The document provides an overview of Islamic banking, including its foundations in Islamic principles, key differences from conventional banking, common Islamic banking products and financing modes, and the progress and current state of the Islamic banking industry both in Pakistan and globally. It discusses Islamic prohibitions on riba (interest), and how Islamic banks engage in trade-based, partnership-based and rental-based modes to fulfill financial needs in accordance with Shariah law.

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 Islamic Banking Riba ( Interest ) Difference between Islamic & Conventional Banking Product of Islamic Banking. Progress of Islamic Banking in Pakistan Islamic Banking Worldwide Worldwide .

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 Banking Conventional Bank Client Money Money + Money(interest) Bank Client Islamic Banking 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. External (Equity & Debt) Financing Debt Market Equity Market Bai’ al-Istisna’ (Sale on Order) Bai’ al-Salam (Commodity Sale) Al-Ijarah (Leasing) Others Bai’ al-Murabaha (Cost Plus Profit Sale) Al-Musharakah (Joint Venture Profit Sharing) Al-Bai’ Bithaman (Mu)Ajil (Deferred Installment Sale) Al-Mudarabah (Trustee Profit Sharing) Uqud al-Muawadhat (Deferred Contracts of Exchange) Uqud al-Ishtirak (Contracts of Profit Sharing ) Debt Financing Equity Financing

10. PRODUCT TREE Islamic Banking 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)

11. ONUS SHIFTS!! Customer to Halal Restaurant Owner Halal Restaurant Owner to Halal Meat Supplier Halal Meat Supplier to Halal Abattoir / Butcher Customer to Islamic Banker Islamic Banker to Shariah Scholars

12. 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

13. 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)‏

14. City - Wise Breakup

15. City - Wise Breakup

16. Industry Progress in Pakistan

17. 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

18. 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

19. International Overview Leading foreign Banks have opened Islamic Banking windows or subsidiaries such as: Standard Chartered Bank Citibank HSBC ABN AMRO UBS

20. International Overview In Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies world wide whose business complies with Islamic Shariah laws At present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion

21. International Overview Governments of Bahrain ,Malaysia and now Pakistan have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity. Issuance of these bonds has also paved the way for Shariah compliant Government borrowings

22. International Overview Institutions like Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Islamic Finance Services Board (IFSB) have been formed. These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions. Due to these collective efforts Islamic banking is now recognized by IMF, World Bank and Basel Committee.

23. 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 banking Conventional banking

24. 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 banking Conventional banking

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