INTRODUCTION TO ISLAMIC BANKING & FINANCE. By Muhammad Ayub (Former) Head, Islamic Banking, NIBAF State Bank of Pakistan Presented at AlHuda CIBE Workshop at Lahore. Topics to be Discussed. Why Islamic Banking? The Prohibition and Concept of Riba Key Misconceptions – General Myths
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Muhammad Ayub (Former) Head, Islamic Banking, NIBAFState Bank of Pakistan
AlHuda CIBE Workshop at Lahore
Qard (Loan) : to give anything in ownership of other by way of virtue - same or similar amount of that thing would be paid back on demand or at the settled time.
Dayn (Debt) : Incurred by way of trade or rent or any other credit transaction - ought to be returned at the settled time without any profit.
Verse 2: 279 guides that whatever is over and above the principal of loans or debts is Riba.
Differentiating: Trading, loaning and leasing
Banu Thaqif of Taif, not to forego interest on their receivables; Banu Amr ibnal Moghirah refused to pay interest; Referred to the H Prophet, the Revalation came:
“O you who believe. Fear Allah, and give up the Riba that remains outstanding if you are (in truth) believer”. (11:278).
“If you do not do so, then be sure of being at war with Allah and his Messenger. But, if you repent, then you have your principal”. (11:279)
Then shall every soul be paid what it earned and none shall be dealt with unjustly.
A. Debt creating Modes (Low Risk Category)
1. Qard Al-Hasan (interest-free loan)
2. Bai Muajjal (Price deferred sale)
3. Murabaha and Musawama
4. Salam (Commodity sale)
5. Istisna´a ((Order to Manufacture)
B. Semi-debt Modes
C. Sharing or Non-debt Modes (Full Risk Category)
1. Musharaka (Close to Venture Capital)
2. Specific Purpose Mudaraba
3. General Purpose Mudaraba
Commodity should have come into existence.
It should be in ownership of the seller.
The commodity should also be under physical or constructive possession of the seller.
Two exceptions to this rule- Salam & Istisna´a
In case of a number of commodities, the amount and delivery period should be separately fixed.
The subject on which transaction of Istisna’ is based, is always a thing which needs to be manufactured.
Price must be fixed, but need not to be paid in advance
Subject can be anything; Agri produce, Manufactured goods all units of which are normally of the same .
Price has to be paid in full in advanceSalam, Istisna Differentiated