SavingSaving

Investment Investment

ParticipationParticipation

Saving leads to Investment Saving leads to Investment through participation through participation

SAVING AND SAVING SAVING AND SAVING CONDUCTCONDUCT

Goal in the Islamic financial Goal in the Islamic financial System in spreading the System in spreading the

saving awareness and saving awareness and developing it to the need developing it to the need

of saver and the of saver and the community.community.

Individual DecisionIndividual Decision Saving is a decision that is Saving is a decision that is

taken by an individual.taken by an individual. Saving is a part of income kept Saving is a part of income kept

aside for spending at a later aside for spending at a later time. time.

Islamic Banking give Islamic Banking give particular importance and care particular importance and care to individual’s savingsto individual’s savings. .

Savers are the partners of the Savers are the partners of the Islamic banksIslamic banks

Reason that encourage to take Reason that encourage to take decision for avoiding un-decision for avoiding un-necessary spending of income necessary spending of income and use saving for better and use saving for better purpose.purpose.

Saving distinguish a Saving distinguish a commitment that define commitment that define individual of realizing his own individual of realizing his own interest and the betterment of interest and the betterment of economic activities.economic activities.

Islamic Bank define way to saving Islamic Bank define way to saving funds.funds.

Savings employed according to means Savings employed according to means for incentives that give individual to for incentives that give individual to practice saving application. practice saving application.

Saving do not neglect individual and Saving do not neglect individual and guided to lead saving motives to guided to lead saving motives to ensure safety for future.ensure safety for future.

Saving raise individual standard of Saving raise individual standard of living, caution towards wastage and living, caution towards wastage and guide to multiply the principal guide to multiply the principal savings. savings.

SavingSaving is a quality of a member is a quality of a member in healthy and welfare in healthy and welfare community due to avoiding community due to avoiding spending of wastefully in spending of wastefully in regards to what he earns.regards to what he earns.

Saving conduct is the saving for Saving conduct is the saving for future of community for common future of community for common goals.goals.

Saving is the contribution of Saving is the contribution of individual for socio development.individual for socio development.

To apply the directives Islam called for To apply the directives Islam called for in Holy Quran what meansin Holy Quran what means

IX, 34 Chapter the RegretIX, 34 Chapter the Regret

And as for those who store And as for those who store up gold and silver and do up gold and silver and do

not spend those in not spend those in Allah’s cause announce Allah’s cause announce

to them a painful destinyto them a painful destiny

Islamic Financial System do Islamic Financial System do not neglect saving motives. not neglect saving motives.

It make clear to individual step It make clear to individual step by step as when he makes his by step as when he makes his saving interest .saving interest .

It exercises a practical It exercises a practical devotion of worshipping.devotion of worshipping.

Savings operationsSavings operations inin Islamic BankingIslamic BankingSavings operationsSavings operations inin Islamic BankingIslamic Banking

It differ with conventional system that focus It differ with conventional system that focus on class of savings.on class of savings.

It encourage of all volume of saving that It encourage of all volume of saving that conventional system discourage savings of conventional system discourage savings of below a minimum limit. below a minimum limit.

It stress on continuous and timely It stress on continuous and timely investment savings that are collected in any investment savings that are collected in any size of amount. size of amount.

Islamic Banking emphasis on Islamic Banking emphasis on benefit for the community and not benefit for the community and not remain to make profit at all ways remain to make profit at all ways through funds colleted.through funds colleted.

Care saving conduct and not Care saving conduct and not individual interest by guiding the individual interest by guiding the ways and benefits of saving.ways and benefits of saving.

Saving and Spending is the social Saving and Spending is the social conduct and un-necessary saving is conduct and un-necessary saving is discourage and moderate spending discourage and moderate spending is encourage. is encourage.

Saving is a part of broad Islamic Saving is a part of broad Islamic Financial System and provide Financial System and provide individual to take part in shaping its individual to take part in shaping its individual character to adapts individual character to adapts himself for welfare of Community as himself for welfare of Community as a whole.a whole.

More saving activity becomes a More saving activity becomes a habit, it expands large number of habit, it expands large number of community balance to community community balance to community requirements and increases requirements and increases community in becoming strong and community in becoming strong and number of needy persons decreases. number of needy persons decreases.

Is Conventional system better then Is Conventional system better then Islamic System for Savings Islamic System for Savings

In their ability to attract savings In their ability to attract savings by offering interest on savings by offering interest on savings rather Islamic system does not rather Islamic system does not offer any interestoffer any interest

Risk free investment Risk free investment Easy to investment in any form Easy to investment in any form

and in any product and servicesand in any product and services..

Verity of saving products that give Verity of saving products that give a choicea choice

Inter-lending support in Inter-lending support in investment of savings investment of savings

Multi currency conversion of Multi currency conversion of saving fundssaving funds

Compounding of return that Compounding of return that increase the volume of saving increase the volume of saving returns. returns.

Need no obligation on declaration Need no obligation on declaration of details of saving results.of details of saving results.

BUT …………..BUT …………..

Islamic Financial SystemIslamic Financial System Restrict saving to be invested Restrict saving to be invested

in illegal form.in illegal form. Compounding of saving return Compounding of saving return

are prohibited.are prohibited. Savings are invested on Profit Savings are invested on Profit

& Loss Basis.& Loss Basis. Restricted saving products Restricted saving products

available .available .

Limited number of financial Limited number of financial institutions.institutions.

Saving cannot be invested in Saving cannot be invested in prohibited products and prohibited products and practices.practices.

Savings results are transparent, Savings results are transparent, short tenure and with clear short tenure and with clear understanding of Profit & Loss. understanding of Profit & Loss.

Human ego avoid pain whenever Human ego avoid pain whenever it finds the way to that. it finds the way to that.

Conventionally it is found that Conventionally it is found that savers have higher participation in savers have higher participation in investment and lesser in receiving investment and lesser in receiving in return.in return.

Savers are less important in in Savers are less important in in saving operation whereas the saving operation whereas the savings are the real players that savings are the real players that generate the interest.generate the interest.

Conventional system restrict Conventional system restrict higher ratio of saver on the saving higher ratio of saver on the saving return and allow higher return to return and allow higher return to the saving fund operatorsthe saving fund operators. .

Besides social and educational Besides social and educational effects for spreading saving conduct, effects for spreading saving conduct, are there are economic reasons in are there are economic reasons in which Islamic Financial play great which Islamic Financial play great notice to spread the saving conduct.notice to spread the saving conduct.

Voluntary individual savings as a Voluntary individual savings as a part of individual income for which part of individual income for which he temporarily postpones his he temporarily postpones his spending.spending.

The saving he made help in financing The saving he made help in financing the economic activities for socio the economic activities for socio economic developmenteconomic development . .

INVESTMENTINVESTMENTINVESTMENTINVESTMENT

There are common There are common apprehension & economic apprehension & economic

principles which can be taken principles which can be taken as guiding rules of the Islamic as guiding rules of the Islamic

Financial System for Financial System for investmentinvestment

There are common There are common apprehension & economic apprehension & economic

principles which can be taken principles which can be taken as guiding rules of the Islamic as guiding rules of the Islamic

Financial System for Financial System for investmentinvestment

Saving leads to InvestmentSaving leads to InvestmentSaving leads to InvestmentSaving leads to Investment

Rule of Profit & Loss sharing is Rule of Profit & Loss sharing is Participation.Participation.

Loan leads to seeking price of money Loan leads to seeking price of money that increase in capital.that increase in capital.

Financing is made on principle of safety Financing is made on principle of safety for capital and obtaining profit.for capital and obtaining profit.

Expenditure is deducted from profit and Expenditure is deducted from profit and not from capital.not from capital.

Profit which can be distributed is net Profit which can be distributed is net profit and not gross profitprofit and not gross profit..

Islamic Financial System allow Islamic Financial System allow participation in Joint Stock participation in Joint Stock Companies or Limited Liability Companies or Limited Liability Companies from its accounts or Companies from its accounts or can participate in a part of the can participate in a part of the capital of existing companies capital of existing companies

Financing working capital in Financing working capital in projects at short term financing projects at short term financing with participation which is not with participation which is not lent at interest.lent at interest.

Legitimate participation is a way Legitimate participation is a way of seeking profit through money of seeking profit through money from the money owner and work from the money owner and work close of participator at a common close of participator at a common purpose among each participant purpose among each participant for earning profit.for earning profit.

Riba Free Financial House can Riba Free Financial House can may be the money owner and may be the money owner and saver the participator or vice saver the participator or vice versa.versa.

The Riba Free Financial Houses The Riba Free Financial Houses are permitted to be a are permitted to be a participator from employer to participator from employer to re-participate with the previous re-participate with the previous participated funds on a Profit & participated funds on a Profit & Loss basis.Loss basis.

The Riba Free Financial Houses The Riba Free Financial Houses can be the second participator can be the second participator if it receives participation from if it receives participation from the first participatorthe first participator..

The Riba Free Bank may be the second The Riba Free Bank may be the second participator if it receives participation participator if it receives participation from the first participator.from the first participator.

The Riba Free Finance House as money The Riba Free Finance House as money owner bears loss alone as long as the owner bears loss alone as long as the participator does not exceed his role. participator does not exceed his role.

If the Riba Free Finance House works If the Riba Free Finance House works as a participator it does not bear loss as as a participator it does not bear loss as is sufficient that the Riba Free Finance is sufficient that the Riba Free Finance House’s effort and work are of no House’s effort and work are of no return. return.

It is allowed that the profit It is allowed that the profit between money owner and between money owner and participator is pre agreed. participator is pre agreed. But if it is determined sum But if it is determined sum of principal amount of of principal amount of money with the condition of money with the condition of no loss then participation no loss then participation becomes null and void.becomes null and void.

Riba Free Finance House can Riba Free Finance House can trade its funding precious trade its funding precious stone and in foreign stone and in foreign currencies on its conditions currencies on its conditions written down in the exchange written down in the exchange contractcontract..

Investment in financial Investment in financial securities is only valid in securities is only valid in shares and not in debenturesshares and not in debentures..

In Conventional System traditions In Conventional System traditions do not approve the Finance do not approve the Finance

Houses or the lenders to perform Houses or the lenders to perform investments by itself whereas investments by itself whereas

Riba Free Finance House break Riba Free Finance House break the tradition in three stagesthe tradition in three stages..

FirstlyFirstly FirstlyFirstly Rule known to us that every Rule known to us that every

person is taken by his words. person is taken by his words. Allah’s word revealed in written Allah’s word revealed in written

form and by traditions of Prophet form and by traditions of Prophet ((May Peace be upon him) May Peace be upon him) asas considering considering Riba Free Finance Houses and Riba Free Finance Houses and their systems are the blessings their systems are the blessings and in purity which cannot be and in purity which cannot be break, provided these are followed break, provided these are followed in according to its pure soulin according to its pure soul..

SecondlySecondlySecondlySecondly With no doubt Finance Houses with With no doubt Finance Houses with

their present forms and existing their present forms and existing functions rose up in response to functions rose up in response to different environments and non different environments and non Islamic philosophies in their Islamic philosophies in their present form and they serve these present form and they serve these environments which are not environments which are not necessarily convenient for serving necessarily convenient for serving Islamic communities in achieving Islamic communities in achieving the Rules approved by Almighty the Rules approved by Almighty Allah Allah

ThirdlyThirdly ThirdlyThirdly Riba Free Financial System guide to Riba Free Financial System guide to

perform direct investments or financing perform direct investments or financing by participation and stop all practices of by participation and stop all practices of other nature that deviate to its system.other nature that deviate to its system.

In case if continues its operations in In case if continues its operations in style of usurious banks and follow the style of usurious banks and follow the lending of saving funds by covering its lending of saving funds by covering its administrative expenses from these administrative expenses from these funds, this damage the investment and funds, this damage the investment and create a difference between the two create a difference between the two system. system.

Financing by participation means Financing by participation means sharing Investor (bank’s) capital of sharing Investor (bank’s) capital of productive project becomes a partner in productive project becomes a partner in the ownership project, partner in the ownership project, partner in management, running and supervision management, running and supervision and partner in all what it yields from and partner in all what it yields from profit or loss according to proportions profit or loss according to proportions agreed upon.agreed upon.

The Investor (bank) can sell its share to The Investor (bank) can sell its share to a limit restore only the price agreed a limit restore only the price agreed upon in the selling contract either it is upon in the selling contract either it is less or more than its capitalless or more than its capital. .

Justice must be secured and there Justice must be secured and there should not be exploitation as in the should not be exploitation as in the case of loan at interest where the case of loan at interest where the lender obtains all its capital completely lender obtains all its capital completely with an increase in its capital equal to with an increase in its capital equal to the mount of interest either the project the mount of interest either the project which borrowed makes a loss or profit. which borrowed makes a loss or profit.

Participation should exist on joint Participation should exist on joint liability between the financier and the liability between the financier and the financing in case of loss and in case of financing in case of loss and in case of profitprofit. .

Financier or Islamic Bank is a Financier or Islamic Bank is a partner in the financing on the partner in the financing on the condition to accept loss or profit as condition to accept loss or profit as the condition of participation. the condition of participation.

From here comes the glorious From here comes the glorious reference and great wisdom, thus reference and great wisdom, thus this participation in the two cases this participation in the two cases (loss and profit) obliges the two (loss and profit) obliges the two partners (every of them) to make the partners (every of them) to make the project prosper, and to do every project prosper, and to do every effort to supervise it to participate in effort to supervise it to participate in its success and therefore the efforts its success and therefore the efforts of the two partners should be of the two partners should be faithfully directed to its developmentfaithfully directed to its development

PARTICIPATIONPARTICIPATION

Participation operations lead Participation operations lead at the end to an ownership at the end to an ownership

that is applied in projects or that is applied in projects or transactions. Islamic transactions. Islamic

Financial System through its Financial System through its Banking System contribute Banking System contribute

in solving the problemsin solving the problems..

Diminishing participation or Diminishing participation or participation leading at the end to participation leading at the end to ownership.ownership.

In participation were the financer or In participation were the financer or bank gives the partner the right to bank gives the partner the right to replace it by ownership.replace it by ownership.

It is either at once or in parts It is either at once or in parts according to pre-agreed conditions on according to pre-agreed conditions on a basis of organized arrangement by a basis of organized arrangement by keeping a part of income as an keeping a part of income as an installment to repay financing. installment to repay financing.

Method of diminishing participation Method of diminishing participation

Entrepreneur presents the project to Entrepreneur presents the project to Financier.Financier.

Financier sees its viability of the project.Financier sees its viability of the project. Financier financer as the partner of the Financier financer as the partner of the

project.project. Entrepreneur pay through earning of profit in Entrepreneur pay through earning of profit in

parts.parts. If entrepreneur owner keeps it ownership to If entrepreneur owner keeps it ownership to

him, the profit is distributed between him, the profit is distributed between financier and entrepreneur according to the financier and entrepreneur according to the proportions agreed upon.proportions agreed upon.

..

In case entrepreneur pay the In case entrepreneur pay the financing either at once or in financing either at once or in installments financier has no right to installments financier has no right to obtain any privilege because of the obtain any privilege because of the increase in prices.increase in prices.

The financier or bank invest in project with the The financier or bank invest in project with the capital and therefore it is treated as a partner in capital and therefore it is treated as a partner in the transaction either equally or in part and any the transaction either equally or in part and any change in the value of the transaction the change in the value of the transaction the working partner has always the choice either working partner has always the choice either to sell and earn profit or buy himself according to sell and earn profit or buy himself according to market price.to market price.

In hire selling method the financer has to participate In hire selling method the financer has to participate in construction on the land then rents the housing in construction on the land then rents the housing units. units.

The land owner pay the ownership and rent and The land owner pay the ownership and rent and finally become an ownership to its hirer after a finally become an ownership to its hirer after a period of time.period of time.

Rent installment includes a calculated part of Rent installment includes a calculated part of costing.costing.

Rules of participation transactions Rules of participation transactions which financier follow with partner.which financier follow with partner.

Each participation transaction is under a contract Each participation transaction is under a contract and conditions that specify investment and profit in and conditions that specify investment and profit in proportion of each partner and instruct two matters:proportion of each partner and instruct two matters:

The FirstThe First: : The participator should keep accounts The participator should keep accounts for the business operation.for the business operation.

The SecondThe Second:: The accounts of the participation The accounts of the participation transaction should be checked by the expert transaction should be checked by the expert accountant to approve their results.accountant to approve their results.

Islamic Finance has a social target.Islamic Finance has a social target. Participation through financing for the Participation through financing for the

purpose to enlarge economic base and purpose to enlarge economic base and opening doors for every one desiring in opening doors for every one desiring in work and in production.work and in production.

For small worker who needs a small For small worker who needs a small financing forcing him to keep accounting financing forcing him to keep accounting books is asking him impossible act which books is asking him impossible act which could makes him reject financing. could makes him reject financing.

Keeping accounting books and auditing Keeping accounting books and auditing exceed the value of the financingexceed the value of the financing..

The expense of this checks are treated as the cost of The expense of this checks are treated as the cost of the transaction.the transaction.

How financier determine profits on How financier determine profits on investmentinvestment

The First stageThe First stage: E: Every participation very participation determine the share according to the determine the share according to the rules of participation contract.rules of participation contract.

The Second StageThe Second Stage:: By preparing Profit By preparing Profit & Loss account of investment operations & Loss account of investment operations and determining the portion resulting and determining the portion resulting from participation transactions and from from participation transactions and from the results of investment projects which the results of investment projects which the financier operates alone.the financier operates alone.

The Third Stage:The Third Stage: The distribution The distribution of net profit and loss of investments of net profit and loss of investments among the group of investors and among the group of investors and the financier or bank and everyone the financier or bank and everyone according to his share in according to his share in investment, as the shares with a investment, as the shares with a sum of its funds in transactions.sum of its funds in transactions.

After that it is distributed among After that it is distributed among every one of investors.every one of investors.

Profit portion of every investor from Profit portion of every investor from the profit determinedthe profit determined

Every investor obtains his portion of profit Every investor obtains his portion of profit according to agreed terms as regards to investing according to agreed terms as regards to investing operations. operations.

By mixing of total fund participated or deposited by By mixing of total fund participated or deposited by the investor in the bank to the time:the investor in the bank to the time:

For the period in which the fund has being invested.For the period in which the fund has being invested. Mixing leads to a fair distribution as regards the Mixing leads to a fair distribution as regards the

share of investors from profits distributor.share of investors from profits distributor.

Is it possible that the result of Is it possible that the result of investment is a lossinvestment is a loss

Chance may be there that the Islamic Bank for the Chance may be there that the Islamic Bank for the sake of eliminating the possibility of loss from sake of eliminating the possibility of loss from investment operations.investment operations.

Keeping such possibility there are ways to keep Keeping such possibility there are ways to keep investors secure and in banking provisions are made investors secure and in banking provisions are made for the purpose of safeguarding such possibilities by for the purpose of safeguarding such possibilities by way of . way of .

Technical pre- study of the Technical pre- study of the investment projects before their investment projects before their execution.execution.

The qualitative and geographical The qualitative and geographical distribution of investments.distribution of investments.

The refusal of conditional The refusal of conditional investment in a certain project investment in a certain project that have whole operations of is a that have whole operations of is a distribution of risk.distribution of risk.

Formation of appropriate Formation of appropriate provisions and reserves provisions and reserves

Forming appropriated provisions & Forming appropriated provisions & reserves.reserves.

Provision or reserve is a part of profit that Provision or reserve is a part of profit that is put aside to encounter probable loss or is put aside to encounter probable loss or to strengthen the financial standing. to strengthen the financial standing.

The reserve is of the right of the profit The reserve is of the right of the profit owner from which the reserve is owner from which the reserve is deducted.deducted.

Reserve or provision made to encounter Reserve or provision made to encounter losses and are deducted from investment losses and are deducted from investment profits before distribution.profits before distribution.

Reserve are the right of investors and the Reserve are the right of investors and the bank (participators) together.bank (participators) together.

Investor is not a permanent and may Investor is not a permanent and may finish his participation is a natural finish his participation is a natural matter.matter.

Casual problem is seen on withdrawal Casual problem is seen on withdrawal In order to investment operations In order to investment operations

without disputes, the bank make a without disputes, the bank make a reserve or an investment provision from reserve or an investment provision from the proportion the bank charges in the proportion the bank charges in return for its efforts and for managing return for its efforts and for managing investments.investments.

Therefore this reserve is employed to Therefore this reserve is employed to encounter any emergency and the encounter any emergency and the balance is still be owned by the bank.balance is still be owned by the bank.