192 Ahmad Block, New Garden Town, Lahore - Pakistan.

1. 192 Ahmad Block, New Garden Town, Lahore - Pakistan. Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com www.alhudacibe.com

2. Two Days Specialized Training Workshop On Islamic Microfinance 16th & 17th September, 2012 Sana’a, Yemen Shariah Foundation and Applications of Islamic Microfinance

3. Rulings In Islam • These 5 primary objectives follow by Shariah can be observed though the Al Ahkam (rulings) upon which Fiqh (Islamic Jurisprudence) rotate around. The rulings are categorized as follows: • a. Wajib (obligatory) • e. Haram (unlawful) • b. Mustahab (recommended) (Sunnat) • c. Mubah (permissible) • d. Makruh (disliked)

4. Rulings • Wajib- An obligatory action or something that shall be performed. Anyone who leave it is liable to gain the punishment of Allah s.w.t. in the Here after as well as a legal punishment in this world. • Haram- An unlawful action or the one that shall not be performed and is strictly prohibited. Anyone who engages in it is liable to gain the punishment of Allah s.w.t. in the Here after as well as a legal punishment in this world. • Mustahab- A recommended action or something that should be performed. • Mubah- A permissible action or something that is neither encouraged nor discouraged. • Makruh- A disliked action or something which is abominable and should be avoided but not in strictly prohibitory terms.

5. Islam and Shariah

6. Human Financial Needs

7. Some Very Important Shariah Principle About Islamic Finance • Money is not an asset by itself and can increase in value only if it joins other resources to undertake productive activity. • Fund providers must share the business risk. • Assets must back the transactions and investments may be made only in real, durable assets. • Islamic funds cannot finance activities deemed inconsistence with Shariah such as, business related to alcohol, gambling, any sort of trading of pork etc. • Islamic finance contracts required for mutual agreement and stipulates exact terms and conditions.

8. Tools of Islamic Microfinance • Charity • Islamic jurists have unanimously held the view that it is the collective obligation (fard kifayah) of a Muslim society to take care of the basic needs of the poor. • Charity occupies a central position in the Islamic scheme of poverty alleviation. • When compulsorily mandated on an eligible Muslim, sadaqa is called zakah. • Zakah is the third among five pillars of Islam and payment of zakah is an obligation on the wealth of every Muslim based on clear-cut criteria. • These funds are meant mostly for the extremely poor and function as a safety net for meeting their immediate and basic needs • In flow of benefits that are expected to be stable and permanent (such as, through endowment of a physical property), it is called sadaqa jariya or waqf.

9. Economic Empowerment • Islam strongly encourages charity from the giver’s point of view, it seeks to minimize dependence on charity from the beneficiary’s point of view. • A man of the Ansar community came to the Prophet (peace be upon • him) and begged from him. (#1) • He (the Prophet) asked: Have you nothing in your house? He (the man) replied: Yes, a piece of cloth, which we wear, or which we spread (on the ground), and a wooden bowl from which we drink water. (#2)

10. Economic Empowerment • He (the Prophet) said: Bring them to me. He (the man) then brought these articles to him and he (the Prophet) took them in his hands and asked to the assembly of people: Who will buy these? A man said: I shall buy them for one dirham. He (the Prophet) asked twice or thrice: Who will offer more than one dirham? Another man said: I shall buy them for two dirhams. (#3) • He (the Prophet) gave these to him and took the two dirhams and, giving them to the man of the Ansar, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me. (#4) • He then brought it to him. The Prophet (peace be upon him) fixed a handle on it with his own hands (#5) and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. (#6) • The man went away and gathered firewood and sold it. When he had earned ten dirhams, he came to him and bought a garment with some of them and food with the others. (#7) • The Prophet (peace be upon him) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment. • Begging is right only for three people: one who is in grinding poverty, one who is seriously in debt, or one who is responsible for compensation and finds it difficult to pay. (#8)

11. External (Equity & Debt) Financing

12. Why Islamic Finance? • The body which is promoted by Hiram sources is bound to hellfire. • On the Day of Judgment, a person will not be moved from the place where he stand until he is asked about the sources of his income and they way he spent it. • Purifying of the needs of life (food, drink, clothes house etc) is one of the most important reason for the acceptance of prayers by Allah.

13. Main Objective of Islamic Finance The main objective of an Islamic finance is to clean the income of Muslims from Muhurramat.

14. Most Important Islamic Teaching Related To Business • Elimination of Interest (Raba) • The prohibition of uncertainty (Gharar) • The prohibition of Gambling (Qimar) • The precipitation of games of chance (Maser) • Honesty and Fair Trade (Ghishsh and Khilabah) • Spending in the Good Cause • Buy Back • Two Mutually Conditional Contract • Entitlement to profit depends on liability for risk

15. Interest • Interest, Usury, or Riba is forbidden in almost all major religions of the world e.g. • Judaism • Christianity • Islam

16. Riba in Quran • God has permitted trade and forbidden interest….” (The Cow – Sura Al-Baqara 2:275) • Obelievers, 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)

17. 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 • Killed • Or, Crucified, • Or, have their Hands and Feet on alternate sides Cutoff, • Or, will be Expelled out of the land. • Such will be their degradation in the world, and • in the hereafter, theirs will be an terrible doom.” (Quran: The Table Spread - Al-Maida Chapter 5: Verse 33)

18. Riba in Hadith The Prophet 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).” (Sources: Jabir Ibn Abdullah, Muslim, Tirmidhi, Musnad Ahmed

19. Riba in Hadith The Prophet said: “Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.” (Sources: Aby Hurayrah, Ibn Majah)

20. RIBA

21. The prohibition of uncertainty (Gharar) • There are strict rules in Islamic finance against transactions that are highly uncertain or may cause any injustice or dishonesty against any of the parties.  • The concept of Gharar has been broadly defined by the scholars in two ways. • First, Gharar implies uncertainty. • Second, it implies dishonesty.

22. Classical Examples of Gharar • Selling goods that the seller is unable to deliver • Selling known or unknown goods against an unknown price, such as selling the contents of a sealed box   • Selling goods without proper description, such as shop owner selling clothes with unspecified sizes   • Selling goods without specifying the price, such as selling at the 'going price'   • Making a contract conditional on an unknown event, such as when my friend arrives if the time is not specified   • Selling goods on the basis of false description • Selling goods without allowing the buyer the properly examine the goods • The Prophet (pbuh) prohibited the pebble sale and the Gharar sale.

23. Qimar • Qimar includes every form of gain or money, the achievement of which depends purely on luck and chance. • All Lotteries and Prize schemes based purely on luck come under this prohibition. • O ye who believe! Intoxicants and gambling, sacrificing to stones, and (divination by) arrows, are an abomination, of Satan’s handiwork…..:(5:90-91) • He who played Qimar has disobeyed Allah and His Messenger.” (Ibn Majah )

24. Honesty and Fair Trade (Ghishsh and Khilabah) • Thus Manipulations and Mismanagement like Hoardings • Black marketing • Cheating • Profiteering • Short weighting • Hiding the defective quality of the goods are prohibited in Islamic Financial System. • The prophet (PBUH) said: the truthful honest merchants are with the prophets in the Day of Judgment.

25. Spending in the Good Cause • The Islamic economic approach is one, which is directed towards the achievement and actualization of justice in human relations. • The result of this effort is falah or success and salvation, and hayah tayyibah or good life in this world and the hereafter. • So Islamic banks don’t permute to establish any relation with commodities, services and individuals whose moral practices are doubtful • Some people spend Allah’s wealth (i.e. Muslim’s Wealth) in an unjust manner, such people will be put in the (Hell) fire on the day of resurrection” (Bukhari and Ahmad)

26. Buy Back • The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount.

27. Two Mutually Conditional Contract • Two mutually contingent contract have been prohibited by the holy prohibited by the holy Prophet (pbuh). • The sale of two item in such a way that one who intends to purchase good is obliged to purchase the other also at any given price. • One sale transaction with tow prices. • Combining sale and lending in one contract.

29. 192 Ahmad Block, New Garden Town, Lahore - Pakistan. Ph: (92-42) 35913096 - 98, Fax: (92-42) 35913056 Email: info@alhudacibe.com www.alhudacibe.com