Table of Contents
Banks play a major role in different parts of the economy. After creation of Pakistan, Banking position in Pakistan very uncertain. In 1950’s portion in Pakistan history then we see the private banks are more dominant then government banks. After see the performance of government banks in 1992 the government banks were privatizes. But in 2000 the State bank starts his work on first time in Pakistan as Islamic bank and in 2002 the Meezan bank register as a Islamic bank in Pakistan. In the start of 21st century the Islamic banks was thread for commercial banks for money countries like Pakistan, Malaysia or Bahrain.
Most of the studies have proved that the Islamic banks show his positive performance in all over the world. These point shows two types of banks work in world one is Islamic bank and other is Commercial bank. We see difference between Commercial banks and Islamic banks on the bases of Riba and risk policies. Islamic banks generate our incomes in the shape of profit and other side conventional bank in the form of fixed interest. Islamic banks known as the name of trade oriented and conventional bank play role as a pure financial intermediary in financial institutions.
If see in the context of shariah (Islamic Law) they say all institutions whose work as a financial institution in anywhere in the world they free from Riba(interest). Islamic banks work on the principals of the Islam and Islam prohibited Riba(interest) because Allah also says in Quran prohibited Riba for everyone in the world Muslims are strictly include in to avoid for interest.
“Seized in this state they say: ‘Buying and selling is but a kind of interest’, even though Allah has made buying and selling lawful, and interest unlawful.” Al Baqarah 2:275
Islamic banking is accounts value approximately $500 billion in all over the world. In Pakistan they become his assets 1% ($19.93 billion) in June, 2018 according to the state bank. The report of last year say they growth 14.8% in 2018 and when we see the report of 2017 then they stand on 13.7%. This percentage shows Islamic banking growing very fastly in Pakistan.
After see the history of Riba in Islam context and emergence of Islamic finance in Pakistan our founder Muhammad Ali Jinnah very interested for Islamic banking in Pakistan. The main objective state bank is to free from interest system in Pakistan. Some writers claim Islamic banking is not famous in 1970’s, but start of the 21st century it common in all over the world.
If we see the competitive environment of Pakistan then we see lot of banks provide our services related to Islamic banking, some banks are listed below how work as a Islamic banking in Pakistan
- Al Baraka Bank
- Bank Islamic
- Dubai Islamic Bank
- Bank Al Habib Limited
- Meezan Bank
- Askari Bank Limited
- Habib Bank
- Bank Alfalah.
In these banks one bank which has provide firstly fair society in Pakistan and give value added products. This bank is also famous its high quality banking services. Al Baraka Bank, start its operation in Pakistan at 1st November 2010. Other one most important bank works in Pakistan for 1947 the bank is Habib Bank and this bank has 1600 branches in Pakistan. This Bank also provided new technology in banking sector in Pakistan. These banks also help our customer to focus on the Halal earning in our incomes. Now we see the products of Islamic banking in the context of Islam.
What is Riba?
The word Riba means “excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration.” Consideration word means do not include time value of money. This definition derived from Quran and most of Islamic scholars accept this.
There are two types of Riba and understand both Ribas with the help of definitions.
Riba An NasiyahRiba Al FadlRiba An Nasiyah: defined as increase, mean a lender receive some extra amount on our principal amount.
Riba Al Fadl: defined as “excess compensation without any consideration resulting from a sale of good.”
If we see the history of Riba in Islam before the Holy Prophet (PBUH) only Riba An Nasiyah Include in Riba, but Holy Prophet (PBUH) also include 2nd form Riba Al Fadl in Riba and restrict all Muslims. Now we clarified Riba with the help of Quran Kareem and some Hadith of Holy Prophet (PBUH).
“O those who believe fear Allah and give up what still remains of the Riba if you are believers. But if you do not do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your capital; neither will you do wrong nor will you be wronged.” Al Baqarah 2:278-9
“Those who charge riba are in the same position as those controlled by the devil’s influence. This is because they claim that riba is the same as commerce. However, God permits commerce, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgment rests with God. As for those who persist in riba, they incur Hell, wherein they abide forever.” (Qur’an 2:275)
Hadiths of Holy Prophet
“Jabir said that Allah’s Messenger (may peace be upon him) cursed the accepter of usury and its payer, and one who records it, and the two witnesses, and he said: They are all equal.” (Sahih Muslim)
“It is reported on the authority of Abu Huraira that the Messenger of Allah (may peace be upon him) observed: Avoid the seven noxious things. It was said (by the hearers): What are they, Messenger of Allah? He (the Holy Prophet) replied: Associating anything with Allah, magic, killing of one whom God has declared inviolate without a just cause, consuming the property of an orphan, and consuming of usury, turning back when the army advances, and slandering chaste women whare believers, but unwary.” (Sahih Muslim)
Types of Riba
Riba Al Nasiyah: This is the real form of Riba in Islam Finance, and Allah directly restricted this type of Riba in verses of Quran Karam. In dark ages only this type of Riba use and earned name Riba al Jahiliya. Imam Abu Bakar Hassan Razi has explained completely and prohibiting legal definition in these words.
“That kind of loan where specified repayment period and an amount in excess of capital is pre-determined.”
“One of the hadith quoted by Ali Ibn Talib (RA) has defined Riba An Nasiyah in similar words. The Holy Prophet said:” Every loan that draws excess is Riba.”
“The famous Arab scholar Abu lshaq az Zajjaj also defines Riba in the following words: “Every loan that draws more than its actual amount.”
Example of Riba An Nasiyah or interest: If Mr. A lends Rs.one hundred to Mr. B (a borrower) with a circumstance that Mr. B shall return him Rs.110 after one month. In this situation, the more quantity of Rs. 10 is Riba or interest.
Riba An Nasiyah refers to the addition of the premium that’s paid to the lender in return for his ready as a situation for the loan and is technically similar to interest. The prohibition of
Riba An Nasiyah is one of these problems which have been showed in the revealed laws of all Prophets (AS). A number of the old testaments have rendered Riba as haram. See (Exodus 22:25, Leviticds 25:35-36, Deutronomy 23:20, Psalms 15:5, Proverbs 23:8, Nehemiah 5:7, and Ezakhiel 18:8,13,17 & 22:12). Quran also defined in most of verses Riba prohibited less or more in percentages.
Above definitions proved that Riba An Nasiyah, the giving and taking of any extra quantity in alternate of a loan at an agreed price is covered in hobby irrespective whether or not at a high or low charge. It’s been proven through ahadith that the Holy Prophet paid extra on the loan compensation time however on account that this extra turned into now not paid via an agreed rate, it cannot be called interest. This clarifies that the phrase “attracts” in the hadith definition “The mortgage that attracts hobby is Riba” has been used to focus on the giving and taking of excess quantity via an agreed fee in the mortgage agreement. Because of this, Imam Abu Bakr Hasas has delivered the word “condition” to the definition.
The truth that Riba An Nasiyah is categorically haram has never been disputed in the Muslim-network. In quick, the Riba Islamic Finance of nowadays which is supposed to be the pivot of human economy and functions in discussions on the hassle of hobby is not anything however this Riba, the unlawfulness of which stands proved at the authority of the seven verses of the Quran, of extra than 40 ahadith and of the consensus of the Muslim network.
Riba Al Fadl: The second class of Riba is Riba Al Fadl. For the reason that prohibition of this Riba has been formed on the bases of Sunnah, it’s also known as Riba Al Hadees.
Riba Al Fadl absolutely way that excess which is taken in alternate of particular homogenous commodities and encountered in their hand-to-hand purchase & sale as defined inside the popular hadith: The Prophet said, “promote gold in exchange of equal gold, sell silver in change of equal silver, sell dates in change of equivalent dates, promote wheat- in change of equal wheat, promote salt in exchange of equal salt, promote barley in alternate of equivalent barley, however if someone transacts in extra, it is going to be usury (Riba). however, sell gold for silver besides you please on the condition it’s far hand-to-hand (spot) and sell barley for date anyway you please on the circumstance it’s far hand-to-hand (spot).”
After seeing the history of Riba through the references of Quran Karam verses, Hadith and popular scholars of the Islamic world. Now see the statement Dumpty Governor Saeed Ahmad of state bank Pakistan. They say interest and Riba is same thing.
“ISLAMABAD: State Bank of Pakistan (SBP) Deputy Governor Saeed Ahmad has said that Riba and Interest are one and the same and thus the Bank will not seek review of the 1992 definition of Riba from the Federal Shariat Court (FSC). “There is no doubt about it that Riba and Interest are one and the same,” Saeed Ahmad said, adding that the SBP counsel in the Riba case before the FSC will be told not to create any doubts on issue that is already settled. Talking to The News on phone here on Wednesday, the deputy governor said the SBP does not want to “re-invent the wheel” by seeking from the FSC to redefine Riba.
Saeed Ahmad was appointed as SBP deputy governor by Prime Minister Nawaz Sharif with the objective to encourage Islamic banking for the eradication of Riba/ Interest-based banking in Pakistan. The deputy governor was displeased over the reported argument of the SBP’s counsel during the last hearing of the Riba case before the FSC. He said that he would soon brief the SBP counsel that makes the Bank’s stance clear. Saeed Ahmad said that he had also taken up the matter with Finance Minister Ishaq Dar.
It is learnt that Chairman of SBP’s Sharia Board and one of the topmost religious scholars in Pakistan Mufti Taqi Usmani has also taken serious exception to the reported arguments of the Bank’s counsel in the same case.
During the hearing of the case on October 29, the SBP counsel had clearly told the FSC that no immediate alternate was available to replace the existing interest-based economic system and banking sector of the country.
The counsel had unambiguously told the FSC that interest had an important role in Pakistan’s economy, which he insisted could not survive in isolation from the outside world which followed the same system of interest-based economy.
The FSC was told by the SBP counsel in his initial arguments that even if all forms of interest were considered un-Islamic there was neither any alternate solution available for immediate change nor any state in the world practiced Islamic system of economy. The SBP counsel kept on urging the FSC judges that they should give a substitute if the present interest-based economic system was declared un-Islamic.
He told the four-member bench, hearing the case that the government was not shy of Islam and had faith in what the religion says. But in the same breath, he had urged upon the judges to decide the case keeping in view the ground realities and the global environment where we live.
The court was told that Pakistan’s economy could not survive by introducing an economic system which was not compatible with the global system. “Can our economic system survive behind iron curtain with no connection with the outside world,” the counsel had asked, while questioning the understanding of some the judges, who had previously ruled against Riba/ Interest and had sought its complete elimination.”
Musharkah and Mudarbahah as Modes of Finance
A form of partnership in which one party affords the budget whilst the other party affords knowledge. The folks that carry in cash are called “Rab-ul-Maal”(depositor) at the same time as the control and work is an one of a kind responsibility of the “Mudarib”. The income sharing ratio is determined on the time of stepping into the Mudarbahah settlement while in case of loss it’s far borne via the Rab-ul-Maal simplest. In case of Islamic banks, the depositors are referred to as Rabb-ul-Maal and the financial institution is known as Mudarib.
Types of Mudarbahah
There are two types of Mudarbahah in Islamic context.
Al Mudarbahah, Al-MuqayyadaAl Mudarbahah, Al-MutlaqahAl- Muqayyada: In this form of Mudarbahah the depositor give some instruction to bank where his money invest or not.
Al-Mutalaqah: In this case Mudarbahah the “Rab-ul-Mall” gives do not any instructions to bank and give freedom to our Mudaraib invest money anywhere in the business where they think right. This type of Mudarbahah is also called non restricted Mudarbahah.
It is vital for the validity of Mudarbahah that the parties agree on a sure system of sharing the real profit proper at the start of the contract. The Shariah has prescribed no unique percentage of earnings sharing rather it has been left to the mutual consent of the parties.
Mudarabah settlement can’t permit a lump sum quantity of earnings for any group nor can it decide the proportion of any other group at a selected charge tied up with the capital. For instance, if the capital is Rupees of one lack (100,000), Both parties can’t agree on a situation that Rs.10,000 out of the income will be the percentage of the Mudarib nor can they are saying that profit equal to 20% of the capital shall be given to Rab-ul-Maal. However they can agree that 40% of the real income shall go to the Mudarib and 60% to the Rab-ul-Maal or vice versa.
What is Musharkah?
Musharkah means a relationship build through a contract by the agreement for sharing losses and profits in the joint Business. If we see Islamic banking, it’s far a settlement under which the Islamic bank presents budget that are mixed with the budget of the business organization and others. All companies of capital are entitled to participate in control however now not necessarily required to achieve this. The income is shipped a few of the partners in pre-agreed ratios, at the same time as the loss is borne through every partner strictly in proportion to respective capital contributions.
Some rule listed below for profit and loss sharing in Musharkah.
The income sharing ratio for each group should be decided in share to the real income accrued to the enterprise and not in proportion to the capital invested with the aid of him. As an example, if it’s far agreed among them that ‘A’ gets 10% of his funding, the settlement isn’t legitimate.
It is not allowed to set a lump sum quantity for every one of the companions or any price of earnings tied up with his funding. consequently if ‘A’ & ‘B’ enter right into a partnership and it is agreed among them that ‘A’ will be given Rs.10,000/- in keeping with month as his proportion within the income and the relaxation will go to ‘B’, the partnership is invalid.
The most important point in Musharkah is if both parties agree on some percentage of profit and loss then this right or wrong, this is right and they work together.
This point show if one Person work in a business where they invest both parties then the profit of this person greater to other who work not, like if party A&B invest money in a business where party A work and they use our knowledge and make profit and other side the party B do not work on it then the profit share in Investment in grater then party B. other side the loss is also working in this process.
The basic and primary rules of distribution of loss in case of Musharakah:
All Islamic scholars are unanimous on the principle of loss sharing in Shariah primarily based at the saying of Syedna Ali ibn Talib that is as follows: “Loss is distributed precisely consistent with the ratio of investment and the profit is divided according to the settlement of the partners.” Consequently the loss is continually problem to the ratio of investment. For instance, if Mr. A has invested forty% of the capital and Mr. B has invested 60%, they have to suffer the loss within the equal ratio, no longer more, no longer less. Any situation contrary to this principle shall render the contract invalid.