1. INTRODUCTION OF ISLAMIC BANKING
What is Islam?
According to Dr.ZakirNaik Islam come from Arabic word salam which means
“PEACE” and give your will to ALLAH. In short peace acquired by submitting
your will to almighty ALLAH.According to Qur’an The word Muslim means a
person who submits his will to almighty Allah (Surah Ale Imran Ch: 3: V 19 and
Surah Ali Imran Ch:3 V 85
In other place in Qur’an (Surah Ali Imran Ch:3: V 64) there is a concept that
islam is a new religion in the world which came into existing 1431 years back and
Hazrat Muhammad ‫ ملسو هيلع هللا ىلص‬was the founder of this religion. Hazrat
Muhammad ‫ ملسو هيلع هللا ىلص‬is not the founder of this religion. He is the Last
and final messenger of almighty Allah.(Ref. Surah Al Ahzaab Ch. 33 : V40)
and Hazrat Muhammad ‫ ملسو هيلع هللا ىلص‬is not only for arab or Muslim but
for all the world human being. Hazrat Muhammad ‫ ملسو هيلع هللا ىلص‬is sent to
the whole of Humanity (Surah Al Ambiya Ch:21: V 107)
All the revoluation before the Qur’an for specific group or for particular place, but
Qur’an is for the whole world and whole universe and comes all human kind
(Surah Ibrahim Ch: 14 :V.1), (Surah Ibrahim Ch: 14 :V.52), (Surah Al
BaqarahCh: 2 :V.185), and (Surah Al ZumarCh: 39 :V.41)
According to Hadith Hazrat Muhammad ‫ ملسو هيلع هللا ىلص‬says that all the
previous messenger only for there peoples and there nations but I have been send
as a last and final messenger to whole of humanity
(SahihBukhari Vol.1 Bk. Of salaah Ch.56 Hadith No. 429)
(Ref. 1 )
http://www.youtube.com/watch?v=n0_jB7dp0S0
In the islam belief is most important. Muslim have concept that the whole universe
is created and controlled by One, the only One and that is Allah. He created the
whole universe and create the human the amazing creation and the most powerful
creation. Allah created man and appointed him as His vicegerent khalifa and
number 2 on the earth to fulfil certain objectives rules and regulation and obeying
His commands. These rules and commands are not narrow or effect the human life

2. negatively, but if human adopt these rules and regulation he become a happiest
person in the universe. Islam teaches us to adopt the middle way to go. Islam has
provided a balanced approach to spend life. Allah not restricted us to do the work,
but He saying to do the work within the limit and wit in prescribe format. This
format Allah give us through the last Messenger Muhammad ‫ملسو هيلع هللا ىلص‬
. So we must follow the rules and regulation of Allah according to last Messenger
Hazrat Muhammad ‫ .ملسو هيلع هللا ىلص‬So one thing is clear that all th e human
activities must always be subject to these commands and must work within the
limits prescribed by Qur’an and Allah through last Messenger Hazrat Muhammad
‫( . ص لى اهلل ع ل يه و س لن‬Ref. 2 page 10)
http://islamicbookslibrary.wordpress.com/2012/01/19/an-introduction-to-islamic-
finance-by-shaykh-mufti-taqi-usmani/
Sources of the Quran:
What is Quran? And Where did the Quran come from? The Quran claims Allah is
its source of the Quran is a copy of an identical book is written in Heaven that was
given Gabriel to give to Mohammad .‫ ص لى اهلل ع ل يه و س لن‬in intervals. It is a true
book; Every word of this book is amazing truth, after 1431 years no one can find
even a single word wrong.
According to Qur’an and sunnah Riba is one of the biggest gonah. Every person/
muslim know the truth, that riba is the biggest gonah when the discussion start in
the quran and sunnah regarding riba the wording of quran and sunnah become very
hard. This type of business is un lawful according to quran and sunnah.
For umat e muslima to follow the quran and sunnah and start the business or run
the business become to difficult. The credit goes to capitalistic economy.
Ecpitalizameconomy covered and capture the whole world. For muslim have no
option to start the business with out any riba or interest.
Allah give the special reward to mufti taqi usmani and Allama Shams ulhaqafghani
and others great scolars who started such a great work againt the capitalizam and
socializem. Allama shumsulhaqafghani started the work and then carry on after
him mufti taqi usmani thanks to him. He did such a great work and still he is doing
and accepting the challeengies from rest of the world.
BACKGROUND OF ISLAMIC BANKING OR FINANCE
Islamic finance is a community banking, a social banking and ethical banking. The main aim
of is an ethical, and equal financial environment in the market. In Islamic banking have five
basic principles.

3. 1 Freedom from Riba
2 Risk-and-Return Sharing
3 Shari’a Approved Activities
4 Sanctity of Contract
5 Avoidance of Gharar
1 Freedom from Riba
Riba comes from Arabic word “Growth” or “Increase” in simple words money on
money. In the Holy book Quran expressly forbids riba.Allah saying in Quran “O
you who believe! Fear Allah and give up what remains of your demand for usury,
if you are indeed believers.”(P-8) (Book A Primer on Islamic Finance).
Riba is the greatest gunah in all the greatest gunah. But for riba Allah use very hard
words, which are not use for other greatest gunah. This wording not used for
Zenah, for Alcohal, and not for other greatest gunah. Before 80’s different scolars
wrote that bank interest is not come under the riba condition. Which is Hiram
according to quran and sunnah.
According to them “RIBA” actually comes the transaction between two poor
people. But the heave transaction between rich persons and heavy business are not
comes under this law.
Hazrat mufti taqi usmani did a great job an against those scholars. So after long
discussion the result come that for business every type of interest either small or
big is HARAM.
ISLAMICNAZRIYATICONCEL
Islamic nazriyaticoncel become in 1977 when Zia ulhaq was the presendent of
Pakistan In that council have greatest scolars like Hazrat
mulanasyedmohammadyusufbenori and after him Hazrat molana shams
ulhaqafghaniturangzai comes and made a report to remove the ribe from banks.at
that time the following main scolors included in the committee. Chairman Hazrat
Allama Shams Ul Haq Afghani Turangzai, Hazrat Mufti Syah UD Din Kakakhel
and Hazrat Mufti Mohammad HussainNaeemi.
Contract of Investment
Musharakah (Partnership)
Musharakah comes from the Arabic word “sharaka” which means to start combine
any business the example of the Musharakah is joint venture between two or more

4. parties when they start any business. (P-157)(Islamic Banking and Finance by
Tarek El Diwany)
MUSHARIKAH
Shirkat-ul-
Shirkat-ul-Milk
Aqd
Shirkat- Shirks-ul-
ulWujooh Shirkat-ul- aqd
(Partners A’mal
hip in (Partnersh (Partnershi Optional Compulsory
good will) ip in p in Trade)
Services)
Shirkah means “Sharing” and in the terminology of Islamic fiqh. It has divided in
to two kinds.
1 Shirkat-ulMulk
It is means ownership of two or more persons in a particular party and business.
The main example of the shirkat when two or more than two persons purchase
property, and pay combine so we can called to that property is “ Shorkat-ul-Milk”.
2 Shirkat-ulAqd
The second type of shirkah which means “A partnership effected by a mutual
contract” It is also called “Jjoint commercial enterprise”
Further we divided the shirkat-ul-Aqd in to three part.
a. Sharkat-ul-Amwal
In this type all the partners invest the money into the business.

5. b. Sharkat-ul-A’mal
This is regarding to services the partners do the work and service for the customer
and get the fee and then distribute it in the agreed ratio according to agreement.
c. Shirkat-ul-Wujooh
The third kind of shirkat-ul-wujooh. In this type of business the partners purchase
some product like fruit, or other commodity on less price and then sell it in the
higher price on the spot. And the profit distribute between the partner in agreed
ratio.(P-31to 33) (An Introduction to Islamic finance by Mufti Muhammad Taqi
Usmani)
Musharakah is a mode of financing which can be securitized easily. If there is a big
project and need to manage it with money. So without Musharakah we cannot start
any business, because it is so difficult to manage it and no one can arrange the big
portion of money. For this purpose the management issue the Musharakah
Certificate which shows the share of that person in the business. And after starting
the business/ project these certificate use as negotiable instrument and can be
bought and sold in the secondary. Market. It is different from advancing a loan. (P-
39)(An Introduction to Islamic finance by Mufti Muhammad Taqi Usmani).
Distribution of Profit
The most important thing in any business is profit. In the partnership, distribution
of profit is very important. Before starting the business all the partners should have
to agree on the distribution of profit. Before starting the business if they are not
agree on distribution of profit, so this contract will not valid in Shari’ah.
Ratio of Profit
In the agreement, it is very necessary to mansion the share of each partner clearly.
In theShari’ah we have four Imam (Four school of though). They have different
view point. According to Imam Malik and Imam Shafi, the partner get there profit
according to there investment in the business.
According to Imam Ahmed , if if there are two partners one invested 70% of total capital and second
invested 30% of total capital, but if both the partners are agree and write it in the agreement that
the partner who invested 30% will take 60% of the total profit and the second one who invested 70%
will take 40%. For this issue both the partner have to agree.
According to Imam abu Hanifah says that the ratio of profit may differ from the ratio of investment
in normal conditions. However if a partner invest money and start the business. If the 30% one
partner working for organization, so he will be get more than the other partner who is not working

6. for the business. In simple words if one partner invest money and take active part in the business
and the second partner invest money and become sleeping partner, both cannot equal. The partner
who is taking active part will get more than the other. But the loss will be charge according to their
investment.(P-37 an introduction to Islamic finance by taqi usmani).
Sharing of Loss
For sharing of loss all the Muslim jurists are agree and have one opinion that is each partner will
suffer the loss according to his share in capital.
That why it is necessary for every partner when they start business they must agree on profit and
loss sharing. Otherwise this partnership will not start.
So in short according to Imam Shafi’i that the profit and loss ratio must conform to the ratio of his
investment, but according to two other imams, Imam Ahmed and Imam Abu Nanifah The ratio of
profit may differ from the ratio of investment according to the agreement but the loss must be
distribute according to their capital ratio which is most suitable to the modern world.(P-37 an
introduction to Islamic finance by taqi usmani).
Nature of Capital
Capital must be in liquid form. But we have different view of different scholar.
According to Imam Malik and Hanbal in the Musharakah capital in the form of
good in not prohibited, but the best thing is to evaluate it according to the latest
market price.
According to Imam Abu Hanifah and Ahmad capital in the shape of good are not
accepted. Their view have more Taqwa, according to them goods are not the same,
sometime its look like same but actually it not the same the example is Machinery,
Furniture etc. it look like same but some time they are not same inside. And it is
also difficult to calculate when the time of repay the capital to the partner.
Sometime partner get loss and other profit and sometime one get profit and other
get loss. The main example is building and land.The price of the land increasing
day by day so the partner bring that building and land will get profit at the time of
finishing.
Type of Commodities
There are two type of commodities one is Dhawat-ulamthal which , if destroyed
can be easily convert or replace similar commodities the examples are wheat, rice
etc.and the second is Dhawat-ul-Qeemah which is not convert easily the main
example animal etc. According to Imam Malik the first type of commodities can be
part of capital. But is should be on the basis of current market price.

7. Imam Malik view is more powerful and very to the modern world, when we see it
in the eye of Taqwa the Imam abu Hanifah view is more powerful.
Management
Every partner have to right to take part in the business, but for the success of
business if one or some of them who have skill can take part or the partners may
agree to follow the method at the time of contract.
Termination
Musharakah can be terminated easily at any time if any one partner died or want to
leave, become mad etc. the Musharakah will be terminated.
Comparison of Diminishing Musharakah and Conventional Banking
Particulars Islamic Banking Conventional Banking
Commencement Profit Rate is payable after Without position of the
of Agreement possession of the house by the property contract started
client. from first day.
Termination of 1. If the bank disobeys any 1. If the client does
Contract term of the agreement, the not pay the interest
client can terminate the as well as principle
contract. And the bank can amount the bank
also terminate the contract can terminate the
if the client does not pay contract.
profit on time. 2. In case of the death
2. In case of the death the contract will be
contract will be finished finished and
and renewable by his renewable by his
successors. successors.
3. When client purchase all 3. If the clients pay
the share of the bank whole principal +
contract will be terminated interest due at that
time, the contract
will be finished.
Risk of Loss In the Diminishing Musharaka the the bank participates in
client will face both profit and profit only.
loss.
Sale Transfer In Musharaka bank and client In this banking system
purchase the property combine bank has mortgage deed
and according to debt equity ratio. of client’s property and
It depend some on the bank loan divided in the equal

8. sometime 80:20 and sometime instalments with fixed
60:40 ratio, after that bank rate of interest by the
distribute it in to share and thebank. Client pays interest
client purchase it. as well as principal. After
completion the
instalments bank give the
papers to client.
Total Loss If the property destroyed the In this case the client will
client will not pay rent. pay until the insurance
claim are received.
Early Settlement If the customer purchase all the In conventional ban king
shares in the property just opposite.
http://www.zaharuddin.net/index2.php?option=com_content&do_pdf=1&id=623
Comparison with other Islamic and Conventional Banking as well
No Terms and Standard Meezan ALBaraka Mybank Standard MCB
conditions Chartered Bank Islamic Chartered
(Islamic Bank (Traditional)
Banking)
1 Rate “Profit” 14% to 15% 12% 12% 14.45% 11%
Interest for 15%
(Salaried) clients
2 Rate “Profit” 14% to 17% 12% 12% 14.95% 11%
Interest for 15%
Businessmen
3 Age of borrower 25 to 65 25 to 65 25 to 60 25 to 65 25 to 65 years 25 to
(Salaried) years years years years 65
years
4 Age of borrower 25 to 65 25 to 65 25 to 60 25 to 65 25 to 65 years 25 to
(Businessmen) years years years years 65
years
5 Income (min) Rs. 20000 Rs. Rs. 20000 Rs. Rs.20000 Rs.
25000 20000 (Salaried) 18000
Rs.50000
I chose the bank for my coursework Habib Bank limited (HBL-Islamic
Banking). I collect the primary data from the bank.

9. Introduction
Currently over 1.5 billion Muslims in the world today who live and work
predominantly in muslim countries. The Islamic banking segment has been in the
process of evolving over the last three decades. HBL like to provide Islamic
banking product and services to their customers who want to follow the
shariahethod of banking. HBL have twenty two Islamic banking branches and Two
hundred and thirty Islamic windows.
HBL’S Shariah Committee
Muhammad yahyaAsim (Shariah Advisor). He works over 20 years in the field of
Islamic studies, he has specialization in an Islamic Fiqh and Fatwa.
Dr.EjazahmedSamdani (member) spend over 15 years. He is a distinguished
scholar and has PHD from the university of Karachi. His PHD thesis (2005)
covered the topic of “Ghararits nature and financial implications under the
umbrella of shariah”
Is Islamic banking is true Islamic?
This is a very long discussion but I short I has two main duties. First take the
deposit and second give the loan. Conventional bank do these two type of works.
If the bank take or give the interest on that money is called Riba (sood).
Islamic banking balance sheet have both side (Assets and liabilities) are Reba free
(interest free).
Conventional bank invest the money in any type of business but Islamic banking
invest the money only shariah complaint businesses (Cannot invest in Alcohol
manufacturer or Casino etc).
In shariah transaction have no speculation, that why Islamic banking cannot work
with insurance company.
HBL is also conventional bank is it possible to deal the fund in Islamic
method?
HBL IB has I separate entity in the HBL. The funds of IB is not mixing with
conventional banking funds. And the usage of funds in the order of shariah
complaint. This is also check by sharia advisor as well as state bank.