Presentation is loading. Please wait.

Presentation is loading. Please wait.

Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Amer Khalil ur Rehman Islamic Corporate Head.

Similar presentations


Presentation on theme: "Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Amer Khalil ur Rehman Islamic Corporate Head."— Presentation transcript:

1

2 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

3 Al Huda Centre of Islamic Banking and Economics 3 rd 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;

4 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Background: Prohibition of Riba

5 Al Huda Centre of Islamic Banking and Economics 3 rd 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 1/5 th 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?

6 Al Huda Centre of Islamic Banking and Economics 3 rd 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)

7 Al Huda Centre of Islamic Banking and Economics 3 rd 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

8 Al Huda Centre of Islamic Banking and Economics 3 rd 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

9 Al Huda Centre of Islamic Banking and Economics 3 rd 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

10 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Introduction to Islamic Banking

11 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Islam Aqidah (Faith & Belief) Shariah (Practices & Activities) IBADAT (Man to God Worship) Muamalat (Man to Man Activities) Political Activities Economic Activities Banking & Financial Activities Social Activities Akhlaq (Morality & Ethics) Islam and Shariah A balanced approach is required by Islam Our Focus

12 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Sources of Fiqh in Islam Quran Sunnah Ijamae Ummah (Consensus of the Ulema) Ijtehad / Qiyas (AAOIFI Shariah Standards: through Ijtamaee-Ijtehad) Accounting & Auditing Organization for Islamic Financial Institutions Shariah Standards Accounting Standards, Auditing Standards & Governance Standards

13 Al Huda Centre of Islamic Banking and Economics 3 rd 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: ) 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)

14 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Third Revelation: O Believer, take not doubled and redoubled interest [interest on interest], and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy (The family of Imran – Sura Al-Imran) Riba in the Quran

15 Al Huda Centre of Islamic Banking and Economics 3 rd 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

16 Al Huda Centre of Islamic Banking and Economics 3 rd 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

17 Al Huda Centre of Islamic Banking and Economics 3 rd 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

18 Al Huda Centre of Islamic Banking and Economics 3 rd 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.

19 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Important Caution: Duty of the State (Not Individuals) to implement Shariah 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!!…)

20 Al Huda Centre of Islamic Banking and Economics 3 rd 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)

21 Al Huda Centre of Islamic Banking and Economics 3 rd 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)

22 Al Huda Centre of Islamic Banking and Economics 3 rd 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

23 Al Huda Centre of Islamic Banking and Economics 3 rd 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

24 Al Huda Centre of Islamic Banking and Economics 3 rd 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

25 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Fulfillment of Financial Needs Own CapitalOthers Capital Equity Financing Debt Financing Equity (Capital) Market Debt Market Forms of Contracts Instruments Securities Forms of Contracts Instruments Securities Human Financial Needs

26 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Islamic ModeDescription Shariah Permissibility Source QuranSunnahIjmaa (Consensus) Trade Based (Debt Creating) Modes (Low Risk Category) Bai MurabahaCost Plus Profit Sale Yes Bai Istisna`aSale on Order Yes Bai SalamCommodity Sale Yes Semi-Debt Creating Mode (Medium Risk Category) IjarahLeasing Yes Sharing (Non-Debt) Modes (Full Risk Category) MusharakahJoint Venture Profit Sharing Yes MudarabahTrustee Profit Sharing Yes

27 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Islamic Banking Client Goods & Services money Conventional BankClient money money + money (interest) vs Islamic Financing

28 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Conventional Vs Islamic Economics Difference in Factors of Production Conventional Land Labour (+Entrepreneur) Capital Islamic Land Labour (incl. Entrepreneur) Capital Conversion..

29 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Frequently Asked Questions (Some Common Misconceptions…) Form Vs Substance Issue Are Mudarabah & Musharakah the ideal modes? Are Fixed Returns possible in Islamic Banking? Can Returns be the same as Conventional? No! Trade Based modes are the ideal modes! [Allah has permitted Trade and Forbidden Riba (2:275)] Yes! Through Fixed Rental Income or Fixed Profit on Sale Transactions Yes! e.g. If Cost of Cow is same!! since US$ / Kilo Haram Meat US$ / Kilo Halal Meat!!!

30 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Frequently Asked Questions (Some Common Misconceptions…) Impact of Inflation and Time Value of Money Banking is 600 years old, so how can there be Role for Bank in Islam? Islamic Banks share Profits, would they also share losses? Can Islamic Banks get funds from Conventional Banks? if yes, why? Financial Contracts / Transactions existed over 1400 years ago Under lying modes / Financial Contracts form the basic building block Yes! BUT!!!! Only if they actually occur, despite diversification; Since Risk Beta of Banks is closer to the Market Risk Beta!!! Prevent Riba!!! Or Speak against Riba? Or just Consider it wrong?

31 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Is Benchmarking with Conventional permissible? Confusion due to Mixing of Shariah Issues with Pricing Decisions TiersIslamic BankDepositorIslamic BankFinancee Tier 1.Mudaraba IRab-ul-Mal IMudarib I Tier 2.Mudaraba IIRab-ul-Mal IIMudarib II ReturnProfit SpreadFinancial Costs Unfairto Depositor XX 4% 2% 6% Unfairto Financee X 14% 2%X 16% Fair As per IFSB 10% 2% 12% TiersConventional Bank DepositorConventional Bank Borrower Interest on Deposits Interest Spread Interest on Borrowing Market Rates10%2%12% Market Based Returns are not just permissible! IFSB prefers / recommends them as they are Fair and Equitable!!

32 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Client Halal Restaurant Owner Islamic Banking Halal Abattoir / Butcher Shariah Advisor Onus Onus Shifts!!

33 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Baitan fil Bai… Why reliance on Shariah Advisor and Onus Shift is Essential?

34 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful AAOIFI Accounting & Auditing Organization for Islamic Financial Institutions Shariah Standards Accounting Standards Auditing Standards Governance Standards

35 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Value Addition Offered by Major Islamic Modes.. Islamic FinanceConventional Finance Equivalents Intermediated Not intermediated MurabahaNone SalamNoneFuture Contracts Istisna`aNone IjarahLeasing MusharakahShareholdingVenture Capital MudarabahNoneVenture Capital ICI and Fayzan Manufacturing Mudarabah Interesting Solution to the Privatization Dilemma!!

36 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Round TripCommodityQuantitySold (Sale Price) Purchased (Cost Price) Cash Flows 1.In MadinaRice10 KgDH In MadinaLentils(DH 100) 3.In DamascusLentilsDH aIn DamascusRice10 Kg(DH 50) 4. bIn DamascusRice30 Kg(DH 150) 5.In MadinaRiceDH 300 TOTALDH 600(DH 300) Income / Positive Cash Flows DH300 Bai Salam – an illustration

37 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Istisna Parallel Istisna Cash Flows Mode Selection & Istisna Istisna Tax Benefit Istisna Short Term Murabaha Ijarah D. M.

38 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Istisna Parallel Istisna Buyer Mode Selection & Istisna Buyer Seller Customer Bank Seller Air Bus

39 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Islamic Deposit Product Modes Mudarabah Qard Wakalah tul Istismar Musharakah Other Modes Amanah Waddiah

40 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Depositors Askari Islamic Weightage System Pool of Funds Businesses/Corporates Profits Financing Profits DepositsEquity

41 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Asset Side Products 1. Murabaha 2. Ijarah (Consumer /Corp. Industrial Equipment) 3. Diminishing Musharakah ( for Consumer /Corporate) 4. Salam 5. Istisna (for Construction/ Machinery/ Manufacturing) Liability Side Products 1. Pak Rupees Chequing Accounts Askari Islamic Current Account Askari Halal Savings and Notice Account (AHSAN) AHSAN MUNAFA AHSAN MASRAFI 2. Foreign Currency Chequing Accounts Askari Halal Foreign Currency Current A/c Askari Halal US Dollar Savings Account 3. Askari Halal Investment Accounts (AHIA) Askari Islamic Investment Certificates (AIIC) Askari Khas Islamic Deposit Account(AKIDA) Askari Islamic Term Quality Deposit(AITQAD) Askari Halal Certificates of Aasaan Monthly Mudarabah (AHCAMM) Askari WAKALAH-TUL-ISTISMAR Askari Islamic Banking Products

42 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Motivating Factors COBM (Cost of Being a Muslim)

43 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Any Questions?

44 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful 43 PAKISTAN THALASSAEMIA WELFARE SOCIETY THALASSAEMIA HOUSE TIPU ROAD RAWALPINDI Jazakumullah-e-Khair!

45 Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Jazakumullah-e-Khair!


Download ppt "Al Huda Centre of Islamic Banking and Economics 3 rd International Conference on Islamic Banking and Takaful Amer Khalil ur Rehman Islamic Corporate Head."

Similar presentations


Ads by Google