Banking in Islam

&
Riba Free Finance
Houses
 Bait-Al-Maal means "Door of

wealth
Hazrat Omer Farooq (R.A.), introduced
the concept of Bait-Al-Maal, as a system
for dealing with the state wealth and
financial affairs.
 Before the establishment Bait-al-Maal,
financial transaction for Trade and
Business were in practice But the
concept of banking do not exist as a |
Muslim’s life.
 Keeping deposits in trust for fixed period
or time without a return was in practice
and called as AMANA.
 Breach of trust in Amana was considered
 Financial house with title
as "Islamic Bank", is an
exploitation to Deen.
 It is morally and religiously unfair to
use name religion for commercial
purpose.
 It is to avoid that commodity or an
organization, titled with Islam, like
Islamic Bomb, Islamic Art or Islamic
Bank.
 Islam is a power and behind this
power, there is a strong and complete
economical and social system that is
 The principal and theories of
Islam
 Defined in the Holy Book and practically
exercised by Hazrat Mohammed (Peace Be Upon
Him)

 Islam is the only religion, which is based on

strong theories, which were practically
adopted by the Prophet (Peace Be Upon Him)
 Islamic Banking is not the actual name for
Riba Free Banking System
 Financial Houses classified in Islamic, should
consider the complications in affiliating their
name with Islam ignoring practically the
teachings of Islam.
“Islamic” does not justify as
title
 Mosque never been called as Islamic
Place of Worship. It is the place
where Muslims pray activities are
taken place.
 Financial institutions where money
matters are handled. These can be
handled on the teaching of Islam or
other religion. Provided that the
activities are only financial and not
religious or charitable.
 The activities should be purely based
on financial system either on interest
or non- interest.
 Imagine & visualize
activities of finance house that
are not transparent at any part
of the world
 Islam emphases the matters and
activities to be pure and transparent
between both the parties of the
transaction.
 If the basic essence of Islam is not
taken into consideration then there is
no right of the institution to call itself
as ISLAMIC.
 Islam as well all other religions
emphasis on transparency in the
 Ameen (Trustee)
Amanat (Belongings)
 Pre- Islamic as well as Post-Islamic era, safe
keeping of funds on behalf of the individual
or for the group are seen and the person
who keep theses funds are know as AMEEN
and the funds or the commodity are
called as AMANAT.
 Ameen used to be the trust worthy
person of the society and his position used
to be the respecting and in trust by all
means.
 Islam & Commercial
Activities
 Islam have the monetary activities of deposit and
Islam have the monetary activities of deposit and
trading, but institutional base financial activities
are not seen.
 Al-Quran and Hadiath did not classified the
institutionalize financial activities.
 On individual basis Hazrat Mohammad, May Peace Be
Upon Him was the Ameen. So were the four
KHALIPHS of Islam
 Prophet May Peace Be Upon Him entered into trade
financing transaction with his wife Hazrat Khatija
Al Kubra on Profit & Loss basis in written and pre-
determined all business terms and condition.
Excess over the Principal with wrong
intentions
 Excess over principal amount is
eliminated at various occasions
and treated as Haram (illegal) in
certain condition which are
explained as Riba & Interest.
 Using Force or Unfair means in
increasing the return on the
principal is unacceptable practice.
 Wrong means of earnings increase
at lender and decrease the
borrower.
 To earn a profit, four types
of methods
1. The owner uses the finance and any
increase and decrease in the volume
of finance is his responsibility.
2. To include second person or other's
finance in business on Profit & Loss
basis.
3. To invest without practical
participation and on the condition of
Profit & Loss Sharing basis with
others.
4. Financing made available on fixed
 Principle of Business
 Islamic Scholars were lucky and possess to
Holy Quran, which defines the principals of
trading, business and money matters which
were practiced by Prophet, Peace Be Upon Him,
 The Caliphs and the followers of Prophet May
Peace be Upon Him also use to do trading and

observe the principles that are define in

Islam as teaching of Holy Quran.
 Four Imams
School of Thoughts
Imam Malik,
Imam Shami,
Imam Raziq
Imam Hannefi
Are the four Scholars who gave their views in
accordance to their school of thought on
financial matters under Islamic Teachings.
 Rational Approach to
Islamic Financial
System
 Imam Abu Hannefi is flexible
and rational as he was engaged in
trans-oceanic trade and had practically
seen hardships of voyage.
 Keeping in view of all the difficulties of
trade and business, Imam Abu Hannefi
had drafted the principals of Islamic
Finance & Trading Practice that permit
and restrict the modalities.
 The principals developed by Imam Abu
 Islamic Financial
Movement
 Movement started from Egypt, in spite of the
government restrictions, penetrated the
masses
 Egyptian Scholars, Jurists, Economists and
Researchers kept developing interest free
financial system
 Egypt introduced Modaraba in place of
Qarad and developed three additional
financial modes that are known as
MUSHARKA, MORABAHA, and IJARA.
 These system can be associated in all type
of businesses related to Agriculture
 Riba Free Mode of
Financing
 Presently all the operations of so called
Islamic Finance Houses are based on
PAPER TRANSACTIONS
 Adding a word ISLAM or ISLAMIC with
the organization can give an imitation
affection for the religion
 Practically the entire system does not
transcend from words and figures,
written down on a paper
 Banking In Islam
 The concept of custodianship of
wealth is pre-Islamic practice and in
Islam it become as the adopted trend
to place the wealth with a person of
trust
 In the Jewish and Christian society
the wealth kept in custody for long
and short period and brought to
utilization in earning the return or
usage of wealth
 Safe keeping is Sensitive
assignment which cannot
be performed by ordinary
person
 The chances of loss and risk are
higher on individual custodianship
rather then an organized or
institutional custodianship.
 The modern banks are practiced on
the concept of custodianship
 Today banking practice is free from
all moral and social restriction
 Financial Matters of
Banks
 95% financial houses operates its
money matters on the bases of
Interest in the financial matters and
transactions
 99% finance houses, financial dealers,
financial services concerns and
professionals are involve in RIBA
practice in their daily financial
transactions
 Today every second financial house is
introducing the Islamic banking
division within their banking operation
 Does Islam have a
concept of banking and
banking practice
Verses of Holy Quran reviles that ends
revelation of Holy Quran: “Today We
Concluded your Religion on You,
Completely.”
 Associate Islam with commercially
practiced systems or commercial
organizations is also a Riba.
 Earning of such institutions with name of
any religion is the exploitation of
religion.
 Commercial Bank
 Elimination of Interest alone is not the
solution of converting conventional
banking into Islamic Banking.
 The only name that suits for such
financial institutions
 “Commercial Bank (Riba Free)”
 Socio-Commercial Bank
 Commercial Bank for Socio Finance
Development.
 For Riba Free Financial
Houses
 Hadiath that lead entire working of
the commercial life style including
banking.
 “When you involve in world affairs,
forget that you will die one day.
But if you perform your prayer,
keep in mind that this is your last
pray”.
 Riba Free Finance Houses

 The Jewish community is

the pioneer of financial
institutions
 Christian evolved the
banking system.
 Muslims adopted it as a part
of community welfare by
introducing Bait-Al-Maal
which means "Door of
 To be the Banker of

Bank
For an Islamic banking, the Chief of the
institution must keep this Hadiath in his daily
affairs and follow the following:
 He should be knowledgeable enough to
understand the two financial systems. Its theory
and Practice and handling to day to day affairs
of Riba Free Monetary System.
 He must be practicing Muslim and believe in the
viability of the system in which he is engaged.
 He must be an example to his subordinate and
has a sense and capability to face the day to
day transactions without Riba involvement and
to lead his team.
 The institutions system should be transparent
and follow the Shariah instructions and
bindings.