Topic: Implementation of Islamic Banking in Pakistan Presented to: Ali Afzal Presented by: M.Hashaam Roll No.

: AM552381 Class : MBA (B&F) 4th Semester

Commercial and Investment Banking

Acknowledgment
First of all thanks of Allah who is most beneficent and the most merciful whose blessings are abundant and favors are unlimited. It is my pleasure to acknowledge the guidance and support of Teachers for their endless guidance.

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History of Islamic Banking

The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profitsharing in the Egyptian town of Mit Ghamr in 1963 In 1973, the Islamic Development Bank was setup The first Islamic bank in Malaysia was established in 1983. In 1993, commercial & merchant banks were allowed to offer Islamic banking products and services under the Islamic Banking Scheme (IBS).
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History of Islamic Banking in Pakistan

The Islamic Summit of Lahore, Pakistan held in 1974 recommended the creation of Islamic Banks and Islamic Development Bank.

On 14 Ramadan 1420, the Shariah Bench of the

Supreme Court of Pakistan gave its landmark

decision banning interest in all its forms. The court also specified a step by step approach to rid the country of the evil of interest.
Judgment on Interest by the Supreme Court of Pakistan) (The Historic

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History of Islamic Banking in Pakistan

After 55 years after its creation in the name of Islam, Pakistan became the first Muslim country to officially declare modern bank interest as ar-riba

declared haram by Qur'an

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Introduction Of Islamic Banking

Islamic banking is the banking system which is run in accordance with the Islamic laws and the Shari a` board; that guides the institutions. Islamic banking is the banking that is guided by Islamic law ( Shari a`) principles and guided by Islamic economics. In particular, Islamic law prohibits the collection and payment of interest, also commonly called Riba in Islamic discourse.
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Introduction of Islamic Banking

Islamic Banking in Pakistan

Islamic banking shows dramatic improvements and developments in Pakistan. Islamic banking is taken as national policy and it is supported but there exist dual banking structure in the Muslim countries. Mostly the banks of conventional system are also opening their separate Islamic banking divisions and branches.
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Islamic Banking in Pakistan

The expectation of increase in growth of networking of Islamic banking system is increasing. The Islamic banking has increased in terms of branches, deposits, capital funds, sources. The ratio of income to expenses is high which indicates increasing profitability of the sector.
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Riba or Interest
Riba literally means increase, addition, expansion or growth. It is however not every increase or growth, which is prohibited by Islam. In shariah, Riba technically refers to the premium that must be paid without any consideration.

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The interest is prohibited in Islamic ways of banking as it is also obvious from Quran. In Quran, in Sura Al-Imran, Allah said that; O you who believe! Do not devour Riba multiplying it over and keep your duty to Allah that you may prosper (3:130). ! Same kind of prohibition regard fixed interest is also lead in Sura Al-Rum(39) , Al-Nisa(160-161) and Al-Baqarah(275-281) of Quran.
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Quran Reference

Hadith Reference
This Hadith is reported by Hazrat Ali Radi-AllahuAnhu

"Every loan that derives a benefit (to the creditor) is riba."

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Difference between conventional banking and Islamic banking

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money Bank Client

money + money (interest)

Conventional Banking System

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Bank

Goods & Services

money

Client

Islamic Banking System

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Basic Principles of Islamic Banking

Sanctity of contracts. Risk sharing. No Riba / Interest. Economic purpose / activity. Fairness. No valid subject matter.

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Islamic Mode of Financing

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IMPLEMENTATION OF ISLAMIC BANKING

Following are the stages involved implementation of Islamic banking. in the

STAGE-1 Interest was first eliminated from July 1979 from the transactions of NIT ,HBFC, ICP AND SBFC.

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STAGE -2 From first January 1981,profit and loss sharing saving and term deposits were introduced by commercial banks in place of simple saving and fixed deposits scheme. STAGE-3 In August 1981,HBFC was allowed to provide finance on rent sharing basis for house building.Students were allowed Qarz-e-Hasna without interest. STAGE-4 In 1983,hire purchases system of financing was introduced
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STAGE -5 From July 1,1984 to December 31st,1984 all banks in the country were to make finance available on the basis of Islamic modes of financing in addition to the existing interest based system STAGE -6 From January 1985,all types of finances provided by the bank to the governments and their agencies were permissible on Islamic basis only.
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STAGE-7 From April 1985,all types of finances provided by the banks to all clients were to be on Islamic basis only. STAGE-8 From July 1985,all deposits were to be on the basis of participation in profit and loss of banks except current account

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S: religious appeal, Zakat, Innovative aspect,

SWOT Analysis

all bigger banks carry a Islamic portfolio because of its success W: Lack of standardization, There are differences in theory and practice, Misinterpretation of Islam O: fastest growing religion in the world, Traditional interest based banking losing its value, New markets have been emerged in non Islamic regions T: loopholes are present in its proper implementation, Research in products, Environment for Islamic banking in west has been declined after 9/11
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Conclusion
Islamic banks "bear the risk" when involve in any transaction. Islamic banks bear all the liability when involve in transaction with consumer. Getting out any benefit without bearing its liability is declared Haram in Islam.
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Recommendations
Top quality service to ensure that service standards of IB Institutions is at par with conventional. Aggressive Marketing to ensure that Islamic Banking reaches the tipping point in quickest possible time
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Questions ?

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