Lecture 1 - ISLAMIC BANKING CONCEPTS.pptx

Concepts of islamic banking

1. ISLAMIC BANKING CONCEPTS

2. S hari'ah – Introduction Both who live in a Muslim legal system and those who live in a non-Muslim system are required to follow Shari'ah up to possible level – defined in Islam. Every individual is responsible for balancing between all aspects in manners required and guided by Shari’a . Shari’a AQIDAH Faith & Belief FIQH Practices & Activities IBĀDĀT Man-to-Allah Worship MU’ĀMALĀT Man-to-Man Relationship Political Activities Economic Activities Other Economic Activities Banking & Financial Activities Social Activities AKHLAQ Moralities &Ethics

3. HISTORICAL RUNDOWN (Continued) 1. Pakistan was created out of Islamic Ideology . Therefore Islamic Banking gets support for its development. 2. Quaid-e- Azam Mohammad Ali Jinnah, father of the Nation, while inaugurating SBP on July 01, 1948 had guided Research Department of SBP to help develop Islamic Economic System which is based on equality and brotherhood. 3. Constitution of Pakistan Article 38 (f) of the 1973 Constitution of Pakistan is quoted below: “The state shall eliminate riba as early as possible”. 3

4. HISTORICAL RUNDOWN (Concluded) 4. 1 970s to 21 st Century a. 1970s: efforts, in their initial stages, started to eliminate riba . b. 1980s: Bold and comprehensive initiatives were under-taken. Pakistan joined the race of three countries in the world for interest free banking. Several existing laws were reviewed. New financial instruments were introduced, Twelve Non-Interest Based (NIB) modes were released to replace riba based practices, Profit & Loss Sharing concept was introduced. c. 1990s : Court battles were on. Instructions were issued by courts for a time framework for implementation of replacing conventional banks into Islamic Banks . However the system did not positively respond for implementation . d. 2000s: In January 2002 Commission for Transformation of Financial System was constituted in SBP. Task Force was set up to suggest ways to eliminate interest from government financial transactions. However, the end conclusion has been to continue parallel banking ie . Conventional and Islamic Banks. This system is going on in Indonesia and Malaysia also. 4

5. Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules by the principle laid down by Islamic Shariah . WHAT IS ISLAMIC BANKING?

6. Riba literally means increase, addition, excess, expansion or growth. A conditional or understood increase versus a loan is Riba It is reported from Hazrat Ali (RA) that ; The Holy Prophet صلى الله عليه وسلم has said: كل قرض جر منفعة فهو ربا “Every loan that derives a benefit (to the creditor) is Riba” “Every loan that draws any premium is Riba”. سود سےکیا مراد ہے؟

7. Need & Importance of Islamic Banking Part-III

8. Banking is the most important sector of the modern day economy It provides an opportunity to the household with surplus capital to select the best mix of investments in terms of return and tenors & security It provides an opportunity to businesses and Governments to finance their activities through obtaining surplus funds Concept of Banking in Islam

9. JAZAK ALLAH