Implementation of islamic banking in Pakistan by M.Hashaam University: Allama Iqbal Open University, Islamabad ASC: Punjab Computer College, Garhi Shao Lahore

2. Commercial and
Investment Banking
Topic: Implementation of Islamic
Banking in Pakistan
Presented to: Ali Afzal
Presented by: M.Hashaam
Roll No. : AM552381
Class : MBA (B&F) 4th Semester

3. Acknowledgment
First of all thanks of Allah who is most
beneficent and the most merciful whose
blessings are abundant and favors are
unlimited.
It is my pleasure to acknowledge the
guidance and support of Teachers for
their endless guidance.
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4. History of Islamic Banking
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The pioneering effort, led by Ahmad Elnaggar,
took the form of a savings bank based on profitsharing in the Egyptian town of Mit Ghamr in
1963
In 1973, the Islamic Development Bank was setup
The first Islamic bank in Malaysia was
established in 1983. In 1993, commercial &
merchant banks were allowed to offer Islamic
banking products and services under the Islamic
Banking Scheme (IBS).
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5. History of Islamic Banking in Pakistan
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The Islamic Summit of Lahore, Pakistan held in
1974 recommended the creation of Islamic
Banks and Islamic Development Bank.
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On 14 Ramadan 1420, the Shariah Bench of the
Supreme Court of Pakistan gave its landmark
decision banning interest in all its forms. The
court also specified a step by step approach to
rid the country of the evil of interest. (The Historic
Judgment on Interest by the Supreme Court of Pakistan)
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6. History of Islamic Banking in Pakistan
After 55 years after its creation in the name of
Islam, Pakistan became the first Muslim country
to officially declare modern bank interest as
“ar-riba”
declared haram by Qur'an
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7. Introduction Of
Islamic Banking

8. Introduction of Islamic Banking
Islamic banking is the banking system which
is run in accordance with the Islamic laws
and the Shari a` board; that guides the
institutions.
Islamic banking is the banking that is guided
by Islamic law ( Shari a`) principles and
guided by Islamic economics.
In particular, Islamic law prohibits the
collection and payment of interest, also
commonly called Riba in Islamic discourse”.
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9. Islamic Banking in Pakistan
Islamic banking shows dramatic
improvements and developments in
Pakistan.
Islamic banking is taken as national policy
and it is supported but there exist dual
banking structure in the Muslim countries.
Mostly the banks of conventional system
are also opening their separate Islamic
banking divisions and branches.
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10. Islamic Banking in Pakistan
The expectation of increase in growth
of networking of Islamic banking system
is increasing.
The Islamic banking has increased in
terms of branches, deposits, capital
funds, sources. The ratio of income to
expenses is high which indicates
increasing profitability of the sector.
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11. Riba or Interest
“Riba” literally means increase, addition,
expansion or growth. It is however not
every increase or growth, which is
prohibited by Islam.
In shariah, Riba technically refers to the
premium that must be paid without any
consideration.
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12. Qur’an Reference
The interest is prohibited in Islamic ways
of banking as it is also obvious from Quran.
In Quran, in Sura Al-Imran, Allah said that;
“O you who believe! Do not devour Riba
multiplying it over and keep your duty to
Allah that you may prosper” (3:130).
‫اے ایمان والو! دو گنا اور چوگنا کر کے سود مت کھایا‬
‫کرو، اور اللہ سے ڈرا کرو تاکہ تم فلح پاؤ‬
Same kind of prohibition regard fixed
interest is also lead in Sura Al-Rum(39) ,
Al-Nisa(160-161) and Al-Baqarah(275-281)
of Quran.
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13. Hadith Reference
This Hadith is reported by Hazrat
Ali Radi-AllahuAnhu
"Every loan that derives a benefit (to the
creditor) is riba."
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14. Difference between
conventional banking and
Islamic banking
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15. money
Bank
Client
money + money (interest)
Conventional
Banking System
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16. Bank
Goods &
Services
Client
money
Islamic Banking
System
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17. Basic Principles of Islamic Banking
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Sanctity of contracts.
Risk sharing.
No Riba / Interest.
Economic purpose / activity.
Fairness.
No valid subject matter.
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18. Islamic Mode of Financing
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19. IMPLEMENTATION OF ISLAMIC BANKING
Following are the stages involved
implementation of Islamic banking.
in
the
STAGE-1
 Interest was first eliminated from July 1979
from the transactions of NIT ,HBFC, ICP AND
SBFC.
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20. STAGE -2
 From first January 1981,profit and loss sharing
saving and term deposits were introduced by
commercial banks in place of simple saving and
fixed deposits scheme.
STAGE-3
 In August 1981,HBFC
was allowed to provide
finance on rent sharing basis for house
building.Students were allowed Qarz-e-Hasna
without interest.
STAGE-4
 In 1983,hire purchases system of financing was
introduced
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21. STAGE -5
 From July 1,1984 to December 31st,1984
all banks in the country were to make
finance available on the basis of Islamic
modes of financing in addition to the
existing interest based system
STAGE -6
 From January 1985,all types of finances
provided by the bank to the governments
and their agencies were permissible on
Islamic basis only.
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22. STAGE-7
 From April 1985,all types of finances
provided by the banks to all clients were
to be on Islamic basis only.
STAGE-8
 From July 1985,all deposits were to be
on the basis of participation in profit
and loss of banks except current
account
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23. SWOT Analysis
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S: religious appeal, Zakat, Innovative aspect,
all bigger banks carry a Islamic portfolio
because of its success
W: Lack of standardization, There are
differences in theory and practice,
Misinterpretation of Islam
O: fastest growing religion in the world,
Traditional interest based banking losing its
value, New markets have been emerged in non
Islamic regions
T: loopholes are present in its proper
implementation, Research in products,
Environment for Islamic banking in west has
been declined after 9/11
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24. Conclusion
Islamic banks "bear the risk" when
involve in any transaction.
Islamic banks bear all the liability
when involve in transaction with
consumer. Getting out any benefit
without bearing its liability is
declared Haram in Islam.
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25. Recommendation’s
Top quality service to ensure that
service standards of IB
Institutions is at par with
conventional.
Aggressive Marketing to ensure that
Islamic Banking reaches the tipping
point in quickest possible time
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26. Prepared By: M.Hashaam
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27. Questions ?
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