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Al huda presentation on islamic banking by muhammad asad bok Presentation Transcript

  • 1.  
  • 2. Presentation on Islamic Banking By Muhammad Asad Head of Islamic Banking Division The Bank of Khyber
  • 3. History of Islamic Banking in NWFP
    • Decision by the Government of N.W.F.P to convert the Bank of Khyber into Islamic Bank:
    • December 2002
    • Establishment of Islamic Banking Division:
    • January 2003.
    • Formation of Shariah Supervisory Committee:
    • January/February 2003
    • Permission from the State Bank of Pakistan:
    • September 2003
    • Start of Operations:
    • November 23, 2003 (27 th Ramazanul Mubarak)
    • BOK ACT Amended :
    • July 2004
    • Five Branch out of Twenty nine converted into Islamic Banking Branches.
  • 4. Shariah Supervisory Committee of BOK
    • Chairman
    • Prof. Khurshid Ahmad
    • Members
    • Justice (R) Mufti Muhammad Taqi Usmani
    • Prof. Dr. Mehmood Ahmad Ghazi
    • Mufti Ghulam-ur-Rehman
    • Dr. Shahid Hasan Siddique
    • Syed Muhammad Abbas
  • 5. Functions of the Shariah Supervisory Committee
    • Approval of all systems, Documents and Manuals to be Shariah Compliant.
    • Quarterly Shariah Review.
    • Guide for enhancement of Islamic Banking and conversion of the Bank of Khyber.
  • 6. Philosophy of Islamic Banking and Finance
    • Islamic Shariah prohibits ‘interest’ but it does not prohibit all gains on capital. It is only the increase stipulated or sought over the principal of a loan or debt that is prohibited.
    • Creating financial activities in an Islamic set-up which is Asset-Backed with ability to cause ‘Value Addition’.
    • Diverting funds to those activities which have highest ‘value addition’.
    • Distributing the ‘value addition’ among different sectors of the economy.
  • 7. What is Islamic Banking?
    • Islamic Banking can be defined as banking in consonance with the ethics and value system of Islam and governed by
        • the principles laid down by Islamic Shariah,
        • the conventional good governance, and
        • The risk management rules.
    • Islamic Banking is a tool to implement the Islamic Economic System, pooling resources, diversion of resources to most profitable and development projects and distribution of income among contributors of Funds.
    • Islamic Banking is developing to provide all the services offered by any conventional bank in a more responsible manner while remaining within the bounds of Shariah.
  • 8. Islamic Banking VS Interest Free Banking
    • Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic Banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Shariah, but also to avoid unethical practice and participate actively in achieving the goals and objectives of an Islamic Economy.
  • 9. Islamic Vs. Conventional Banks
    • CONVENTIONAL
    • Borrows funds from the depositors and pay interest to them.
    • Lends the funds to the borrowers and charge interest from them.
    • ISLAMIC
    • Deposits accepted on the basis of profit and loss sharing arrangement between the bank and the depositors (Musharakah or Mudarabah).
    • Funds invested on the basis of Islamic financing instruments such as Musharakah ,Mudarabah ,Ijarah ,Murabaha ,Istisna ,Salam etc.
    • The income earned is shared in pre agreed profit sharing ratio.
    • The loss is shared in the ratio of deposits and equity investment (not the agreed profit sharing ratio.
  • 10. Weightages OR Profit Sharing Ratio
    • Profit sharing ratio is expressed in weightages.
    • Weightages is one scientific mechanism to lay down the ratio / share of a customer in the profit of a period. This mechanism allows the flexibility of distributing profit among customers on pre-agreed ratio coupled with changes in Deposit position of each Customer during that period.
    • The Weightages decides relation of profit of one category / Class of Depositors viz-a-viz other classes of deposits.
    • In nut shell, it is a ratio of profit agreed between the Bank and different classes of Customers to share profit.
    • It may be noted that loss is shared in the ratio of funds provided and for that purpose, Weightages shall be ignored.
  • 11. Kinds of Accounts Offered By Islamic Banks
    • Current Account
    • Interest Free PLS Saving Account
    • Riba Free Certificates
  • 12. Monthly Profit Sharing System An Illustration
  • 13.  
  • 14.  
  • 15.  
  • 16.  
  • 17. PROFIT RATES (January-June 2006)
  • 18. Key Misconceptions
    • “ Islamic Banking looks the same as conventional Banking”
    • A halal meat and haram meat may look exactly the same but one is permissible while the other is not.
  • 19. Key Misconceptions
    • “ A fixed rate of return is not permitted under Islamic Shariah”
    • Fixed rate of return does not make a transaction halal or haram.
    • For example:
      • Ijarah of Machinery.
      • Rent on property.
  • 20. Key Misconceptions
    • “ Increasing the Price based on Credit”
    • Jurists allow the difference between cash and credit prices of a commodity considering it a genuine market practice.
    • What is prohibited is any addition to the price once mutually agreed because of any delay in its payment.
  • 21.
    • Why there is no Loss in Islamic Banking ?
    • Taking risk does not imply that loss must occur in a transaction or business.
    • We go for a project and business having minimum risk.
    • Different portfolio choices with Islamic Bank.
    Key Misconceptions
  • 22.
    • Thank you