Lecture: 1

An Introduction to Islamic
Banking & Finance

Dr. Syed M. Abdul Rehman Shah

Islam- A Complete Code of
Life

smars565@gmail.com
Nature of Activities in
Islamic Law

‫عبادات‬ ‫معامالت‬
Detailed Brief

Static Dynamic
No Ijtehad Ijtehad

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Existing Economic Systems
Some of the known economic
systems are:
Capitalism
Socialism
Communism
Islamic economic system
Why there is need of Islamic Economic
System?.. A Paradigm Shift
Non-Muslim
Muslim Individual
Individual
• Concept of • Doesn’t matter
Tauheed o
Sunnah • Doesn’t matter
• Accountability
of Life Hereafter • Value Neutral
• Ethics to Society
Development of Islamic
Economic Theories
Basic Sources,

Secondary Sources,

Analytical Tools,

Modeling
Comparative Difference in
Definition
Conventional Economics is the social science that
studies the allocation of scarce resources to
satisfy unlimited wants.
Problem of Choice (Scarcity of resources requires
choices to be made)

Islamic Economics is a social science which studies

the economic problems of people imbued with the
values of Islam and it enables people to perform
their obligation to Allah and to their society .
It studies man not only as an isolated
individual but of a social individual.
Conventional Vs. Islamic

Conventional Islamic

Limited Unlimited
Resources Resources

Unlimited Limited
Wants Desires
Origin in Quran: Unlimited
Resources
Origin in Quran: Limited
Desire
‫‪Origin in Hadith: Limited‬‬
‫‪Desire‬‬
‫ويجمع ذلك كله حديث أبي هريرة "ال يؤمن أحدكم حتى يكون هواه تبعا لما جئت به "‬
‫أخرجه الحسن بن سفيان وغيره‪ ،‬ورجاله ثقات وقد‬
‫‪.‬صححه النووي في آخر األربعين‬
‫‪Holy Prophet SAWW said: You will be considered a‬‬
‫‪believer only when you keep your desire under the‬‬
‫‪order (Sharia) what I brought to you people.‬‬
‫)‪ :‬فتح الباري جـ ‪(13‬‬
‫‪:‬قال رسول هللا (ص)‬
‫لو أن ابن آدم أعطي واديا من ذهب أحب إليه ثانيا ‪ ،‬ولو أعطي ثانيا أحب «‬
‫» إليه ثالثا ‪ ،‬وال يمأل جوف ابن آدم إال التراب ‪ ،‬ويتوب هللا على من تاب‬
‫‪“If man is given a valley of gold, certainly, he wants‬‬
‫‪the second and third one and he will …..” Hadith‬‬
‫)صحيح البخاري ‪(11/253‬‬
 Accountability- Four
Questions
‫عن ابي الدرداء قال قال رسول هللا صلى هللا عليه وسلم لن‬
‫يزول قدما عبد يوم القيامة حتى يسأل عن أربع عن شبابه فيما‬
‫اباله وعن عمره فيما افناه وعن ماله من اين اكتسبه وفيما‬
‫أنفقه‬
When a man/ woman dies he will be asked
on four:
1- His/her youth how he/she spend it?
2- His/her age how he/she spend it?
3. His/her wealth how he/she acquires it?
4. How he/she spends it? ( ‫)ابُن ِح َّباَن والترمذُّي‬
Concept of Ownership
Islamic concept of ownership is unique, i.e. Allah is
the real owner of everything and human being is
vicegerent.
Islam allows legal ownership subject to moral
obligations.
Laws of inheritance also distribute the wealth among
the heirs to avoid concentration of wealth.
How Ownership Transfers?
Selling
Gift
Zakat (All Types)
Donation (Waqaf)
Inheritance
Bank: Definition
A financial institution licensed as a
receiver of deposits. There are two types
of banks: commercial/retail banks and
investment banks. In most countries,
banks are regulated by the national
government or central bank.
(Investopedia)
 SBP- Banking Companies Ordinance, 1962

Under the Banking Companies

Ordinance, 1962 the State Bank of
Pakistan is fully authorized to regulate
and supervise banks and development
finance institutions (DFIs).
http://www.sbp.org.pk/publications/
prudential/ordinance_62.pdf

a.rehman@uettaxila.edu.pk
SBP- Prudential Regulations (PRs)
Prudential Regulations for Agriculture Financing

Regulations for Corporate / Commercial Banking (as

of January, 2015)

Prudential Regulations for SMEs Financing (as of 07

May, 2013)

Prudential Regulations for Consumer Financing (as of

31st January, 2011)

Prudential regulations for Micro Finance Banks

a.rehman@uettaxila.edu.pk
Definition: Islamic Banking
and Finance
Islamic Banking (Arabic: ‫ )مص"رفية إس"المية‬is
banking or banking activity that is
consistent with the principles of sharia
(Islamic law) and its practical application
through the development
of Islamic economics. As such, a more
correct term for Islamic banking is
sharia compliant Finance.
Islamic Law of Business
Contracts
Essentials Prohibitions

1. Seller 1.Riba (Interest)-- Markets

2. Purchaser 2.Gharar (Uncertainty)
3. Subject 3.Khilaba (Fraud)
Matter 4.Ghish ( Mixing to cheat )
4. Price 5.Najash (Bid to rise price)
5.Offer/ 6.Talqqi e rukban (Middle
Acceptance Man)
7.Tatfeef (Cheating in
measure)
Assignment
An Overview of Banking Models

Types of Banks, their fundamental

features
Presentations
Comparative Difference among
Economic Systems

Islamic Banking Department (IBD)

Of SBP