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AlHuda Centre of Islamic Banking and Economics,www.alhudacibe.com

Transcript of ICMAP

  • * Zubair MughalChief Executive OfficerAlHuda : Centre of Islamic Banking & EconomicsEditor in Chief.Islamic Banking and Finance News , True Banking.

    An Introduction to Islamic Banking & Finance

  • Outline of PresentationIntroduction to Islamic BankingRiba ( Interest )Difference between Islamic & Conventional BankingProduct of Islamic Banking.Progress of Islamic Banking in Pakistan & World wide.Trade Base Modes of Islamic Banking and Finance


  • Islam and Shariah

  • Sources of Fiqh in Islam (Islamic Finance)Quran


    Ijtehad / Qiyas

    Ijamae Ummah

  • Basic Difference between Islamic and Conventional BankingConventionalBankClient Money Money + Money(interest)BankClientIslamic Banking

  • Riba in Quran

    ... God has permitted trade and forbidden interest...(Sura Al-Baqara 2:275)

  • Murabahah IjarahSalam & Istisna etc

    Musharakah Modarabahah Other Products

    Human Financial Needs

  • External (Equity & Debt) Financing

  • PRODUCT TREEIslamic Banking ModesTrade Based ModesPartnership Based ModesRental Based ModesMusharaka(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)

  • 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

  • Industry Progress in Pakistan

    6 Full fledge Banks having 239 and 12 Conventional Banks have 167 SAIBBS and 10 Sub Branches till 1st January , 09Total IB Branches = 519

  • Industry Progress & Mkt. Share

  • Islamic products and services offered by 800+ Financial Institutions around the world


  • International Overview The size of Islamic Financial Industry has reached US$ 950 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 Pakistan34 non-Muslim countries including USA, UK, Canada, Switzerland, South Africa and Australia

  • International OverviewLeading foreign Banks have opened Islamic Banking windows or subsidiaries such as:Standard Chartered Bank CitibankHSBCABN AMROUBS

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

  • International OverviewGovernments 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

  • International OverviewInstitutions 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.

  • Bai ( Buying & Selling) Trade Base Mode of Islamic Banking

  • PRODUCT TREEIslamic Banking ModesTrade Based ModesPartnership Based ModesRental Based ModesMusharaka(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)

  • Basic Rules of Bai

    Existence of Product/Commodity

    Ownership of Product/Commodity

    Possession of Product/Commodity

  • Basic Rules of Bai

    Unconditional basis

    Product have value/Price.

    Bai on Such product which is permissible in Islam.

  • Basic Rules of BaiProduct Must be Identify, clear with all demanding Qualities.

    Not based on any incident, struggle etc

    Price must be clearly identified.

  • Bai (Buying & Selling)

    Basic Kinds of Bai

  • Kinds of BaiBai MusawamahBai MurabahaBai Surf Bai SalamBai IstisnaBai Urboon

  • Basic Kinds of BaiBai EennaBai TouliyaBai Wadhia

  • Bai There are three basic type of Bais which are using in Islamic Banking as the mode of financing in PakistanMurabahahSalamIstisna

  • MurabahahBasically, its not a mode of financing but a source to avoid interest DealingIts 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.

  • MurabahahSharing of Risk of loss differentiate Murabahah from the interest categoryProduct Must be bought from third party for avoid buy back transactionRoll over is not Valid in MurabahahIf actual cost can not be identified then Murabahah deal not possible.

  • BaiImportant NoteFollowing 3 Basic Rules of Bai are exceptional for Salam & Istisna

    Existence of Product/CommodityOwnership of Product/CommodityPossession of Product/Commodity

  • SalamPay 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.

  • IstisnaNot 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.

  • Bai

    Differences Between Istisna and Salam

  • Differences Between Istisna and SalamIstisna deal with manufacturing items, but Salam could or could not be manufacutred, but salam ideal of agriculture sector.In salam advance payment is necessary, but in Istisna its not.

  • Differences Between Istisna and SalamDate, time of delivery the necessary part of Bai Salam, But in Istisna, it is not the part of the deal. In Bai salam, it can be cancelled one sided, but in Istisna, it could be cancelled, if production is not started yet.

  • Type of Bai according to Quality

    Bai SalahBai FasidBai BatilBai MaqoofBai MajoolBai MuAjal

  • Type of Bai according to Quality

    Bai MajoolBai MuqayaddahBai Muajal

  • Thank You.

    Source: Institute of Policy StudiesCollective Ijtamaee Ijtehad at 4.5