monetary policy and islamic banking

MONETARY POLICY AND ISLAMIC BANKING

• ARSLAN MEHMOOD BITF11M016

• ZAFAR IQBAL BITF11M024

• M.ABUBAKAR BITF11M052

• UMAIR YAQOOB BITF11M059

• UMER SHAFIQ BITF11M060

DEFINATION OF ISLMAIC BANKING & RIBA

BY :

RANA UMAR SHAFIQ

BITF11M060

WHAT IS ISLAMIC BANKING?

ISLAMIC BANKING IS DEFINED AS BANKING

SYSTEM WHICH IS IN CONSONANCE WITH

THE SPIRIT, ETHOS AND VALUE SYSTEM OF

ISLAM AND GOVERNED BY THE PRINCIPLES

LAID DOWN

“BY ISLAMIC SHARIAH”

WHAT DOES IT REALLY MEANS ?

IN PRACTICAL SENSE , ISLAMIC BANKING IS THE

TRANSFORMATION

OF CONVENTIONAL MONEY LENDING INTO

TRANSACTIONS BASED ON TANGIBLE ASSETS AND REAL

SERVICES.

WHAT IS THE PHILOSOPHY OF ISLAMIC BANKING?

THE PHILOSOPHY OF ISLAMIC BANKING TAKES THE LEAD FROM

ISLAMIC SHARIAH.ACCORDING TO ISLAMIC SHARIAH, ISLAMIC

BANKING CANNOT DEAL IN TRANSACTIONS INVOLVING

INTEREST/RIBA

WHAT IS MEANT BY RIBA?

THE WORD "RIBA" MEANS EXCESS, INCREASE OR ADDITION, WHICH

CORRECTLY

INTERPRETED ACCORDING TO SHARIAH TERMINOLOGY, IMPLIES ANY

EXCESS COMPENSATION WITHOUT DUE CONSIDERATION

(CONSIDERATION DOES NOT INCLUDE TIME VALUE OF MONEY)

VERSES OF QURAN (SURAH ALBAQARAH 2:278-9)

"O THOSE WHO BELIEVE; FEAR ALLAH AND GIVE UP WHAT STILL REMAINS OF THE

RIBA IF YOU ARE BELIEVERS.

BUT IF YOU DO NOT DO SO, THEN BE WARNED OF WAR FROM ALLAH AND HIS

MESSENGER.

IF YOU REPENT EVEN NOW, YOU HAVE THE RIGHT OF THE RETURN OF YOUR

PRINCIPAL; NEITHER WILL YOU DO WRONG NOR WILL YOU BE WRONGED."

KINDS OF RIBA

BY :

ARSLAN MEHMOOD

BITF11M016

WHAT ARE THE DIFFERENT KINDS OF RIBA?

THERE ARE TWO KINDS OF RIBA:

RIBA-AN-NASIYAH/RIBA-AL-QURAN

RIBA-AL-FADL

RIBA AN NASIYAH/RIBA AL-QURAN:

IT BENEFITS ONE THE COUNTERPARTIES IN THE

FORM OF A SURPLUS OR EXTRA AMOUNT DUE TO

DELAY OF DELIVERY OF HIS SIDE OF THE

TRANSACTION

HADITH MUBARIKA :

IT IS REPORTED BY HARITH IBE ABI USAMAH IN HIS MUSNAD THAT SAYYIDNA ALI

RADI-ALLAHU

ANHU REPORTEDLY REFERRED THAT THE HOLY PROPHET SAID:

ALAYHI WA SALLAM, SAID THAT:

"EVERY LOAN THAT DERIVES A BENEFIT (TO THE LENDER) IS RIBA"6.

سود ہےفائدہ ماخوذ ہر قرض ( قرض دہندہ کے لئے)

EXAMPLE OF RIBA-AL-NASIYAH/INTEREST

IF MR. A LENDS RS.100 TO MR. B (A BORROWER)

WITH A CONDITION THAT MR. B SHALL RETURN

HIM RS.110 AFTER ONE MONTH. IN THIS CASE, THE

EXTRA AMOUNT OF RS. 10 IS RIBA OR INTEREST.

RIBA-AL-FADL:

• A SURPLUS RIBA COMES INTO EXISTENCE IN A SALE

TRANSACTION THAT INVOLVES THE EXCHANGE OF ONE

RIBAWI COMMODITY (SUCH AS DATES, WHEAT, ETC) FOR

THE SAME TYPE OF COMMODITY BUT DIFFERENT

AMOUNT OR WEIGHT.

RIBA-AL-FADL(CONT..)

“HADITH MUBARIKA“

"GOLD FOR GOLD, SILVER FOR SILVER, WHEAT FOR WHEAT, BARLEY FOR BARLEY,

DATES FOR DATES AND

SALT FOR SALT, LIKE FOR LIKE, PAYMENT MADE HAND BY HAND. IF ANYONE GIVES

MORE OR ASKS

FOR MORE, HE HAS DEALT IN RIBA. THE RECEIVER AND GIVER ARE EQUALLY

GUILTY"

RIBA-AL-FADL: (CONT..)

DURING THE DARK AGES, ONLY THE FIRST FORM (RIBA AN

NASIYAH) WAS CONSIDERED TO BE RIBA. HOWEVER, THE

HOLY PROPHET (PEACE BE UPON HIM) ALSO CLASSIFIED

THE SECOND FORM

(RIBA-AL-FADL) ALSO AS RIBA.

INTEREST AND PROHIBTATION OF INTEREST

BY :

• MUHAMMAD UMAIR YAQOOB

• BITF11M059

WHAT IS INTEREST?

INTEREST MEANS GIVING AND/OR TAKING OF

ANY EXCESS AMOUNT IN EXCHANGE OF A

LOAN OR ON DEBT.

IS THERE ANY DIFFERENCE BETWEEN INTEREST AND

RIBA?

IT CARRIES THE SAME MEANING/VALUE AS THAT

OF RIBA AS DEFINED IN THE PREVIOUS QUESTION.

FURTHER, IT IS

NARRATED THAT “THE LOAN THAT DRAWS

INTEREST IS RIBA”

PROHIBITION OF RIBA/INTEREST

"AND BECAUSE OF THEIR CHARGING RIBA WHILE THEY WERE

PROHIBITED FROM IT." [SURAH AN-

NISAA 4-161]

PROHIBITION OF RIBA/INTEREST(CONT..)

RIBA/INTEREST HAS BEEN ABOLISHED IN THE THIRD VERSE OF

SURAH ALI-'

IMRAN. THE PROHIBITION OF RIBA IS LAID DOWN IN THE

FOLLOWING WORDS

MONETRY POLICY

BY :

• M. ABUBAKAR

•BITF11M052

MONETARY POLICY

DEFINITION:

“MONETARY POLICY IS CONCERNED WITH DECIDING HOW MUCH MONEY THE ECONOMY SHOULD HAVE OR PERHAPS MORE CORRECTLY DECIDING WHETHER TO INCREASES OR DECREASE THE PURCHASING POWER OF MONEY.”

ACCORDING TO MACCONAL:

“CHANGING THE MONEY SUPPLY TO ASSIST THE ECONOMY TO ACHIEVE A FULL EMPLOYMENT”

OBJECTIVE

OBJECTIVES ARE CLASSIFIED IN TWO ASPECTS :

• UNDER DEVELOPED COUNTRIES

• DEVELOPED COUNTRIES

UNDER DEVELOPED COUNTRIES

• TO ACHIEVE FULL EMPLOYMENT

• TO HAVE HIGH EFFICIENCY

• TO HAVE LARGE SCALE OF RESOURCES MOBILIZATION

• TO INCREASE EXPORTS

• TO HAVE HIGH INVESTMENT

• TO PROVIDE PRICE AND EXCHANGE STABILITY

• TO HAVE EFFICIENT ALLOCATION AND UTILIZATION OF RESOURCES

• TO RAISE LIVING STANDARDS

DEVELOPED COUNTRIES

• TO HAVE HIGH AGGREGATE DEMAND WITHOUT INFLATION

• ERADICATE INFLATIONARY AND DEFLATIONARY GAP

• HIGH RESEARCH/ FURTHER DEVELOPMENT

• PROVIDING ASSISTANCE TO OTHER COUNTRIES

• GAINING MONETARY CONTROL OVER OTHERS

TYPES OF MONETARY POLICY

• CONTRACTIONARY / TIGHT MONETARY POLICY

“TIGHT MONETARY POLICY, ALSO CALLED CONTRACTIONARY MONETARY

POLICY, TENDS TO CURB INFLATION BY CONTRACTING/REDUCING THE MONEY

SUPPLY”

• EXPANSIONARY /EASY MONETARY POLICY

“EASY MONETARY POLICY, ALSO CALLED EXPANSIONARY MONETARY POLICY, TENDS

TO ENCOURAGE GROWTH BY EXPANDING THE MONEY SUPPLY

TOOLS OF MONETARY POLICY

BY :

• ZAFAR IQBAL

• BITF11M024

TOOLS OF MONETARY POLICY

QUANTITATIVE TOOLS

OPEN MARKET OPERATIONS

BANK RATE

CASH RESERVE REQUIREMENT

LIQUIDITY RATIO

QUALITATIVE TOOLS

CREDIT RATIONING

CREDIT CEILING

DIRECT ACTION

ADVERTISEMENT

TARGETS FOR MONETARY POLICY:

• EMPLOYMENT, ECONOMIC GROWTH, AND INflATION CAN NOT

CONTROL DIRECTLY, IT MUST CHOOSE SETTINGS, OR TARGETS,

FOR VARIABLES THAT IT CAN CONTROL IN ORDER TO BEST

ACHIEVE ITS GOALS.

• IN PRACTICE, THERE ARE TWO TYPES OF TARGETS:

1. MONEY SUPPLY TARGETS.

2. INTEREST RATE TARGETS.

TARGETS FOR MONETARY POLICY

TARGETS FOR MONETARY POLICY

MONEY SUPPLY TARGETING

LIMITATIONS OF MONETARY POLICY:

1) TIME LAGS• TIME TAKEN IN – IMPLEMENTATION AND WORKING

• ‘INSIDE LAG’ OR PREPARATORY TIME

• ‘OUTSIDE LAG’ OR RESPONSE TIME

• IF THE TIME LAG ARE LONG, THE POLICY MAY BECOME INEFFECTIVE

• THE RESPONSE TIME LAG OF MONETARY POLICY ARE LONGER THAN FISCAL POLICY

2) PROBLEM IN FORECASTING• ITS IMPORTANT TO FORECAST THE EFFECT OF MONETARY ACTIONS

• HOWEVER PREDICTION OF THE OUTCOME AND FORMULATION OF THE POLICY IS A DIFFICULT TASK

3) NON- BANKING FINANCIAL INTERMEDIARIES

HUGE SHARE IN FINANCIAL OPERATION REDUCES THE EFFECTIVENESS OF MONETARY POLICY

4) UNDERDEVELOPMENT OF MONEY AND CAPITAL MARKET

MARKETS ARE FRAGMENTED, UNORGANISED AND DOES WORK INDEPENDENTLY