BNK610 Handouts Lectures 1-8

TABLE OF CONTENTS

LESSON 1 – ISLAMIC ECONOMIC SYSTEM ....................................................................... 1

NATURE OF SHARIA’H RULING ............................................................................................ 1

INTRODUCTION TO ISLAMIC ECONOMICS ............................................................................ 3 DISTRIBUTION OF WEALTH – AN ISLAMIC PERCPECTIVE ..................................................... 4 IMPORTANCE OF ECONOMIC GOALS .................................................................................... 4

LESSON 2 – FACTORS OF PRODUCTION IS ISLAM .......................................................... 8 CAPITALISTIC VIEW ............................................................................................................ 8 SOCIALISTIC VIEW .............................................................................................................. 9 ISLAMIC VIEW ..................................................................................................................... 9 SOCIALISM AND ISLAM ..................................................................................................... 10 CAPITALISM AND ISLAM ................................................................................................... 10 TYPES OF CAPITAL INVESTMENT ........................................................................................ 11

LESSON 3 – INTRODUCTION, HISTORY AND EVOLUTION ......................................... 14 ISLAMIC BANKING ............................................................................................................ 14 HISTORY OF ISLAMIC BANKING ......................................................................................... 14 EVOLUTION OF ISLAMIC BANKING IN PAKISTAN ............................................................... 15 LESSON 4 – RIBA, DEFINITION, PROHIBITION AND TYPES ....................................... 17 PROHIBITION IN QURAN .................................................................................................... 17 PROHIBITION IN HADITH ................................................................................................... 19 CLASSIFICATION OF RIBA ................................................................................................. 19 LAWS OF RIBA AL FADL .................................................................................................... 22

LESSON 5 –ISLAMIC CONTRACTS ..................................................................................... 24 UNILATERAL PROMISE ...................................................................................................... 24 BILATERAL PROMISE ......................................................................................................... 25 CONTRACT AND TYPES ...................................................................................................... 25 ESSENTIAL OF CONTRACT................................................................................................. 26 OTHER ISSUES IN CONTRACT ............................................................................................ 27

LESSON 6 – SALE AND ITS TYPES ....................................................................................... 29 VALID SALE AND ESSENTIALS ........................................................................................... 29 BAATIL, FAASID AND MAKROOH SALE .............................................................................. 32 OTHER TYPES OF SALE ..................................................................................................... 32 PROHIBITED SALE ............................................................................................................. 33 OPTIONS TO SALE(KHIYARS) ............................................................................................ 34

LESSON 7 – BANKING FRAMEWORK ............................................................................... 35 UNDERSTANDING THE DIFFERENCE ................................................................................. 35 PRODUCT WISE COMPARISON (ISLAMIC VS CONVENTIONAL) ............................................ 37 NEW CHALLENGES FOR THE INDUSTRY ............................................................................. 40 LESSON 8 – LIABILITY SIDE ON ISLAMIC BANK........................................................... 41 DEPOSIT SIDE OF ISLAMIC BANKS ..................................................................................... 41 MUDARABAH.................................................................................................................... 41 TYPES OF MUDARABAH .................................................................................................... 42 INVESTEMENT IN MUDARABAH ........................................................................................ 42 CONDITION FOR PROFIT SHARING, EXPENSES IN MUDARABAH .......................................... 43 ROLE OF ISLAMIC BANK IN MUDARABAH ......................................................................... 44 MANAGEMENT OF DEPOSIT POOL ..................................................................................... 44 PROFIT CALCULATION AND DISTRIBUTION ........................................................................ 46 ASSIGNING OF WEIGHTAGES ............................................................................................. 47 PROFIT SHARING MECHANISM .......................................................................................... 47

ISLAMIC ECONOMIC SYSTEM

Lesson - 1

The Islamic Economic system is defined as a system which is governed in conformity with the rules of Sharia’h. Sharia’h can be explained as a " Way to be followed" and can be explained as a set of divine commands and laws that controls every aspect of human beings in their individual and collective lives. Individual and collective life aspects can be divided into five parts. Thus, Sharia’h provides a pathway to be followed in all these five classes.

The five categories are:

1. Beliefs (Aqaid)
2. Acts of Worship (Ibadaat)
3. Dealing with others (Muamlaat)
4. Manners (Ikhlaqiat)
5. Economics (Maishat)

The nature of Sharia’h rulings are as follows

Sharia’h rules can be divided into Dos (orders to undertake any act) and Don’ts (prohibition from some acts), which can further be divided into the Ibadaat (matters of worship) that are considered as rights of Allah (SWT) and Muamlaat (the matters for disciplining human life) that constitute the rights of human beings. Ibadaat (worship) govern the relationship between man and Allah the general principle in Ibadaat is that “nothing is permitted unless explicitly permitted by Sharia’h, the acts have to be accomplished strictly according to the Sharia’h principles, the latter matters that pertain to socio-economic rights and obligations are governed by the rule of “General Permissibility”, all acts are permitted unless clearly prohibited by Sharia’h. it is important to note that, Allah may forgive us on any lapse in respect of Ibadaat, while lapses in respect of the Muamlaat would have to be forgiven only by the aggrieved person.

1. Halaal: All those actions that are allowed and declared permitted by Sharia’h.
2. Haraam: All those actions that are forbidden and declared unlawful by Shariah and their

impressibility are derived from either the Holy Quran or Hadiths or Ijma. Sunnah e Mutawaatirah as the strongest narrations of the Holy Prophet in terms of their narrators, i.e. the narrators is in such a large number that it is impossible for all of them to have agreed on a false issue.

3. Faraiz: All those actions that are declared mandatory by either Quran or Sunnah.
4. Sunnah: All those actions that are recommended to be performed by Muslims, based upon the

association of those actions with Holy Prophet (PBUH).

Rule and regulation of Islamic Sharia’h can be driven from following sources.

1. Quran
2. Hadiths
3. Ijma