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Zubair MughalChief Executive Officer
AlHuda : Centre of Islamic Banking & Economics
Editor in Chief.Islamic Banking and Finance News , True Banking.
An Introduction to
Islamic Banking & Finance
Outline of Presentation
Introduction to Microfinance Riba ( Interest ) Product of Islamic Microfinance Progress of Islamic Banking in Pakistan and
Worldwide Difference between Islamic & Conventional MF..
Islam
Aqidah(Faith & Belief)
Shariah(Practices & Activities)
Akhlaq(Morality & Ethics)
IBADAT(Man to God Worship)
Muamalat(Man to Man Activities)
Political Activities Economic Activities Social Activities
Banking & Financial Activities
Islam and Shariah
Sources of Fiq’h in Islam (Islamic Finance)
Quran
Sunnah
Ijtehad / Qiyas
Ijama’e Ummah
Basic Difference between Islamic and Conventional MF
ConventionalBank Client
Money
Money + Money(interest)
Bank ClientGoods & Services
money
Islamic Micro Finance
Riba in Quran
“... God has permitted trade and forbidden interest...”
(Sura Al-Baqara 2:275)
Fulfillment of Financial Needs
Own Capital Others’ Capital
Equity Financing Debt Financing
• Murabahah• Ijarah•Salam & Istisna etc
• Musharakah• Modarabahah• Other Products
Human Financial Needs
PRODUCT TREE
Islamic Microfinance Modes
Trade Based Modes
Partnership Based Modes
Rental Based Modes
Musharaka(Joint Venture Profit Sharing )
Mudaraba( Trustee Profit Sharing)
Murabaha(Cost Plus Profit Sale)
Musawama(Bargain sale )
Salam(Commodity Sale)
Istisna(Sale on Order)
Ijarah ( Leasing )
Diminishing Musharaka( Transfer of Ownership)
Industry Progress in Pakistan
6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Sub Branches till 1st January , 09
Total IB Branches = 519
Year 2001
•Meezan Bank•Al Baraka
•Meezan Bank•Al Baraka•MCB•Alfalah•SCB•Bank AlHabib•Habib AG Zur.•Metropolitan•Bank of Khyber•Soneri Bank
2002 2003
•Meezan Bank•Al Baraka•MCB
•Meezan Bank•Al Baraka•MCB•Alfalah
2 10
2007 - 09
•Meezan Bank (161) •Al Baraka (30) •MCB (8) •Alfalah(40) •SCB (11) •Bank AlHabib(4 ) •HMB(4) •Bank of Khyber(16) •Soneri Bank ( 5) •HBL(1) •Bank Islami(102) •DIB (25) •EGIBL (40) • Dawood(21) •NBP(5) •RBS (3) •Askari(18) •UBL (5)
2004 - 06
1843
Industry Progress & Mkt. Share
174870150289519**No. of Branches
379121212*Conventional Banks with Islamic Banking Branches
122666*Full Fledge Islamic Banks
0.5%1.3%1.8%
2.4%3.6%4.7%%age of Banking Industry
10304872166185Financing. & Invest.
0.4%1.2%1.9%
2.8%4.1%5.2 %%age of Banking Industry
8305083169198Deposits
0.5%1.4%2.1%
2.9%4.2%5.3 %%age of Banking Industry
134472118235271Total Assets
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08@Description
(Rs. in Bn)
City - Wise Breakup
City - Wise Breakup
Industry Progress in Pakistan
Islamic products and services offered by 300+ Financial Institutions around the world
.United States: 20- Al Manzil Financial Services- American Finance House- Failaka Investments- HSBC - Ameen Housing Cooperative
Germany:4- Bank Sepah- Commerz Bank- Deutsche BankSwitzerland: 6
UK: 26- HSBC Amanah Finance - Al Baraka International Ltd- Takafol UK Ltd- The Halal Mutual Investment Company- J Aron & Co Ltd (Goldman Sachs)
Bahrain: 26 - Bahrain Islamic Bank- Al Baraka- ABC Islamic Bank - CitiIslamic Investment Bank
Malaysia: 492 - Pure Islamic Banks (Bank Islam, Bank Muamalat)Rest - conventional banks
Saudi Arabia: 17- Al Rajhi - SAMBA- Saudi Hollandi - Riyadh Bank
UAE: 13- Dubai Islamic Bank- Abu Dhabi Islamic Bank- HSBC Amanah
Qatar: 4- Qatar Islamic Bank- Qatar International Islamic
Kuwait: 9- Kuwait Finance House
Iran: 8
Egypt: 12- Alwatany Bank of Egypt- Egyptian Saudi Finance
Indonesia: 4
Sudan: 9
Pakistan: 21India: 3Bangladesh:9
Turkey: 7- Faisal Finance Institution- Ihlas Finance House
Yemen: 5
International Overview
The size of Islamic Financial Industry has reached US$ 300 Bln. and its
growing annually @ 15% per anum.
70 countries have Islamic Banking Institutions
37 Muslim countries including Bahrain, UAE, Saudi Arabia, Malaysia,
Brunei and Pakistan
34 non-Muslim countries including USA, UK, Canada, Switzerland,
South Africa and Australia
Trade Based Modes of Islamic Microfinance
Basic Rules of Bai ( Buying & Selling )
Existence of Product/Commodity
Ownership of Product/Commodity
Possession of Product/Commodity
Basic Rules of Bai
Unconditional basis
Product have value/Price.
Bai on Such product which is permissible in Islam.
Basic Rules of Bai
Product Must be Identify, clear with all demanding Qualities.
Not based on any incident, struggle etc
Price must be clearly identified.
Bai (Buying & Selling)
Basic Kinds of Bai
Kinds of Bai
Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’ Bai Urboon
Basic Kinds of Bai
Bai Eenna Bai Touliya Bai Wadhia
Bai
There are three basic type of Bai’s which are using in Islamic Banking as the mode of financing in Pakistan
Murabahah Salam Istisna’
Murabahah
Basically, it’s not a mode of financing but a source to avoid interest Dealing
It’s not a type of loan, but a deal (Bai) Murabahah can be used as source of
financing when client needs funds to purchase any product/Machinery etc.
Murabahah
Sharing of Risk of loss differentiate Murabahah from the interest category
Product Must be bought from third party for avoid buy back transaction
Roll over is not Valid in Murabahah If actual cost can not be identified then
Murabahah deal not possible.
Bai
Important Note
Following 3 Basic Rules of Bai are exceptional for Salam & Istisna’
Existence of Product/Commodity Ownership of Product/Commodity Possession of Product/Commodity
Salam
Pay 100% amount in Advance. Product must be quantified, identified and
Measured with quality. Date of delivery, Time, Place must be
mentioned clearly in advance. Salam is not valid for a specific
farm/land/garden.
Istisna’
Not necessary to pay the 100% amount in advance Like Bai salam.
Price must be decided on beginning of the contract.
Qualities, features of that product must be clearly identified.
Type of Bai according to Quality
Bai Salah Bai Fasid Bai Batil Bai Maqoof
Type of Bai according to Quality
Bai Majool Bai Muqayaddah Bai Mu’ajal
Functions and operations are based on fully man made principles
Functions and operations are based on Sharia’h principles
Investor is assured of pre-determined rate of interest
Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs)
Aim at maximising profit without any restrictions
Aim at maximising profit but subject to Sharia'h restrictions
Creditor-Debtor relationship Partners, investor and traders, buyer or seller relationship
Based on money trading. Money is a medium of exchange and not a commodity
Encourage asset-based financing and based on commodity trading & Services
Conventional MF Islamic MF
It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed.
No right of profit if there is no risk involved.
It can charge additional money in case of defaulters
Islamic banks have no provision to charge any extra money from the defaulters
Do not Deal in Zakat ( Non Muslim Countries )
Deal in Zakat
Conventional MF Islamic MF
Thank You.