Pakistan Banks

Mufti Taqi Usmani presents paper at World Economic Forum Annual Meeting 2010

2010-02-14T05:44:00.000-08:00

Mufti Taqi Usmani presented a paper at this year’s World Economic Forum Annual Meeting at Davos, entitled, “Post-Crisis Reforms: Some Points to Ponder”.
OST-CRISIS REFORMS: SOME POINTS TO PONDER

In modern economics, we are used to a purely materialistic and secular
approach that does not allow religious concepts to interfere with its theories and
concepts, on the premise that economy is outside the domain of religion. It is,
however, an interesting irony that every dollar note has the admission: “In God
we trust”, but when it comes to develop theories to earn dollars or to distribute
or spend them, trust is placed only on human ideas based on personal
assessments; God is held totally out of picture, as being irrelevant to economic
activities!!!

It is perhaps for the first time that, as an aftermath of the present financial crisis,
when different quarters are coming up with different suggestions to solve the
problem, the ‘World Economic Forum’ has invited representatives of religion to
give their input to the initiative of reshaping the economic set-up on the basis of
values, principles and fresh thoughts. This commendable initiative deserves full
support from religious circles. As a humble student of Islamic disciplines, and
particularly of Islamic economic principles, I would like to highlight some basic
points, derived from Islamic economic precepts, that I believe, are essential for
independent and fresh consideration while seeking solutions to our economic
problems.

Read detail

Mufti Taqi Usmani

2010-01-09T05:05:00.000-08:00

Mufti Muhammad Taqi Usmani is one of the leading Islamic scholars living today. He is an expert in the fields of Islamic Jurisprudence, Economics, Hadith and Tasawwuf. Born in Deoband in 1362H(1943 CE), he graduated par excellence form Dars e Nizami at Darul Uloom, Karachi, Pakistan. Then he specialized in Islamic Jurisprudence under the guidance of his eminent father, Mufti Muhammad Shafi, the late Grand Mufti of Pakistan. Since then, he has been teaching hadith and Fiqh at the Darul-Uloom, Karachi.

He has authority to teach hadith from his father Mufti Muhammad Shafi, Maulana Idrees Khandhelawi, Qari Mohammed Tayyeb, Maulana Saleemullah Khan, Mufti Rasheed, Moulana Sehban Mahmood, Allama Zafar Ahmed Usmani, Sheikhul Hadith Moulana Zakariya Khandelawi, Sheikh Hassan Meshat (ra) and others.

In tradition to the scholars of Deoband, recognizing the importance of Tasawwuf, he traversed the path under the guidance of Sheikh Dr. Abdul Hayy Arifi and Moulana Maseehullah Khan both khulafa of Hakeemul Ummat Moulana Ashraf Ali Thanvi (rahmetullah ajmaeen). And is authorized by both of his mentors in Silsila e Ashrafia: Chistiyyah, Naqshbandiyah, Qadiriyah and Suharwardiyah. In addition to his busy schedule he is himself a mentor to numerous spiritual aspirants all over the world.

He also holds a degree in law and was a Judge at the Sharia Appellate Bench of the Supreme Court of Pakistan till recently.

He is a consultant to several international Islamic financial institutions and has played a key part in the move toward interest free banking and the establishment of Islamic financial institutions. He is considered to be an authority on this subject.

He is the deputy chairman of the Jeddah based Islamic Fiqh Council of the Organization of Islamic Conference (OIC).

He has been writing on various Islamic topics and is author of more than 60 books and numerous articles.

Presently he is the Vice-president of Darul-Uloom, Karachi, Pakistan, where he teaches Sahih Bukhari, Fiqh and Islamic economics.

He also conducts a weekly session for the public interested in spiritual improvement.

Reality

2010-01-03T07:05:00.002-08:00

Profit margin that Islamic banks charge in their trade operations is permissible if trading principles given by Islam are properly taken care of.
PLS modes have preference but Debt creating modes also permissible; Banks can use any modes keeping in view the Risk Profile of the investors and nature of business and cash flow of entrepreneurs.
Money cannot be rented

"They used to say that it is all equal whether we increase the price in the beginning of the sale, or we increase it at the time of maturity. It is this objection which has been referred to in the verse by saying “They say that the sale is very similar to Riba.” (Ibn-Abi-Hatim)

Some other Myths

2010-01-03T07:05:00.001-08:00

Credit and cash market prices of a commodity must be same
Profit margin on credit sale by banks resembles Riba.
Sharing vs. Non Sharing instruments:
Permissibility & Priority two different aspects
Money can be rented like other assets

Riba versus Bai

2010-01-03T07:02:00.000-08:00

Those who protested and argued that lending on interest was like an act of trade, were admonished through revelation that while ‘trade’ was permitted, ‘riba’ was forbidden and in loan transactions they were entitled to their principal sums only.

Riba - Unanimity

2010-01-03T06:58:00.000-08:00

Banu Thaqif of Taif, not to forego interest on their receivables; Banu Amr
ibnal Moghirah refused to pay interest; Referred to the H Prophet, the Revalation came:

"O you who believe. Fear Allah, and give up the Riba that remains outstanding if you are (in truth) believer”. (11:278)"

And if you repent, then you have your principal. Wrong not, and you shall not be wronged ”. {without inflicting or receiving injustice}
And fear the day when you shall be brought back to Allah.
Then shall every soul be paid what it earned and none shall be dealt with unjustly.

Reality

2010-01-03T06:56:00.000-08:00

Differentiating: Trading, loaning and leasing

Return by way of pricing of goods and their usufruct needs to be fixed: permissible.
Islamic banking is also a business, It does not mean availability of cost free money.
Repayment of debts is must.
Time value of money is accepted to the extent of pricing of goods but not in the form of conventional opportunity cost concept.

Misconceptions - Myths

2010-01-02T04:44:00.000-08:00

Any Return on deposits is Riba;
Any prefixed return – Riba
Islamic banking: cost-less money available – Approach of Businesses
Repayment of loans not a serious issue –be waived of
Trade profit similar to interest on loans / debts

Riba?

2010-01-02T02:01:00.000-08:00

All increases in wealth or benefits accruing to a person without any labour, risk, or expertise.
One who wishes to earn profit on his monetary investment must bear the loss or damage accruing to the business where his money capital is to be used.
Nature of transaction important.

Trading- Bai- Risk taking, value addition
Leasing – Ijarah - Risk taking, value addition

Exchange transaction – Monetary transactions

Lending – a virtuous act; not a business
Hand to hand exchange of currencies

Quran Guides on Def of Riba

2010-01-02T01:59:00.000-08:00

Financial Liability:
Qard (Loan) : to give anything in ownership of other by way of virtue - same or similar amount of that thing would be paid back on demand or at the settled time.
Dayn (Debt) : Incurred by way of trade or rent or any other credit transaction - ought to be returned at the settled time without any profit.
Verse 2: 279 guides that whatever is over and above the principal of loans or debts is Riba.

Riba Prohibition

2010-01-02T01:58:00.000-08:00

All revealed religions
Severe Prohibition in Quran $ Sunnah
Unanimity on Riba Prohibition;
Problem then?
Interpretation
Consensus

Islamic Banking?

2010-01-02T01:18:00.000-08:00

Banking encompassing Islamic injunctions

To avoid:

Riba –Earning returns from loans and debts or Selling debt contracts at discount
Gharar – Absolute Risk or Excessive uncertainty in contracts, Gambling and chance-based games (Qimar)
General Prohibitions
unethical practices

Shariah Compliance & Prudent Banking

PRINCIPLES OF CONTRACTS IN THE QURAN AND SUNNAH

2010-01-02T01:11:00.000-08:00

Islam is a complete code of life. It deals with each and every field of life. Islam tells us how to live in a society. In a society a person have to live with others. He has to perform “Ibadat” as well as he has to perform “Muamalat”. There is a great difference between these “devotional acts” and “transactions”, but Islam deals with both of them. For the beneficiary of human kind, Allah Almighty has imposed some restrictions in doing and performing these devotional acts and transaction. In other words we can say that Allah almighty has set some rules about both, the devotional acts and transactions. As business law deals only with transactions, hereby we will see only those principles which are related to the business transactions.

Free mutual consent is the first principle of transaction which has been clearly mentioned in The Holy Quran. This principle tells us that all mutual contracts should be made mutual approval and all those contracts which will are made through coercion, fraud, misrepresentation or any other illegal mean, are invalid and illegal. This principle can only be act upon when all concerning parties have certain and definite knowledge of the subject matter of the contract and the rights and obligations arising from it.
A number of verses of the Holy Quran and Ahadith of the Holy profit (S.A.W) can be cited in the support of this principle.

Islam has tolled us another valuable general principle about mutual contracts. This principle tells that any contract which may harmful for one of the concerning parties, or which may create uncertainty between concerning parties is strictly prohibited. Through this valuable principle many contracts like Qimar (gambling), Mayser, Khilabah and Ghashsh (fraud) have been prohibited. Each of these contracts has its own definition and has been mentioned through the verses of Holy Quran and Ahadith of Holy Prophet (S.A.W).
The translation verses of The Holy Quran are following:

banks in Malaysia

2009-12-02T10:14:00.000-08:00

Bank Negara Malaysia (The central bank of Malaysia)

9 Anchor Banks (Major / Commercial banks)

Affin Bank Berhad
Alliance Bank Berhad
AmBank Berhad
CIMB Bank Berhad
EON Bank Berhad
Hong Leong Bank Berhad
Malayan Banking Berhad (Maybank)
Public Bank Berhad
RHB Bank Berhad

Fully Qualified Foreign-owned banks
* Citibank
* HSBC Bank Malaysia
* Oversea-Chinese Banking Corporation (OCBC Bank)
* The Standard Chartered Bank (StanChart)
* The Bank of Nova Scotia (Scotiabank)
* The Royal Bank of Scotland (RBS)-Former ABN Amro
* United Overseas Bank (UOB)

Marketing & Representative Offices in Kuala Lumpur
* ANZ National Bank Limited
* The Bank of East Asia Ltd (BEA)
* The Bank of Tokyo-Mitsubishi UFJ Limited
* The Bank of New York Mellon Limited
* Credit Suisse Limited
* DBS Bank Limited
* National Australia Bank (NAB)
* The Royal Bank of Scotland Limited
* UCO Bank Limited
* Deutsche Bank (M) Berhad
* JPMorgan Chase & Co.Bank (M) Berhad
* Bangkok Bank (M) Berhad
* Bank of America (M) Berhad
* Bank of China (M) Berhad
* Bank of Tokyo-Mitsubishi UFJ (M) Berhad

50 Offshore Banks & Branches in Labuan
* Affin Bank Berhad
* Al-Hidayah Investment Bank (Labuan) Ltd (Labuan Branch)
* Aminternational (Labuan) Ltd (Labuan Branch)
* AmMerchant Bank Berhad
* Bank Islam Malaysia Berhad, (Labuan Offshore Branch)
* Bank Muamalat Malaysia Berhad, (Labuan Offshore Branch)
* Bank of America National Association Berhad, (Labuan Branch)
* The Bank of East Asia Ltd (BEA) (Labuan Branch)
* The Bank of Nova Scotia (Labuan Branch)
* The Bank of Tokyo-Mitsubishi UFJ Limited (Labuan Branch)
* Barclays Bank PLC (Labuan Branch)
* BNP Paribas (Labuan Branch)
* Calyon (Labuan Branch)
* Capital Investment Bank Limited (Labuan)
* Cathay United Bank (Labuan)
* CIMB Bank (L) Limited
* Citibank Malaysia (L) Limited (Labuan)
* City Credit Investment Bank Limited (Labuan)
* Commercial IBT (Labuan Branch)
* Credit Suisse (Labuan Branch)
* DBS Bank Limited (Labuan Branch)
* Deutsche Bank AG (Labuan Branch)
* Dresdner Bank AG (Labuan Branch)
* ECM Libra Investment Bank Limited (Labuan)
* The Hongkong and Shanghai Banking Corporation Limited Offshore Banking Unit (Labuan)
* ING Bank NV (Labuan Branch)
* The International Commercial Bank of China (Labuan Branch)
* J.P. Morgan Malaysia Ltd (Labuan)
* J.P. Morgan Chase Bank National Association (Labuan Branch)
* KBC Bank NV (Labuan Branch)
* Kuwait Finance House Labuan Berhad (Labuan Branch)
* Lloyds TSB Bank PLC (Labuan Branch)
* Mizuho Corporate Bank Ltd (Labuan Branch)
* Macquarie Bank Limited (Labuan Branch)
* Maybank International (L) Ltd (Labuan Branch)
* Morgan Stanley Labuan Investment Bank Limited (Labuan Branch)
* Natexis Banques Populaires (Labuan Branch)
* OSK Investment Bank (Labuan) Limited (Labuan)
* OCBC Bank Limited (Labuan Branch)
* Public Bank (L) Limited (Labuan)
* Rabobank Nederland (Labuan Branch)
* RHB Bank (L) Ltd (Labuan)
* The Royal Bank of Scotland PLC (Labuan Branch)
* RUSD Investment Bank Inc (Labuan)
* Schroders Malaysia (L) Berhad (Labuan)
* Societe Generale (Labuan Branch)
* Sumitomo Mitsui Banking Corporation (Labuan Branch)
* UBS AG (Labuan Branch)
* United Overseas Bank Limited (Labuan Branch)

Development Financial Institutions (Government-owned banks)
* AGRO Bank Berhad
* Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat)
* Bank Simpanan Nasional Berhad
* Export-Import Bank of Malaysia Berhad (Exim Bank)
* Bank Perusahaan Kecil & Sederhana Berhad ((Small Medium Enterprise) SME Bank Berhad)
* Sabah Development Bank Berhad (SDB)
* Sabah Credit Corporation Berhad
* Lembaga Tabung Haji
* Credit Guarantee Corporation Malaysia Berhad (CGC)
* Malaysian Industrial Development Finance Berhad (MIDF)
* Bank Pembangunan Malaysia Berhad (BPMB) (The development bank of Malaysia)

15 Islamic banks (local & foreign)
* Alliance Islamic Bank Berhad
* Asian Finance Bank (M) Berhad
* Bank Islam Malaysia Berhad
* Bank Muamalat Malaysia Berhad
* Hong Leong Islamic Banking Berhad
* CIMB Islamic Bank Berhad
* RHB Islamic Bank Berhad
* AmIslamic Bank Berhad
* Affin Islamic Bank Berhad
* Al Rajhi Banking & Investment Corporation (Malaysia) Berhad
* EONCAP Islamic Bank Berhad
* Kuwait Finance House (Malaysia) Berhad
* Maybank Islamic Berhad
* Public Islamic Bank Berhad
* Koperasi Bank Persatuan Malaysia Berhad (Bank Persatuan)

Banks in Dubai

2009-11-27T03:14:00.000-08:00

Since United Arab Emirates is an Islamic country the Islamic code of conduct is followed by certain banks to cater to a strongly religious clientèle. These banks follow the Hadiz / Hadij which is the Muslim code of conduct. Dubai Bank make a gift payment to their customers since usury is strictly banned by the Muslim social laws.

ABN-AMRO Bank
ANZ Grindlays Bank
Abu Dhabi Commercial Bank Ltd.
Al Ahli Bank of Kuwait
American Express Bank Ltd.
Arab African International Bank
Arab Bank Plc
Arab Bank for Investment & Foreign Trade
Arab Emirates Investment Bank Ltd.
Bank Brussels Lambert
Bank Melli Iran
Bank Muscat Al Ahli Al Omani
Bank Saderat Iran
Bank of Bahrain & Kuwait
Bank of Baroda
Bank of Sharjah
Banque Banorabe
Banque Indosuez
Banque Libanaise pour le Commerce
Banque Paribas
Banque du Caire
Barclays Bank P.L.C.
HSBC
Cedel Bank
Citibank N.A.
Commercial Bank International Plc
Commercial Bank of Dubai Ltd.
Core States Bank
Credit Suisse
Dresdner Bank
Dubai Islamic Bank
Emirates Bank International Ltd.
Emirates Industrial Bank
First Gulf Bank
HSBC Financial Services
Habib Bank A.G. Zurich
Habib Bank Limited
Investment Bank for Trade & Finance
Janata Bank
Lloyds Bank PLC
Mashreq Bank
Merrill Lynch Bank Suisse
Middle East Bank Ltd.
National Bank of Abu Dhabi
National Bank of Dubai Ltd.
National Bank of Fujairah
National Bank of Ras Al-Khaimah
National Bank of Sharjah
National Bank of Umm Al Quwain
Philippine National Bank
Royal Bank of Canada
Societe Generale
Standard Chartered Bank
U.A.E. Central Bank
UBS AG
Union National Bank
United Arab Bank
United Bank Ltd.
Westdeutsche Landsbank.

The Islamic Banks in Dubai are:

Dubai Islamic Bank
Emirates Islamic Bank
Sharjah Islamic Bank
Abu Dhabi Islamic Bank
Islamic Commercial Bank

Major differences between islamic banking and conventional banking?

2009-11-27T02:37:00.000-08:00

There are two major difference between Islamic Banking and Conventional Banking:
1. Conventional banking practices are concerned with "elimination of
risk" where as Islamic banks "bear the risk" when involve in any
transaction.
2. When Conventional banks involve in transaction with consumer they
do not take the liability only get the benefit from consumer in form of
interest whereas 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.

Why Islamic Banking Is Successful?

2009-11-27T02:09:00.000-08:00

Islamic Banks Are Unscathed Despite of Financial Crisis

By Prof. Rodney Wilson
Professor-Durham University

The collapse of leading Wall Street institutions, notably Lehman Brothers, and the subsequent global financial crisis and economic recession, are encouraging economists world-wide to consider alternative financial solutions.

Attention has been focused on Islamic banking and finance as an alternative model. What lessons can be learnt, and how resilient have Islamic banks been during the current crisis?

Islamic Banking Principles And Sub-prime Lending

The religious teaching underpinning Islamic finance is concerned with justice in financial contracts to ensure that none of the parties is being exploited.

Riba( interest or usury) is one source of exploitation, especially, as in the case of sub-prime lending, the highest rates were charged to lower earners. Such discriminatory charging by conventional banks was justified as being a reflection of the risks involved.

Those on lower incomes, with poorer prospects of finding new employment in the event of redundancy, were less likely to be able to service their interest payments.

Islamic housing finance involves risk sharing between the bank and the client, rather than transferring all the risk to the latter.

Under the most commonly used diminishing musharaka (partnership) contract, the bank and the client form a partnership, with the bank providing up to 90 percent of the purchase price, and the client at least 10 percent.

Over a period of usually 10 to 25 years, the client buys out the ownership share of the bank which makes its profit from the rent paid by the client for the share the bank owns.

In the event of a rental or repayments default, the bank may advance the clients an interest-free loan (qard hassan in Arabic) to enable them to continue their payments during the recession in anticipation that they will pay in full when the economy rebounds.

The client retains their home rather than being faced with eviction— like the victims of the sub-prime crisis.

Of course Islamic banks have to appraise credit risk, and indeed are more cautious about who they should finance than conventional banks.

The banks in the United States charged high arrangement fees for sub-prime borrowers which were used to pay bonuses for those signing up new clients.

As the mortgages were sold on to Freddie Mac and Fanny Mae, the arrangers were unconcerned that the sub-prime borrowers might be unable to meet their financial obligations.

Indeed, gifts were provided to entice the feckless to sign up, and the mortgages often exceeded the value of the property.

The banks in other words became mere booking agents, with no long term commitment to their clients.

The Islamic Banking Record

Consequently when the credit crunch came and borrowing from wholesale markets was halted, Islamic banks were not exposed.

In contrast to conventional banks, no Islamic bank has failed and has needed government recapitalization which ultimately becomes a burden on hard pressed taxpayers.

All Islamic banks comply with the Basel II capital adequacy requirements and the Islamic Financial Services Board (IFSB)- the body which advises regulators with respect to Islamic finance- has produced detailed guidelines on compliance. The IFSB has an on-going relationship with the Bank for International Settlements-the institution which developed the Basel standards- and is certain to be consulted as Basel III guidelines are drafted for capital adequacy which are likely to be implemented globally in the coming decade.

The soundness of Islamic banks is accounted for by the fact that they use a classical banking model, with financing derived from deposits, rather than being funded by borrowings from wholesale markets.

Consequently when the credit crunch came and borrowing from wholesale markets was halted, Islamic banks were not exposed. However, Islamic banks are not immune from the effects of the global recession, and the fall in oil prices will inevitably have a negative impact on 2008 results of Gulf-based Islamic banks. The situation will become clearer from February once the audited financial statements start to appear.

Two Islamic housing financial institutions, Amlak and Tamweel are being merged, as both have faced problems given their exposure to the Dubai property market.

In Iran where all financial operations have been shariah-based since the Law on Usury Free Banking was introduced in 1983, banks have been relatively insulated from the financial crisis, ironically because United States sanctions meant they could not deal with institutions such as Lehman Brothers which were trying to place large amounts of toxic debt with Middle Eastern banks.

The sanctions therefore proved to be a blessing in disguise for Iran— although the Islamic banks there have been adversely affected recently by the fall in gas prices.

Nevertheless being state owned, institutions such as Bank Melli, the largest Islamic bank in the world, are well placed to ride out the global financial storm. With assets of over $50 billion, and 2007 profits exceeding $540 million, it has more than adequate resources to cope.

Islamic Financial Stability

Islamic banks enjoy a built-in stabilizer to help them cope with economic downturns, as instead of paying interest to depositors, those with investment mudaraba accounts share in the banks profits.

Thus, if profitability declines in an economic downturn, depositors receive lower returns, but if profits rise they enjoy higher returns.

This profit sharing reduces risk for the banks and means they are less likely to become insolvent. However as the banks build up a profit equalization reserve, which can be used to finance pay-outs during difficult years, depositors benefit from some protection of their returns during economic downturns.

The last year has been difficult, if not disastrous, for equity investors, given the fall in stock market prices globally.

Investors in equities screened for shariah compliance have also suffered, but less than their conventional counterparts, because they have not invested in the shares of riba-based banks which have fared especially badly during the global financial turmoil.

Investors seeking Shariah compliance have portfolios which are more heavily weighted in sectors such as healthcare or utilities where revenue streams are maintained even during cyclical down-turns.

Prospects for Islamic Finance

Islamic banking provides a viable alternative to conventional banking and is less cycle prone. The spread of Islamic finance into western markets demonstrates that it now being treated seriously by regulators and finance ministries.

There are already five wholly Islamic banks in London, and the first Islamic bank will open in France in 2009. According to the conservative estimates of the Banker in October 2008, Islamic financial assets globally exceed $500 billion, a figure that could easily double over the coming decade.

The experience of Islamic banking in the United Kingdom has been extremely positive. Islamic Bank of Britain has been operating as a retail bank for over four years, and has attracted over 40,000 customers. HSBC Amanah, the Islamic finance subsidiary of HSBC, has been operating for ten years in London, focusing mainly on institutional clients and business finance.

Alburaq, the Islamic finance subsidiary of Arab Banking Corporation, has become the market leader for shariah compliant home finance in the United Kingdom.

None of these institutions has been affected by the global financial crisis, and their resilience bodes well for the future.

Sukuk Are Real Assets

In addition to banking, Islamic sukuk security issuance has enormous potential. Unlike conventional bonds and notes, sukuk are backed by real assets, which provides assurance to investors.

Although global sukuk markets were adversely affected by the global recession in 2008, longer term prospects look promising, with the United Kingdom authorities promoting London as an international centre for sukuk issuance to rival Bahrain, Dubai and Kuala Lumpur.

The Malaysian ringgit sukuk market has been largely unaffected by the global turmoil in securities markets, and issuers such as the Saudi Arabia Basic Industries Corporation, one of the world’s largest petrochemical producers, view sukuk as a desirable instruments to raise funding for plant expansion.

There can be no doubt that Islamic finance has an exciting future, and the quest for a financial system based on moral values rather than greed and fear, is bound to enhance its position in the global system

Islamic Mortgage

2009-11-26T23:43:00.000-08:00

he Qur'an is very clear about the prohibition against usury-based business transactions (riba'):

"Those who devour usury cannot stand.... That is because they say, trade is only like usury; yet Allah has allowed trade and forbidden usury.... Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner. Oh you who believe! Be careful of your duty to Allah and relinquish what remains due from usury, if you are believers. If the debtor is in difficulty, grant him time until it is easy for him to repay. But if you remit it by way of charity, that is best for you if you only knew." Qur'an 2:275-280

"O you who believe! Do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful." Qur'an 3:130

In addition, the Prophet Muhammad is said to have cursed the consumer of interest, the one who pays it to others, the witnesses to such a contract, and the one who records it in writing.

The Islamic judicial system is committed to fairness and equity among all parties. The fundamental belief is that interest-based transactions are inherently unfair, giving a guaranteed return to the lender without any guarantees for the borrower. The basic principle of Islamic banking is the sharing of risk, with shared responsibility for profit and loss.

What Are the Islamic Alternatives?
Modern banks usually offer Islamic financing of two main types: murabahah (cost plus) or ijarah (leasing).

Murabahah: In this type of transaction, the bank purchases the property and then re-sells it to the buyer at a fixed profit. The property is registered in the buyer's name from the beginning, and the buyer makes installment payments to the bank. All costs are fixed at the time of the contract, with the agreement of both parties, so no late payment penalties are permitted. Banks usually ask for strict collateral or a high down payment in order to protect against default.

Ijarah: This type of transaction is similar to real estate leasing or rent-to-own contracts. The bank purchases the property and retains ownership, while the buyer makes installment payments. When payments are complete, the buyer gains 100% ownership of the property.

Misconceptions About Insurance and Takaful

2009-11-26T23:27:00.000-08:00

Misconception no 1
Risk Protection (insurance) is against Tawakkul - total dependence upon Allah (swt).
No human actions change the Will of Allah (swt) for our destiny. Whether a person has insurance/Takaful or not has no effect on future events. However, we are instructed to take precautions and then fully trust and depend upon Almighty Allah (swt): in Hadith narrated by Anas bin Malik when an Arab Bedouin asked Prophet Muhmmad (PBUH), "Shall I leave my camel untied and seek Allah's protection on it, or should I tie it?" The Holy Prophet replied, "Tie your camel and then depend upon Allah (swt)." {as quoted by Sunan Al Tarmizi, 1981,}.

Misconception No. 2:
All Risk Protection (insurance) is Haram-prohibited
Fiqh Council of World Muslim League (1398/1978) resolution and Fiqh Council of Organization of Islamic Conference (1405/1985) in Jeddah resolved that, "..conventional insurance as presently practiced is Haram." And that, "..cooperative insurance (Takaful) is permissible and fully consistent with Shariah principles." Hence, conventional insurance is prohibited for Muslims because it contains elements of Riba, Al Maisir, and Al Gharar. By contrast, Takaful provides risk protection in accordance with Sharia using principles of Ta'awun (mutual assistance), brotherhood, piety and ethical operations.

Misconception No. 3:
All Insurance is a form of Gambling of Wagering, which is forbidden in Islam
Risk or uncertainty can be divided into: Pure Risk and Speculative Risk. Pure Risk involves the possibility of Loss or No Loss. For example, damage to property due to fire. Pure Risks are the subject of insurance risk protection and Takaful. On the other hand, Speculative Risks involves the possibility of Loss, No Loss or Gain. For example, venturing into a new business, or gambling on horse race. Speculative Risks that include a potential gain or profit cannot be insured.

Takaful schemes use the principle of indemnification to compensate for the loss that occurs to a Takaful Participant. Takaful insures only Pure Risks and claims pay in the event of Loss to cover repairs, damage, replacement of property, or an agreed fixed sum. In Takaful Taawuni (assurance), the compensation equals each participant's accumulated savings plus investment profit added to a sum covered taken from the Takaful general pool.

Misconception No. 4:
All Insurance seeks to maximize profits which takes benefits away from policyholders
Most conventional insurance companies are stock companies that seek to maximize profits. Since the interests of shareholders conflicts with policyholders, by raising prices, denying claims, etc. these insurers can boost profits for shareholders. Takaful operators, by contrast, are mutual or cooperative entities. The goal of Takaful is community well-being and self-sustaining operations - not high profits. Under the Takaful Mudarabah Model, surplus (or "profits") is shared fairly between shareholders and policyholders. Under the Takaful Wakalah Model, surplus is owned by the policyholders and may be reduced by a performance fee incentive for the operator before distribution to the policyholders.

Misconception No. 5:
All Takaful operators are the Same
Alhumdilallah , in Islam there is unity in diversity. Over the centuries, several Takaful Models have evolved which are approved by Islamic scholars. While they all share the fundamental goals of cooperative risk sharing, these models differ slightly in legal structure and organizational operations. Takaful Models usually are described by the Islamic contracts used; namely Hebbah or 100% Tabarru (Sudan), or al Mudarabah {Bahrain/Malaysia}, or Al Wakalah {Saudi Arabia}.

Misconception No. 6:
Insurance shemes are a modern day invention
Actually, social arrangements for pooling of risks existed may centuries ago. The Takaful system evolved from ancient methods of risk protection in Arabia 14 centuries ago called : (a) daman Khtr-altariq-surety for traders; (b) a'qila - payment to family of murdered victim by accused relatives (c) hilf - confederation for mutual assistance. The year 1706 marked the emergence in United Kingdom of the first "perpetual assurance scheme". The first insurance company in America (1740s) founded by Ben Franklin was a merchant's cooperative. However, in modern times many of these old cooperatives have "demutualized" and converted into stock companies to pursue higher profits.

Misconception No. 7:
"I don't need Insurance/Takaful."
A Takaful scheme gives us an opportunity to practice the virtues of Islam, including self-purification. Surah Al Maidah (V.2) says: "Help one another in furthering virtue and Taqwa (God-consciousness), and do not help one another in evil and transgression." In Hadith by Ahmad and Abu Daud: "Whosoever fulfils the intention of his brother, Allah will fulfil his intentions." And "Always help those who helps his brother."

The first Constitution in Medinah (622 CE) arranged by Prophet Muhammad (PBUH) contained three aspects directly related to risk protection: social insurance for the Jews, Ansar and Christians; Article 3 concerning 'wergild' or 'blood money' and provision for Fidyah (ransom) and Aqila. We should follow his example to meet our needs and social obligations.

A Takaful scheme provides us the self-discipline for savings and the habits of sound financial planning to take care of ourselves and the needs of our children and families. Hadith by Sahih Al-Bukhari, as narrated by Amir bin Saad bin Abi Waqqas, describes Prophet Muhammad (PBUH) as saying: "verily, it is better for you to leave your offspring (heirs) wealthy than to leave them poor asking others for help" and "..The one who looks after and works for a widow and for a poor person is like a warrior fighting for Allah's cause.." Also, from Sahih Muslim Hadith No. 59, as narrated by Abu Huraira, has the Holy Prophet (PBUH) saying: "Whosoever removes a wordly hardship from a believer, Allah (swt) will remove from him one of the hardships of the day of Judgment."

http://www.takaful.com.sa/m4sub2.asp

Introduction to Takaful

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The concept of takaful, or Islamic insurance, where resources are pooled to help the needy does not contradict Shariah. The concept is in line with the principles of compensation and shared responsibilities among the community. It is not a new concept, in fact it had been practised by the Muhajrin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1400 years ago. It is generally accepted by Muslim Jurists that the operation of conventional insurance does not conform to the rules and requirements of Shariah.

Conventional insurance involves the elements of uncertainity (Al-gharar) in the contract of insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies which contravene the rules of Shariah. Takaful is an alternative form of cover which a Muslim can avail himself against the risk of loss due to misfortunes.

The insurance providers in year 2001 and beyond should find Takaful sector an exciting sector of insurance to be in. This presentation focuses on growth potential that exists in Takaful with great many opportunities for innovative development of unique products, techniques and systems needed to fill gaps in insurance penetration in many of the markets around the globe. This paper presents an insight into the size of the current takaful industry worldwide and sketches the signs of change that may lead to realization of the potential that exists in this sector.

Overview of takaful

The takaful brand of insurance is a classic example of consumer-driven response to their needs. For generations, Muslims around the world have grown with a mind set that insurance (especially life insurance) is taboo because it contravenes some of the Islamic tenets. Life insurance as sold in conventional way was declared unacceptable in 1903 by some prominent Islamic scholars in the Arab countries. The search was on for an acceptable alternative ever since, and not until the 1970’s the debate took sufficient momentum to reach a consensus. In 1985, the Grand Counsel of Islamic scholars in Makkah, Saudi Arabia, Majma al-Fiqh, approved takaful system as the alternative form of insurance written in compliance with Islamic Sharia. It is outside the scope of this presentation to explain how the takaful system works except to say that it is a concept of protection for the good of society, a concept that was never an issue in Islam in the first place. The Grand Counsel approved this system as a system of co-operation and mutual help but the exact method and operation was left to Islamic scholars and insurance practitioners to resolve, develop and implement.

Takaful industry is still not past its formative years and there are many areas unresolved, especially in life insurance. The key areas to resolve are the global standardization of takaful terminology, the development of an acceptable form of life insurance (family takaful) especially for countries in the Arab regions and a common consensus for a system to determine profits (or surplus) distributable to participants and shareholders.

The very first Takaful company was established in 1979 – the Islamic Insurance Company of Sudan. Today there are some 28 registered Takaful companies worldwide writing takaful directly and 10 more as Islamic windows or marketing agencies placing insurance risk with conventional and takaful companies. In fact the number of takaful companies is higher as all insurance companies in Sudan are deemed to operate in accordance with Islamic Sharia principles. In addition, new takaful companies have been established recently in Sri Lanka and Tunisia. At least four more Takaful companies are under formation in the Middle East (viz. Kuwait, UAE and Egypt). Several other Takaful companies are being contemplated in various countries such as Pakistan, Australia and Lebanon. It is also understood that interest is shown in Takaful in South Africa, Nigeria, and some of the former states of the Soviet Union.

Takaful industry in the Middle East is under-developed compared to other markets such as Malaysia. The more successful companies in the Middle East have grown at 10% p.a. whereas in Malaysia the rate of growth has been 60% p.a.

Muhammad Taqi Usmani Books

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English books

1. The Authority of Sunnah

2. The Rules of I'tikaf

3. What is Christianity?

4. Easy Good Deeds

5. Perform Salaah Correctly

6. The Language of the Friday Khutba

7. Discourse on the Islamic Way of Life

8. Sayings of Prophet Muhammad (SAW)

9. The Legal Status of Following a Madhhab

10. Spiritual Discourses

11. Islamic Months

12. Radiant Prayers

13. Qur'anic Sciences

14. Islam and Modernism

15. Contemporary Fatawa
[edit] Arabic books

1. Ma Hia An Nasraniyya?

2. Nathrat Abarah Haul At Ta'limi Al Islamiyya

3. Ahkamu Al Auraq An Naqdiyya

4. Buhooth Fi Qadaya Fiqhiya Ma'asira

5. Ahkam uz Zibai’h
[edit] Urdu books

1. In'aamul Bari (Explanation/Commentary of Sahih ul Bukhari) (9 volumes, 3 published)

2. Asan Nakian (Easy Good Deeds)

3. Undulus Mein Chand Roz (A Few Days in Andalus)

4. Islam Aur Seasat-e-Hazra (Islam and Contemporary Politics)

5. Islam Aur Jidat Pasandi (Islam and Modernism)

6. Islahe Ma'ashara (Perfecting Society)

7. Islahi Mawa’iz (Discourses for Spiritual Perfection) (3 volumes)

8. Islahi Majalis (Discourses on Tasawwuf) (5 volumes)

9. Islahi Khutbat (Discourses on Individual Spiritual Perfection) (13 volumes)

10. Ihkami I'tikaf (The Rules of I'tikaf)

11. Islam Aur Jadeed Ma'eeshat Wa Tijarat (Islam and Modern Economics & Commerce)

12. Akabir Deoband Kya The? (The Significant Character of Scholars of Deoband)

13. Bible Se Qur'aan Tak (3 volumes)

14. Bible Kya Heh? (What is the Bible?)

15. Purnoor Dua'en (Radiant Prayers) (a collection of prayers for all occasions)

16. Tarashe (Excerpts from Islamic Works)

17. Taqleed Ki Shari'i Hasiat (The Legal Status of Following a Madhhab)

18. Jahan-e-Deda (Travelogue I)

19. Duniya Mere Aagaye (Travelogue II)

20. Hazrat Mu'awiyah (RA) Aur Tarikhi Haqa'iq (Hazrat Mu'awiyah (RA) and the Historical Facts)

21. Hujjiat Hadith (Authority of Hadith)

22. Huzur (SAW) Ne Farmaya (Sayings of Prophet (SAW)

23. Hakimul Ummat Ke Siasi Afkar (Political Thoughts of Maulana Ashraf Ali Thanwi)

24. Dars-e-Tirmidhi (an explanation of the famous hadith collection, Sunan At Tirmidhi)

25. Deeni Madaris Ka Nisab Wa Nitham

26. Zikr-o-Fikr (a collection of articles written for Jang, a daily newspaper)

27. Zabat-e-Wiladat (Birth Control: Islamic Rulings)

28. Isayat Kya Hai? (What is Christianity?)

29. Ulum ul Qur'aan (Qur'anic Sciences)

30. Idalat-e-Faisle (Court Rulings)

31. Fard Ke Islah (Individual Reform)

32. Fiqhi Maqalaat (Collection of Articles on Islamic Jurisprudence)

33. Ma'aasir Hadhrat Arifi (Sayings and Memories of Hadhrat Arifi)

34. Mere Walid, Mere Shaikh (My Father, My Shaikh)

35. Milkiat-e-Zamion Aur Uske Tahdid (Land Ownership and Its Limitations)

36. Nashri Taqreerain (Speeches Aired on Radio Pakistan)

37. Nuqoosh-e-Raftigan (Obituaries of Islamic Scholars and Other Dignitaries)

38. Nifaz-e-Shari'a Aur Uske Masaa'il (Establishment of Shari'a and Its Problems)

39. Namazein Sunnah Ke Mutabiq Parhe (Pray Salaah According to the Sunnah)

40. Hamare A'eli Masaa'il (Our Family Issues)

41. Hamara Ta'limi Nizam (Our Educational System)

42. Hamara Ma'ashi Nizam (Our Economic System)

43. Dastoor ul A'maal Baer-e-Talibeen-e-Islah (Instructions for Aspirants of Spiritual Improvement)

45. Murawwaja islami bankari

46. Gher soodi bankari

Muhammad Taqi Usmani Works

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* Takmila Fathul Mulhim - An Arabic commentary on Sahih Muslim in six volumes
* Ulum ul Qur'an - An Urdu work on the sciences related to the revelation and exegesis of the Qur'an; it has been translated into English under the title, An Approach to the Qur'anic Sciences.
* Ma'ariful Qur'an - An eight-volume English edition of the famous commentary of the Qur'an compiled in Urdu by his father, Mufti Muhammad Shafi Uthmani
* The Meanings of the Noble Qur'an - A two-volume English translation of the Qur'an with explanatory notes
* Islamic Laws of Animal Slaughter
* An Introduction to Islamic Finance

Muhammad Taqi Usmani Associations

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Muhammad Taqi Uthmani is currently a member of the following organizations:

* Islamic Fiqh Academy, Jeddah (Permanent Member)
* Darul Uloom Karachi, Karachi (Vice Principal)
* Accounting and Auditing Organization of Islamic Financial Institutions, Bahrain (Chairman of Shari'a Standard Council)
* Central Bank of Bahrain, Bahrain (Chairman of Shari'a Board)
* Amana Investments Limited, Sri Lanka (Chairman of Shari'a Board)
* Abu Dhabi Islamic Bank, UAE. (Chairman of Shari'a Board)
* Guidance Financial Group, USA (Member of Shari'a Supervisory Board)
* Meezan Bank Ltd, Pakistan (Chairman of Shari'a Board)
* Dubai Bank, Dubai
* BankIslami Pakistan Limited (Chairman of Shari'a Board), [2]
* Jamiatul Ulama USA, USA

Muhammad Taqi Usmani

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Justice (R) Mufti Maulana Sheikh Muhammad Taqi Uthmani (Arabic/Urdu: محمد تقی عثمانی) (b. 1943) is an eminent Hanafi Islamic scholar from Pakistan. He served as a judge on the Federal Shariat Court of Pakistan from 1980 to 1982 and the Shari'a Appellate Bench of the Supreme Court of Pakistan from 1982 to 2002. He is an expert in the fields of Islamic Jurisprudence (fiqh), economics, hadith and tasawwuf. He also held a number of positions on the boards of prestigious Islamic institutions. He is the brother of another notable Islamic scholar, Mufti Muhammad Rafi Usmani and Maulana Wali Razi.
Mufti Sahab was born in Deoband, a city in the Saharanpur district of Uttar Pradesh, India, in 1943] After completing the Alim course at Darul Uloom Karachi, he specialized in fiqh under the guidance of his eminent father, Grand Mufti of PakistanMufti Muhammad Shafi Usmani. He received his Takhassus degree in Islamic education from Darul Uloom Karachi in 1961. He also holds a Master of Arts degree in Arabic literature from the University of Punjab and a Bachelor of Laws (LLB) degree from the University of Karachi. Mufti Sahab received ijaza to teach hadith from a number of scholars such as Sheikh Hasan Mashat, Mufti Muhammad Shafi Uthmani, Maulana Idris Kandhlawi, Mufti Rashid Ahmad Ludhianvi, and Shaikhul Hadith Muhammad Zakariyya Kandhlawi. He pioneered the concept of Islamic banking in Pakistan when he established the Meezan Bank. Mufti Sahab has authored a number of books in Arabic, Urdu, and English on Islamic topics in addition to a large number of articles on Islamic banking and finance published in a number of journals and magazines.

In March 2004, United Arab Emirates Vice President and Prime Minister Mohammed bin Rashid Al Maktoum presented an award to Mufti Sahab in recognition of his lifetime service and achievement in Islamic finance during the annual International Islamic Finance Forum (IIFF) in Dubai.

In accordance with the tradition of the scholars of Deoband and recognizing the importance of tasawwuf, Mufti Sahab's bay'ah was accepted by Shaikh Dr. Abdul Hayy Arifi Abdul Hayy Arifi and Maseehullah Khan. Mufti Sahab is currently a mentor to numerous spiritual aspirants all over the world and delivers weekly lectures on self-improvement at Darul Uloom Karachi on Sundays between Asr Salaah and Maghrib Salaah.

He currently teaches Sahih al-Bukhari, fiqh, and Islamic economics at Darul Uloom Karachi and is known for his Islahi Khutbat. He was a key member of a team of scholars which helped declare Qadianis as non-Muslims by Pakistan's National Assembly during the era of former Pakistani president, Zulfikar Ali Bhutto, in the 1970s. During the presidency of General Zia ul Haq, he was instrumental in drafting laws pertaining to Hudood, Qisas, and Dayiat. He strongly opposes the Women Protection Bill. According to him, it was designed to distract attention from issues such as flaws in the law enforcement system. According to a comment piece in The Times, Usmani has written that aggressive military jihad should be waged by Muslims “to establish the supremacy of Islam” worldwide

Islamic Banking Evolution

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The first modern experiment with Islamic banking was undertaken in Egypt under cover, without projecting an Islamic image, for fear of being seen as a manifestation of Islamic fundamentalism which was anathema to the political regime. The pioneering effort, led by Ahmad El Najjar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 198l), by which time there were nine such banks in the country. These banks, which neither charged nor paid interest, invested mostly by engaging in trade and industry, directly or in partnership with others, and shared the profits with their depositors (Siddiqi 1988). Thus, they functioned essentially as saving investment institutions rather than as commercial banks. The Nasir Social Bank, established in Egypt in 197l, was declared an interest-free commercial bank, although its charter made no reference to Islam or Shariah (Islamic law).

The IDB was established in 1974 by the Organization of Islamic Countries (OIC), but it was primarily an intergovernmental bank aimed at providing funds for development projects in member countries. The IDB provides fee based financial services and profit-sharing financial assistance to member countries. The IDB operations are free of interest and are explicitly based on Shariah principles.

In the seventies, changes took place in the political climate of many Muslim countries so that there was no longer any strong need to establish Islamic financial institutions under cover. A number of Islamic banks, both in letter and spirit, came into existence in the Middle East, e.g., the Dubai Islamic Bank (1975), the Faisal Islamic Bank of Sudan (1977), the Faisal Islamic Bank of Egypt (1977), and the Bahrain Islamic Bank (1979), to mention a few.

The Asia-Pacific region was not oblivious to the winds of change. The Philippine Amanah Bank (PAB) was established in 1973 by Presidential Decree as a specialized banking institution without reference to its Islamic character in the bank's charter. The establishment of the PAB was a response by the

Philippines Government to the Muslim rebellion in the south, designed to serve the special banking needs of the Muslim community. However, the primary task of the PAB was to assist rehabilitation and reconstruction in Mindanao, Sulu and Palawan in the south (Mastura 1988). The PAB has eight branches located in the major cities of the southern Muslim provinces, including one in Makati (Metro Manila), in addition to the head office located at Zamboanga City in Mindanao. The PAB, however, is not strictly an Islamic bank, since interest-based operations continue to coexist with the Islamic modes of financing. It is indeed fascinating to observe that the PAB operates two 'windows' for deposit transactions, i.e., conventional and Islamic. Nevertheless, efforts are underway to convert the PAB into a full-fledged Islamic bank (Mastura 1988).

Islamic banking made its debut in Malaysia in 1983, but not without antecedents. The first Islamic financial institution in Malaysia was the Muslim Pilgrims Savings Corporation set up in 1963 to help people save for performing hajj (pilgrimage to Mecca and Medina). In 1969, this body evolved into the Pilgrims Management and Fund Board or the Tabung Haji as it is now popularly known. The Tabung Haji has been acting as a finance company that invests the savings of would-be pilgrims in accordance with Shariah, but its role is rather limited, as it is a non-bank financial institution. The success of the Tabung Haji, however, provided the main impetus for establishing Bank Islam Malaysia Berhad (BIMB) which represents a full fledged Islamic commercial bank in Malaysia. The Tabung Haji also con tributed l2.5 per cent of BIMB's initial capital of M$80 million. BIMB has a complement of fourteen branches in several parts of the country. Plans are afoot to open six new branches a year so that by 1990 the branch network of BIMB will total thirty-three (Man 1988).

Reference should also be made to some Islamic financial institutions established in countries where Muslims are a minority. There was a proliferation of interest-free savings and loan societies in India during the seventies (Siddiqi 1988). The Islamic Banking System (now called Islamic Finance House), established in Luxembourg in 1978, represents the first attempt at Islamic banking in the Western world. There is also an Islamic Bank International of Denmark, in Copenhagen, and the Islamic Investment Company has been set up in Melbourne, Australia.

Courtesy of Mohamed Ariff, University of Malaya