Islamic Banking/ Financing Trends & Opportunities

1. Presenter:
Aasim Mushtaq
Roll # 8

2. Agenda
Systems in world
Islamic system
Riba as controversy
Types of Riba with examples
References in the Quran & Hadith
for Riba
Major Islamic products
Future Trends

3. Economics systems
Capitalism
Communism
Islamic Economic System

4. BACKGROUND - WHAT IS SHARIAH

5. Definition of Riba
Linguistically the word Riba means
 to increase,
to grow,
to exceed, to be more than.

6. Riba
Riba
Riba Al-Fadl
Riba on
Credit

7. Riba on Credit
a. (Riba of Jahiliya) as we mentioned earlier in
introduction, its additional interest payment to
extend the due date of payment.
b. (Riba an-nasiya): This is the Riba on Credit
Transaction, when two items of same kinds are
exchanged but one or both parties delays delivery or
payment.

8. Riba al-Fadl
Selling or exchanging same kind of item with more/less.
(e.g. 10 lbs gold exchanged for 12 lbs gold). The excess
payment when items of same kinds are exchanged is called
Riba al-Fadl. The Prophet (PBUH) declared that prohibited

9. Examples of Riba
Riba Of Jahiliya
 Riba of dark ages
 Interest on credit, loan mortgage
 Party A gives Party B $500 on credit.
 Party B returns $600 to party A. after a Month $100 excess is Riba.

10. Examples of Riba
Riba an-nasiya
Riba on credit transactions
Like for like when one party delays delievery
Party A gives 3 bullion of gold to party B
Party B returns 3 bullions of gold after 2 months.
This is Haram price of gold may change after two
months.

11. Examples of Riba
Riba an-nasiya
When items differs and one party delays delivery.
Party A barters 100 tons of wheat to party B who will
pay 100 Ibs gold after 6 month
Party B returns 100 Ibs gold after 6 month.
This is Haram price of gold may change.it is only
allowed if both items are exchanged hand on hand.

12. Examples of Riba
Riba Al-Fadl
Riba on spot transactions
(Like for like) when one party receives in excess.
Party A gives party B three Bullion of Gold.
Party B returns 6 Bullions of gold. Three bullions are
Riba.

13. Examples of Riba
Trade transaction
Party A sold 100 tons of wheat to party B on credit.
Price was to be set $500 and money to be paid in 2
months.
Party B returns $500 to party A after two months. This
is a trade transaction which is permissible.

14. “ Those who devour interest become like the one whom Satan has
bewitched and maddened by his touch. They have been condemned
to this condition because they say trade is just like interest, whereas
Allah has made trade lawful and interest unlawful. Henceforth, if
one abstains from taking interest after receiving this admonition
from his Lord, no legal action will be taken against him regarding
the interest he had devoured before; his case shall ultimately go to
Allah. But if one repeats the same crime even after this, he shall go
to Hell, where he shall abide forever”.

15. 4. Hazrat Jabir Ibn-e-Abdullah () has reported
the Prophet (]) to have cursed those who
charge interest, those who pay it, those who
write documents pertaining thereto, those who
keep the accounts of such matters and those
who sign as witness. He (]) said that they are
all equal in this crime.

16. 8. Hazrat Abu Hurairah () has reported the Prophet (]) to have said, “four
categories of people are such that Allah has made it binding upon Himself to
refuse them admission to the paradise or to let them enjoy is goodies. The
first is the one who is a habitual drinker of alcoholic drinks. The second is
the one who devours interest, the third is the one who devours the wealth
belonging to an orphan, without any justification therefore, and the fourth is
the one who is disobedient to his parents. This has been reported by Hakim
on the authority of Ibrahim bin Khathim bin Irak and he (Ibrahim) reported
it on the authority of his father (Khathim) and he (Khathim) reported it on
the authority of Hazrat Abu Hurairah () Hakim has classified it as an
authentic saying.”

17. 13.It has been reported by Hazrat Hanzala bin
Abdullah () (who was given a bath by the angels)
that the Prophet (]) said, “Devouring a dirham of
interest is worse than committing adultery 36 times,
provided one is aware that he is utilizing money
earned by way of interest”. This saying has been
reported by Imam Ahmed and Tibrani.

18. 19.Hazrat Ibn-e-Masood () reporting a saying of the
Prophet (]) in which the Prophet (]) said, “When
adultery and interest become common place in a
people, then they have definitely asked for Allah’s
punishment for themselves”.

19. “ O believers fear Allah and give up that interest
which is still due to you if you are true believers;
but if you do not do so then you are warned of the
declaration of war against you by Allah and His
Messenger. If, however, you repent even now (and
forgo interest), you are entitled to your principal; do
not wrong, and no wrong will be done to you”.

20. 25. According to Hazrat Abdullah bin Masood (), the Prophet (]) said,
“whoever earns money/wealth through interest would find it reduced in the
end”. This has been reported by Ibn-e-Majah and Hakim and they said that
the reporting chain is authentic. Another version is that the Prophet (]) said,
“Howsoever much the interest may appear to be in quantum, the end result is
that it reduces (the wealth).
Note: Abdul Razzaq, who is considered an authority on Hadith, has reported from
Moammar that Moammar said to have heard that not 40 years lapse on business
involving interest and it suffers a loss or an accident which causes a loss.

21. Arguments given to Justify
Commercial Interest
Q. Commercial Interest is charged from wealthy persons
whereas usury is charged from the poor. It does not exploit
the poor while consumption interest or usury exploit the
poor.
Validity of a transaction is not based on the financial status of a
party, like sale, leasing etc. Law does not differentiate between
poor and wealthy in crimes like bribery, theft etc. Further,
Commercial Interest also exploit the poor.

22. Q. The Commercial interest was not in vogue in
Arab
History shows that it was in vogue.
Q. Doctrine of necessity and wisdom requires to
allow it
It does not, it is not at all a necessity in Shariah.
Even from economic point of view, the modern
interest has brought more harm to the humanity than
the premature forms of usury.
The Principles of Shariah are binding, even though
their wisdom is not visible in a particular transaction.
They are based on Illat.

23. Islamic Rules
Basic Rules of Islamic Financing
Money is converted in to goods
Possession of the goods
Ownership of the goods
Presence of the goods
Identification of the goods
Determination of price
In case of credit sale, the period of repayment is
known and fixed

24. Islamic Alternatives of
Conventional Banking
Murabaha
Ijara
Musharaka
Mudaraba
Salam
Istisna

25. Evolution of Islamic financing
Initiative
1970
 Some efforts were started with no conscious result.
1980
 Pakistan was ranked among the three countries in the world for commencing non interest
based banking.
 Companies ordinance 1984,
 Negotiable instrument act 1882
 State Bank acts and Recovery of Loan law

26. 1990
In November 1991 Federal Shariat court was established ,
An announcement was made on December 23, 1991that
transactions involving in Banks would cease to have effect
finally by June 30, 2001.

27. 21st century. Commission for Transformation of
Financial System was constituted in State Bank of
Pakistan. Task Force was set up in SBP to suggest
ways and means to eliminate interest from
Government financial transactions. However,
parallel banking system namely; Conventional
and Islamic Banking has continued till today.

28. Industry Progress & Market Share
Mar 13 Dec 13 Mar 14
Total Assets 847 1014 1016
Deposits 704 868 872
Total Number of
Branches
1100 1304 1314

29. Pakistan Islamic Finance center
PIFC
Growing
Opportunities
in Islamic
Finance
Favorable global
& Asia economic
growth
Asia’s Potential
in Islamic fund &
Investment

30. Pakistan Islamic Financial Centre
Its gateway to Stronger International linkages.
Tapping Global business opportunities
Fund and wealth management
Origination, issuance & trading of Islamic Financial
Instruments Including Capital market Instruments.