New Areas of financing in financial system of Pakistan

Riba or Interest
Every Debt that pulls any predetermined excess over principal / any kind of Gain
is Riba.
Types of Riba
1- Riba Al-Fadhal
Excess taken in exchange of specified commodities which are homogeneous.
Gold, Silver, Wheat, Barley, Salt, Dates.
2- Riba An nasiyah (Banking use)
That kind of loan where specified repayment period and an amount in excess of
capital is predetermined.
Riba In Islam
Riba is forbidden under Sharia law (Islamic religious law) because it is thought to
be exploitative. Though Muslims agree that riba is prohibited, there is much
debate over what constitutes riba, whether it is against Sharia law, or only
discouraged, and whether or not it should be punished by people or by Allah.
Depending on the interpretation, riba may only refer to excessive interest;
however, to others, the whole concept of interest is riba and thus unlawful.

Practice of Interest-Free Banking

Prohibition of interest in Islam necessitates that in countries seeking to introduce
Islamic economic system, banking and financial practices be organized on a basis
other than interest.
Research work on the subject has proceeded to suggest that the principle of profit-
sharing offers the best alternative to interest in an Islamic system.
The view of interest free product offering is rooted in the Islamic philosophy of
justice between man and man.To charge interest from someone who is constrained
to borrow to meet his essential consumption requirements is considered an
exploitative practice in Islam.
Current picture of banking industry
It is apparent that interest-free banking, which still recently existed only in the
realm of theory, has now a lot of practical experience to offer. Interest-free banks
started functioning in Sudan, United Arab Emirates, Kuwait, Bahrain, Jordan and
Egypt. Two other interest-free institutions were located in European countries.
Besides, the Islamic Development Bank, which is a multilateral financing
institution of the Muslim World, had been in the field for some years.
In Pakistan, interest had been eliminated from the operations of a number of
specialised financial institutions and more than 6500 branches of Pakistani banks
had just embarked on interest-free banking by opening separate counters where
people could deposit their savings which banks undertook to invest in profitable
but interest-free avenues.
The review of the working of the interest-free banks shows that these banks have
successfully devised banking practices which are in conformity with Shari'ah. In
the other type, the account holder may choose any particular project for investment
of his deposited money. On the assets side, these banks were found to be operating
on the basis of musharikah and mudarabah which are essentially profit-sharing
arrangements. Besides, business is conducted on the basis of murabaha under
which the bank buys a specified item for the client who agrees to pay the bank
later, in lump sum or instalments, a price including an agreed percentage of
profit.The performance of the banks in respect of profits earned appeared to have
been quite encouraging.
Meezan Bank
Meezan Bank is one of the leading Islamic banks in Pakistan and offers a range of
interest-free banking products and services in accordance with the principles of
Islamic finance.
Products offered by Meezan Bank include:
Murabaha financing:
This is a cost-plus financing product where the bank purchases an item on behalf
of the customer and then sells it to the customer at a profit, with the profit being
the "rent" for the use of the bank's funds.
Ijara financing:
This is a leasing product where the bank buys an asset and then leases it to the
customer for a predetermined period of time, with the customer having the option
to purchase the asset at the end of the lease period.
Musharaka financing:
This is a partnership product where the bank and the customer enter into a joint
venture to finance a project, with profits and losses being shared in accordance
with a pre-agreed ratio.
Salam financing:
This is a forward purchase product where the bank agrees to purchase goods from
the customer at a future date, with payment being made in advance.
Istisna financing:
This is a manufacturing finance product where the bank provides financing for the
manufacture of a specific item, with delivery and payment being deferred until the
item has been manufactured.

Modes of financing offered by Meezan Bank include:

Personal financing:
This includes personal loans, car loans, and home financing products.
Corporate financing:
This includes financing for small and medium-sized enterprises (SMEs), trade
financing, and project financing.
Treasury products:
This includes a range of Shariah-compliant investment products, including savings
accounts, term deposits, and Mudarabah accounts.
All of Meezan Bank's products and services are designed to be compliant with the
principles of Islamic finance, which prohibits the charging or payment of interest
and instead promotes risk-sharing and equitable distribution of profits and losses.
Bank Islami is one of the leading Islamic banks in Pakistan and offers a range of
interest-free banking products and services based on the principles of Islamic
finance.

Products offered by Bank Islami include:

Murabaha financing: This is a cost-plus financing product where the bank

purchases an item on behalf of the customer and then sells it to the customer at a
profit, with the profit being the "rent" for the use of the bank's funds.

Ijara financing: This is a leasing product where the bank buys an asset and then
leases it to the customer for a predetermined period of time, with the customer
having the option to purchase the asset at the end of the lease period.

Musharaka financing: This is a partnership product where the bank and the
customer enter into a joint venture to finance a project, with profits and losses
being shared in accordance with a pre-agreed ratio.

Salam financing: This is a forward purchase product where the bank agrees to
purchase goods from the customer at a future date, with payment being made in
advance.

Istisna financing: This is a manufacturing finance product where the bank provides
financing for the manufacture of a specific item, with delivery and payment being
deferred until the item has been manufactured.
Modes of financing offered by Bank Islami include:

Personal financing: This includes personal loans, car loans, and home financing
products.

Corporate financing: This includes financing for small and medium-sized

enterprises (SMEs), trade financing, and project financing.

Treasury products: This includes a range of Shariah-compliant investment

products, including savings accounts, term deposits, and Mudarabah accounts.

All of the products and services offered by Bank Islami are designed to be
compliant with the principles of Islamic finance, which prohibits the charging or
payment of interest and instead promotes risk-sharing and equitable distribution of
profits and losses.