The document discusses Islamic banking and finance, outlining its principles, products, and differences from conventional banking. It highlights the progress of Islamic banking in Pakistan and worldwide, showcasing various Islamic financial institutions and the growth of the Islamic finance industry. Key concepts include microfinance, trade-based financing methods such as murabaha, salam, and istisna, as well as the importance of shariah compliance.

2. Zubair Mughal Chief Executive Officer AlHuda : Centre of Islamic Banking & Economics Editor in Chief. Islamic Banking and Finance News , True Banking. An Introduction to Islamic Banking & Finance

3. 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..

4. Islam and Shariah 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

5. Sources of Fiq’h in Islam (Islamic Finance) Quran Sunnah Ijtehad / Qiyas Ijama’e Ummah

6. Basic Difference between Islamic and Conventional MF Conventional Bank Client Money Money + Money(interest) Bank Client Islamic Micro Finance Goods & Services money

7. Riba in Quran “ ... God has permitted trade and forbidden interest... ” (Sura Al-Baqara 2:275)

8. Murabahah Ijarah Salam & Istisna etc Musharakah Modarabahah Other Products Human Financial Needs Fulfillment of Financial Needs Own Capital Others’ Capital Equity Financing Debt Financing

9. 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)

10. Industry Progress in Pakistan 6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Sub Branches till 1 st 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 18 4 3

11. Industry Progress & Mkt. Share 17 48 70 150 289 519** No. of Branches 3 7 9 12 12 12* Conventional Banks with Islamic Banking Branches 1 2 2 6 6 6* Full Fledge Islamic Banks 0.5% 1.3% 1.8% 2.4% 3.6% 4. 7 % %age of Banking Industry 10 30 48 72 166 185 Financing. & Invest. 0.4% 1.2% 1.9% 2.8% 4.1% 5 .2 % %age of Banking Industry 8 30 50 83 169 198 Deposits 0.5% 1.4% 2.1% 2.9% 4.2% 5.3 % %age of Banking Industry 13 44 72 118 235 271 Total Assets Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec -08 @ Description (Rs. in Bn)‏

12. City - Wise Breakup

13. City - Wise Breakup

14. Industry Progress in Pakistan

15. 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 Bank Switzerland: 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: 49 2 - 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: 21 India: 3 Bangladesh:9 Turkey: 7 - Faisal Finance Institution - Ihlas Finance House Yemen: 5

16. 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

17. Trade Based Modes of Islamic Microfinance

18. Basic Rules of Bai ( Buying & Selling ) Existence of Product/Commodity Ownership of Product/Commodity Possession of Product/Commodity

19. Basic Rules of Bai Unconditional basis Product have value/Price. Bai on Such product which is permissible in Islam.

20. 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.

21. Bai (Buying & Selling) Basic Kinds of Bai

22. Kinds of Bai Bai Musawamah Bai Murabaha Bai Surf Bai Salam Bai Istisna’ Bai Urboon

23. Basic Kinds of Bai Bai Eenna Bai Touliya Bai Wadhia

24. 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’

25. 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.

26. 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.

27. 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

28. 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.

29. 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.

30. Type of Bai according to Quality Bai Salah Bai Fasid Bai Batil Bai Maqoof

31. Type of Bai according to Quality Bai Majool Bai Muqayaddah Bai Mu’ajal

32. Encourage asset-based financing and based on commodity trading & Services Based on money trading. Money is a medium of exchange and not a commodity Partners, investor and traders, buyer or seller relationship Creditor-Debtor relationship Aim at maximising profit but subject to Sharia'h restrictions Aim at maximising profit without any restrictions Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs) Investor is assured of pre-determined rate of interest Functions and operations are based on Sharia’h principles Functions and operations are based on fully man made principles Islamic MF Conventional MF

33. Deal in Zakat Do not Deal in Zakat ( Non Muslim Countries ) Islamic banks have no provision to charge any extra money from the defaulters It can charge additional money in case of defaulters No right of profit if there is no risk involved. It is almost risk free banking and depositor has no risk of losing its money because interest is guaranteed. Islamic MF Conventional MF

34. Thank You.