Shariah Interview Flashcards
History of Islamic Banking
Global & Local History of Islamic Banking:
- 1950: 1st attempt to form Islamic Bank.
- 1960: Founding of 2 Islamic Banks, (Mit Ghamr Savings Bank in Egypt) & (PBSBH in Malaysia)
- 1975: Islamic Development Bank (Jeddah) & Dubai Islamic Banks Kuwait.
- 1980s: In early 80s Islamisation of Banking in Pakistan, Iran & Sudan.
- 1980 Participation Term Certificates (PTC) for corporate was allowed followed by Mudarabah companies.
- 1991, Shariah bench of Supreme Court declared the procedure adopted by Banks in 1985 was not completely Shariah Complaint.
- 1995: Al Meezan Investment Co was established.
- 2000s: After 2000, No of banks offering Islamic products expands.
- 2002: Meezan Bank Ltd was formed.
Shariah
Islamic laws / way of life based on teaching of Quran & tradition of our Prophet (PBUH) (Hadith & Sunnah)
Or
Shariah lexically means a way or path.
Technically, In islam, it refers to “divine guidance and law” as given by the Holy Quran, Hadith (sayings), the Sunnah of the Prophet Muhammad PBUH
Sources of Shariah
4 Sources of Shariah (QSIQ) i.e. Quran, Sunnah, Ijma (consensus of scholars of Ummah
For example 29 Rakat of Taravi & 2nd Azaan of Jummah) ;
Qiyas (apply recognized rule of shariah mentioned in Holy Quran & Sunnah to similar thing or situation for instance, Ibn Abbas narrated that a man came to Prophet (PBUH) & said “My sister vowed to perform Hajj but then she died. The Prophet (PBUH) said “don’t you think that if she owed a debit, wouldn’t you pay it off?” He said “Yes”. Prophet (PBUH) said “So pay off the debt owed to Allah, for it is more deserving of being paid off”)
Known ruling wine is Haram whose effective cause is intoxication so Cocaine is also Haram (unknown ruling)
Islamic Banking
Refers to banking services offered while complying with the ruling of Shariah which prohibit the following Riba, Excessive Uncertainty, Gambling, Selling something without owning or possessing it.
Riba, Types, Qurans Teaching, Hadith
means excess, increase or addition or any excess compensation without due consideration (consideration does not include time value of money)
- Riba un Nasiyah or Riba al Jahiliya: “Predetermined (fixed or variable) gain in excess of the principal in a contract of a loan.
- Riba al Fadl: Excess taken in exchange of specific commodities which are homogeneous. Gold, Silver, Wheat, Barley, Salt, Dates (GSWBSD).
Homogeneous: Quantity should be same & exchange should be on spot.
Heterogeneous: Quantity can be different but exchange should be on spot.
Quran:
Surah Al Bakara 2-278
“Momino! khuda sar daro aur agar emaan rakhtay ho tu jitna saud baki reh gaya hai isay chor do”
Sura Al Baqarah (2-276)
Khuda Suud ko nabod (yani bay barkat) karta hai
aur khairat ko (ki barkat) barhata hai
aur khuda kisi nashukray gunnah gar ko dost nahi rakhta.
Surah al Baqarah (2-275)
“Allah has permitted trade & forbidden riba”
“Allah nay tujarat ko halal aur saud ko haram karar dia”
Surah Al e Imran (3-130)
“O believer, don’t eat up Riba doubled & redoubled”
“Ay iman walo, saud mat khao dugna chugna kar k”
Hadith about Riba:
1. Nabi karim nay farmaya jis rat mujhay miraj karai gai tu mein kuch logon k pas say guzra jin k pait makano ki taran baray thay, in k paito k andar sanp thay jo bahir dekhaye day rahay thay, meinay nay jibrael say pocha yeah kaun log hain, tu unhonay bataya k yea sauud khanay walay hain”
2. Lanay farmaye saud saud khanay walon par saud laynay walaon par saud khilay walaon par saud daynay walon par In k gawah par aur is ki tastawiz likhnay par.
- Every Loan that derives a benefir is Riba
“Har wo qarz jo nafa khench kar laye , saud hai”
Difference between Islamic & Conventional Banking(CARE):
Conceptual & Socio-religious level:
- IB are not money lenders.
- Cannot deal in interest & non permissible activities.
- Ethical decision making & abide by moral values.
Business Model & Governing framework:
- IB participate in trade & production process.
- All activities, transactions, deals, agreements are compliant to the rules of Shariah & are subject to approval of the resident Shariah board members & Shariah Supervisory Board comprised of qualified scholars.
Product Level difference:
- IB transactions are asset / services backed, involve in trading / renting of asset, participation on profit & loss basis.
- Implementation is not just a mere change of paper work & terms but involves the correct process for each transaction as required by Shariah.
Profit Mechanism in Islamic Banking:
- Profit is distributed as per pre agreed profit sharing ratio, announced 3 working days before the month.
- Weightage for any month is announced 3 working days before the beginning of the month.
- Profit announced on first working day of the next month. However, SBP’s guidelines allow 7 working days to announce the profit.
Musharakah & Types
Partnership contract. Both partners invest in the business. Loss shared as per investment.
Types:
- Shirkatul Milk (Asset Based)
- Shirkatul Aqd (Contract Based)
Types of Shirkatul Aqd:
- Shirkatul Amwal (Captial)
- Shirkatul Aamaal (Work / Skill ) E.g Tailoring
- Shirkatul Wajoo (Good Will) E.g Commission Agents
For the above Shirkatul Aqd, each has 2 types:
- Shirkatul Ainan (Un Equal Share)
- Shirkatul Mufawda (Equal Share)
Murabaha
Sales contract where seller disclosed his cost price & profit to the seller.
Mudarbah & Types
Sales Contract. Bank acts as manager & invest customer funds.
Types of Mudarabah:
A. Mudarabah Al Muqayyada (Restricted) Rab Ul Maal specifies a particular business or particular place.
B. Mudarabah Al Mutlaqah (Unrestricted):Rab ul Maal gives full freedom in investment (Shariah based).
Mudarabah Al Muqayyada (Restricted)
Rab Ul Maal specifies a particular business or particular place
. Mudarabah Al Mutlaqah (Unrestricted)
Rab ul Maal gives full freedom in investment (Shariah based)
Musawamah
Sale contract. Seller doesn’t disclose his cost price & profit to buyer (Financing of Laptops etc. Used by Banks to finance assets for short term)
Ijarah & Types
Agreement for rent.
Types:
Ijarah for Assets (Ijarahtul Ayan)
Ijarah for Services (Ijarahtul Ashkhas)
E.g Bank Financing of assets like car, machinery etc. End of the tenure transfers of assets takes place via separate contract whereas Ijarahtul Ashkhas refers to Employment Contract.
Diminishing Musharakah
Type of partnership contract where one partner gradually buys the share of the other partner.
Used for financing house / apartments or other long term financing
Salam / Bai Salam
Islamic contract in which full payment is made in advance for specific goods (often agricultural products / agricultural financing)
Product delivery date, product quantity is fixed leaving no ambiguity leading to dispute & easily available in market.
Istisna
Islamic contract in which full, partial payment or installments is made in advance for goods to be manufactured, assembled, built or constructed.
E.g. Infrastructure project are main example of Istisna projects or delivery of furniture. Full payment & delivery date is not fixed.
Tijarah
Sale contract of finish goods. For instance, selling unseasoned cloths
Bai Muajjal
“Sale on deferred payment basis” Deferred payment becomes a debt payable by the buyer in lump sum or in installments as may be agreed between the 2 parties.
In Bai Muajjal, all those items can be sold on deferred payment basis which come under the definition of tangible goods where quality does not make a difference but the intrinsic value does.
Sukuk
The term Sukuk is the Arabic plural of Sakk meaning “Legal instrument, deed, cheque” Sukuk are financial certificates but can be seen as the Islamic equivalent of bond
Types of Sale:
- Valid Sale (Sahi) Consist of 4 Elements i.e. (CSPP i.e Contract, Subject Matter, Price, Posession)
- Void Sale (Batil) If any of the 4 element is missing)
- Invalid Sale (Fasid) Doubtful which can be amended.
- Dislike Sale (Makrooh) Sale (business) during Friday prayers.
- Non Compensatory Mode
(Hiba (Gift), Qarz, Amanah)
