KEY MISCONCEPTIONS
ABOUT
ISLAMIC BANKING
Presented by Sarah Iftikhar
ISLAMIC BANKING
Islamic banking is system of conducting trade and banking
activities in line with the principles of Islamic Shariah while
avoiding all the prohibited activities such as interest or
Riba, Gharar, financing of haram trades & businesses etc.
ISLAMIC BANKING
It is not banking which is based on pricing money and
earning interest as conventional interest based banks do but
it is a system of trade where goods and services are sold and
capital is invested by taking risk to earn halal profits.
Hence it is not just a change of name as misunderstood by
many but it is based on the Quranic injunction of
“ALLAH HAS PERMITTED TRADE
AND FORBIDDEN RIBA.”
(Surah al-Baqarah, Verses 275)
BASIC ISLAMIC FINANCE FAQS
1. Since the end 2. Can Interest rate 3. Some people
result of Islamic be used as a claim that there is
and Conventional Bench Mark? no concept of
Banking is the banking in Islam.
same; it is merely
a change of
name?
BASIC ISLAMIC FINANCE FAQS
4. Is charging 5. The price of cash 6. A fix rate of
penalty on late sale and deferred return is not
payment sale can be permitted in
allowed? different? Will it sharia
not cause
interest?
1.
SINCE THE END RESULT
OF ISLAMIC AND
CONVENTIONAL BANKING
IS THE SAME; IT IS
MERELY A CHANGE OF
NAME?
SINCE THE END RESULT OF ISLAMIC AND
CONVENTIONAL BANKING IS THE SAME; IT
IS MERELY A CHANGE OF NAME?
If a transaction is done
The validity of a transaction according to the rules of Islamic
does not only depend on the Shariah then it is completely
end result but rather the steps permissible no matter the end
followed in reaching the end. result may look similar to a
result achieved through a non
Shariah compliant transaction.
SINCE THE END RESULT OF ISLAMIC AND
CONVENTIONAL BANKING IS THE SAME; IT IS
MERELY A CHANGE OF NAME?
For example the beef burger in USA cannot be judged as
Haram or Halal until we know that the animal has been
slaughtered according to the Islamic Law. The end result
(Burger) is same.
SINCE THE END RESULT OF ISLAMIC AND
CONVENTIONAL BANKING IS THE SAME; IT IS
MERELY A CHANGE OF NAME?
Similarly if a person is feeling hungry, he may steal a piece of
bread and eat or alternatively he could buy a piece of bread to
eat. The apparent end result would be same but one is
permissible in Shariah and the other is not allowed.
SINCE THE END RESULT OF ISLAMIC AND
CONVENTIONAL BANKING IS THE SAME; IT IS
MERELY A CHANGE OF NAME?
The same is also true for Islamic and conventional banking.
Apparently the end result of both may look or feel the same
but due to adherence to a Shariah compliant process Islamic
banking is permissible and interest based banking is not
allowed and is like a declaration of war against Allah & His
Messenger.
2.
CAN INTEREST RATE
BE USED AS A BENCH
MARK?
CAN INTEREST BE USED AS A BENCHMARK?
Using Interest Rate benchmark for determining the profit of
any permissible transaction like sale or Murabaha does not
render the transaction as invalid or haram. The nature of the
transaction determines the validity of the transaction.
CAN INTEREST BE USED AS A BENCHMARK?
For example A and B are two brothers. A sells liquor that is
totally prohibited in Shariah. B, being a practicing Muslim
dislikes the business of A and starts the business of soft
drinks, but he wants his business to earn as much profit as
A earns through trading in liquor, therefore he resolves that
he will charge the same rate of profit from his customers as
A charges over the sale of liquor. Thus he has tied up his
rate of profit with the rate used by A in his prohibited
business.
CAN INTEREST BE USED AS A BENCHMARK?
The same is true for Islamic banks, it is most desirable &
preferable that Islamic banks develop their own benchmark
for profits however; in the absence of any such alternative
interest rate related benchmark can be used.
3.
SOME PEOPLE CLAIM
THAT THERE IS NO
CONCEPT OF BANKING
IN ISLAM
SOME PEOPLE CLAIM THAT
THERE IS NO CONCEPT OF
BANKING IN ISLAM
The use of the word banking does not make any institution
halal or haram, rather it is the underlying scope & nature of
activities that are being conducted which makes it halal or
haram.
SOME PEOPLE CLAIM THAT
THERE IS NO CONCEPT OF
BANKING IN ISLAM
Concept of banking based on pooling of excess funds of
depositors and channeling them towards those who require
it for investing activities is not only approved but
encouraged by Islam.
But the concept to lending and borrowing on the basis of
interest in not allowed in Islam.
4.
IS CHARGING
PENALTY ON LATE
PAYMENT
ALLOWED?
IS CHARGING PENALTY ON LATE PAYMENT
ALLOWED?
Taking interest in the form of late payment penalty or in
any other form is strictly prohibited in Islamic Shariah.
However, in order to safe guard Islamic banks from being
exploited and to instigate a financial discipline some check
& balances are allowed to be in place by the Shariah
scholars.
IS CHARGING PENALTY ON LATE PAYMENT
ALLOWED?
It is allowed by the SSB of Meezan Bank that in order to
discourage late payments and defaults, the customer can be
asked to give a unilateral undertaking to pay a certain
amount for charity to be utilized for charitable purpose as
approved by the Shariah Supervisory Board or Shariah
Advisor of the bank.
However it is very clear that any amount in this charity pool
cannot be considered as bank income.
5.
THE PRICE OF CASH SALE
AND DEFERRED SALE
CAN BE DIFFERENT? WILL
IT NOT CAUSE INTEREST?
THE PRICE OF CASH SALE AND DEFERRED
SALE CAN BE DIFFERENT? WILL IT NOT
CAUSE INTEREST?
If a commodity is sold in exchange of money, the seller,
when fixing the price, may take into consideration different
factors, including the time of payment. A seller, being the
owner of a commodity, which has intrinsic utility, may
charge a higher price and the purchaser may agree to pay it
due to various reasons. Thus at the time of the execution of
the sale transaction the seller can charge a higher price if
the buyer is paying on deferred basis.
THE PRICE OF CASH SALE AND DEFERRED
SALE CAN BE DIFFERENT? WILL IT NOT
CAUSE INTEREST?
However once the price is fixed and the sale is executed the
price cannot be increased if the buyer does not make the
payment on its due date.
6.
HOWEVER ONCE THE PRICE IS FIXED
AND THE SALE IS EXECUTED THE
PRICE CANNOT BE INCREASED IF THE
BUYER DOES NOT MAKE THE PAYMENT
ON ITS DUE DATE.
HOWEVER ONCE THE PRICE IS FIXED AND
THE SALE IS EXECUTED THE PRICE CANNOT
BE INCREASED IF THE BUYER DOES NOT
MAKE THE PAYMENT ON ITS DUE DATE.
Fixed return does not make a transaction halal or haram
For example:
Profit on trading
Rent on property
DISCUSSION
QNA
SESSION
THANK
YOU
