Presentation for hmb & ibd staff (jan 2015)
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Transcript of Presentation for hmb & ibd staff (jan 2015)
Agenda
• Introduction & Concept Developing
• Riba & Its Classification
• Shariah & Sources of Shariah
• Contract & Sale
• Murabahah
• Ijarah
4
Introduction To Islamic Banking &
Concept DevelopingMufti Abdul Sattar Laghari
Shariah Adviser
5
Islam is a complete Code of LifeThus Economic System is like a Pillar among the Pillars of Islam
• Quran Majeed says, “Today I have completed for
you your Deen and I have done my blessing over
you in full”
• Allah Taa'la says,” I have choose for you Islam as
a Complete Code of Life”.
Islamic Banking is Trade Trade is Allowed in Islam
• Allah Taa’la Says: O you who have believed,
when the call is made to the prayer on Friday,
hasten to the remembrance of Allah and leave
off your trading. This is better for only if you
know.
• Then, when the Prayer is over, disperse in the
land and seek Allah’s bounty, and Allah much:
maybe you achieve success.(Surah Al
Juma’ah) 6
Islamic Banking is Trade
Trade is Allowed in Islam
Allah Taa'la Says: He knows that there will be sick
men among you, and some others who travel to seek Allah’s bounty…..
(Al
Muzammil)
7
Shariah Limits
The U’lama has classified Shariah limits
into major three categories.
Aqaid (Faith and Belief)
Shariah
Akhlaq8
9
Position of Banking and Finance within Islam
PR
OH
IBIT
ION
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ITED
BY
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F C
ON
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AC
TS
MATER
IALIT
Y,
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ON
OM
IC P
UR
PO
SE
FAIR
NESS / N
O
EX
PLO
ITATIO
NISLAMIC FINANCIAL SYSTEM
What is Islamic Banking
• Islamic Banking refers to a system of banking or
banking activity that is consistent with the
principles of Islamic Law (Shariah) and its practical
application through the development of Islamic
Economics.
• Observance of Shariah in banking operations
determines the extent of Shariah Compliance in
banking.
11
History of Islamic Banking
• Islamic Banking system was established during 1970s. Among the
first institutions was the Naseer Social Bank which started
operations in Cairo, Egypt, in 1972.
• In 1975 Dubai Islamic Bank was established.
• During the last three decades an immense research and efforts
have been made to confine the system for Pakistani environment.
• In the present decade the Islamic banking system has gained a
good position in Pakistan & in the world around.
• HMB Islamic Started its operations in 2002 and now it is with
network of SIX stand alone branches. We are eyeing 25 branches
in 2015 Inshallah.
12
Basic difference between an Islamic Bank and a Conventional Bank
13
Islamic Bank Conventional Bank1-The relation between Islamic bank & Customer is one of participation in risks and rewards.
2- There is no previously fixed return on the funds invested with the bank, and same is the case when banks provide funds.
1-The relationship over here b/w bank and customer is that of debtors and creditors.
2-There is pre-agreed fixed return on the funds either provided by the bank or invested by the customer.
Basic difference between an Islamic Bank and a Conventional Bank
14
Islamic Bank Conventional Bank3-An Islamic bank keeps capital funds and investors’ funds segregated, in order not mix up the profit earned on its own funds (capital & current up) balances.
4-Islamic banks do not provide finance by offering cash loans, but through Musharaka etc.
3- The conventional banks pool together all the funds.
4- The conventional banks offer provide finance totally by offering cash loans.
Basic difference between an Islamic Bank and a Conventional Bank
15
Islamic Bank Conventional Bank
5-Islamic banking is primarily equity-based.
6-The Islamic system is value-oriented.
5- The conventional system is as a whole interest-based.
6-This system is value-neutral.
Conventional Banking
Asset Side Products
Conventional Banking
Liability Side Products
16
Bank is the
lender
Client is the
borrower
Bank is the
borrower
Client is the
lender
Islamic Banking
Assets Side Products
Islamic Banking
Liability Side Products
17
Musawamah
Murabahah
Salam
Istisna’a
Musharakah
Modarabah
Ijarah
Equity/Participatory Based
Modarabah
Musharakah
Sale / Trade Base
Participatory Base
Service Base
NEXT SESSION
RIBA18
Prohibition of RIBA
19
In Holy Quran there are 4 sets of Ayahs that are
revealed about Riba and its prohibitions:
1st Revelation – Surah-al-Rum, verse 39
2nd Revelation – Surah al-Nisa, verse 161
3rd Revelation – Surah al-Imran, verses 130-132
4th Revelation – Surah al-Baqarah, verses 275-281
Besides, there are also around 40 different Ahadiths on
RIBA and its prohibition from our Holy Prophet.
First Revelation about Riba
“That which you give as interest to increase the peoples' wealth
increases not with God; but that which you give in charity, seeking the
goodwill of God, multiplies manifold.” (Surah Rome, Verse 39)
20
21
4. Hazrat Jabir Ibn-e-Abdullah (‘) has reported the Prophet (]) to have cursed
those who charge interest, those who pay it, those who write documents
pertaining thereto, those who keep the accounts of such matters and those
who sign as witness. He (]) said that they are all equal in this crime.
22
9. Hazrat Abdullah Ibn-e-Masood (‘) has reported that the Prophet (]) said, “The ill affects
of interest are of 73 kinds, the last intense of these is like someone committing adultery
with his mother. This has been reported by Hakim and considered by him authentic
based on the criteria laid down by Imam Bukhari and Imam Muslim.”
DEFINITION OF RIBA
● Earning any kind of profit on any debt falls under the category of RIBA as defined in the Hadith
● Any stipulated profit on any debt is Riba
23
DEFINITION OF RIBA
DEFINITION OF RIBA
24
Classification of Riba
Riba
Riba Al FadhlExchange of
Commodities with different weights
Riba Al NasiahPayment of rabawi
itemsIs deffered
Riba & its Classification
Riba – un - Nasiyah (Riba Al- Quran)
“that kind of loan where specified
repayment period and an amount in
excess of capital is predetermined”
( Imam Abu Bakr Jassas Razi)
25
Riba & its Classification
Riba – un - Nasiyah
“all loans that draw interest is Riba”
(Hadith quoted by Hazrat Ali ibn
Abi Talib)
“the loan that draws profit is one of the
forms of Riba”
(definition from Sahabi Fazala Bin
Obaid) 26
Riba & its Classification
Riba-al-Fadhl (Riba Al Hadith)
Excess taken in exchange of specific
commodities which are homogeneous.
Legal definition defers in every fiqh.
27
Riba-al-Fadhl (Riba al Hadith)
Hadith prohibiting Riba-al-Fadhl
sell gold in exchange of equivalent gold
sell silver in exchange of equivalent silver
sell dates in exchange of equivalent dates
sell wheat in exchange of equivalent wheat
sell salt in exchange of equivalent salt
sell barley in exchange of equivalent barley
28
Riba-al-Fadhl
29
Sell barley in exchange of equivalent barley
but if a person transacts in excess, it will be
Riba.
However sell gold for silver anyway you
please on the condition it is hand-to-hand
(spot sales) and sell barley for date anyway
you please on the condition it is hand-to-
hand(spot sales)
FORMS OF RIBA• Conditional or customary increase in loan (Qarz) or
debt (Dayn)[Payables/Receivables];• Banking interest is Riba.• Financial penalty on delay payment of loans and
debts.• Pre agreed discount on early payment of loans and
debts.• Exchange of debt with excess in cash or debt or
kind.• Interest on debts (dues in a credit transaction).• Rescheduling of debt with increase in rate of return.• Sale of debt is not allowed in view of majority however some
scholars allow if it is exchanged at par.• Time based valuation of money is not acceptable.
Permissible Forms
• Following is permissible:• Charging of actual cost of recovery of
delayed debts.• Charging actual cost of
documentation or issuing expenses of loans.
• Voluntary increase by debtor (without demand by creditor or society norms)
General view of the conventional economists
• Interest plays an important role in promoting savings, investments, and economic development.
• Totally against Quran:
32
Important Shariah Maxim:
All gains to the principal are not prohibited. But
• “Al Kharaj bil Daman” • “Al Ghunm bil Ghurm” • “laa ribh maa laa yadhman” are the criterion of legality of any return on
capital meaning thereby that assumption of business risk is a pre-condition for acquisition of any profit over the principal.
33
QIMARPure Games of Chance
Qimar means gambling. Technically, it is an
arrangement in which possession of a
property is contingent upon the happening
of an uncertain event. By implication it
applies to a situation in which there is a
loss for one party and a gain for the other
without specifying which party will lose and
which will gain. Gambling and wagering contracts fall in ambit of
Qimar
34
GHARAR غرر Gharar is an Arabic word which means 'risk',
'uncertainty', and hazard.• Technical meaning of Gharar is: “any bargain in which
the result of it is hidden”.
This includes uncertainty, cheating, ambiguity and non transparency.
• Gharar is 'excessive uncertainty' about subject matter or its quantity / quality or price or maturity of the contracts.
• 'Excessive uncertainty' means uncertainty that generally leads to disputes between parties.
Shariah & its Sources
ShariahThe Word Shariah Means a path a way.
In legal terms the verb “Shara’a” means to make or establish laws. Thus the word Shariah means “laws relating to all aspects of human life established by Allah s.w.t. for His servants” OR simply you can say “the Divine Law”
The laws relating to human life are divided into three; Laws relating to Belief Laws relating to Ethics Laws relating to Deeds
Shariah is an other word for Islam.
38
Objectives of Shariah
Protection of Property
Protection of Posterity
Protection of Intellect
Protection of Life
Protection of Faith
Objectives of Shariah
Fiqh
• The word fiqh is an Arabic term meaning "deep
understanding" or "full comprehension".
• Technically it refers to the science of Islamic law
extracted from detailed Islamic sources (which are
studied in the principles of Islamic jurisprudence).
• The process of gaining knowledge of Islam through
jurisprudence, and the body of legal advisements so
derived, is known as fiqh.
39
Sources Of Shariah
All the Shariah Rulings regarding
Islamic finance & every aspect in
human life, are derived and
understood from the four sources.
40
QURAN MAJEED
SUNNAH
IJMA,A
QIYAS
SOURCES OF SHARIAH
Primary
Secondary
1) The Holy Quran
• The book of Allah (SWT): Revealed on the last prophet, written in the form of book and is being conveyed with out any break.
• Gives main beliefs, principles and wide-ranging directives of Allah, Allah (SWT) says:
"Verily, this Qur'an guides to that which is best, and gives glad tidings to the believers who do good that theirs will be a great reward." (17: 9)
42
2) Sunnah
Definition:
A word spoken or an act done or ratified by
the Holy Prophet (peace be upon him), by
Sahabah and a word spoken or act done by
Taabae’een.
It is a source of Shariah because the Holy
Quran itself has made it obligatory for every
believer that he must obey and follow the
Holy Prophet:43
3) Ijma’a Ijma’a means Scholarly consensus
Scholarly consensus is defined as being the agreement of all
Muslim scholars on a specific issue. Given the condition that all
such scholars have to agree to the ruling, its scope is limited to
matters that are clear according to the Qur'an and Prophetic
example, upon which such consensus must necessarily be
based.
The Holy Prophet (SAW) has said:
My Ummah shall never be combined on an error.
44
4) Qiyas (Analogy)
• Qiyas is reasoning by analogy.
• To apply a recognized rule of Shariah expressly mentioned
in the Holy Quran and Sunnah to a similar thing or
situation by way of analogy.
• Legal analogy is a powerful tool to derive rulings for new
matters. For example, drugs have been deemed
impermissible, through legal analogy from the prohibition
of alcohol that is established in the Qur'an. Such a ruling
is based on the common underlying effective cause of
intoxication.
45
School of Thoughts
Our four school of thoughts
Hanafi (Imam Abu Hanifa an-Nu’man bin Thabit 699 A.D – 767 A.D)
Shafai (Imam Muhammad bin Idris al-Shafai 767 A.D – 819 A.D)
Malki (Imam Malik bin Anas 713 A.D – 800 A.D)
Hanbali (Imam Ahmed bin Muhammad bin Hanbal 780A.D – 855A.D)
All these are based on these sources of Shariah and are true.
46
CONTRACT & SALE
Types Of Commitment
Wa’adah
(Unilateral Promise/undertaking)
Muwa’adah
(Bilateral Promise/undertaking)
Aqd (Contract)
48
Wa’adah It means promise.
It basically refers to a unilateral undertaking or promise
extended by one person to another in which he offers to do
something in future.
The consensus of present Shariah Scholar is that
Wa'adah is enforceable by law
Example:
A promises to sell his car to B within the next 3 months for
Rs. 2.5 lacks, it is a unilateral undertaking or Wa’ada.49
Muwa’adah (Bilateral Promise)
It means bilateral undertaking (promise) or agreement.
According to majority of the Shariah Scholars, Muwa'adah is
not allowed in situations where Aqd is not allowed (e.g.
forward contracts), and thus is not enforceable by law.
According to the some Scholars of the Sub-continent,
Muwa'adah is enforceable by law.
They argue that some times Muwa'adah is genuinely required,
for example, importer/exporter need to hedge foreign
exchange.
50
Concept of a Contract
A contract in Shariah is called Aqd, and it is a type of
Islamic Muamlat. The literal meaning of aqd is “join” or “tie”. The English word for aqd is contract
The Shariah term for aqd as given by the author of al
Inayah is:
A legal relationship created by the conjunction of two
declarations, from which flow legal consequences with
regard to the subject matter
51
AQD - TYPES OF AQD AL MUAWADHA (with consideration)
E.g. contract of sale & purchase, Ijarah, Musharakah
Modarabah etc.
TABARRU (without consideration)
E.g. Contract of loan, Aariyah, Wadiah
DHIMINIAH (Supplemental/supporting contracts)
52
53
Shariah Contracts applied in Islamic FinanceCONTRACTS ACCORDING
TO THEIR APPLICATIONS
PARTICIPATING TRADING SUPPORTING
Musharakah
Mudarabah
Muzaraah
Bai’ Sarf
Bai’ Murabaha
Tawuliyah
Salam
Istisna
Ijarah
Ai’ nah
Rahan
Kafalah
Wakalah
Wadiah
Qardh
Hiba/Tabarru’
Muqasah
Ibra’
Commitment
Bai’
DEFINITION OF SALE (BAI)
Exchange of a thing of value with another
thing of value with mutual consent
OR
The sale of a commodity in exchange of cash
54
Types of Bai’
TYPES OF SALE (Bai)
Valid sale ( Bai Sahih)
Void/Non existing Sale ( Bai Baatil )
Existing sale but void due to defect( Bai
Fasid)
Valid but disliked sale ( Bai Makrooh )
55
Types of sale
VALID SALE ( Bai Sahih)
a sale is valid if all elements together with
their conditions are present
elements of valid sales are
Contract ( Aqd )
Subject matter ( Mabe’e)
Price ( Thaman )
Possession or delivery ( Qabza )
56
Types of Valid saleThere are about 40 types of valid sale, some
famous are;
Murabahah
Musawamah
Wadiah
Salam
Istisna'a etc57
VOID / NON EXISTING SALE (BAI BAATIL)
The buyer does not have the title to
subject matter.
the seller does not have title to price.
Both subject matter and price cannot
be used lawfully.
the produce of both will be unlawful.
58
Bai Fasid
sale will exist but will be invalid due to
non compliance to:
Conditions of Sold goods are missing
Conditions of Price are not met
Conditions about Possession not met
59
VALID BUT DISLIKED SALE ( BAI MAKROOH )
Sale is valid but disliked due to certain
conditions like:
sale after Juma Azan
sale after hoarding
sale by intervention of a third party
while two are negotiating
60