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.
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.
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.
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.
Islamic Vs. Conventional Banks
Borrows funds from the depositors and pay interest to them.
Lends the funds to the borrowers and charge interest from them.
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.
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.
Kinds of Accounts Offered By Islamic Banks
Interest Free PLS Saving Account
Riba Free Certificates
Monthly Profit Sharing System An Illustration
PROFIT RATES (January-June 2006)
“ 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.
“ A fixed rate of return is not permitted under Islamic Shariah”
Fixed rate of return does not make a transaction halal or haram.
Ijarah of Machinery.
Rent on property.
“ 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.
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.