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Waqar Sharif
4469
Khalid Javed4475
Noman Arshad
4465
Ikram Ullah Khan4454
Muhammad Atif Hayat
4476
Mile-stones
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ISLAMIC BANKING
IN PAKISTAN
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Islamic banking refers to a system of banking or
banking activity that is consistent with theprinciples of the Shari'ah (Islamic rulings) and its
practical application through the development of
Islamic economics.
The principles which emphasize moral and ethical
values in all dealings have wide universal appeal.
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Islamic banks were formed to provide analternative basis to Muslims although Islamic
banking is not restricted to Muslims.
Basic principles of islamic banking
Elimination of Riba Economic Matters
Financing for Legal activities Islamic Objectivity
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Islamic banking has the same purpose as
conventional banking except that it operates
in accordance with the rules of Shariah,
known as FIQH AL-MUAMALAT(Islamic rules
on transactions).
Islamic banking activities must be practiced
consistent with the Shariah and its practical
application through the development of
Islamic economics.
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Regarding principles of SHARIAH 3 modes of
financing
Lending without interest (Qard-e-Hasna)
Sale and trade
Profit and loss(musharka & modarba)
No.of Islamic banks working in Pakistanunder SBP
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FEATURES OF
ISLAMIC BANKING
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Prohibition of Interest (Riba)
Asset-Backed Financing Prohibition of Uncertainty (Gharar)
Prohibition of Speculative Behavior
Shariah Approved Activities
Risk Sharing
Social justice
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Any amount, big or small, over the
principal, in a contract of loan or
debt is Riba prohibited by theHoly Quran,
regardless of whether the loan is
taken for the purpose of
consumption or for some production
activity.
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ASSET-BACKEDFINANCING
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Under the concept of money as a potential
capital, money has on intrinsic utility.Therefore, unlike conventional financial
institutions, financing in Islam is always based
on illiquid assets which creates real assets andinventories.
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PROHIBITION OF
UNCERTAINTY
(GHARAR)
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Literal meanings: Indeterminacy, Speculation,Risk or Hazard.
Technical meanings:
Gharar takes place where the consequences
(of a transaction) are concealed.
(Imam Sarkhsi; Al Mabsut, Vol 13 p 194).
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Usually, the riskiness deals with the variation
of outcome (i.e. possibilities of profit & loss).Islamic commercial law does not disapprove
risk & uncertainty when it refers to business
outcomes as they constitute a law of nature.But Islamic commercial law requires absolute
certainty about the terms and conditions of
contractual obligations.
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Examples of Gharar:
Sale of a car which has been
stolen by someone.
Sale of goods yet to be acquired
by seller.
Sale of fish in water & birds in
the air.
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PROHIBITION OF
SPECULATIVEBEHAVIOR
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FEATURES
Every form of money acquisition of which
depends upon luck or chance (zero-sum-
game).
Qimar & Maysir literally means getting
something too easily. In other words you gainwhat you have not earned.
Maysir is used in Quran & Qimar in Hadith.
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SHARIAH
APPROVEDACTIVITIES
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All moral and ethical value systems would
naturally promote higher ideals such asfairness and justice for all mankind.
However, it is fascinating to note that the
primary source for Shariah rules andprinciples, namely Quran and Sunnah of
Prophet Muhammad S.A.W, more than 1400
years ago,
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have explicitly ordained in a comprehensiveand concise manner certain code of ethics
that can be universally applied even in the
modern day, undeterred by time, space orrace.
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Example:
(al-Maidah: 1);
There are specific Quranic injunctions that
calls for honest fulfillment of all contracts. (al-Anfal: 27);
Prohibits the betrayal of any trust.
(an-Nisaa: 29);
Forbids the earning of income from cheating,
price manipulation, dishonesty or fraud.
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RISK SHARING
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Risk refers to inherited or natural and not
speculative.
Risk sharing is encouraged rather than risk
transferring. So suppliers of funds become
investors rather than creditors.
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Islamic banking requires Risk-sharing than Risk
transferring, MoreoverA person is entitled toprofit only when he bears risk of loss.
Example:
A businessman is entitled to Profits & Gains in
his business because he is ready to bear Loss.
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Islamic Banking in
Pakistan
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According to Mufti Muhammad Taqi
Usmani, a famous Islamic Economist,
Islam does not deny the market forces and
market economy. Even the profit motive is
acceptable to a reasonable extent. Privateownership is not totally negated. Yet, the basic
difference between capitalistic and Islamic
economy is that in secular capitalism, theprofit motive or private ownership are given
unbridled power to make economic
decisions.
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Financing by Lending
Trade-related Mode of Financing
Purchase of goods by BanksPurchase of trade bills.
Purchase of Property.
Leasing
Hire-Purchase
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Global Crisis and
Islamic Banking
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Global crisis and Islamic Banking
Global Financial Crisis (2007-2008)
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Nature of the Islamic banking is saviour.
Safe heaven for secured liquidity
Significant global inflation and Islamic banks
Less investment in conventional western banks
Alternatives to conventional banking
Reversed picture in 2009
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CONCLUSION
In Global Financial Crisis 2008, the
performance of Islamic Finance Industry was
much satisfactory.
Conventional banking groups such as
CitiGroup, HSBC, Standard Chartered etc are
offering Islamic financial services.
Islamic banking is not restricted to Muslims.
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Questions & Answers