Implementation of Islamic Banking in Pakistan by-M.hashaam

Presented to: Ali AfzalPresented to: Ali AfzalPresented by: M.HashaamPresented by: M.HashaamRoll No. : AM552381Roll No. : AM552381Class Class : MBA (B&F) 4: MBA (B&F) 4thth Semester Semester

Commercial and Commercial and Investment BankingInvestment Banking

Topic: Implementation of Topic: Implementation of Islamic Banking in PakistanIslamic Banking in Pakistan

AcknowledgmentAcknowledgmentFirst of all thanks of Allah who is most First of all thanks of Allah who is most

beneficent and the most merciful beneficent and the most merciful whose blessings are abundant and whose blessings are abundant and

favors are unlimited.favors are unlimited.It is my pleasure to acknowledge the It is my pleasure to acknowledge the guidance and support of Teachers for guidance and support of Teachers for

their endless guidance.their endless guidance.

Prepared By: M.Hashaam 3

History of Islamic BankingHistory of Islamic Banking The pioneering effort, led by Ahmad The pioneering effort, led by Ahmad

Elnaggar, took the form of a savings bank Elnaggar, took the form of a savings bank based on profit-sharing in the Egyptian town based on profit-sharing in the Egyptian town of Mit Ghamr in 1963of Mit Ghamr in 1963

In 1973, the Islamic Development Bank was In 1973, the Islamic Development Bank was set-upset-up

The first Islamic bank in Malaysia was The first Islamic bank in Malaysia was established in 1983. In 1993, commercial & established in 1983. In 1993, commercial & merchant banks were allowed to offer Islamic merchant banks were allowed to offer Islamic banking products and services under the banking products and services under the Islamic Banking Scheme (IBS).Islamic Banking Scheme (IBS).


History of Islamic Banking in History of Islamic Banking in PakistanPakistan

The Islamic Summit of Lahore, Pakistan held in The Islamic Summit of Lahore, Pakistan held in 1974 recommended the creation of Islamic 1974 recommended the creation of Islamic Banks and Islamic Development Bank. Banks and Islamic Development Bank.

On 14 Ramadan 1420, the Shariah Bench of the On 14 Ramadan 1420, the Shariah Bench of the Supreme Court of Pakistan gave its landmark Supreme Court of Pakistan gave its landmark decision banning interest in all its forms. The decision banning interest in all its forms. The court also specified a step by step approach to court also specified a step by step approach to rid the country of the evil of interest. rid the country of the evil of interest. (The Historic (The Historic Judgment on Interest by the Supreme Court of Pakistan)Judgment on Interest by the Supreme Court of Pakistan)


History of Islamic Banking in History of Islamic Banking in PakistanPakistan

After 55 years after its creation in the name of After 55 years after its creation in the name of Islam, Pakistan became the first Muslim Islam, Pakistan became the first Muslim

country to officially declare modern bank country to officially declare modern bank interest as interest as ““aar-riba”r-riba”

declared haram by Qur'an declared haram by Qur'an


Introduction Of Introduction Of Islamic BankingIslamic Banking


Introduction of Islamic Introduction of Islamic BankingBankingIslamic banking is the banking system Islamic banking is the banking system

which is run in accordance with the which is run in accordance with the Islamic laws and the Shari a` board; that Islamic laws and the Shari a` board; that

guides the institutions. guides the institutions. Islamic banking is the banking that is Islamic banking is the banking that is

guided by Islamic law ( Shari a`) guided by Islamic law ( Shari a`) principles and guided by Islamic principles and guided by Islamic

economics. economics. In particular, Islamic law prohibits the In particular, Islamic law prohibits the collection and payment of interest, also collection and payment of interest, also

commonly called Riba in Islamic commonly called Riba in Islamic discourse”.discourse”.

Islamic Banking in PakistanIslamic Banking in PakistanIslamic banking shows dramatic Islamic banking shows dramatic

improvements and developments in improvements and developments in Pakistan. Pakistan.

Islamic banking is taken as national Islamic banking is taken as national policy and it is supported but there policy and it is supported but there exist dual banking structure in the exist dual banking structure in the

Muslim countries. Mostly the banks of Muslim countries. Mostly the banks of conventional system are also opening conventional system are also opening

their separate Islamic banking divisions their separate Islamic banking divisions and branches. and branches.


Islamic Banking in PakistanIslamic Banking in PakistanThe expectation of increase in The expectation of increase in

growth of networking of Islamic growth of networking of Islamic banking system is increasing.banking system is increasing.

The Islamic banking has increased in The Islamic banking has increased in terms of branches, deposits, capital terms of branches, deposits, capital funds, sources. The ratio of income funds, sources. The ratio of income to expenses is high which indicates to expenses is high which indicates

increasing profitability of the sector. increasing profitability of the sector.



Riba or InterestRiba or Interest““Riba” literally means increase, Riba” literally means increase,

addition, expansion or growth. It is addition, expansion or growth. It is however not every increase or however not every increase or

growth, which is prohibited by Islam. growth, which is prohibited by Islam. In shariah, Riba technically refers to In shariah, Riba technically refers to

the premium that must be paid the premium that must be paid without any consideration. without any consideration.

Qur’an ReferenceQur’an ReferenceThe interest is prohibited in Islamic ways of The interest is prohibited in Islamic ways of banking as it is also obvious from Quran. In banking as it is also obvious from Quran. In

Quran, in Sura Al-Imran, Allah said that; Quran, in Sura Al-Imran, Allah said that; ““O you who believe! Do not devour Riba O you who believe! Do not devour Riba

multiplying it over and keep your duty multiplying it over and keep your duty to Allah that you may prosper” (3:130).to Allah that you may prosper” (3:130).

! تم تاکہ کرو ڈرا سے� اللہ اور کرو، کھایا مت سود کے کر چوگنا اور گنا دو والو ایمان ! اے تم تاکہ کرو ڈرا سے� اللہ اور کرو، کھایا مت سود کے کر چوگنا اور گنا دو والو ایمان اےپاؤ پاؤ فلاح فلاح

Same kind of prohibition regard fixed interest Same kind of prohibition regard fixed interest is also lead in Sura Al-Rum(39) , Al-Nisa(160-is also lead in Sura Al-Rum(39) , Al-Nisa(160-

161) and Al-Baqarah(275-281) of Quran. 161) and Al-Baqarah(275-281) of Quran.



Hadith ReferenceHadith Reference

This Hadith is reported by This Hadith is reported by Hazrat Hazrat Ali Radi-AllahuAnhuAli Radi-AllahuAnhu

"Every loan that derives a benefit (to the creditor) is riba."


Difference between Difference between conventional banking conventional banking and Islamic bankingand Islamic banking


Bank Client

money

money + money (interest)

ConventionalBanking System


Bank ClientGoods & Services

money

Islamic Banking System

Basic Principles of Islamic Basic Principles of Islamic BankingBanking

Sanctity of contracts.Sanctity of contracts. Risk sharing.Risk sharing. No Riba / Interest.No Riba / Interest. Economic purpose / activity.Economic purpose / activity. Fairness.Fairness. No valid subject matter.No valid subject matter.


Islamic Mode of FinancingIslamic Mode of Financing


IMPLEMENTATION OF ISLAMIC BANKINGIMPLEMENTATION OF ISLAMIC BANKINGFollowing are the stages involved in the Following are the stages involved in the

implementation of Islamic banking.implementation of Islamic banking.

STAGE-1STAGE-1 Interest was first eliminated from July 1979 Interest was first eliminated from July 1979

from the transactions of NIT ,HBFC, ICP AND from the transactions of NIT ,HBFC, ICP AND SBFC.SBFC.


STAGE -2STAGE -2 From first January 1981,profit and loss From first January 1981,profit and loss

sharing saving and term deposits were sharing saving and term deposits were introduced by commercial banks in place of introduced by commercial banks in place of simple saving and fixed deposits scheme.simple saving and fixed deposits scheme.

STAGE-3STAGE-3 In August 1981,HBFC was allowed to provide In August 1981,HBFC was allowed to provide

finance on rent sharing basis for house finance on rent sharing basis for house building.Students were allowed Qarz-e-Hasna building.Students were allowed Qarz-e-Hasna without interest.without interest.

STAGE-4STAGE-4 In 1983,hire purchases system of financing In 1983,hire purchases system of financing

was introducedwas introducedPrepared By: M.Hashaam 20

STAGE -5STAGE -5 From July 1,1984 to December 31From July 1,1984 to December 31stst,1984 ,1984

all banks in the country were to make all banks in the country were to make finance available on the basis of Islamic finance available on the basis of Islamic modes of financing in addition to the modes of financing in addition to the existing interest based systemexisting interest based system

STAGE -6STAGE -6 From January 1985,all types of finances From January 1985,all types of finances

provided by the bank to the provided by the bank to the governments and their agencies were governments and their agencies were permissible on Islamic basis only.permissible on Islamic basis only.


STAGE-7STAGE-7 From April 1985,all types of finances From April 1985,all types of finances

provided by the banks to all clients provided by the banks to all clients were to be on Islamic basis only.were to be on Islamic basis only.

STAGE-8STAGE-8 From July 1985,all deposits were to From July 1985,all deposits were to

be on the basis of participation in be on the basis of participation in profit and loss of banks except profit and loss of banks except current accountcurrent account


SWOT AnalysisSWOT Analysis SS: religious appeal, Zakat, Innovative : religious appeal, Zakat, Innovative

aspect, all bigger banks carry a Islamic aspect, all bigger banks carry a Islamic portfolio because of its successportfolio because of its success

WW: Lack of standardization, There are : Lack of standardization, There are differences in theory and practice, differences in theory and practice, Misinterpretation of IslamMisinterpretation of Islam

OO: fastest growing religion in the world, : fastest growing religion in the world, Traditional interest based banking losing its Traditional interest based banking losing its value, New markets have been emerged in value, New markets have been emerged in non Islamic regionsnon Islamic regions

TT: loopholes are present in its proper : loopholes are present in its proper implementation, Research in products, implementation, Research in products, Environment for Islamic banking in west has Environment for Islamic banking in west has been declined after 9/11been declined after 9/11


ConclusionConclusionIslamic banks "bear the risk" when Islamic banks "bear the risk" when

involve in any transaction.involve in any transaction.Islamic banks bear all the liability Islamic banks bear all the liability

when involve in transaction with when involve in transaction with consumer. Getting out any consumer. Getting out any

benefit without bearing its liability benefit without bearing its liability is declared Haram in Islam.is declared Haram in Islam.


Recommendation’sRecommendation’sTop quality service to ensure that Top quality service to ensure that

service standards of IB service standards of IB Institutions is at par with Institutions is at par with

conventional.conventional.Aggressive Marketing to ensure Aggressive Marketing to ensure that Islamic Banking reaches the that Islamic Banking reaches the tipping point in quickest possible tipping point in quickest possible

timetimePrepared By: M.Hashaam 25

Questions ?Questions ?


Implementation of Islamic Banking in Pakistan by-M.hashaam

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