Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Amer Khalil ur Rehman Islamic Corporate Head Islamic Banking Services Askari Bank Limited 2 nd November, 2009 Disclaimer: Views expressed here in a personal capacity An Introduction to Islamic Banking and Finance; Principles, Concepts and Philosophy
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Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Amer Khalil ur Rehman Islamic Corporate Head.
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Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Amer Khalil ur RehmanIslamic Corporate Head
Islamic Banking ServicesAskari Bank Limited
2nd November, 2009
Disclaimer: Views expressed here in a personal capacity
An Introduction to Islamic Banking and Finance; Principles, Concepts and Philosophy
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Learning Objectives
• Increase Awareness about Islamic Banking and Finance
• Including;
The Prohibition of Riba in Major Religions
Riba in the Quran and Hadith
Main Principles of Islamic Economics
Differences between Conventional Vs Islamic Banking
Basic Concepts and Philosophy of Islamic Banking;
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Background: Prohibition of Riba
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
• Interest, Usury, or Riba is forbidden in all major religions e.g.
Judaism (Deutronomy 23:19)
Christianity (Thou Shall not lend upon usury..)
Islam (Religion of over 1/5th of world population)
• Foreign Banks,
RBS (ABN Amro Bank), Citibank, Deutsche Bank, Hong Kong & Shanghai Banking Corporation, Merrill Lynch, Standard Chartered, Union Bank of Switzerland etc, doing Islamic Banking for profit.. and market size potential.. and not (necessarily) for religious reasons..
• Vision: Singapore Eateries & Fast Food Chains!
Why Islamic Banking? What is its Market Potential?
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Judeo Christian Tradition
“Thou shalt not lend upon usury
to thy brother,
usury of money,
usury of anything that is lent upon usury”
(Deutronomy 23:19)
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
“He that hath not given forth upon usury,
neither hath taken any increase,
that hath withdrawn his hand from iniquity,
hath executed true judgment between man and man,
hath walked in my statutes,
and hath kept my judgments,
to deal truly; he is just He shall surely live, said the Lord GOD”
(Ezekiel 18: 8,9)
Judeo Christian Tradition
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
“He that by
usury and unjust gain increaseth
his substance, He shall gather it for him
that will pity the poor”
(Proverbs 28:8)
Judeo Christian Tradition
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
“In thee have they taken gifts to shed blood;
thou hast taken usury and increase,
and though hast
greedily gained of thy neighbours by extortion,
and hast forgotten me, said the Lord God.”
[Ezekiel 22:12]
Judeo Christian Tradition
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Introduction to Islamic Banking
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
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
Islam and Shari’ah
A balanced approach is required by Islam
Our Focus
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Sources of Fiq’h in Islam• Quran
• Sunnah
• Ijama’e Ummah (Consensus of the Ulema)
• Ijtehad / Qiyas
(AAOIFI Shariah Standards: through Ijtama’ee-Ijtehad)
Accounting & Auditing Organization for Islamic Financial Institutions’
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
According to the Quranic verses.. (summary)
• Taking interest has been equated with rejecting faith.. (Al-Imran)
• God deprives interest of all blessings.. (2:276)
• Even [Just] Saying: “Trade is like Interest” is forbidden..
and would attract punishment on the day of judgment… (2:275)
• O (Muslim) Believers (Not Non-Muslims!!)
if indeed you really are Believers and fear God then give up interest.. if not then take notice of war from Allah and his Messenger…
(2:278-279)
• Detailed severe punishments mentioned in Quran
for those who make war upon Allah and his Messenger.. (5:33)
(Caution: Role of State not Individuals. Additional context 5:32)
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
“God deprives interest of all blessing, but blesses charity; He loves not the ungrateful sinner”
(The Cow – Sura Al-Baqara 2:276)
Riba in the Quran
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Fourth Revelation:
“Those who benefit from interest shall be raised like those who have been driven to madness by the touch of devil; this is
[just] BECAUSE THEY SAY: “Trade is like interest”
while
God has permitted trade and forbidden interest…”
(The Cow – Sura Al-Baqara 2:275)
Riba in the Quran
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Fifth Revelation:
“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)
Riba in the Quran
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
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 awful doom.
(Quran: The Table Spread - Al-Maida Chapter 5: Verse 33-34)
• Caution: Role of State not Individuals to implement Shariah. See Context 5:32)
Save those who repent before ye overpower them. For know that Allah is Forgiving, Merciful.
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Important Caution: Duty of the State (Not Individuals) to implement Shari’ah Law..
• Taking one life is equal to killing mankind..
• “..Whosoever killeth a human being, other than man-slaughter or corruption in the earth, it shall be as if he killed all mankind,
and whoso saveth the life of one,
it shall be as if he had saved the life of all mankind...”
(Quran: The Table Spread - Al-Maida Chapter 5: Verse 32)
(i.e. Individuals need to refrain from Vigilantism!!…)
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Riba in Hadith“The Prophet cursed
the receiver and
the payer of interest,
the one who records it and
the two witnesses to the transaction
and said: “They are all alike (in guilt).”
(Sources: Jabir ibn Abdullah, Muslim, Tirmidhi, Musnad Ahmed)
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
The Holy Prophet said: “Even when interest is much, it is bound to end up in paltriness.”
(Sources: Ibn Mas`ud, Ibn Majah, Musnad Ahmad)
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Muamalat (civil transactions) should be..
• Free from Riba (an increase without ‘iwad or equal counter-value)
• In Compliance with (objectives of i.e. Maqasid - e - ) Shariah
• Devoid of Gharar (uncertainty, indeterminacy)
• Free from Qimar (gambling) and Maysir (games of chance)
• Free from Ghishsh (fraud) and Khilabah (cheating)
• Entitlement to profit depends on liability for risk
• Contracts based on free mutual consent
• “What is not explicitly prohibited is permissible”
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
• "The very objective of the Shariah is to promote the welfare of the people, which lies in safeguarding
• their faith, • their life, • their intellect, • their posterity and • their wealth.
• Whatever ensures the safeguarding of these five serves public interest and is desirable."
Al-Ghazali
Shariah and Maqasid-e-Shariah
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Shariah and Maqasid-e-Shariah
• "The basis of the Shariah is wisdom and welfare of the people in this world as well as the Hereafter.
• This welfare lies in complete justice, mercy, well-being and wisdom.
• Anything that departs from justice to oppression, from mercy to harshness, from welfare to misery and from wisdom to folly, has nothing to do with the Shariah."
Ibn al-Qayyim
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful
Fulfillment of Financial Needs
Own Capital Others’ Capital
Equity Financing Debt Financing
Equity (Capital) Market
Debt Market
• Forms of Contracts• Instruments• Securities
• Forms of Contracts• Instruments• Securities
Human Financial Needs
Al Huda Centre of Islamic Banking and Economics 3rd International Conference on Islamic Banking and Takaful