The document summarizes key concepts in Islamic microfinance. It discusses an international conference on Islamic microfinance and provides definitions and explanations of Islamic microfinance, its goals of providing halal financial services according to Shariah law. It also outlines important Islamic teachings related to business, including the prohibitions of interest, uncertainty, gambling, and guidelines for honesty, charity, and economic empowerment. The sources of fund collection for Islamic microfinance institutions and contracts commonly used, such as Musharakah and Mudarabah, are also summarized.

1. International Conference on
Islamic Microfinance
CENTER OF ISLAMIC BANKING & ECNOMICS
Held At:
Organized By :

2. What is Islamic Micro
Finance
Abdul Samad
Shariah Advisor
The Bank of Khyber

3. 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

4. Human Financial Needs
Fulfillment of Financial Needs
Own Capital Others’ Capital
Equity Financing Debt Financing

5. Why Islamic Finance?
 The body which is promoted by Hiram sources is
bound to hellfire.
 On the Day of Judgment, a person will not be
moved from the place where he stand until he is
asked about the sources of his income and they
way he spent it.
 Purifying of the needs of life (food, drink, clothes
house etc) is one of the most important reason for
the acceptance of prayers by Allah.

6. Why Islamic Finance?
The main objective of an Islamic Financial System
is to clean the income of Muslims from
Muhurramat.

7. Most Important Islamic Teaching Related
To Business
1. Elimination of Interest (Raba)
2. The prohibition of uncertainty (Gharar)
3. The prohibition of Gambling (Qimar)
4. The precipitation of games of chance (Maser)
5. Honesty and Fair Trade (Ghishsh and Khilabah)
6. Spending in the Good Cause
7. Buy Back
8. Two Mutually Conditional Contract
9. Entitlement to profit depends on liability for risk

8. Interest
 Interest, Usury, or Riba is forbidden in almost all
major religions of the world e.g.
 Judaism
 Christianity
 Islam

9. Riba in Quran
 God has permitted trade and forbidden interest….”
(The Cow – Sura Al-Baqara 2:275)
O believers, fear Allah, and give up what is still due
to your from the interest (usury), IF [indeed] you
are true believers[!!!]. If you do not do so, then
take
Notice of War from Allah and his Messenger.
 But, if you repent, you can have your principal.
Neither should you commit injustice, nor should you be
subjected to it.”
(The Cow – Sura Al-Baqara 2:278-9)

10. Riba in Quran (Related in context to 2:278)
The only reward of those Who make War upon Allah & his Messenger, and strive
after corruption in the land, will be that they will be
1. Killed
2. Or, Crucified,
3. Or, have their Hands and Feet on alternate sides Cutoff,
4. Or, will be Expelled out of the land.
 Such will be their degradation in the world, and
 in the hereafter, theirs will be an terrible doom.”
(Quran: The Table Spread - Al-Maida Chapter 5: Verse 33)

11. Riba in Hadith
The Prophet cursed
the receiver and
the payer of interest,
the one who records it and
the witnesses to the transaction
and said: “They are all alike (in guilt).”
(Sources: Jabir Ibn Abdullah, Muslim, Tirmidhi, Musnad Ahmed

12. Riba in Hadith
The Prophet said: “Riba has seventy
segments, the least serious being equivalent
to a man committing adultery with his own
mother.”
(Sources: Aby Hurayrah, Ibn
Majah)

13. The prohibition of uncertainty (Gharar)
 There are strict rules in Islamic finance against
transactions that are highly uncertain or may cause
any injustice or dishonesty against any of the
parties.
 The concept of Gharar has been broadly defined
by the scholars in two ways.
 First, Gharar implies uncertainty.
 Second, it implies dishonesty.

14. Classical Examples of Gharar
 Selling goods that the seller is unable to deliver
 Selling known or unknown goods against an unknown
price, such as selling the contents of a sealed box
 Selling goods without proper description, such as shop
owner selling clothes with unspecified sizes
 Selling goods without specifying the price, such as selling
at the 'going price'
 Selling goods on the basis of false description
 Selling goods without allowing the buyer the properly
examine the goods
 The Prophet (pbuh) prohibited the pebble sale and the
Gharar sale.

15. Qimar
 Qimar includes every form of gain or money, the
achievement of which depends purely on luck and
chance.
 O ye who believe! Intoxicants and gambling,
sacrificing to stones, and (divination by) arrows, are
an abomination, of Satan’s handiwork…..: (5:90-91)
 He who played Qimar has disobeyed Allah and His
Messenger.” (Ibn Majah )

16. Honesty and Fair Trade (Ghishsh and
Khilabah)
 Thus Manipulations and Mismanagement like Hoardings
 Black marketing
 Cheating
 Short weighting
 Hiding the defective quality of the goods are
prohibited in Islamic Financial System.
 The prophet (PBUH) said: the truthful honest merchants
are with the prophets in the Day of Judgment.

17. Spending in the Good Cause
 The Islamic economic approach is one, which is
directed towards the achievement and
actualization of justice in human relations.
 The result of this effort is falah or success and
salvation, and hayah tayyibah or good life in
this world and the hereafter.
 So IMFI don’t permute to establish any relation
with commodities, services and individuals
whose moral practices are doubtful
 Some people spend Allah’s wealth (i.e. Muslim’s Wealth)
in an unjust manner, such people will be put in the (Hell)
fire on the day of resurrection” (Bukhari and Ahmad)

18. Buy Back
 The financier sells an asset to the customer on a
deferred-payment basis, and then the asset is
immediately repurchased by the financier for cash
at a discount.

19. Two Mutually Conditional Contract
 Two mutually contingent contract have been
prohibited by the holy prohibited by the holy
Prophet (pbuh).
 The sale of two item in such a way that one who
intends to purchase good is obliged to purchase
the other also at any given price.
 One sale transaction with tow prices.
 Combining sale and lending in one contract.

20. What is Microfinance?
 Microfinance is usually defined as the provision of
financial services and products to those whose low
economic standing excludes them from
conventional financial institutions.

21. MFI ENGAGE IN THE
FOLLOWINNNG ACTIVITIES
 Micro-finance offer of financial services
 such as loans, savings, insurance, and training to
people living in poverty.
 And to those typically unable to gain such
services in the normal finance markets

22. What Islamic MF
 To provide all these services under the umbrella of
Shariah.
 Shariah compliant MFI, to enable Muslims to do
their transaction – a Halal way.
 Achieving the goals and objectives of an Islamic
economy.

23. Message of Islam regarding poverty
 Islamic jurists have unanimously held the view
that it is the collective obligation (fard kifayah) of
a Muslim society to take care of the basic needs of
the poor.

24. Economic Empowerment
 Islam strongly encourages charity from the giver’s
point of view, it seeks to minimize dependence on
charity from the beneficiary’s point of view.

25. Economic Empowerment
 A man of the Ansar community came to the
Prophet (peace be upon him) and begged from
him.
 He (the Prophet) asked: Have you nothing in your
house? He (the man) replied: Yes, a piece of cloth,
which we wear, or which we spread (on the
ground), and a wooden bowl from which we drink
water.

26. Economic Empowerment
 He (the Prophet) said: Bring them to me. He (the man)
then brought these articles to him and he (the Prophet)
took them in his hands and asked to the assembly of
people: Who will buy these? A man said: I shall buy them
for one dirham. He (the Prophet) asked twice or thrice:
Who will offer more than one dirham? Another man said:
I shall buy them for two dirhams.
 He (the Prophet) gave these to him and took the two
dirhams and, giving them to the man of the Ansar, he said:
Buy food with one of them and hand it to your family, and
buy an axe and bring it to me.

27. Economic Empowerment
 He then brought it to him. The Prophet (peace be upon
him) fixed a handle on it with his own hands (#5) and
said: Go, gather firewood and sell it, and do not let me see
you for a fortnight.
 The man went away and gathered firewood and sold it.
When he had earned ten dirhams, he came to him and
bought a garment with some of them and food with the
others.
 The Prophet (peace be upon him) then said: This is better
for you than that begging should come as a spot on your
face on the Day of Judgment.

28. Source of Fund Collection of IMFI
The Shariah option for deposit mobilization can be
worked out by respecting two principles:
 The aim of the exchange at hand must be
recognizes in Shariah.
 The modalities to achieve the said must be
Shariah Compliant.

29. Source of Fund Collection of IMFI
 Zakat
1. Zakah is the third among five pillars of Islam and
payment of zakah is an obligation on the wealth of
every Muslim based on clear-cut criteria.
2. These funds are meant mostly for the extremely
poor and function as a safety net for meeting their
immediate and basic needs

30. Source of Fund Collection of IMFI
 Suddqa
1. Charity occupies a central position in the Islamic scheme
of poverty alleviation.
2. Suddqa kind of Charity which is not obligatory.
Waqf (trust)
The term waqf literally means detention. The legal
meaning of Waqf according to Imam Abu Hanifa is the
detention of specific thing in the ownership of waqif and
the devoting of its profit or products "in charity of poors
or other good objects".

31. Source of Fund Collection of IMFI
 Islamic banks generally use Musharakah and
Mudarabah based product for obtaining investment
account.
 These deposits are based on the Shariah principles
of profit and loss sharing, and the banks use them,
along with its own funds in businesses which are
Shariah compliant.
 Wakala model can also be used for Investment
Account.

32. WHAT IS MUSHARAKAH?
 The literal meaning of Musharakah is sharing. The
root of the word "Musharakah" in Arabic is
Shirkah, which means being a partner.
 Under Islamic jurisprudence, Musharakah means
where two or more than two persons agree to
contribute funds for conducting some business in
which all partners share the profit according to a
specific ratio while the loss is shared according to
the ratio of the contribution.

33. Management of Musharakah
 Each partner has right to take part in Musharakah
management.
 The partner may appoint a managing partner by mutual
consent.
 One are more of the partners may decide not to work for
the Musharakah and work as a sleeping partner
 If one or more partners choose to become no-working or
steeping partners. The ratio of their profit cannot exceed
from the ratio of their capital investment.

34. Capital of Musharakah
 All partners must contribute their capital in terms
of money or species at an agreed valuation.
 Share capital in a Musharakah can be contributed
either in cash or in the form of commodities. In the
letter case the market value of the commodities
shall determine the share of the partner in the
capital.

35. Distribution of Profit
 The ratio of profit distribution must be agreed at the time
of execution of the contract.
 The ratio must be determined as a proportion on the
actual profit earned by the enterprise.
1. Not as percentage of partner’s investment.
2. Not in lump sum amount
A sleeping partner cannot share the profit more than
the percentage of his capital.

36. Rule for loss
 In the case of loss all the Muslim jurists are
unanimous on the point that each partner shall
suffer the loss exactly according to the ratio of
investment

37. WHAT IS MUDARABAH?
 This is a kind of partnership where one partner
gives money to another for investing in a
commercial enterprise.
 The investment comes from the first partner who is
called “Rab-ul-Maal”(Investor)
 The management and work is an exclusive
responsibility of the other, who is called
“Mudarib” (Working Partner).
 All other terms and conditions of Mudarabah are
mostly same to Musharakah.

38. Islamic Microfinance Contracts
 Qariz
 Musharakah
 Mubarabah
 Murabaha
 Ijarah
 Salam
 Istisna

39. Thank You
CENTER OF ISLAMIC BANKING & ECNOMICS
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Ph: +92-42-35913096-8, 35858990, 38407850
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