ISLAMIC FINANCE PAKISTAN
The Islamic Finance Industry Newsletter
“These are the limits (imposed
by) Allah. Who so obeyeth
Allah and His messenger, He
will make him enter Gardens
underneath which rivers flow,
where such will dwell forever.
That will be the great success. ”
(Surah Nisa, Ayat 13)
Inside...
Editor’s Message
Shahjahan writes about
importance of Shariah audit
Ask Us!
Islamic banking - Is
it really Islamic?
By Omar Mustafa Ansari
and Faizan Ahmed
Memon
Local and
International
News
Get a glimpse of what
has been happening in
the world of Islamic
finance
In the Spotlight
Meet Zulfiqar Ali Khan and
find our read of the month.
Upcoming Events
An initiative of Publicitas (Pvt.) Ltd.
VOLUME 2 ISSUE 1 | JANUARY 2011
Gathering of
Islamic finance professionals
in Karachi
An informal interactive session was principle that protected industries/imperfect
arranged by Habib Bank Limited (HBL) Islamic markets, leading to inefficient utilization of
Banking on 11th December 2010 in Karachi. The resources.
overall theme was to discuss the issues and Mufti Irshad Ahmed Ijaz- Shariah Advisor,
challenges that are being faced by Islamic Bank Islami provided example of the attitude of
banking, finance and insurance industry. The the sales / front desk staff which is causing
event was hosted by Mr. Mohammad Aslam - hindrance in the growth of Islamic finance, in
Head HBL, Islamic Banking (IB). A significant the right manner. The observation was
number of Islamic finance professionals graced supported by Mufti Najeeb Khan - Shariah
this occasion with their presence and presented Advisor, HMB IB, by stressing on the need of
their views on various aspects of Islamic proper training and development of Islamic
banking, finance and insurance, highlighting the banking staff. He also said that the Islamic
areas that need improvement and gave banks should increase their outreach by
2 suggestions for the providing its
same. Majority was of the view that p r o d u c t s a n d
According to Mr. there should be some form of services in different
Mohammad Aslam, parts of the country
the growth of Islamic incentive e.g. tax incentive to as the market is still
5 banking is limited as boost the industry. largely untapped.
big players have not Mufti Ehsan Waquar
actively played their part in promoting the local - Shariah Advisor, UBL IB, emphasized on
6 industry. He floated the idea that a overseeing the legal vetting of the contracts used
representation may be made to the right forum in Islamic banking. Formation of an Association
to reduce the corporate income tax rate for of Islamic banks was suggested by Mr. P.
Islamic banking and IBDs of CBBs by 10% as Ahmed - CEO, Pak-Qatar Family Takaful. He
this will indirectly stimulate growth of Islamic suggested that the matter should be referred to
finance in Pakistan. Majority was of the view PBA subcommittee on Islamic banking, which
8 that there should be some form of incentive e.g. was agreed upon by all participants.
tax incentive to boost the industry. Another Other prominent participants at the
suggestion with respect to the tax rate was given occassion included Mr. Ahmed Shuja Kidwai
by Mr. Pervez Said - CEO, Dawood Islamic Bank (Bank Albaraka), Mr. Aziz Adil (Bank Alfalah
whereby increasing tax rate for conventional IB), Dr. Bhakht Jamal Sheikh (CEO, Dawood
banks was advised, keeping in view the Govt’s Takaful), Mr. Faisal Sheikh (Bankislami), Mr.
psyche, as it will indirectly benefit the Islamic Imtiaz Bhatti (Pak Kuwait Takaful), Mufti
banks/IBDs. Ibrahim Essa (E&Y), Mufti Khalil Azmi (Bank
10 Another view on the subject of tax was Alfalah-IB), Mr. Muhammad Idrees (Soneri
presented by Mr. Omar Mustafa Ansari - Bank), Nadym Ahmed Chandna (Pak-Qatar
Partner, Ernst & Young. He said that people Family Takaful), Nusrat Ullah Khan (UBL IB)
may exploit the field if tax benefits are provided and Shariah Advisors and executives from HBL
and this will also hinder improvements in Islamic Banking Division such as Mr. Rafiq A.
12 Islamic banking as every market player will be Khan, Mr. Faizan Ahmed Memon, Mr. Sheeraz
willing to get the tax benefit. He also Ali Sabri, Mr. Amir Mansoor, Mr. Jehanzeb
emphasized the need of strengthening the Saeed and Mr. Muhammad Yahya Asim and Dr.
Shariah compliance mechanism. Ejaz Samdani.
An argument against tax differential The event concluded with a dinner.
between Islamic and conventional banks was
given by Mr. Fouad Farrukh - Head, Faysal *****
Bank IB, as he considered it to be an economic
 Editor’s Message
Dear Readers!
Advisory
Assalam o Alaikum
Board
The raison d’être’ of Islamic Banking has been the desire on the part of Muslim
masses to conduct their economic and financial affairs in accordance with the
precepts of Islamic Shariah. Shariah scholars/board provides legitimacy to Islamic
banks, though scholars are non-executive and as such not responsible for
commercial performance of the business. Scholars provide critical support to IFIs in Advisory Board
the development of new products.

• Mufti Irshad Ahmed Aijaz

Standardization is the watchword for the industry. To sustain the momentum and
gain the confidence of the masses that the newly introduced system is different from • Mufti Najeeb Khan
the conventional banking in vogue, it is imperative that there be an independent • Anwar Ahmed Meenai
mechanism and set up of Shariah Audit, internal as well as external, to vouch the • Mohammad Aslam
bona fide of the new system. This aspect cannot be left to the Shariah scholars for
• Mujeeb Beig
two reasons. Firstly, they have not been trained in this area which requires
specialized skills and mindset. Secondly, there is a conflict of interest in that Shariah • Nusratullah Khan
scholars are already involved in the approval of transaction structures and
documentation. That their approvals are being implemented in the right earnest is
something which independent Shariah Audit, by competent professionals alone can
ensure. Editor-in-Chief

IFIs must appreciate that adherence to international best practices, which includes • Syed Shahjahan Salahuddin
audit by external agencies, qualified to do the job, will enhance their reputation and
help them gain respect of their customers as well as Regulators.

Lately I was invited to attend a certificate distribution ceremony at Al-Muneeb

Shariah Accademy where the chief guest Mr Pervez Said had very elaborately and
Associate Editors
clearly given an analogy on the importance of training our Shariah scholars and
veteran bankers simultaneously. In house training indeed possesses importance of • Arshad Hussain Zubairi
its existence but external training gives out-of-the-box perspective and generates • Bisma Salahuddin
better solutions to existing challenges.

Happy reading!

Syed Shahjahan Salahuddin

Let us know, if you know friends or colleagues who, in your view, may
benefit from this newsletter. Send us their email addresses at
ifp@publicitas.com.pk

An initiative of Publicitas (Pvt.) Ltd. Page # 2

 Volume 2 Issue 1 | JANUARY 2011

Islamic finance must return to the roots!

By Muhammad Ayub

(…...continued from the previous issue )

Issues in development of
Reward coincides with the Islamic finance
risk Although Islamic finance has gained
In Islamic finance, the business risk can rapid popularity thanks to abundant Sukuk
be managed, but not eliminated from issuance, but it is facing the challenge of
economic activities. The classical maxim, distinguishing the Islamic from the non-
“gain is justified by taking liability of loss” Islamic transaction.
serves as the basis of Islamic finance and Bahrain based AAOIFI has played a
implies that risk cannot be separated from significant role in providing Shariah
the ownership – the owner of an asset has standards for a large number of contracts
both risk and reward of that asset. based on the principles of the Shariah. But
Similarly, Islamic finance has the provision most of the IFIs have not adopted the
of forward trading with strict conditions of AAOIFI’s Shariah standards. products with some minor legal
delivery and settlement to ensure that risks The practices like Ba‘i al ‘Inah (sale and amendments – its instruments and the
and liabilities pertaining to an asset are buy-back transaction of an asset by a products are not really distinguishable
properly assumed by the owner. It is seller), organized Tawarruq (getting from those of interest-based institutions.
particularly relevant in the case of Forex liquidity by way of purchasing a Re-purchase promises in most of the
business where the Sukuk and Tawarruq based
requirements of Bai´ al sarf Some Islamic investment managers $100 billion commodity
(trading in monetary units Murabaha market have
and currencies) have to be attempt to develop ‘Sharia-compliant’, almost diluted any difference
observed. Delivery of the short-selling techniques which several between the two systems in
Salam goods has to be made operation. So much so that,
irrespective of the upward or Western authorities are banning on w h i l e some I sl amic
downward movement of the investment managers
account of the instability that it causes
price. It implies that forward attempt to develop ‘Sharia-
trading can be used only for promoting real commodity on credit and selling it compliant’, short-selling techniques,
productive and exchange purposes. The forthwith to any third party as a pre-agreed several Western authorities are banning
modern derivatives like options, futures and arrangement) and Sukuk with repurchase the practice, on account of the instability
swaps, on the other hand, do not even have agreements have made Islamic finance that it causes.
a valid subject matter. almost similar to the conventional finance. As a result, even the pious Muslims who
Obviously against the above principles, Even in Mudarabah and Musharakah had been the supporters of any move for
the conventional investment products and based Sukuk, the issuers make an upfront Shariah based system of finance have been
particularly the ‘derivatives’, separate risk promise to pay back Sukuks’ face value at expressing concerns about the Islamic
from real economic activities and make it maturity. Even though, the Islamic Fiqh banks’ products. Following are some of
traded separately. Risk is treated as a Academy issued, in April 2009 a decree their concerns:
commodity that becomes a basis for outlawing organized Tawarruq as a • “Islamic banking” as in vogue does not
financial engineering without any valid "deception”; but still IFIs continue to use reflect the ethos of Islamic teachings;
assets and compounded derivatives are Tawarruq based products causing more • Particularly, the ‘Structured products’
derived based on market indices and doubts to the emerging system. do not reflect spirit of the Shariah;
volatilities, where no ownership of any sort • Strayed from the theoretical foundation:
exists. Islamic banks should have joint-risk and reward sharing;
It ultimately multiplies the risk in the availed the opportunity! • Seeking to strike a deal with the
economy and only the speculators are better When the conventional banking conventional institutions, particularly to
off while real economic agents like collapsed, Islamic banking industry should enter the derivatives market -
producers and consumers, individuals as have not only escaped unharmed, it should separating risk from real economic
well as economies, are worse off – they are also have availed the opportunity of activities and making it traded
better off if risk is minimized. Hence, the developing into the mainstream system separately;
artificial risks distort real economic with a new paradigm; but, it failed to take • Shariah conditions not being faithfully
activities with negative impact on real advantage of the opportunity because observed – Hiyal have been adopted;
investment opportunities. Islamic banks also adopted the same • Tawarruq - originally a solution to

Page # 3
 provide monetary funding in crunch has swaps’ to deliver ‘Shariah compliant’ incomes for socio-economic benefit of the
become the predominant instrument for returns from non-compliant investments. mankind as a whole. The solution lies in
investment and liquidity management; The ‘conversion technique’ is being
• "Shariah Conversion Technology” coined adopted to use non-compliant assets to
to allow the total return swaps (TRS) bring returns into a so-called Shariah—
• LIBOR and other such benchmarks used compliant investment. Shariah requires
as a determinant of interest on non- that underlying assets of any contract must
Shariah compliant assets, not only as a be Halal and any return must be subject to
pricing tool. fulfillment of rules of the relevant
There are concerns about the nature and contracts. Hence, the Islamic finance
extent of supervision by the Shariah system, as in vogue at present, is not fully
experts / advisors. Shariah committees of prepared to play a significant role in
individual institutions provide relaxations, ensuring the health and stability of the disciplining the creation of money, limiting
but when the practitioners make national and global financial systems. The the self-interest with social interest and the
exploitative use of such relaxations, Fatawa world is looking for fairer values that we business ethics, and transforming the
are followed by retraction / criticism. The cannot find in the current so-called market corrupt financial system to make it free of
most prominent example of such criticism based capitalistic system. exploitation and games of chance and thus
is that of Sukuk, each of which was allowed The economists and the policy makers enabling the mankind to optimally use the
by the Shariah scholars, but afterwards it have to draw up the system based on resources for benefits at the larger scale.
was said that most of the Sukuk did not ethical principles of risk and profit sharing. Islamic finance provides a solid basis for
comply with Islamic principles. Only that is the way to salvation by dint of these reformatory measures; it is up to the
There have been some general and which we can lead the humankind to human beings how to realize the potential.
macro-economic problems as well, some of happiness, security, justice and prosperity. The global crisis and the recent Sukuk
which were not in control of any related defaults in many parts of the
individual Islamic financial Islamic finance must return to its world, particularly the Sukuk
institutions. These problems problem of Dubai, have made it
were: roots and avoid imitating the sufficiently clear that Islamic
• Excessive money and credit practices of conventional banking finance must return to its roots and
creation by banks (lending) avoid imitating the practices of
and the States (borrowing); if it is to avoid the same fate as conventional banking if it is to
• Banking and finance only a avoid the same fate as faced by the
part of economics and socio-
faced by the capitalistic system capitalistic system. They must move
political economy; from Tawarruq to Mudaraba and
• Lack of coordinated work by the The system needs radical change in the from Bai’ al Dayn-based to equity and Ijara
economists for finding the real approach, principles and operation of -based Sukuk ensuring the adherence to
benchmarks / reference rates; economic and financial systems. the Shariah essentials of all underlying
• Lack of Shariah scholars’ – the opinion Creation of money, and lending it on contracts. If projected properly, Islamic
makers - familiarity with the tools and interest – interest based debts and finance would have appeal for followers of
instruments of modern finance; financial obligations leading to undue all the religions. By introducing it as
• Lacking human resources with Shariah receivables for the lenders, is the biggest religious as well as ethical banking in all
inspiration and professional expertise and primary problem of the conventional societies of the world, Islamic finance can
During the recent years, a significant system. Islamic finance must try to avoid become an engine of economic growth by
change has been the increase in use of doing the same before the process becomes mobilizing savings from so far untapped
Commodity Murabaha as a financing irreversible. groups of people and channeling them to
device - Tawarruq by way of Murabaha in healthy and real assets based investments.
metals that is reluctantly accepted by some Islamic finance principles Prohibition of Riba in all revealed religions
Shariah scholars. May be that the have the potential could be instrumental in enhancing this
transaction in such Murabaha is Shariah- Islamic theory of finance has potential appeal.
compliant in form, but actually it is in terms of its principles and instruments Also, Islamic modes of business and
unrelated to the substance of the that allow the minimum possible loop- investment have the possibility of being
commodity: the commodity is a vehicle to holes. Enhanced supply of risk-related used as an efficient alternative to interest
facilitate the transaction, not its object. permanent and redeemable capital, based deficit financing along with added
The IFIs are not allowed exposure to restricted risk taking, balanced return rate benefit of disciplining the fiscal behavior of
CDOs, derivative products and the kind of structure based on the real assets backed the sovereigns. In that case, each economy
intra-financial counterparty risk that economic activities, and supply of money would be able to get real benchmarks for
crippled the conventional system. commensurate with prospects of growth in pricing of goods, their usufruct and the
However, many IFIs mimicked the an economy, provide a sound basis for services, both in cash and credit markets,
conventional product of ‘total return sustainable development and evenly shared representing the real demand/supply

An initiative of Publicitas (Pvt.) Ltd. Page # 4

 Volume 2 Issue 1 | JANUARY 2011

scenario and the strength of the economy. Changing the approach of the Islamic banking conducted in
Obtaining a benchmark for Shariah practitioners that all banking products accordance with the Shariah precepts is in
compliant securities in present situation is should have Shariah based alternatives is a position to play crucial role interrelating
almost impossible. big challenge; they have to understand that finance, economy, community and society
The economists and the policy makers ensuring the real difference between the enabling the world to avoid crises in future.
are, therefore, required to come out of the two systems is the main key to stable and For this, Islamic banks and financial
syndrome of allowing creation of monetary long-term growth of the new system. institutions must turn to the roots, to carry
assets without any meaningful limit on the The economists have to make joint out their operations according to the
one hand and allowing a fixed rent on such efforts for developing benchmark based on fundamental principles of Islamic
assets on the other; and be encouraged to real performance of the economy and that economics and finance and also play a role
adopt the real economic activity based would be possible by linking the money in socioeconomic development by
regimes that allow ex-post profit or loss and credit expansion to the growth of real combining the goals of efficiency and social
sharing as also fixed or quasi-fixed return economy. There is a need for a global move justice. They must be ready to take
through pricing of real goods, assets or in this regard. Efforts also need to be business risks and expand their role in the
their usufruct. It would require some bold strengthened to enhance supply of well real sector rather than just provide credit.
educated and trained The current trend may not help in
Ensuring the real difference human resources having achieving the objective. But, it is not due
Shariah inspiration and to any weakness in the philosophy and
between the two systems is the confidence to operate the theory of Islamic finance. For such a
main key to the stable and long- system requirement.
as per its model of socioeconomic development they
will have to design different financial
term growth of the new system The standards setting, structures than what they are presently
including Shariah, risk following in effort to compete with
measures that of course are not novel, as management, regulatory, accounting and conventional system for ‘profit
these are being taken in many economies market standards, constitutes a big maximization’.
in various parts of the world. The challenge for the emerging industry. This The universities and business schools
conventional financial system has standardization must be based on the may come forward to educate Shariah
developed through a prolonged and cardinal principles of Shariah that have scholars enabling them to understand the
continuous process moving away from the been better taken care of by the AAOIFI principles properly and guide the banking
gold to the electronic medium of exchange. Standards. But unfortunately, the industry and the public. AAOIFI’s
Putting it on the right track would require a practitioners who are using the dubious Standards must be applied for all banks
lot of work and sacrifice by the present structures like that of Ba‘i al Inah and and relevant areas. Regulators need to
generation for bright and safe future of the Tawarruq and are operating ‘Islamic’ hedge ensure that the bankers deal with investors
mankind. funds based on options and derivatives do justly and the financiers bear the risk of
not really feel any need for standardization. default by prohibiting the sale of debt,
Challenges in achieving the thereby ensuring that he / she evaluates
objective Conclusion risk more carefully.
*****

ASK US!
Q: If insurance is prohibited in Islam, how do Islamic banks get their assets insured?
A: Indeed the conventional insurance is not allowed in Shariah because it is based on interest, Qimar and Gharar which are
impermissible in Shariah. Therefore it is not allowed for Islamic banks to get their asset(s) insured under conventional insurance.
However, the Islamic banks can get their assets covered under the contract of Takaful which is the Islamic alternative of
conventional insurance.
Before the start of Takaful operation in Pakistan, Islamic banks were entering into the insurance contracts with conventional
insurance companies for the coverage of their assets. This practice was allowed by most of the Shariah scholars on the basis of
Iztirar (‫ )اﺿﻄﺮار‬and Hajah (‫)ﺣﺎﺟﺔ‬. The reason being that no bank was allowed to lease its assets without acquiring insurance
coverage as per the Banking regulation, therefore for the fulfillment of this regulation, Islamic banks were allowed to acquire
insurance coverage, but on the condition that they should move towards Takaful eventually and they should not get the claims
more than their premiums paid to that insurance company.
Now the Takaful companies have started their operations in Pakistan, hence Islamic banks are obliged to depend only on
Takaful companies for the insurance coverage of their assets. However, if all the Takaful companies available in the country deny
protecting any product/asset under the concept of Takaful, then for the time being insurance coverage is permitted only for that
product/asset.

Page # 5
Islamic banking: Is it really “Islamic”?
By Omar Mustafa Ansari & Faizan Ahmed Memon

(…...continued from the previous issue ) a difference of Takaful / insurance cost It is also pertinent to note that since the
which in Islamic mode is to be borne by the Islamic financial services sector is in its
Merely change in name lessor and accordingly, the same is built-in infancy phase, as compared to the
and documents the rentals. conventional banking, we unfortunately
The most common and most discussed The basic
argument against contemporary Islamic r e a s o n
It is observed that Islamic banks try to
banking is that there is “NO behind this make sure that their product is similar
DIFFERENCE AT ALL” between the similarity is to the conventional products in all
conventional banking and Islamic to ensure
banking and this is merely a change of t h r e e
respects, even if for that purpose they
name and documents. The second obj ect i v es . have to incorporate a few provisions in
argument, which is in-fact a derivative of The first these products which are not considered
the first argument, is that even in Islamic one, which is
banking, the most common products m o r e
to be good or a few of them are
being used e.g. Murabaha, Musawwama, i m p o r t a n t considered Makrooh
Salam, Istisna, Diminishing Musharaka one, is to
and Ijara Muntahia Bittamleek are on provide an “even playing ground” to the have to follow the conventional system in
fixed return basis. Even the Musharaka IFIs in order to ensure their survival in the the pattern of financial products and are
and Modaraba based products are overall banking system. The second one, is still not in a position to invent absolutely
engineered in a way that the profits are that even by IFIs, it has to be ensured that new financial services.
“virtually-fixed”. their shareholders and depositors get some During the last few centuries, the
One should realize the fact that unless return and preferably a return equivalent conventional banking system has well read
we can distinguish an Islamic bank from a to those of conventional banks. And the the human needs and psychology and has
conventional bank, it would be difficult third reason is to avoid arbitrage amongst
for any of us to rely on the same. Islamic and conventional financial systems
Particularly, it is observed that they try to which may be exploited by a few big-guns
make sure that their product is similar to to get the benefit of pricing difference
the conventional product in all respects, between the two parallel financial systems.
even if they have to incorporate a few For such reason, time value of money
provisions in it which are not considered concept is used for performance
to be good or a few of them are measurement and pricing of financial
considered Makrooh. In addition, their products.
endeavors are focused towards Most importantly, it should be kept in
mind that in
Unless we can distinguish an Islamic some areas
bank from a conventional bank, it Haram and
would be difficult for any of us to rely Halal have a
very t h i n invented a considerable number of
on the same difference. For financial products and accordingly, it is not
example, only simple to just invent a new financial tool
minimization of their risk through every saying the name of Allah Almighty on an just for the purpose of inventing one. For
possible option and accordingly, the animal at the time of slaughter makes it example, if they have running finance and
essence of Islamic finance which is based Halal and permissible while by not saying overdraft as a financing tool, we have
on risk taking is killed. that name we make it Haram or by just a invented an alternate to the same in form
We can note that most IFIs market few words of acceptance in Nikah, in of Istijrar with Murabaha or Musharaka
their products on the models very much presence of a few persons, a man and based running finance model. Similarly, if
similar to those used by conventional woman become Halal for each other. they use finance leases as a financing tool,
banks. As an example, an Ijara Muntahia Similarly, if a transaction can be we have converted the same in a Shariah
Bittamleek transaction introduced by an engineered in a way that the same becomes compliant form in the form of Ijara
IFI might be very similar to a finance Shariah compliant, then we should not Muntahia Bittamleek or in the form of
lease transaction offered by a conclude that it is Haram only due to its Diminishing Musharaka. These are only
conventional leasing company, except for resemblance with interest based financing. two examples, but the tally is practically

An initiative of Publicitas (Pvt.) Ltd. Page # 6

 Volume 2 Issue 1 | JANUARY 2011

very high and for each interest based Islamic economists and certain Islamic difficult it is to introduce a profit and loss
financial product except for those revolutionary movements, is about the sharing based financial solution. Similarly, in
explicitly Haram, more than one alternates socio-economic factors of Islamic most of the cases payment of Zakat and
have been engineered. banking. They feel that since Islamic Sadaqat depends on the individual and
The objective of this discussion was just banking is also based on profit motive particularly, in view of the gigantic volume of
to emphasize that merely an amortization and in present form, it generally works the black economy in the country, what can
schedule similar to the one offered by a on “virtually-fixed” return basis; hence be expected even if a good system for Zakat
conventional bank, is not a basis for it cannot attribute anything-positive and Ushr is introduced? It needs to be
declaring a Halal product to be Haram. If towards the socio-economic changes emphasized that only the change in banking
just a pricing model or just the similarity that Islam desires. This is a crucial system is not a solution to the overall
of a cash-flow model makes the question and, we believe that, every revolution of economic system unless other
transaction Haram, what will you say conscious Muslim will concur with the facets of Islamic economic system, as well as,
concerns of those Islamic social system are not implemented
Nobody can argue that virtually- same, although simultaneously. who raise the Accordingly, the complete
transition of economy to an Islamic economic
fixed return based banking, the conclusions system can be performed, when and only
although being Shariah compliant, d e r i v e d b y when, the overall consensus of the society is
is not what has been desired by different people developed towards practical application of
might vary. Shariah in all the facets of human life,
Islam as a complete way of living Nobody can particularly including the governmental,
argue that political and legislative structures.
about a conventional loan offered at a virtually-fixed return based banking, Despite such an unsatisfactory and rather
price much higher or much lower than the although being Shariah compliant, is discouraging attitude of the society towards
market prevailing rates for which the not what has been desired by Islam as application of Islamic Shariah, it should be
pricing model and the cash-flow model are a complete way of living. In addition, noted that such a situation does not absolve a
not similar to those generally applied in the current-day
the industry. Islamic banking is
Merely an amortization schedule
Does anybody think that such emphasizing more similar to the one offered by a
dissimilarity will make it Halal? o n c o n s u m e r conventional bank, is not a basis for
Accordingly, from Shariah principles it is f i n a n c e as
rightly concluded that it is the substance of c o m p a r e d to
declaring a Halal product to be
a transaction that makes it Halal or Haram financing to SME Haram
and not a pricing model used to price the sector, agricultural
sector, and more Muslim from the applicability of Shariah
importantly, on the micro- principles, but rather increases his
finance; hence, it is not responsibilities in the way that it becomes his
c o n t r i bu t i n g e n o u gh duty not only to try to abide by all applicable
towards the “just and Shariah requirements in his personal capacity
equitable monetary system” but also to put his endeavors towards
that Islam needs. improvement in such system. Consequently,
Having due regard for in case the Islamic banking, in your opinion,
these arguments, may we is not contributing enough towards
remind you that the Islamic betterment of society, you cannot blame this
economic system is not on others alone. The responsibilities of the
something that can work in Muslim Ummah as a whole (or of the State)
isolation from the geo- can not be expected to be borne by a single
political and legislative sector only, which, at this point of time is in
transaction or the cash-flow model used system, as well as, and more its infancy stages.
for payments and repayments in monetary importantly the society’s behavior
terms. towards the injunctions of Islamic
Shariah in personal and collective
Socio-economic effects of matters. Accordingly, one can easily
Islamic banking and imagine that in an economy whereby
finance most of the businessmen are not
Second most significant argument from honest in fairly presenting the financial (to be continued in the next issue ……)
such group, predominantly by certain statements of their businesses, how

Page # 7
 Bulletin Board

MOODY’S rate Pak banking system fragile

Moody’s Investors Service has continued with its negative outlook on Pakistan’s banking system, due to its increasing
exposure to government debt and deteriorating asset quality. The heavy flooding in August 2010 resulted in precipitated
deteriorating macroeconomic conditions, weakening the banks’ operating environment further.
In the times to come, higher inflation may lead to rising lending rates, which, together with the weakened economy, will
challenge borrowers’ payment capacity, contributing to further asset-quality deterioration for banks.

Pakistan tops regulatory framework rating

Pakistan has topped the ranking in microfinance regulatory framework category, according to the rating given by Economist
Intelligence Unit (EIU) in its report. A marked improvement in rankings is the result of the State Bank of Pakistan's proactive
approach to microfinance regulations. EIU is a business information arm of the Economist Group, publisher of the world
renowned magazine ‘The Economist’. The EIU Report provides annual ranking and in-depth analysis of the microfinance business
environment in 54 countries.

SBP grants license for Sindh Bank

The provincial government was granted license for Sindh Bank by State Bank of Pakistan in December 2010. According to
Mr. Bilal Sheikh - President of Sindh Bank, a no-objection-certificate (NOC) for setting up the bank was issued to Sindh
government by the State Bank in October 2010, however the NOC was linked with compliance of the regulatory requirements,
which have also been fulfilled by the bank.
According to Mr. Bilal, in the first phase, Sindh Bank would start its operations within the province and in the second phase
its network would be extended to the entire country. The Sindh government has planned to open 50 branches of the bank in the
country by the end of 2011, with one branch in every district of Sindh province and one each in every provincial headquarter.

Gathering of Islamic finance professionals

Habib Bank Limited (HBL) Islamic Banking arranged an interactive session followed by a dinner for professionals of Islamic
finance industry on 11th December 2010. The theme of the event was to discuss the issues and challenges that are being faced by
the industry. Various participants from Islamic banking, finance and Takaful companies graced the occasion with their presence.
For details, please refer to the cover page.

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 Volume 2 Issue 1 | JANUARY 2011

Globe Trotter

Sukuk Al-Salam Islamic securities oversubscribed

The monthly issue of Sukuk Al Salam Islamic securities, issue by the Central Bank of Bahrain on behalf of the Government of
the Kingdom of Bahrain, was oversubscribed for December 2010. Subscriptions worth BD46.8 million were received for the BD12
million issue with a maturity of 91 days. The expected return on the issue, maturing on 30 March 2011, is 0.85%.

Ithmaar Bank, AUB sign $167m deal

Bahrain-based Ithmaar Bank (IB), an Islamic retail and commercial bank, and Ahli United Bank (AUB), a full commercial
banking institution, signed a $167 million deal for five-year secured Morabaha facility. The secured Morabaha facility, Sharia-
compliant Islamic finance, is fully underwritten by AUB.
IB is listed on the Bahrain and Kuwait stock exchanges and holds a full Islamic retail banking license issued by the Central
bank of Bahrain while AUB is a regional banking group based in Bahrain with subsidiary and associate banks in Kuwait, Qatar,
Oman, Egypt, Iraq, Libya and the UK.

Australia launches its first Islamic finance e-learning program

Ethica Institute and La Trobe University launched Australia's first ever Islamic finance e-learning Program. This will be the
first time ever that a 100% online course in Islamic finance is offered as part of an on-campus course. Enrollment for the award-
winning Islamic Finance Professional Development (IFPD) course is now open and online classes begin on January 15, 2011.
Ethica, the Dubai-based institute received the award nomination for "Best Islamic Finance Training Institution" in 2009 and
2010 by Islamic Business and Finance Magazine while La Trobe's Islamic Finance Professional Development (IFPD) course was
recipient of the prestigious ALTC 2010 Award.

Shariah hedging derivatives start in Malaysia

Standard Chartered Plc and Bank Islam Malaysia Bhd. plan to offer Shariah-compliant derivatives in Malaysia that will allow
investors to hedge against interest rates and commodity prices. Standard Chartered will begin selling contracts in the first quarter
of 2011, aimed to provide protection from fluctuations in the cost of items such as rice and oil. Bank Islam Malaysia, the country’s
oldest Islamic lender, will offer swaps that allow two parties to exchange different forms of payments from an underlying asset.

India launches Sharia stock index for Muslims

India’s Bombay Stock Exchange launched a share index of Sharia compliant companies on Monday in an attempt to open
stock-trading to more Muslims. The BSE TASIS Sharia 50 consists of the largest and most liquid Sharia-compliant stocks within
the BSE 500 index. All the companies have been vetted to ensure they comply with Islamic law, which does not allow investors to
put money into firms that benefit from interest or the sale of sinful goods such as alcohol, tobacco or firearms.
Companies included in the index have been screened by Taqwaa Advisory and Shariah Investment Solutions (TASIS), an
Indian Islamic finance company based in Mumbai, whose board members include Islamic scholars and legal experts.

Disclaimer: The news included here is on the basis of information obtained from local and
international print and electronic media sources. Publicitas (Pvt.) Ltd does not accept any responsibility
about their bona - fide.
VISIT : www.publicitas.com.pk/IFP
Page # 9
 Book in the Spotlight
‘Sarmaya Kaari ke Sharaii Ahkam’
(Shariah Principles of Financing)
By Mufti Syed Sabir Hussain
Review by Mahmood Shafqat
This book written by Mufti Syed Sabir
Hussain is a valuable contribution to the
Urdu literature on this subject. His work
deserves special praise because of the
young age at which he has completed this
onerous task. Further, despite his multi
faceted pre occupations including full time
services for an Islamic bank and a Takaful
company, completion of this book is
definitely a blessing from Allah and a result
of the grooming provided by his parents
and teachers.
An overview of this book brings to light
its various specialties, which distinguishes
it from other books on the subject. Some of
these are:
• Shariah principles related to Islamic
banking and finance have been
explained with the help of relevant
narrations from authentic sources.
• Most of the books related to Islamic
banking explain practical aspects of
Islamic finance but for understanding
of relevant principles of Shariah and
their basis, it is a valuable guide.
• Various issues have been explained
not only in the light of Holy Quran and
Sunnah but also from the resolutions
of OIC Fiqh Academy, Mejellatul
Ahkaam and various Fatawa including
those from Alamgeeri, Hidaya, Qazi
Khan and Razvia. Some worth
mentioning fatawa from Fatawa
Razvia include use of KIBOR as
An initiative of Publicitas (Pvt.) Ltd.
benchmark, Murabaha transaction
mechanism (which is wrongfully
believed by some to be a concocted
sale), appointment of client as agent
for purchase of goods, etc.
• Moreover, Shariah principles
regarding Muzara’a (Crop sharing),
Musaqaat, Waqf and Hibah and their
types have also been elucidated, which
are normally not found in the books on
Islamic banking and finance and are
valuable addition and guide for
Islamic bankers.
In this book a sincere effort has been
made to compile Shariah principles related
to Islamic banking in a concise manner,
which are particularly useful not only for
Islamic bankers and educational institutes
conducting special classes on Islamic
banking; but also for teachers, students
and researchers of the subject. Some
practical issues where scholars have a
difference of opinion have been explained
briefly which leaves room for more
explanation. It is hoped that next edition of
the book will explain them in more detail.
Fiqh terms relevant to Shariah
principles of Islamic banking and finance
have been defined in this book along with
some explanations. This aspect of the book
is particularly useful for teachers and
students of Madaris (Islamic learning
institutes) trying to understand books on
Islamic finance even though practical
bankers may find them somewhat difficult.
This book can be used as a reference
guide for bankers, students and teachers
since it explains Shariah regulations
commonly used by Islamic banks and
Takaful companies. Even though some
further details related to Takaful could
have been added and Takaful companies
stand to benefit from a book solely written
in their perspective.
These are some major points which
emerged from an overview of this book and
a detailed review can highlight other
significant aspects. Nevertheless, it can be
confidently said that this book is a valuable
addition to the Urdu literature related to
Islamic banking and can be of great help in
understanding its Shariah aspects.
Page # 10

Personality in the Spotlight
Mr. Zulfiqar Ali Khan
Mr. Zulfiqar Ali Khan is a professional
from the global Islamic finance industry.
He is the Director of Islamic Banking
Division, Da Afghanistan Bank (Central
Bank).
He did his Bachelor in Economics from
IIIE, International Islamic University
Islamabad, Pakistan, followed by a Master
in Islamic Banking & Finance from the
same university. He has also done various
professional certification courses in Islamic
Banking and Central Banking from BNM
Malaysia, IBFIM Malayisa, Central Bank of
Indonesia, NIBAF, Reserve Bank of India
and Central Bank of Turkey.
His current roles and responsibilities at
the Central Bank of Afghanistan include
determining direction of development of
Islamic banking in Afghanistan, setting the
high-level direction of each WG &
providing final approval of the working
charter, creating sound legal and Shariah
infrastructure, market development and
public awareness, introducing regulatory
and prudential policies for development of
"It is time we make a move from
individuals to institutions. It
could be a global Shariah
board…. the reason is people
deal with you on international
standards. You have to have the
right standards."
ADNAN YOUSIF
CHIEF EXECUTIVE, ALBARAKA BANKING GROUP
Islamic banking industry, monitoring
financial conditions of Islamic financial
institution to ensure compliance with laws,
regulations and guidelines, promoting
industry best practices and credit culture,
developing Shariah policies for the
industry, performing product reviews and
examination of Islamic banks. He is also
the Secretary to the Shariah advisory board
and advisor to the industry.
He chose the field of Islamic finance
because his academics comprise core
economics and Islamic finance discipline,
and he considers Islamic finance as a
system based on justice and the only
solution for current financial crisis. After
choosing Islamic finance as his career, he
laid the foundation and initiated Islamic
banking and finance in Afghanistan. He
considers it to be the responsibility of the
entire Muslim Ummah to work for the
promotion and development of Islamic
financial system.
Volume 2 Issue 1 | JANUARY 2011
Mr. Zulfiqar thinks that Islamic banking
and finance is growing very well around the
world and it is the only alternate to the
conventional system, especially in Muslim
countries. From the perspective of
Afghanistan, the main factor contributing
to the success and development of Islamic
banking is stronger support from the
Government organizations including Da
Afghanistan Bank (central bank), public
will and support for Islamic banking,
interest of commercial banks in Islamic
banking products and services. Today,
there are six commercial banks doing
Islamic banking while a few more are in the
implementation phase. Together, these
factors add up to the development of
Islamic banking in Afghanistan. But he
believes that there is still need to truly
understand Islamic finance and promote
the current interest towards the
development of Islamic banking and
finance in South-East Asia, Middle east
and Pakistan.
Page # 11
 Upcoming Events

Weekend Certificate Program at ICAP Karachi

2-30 January 2011

The Guidance Institute is conducting a one month weekend certificate program at ICAP, Karachi. The sessions will be conducted by
top Islamic finance industry professionals and leading Shariah scholars. The program uses a balanced combination of theory and real
life examples to give participants a rich understanding of the discipline. The program is reviewed and endorsed by ICAP Karachi and
carries 24 CPD Hours for ICAP Members. The workshop sessions will be held only on Sundays from 2nd to 30th January 2011.
The Guidance Institute was established in Nov, 2008. It is the research and training initiative of Hikmah Foundation, a not-for-
profit organization.

International Conference on
‘Islamic Business & Finance in Pakistan: The Present State and the Way Forward’
8-9 February 2011

Riphah Centre of Islamic Business is organizing an international conference on 8-9 February 2011 titled ‘Islamic Business & Finance in
Pakistan: The Present State and the Way Forward’. The conference is being held primarily in collaboration with Meezan Bank Limited
and support from Islamic Development Bank (IDB) and Islamic Research & Training Institute (IRTI), Jeddah and State bank of
Pakistan. Other collaboration and cooperation is being provided by Islamic banks, Islamic banking divisions of conventional banks,
Takaful companies, Ernst & Young Ford Rhodes Sidat Hyder, Publicitas and leading corporate sector entities among others.
The Conference would be a major event and will provide
an excellent platform for coming together of the Islamic KEY SPEAKERS / PAPER PRESENTERS:
economics, business and finance intellectuals, practitioners of • Dr. Abbas Mirakhor • Mr. Mahmood Shafqat
Islamic finance industry, Ph. D. / research scholars of the • Dr. Monzer Kahf • Mr. Amer Khalil ur Rehman
Universities and other stakeholders to discuss the
achievements, the challenges and issues faced, future
• Dr. Anas Zarqa • Dr. Shabbir
potential available, in the fields of Islamic business, banking • Dr. Mabid Ali Al Jarhi • Ms. Shazia Hasan
and finance. • Dr. Salman Syed Ali • Mr. Amjad Saqib
The areas to be discussed include Shariah compliant
business, Islamic business education, Islamic banking and
• Dr. Tariqullah Khan • Mr. Khaleequzzaman
finance, role of State institutions in Islamizing the economies, • Mr. Rustam M. Idrees • Dr. Zeeshan Ahmed
regulation and supervision of Islamic banking and finance • Dr. Munawar Iqbal • Mr. P.Ahmed
institutions and corporate governance in Shariah compliant
businesses. • Dr. Akram Laldin • Mr. Farhan Noor
• Dr. Muhammad Tahir Mansuri • Mr. Atiquzzafar Khan
• Mr. Riaz Riazuddin • Mr. Khawaja Amjad Saeed
For further details, please contact:
• Mr. Saleemullah • Sheikh Naeem
Muhammad Ayub (Conference Secretary General)
Riphah Centre of Islamic Business, • Mufti Hassaan Kaleem • Sheikh Hashim Ahmad
Riphah International University
Al-Mizan IIMCT Complex, 274-Peshawar Road,
• Mr. Shamim • Mr. Hamad Rasool Bhullar
Rawalpindi, Pakistan • Mr. Omar Mustafa Ansari • Prof. Iqbal Hashmi Advocate
muhammad.ayub@riphah.edu.pk • Dr. Shahid Hasan Siddiqi • Mr. Zakiuddin Ahmed
Dir. ph: + 92 51 5824747 |
Exchange: (051) 5125161-67; Ext. 284 | • Mr. Suhail Nadeem • Muhammad Javaid Ismail
Fax: + 92 51 5125169, 5125170 • Dr. Abdel Rehman Yousri

An initiative of Publicitas (Pvt.) Ltd. Page # 12