of money acquisition of which

depends upon luck or chance (zero-sum-

game).

Qimar & Maysir literally means getting

something too easily. In other words you gainwhat you have not earned.

Maysir is used in Quran & Qimar in Hadith.


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SHARIAH

APPROVEDACTIVITIES


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All moral and ethical value systems would

naturally promote higher ideals such asfairness and justice for all mankind.

However, it is fascinating to note that the

primary source for Shariah rules andprinciples, namely Quran and Sunnah of

Prophet Muhammad S.A.W, more than 1400

years ago,


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have explicitly ordained in a comprehensiveand concise manner certain code of ethics

that can be universally applied even in the

modern day, undeterred by time, space orrace.


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Example:

(al-Maidah: 1);

There are specific Quranic injunctions that

calls for honest fulfillment of all contracts. (al-Anfal: 27);

Prohibits the betrayal of any trust.

(an-Nisaa: 29);

Forbids the earning of income from cheating,

price manipulation, dishonesty or fraud.


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RISK SHARING


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Risk refers to inherited or natural and not

speculative.

Risk sharing is encouraged rather than risk

transferring. So suppliers of funds become

investors rather than creditors.


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Islamic banking requires Risk-sharing than Risk

transferring, MoreoverA person is entitled toprofit only when he bears risk of loss.

Example:

A businessman is entitled to Profits & Gains in

his business because he is ready to bear Loss.


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Islamic Banking in

Pakistan


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According to Mufti Muhammad Taqi

Usmani, a famous Islamic Economist,

Islam does not deny the market forces and

market economy. Even the profit motive is

acceptable to a reasonable extent. Privateownership is not totally negated. Yet, the basic

difference between capitalistic and Islamic

economy is that in secular capitalism, theprofit motive or private ownership are given

unbridled power to make economic

decisions.


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Financing by Lending

Trade-related Mode of Financing

Purchase of goods by BanksPurchase of trade bills.

Purchase of Property.

Leasing

Hire-Purchase


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Global Crisis and

Islamic Banking


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Global crisis and Islamic Banking

Global Financial Crisis (2007-2008)


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Nature of the Islamic banking is saviour.

Safe heaven for secured liquidity

Significant global inflation and Islamic banks

Less investment in conventional western banks

Alternatives to conventional banking

Reversed picture in 2009


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CONCLUSION

In Global Financial Crisis 2008, the

performance of Islamic Finance Industry was

much satisfactory.

Conventional banking groups such as

CitiGroup, HSBC, Standard Chartered etc are

offering Islamic financial services.

Islamic banking is not restricted to Muslims.


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salient features of islamic banking (1)

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