““Recent History of Interest Recent History of Interest based banking”based banking”

presented by: presented by: Ahmed Butt (3287) Ahmed Butt (3287)

Maliha Ahmed Maliha Ahmed (3123) (3123)

BankingBankingConventional bankingConventional bankingIslamic bankingIslamic bankingRecent History of interest based bankingRecent History of interest based bankingRules of Islamic BankingRules of Islamic BankingConclusionConclusion

BankingAccording to wikipedia

“A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly

or through capital markets”

In general terms, banking is a highly regulated industry which have government restrictions on financial activities.

Conventional BankingConventional BankingConventional BankingIn simple words, it is In simple words, it is interest based bankinginterest based banking

To make us understand our Instructor Mr. Farhan Mehboob told us a story about how

interest based banking was introduced.

“Barter system”• Sajid Fish• Abid Wood• NasirFruits• Furqan Salt• Salman Entertainer

• Not always happy, but cooperate together in barter system.

• Each feels he is cheated, would like to change the system?

Jews observed it…• One blessed day, Uncle Yahoodi, arrives

with the answer to their problem.

• Loaned money, as aid, minimum interest; for the development of the society

• Uncle Yahoodi ready of help out these people

• Name Principle InterestSajid 1000 + 100Abid 1000 + 100Nasir 1000 + 100Furqan 1000 + 100Salman 1000 + 100• =========================• Total amount given 5,000• Thus total money supply 5000 ONLY

It seems nothing wrong in the above transaction… but if we look closely.

• Loan taken = 5,000

• Thus, total money supply 5,000

• How will they return 5,500!

• The Riba amount 500 – EXTRA does NOT exist

• RIBA impossible to return ->ZULM=HARAM

• Trying to do the impossible

• Every Haram has its price !

• In order to achieve the impossible, the whole society will be affected negatively!

Recent history of banking• Jews, were jewelers & goldsmiths

• People would keep their valuable, in their vault, in return for service charge and a promissory note.

• It was noticed that only 1 in 20 people returned for their valuable. 95% did not return!

• Their promissory note was been circulated in the whole town, because of the ease of use.

• If they had gold worth € 100, they could easily print and distribute € 2000 worth!

• They gave loans

• They bought real assets: property, building, farms, horses, gold mines!

• They began to keep mini armies!

• In the town they became Lords!

• They gave their allegiance to the king of the area.

• Promised to finance the “war”

• In return only they would be allowed to legally print money in the country.

• Whenever the king needed money, they would freely give, in return for assets of the kingdom. New kings became slaves in their hands!

Recent history of Interest

based banking

Islamic banking was introduced in the year Islamic banking was introduced in the year 1974.1974.

The interest based baking was considered illegal in Pakistan, The interest based baking was considered illegal in Pakistan, taking activities of private banking away from western bank taking activities of private banking away from western bank

and govt. financing operations as well.and govt. financing operations as well.

In the year 1988,The rich Gulf Arab states that Pakistan and other

Muslim nation’s customer withdrawal their investments from western firms.

In later years,In later years,

2001, More than 87% invested in interest based govt. schemes. These investors were always relied on fixed and guaranteed return.

2003, the Shariah Applet Bench of Pakistan ordered to change the interest based banking system.

2005, Islamic banking system was initialized in many countries.

2009, in order to not to rely on interest based baking system 6 of the Islamic banks of Pakistan decided to set up an Islamic interbank price market.

Currently…Currently…•Islamic banks are being promoted by State bank of Pakistan.•Government is focusing on the investments.•It has been identified that interest based economy is the biggest reasonof the inflation and economic slump.•Pakistan is planning to increase Islamic banking system.•Transactions will be based on exchange of assets rather than interest.•According to Islamic law, the profit should be derived by ethical manner.

1. Any predetermined payment over and above the actual amount of principal is prohibited.

2.The lender must share in the profits or losses arising out of the enterprise for which the money was lent.

3. Gambling in prohibited.4. Making money from money is forbidden.

Of Islamic Banking