Imran javaid (1018)
Muhammad Yasir (1547)
Nabeel Mastan (0781)
Naveed Ikram (0992)
Sarwar Ali (3104)
Shafiq saleem (0805)
Talha Shoaib Mayet (1484)
Essentials Of Islamic Finance
History Of Islamic Banking In Pakistan
What is Islamic Banking
Banking in compatibility with the culture and value
system of Islam.
Follows the principles laid down by Islamic Shariah.
Interest free banking.
Performance of capital should also be considered while
rewarding the capital.
Based on risk-sharing, owning and handling of
physical goods, involvement in the process of trading,
leasing and construction contracts
History Of Islamic Banking (1979)
ICP & NIT, began the process of eliminating interest
from their overall financial operations.
ICP launched a new Investor scheme in October 1980,
which was solely based on the system of Profit and
The HBFC also eliminated the interest from their
operations completely in July 1, 1979.
History Of Islamic Banking (1980 –
Participation Term Certificate (PTC) was launched,
which was a new interest-free corporate financing
A two-Tier Fund structure was launched in 1981, which
introduced the concept of Modaraba.
A new law was formed for this to promote Shariah
Most commercialized banks started offer interest free
products based on profit and loss sharing.
History Of Islamic Banking (1984 –
7 major amendments were made in the LAW with the
name of Banking & Financial Services Ordinance,
From July 1, 1985, all commercial banking in Pak
Rupees was made interest-free.
Banking Tribunals Ordinance, 1984 was approved,
which provided a new way to ensure recovery non-
interest based financed amount.
2002 is marked as a year when the first Islamic Bank
in Pakistan was given the license to offer complete
range of Islamic products and offered.
Current State of Islamic Banking in
In 2001, the State Bank of Pakistan issued its first
Islamic Banking Policy.
This policy stated that the Islamic Banking should be
promoted side-by-side with the conventional banking.
Al-Meezan investment bank was issued the first
license and started working as the first of the Islamic
banks in Pakistan.
All the conventional banks were also offered licenses
to offer Islamic Banking Services as a subsidiary or
Shariah Compliance Mechanism for
SBP also crafted a Shariah Compliance Mechanism, to
ensure that the customers can trust the product`s
adherence to Islamic Financial Products.
3 Major Pillars of this policy are:
Shariah Audit System
3 Major Pillars
Shariah Board: Which checks and approves all the
policies, guidelines and criteria for Advisors
Shariah Advisors: Which provides Islamic guidance
to the banks and give the customers complete peace of
mind when dealing with Islamic Services/Products
Shariah Audit System: Which examine the
institution’s performance on a regular basis and
identify incidences of incorrect or incomplete
Permissible for an Islamic bank to
impose penalty for late payment:
In Islamic law it is permissible to penalize a debtor who is
financially sound but delays payment of debt without any
genuine reason. Such act of the debtor is unjust as the
Prophet (PBUH) has said, "A rich debtor who delays
payment of debt commits Zulm”.
If clients do not honor their commitment in respect of timely
payment of a debt created in installment sale, it could
cause irreparable loss to the system, the banks and
financial institutions and ultimately to savers and the
The jurists allow punishment (T´azir) to such borrower in the
form of fine.
Can Islamic banks claim solatium or
liquidated damages on account of late
payment/default by the clients?
The contemporary Shariah scholars have evolved a consensus
that banks are authorized to impose late fees on the
delinquent. But proceeds of such penalty are to be used for
Liquidated damages can be given to banks in case of default
on the part of banks’ clients provided it is based on actual
However, some Shariah Boards allow Islamic banks to charge
from the defaulter the rate realized by them on their
Murabaha portfolio during a specific period. They also
recommend that the financial condition of the client be
taken into account.
Modes of Islamic banking and
MURABAHA (Cost plus profit sale)
IJARAH-WAL-IQTINA (Asset Leasing)
MUSAWAMAH (Bargain Sale)
ISTISNAA (Sale on Order)
BAI MUAJJAL (Credit Sale)
MUDARABAH (Trustee Profit Sharing)
MUSHARAKAH (Joint venture profit sharing)
BAI SALAM (Commodity Sale)