Islamic Banking Introduction

• 1945 - Global System of 1945 and prudence of Quaid-e-Azam ( prudence of WTO leadership in post 1985 era )

• 1947 - Emergence of Pakistan within legal framework• 1948 - Foundation of State Bank of Pakistan – Economic prudence of Quaid-e-

Azam The crux of historic address of July 01, 2007 – Research for Islamic Economic System Responsibility vested with State Bank and Educational Institutions

• 1966 - Absence of material efforts and even the intent for achieving this goal among Banks – Practical denial by Educational Institutions

Islamic Banking Presentation Format

• Economic System of State of Madina – Not based on Banking - neither then nor before it

• Only new product – Bai Salam – Separate discussion (Tarjuman-ul-Quran April 07) • Was this system an accidental occurrence ? Or a continuation of Divine revelation

and guidance• History of Divine revelation and guidance and completion with Surah Quresh –

Emergence of Riba (product) • Expansionary System of Khilafat – Beginning of Banking (Ajmaa-e-Sahaba)• System of Malookiat• Today's Conventional System vs System of Khilafat • System of Khilafat as Universal basis of Islam for a Universal Economic System• Both the systems are partially assisting but can not integrate fully (Riba) • A new system can only be further extension of System of Khilafat (rather than

products) • System currency (today) and the need for a new system (elimination of Riba)• Balance Sheet of State Bank of Pakistan and difficulty to its acceptance • Where can we begin (beginning of a debate) • Role of Education and Finance Departments and Bait-ul-Mal (beginning of a

debate)

Islamic Banking

The Concept of Economy and Banking in Islam

Islamic Banking

Socio-Economic and Welfare Based Economic System of Islam

Hay

at A

l-Nab

i (P

BU

H) 2

3 Y

rs

Tradein

Islam

WELFAR E

IN

ISLAM

Baital

mal

Zakat

Debt

Hay

at A

l-Nab

i (P

BU

H) 2

3 Y

rs

Tradein

Islam

WELFAR E

IN

ISLAM

Baital

mal

Zakat

Currency

Hay

at A

l-Nab

i (P

BU

H) 2

3 Y

rs

Tradein

Islam

From Earth, Earth & above ……

WELFAR E

IN

ISLAM

Baital

mal

Zakat

Islamic Banking Islamic Economy

1. Cash and Credit2. Trade and Riba3. Trade, Riba, Modarabah and Musharakah4. Sadaqat5. Bait-al-mal6. Trading house - Deposit based

ECONOMY

6

1

1From Ibrahim

(AS

) to Moham

mad (P

BU

H)

2

4

5

3

Islamic Banking

Qasa-ul-Ambia/Qasas-ul-Quaran

Makkah

Tijarata Syria

Yemen

Defections in Calibration Equipment

Marabaha

Defections Mal bil Mal

Waeed

Azzab

Qabal

Types of Riba

(Torat- Humat-Riba)

Distruction of Uroshulum 2 times

Yasrab

Safar Amad Alnabi (SAW)

Refusal/Acceptance

Palastine to Egypt to

Arab

Bani Israil

Dua-e-Khalil

Karwan-e-Tijarat

Hazrat Yaqoob (AS)

Hazrat Yousaf (AS)Palastine/ Egypt

Bani Qatoora Dirham

Hazrat Ishaq (AS)

Hazrat Ibrahim (AS)

Hazrat Ismail (AS)

Hazrat Shoaib

(AS)

Takhliq-e-Riba

Hazrat Musa (AS)

Hazrat Esah (AS)

Hazrat Muhammad (PBUH) Dua-e-Khalil

Islamic Banking

Economic System of Khilafat

Record of

Assets

Bait-al-mal

Currency

Banking

Source:Quaran & Sunnah

Beginning:Histroy of Islam

Banking in Islam

Trade in Islam

History of Islam

Source: Islam

Qarz Beginning:

Dars-i-Nizami

Welfare Model of Economics in

Islam

Source:Quaran & Sunnah

Beginning:Histroy of Islam

ECONOMY

Currency

Musharka

Modarbah

Khilafat Global Economy

Islamic Banking

Economic System of Malookiat

Record of

Assets

Bait-al-mal

Currency

Banking

Source:Quaran & Sunnah

Beginning:Histroy of Islam

Banking in Islam

Trade in Islam

History of Islam

Source: Islam

Qarz Beginning:

Dars-i-Nizami

Welfare Model of Economics in

Islam

Source:Quaran & Sunnah

Beginning:Histroy of Islam

ECONOMY

Currency

Musharka

Modarbah

Malookiat Global Economy

Islamic Banking

Economics and Banking in Islam - Global

IMFWB

WTO

Islamic Confedral Parliament

Central Bait-al-mal at Madian Muawara Other Bait-al-mal Genral Trade

GLOBAL ECONOMY

Parliament

Record of

Assets

Bait-al-mal

Currency

Banking

Source:Quaran & Sunnah

Beginning:Histroy of Islam

Banking in Islam

Trade in Islam

History of Islam

Source: Islam

Qarz Beginning:

Dars-i-Nizami

Welfare Model of Economics in

Islam

Source:Quaran & Sunnah

Beginning:Histroy of Islam

ECONOMY

Currency

Musharka

Modarbah

Islamic Banking

Conventional System Vs System in Islam - Linkage

1. Trade in Islam

2. Banking in Islam4 3 2 1

3. Bait-al-Mal

4. Welfare economy of Islam

Currecny Usury Interest Riba

I. Trade

II. Commercial BankingIV III II I

III.Central Banking

IV.Secular Economy

Cur

renc

y

Islamic Banking

Man and Money Circle

Currency

Currency

Goods & Services

Banking

means acceptance

of deposits of

money

only

Banking

means acceptance

of deposits of

money

only

1472 yrs History of Islam - Properly Documented1375 yrs History of Europe - Not Properly Documented

Riba Riba

Exchange Rate

Currency

Documents

Secular

System

Global

Secular

System

WTO

Central B

ank

Currecny

Banking

Public D

ebt Deficits

Banking

Currency

Assets to N

o Asset

Trade &

Com

merce

Asset

Leased

"Wel

fare

Sys

tem

of

Isla

m"

Soc

ial

Sys

tem

of

Isla

m

Bai

t-al-m

al

Cur

recn

y

Ban

king

Sur

plus

Ass

ets

Ban

king

in

Isla

m

Cur

renc

y

Ass

et b

ased

Trad

e in

Isla

m

Ass

et b

ased

Islamic Banking

SBP – Account pursuant to SBP Act, 1956,on week ended May 20, 2006 (Issue Department)

Liabilities Rs. Rs. Assets Rs.

Notes held in the I.A Gold Coin and Bullion 53,870,004,000Banking Department 144,703,000 Silver Bullion

Special Drawing Rights held with Notes in Circulation 806,603,447,000 the International Monetary fund 12,057,228,000

Approved Foreign Exchange 550,402,144,000Total Notes Issued 806,748,150,000 India notes representing aseets

receivable from the reserve Bank of India 592,981,000 616,922,357,000

B. Rupee Coin 2,643,656,000 Government of Pakistan Securities 185,851,685,000 Internal Bills of Exchange and Other Commercial paper:

i) Agricultural sector Rs.

ii) Industrial sector Rs. 78,500,000 iii) Export sector Rs. iv) Housing sector Rs. v) Others Rs. 78,500,000 188,573,841,000

II. Held with the Reserve Bank of India pending transfer to Pakistan: Gold Coin and Bullion 876,161,000 Sterling Securities 357,795,000 Government of India Securities 13,910,000 Rupee Coin 4,086,000 1,251,952,000

Total Liabilities 806,748,150,000 Total Assets 806,748,150,000

Islamic Banking

SBP – Statement of Affairs as on May 20, 2006 (Banking Department)

Liabilities Rs. Assets Rs.

Capital paid up 100,000,000 Notes 144,703,000Rupee Coin

Reserve fund 15,414,474,000 Subsidiary coinsBills purchased and Discounted:

Rural Credit fund 2,600,000,000 a) Internal: i) Agricultural sector Rs.

Industrail Credit fund 1,600,000,000 ii) Industrial sector Rs. iii) Export sector Rs. 3,567,000

Export Credit fund 1,500,000,000 iv) Housing sector Rs. v) Others Rs. 33,400,000 36,967,000

Loans Gurantee fund 900,000,000 b) External c) Government Treasury bills

Housing Credit Fund 4,700,000,000 Balances held outside Pakistanin approved Foreign Exchange Rs. 117,677,193,000Special Drawing Rights held with

Deposits the International monetary fund Rs. 1,308,416,000Loans and Advances to GovernmentsGovernment Debtor Balances Rs. 15,457,355,000

(a) Federal Government 76,904,335,000 Loans and Advances to Scheduled Banks: A. Agricultural sector Rs. 61,643,982,000 B. Industrial sector Rs. 6,279,515,000

(b) Provincial Governments 53,466,164,000 C. Export sector Rs. 109,704,885,000 D. Housing sector Rs. E. Others Rs. 16,102,465,000 193,730,847,000

(c) Banks 201,795,069,000 Loans and Advances to Non-BankFinancial Institutions: A. Agricultural sector Rs.

(d) Others 274,428,772,000 B. Industrial sector Rs. 564,343,000 C. Export sector Rs. D. Housing sector Rs. 11,242,300,000

Allocation of Special Drawing Rights 1,525,958,000 E. Others Rs. 2,141,740,000 13,948,383,000

Investments:Bills payable 202,594,000 A. Scheduled Banks 25,751,477,000

B. Non-Bank Financial Institutions Rs. 1,673,375,000Revaluation Account 51,646,593,000 C. Government Securities Rs. 247,849,599,000

D. Others Rs. 919,943,000 276,194,394,000Other Liabilities 101,690,513,000 Other Assets 169,976,214,000Total Liabilities 788,474,472,000 Total Assets 788,474,472,000

Islamic Banking

Where to Start?

• Start with currency

• Why start with currency?

• Riba in currency issue (bearer)• All products woven around currency• Other un Islamic elements routed through Currency (and

universal transfer)• Exchange rate problems• Shifting dealings from currency to accounts (Interest

applied on accounts)• All Muslims to open accounts to benefit from Bait-al-mal• All accounts Islamic digit based• Complete documentation• Other impacts and Benefits• Change to Islamic currency-gradual