Professional Documents
Culture Documents
Outline
Evolution of Islamic Banking Islamic Banking Global perspective Islamic Banking in Pakistan Historical perspective
Cooperative banks in the sub-continent: o Cooperatives in Hyderabad Dakan (1940s) o Cooperative bank in Karachi (1950s) Pilgrimage fund in Malaysia (1950s) full-fledged bank in 1967 Saving bank in Mit Ghamr, Egypt (1963)
Nasr Social Bank, Egypt (l97l), was created as an interest-free commercial bank
Dubai Islamic Bank (1974) Islamic Development Bank (1974) Dar-al-mal-al-Islami (DMI), Geneva, established in 1981 Islami Bank Bangladesh Limited (IBBL) the first interest free bank in Southeast Asia was incorporated in 1983
In 80s different initiatives were taken in Pakistan, Iran & Sudan. In 80s Islamic Mutual funds & Mudarabah companies started to emerge In 90s AAOIFI, Harvard Index were established Islamic Finance Forum, Dow Jones Islamic
In 2000-10, several Islamic Bonds (sukuks) were issued. Key infrastructure institutes were established including
IFSB, IRA (Islamic Rating Agency), CIBAFI, ARCIFI.
Diploma programs, Graduate/Post graduate & doctorate degrees are being offered in Islamic banking by major academic institutions (CIMA, INCEIF, Durban University, IBA, IIBI-UK and several other universities )
Islamic Banking
Global Perspective
500 + Islamic financial institutions Total size ~ US $1.2 Trillion* 250+ Shariah compliant mutual funds with $ 300bn funds Around 700 International Islamic sukuks issued till date
133 + Takaful companies; > US$ 8.8 billion in contribution 2005-08 global CAGR 38%
Over 35+ Shariah & Accounting Standards for Islamic financial institutions ( by AAOIFI) Establishment of Islamic indices (Dow Jones, FTSE, KMI-30 etc.) Global IF Hubs (London, Bahrain, Malaysia, UAE)
*Arab News.com
Islamic Banking
Global Perspective
Many foreign banks now have Islamic windows. Citibank
International Groups
Noor Financial
Abu Dhabi Islamic bank
In Pakistan
Meezan
Al Barakah
Dubai Islamic
UBS AG
Approx. 45 Muslim countries including Kuwait, Dubai, Saudi Arabia, Iran, Malaysia, Brunei and Pakistan Approx 30 non-Muslim countries including USA, UK, Canada, Switzerland, Srilanka, South Africa and Australia
Islamic Commercial Banks Islamic Investment Banks Islamic Units of conventional banks Islamic Funds Islamic House Financing Schemes International Financial Market International Institutions of Islamic Banking
AAOIFI
IFSB IIRA CIBAFI
AAOIFI
Accounting & Auditing Organization of Islamic Financial Institutions
An Umbrella organization for Islamic banking
- Shariah Standards
- Accounting Standards - Auditing Standard
The IFSB
Established in November 2002 Based in Kuala Lumpur An international standard-setting body of regulatory and supervisory agencies Introduces/adapts existing international standards consistent with Shari'ah principles To date, it has issued 12 Standards, Guiding Principles and Technical Notes for the IFIs Areas include Risk Management, Capital Adequacy, Corporate Governance & Supervisory Review Process
Islamic Banking
Have declared all sort of banking interest as Riba & prohibited and have approved resolutions on various products of Islamic banking
We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice.
Speech at the opening ceremony of State Bank of Pakistan, Karachi July 1, 1948
1949
1962 1979 1980
Objectives Resolution
Creation of Council of Islamic Ideology (CII) in 1962 Pakistan adopted a policy of gradual transformation of its banking system A 15 member committee of CII prepared a report on elimination of banking & commercial interest from Pakistan and outlining the Islamic modes of financing Introduction of zakat system Introduction of Ushr system Introduction of mark-up based financing system in banks Federal Shariat Court (FSC) Declared mark-up procedure unIslamic
Legal framework in place, licenses available for Islamic commercial bank Islamic Subsidiary of a conventional bank Stand alone Islamic branches of a conventional bank Legal framework hybrid of Bahrain and Malaysian model
Meezan Bank
Burj Bank
Many conventional banks operating Islamic Banking Branches: Bank of Khyber,MCB, Bank Alfalah, Habib Metro Bank, Bank Al Habib, Standard Chartered Bank, Soneri, HBL, UBL, Askari, NBP, Faysal/RBS etc. (13) as they have accepted the reality and difference of Islamic banking.
approx.
Equitable Distribution & Circulation of Wealth in the society Avoid all Impermissible transactions
Riba (Riba Al Naseah / Riba Al Fadhl) Maysir / Gambling Gharar (Al Jahalah, Bai Qablal Qubz etc). Uqood-e-Fasida
Promote participation based & asset Backed Financing Fulfilling halal Customer Needs Ensuring Sharia Compliance in all transactions
Distinguishing Features
We find the differences are on three levels:
Distinguishing Features
3. Product Level Implementation
- usually asset backed & involve trading/renting of asset & participation on profit & loss basis
Al Baqarah 275
Those who devour Riba shall rise up before Allah like men whom Shaitan has demented by his touch; for they claim that trading is like Riba. But Allah has permitted trading and forbidden Riba. He that receives an admonition from his Rabb and mends his ways may keep what he has already earned; his faith is in the hand of Allah. But he that pays no heed shall be among the people of fire and shall remain in it forever.
O you who believe, Fear Allah and give up what remains of your demand for Interest, if you are indeed a believer. If you do not, then you are warned of the declaration of war from Allah and His Messenger; But if you turn back you shall have your principal: Deal not unjustly and you shall not be dealt with unjustly.
From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet, peace be on him, cursed : The receiver and the payer of interest, The one who records it and The witnesses to the transaction And said: "They are all alike [in guilt]."
Conventional
money Bank money + money (interest) Client
Islamic
Bank Goods & Services money Client
Definition of Riba
Imam Al-Ghazali pointed this out 900 years ago in the following words:
"Riba (interest), is prohibited because it prevents people from undertaking real economic activities. This is because when a person having money is allowed to earn more money on the basis of interest, either in spot or in deferred transactions, it becomes easy for him to earn without bothering himself to take pains in real economic activities. This leads to hampering the real interests of the humanity, because the interests of the humanity cannot be safeguarded without real trade skills, industry and construction.
Why Interest/ Riba Prohibited This aspect of interest has been criticized even by many modern economists. For example, James Robertson writes:
The pervasive role of interest in the economic system results in the systematic transfer of money from those who have less to those who have more. Again, this transfer of resources from poor to rich has been made shockingly clear by the Third World debt crisis. When we look at the money system that way and when we begin to think about how it should be redesigned to carry out its functions fairly and efficiently as part of an enabling and conserving economy, the arguments for an interest-free, inflation-free money system for the twenty-first century seems to be very strong.
James Robertson, Future Wealth: A New Economics for the 21st Century, p. 130, 131, Cassell Publications, London 1990
Islamic banking is a globally accepted reality and a viable alternative to interest based banking. It is ethically & economically better way of banking. Its objective are inline with the goal of Islamic Economics Islamic alternates of Banking Products can be very effectively developed for all types of needs
However, there is a need for more focus research and innovative product development.
Ulema, bankers and professionals need to coordinate more frequently to find solutions.
JAZAK ALLAH