Project ON

I SLAMIC B ANKING

Islamic Islamic
Banking Banking

Islamic
Bankin
g

MBA (Banking & Finance) 4th Term, Session 2009-2011

Submitted ByClass Roll NumberExam Roll
NumberRomana NargusA-1462
Submitted To
$ir. Amanullah Khattak
 DECLARTION
E C L A R T I O N

I declare that this project report entitled “Evaluation of Islamic Banking” is

original and bonafide work of my own in the partial fulfillment of the

requirements for the award of the Degree of MASTER OF BUSINESS

ADMINISTRATION (Banking & Finance) and submitted to the Department

of Business Administration, Gomal University Dera Ismail Khan,

Khyber.Pakhton.Khwa.

The data that has been collected by me is truly authentic and contains true and

complete information.

Romana Nargus
Class Roll No A-1
Exam Roll No 462
 ACKNOWLEDGEMENT
C K N O W L E D G E M E N T

All praise to ALLAH, the most merciful, kind and beneficent,

and the source of all knowledge, wisdom within and beyond our
comprehension. He is the only God, who can help me in every
field of life. All respect and possible tributes goes to my Holy
Prophet Mohammad (SAW), who is forever guidance and
knowledge for all human beings on this earth.

I am proud to say that I am very grateful to my family whose kind

prayers and cooperation helped me at every step of my work. Special
thanks go to my formative Teacher’s for their cooperation for the sake
of our knowledge.

Romana
Nargus
WHAT IS BANKING?
In general terms, the business activity of accepting and safeguarding money owned by other
individuals and entities, and then lending out this money in order to earn a profit.

WHAT IS ISLAMIC BANKING?

Islamic banking is a banking activity which is consistent with the Islamic law (Shariah), known
as Fiqh-e-Muamalat (Islamic rules on transactions).The rules and practices of Fiqh-e-
Muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law
such as opinions collectively agreed among Shariah scholars (Ijma’), analogy (Qiyas) and
personal reasoning (Ijtihad).

PHILOSOPHY OF ISLAMIC BANKING

• A system of financial activities consistent with Shariah, based on Islamic principles which at
the core refuses collecting interest, transactions involving uncertainty and speculation.
Anything else, which the Shariah (Islamic Law) deems Haram (unlawful)
• It is based on the Islamic economic system.
• It is not restricted to Muslims only.

WHY ISLAMIC BANKING?

Islam is a complete code of life that provides guidance regarding each aspect of life.
The primary objectives of Islamic banking are….
 Equal Distribution of wealth.
 Social Justice.

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WHY IT DIFFRERENT FORM CONVENTIONAL BANKING?
Islamic banks deal with the assets management for purpose of income generation .Depositors
will receive halal income against the trading being done by banks on halal basis.
HALAL means permitted according to shari’ah.
SHARI’AH means Islamic law which is derived from various sources – The primary source is the
Quran. In order, the secondary sources include, the Hadith, the Sunnah, Ijma’ (consensus of
Muslim scholars), Qiyas (analogy) and Ijtihad (personal reasoning) of the Muslim jurists. It covers
every aspect of life. The term is used to refer to the Islamic law.

EVALUATION OF ISLAMIC BANKING

To understand Islamic Banking necessitates understanding its roots. This is so because any
Paradigm is always constructed on preceding foundations. If the foundations are strong the
institution is strong also. The whole picture of Islamic banking cannot be visualized until its
foundations are not explored historically.
During the Islamic Golden Age, early forms of capitalism markets were
present in the early Islamic Kilafath, where an early market economy and an early form of
mercantilism were developed between the 9th-12th centuries. The Islamic Financial sectors,
which are includes, Islamic banks, Islamic Windows, Islamic non-banking financial institutions,
Fund management institutions and Islamic Mortgage companies.
There no longer confined to concept and ideas only with the first half of the 20th century. It is
more or less is an obstruct concept but now it has been given practical shape with various models
and modes.
ORIGIN OF ISLAMIC BANKING
• The first Islamic institution in Malaysia was the Muslims Pilgrims Savings Corporation
set up in 1963.
• The first modern experimentation with Islamic banking was undertaken by Ahmad-El-
Najjar, in the Egyptian civic of Mit Ghamr in 1963. Offering interest free banking in
Egypt, this bank and branches were faced to close due to perceived threats by the
Administration.
• In the seventies, a number of Islamic banks came into reality in the Gulf, e.g.
• The Nasir Social Bank, incorporated in Egypt in 197l, was acknowledged an interest-free
commercial bank.
• The Philippine Amanah Bank (PAB) was established in 1973, operates two windows for
deposit transactions in commercial and Islamic.

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• The Islamic Development Bank (IDB) was established in 1974 by the Organization of
Islamic Countries (OIC), but it operations are free of interest and are openly based on
Shariah principles. The evolution of the interest free banking concept to the 1970s when
economics of Arab countries had started experiencing huge financial benefits from price
hike in the petroleum products.
• The Dubai Islamic Bank (1975) the first modern commercial Islamic Bank opened.
• The Faisal Islamic Bank of Sudan established in (1977).
• The Faisal Islamic Bank of Egypt established in (1977).
• The Bahrain Islamic Bank established in (1979).
• In 1979 Pakistan becomes first nation to "Islamize" banking practices at state level.
• In July 1983 Malaysia opens its first official shariah-compliant bank, Bank Islam
Malaysia. Other banks also offer Islamic products and are supervised by the central bank,
which is advised by a board of shariah scholars.

• September Sudan reforms banking system on Islamic principles after President Jaafar al-
Numeiri establishes shariah-law. Dual banking system develops, Islamic in the north,
conventional in the south.

• In March 1984 Iran switches to interest-free banking at national level after passing a 1983
Islamic Banking law that was promised in the 1979 Islamic revolution.

• By 1985 Islamic financial products offered by more than 50 conventional banks around
the globe. Other major banks follow by the 1990s.

• The Feb 26, 1990 International Islamic accounting standards Organization, the
Accounting and Auditing Organization for Islamic Financial Institutions, established in
Bahrain by the IDB.

• In 1991 Indonesia's first officially-sponsored Islamic bank, Bank Muamalat, established.

• By 2000 About 200 Islamic financial institutions have over $8 billion in capital, over
$100 billion in deposits, and manage assets worth more than $160 billion, according to
economist Mohammad Nejatullah Siddiqi.About 40 percent are in the Middle East,
another 40 percent in South and Southeast Asia, and the remaining 20 percent are split
between Africa, and Europe and the Americas.

• In 2001 Malaysia's Financial Sector Master plan sets target for Islamic finance to make
up 20 percent of finance sector by 2010. By 2009, its share of financial assets is about 17
percent.

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 • In 2002 International standard setting Organization the Islamic Financial Services Board
established in Kuala Lumpur.

• In 2004-2008 Investor interest in Islamic finance products grows strongly amid steady
rise in oil prices and petrodollars flowing through oil producing states. World oil prices
peak at over $147 per barrel in mid-2008 before sliding sharply.

• The Sept 2004 Islamic Bank of Britain - the country's first shariah-compliant high street
bank opens in London.

• The Nov 2006 Dubai's main stock exchange, the Dubai Financial Market, announces it is
restructuring itself into world's first Islamic bourse.

• The In 2008 Global credit crisis and economic slowdown send conventional financial
markets into steep tailspin and have chilling effect on Islamic finance as investors avoid
risk and asset prices tumble. New Islamic bond issuance falls two-thirds to a three-year
low of $15.77 billion, Islamic Finance Information Service says.

• In Jan 2009 Singapore launches first Islamic bond program as it vies with Malaysia for
market share.

• In Feb 2009 Indonesia, the world's most-populous Muslim country, sells its first retail
sharia-compliant bonds, or sukuk.

LIST TOP ISLAMIC BANKS IN PAKISTAN

• Dawood Islamic Bank Limited

• Dubai Islamic Bank Pakistan limited
• Meezan Bank Premier Islamic Bank In Pakistan
• AlBaraka Islamic Bank (Merged into Al Baraka Bank (Pakistan) Limited)
• BankIslami Pakistan Limited
• Emirates Global Islamic Bank

OVER VIEW OF ISLAMIC BANKING IN PAKISTAN

 Islamic Banking is growing rapidly in Pak it has been expected that by 2012 total share in
banking sector will be 12%.
 Present Islamic Banking share is 5%
Growth Rate is 50%

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  Assets Rs 276 Billion (asset base of entire Banking System Rs 5,653 Billion)
 Profit Rs 1.8 Billion Dec-10
 Deposits Rs 201.7 Billionn (17.7%)

GROWTH OF ISLAMIC BANKING IN PAKISTAN

(in $ Billions)
Year 2009 2010 2011 2012 2013 2014
Total Asset Size 650 1000 1414 2000 2828 4000
Annual Growth (%) - 54% 50% 50% 50% 50%

Text References
∗ Islamic Banking & Finance theory & Practice by Muhammad Ayub.
∗ http://www.meezanbank.com/docs/GIBcomplete.pdf

Web References
 www.google.com
 www.scribd.com/shanza malik

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 www.slideshares.com

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