Project on Meezan Islamic Bank

In 1980 a Constitutional amendment by General Zia ul Haq's regime introduced a new hierarchy of Islamic Courts. This hierarchy consisted of a Federal Shariat Court (at the level of High Court, the highest judicial forum in a Province) and a Supreme Court Shariat Appellate Bench (at the level of the Supreme Court of Pakistan, the highest judicial forum in the Country) as its sole appellate forum. The Federal Shariat Court was given the power of declaring any law repugnant to the Injunctions of Islam. In case of such a declaration, subject to appeal to the Supreme Court Shariat Appellate Bench, the said law would cease to exist on the date mentioned in the decision declaring it so. However, the Federal Shariat Court's jurisdiction was barred for ten years after its establishment from examining and declaring repugnant any fiscal, tax or banking law. This restriction was to expire on 25.06.1990.

In 1991, two important events took place. First, General Zia's regime promulgated the Shariah Act, which declared Islam as the supreme law of the land. Second, the Federal Shariat Court declared interest equivalent to “riba”, thus un-Islamic and illegal. Although the General Zia's Government had already announced in 1984 that all banks will adopt Islamic modes of financing and would eliminate riba (interest) from Pakistan, yet it had not been done in true spirit. After declaring its verdict in 1991, the Federal Shariat Court directed that all kinds of transactions, whether national or international and whether Governmental or private, had to take place on a non-interest basis. The Government and others filed appeals against this judgment, as a result of which the execution of the judgment was stayed. Only in 1999, after about eight years, did the Shariat Appellate Bench of the Supreme Court of Pakistan suddenly took up this matter and did not even allow the Government to withdraw it.

On 23.12.99, within 9 weeks of the military takeover of the Pakistan Government on 17.10.99, the Shariat Appellate Bench of the Supreme Court upheld the Federal Shariat Court ruling and declared interest illegal. The Court held (in its detailed judgment consisting of more than 1,000 pages) that any increase or gain over and above the principal amount of loan is riba, thus un-Islamic. In this regard, the Court declared there was no difference between the commercial loans for productive purposes and personal loans for consumptive purposes. Riba covered both usury and interest and thus applied to both exorbitant and minimal rates of interest. The Court declared that interest is riba regardless of whether a given transaction took place between rich, poor, Muslims, non-Muslims, or any combination of such parties. The Court further held that interest charged by banks or financial institutions or individuals today is riba, thus un-Islamic and illegal. The true alternative to interest, said the Court, is Profit and Loss sharing based on musharika (joint venture), modaraba (mutual investment fund) and morabaha (cost-plus financing). The Court also endorsed certain other non-interest based modes of financing such as ijara (lease), Salam (sale) and istisna (a contract of acquisition of goods by specification or order, where the price is paid progressively in accordance with the process of a job completion).

Keeping in mind the huge foreign debt liabilities of Pakistan, the Court held that foreign debts are liabilities of special nature. It was stated in the judgment that these cannot be exempted from the prohibition against interest. The Court held, however, that this does not mean that foreign liabilities should be shunned. The Court suggested that Government should discuss some new arrangements for the foreign loans with the lender Governments and organizations. The Court allowed some time for conversion of foreign transactions into riba-free mode.

The Court acknowledged that to lay down economic and monetary policies and to frame laws is not its responsibility. On the insistence of the Government and taking advantage of large number of expert opinions, the Court has nonetheless provided detailed guidelines for establishment of an interest- free economic and legal framework in accordance with the injunctions of Islam. These guidelines include, among others, enactment of laws to provide for necessary prudential measures to ensure transparency, inter alias, along with the lines of the Freedom of Information Act, the Privacy Act and the Ethics Regulations of the United States, and the Financial Services Act of the United Kingdom; establishment of institutions like the UK serious Fraud Office to control white collar economic crimes; establishment of credit rating agencies in the public sector, establishment of a system of evaluators for scrutiny of feasibility reports, etc.

Of the laws declared illegal, the Court specified some (mainly concerned with money lending) that would cease to have effect from 31.03.2000 and others that would cease to have effect from 30.06.2001. Although a nationalized bank has filed a review petition against the judgment, the Government has accepted the verdict and has shown its willingness to implement it

Tipu Salman Makhdoom
JURIST Pakistan Correspondent

 U turn by Supreme Court.

Pakistan's Supreme Court has reversed its own ruling that outlawed charging interest on bank transactions as un-Islamic.


The case has been referred back for further deliberation

The Islamic or Shariat bench of Pakistan's Supreme Court in 1999 ordered the government to abolish the interest charges, known as "riba".

The u-turn comes just six days ahead of the deadline set by the Supreme Court for financial institutions in the country to adopt the Islamic system of banking.

A number of financial institutions had warned the government the new system was not viable and some of the foreign banks hinted they might have to shut down their operations in the country.

Financial appeal

The court's original ruling more than two years ago clearly stated that all forms of interest charged during the financial transactions falls into the category of riba, which according to the Islamic teachings, is forbidden.

An appeal by Pakistani banks for the court to review its earlier decision was backed by the government, which claimed the initial ruling was flawed and that modern banking was not against Islamic principles.

The government also argued interest-free banking would create a financial anarchy in the country.

The country's Conservative Islamic Lobby was outraged and some religious groups sent their own lawyers to defend the earlier ruling.

Despite the court's u-turn, it has sent the case back to the Federal Shariat Court to start fresh hearings.

Analysts expect this may take several more years, giving the government some breathing space to carry on with its policies to try to revive the country's faltering economy.

The point that I am trying to make here is simply this.

The whole idea that Interest Free society can not exist, or Riba is a Mullah issue is invalid. Supreme Court listened to economists from all side, and agreed that interest free frame work is practical. Later obviously due to the pressure from the govt. they took a U turn.

Few months back, Dr Israr's Quran Academy organised a 3 day seminar on Possibiity of Riba Free economy, where a Supreme Court judge (justice Wajih) and various other specialists gave their opinions on the issue. Those who are interested can get the VCD of the seminar from the Quran Academy located in Model Town.

He stated this here on Monday inaugurated the First Islamic Banking Certificate Course at the National Institute of Banking and Finance (NIBAF), Karachi Campus.

"We would provide level playing field for the conventional and Islamic banking in the country," Mr. Hussain said.

Islamic banking would run parallel to the conventional banking and it is up to the people of Pakistan to choose which type of banking they would adopt, he said and added 'We need to encourage growth of genuine Islamic Banking in the country'.

Dr. Ishrat Hussain said the State Bank of Pakistan has taken a number of steps for the promotion of Islamic banking in Pakistan, which includes the issuance of licenses to Islamic banks, Islamic banking branches and setting up of subsidiaries by commercial banks for Islamic banking.

The SBP has issued the Essentials and Model Agreements of Islamic Modes of Financing as recommended by the Commission for Transformation of Financial System and approved by the Shariah Board of the SBP to ensure observance of Shariah principles by the institutions conducting Islamic banking in Pakistan.

He urged the participants of the Course to thoroughly study the Essentials and also the Agreements and get any clarification, if needed, from respective Resource Persons of the Course.

With the increased demand for Islamic banking in the country, there is a need of trained bank staff with the right qualifications to undertake Islamic banking based on Shariah principles and methodologies, he added.

The participants should proactively participate in the course. "Do not accept knowledge in a passive manner. Clarification of concepts and questioning the rationale for various processes and procedures will be helpful in the sustainable growth of Islamic banking in the country," the Governor added.

Dr. Ishrat Hussain said the course is initially being offered to the existing staff of Islamic Banks and Islamic Banking branches operating in Pakistan.

The NIBAF will gradually open the course to different groups on the basis of their role in promoting Islamic banking in the country, he added.

The certificate course will go a long way in capacity building and fill in the immediate and pressing need for qualified and trained manpower for Islamic banking industry in Pakistan, Dr. Ishrat Hussain said.

The course, comprising 15 modules, is very comprehensive and has been designed in consultation with Islamic banking experts and Shariah scholars from within the country and the Islamic world.

Thirty-four participants from different banks are attending the course, which will conclude on September 28, 2005.

Dr. Mahmood Ahmad Ghazi, President, International Islamic University, Islamabad and Chairman, Shariah Board of State Bank of Pakistan, senior bankers and heads of Islamic Banking Divisions of banks.

Earlier, the Managing Director, NIBAF, Islamabad, Kazi Abdul Muktadir presented the address of welcome. The Head of Islamic Banking, NIBAF, Karachi, Mr. Muhammad Ayub also spoke on the occasion.

When the news came on July 2, 1997, that the government has decided to take back its appeal filed with the Appellate Bench of the Supreme Court in 1991 against the decision of the Federal Shariah Court, that decreed the provision of interest in a number of fiscal laws as repugnant to Shariah, the immediate feeling was as if the government has at last realized its mistake. Details of the news, however, revealed that it was all monkey-trick aimed at sabotaging the FSC’s historic decision. That is why the FSC has been asked to review and grant two years, provide interim relief, frame detailed guiding principles and give workable solution for eliminating interest from all transactions. FSC is further asked to indicate why and how a certain law would be declared un-Islamic. A very dark picture is painted as to what will happen in the areas of external loans and trade, if we go interest-free. FSC has further been demanded to constitute a bigger bench, as if the three member bench of 1991 was not enough, or able, or authorized to give the decision. Lastly, the question has been raised whether the FSC could declare un-Islamic any provision in vogue. Shortly, the FSC has been sufficiently harassed.

The government’s decision has ended up in a serious controversy. Registrar, Supreme Court announced that the petition could not be withdrawn ‘technically’, without the bench’s permission. Reportedly, the Chief Justice of Pakistan observed that the tone and tenor of the language used in the government’s application was ‘inappropriate and unfair’ and that its certain paragraphs were ‘intriguing’. Ironically, however, the FSC has admitted the review petition filed by the government and FSC Chief Justice ordered issuance of notices to the respondent. What one feels is that the government was not much hopeful about the fate of its appeal before the Shariah Appellate Bench and tossed it back to FSC after five years, raising new questions and issues to kill some more time. Through this new game, the government expects its beloved ‘system’ will survive and that hopefully the fresh decision of the FSC might turn out to be different from the past.

The manner the appeal has been withdrawn by the government gives the impression as if the 1991 decision of the FSC was incomplete and taken in haste without first duly considering its impact on the country’s economy and its relations with international community. Given below is a brief account of the great pains taken and strenuous efforts made by the three-member FSC bench, headed by Mr. Justice Tanzilur Rehman which decreed that the provisions of interest in a number of fiscal laws came under the definition of ‘riba’ and were thus repugnant to the Shariah:

a) The FSC disposed 115 petitions that challenged the legality of interest in 20 fiscal laws besides three ‘suo moto’ Shariah notices.

b) The FSC got the mandate to admit petitions, on 25th June, 1990, before which the fiscal laws were kept out of its jurisdiction for over 10 years, through successive constitutional amendments by the government. The FSC admitted the first petition on December 11, 1990 and the hearing continued for almost one year till October 24, 1991. The judgment was announced on December 7, 1991.

c) The FSC judgment is a voluminous document, consisting 564 foolscap pages, the text covering 298 pages. It has two appendices. Appendix ‘A’ contains replies to the questionnaire issued by the FSC to 12 distinguished scholars, economists, bankers and jurists, both within Pakistan and abroad. Appendix ‘B’ gives extracts from the report of the Council of Islamic Ideology on ‘Elimination of Interest from Economy’ (1980).

d) The FSC based its conclusions on various Quranic verses, Ahadith of Prophet (p.b.u.h.), opinions of the jurists and various Arabic language dictionaries. It quotes from Lane’s Lexion, Taj al-Arus al-Nihaya (Ibn-e-Athir), A Dictionary of Islam by Patrick Hughes. Among the exegesis (tafaseer) it quotes from Tabari, Ibn Arabi, al-Jassas, Sabuni, Sayyed Qutb, Mawdudi, Mufti Shafi and al- Muntakhab fi Tafsir al Qur’an al-Karim (Egypt). In Hadith, the judgment refers to Imam Malik, Muslim, al-Bayhaiqi, Ali al-Muttaqi, Abu Dawud and Ibn-Hanbal.

It cites from Hidaya - the famous book of Hanafi fiqh. Other fiqhy sources are the resolutions of Fiqh Academy of India and Islamic Fiqh Academy of OIC countries. From the contemporary scholars, the judgment benefits from Hamidullah, Fazlur Rehman Ansari, Maulvi Fazlur Rehman (Aligarh) and Abraham Udovitch. The judgment brings ample evidence from historic sources that loans in vogue in the days of the Prophet (p.b.u.h.) were of commercial nature. Of economists, it refers to the report of ‘Panel of Bankers and Economists’ issued by the CII in 1980.

e) The judgment also examined view point of a council which tried to confuse the issue by contending that ‘riba’ falls into the category of ‘Mutashabehat’ and proved beyond doubt that the matter falls in the classification of ‘Muhkamat’, and being a clear Quranic injunction cannot at all be subjected either to ‘Maslaha’ or’ ijtihad’.

The above brief review of the FSC’s efforts and endeavours make ample proof that its decision of 1991 was not recorded in a hurry. The size and coverage of the judgment leave no room for doubt that it discussed threadbare every concerned area and aspect. It was now for the government to clearly tell how and in what specific areas it felt the original judgment was really lacking, thus giving rise to the necessity of review.

A fact of the matter is, why should the FSC be asked to provide answer to every conceivable question and also suggest workable alternative system, more so because the government does not guarantee at all it will accept without hesitation what the FSC would propose at the end. It only promises to consider the alternative systems. In the 1991 judgment of the FSC, the government was given six months to come up with appropriate amendments in the law and initiate practical steps. Let the government inform the nation what its Law Ministry and numerous other organs concerned did since then, and why instead of implementing the judgment, it was blocked for five years through appeal in the Supreme Court. Having spoiled so much precious time, it is now said that the judgment is incomplete and non-workable. We welcome with pleasure the observations of the Chief Justice of Pakistan and make further humble submission that the government should not be allowed to withdraw its appeal and let now the Appellate Bench hear and decide the case on pure merit.

In the view petition, the government has tried to take an ‘innocent’ position by pleading that certain areas needed further clarification. In fact these areas, whatsoever, were the responsibility and domain of the government and not the FSC. We have already noted above that the FSC Bench went much farther than the questions raised before it in the petitions and even proposed alternative modes. If even we accept what the government now says, then it means there are areas which the FSC has covered adequately and for good. Let the government implement that part of the judgment, which concerns interest on internal loans and the government sponsored schemes. After all, in the review petition, most objections are raised about the external loans and international trade. If, therefore, it will give an indication that the government was now ready to announce at least ‘temporary cease fire’ in over 50-years long futile and criminal ‘war against Allah and His Prophet (PBUH)

let us here clarify one point. Elimination of ‘riba’ never means zero-returns on capital. What Islam forbids is a ‘fixed pre-determined return for a certain factor of production that shares no risk’. Islam has not denied the productivity of capital, but does provide a fresh approach in which all factors receive variable return based on actual performance.

Also it is not something as novel or naive as the government through its apprehensions attempts to project. The world is well aware of the venture capital, as it knows and deals with loan capital. With the advent of Islamic Banking in 1970s, a number of international institutions and organizations indicated the openness that we as Muslims, expect from bankers and investors. Even the IMF, World Bank and IFC have been showing interest in the alternate arrangements for participation of capital and entrepreneurship. We are, therefore, not talking in a language foreign to the professionals and secular institutions and bodies.

Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind.

To be a premier Islamic bank, offering a one-stop shop for innovative value added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders' value through an organizational culture based on learning, fairness, respect for individual enterprise and performance

To develop a committed service culture which ensures the consistent delivery of our products and services within the highest quality service parameters, promoting Islamic values and ensuring recognition and a quality banking experience to our customers.

General Pervez Musharraf President of Pakistan
Meezan Bank Inauguration,

September 2002

Meezan Bank Limited is a publicly listed company first incorporated on January 27, 1997. It started operations as an investment bank in August of the same year. In January 2002 in an historic initiative, the State Bank of Pakistan granted Meezan Bank the nation’s first full-fledged commercial banking license dedicated to Islamic Banking.

Meezan Bank stands today at a noteworthy point along the evolution of Islamic Banking in Pakistan. The banking sector is showing a significant paradigm shift away from traditional means of business and is catering to an increasingly astute and demanding financial consumer who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services.

The Bank has made fundamental and significant progress forward, and in doing so has established a strong and credible management team comprised of experienced professionals, which have achieved a strong balance sheet with excellent operating profitability, including a capital adequacy ratio that places the Bank at the top of the industry, a long-term entity rating of A+, and a short-term entity rating of A1.

The Bank's main shareholders are leading local and international financial institutions, including Pak-Kuwait Investment Company, the only AAA rated financial entity in the country, the Islamic Development Bank of Jeddah, and the renowned Shamil Bank of Bahrain, that in addition to their strength and stability, add significant value to the Bank through Board representation and applied synergies. 

The Bank has an internationally renowned, very high caliber and pro-active Shariah Supervisory Board presided over by Justice (Retd.) Maulana Muhammad Taqi Usmani, a renowned figure in the field of Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic Fiqh Academy, Jeddah and in his long and illustrious career has also served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan. The Bank also has a resident Shariah advisor, Dr. Imran Usmani, who strictly monitors the regular transactions of the Bank. The board also includes Sheikh Essam M. Ishaq (Bahrain), and Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia). 

At Meezan Bank, we strive to find commonalties with the conventional banking system with absolutely no compromise on Shariah rulings. The bank has developed an extraordinary research and development capability by combining investment bankers, commercial bankers, Shariah scholars and legal experts to develop innovative, viable, and competitive value propositions that not only meet the requirements of today's complex financial world, but do so with the world-class service excellence that our customers demand, all within the bounds of Shariah.  

Furthermore, the Bank has built a strong Information Technology and customer knowledge-based focus that continues to use state of the art technology and systems. The Bank's Corporate and Investment Banking business unit is geared towards nurturing and developing a long-term relationship with clients by understanding their unique financing requirements and providing Shariah compliant financing solutions across the horizon of corporate banking and structured finance. 

The Bank is also implementing robust and aggressive strategic and tactical initiatives on the consumer banking side. The Bank has a rapidly growing branch network across all major cities nation-wide. Providing our customers accessibility and convenience is a prime target, within an atmosphere and culture of dedicated service and recognition of their needs. 

We believe in adding value to our customers' lives and businesses through dynamic and competitive products and services that fulfill their needs while conforming completely with the dictates of Shariah. At the same time, we endeavor to deliver competitive risk adjusted returns to our stakeholders

Our branches are conveniently located across the country in Karachi, Hyderabad, Quetta, Lahore, Sialkot, Gujranwala, Kasur, Rawalpindi, Faisalabad, Multan, Peshawar and Islamabad.

The members of the Shariah Board of Meezan Bank are Internationally renowned scholars serving on the boards of many Islamic banks operating in different countries.

The members of the Shariah Board are:

Justice (Retd.) Muhammad Taqi Usmani

Dr. Abdul Sattar Abu Ghuddah

Sheikh Essam M. Ishaq

Dr. Muhammad Imran Ashraf Usmani - Shariah Advisor

Justice (Retd.) Muhammad Taqi Usmani is a renowned figure in the field of Shariah, particularly in Islamic Finance. Currently he holds advisory positions in a number of financial institutions practicing Islamic Banking and Finance.

Justice (Retd.) Muhammad Taqi Usmani has vast experience in Islamic Shariah, he has been teaching various subjects on Islam for 39 years. He also served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan from 1982 to 2002. He is also the Editor of the magazine ‘Albalagh’ (a weekly publication of Jamia Darul Uloom, Karachi). He also contributes articles in leading Pakistani newspapers.

Born in Pakistan, Justice (Retd.) Muhammad Taqi Usmani did graduation from Punjab University in 1970. He also holds an LLB from Karachi University. Prior to that, he completed ‘Takhassus’ course, that is the specialization course of Islamic ‘Fiqh’ and ‘Fatwa’ (Islamic Jurisprudence) from Jamia Darul Uloom Karachi.

In March 2004 His Highness Sheikh Mohammad Bin Rashid Al Maktoum (Dubai Crown Prince and UAE Minister of Defense) presented a special award to Justice (Retd.) Muhammad Taqi Usmani in recognition of his lifetime service and achievement in Islamic Finance at the occasion of International Islamic Finance Forum, Dubai, which is one of the biggest events in Islamic Finance Industry.

Other positions currently held:

Permanent Member International Islamic Fiqh Academy, Jeddah

Vice President, Darul Uloom Karachi

Chairman, Shariah Council AAOIFI, Bahrain

Member, Islamic Fiqh Academy of Rabita-al-Alam-e-Islami, Makkah

Member, European Council of Fatwa and Research, Dublin, Ireland

Chairman, Center for Islamic Economics Pakistan

Chairman, Shariah Board Dow Jones Islamic Market Index, New York

Chairman, Shariah Board, Bahrain Monetary Agency, Bahrain

Chairman, Shariah Board, Amana Investments Limited, Sri Lanka

Chairman, Shariah Board Abu Dhabi Islamic Bank, UAE

Chairman, Shariah Board Islamic House of Britain plc, UK

Member, Shariah Board, First Islamic Investment Bank, Bahrain

Member Shariah Board, Islamic Corporation for Development of the Private Sector,

(An organ of IDB), Jeddah

Member Shariah Board, Guidance Financial Group, USA

Dr. Abdul Sattar Abu Ghuddah holds positions of Shariah Advisor and Director, Department of Financial Instruments at Al-Baraka Investment Co. of Saudi Arabia. He holds a PhD in Islamic Law from Al Azhar University Cairo, Egypt. He is an active member of Islamic Fiqh Academy and the Accounting & Auditing Standards Board of Islamic Financial Institutions.

Dr. Abdul Sattar teaches Fiqh, Islamic studies and Arabic in Riyadh and has done a valuable task of researching and compiling information for the Fiqh Encyclopedia in the Ministry of ‘Awqaf’ and Islamic Affairs, Kuwait. He has been a member of the ‘Fatwa’ Board in the same Ministry from 1982 to 1990.

Other positions currently held:

Member Shariah Board, Dow Jones Islamic Market Indexes, USA

Member Shariah Board, UBS, Switzerland

Member Shariah Board Guidance Financial Group, USA

Member Shariah Board, Saudi American Bank, Saudi Arabia

Member Shariah Supervisory Board, First Islamic Investment Bank, Bahrain

Born in Bahrain Sheikh Essam M. Ishaq graduated in Political Science from McGill University, Montreal, Canada. Currently he is teaching Fiqh, Aqeeda and Tafseer courses in Bahrain. He holds the position of Shariah Advisor at Discover Islam Bahrain. He holds position of Director in a number of Business and Educational institutions, which include:

Al Baraka Islamic Bank, Bahrain

Bahrain Development Bank, Bahrain

Discover Islam, Bahrain

Middle East Traders, Bahrain

Zawaya Property Development, Bahrain

Al Iman Islamic School, Bahrain

Muslim Educational Society, Bahrain

Dr. Muhammad Imran Ashraf Usmani has done M. Phil and Ph. D. in Islamic Finance after graduating as scholar from Jamia Darul Uloom, Karachi. He has also done the specialization course in Islamic Jurisprudence from Jamia Darul Uloom, Karachi. He is also involved in conducting training sessions for Meezan Bank’s staff in the area of Islamic finance. Dr. Usmani has been teaching several subjects of Islamic Fiqh since 1998 at Jamia Darul-Uloom, Karachi. He is also a visiting faculty member of Institute of Business Administration (IBA), Karachi.

Other positions currently held:

Member, Shariah Board, State Bank of Pakistan

Member, Shariah Supervisory Board, Credit Suisse Bank, Switzerland

Shariah Advisor, UBS, Switzerland

Shariah Advisor and Shariah Board Secretary, Guidance Financial Group,

Shariah Advisor, DCD Financial Group, UK

Member of Shariah Board, Lloyds TSB Bank, UK

Member/Observer, Shariah Council, AAOIFI, Bahrain

Member, Shariah Supervisory Board, HSBC Amanah, UAE

Member/Secretary Shariah Board, IHilal.com & IHilal Financial Services,

Member, Shariah Board, Future Growth Equity Fund, South Africa

Executive Director (Administrator), HFS Project and Mutawassita classes, Jamia

Darul Uloom Karachi

Meezan Bank has recently won the award of “Best Provider of Islamic Financial Services” for Pakistan. Islamic Finance conducted the best Islamic Bank poll

Islamic Finance News is one of the industry's leading publications that provide unrivalled editorial coverage of the global Islamic financing market. Inviting the issuers and other non-banking financial intermediaries to offer their views on which they deem to be the best in a host of categories carried out the poll. This process collated 1,015 responses towards the final results.

This award is another milestone achievement that reinforces Meezan Bank’s leading role and contribution in the cause of Riba-free Banking in Pakistan.

Meezan Bank has the largest variety of Shariah compliant products and services under one roof. Their broad product menu offers complete range of Islamic banking products and services, including Commercial Banking: working capital finance, import & export, guarantees, Islamic export refinance and long term financing. In Retail Banking it offers a complete range of current and savings accounts, term deposits, and foreign currency accounts. In consumer finance, there are Auto and Housing finance products available.

Meezan Bank’s mission is to provide its customers dedicated and pure Islamic Banking facilities, with real time online branches in all major cities of the country. These include Karachi, Islamabad, Lahore, Quetta, Sialkot, Faisalabad, Multan, Gujranwala, Kasur, Rawalpindi and Peshawar. In addition, the bank will very soon open its doors in D.G. Khan, Rahim Yar Khan and Hyderabad.

Press release, which appeared in the Business Recorder of 13th February 2006

KARACHI (February 13 2006): The Meezan Bank has been ranked as the 'best provider of Islamic financial services' in Pakistan, a press release issued here said on Sunday. According to details, the Islamic Finance News - a leading publication recently conducted the poll for best Islamic Bank.

Inviting the issuers and other non-banking financial intermediaries to offer their views on which they deem to be the best in a host of categories carried out the poll. This process collated 1,015 responses towards the final results, the release added.

The Islamic Finance News provides unrivalled editorial coverage of the global Islamic financing market.

This award is another milestone achievement that reinforces Meezan Bank's leading role and contribution to the cause of Riba-free Banking in Pakistan.

Meezan Bank has the largest variety of Shariah compliant products and services under one roof.

Their broad product menu offers complete range of Islamic banking products and services including Commercial Banking: working capital finance, import & export, guarantees, Islamic export refinance and long term financing. In Retail Banking it offers a complete range of current and savings accounts, term deposits, and foreign currency accounts. In consumer finance, there are Auto and Housing finance products available.

As a step towards our mission of providing a one-stop shop for innovative value added Shariah compliant products to our customers Meezan Bank is pleased to offer ‘Car Ijarah’- a car financing, that is based on the principles of Ijarah and is free of the element of interest.

Car Ijarah
Car Ijarah is Pakistan's first "Interest Free" car financing based on Islamic financing mode of Ijarah or Islamic leasing. This product is ideal for interest averse individuals, looking for a car financing that provides the convenience of a well designed product while avoiding an interest based transaction.

Car Ijarah is simply a rental agreement under which the car will be given to the customer on rent for a period, agreed at the time of the contract. Meezan Bank purchases the car and rents it out to the customer for a period of 3, 4 or 5 years. Upon completion of the lease period the customer gets ownership of the car against his initial security deposit.

Some of the key characteristics of Car Ijarah are as follows

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership of the asset during the currency of the contract. Under Islamic Shariah, all ownership related rights and liabilities should lie with the owner while all usage-related rights and liabilities should lie with the user. A conventional lease contract does not distinguish between the natures of these liabilities and dumps all liabilities on the user, which is contradictory to Islamic Shariah. Under Ijarah, all ownership-related risks lie with the Bank while all usage related risks lie with the user, thus making the Lessor the true owner of the asset and making the income generated through the contract permissible (Halal) for the Bank.

Continuation of lease rentals in case of total loss or theft of vehicle
If the leased vehicle is stolen or completely destroyed, the conventional leasing company would continue charging the lease rent till the settlement of the Insurance/Takaful claim. Under the Islamic system, rent is consideration for usage of the leased asset, and if the asset has been stolen or destroyed, the concept of rental becomes void. As such, in the above-mentioned eventualities, Meezan bank does not charge the lease rental.

Does Meezan Bank use Takaful or conventional insurance to insure its vehicles?
MBL is insuring its Car Ijarah vehicles through Takaful arrangement with Pak Kuwait Takaful Company, Pakistan’s first Takaful provider. The company has started operations in Karachi and Car Ijarah vehicles of Karachi are now being covered through Takaful. As the operations of Pak Kuwait Takaful expand into other cities of Pakistan, Car Ijarah vehicles in other cities will also be insured through Takaful. MBL’s present insurance arrangement will be available for cities where Takaful is not presently available since Leased assets are required to be insured under the law. However, Meezan Bank’s Ijarah arrangement clearly states that Meezan bank will use conventional Insurance only as long as Takaful is not available, and we are now clearly on the road to having all our Car Ijarah vehicles insured through Takaful.

Is there a Penalty for Late Payment of Rent and how is this permissible under Islamic Shariah?
In most contemporary financial leases, an extra monetary amount is charged if rent is not paid on time. This extra amount is the considered as Riba and is Haram. The leasing institution in their income takes this amount. Under Ijarah, the Lessee may be asked to undertake that if he fails to pay rent on its due date, he will pay certain amount to a charity, which will be administered through the Islamic Bank. For this purpose the bank maintains a charity fund where such amounts may be credited and disbursed for charitable purposes.

No application fee

Ease of acquiring any new locally assembled car

No upfront Insurance/Takaful Payment

No advance Rental

Available in tenures of 3, 4 and 5 years

Minimum-security deposit as low as 15%

Car Ijarah also features Used Vehicles
In addition to our leasing of new cars, we also provide the unique opportunity of leasing second hand locally assembled vehicles as well. This feature is specifically designed as a very economical option as well. With a minimum-security deposit as low as 20%, our used Car Ijarah facility is at your service.

Used Car Selection Criteria

Selecting a used car is very simple, all you need to ensure is:

That the second hand car you select should be from its first owner. The

Vehicle should not be older than 5 years when selected by you for Car Ijarah. The minimum-security deposit for a vehicle up to 2 years of age is 20%, while minimum security deposit for a vehicle over 2 years of age is 30%. At the time of termination of our Ijarah agreement, the vehicle should not be more than 8 years old. This means that if a car is 5 years old, the Car Ijarah tenure is not more than 3 years and if its 4 years old, the tenure may be set for a 3 year or 4 year term. This facility is for locally manufactured cars of Suzuki, Toyota, Honda, new model of Santo and imported reconditioned cars.

Second hand vehicles selected should not be worth more than Rs. 1 million or less than Rs. 250,000/-. Meezan Bank will have the vehicle valued by an independent valuation company accordingly.

Approved by Meezan Bank's Shariah Board
Car Ijarah is designed under the supervision of Meezan Bank's Shariah Supervisory Board and is approved by the Board.

The Shariah Board comprises of the following eminent scholars of Islamic finance:

Justice Muhammad Taqi Usmani.

Dr. Abdul Sattar Abu Ghuddah

Sheikh Essam M. Ishaq

Dr. Muhammad Imran Ashraf Usmani

Rental Calculations
to calculate the monthly rentals simply multiply the cost of the car with the rental factors given in the table below

For example: If you are interested in a car costing Rs. 300,000 for a tenure of 5 years and are willing to pay a 50% Security Deposit, your monthly rental would be,

Rs. 300,000 X 0.015614 = Rs. 4,684/- per month for 5 years.
(**All other costs will be charged at actual)

For example: If you are interested in a car costing Rs. 300,000 for tenure of 5 years

and are willing to pay a 50% Security Deposit, your total monthly rental would be:

 Rs. 300,000 x 0.015760 = Rs. 4,728 per month for 5 years
(All other costs will be charged at actual)

Documentation required for Car Ijarah
It is very easy to apply for Car Ijarah, just bring the following documents.

Individuals/Self-Employed Professionals/Businessmen

Simple! All you need to do is fill out a customer application form, attach the required documents mentioned in the form and get your financing approved in a 1-2 working days. To experience the comfort of our personalized services just visit your nearest Meezan Bank Branch.

Welcome to Meezan Bank’s 24/7 Banking.

We bring you a world of total access and convenience,

Where you and your money are in touch all the time.

The Meezan Bank 24/7 Card means you can stay in touch with your money anytime, anywhere. You can travel countrywide and have immediate access to cash as and when you need it. You can also let your card make all your payments when you shop or dine out. With the 24/7 Card, you don’t have to carry large sums of money in your wallet. It’s an ATM and Debit card all in one.

Now you no longer have to face the hassle of always having to come to the Bank, face traffic problems, or wait in teller queues. We provide you the convenience you need around the clock.

Accessing any conveniently located Meezan Bank ATM or those of any other bank, you can withdraw up to Rs. 20,000 per transaction and up to Rs. 20,000 per day.

You may also perform a host of transactions including transferring your funds across any online account** or getting a mini-statement or balance information. The 24/7 ATM provides you all these facilities and much more.

You can also access your accounts from any ATM, providing that extra convenience wherever you may be.

If using any non-Meezan ATM the machine will define the transaction limit. So if the machines limit is Rs. 10,000 then that will take precedence over the Meezan limit of Rs. 20,000 per transaction

The 24/7 Debit Card is an added facility of the 24/7 Card. You can make purchases or dine at any outlet that displays the Orix logo, which means you can have access to cash-free spending countrywide.

Making a payment is easy!

To make a payment, present your 24/7 Card to the cashier.

The cashier will swipe the Card across the Orix machine and the purchase amount will be entered.

Select your desired account from the three options: Current, Savings, and Credit

Enter your 4-digit ATM PIN for verification

After verification, the machine will issue a slip. Confirm your transaction amount and collect your 24/7 Card.

The transaction is complete and the money will be debited* from your account

The daily purchase limit when using your 24/7 Card is Rs. 50,000 per day, subject to sufficient funds being in your selected account to cover your transaction. This is a major benefit as unlike a credit card, you can control your finances because of the purchase limit.

We are just a call away! With our 24/7 Call Center, we provide you total access and convenience and can be of assistance to you at any time of the day or night. Our professional Call Center Officers will be happy to offer you a range of services including

Information – you can find out your bank balance, transaction details, profit rates, foreign exchange rates, information about different products, and a host of other information you may require.

Services – request cheque books, account-related queries, request or change ATM PIN and T-PIN, request a balance transfer, report loss of ATM / Debit Card or cheque(s), notify change of address, and a variety of other services you may require.

ATM Help line – All 24/7 ATM Outlets have our ATM Help line services available to our valued customers. You may instantly contact our Call Center officers for any inquiry by just picking up the phone located beside the ATM.

A long-term investment product specially designed to cater to the needs of corporate and business concerns for purposes of investing their Provident, Pension and Gratuity Funds.
As any prudent investor, your main concerns would be total security along with the best returns possible, especially as these funds are a trust from your employees and one that bears an important responsibility. Meezan Providence rests on the well-known and solid financial strength of Meezan Bank, which has a strong and credible balance sheet with excellent operating profitability, including a capital adequacy ratio that has placed the Bank at the top of the industry, a long-term entity rating of A+, and a short-term entity rating of A1.

Furthermore, our sterling track record shows consistently beneficial and highly competitive returns for our broad range of investors.
Finally, comes the benefit of truly Halal returns, a benefit you may not have had the opportunity to enjoy before and one that you can now pass on to your employees, many of whom would be grateful for such an opportunity. So why not enjoy the best of both worlds? Isn't that what we are all working so hard for anyway?

How Meezan Providence Certificate works?
Riba-Free Meezan Providence Certificate (MPC) works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah. On agreeing to become a MPC holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the Customer is an Investor (Rab ul Mal), and the Bank is the Manager (Mudarib) of the funds deposited by the customers. The bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under. Islamic modes that include but are not restricted to, Murabaha and Ijarah

How is profit calculated and distributed?
The bank calculates the profit of the deposit pool every month. Profit is distributed at the Gross Income level. The Gross Income is calculated after deducting costs and expenses directly incurred in deriving that Income. Gross income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Mal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the period. The Bank's profit sharing ratio is 80% of Gross Income and Depositors' profit sharing ratio is 20% of Gross Income.

The profit is distributed among the account holders on the basis of predetermined weightages, announced at the beginning of the month, based on their respective category/tiers. At the end of the month, the Bank may unilaterally reduce its profit sharing ratio for the benefit of depositors. In case of a loss, as per the rules of Mudarabah, the deposit pool shall bear the loss in the ratios of investment of depositors.

Key Features of Meezan Providence

Enjoy a range of accessible features including:

A 100% halal investment in strict compliance with Shariah.

High Returns.

Long-term security ensured.

Minimum investment amount: PKR 1,000,000

Available tenures of 2, 3, 5 and 7 years.

Pre-mature withdrawal options available.

Our Eligibility Criteria 

Investing is simple and easy, as all you need is:

To have a registered or unregistered Employee Provident/Gratuity/Pens

Have operations based in Pakistan.

We at Meezan Bank, as prescribed by Islamic Shariah, seek to guarantee equal access to all qualified applicants, while ensuring that the qualification process is bias-free.

Come and take the step towards Riba Free Meezan Providence

Kindly fill in the attached application form and bring it along with all the required documents to any Meezan Bank branch across Pakistan.

Applicable for Meezan Providence Certificate balances between the period February 01, 2006 to February 28, 2006 

What is Riba Free Certificate of Islamic Investment (COII)?
Riba Free is a Shariah compatible Islamic Investment Certificate. The minimum investment is Rs. 50,000. Riba Free Islamic Investment Certificate is available with tenures of 3 months, 6 months, 1 year, 2 years, 3 years and 5 years. You can now earn profit on your investment on the following basis:

Minimum Investment Rs. 200,000.

If you invest Rs. 500,000 or more, you can earn a premium** over the declared profit rates based on the Bank's actual performance each month.

**Conditions Apply

How Riba-Free COII works?
Riba-Free Certificate of Islamic Investment (COII) works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become a COII holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the Customer is an Investor (Rab ul Mal), and the Bank is the Manager (Mudarib) of the funds deposited by the customers.

The bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under Islamic modes that include, but are not restricted to, Murabaha and Ijarah.

How is profit calculated and distributed?
The bank calculates the profit of the deposit pool every month. Profit is distributed at the Gross Income level. The Gross Income is calculated after deducting costs and expenses directly incurred in deriving that Income.

Gross income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Mal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the period.

The Bank's profit sharing ratio is 80% of Gross Income and Depositors' profit sharing ratio is 20% of Gross Income.

The profit is distributed among the account holders on the basis of predetermined weightages, announced at the beginning of the month, based on their respective category/tiers.

At the end of the month, the Bank may unilaterally reduce its profit sharing ratio for the benefit of depositors.

In case of a loss, as per the rules of Mudarabah, the deposit pool shall bear the loss in the ratios of investment of depositors.

How do I invest in 'Riba Free COII' ?
'Riba-Free COII' is available at all branches of Meezan Bank Ltd. We invite you to visit any of our branches to experience the comfort of personalized service. To make an investment the bank requires customers to maintain either a current or a saving account with Meezan Bank. In order to open an account you just need to fill in the Account Opening Form, bring in your original CNIC, and get introduced by an existing banker.

Can I withdraw my Investment at any time?
Yes! This facility is available at anytime during the course of your investment. However, profit shall be paid only after completion of one month of investment.

Is my investment with Meezan Bank truly Halal?
Yes! All banking transactions at Meezan Bank Limited are in strict adherence to the Islamic Shariah. Our Shariah Advisor, Dr. Imam Usmani, who is a PhD in Islamic Finance monitors conformity to Shariah. Meezan Bank also has an independent, external Shariah Board comprising of internationally renowned Islamic banking scholars serving on the boards of many Islamic banks operating in different countries, who meet on a regular basis to review the overall performance of the Bank. The members of our Shariah Board are:

Will my investment at Meezan Bank be secure?
Meezan Bank is an Islamic commercial bank governed by the rules of the State Bank of Pakistan. Meezan Bank has a strong Middle Eastern shareholding. Its principal sponsor is Pakistan Kuwait Investment Company (Pvt.) Ltd., which is the first AAA rated financial institution in Pakistan, and a joint venture between the Governments of Pakistan and Kuwait. The list of its sponsors include:

Key Features of COII
Enjoy a range of valuable features including:

As a step towards our mission of providing a one-stop shop for innovative value added products to our customers, Meezan Bank is pleased to offer RibaFree Monthly Mudarabah Certificates, a rupee based investment opportunity that is set up on the principles of Shariah and as a result is free from the element of interest.

What is RibaFree Monthly Mudarabah Certificates?
RibaFree Monthly Mudarabah Certificates is a flexible investment product, which has been designed to give you a monthly return, which is Halal. The minimum investment required is only Rs. 100,000 and you receive profit for each complete month of investment with the Bank.

How Monthly Mudarabah Certificates works?
Riba-Free Monthly Mudarabah Certificate (MMC) works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become a MMC holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the Customer is an Investor (Rab ul Mal), and the Bank is the Manager (Mudarib) of the funds deposited by the customers.

The bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under Islamic modes that include, but are not restricted to, Murabaha and Ijarah.

How is profit calculated and distributed?
The bank calculates the profit of the deposit pool every month. Profit is distributed at the Gross Income level. The Gross Income is calculated after deducting costs and expenses directly incurred in deriving that Income.

Gross income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Mal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the period.

The Bank's profit sharing ratio is 80% of Gross Income and Depositors' profit sharing ratio is 20% of Gross Income.

The profit is distributed among the account holders on the basis of predetermined

Weightages, announced at the beginning of the month, based on their respective category/tiers.

The profit rate, so calculated, is applied to all investments, which mature between the periods starting from the 1st day of each month to the last day of the month.

At the end of the month, the Bank may unilaterally reduce its profit sharing ratio for the benefit of depositors.

In case of a loss, as per the rules of Mudarabah, the deposit pool shall bear the loss in the ratios of investment of depositors.

Is my investment with Meezan Bank Secure?
It is! Meezan Bank has a strong balance sheet with excellent operating profitability, including a capital adequacy ratio that has placed the Bank at the top of the industry, a long-term entity rating of A+, and a short-term entity rating of A1. . State Bank of Pakistan 's rules and regulations govern it and its shareholders comprises of strong world-renowned financial institutions like:

Can I withdraw my investment at any time?
Yes! This facility is available at any time during the course of your investment. However, profit shall be paid only after completion of one month of investment.

How do I invest in RibaFree Monthly Mudarabah Certificates?
Just fill in the Account Opening Form, bring in your original CNIC, and get introduced by an existing banker. After opening of an account, you can get your certificates and enjoy our personalized banking services. During your relationship

With us, you would be entitled to receive the following additional benefits.

The Riba-Free Dollar Mudarabah Certificate (DMC) works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become a DMC holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the customer is an Investor (Rab ul Maal), and the Bank is the Manager (Mudarib) of the funds deposited by the customers.

The Bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under Islamic modes that include, but are not restricted to, Murabaha and Ijarah.

The Bank calculates the profit of the deposit pool every month. Gross income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Maal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the month. This is also available on the Bank’s website (www.meezanbank.com) or can be obtained upon request.

The profit is distributed among the DMC holders on the basis of predetermined weightages, announced at the beginning of the month, based on their respective category/tiers. These weightages are also available on the Bank’s website or can be obtained upon request.

The Bank at time of profit declaration, at its sole discretion may give additional profit to the customers from its own profit share.

In case of a loss, as per the rules of Mudarabah, the deposit pool shall bear the loss on a pro rata basis.

For information on historical profit rates, please contact our 24/7 Call Center or log on to our website.

Enjoy a range of valuable features including:

Kindly fill in an Account Opening Form, along with your original Computerized National Identity Card (CNIC), and get introduced by an existing banker. This is all that you need to invest in a Riba-Free Dollar Mudarabah Certificate (DMC) with us and enjoy personalized banking services from any Meezan Bank branch across Pakistan.

As a step towards our mission of providing a one-stop shop for innovative value added products to our customers, Meezan Bank is pleased to offer Riba-Free Dollar Saving Account, a foreign-currency based investment opportunity that is set up on the principles of Shariah and as a result is free from the element of interest.

How does one invest in Dollar Saving Account?
With a minimum of only $100 you can open a Dollar Saving Account with us under a Mudarabah arrangement that is strictly in conformity with the principles of Islamic Shariah. The return earned on the Mudarabah pool is calculated every month and the profit ratio for all investors is declared at the beginning of the month. If you maintain a minimum average monthly balance of $ 500, you shall be eligible to receive profits that shall be disbursed to you every month.

How Dollar Saving Account works?
Riba-Free Dollar Saving Account works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become an account holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the customer is an Investor (Rab ul Mal), and the bank is the Manager (Mudarib) of the funds deposited by the customers.

The bank allocates the funds received from the customers to a foreign currency Deposit pool. These funds from the pool are invested under Islamic modes that include, but are not restricted to, Murabaha, Sukuk and Ijarah.

How is profit calculated and distributed?
The bank calculates the profit of the deposit pool every month. Profit is distributed at the Gross Income level. The Gross Income is calculated after deducting costs and expenses directly incurred in deriving that Income.

Gross income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Mal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the period.

The bank's profit sharing ratio will be 80% of Gross income and Deposit Pool profit sharing ratio will be 20% of Gross income.

At the end of the month, the Bank may unilaterally reduce its profit sharing ratio for the benefit of depositors.

The profit of the pool is distributed among the account holders/investors on the basis of predetermined weightages, announced at the beginning of the month, based on their respective category/tiers.

In case of a loss, as per the rules of Mudarabah, the deposit pool shall bear the loss in the ratios of investment of depositors.

Is my saving with Meezan Bank secure?
It is! Meezan Bank is A+ rated public listed company that is quoted on the Karachi Stock Exchange. The State Bank of Pakistan governs the activities of the Bank and its shareholders are world-renowned financial institutions comprising:

Just fill in the Account Opening Form, bring in your original CNIC, and get introduced by an existing banker. This is all that you need to open a RibaFree Dollar Saving Account with us and enjoy our personalized banking services.

What additional features are available?
Apart from first class service and personalized attention that our customers get when they bank with us, we offer the following additional conveniences to our customers:

A unique bank account that offers the opportunity to earn Halal profits, while enjoying a range of added benefits. It can be opened with a minimum amount of only Rs.10, 000. The profit on this account is calculated and paid on a monthly basis, and comes with a variety of free benefits including personalized check books, no restrictions on transactions, priority banking and so on.

What do I need to open an account?
Just fill in the Account Opening Form, bring in your original CNIC, and get introduced by an existing banker. This is all that you need to open a Saving Account with us and enjoy our personalized banking services.

How Saving Account works?
Riba-Free Rupee Saving Account works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become an account holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the customer is an Investor (Rab ul Mal), and the bank is the Manager (Mudarib) of the funds deposited by the customers.

The bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under Islamic modes that include, but are not restricted to, Murabaha and Ijarah.

How is profit calculated and distributed?

Note: All banking transactions at Meezan Bank Limited are in strict adherence to the Islamic Shariah and are monitored by our Shariah Advisor and the Shariah Board

Additional features:
Apart from first class service and personalized attention that our customers get when they bank with us, we offer the following additional conveniences:

Current Account

What do I need to open an account?
Just fill in the Account Opening Form, bring in your original Identity Card, and get introduced by an existing banker. This is all that you need to open a Current Account with us and enjoy our personalized banking services.

Key features of the Riba-Free Current Account
enjoy a range of accessible features including:

Karobari Munafa Account

Karobari Munafa is a savings account specifically tailored for large Corporate or GOP controlled entities. It allows customers to earn higher returns on surplus cash balances. It has no preset transaction limits and comes with a variety

free packaged benefits.

Basic features of Karobari Munafa Account*

How Karobari Munafa Account works?
Riba-Free Karobari Munafa Account works under the principles of Mudarabah and is strictly in conformity with the rules of Islamic Shariah.

On agreeing to become an account holder, the customer enters into a relationship based on Mudarabah with Meezan Bank. Under this relationship, the Customer is an Investor (Rab ul Mal), and the Bank is the Manager (Mudarib) of the funds deposited by the customers.

The bank allocates the funds received from the customers to a deposit pool. These funds from the pool are utilized to provide financing to customers under Islamic modes that include, but are not restricted to, Murabaha and Ijarah.

The bank calculates the profit of the deposit pool every month. Profit is distributed at the Gross Income level. The Gross Income is calculated after deducting costs and expenses directly incurred in deriving that Income.

Gross Income of the deposit pool is shared between the Bank (Mudarib) and customers (Rab ul Mal) on the basis of a pre-determined profit sharing ratio announced at the beginning of the period.  

The Bank's profit sharing ratio is 80% of Gross Income and Depositors' profit sharing ratio is 20% of Gross Income.

The profit is distributed among the account holders on the basis of predetermined weightages, announced at the beginning of the month, based on their respective category/tiers.  

At the end of the month, the Bank may unilaterally reduce its profit sharing ratio for the benefit of depositors.

In case of a loss, as per the rules of Mudarabah, the deposit pool shall

the loss in the ratios of investment of depositors.

HISTORIC PROFIT RATES (% per annum):

Easy Home

Meezan Bank's "Easy Home"

Your own home, the Riba-Free way.

First complete Islamic Home Finance facility in Pakistan!

Owning your own home is one of life's most important achievements. It represents your security, stability, and is a great blessing in itself. It provides that all-important safety and comfort for you and your loved ones. However, in today's often unpredictable and costly environment, saving the required money can take a lifetime in itself. Rising property prices, taxes, inflation, currency devaluation… it's all a very hard bargain. On the other hand, owning your own home and paying an easy installment that takes you step by step towards complete ownership, is so much better than paying a rent which ultimately only adds to your expenses.

Added to that is your desire to stay away from interest based financing and be totally Riba-Free, thus achieving that inner satisfaction and peace of mind you desire so much. Why not have the best of both worlds? Isn't that what you are working so hard for anyway

With Easy Home you participate with Meezan Bank in a joint ownership of your property, where the Bank will provide a certain amount of financing - usually up to 85%. You agree to a monthly payment to the Bank of which a component is for the use of the home (rent), and another for your equity share. In fact, the total monthly payment is reduced regularly as your share in the property grows. When you have made the full investment that had been agreed, you become the sole owner with a free and clear title to the property.

Absolutely hassle-free. Quick turn-around-times, with no burdensome complexities or excess paper work. It’s simple, halal, and easy!

Come and take the step towards Riba free financing for your home, made easy with Meezan Bank's Easy Home!

Choose it and be ready to move in.

Easy selection of financing tenure from 3 years up to a maximum of 20 years.

For that special home you want to build yourself, or to help continue construction you may have already started.

Easy selection of financing tenure from a minimum of 2 years (excluding construction period of max 12 months) up to a maximum of 20 years.

Making your home even better or just repairing it, do it with Meezan Bank's Easy Renovate!  

Easy selection of financing tenure from 2 years up to a maximum of 7 years.

Replacing your existing mortgage to Islamic mode is Easy & Halal

The wait is over. Now continue to enjoy your home but with the added satisfaction and peace of mind you've wanted. 

Easy selection of financing tenure from a minimum of 3 years up to a maximum of 20 years.

The Meezan Islamic Institution Deposit Account (MIIDA) is a unique product tailored exclusively for Islamic Financial Institutions (IFIs). With MIIDA, any IFI now has the opportunity to manage excess liquidity by maintaining a checking account with Meezan Bank specifically designed for this purpose. This provides an immediate and profitable solution to our common present limitation where any excess funds with an IFI essentially remain unutilized.

All eligible Islamic Banks would enter into a Mudarabah relationship with Meezan Bank. Under this relationship, the respective Islamic Banks are the Investor (Rab ul Maal), and Meezan Bank is the Manager (Mudarib) of the funds deposited by yourself. Meezan Bank allocates the funds received from the Islamic Banks to a deposit pool consisting of financing under Islamic modes that includes, but is not restricted to Murabaha and Ijarah.

The profit is shared among account holders (IFIs) on the basis of predetermined weightages, announced at the beginning of every month, based on their respective category/tiers. These weightages are available on the website of the Bank or can be obtained upon request. The Bank at the time of profit declaration, and at its sole discretion, may give additional profit to depositors from its own profit share. In the case of a loss, and as per the rules of Mudarabah, the deposit pool shall bear the loss on a prorate basis.

The features and mechanics of the product are detailed below, and provide a ready-made solution ensuring high returns, easy accessibility, total stability, and absolute Shariah compliance.

We sincerely look forward to your positive response, and the opportunity for us to provide you with the world-class service excellence for which we strive at Meezan Bank. Our 25 branches are present all over the country and our dedicated staff will be more than happy to provide you any information you may need.

RIBA AND ITS TYPES

Definition of Riba or Interest
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).

This definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars. There are two types of Riba, identified to date by these scholars namely 'Riba An Nasiyah' and 'Riba Al Fadl'.

'Riba An Nasiyah' is defined as excess, which results from predetermined interest (sood), which a lender receives over and above the principle (Ras ul Maal)

'Riba Al Fadl' is defined as excess compensation without any consideration resulting from a sale of goods. 'Riba Al Fadl' will be covered in greater detail later.

During the dark ages, only the first form (Riba An Nasiyah) was considered to be Riba. However the Holy Prophet also classified the second form (Riba Al Fadl) as Riba.

The meaning of Riba has been clarified in the following verses of Quran:

"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 capital; neither will you do wrong nor will you be wronged." Al Baqarah 2:278-9

These verses clearly indicate that the term Riba means any excess compensation over and above the principal which is without due consideration. However, the Quran has not altogether forbidden all types of excess; as it is present in trade as well, which is permissible. The excess that has been rendered haram in Quran is a special type termed as Riba. In the dark ages, the Arabs used to accept Riba as a type of sale, which unfortunately is also being understood at the present times. Islam has categorically made a clear distinction between the excess in capital resulting from sale and excess resulting from interest. The first type of excess is permissible but the second type is forbidden and rendered Haram.

"Seized in this state they say: 'Buying and selling is but a kind of interest', even though Allah has made buying and selling lawful, and interest unlawful." Al Baqarah 2:275

Classification of Riba
1. The first and primary type is called Riba An Nasiyah or Riba Al Jahiliya.
2. The second type is called Riba Al Fadl, Riba An Naqd or Riba Al Bai.

Since the first type was specified in the Quranic verses before the sayings of the Holy Prophet, this type was termed as Riba al Quran. However the second type was not understood by the Quranic verses alone but also had to be explained by the Holy Prophet, it is also called Riba al Hadees.

Riba An Nasiyah
This is the real and primary form of Riba. Since the verses of Quran have directly rendered this type of Riba as haram, it is called Riba Al Quran. Similarly since only this type was considered Riba in the dark ages, it has earned the name of Riba Al Jahiliya. Imam Abu Bakr Hassas Razi has outlined a complete and prohibiting legal definition of Riba An Nasiyah in the following words:

"That kind of loan where specified repayment period and an amount in excess of capital is predetermined."

One of the ahadith quoted by Ali ibn at Talib (RAA) has defined Riba An Nasiyah in similar words. The Holy Prophet said:

"Every loan that draws interest is Riba."

The famous Sahabi Fazala Bin Obaid has also defined Riba in similar words:

"Every loan that draws profit is one of the forms of Riba"

The famous Arab scholar Abu Ishaq az Zajjaj also defines Riba in the following words:

"Every loan that draws more than its actual amount"

Riba An Nasiyah refers to the addition of the premium, which is paid to the lender in return for his waiting as a condition for the loan and is technically the same as interest. The prohibition of Riba An Nasiyah is one of those issues, which have been confirmed, in the revealed laws of all Prophets (AS). Some of the old testaments have rendered Riba as haram (See Exodus 22:25, Leviticus 25:35-36, Deutronomy 23:20, Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezakhiel 18:8,13,17 & 22:12). The Quran has also stated the prohibition of Riba in various verses, has warned those who persist in practicing it of a war which is certain to be declared on them by Allah Himself and His messenger and has seriously threatened those engaged as writer, witness and dealer in Riba transactions. These verses and ahadith will be discussed at length in a separate chapter called "The prohibition of Riba in the light of Quran and hadith".

According to the above definition of Riba An Nasiyah, the giving and taking of any excess amount in exchange of a loan at an agreed rate is included in interest irrespective whether at a high or low rate. It has been proven through ahadith that the Holy Prophet paid excess at the loan repayment time but since this excess was not paid through an agreed rate, it cannot be called interest. This clarifies that the

word "draws" in the hadith definition" The loan that draws interest is Riba." has been used to highlight the giving and taking of excess amount through an agreed rate in the loan contract. Due to this, Imam Abu Bakr Hasas has added the word "condition" to the definition.

The fact that Riba An Nasiyah is categorically haram has never been disputed in the Muslim community.

In short, the Riba of today which is supposed to be the pivot of human economy and features in discussions on the problem of interest is nothing but this Riba, the unlawfulness of which stands proved on the authority of the seven verses of the Quran, of more than forty ahadith and of the consensus of the Muslim community.

Wisdom behind the prohibition of Riba An Nasiyah
First of all, we should realize that there is nothing in the entire creation of the world, which has no goodness or utility at all. But it is commonly recognized in every religion and community that things, which have more benefits and less harms, are called beneficial and useful. Conversely, things that cause more harm and less benefit are taken to be harmful and useless. Even the noble Quran, while declaring liquor and gambling to be haram, proclaimed that they do hold some benefits for people but the curse of sins they generate is far greater than the benefits they yield. Therefore, these cannot be called good or useful; on the contrary, taking these to be acutely harmful and destructive, it is necessary that they be avoided.

The case of Riba An Nasiyah is not different. Here the consumer of Riba does have some casual and transitory profits apparently coming to him, but its curse in this world and in the Hereafter is much too severe as compared to this benefit. The Riba consumer suffers such a spiritual and moral loss that it virtually takes away the great quality of being 'human' from him. An intelligent person who compares things in terms of their profit and loss, harm and benefit can hardly include things of casual benefit with an everlasting loss in the list of useful things. Similarly no sane and just person will say that personal and individual gain which causes loss to the whole community or group is useful. In theft and robbery for example, the gain of the gangster and the take of the thief is all too obvious but it is certainly harmful for the entire community since it ruins its peace and sense of security.

Riba Al Fadl
The second classification of Riba is Riba Al Fadl. Since the prohibition of this Riba has been established on Sunnah, it is also called Riba Al Hadees.

Riba Al Fadl actually means that excess which is taken in exchange of specific homogenous commodities and encountered in their hand-to-hand purchase & sale as explained in the famous hadith:
The Prophet said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it

These six commodities can only be bought and sold in equal quantities and on spot. An unequal sale or a deferred sale of these commodities will constitute Riba. These six commodities in fiqh terminology are called "Amwal-e-Ribawiya". Does this hadith apply only to the items mentioned in it? Does it concern sales of barley or wheat but not rice? Of dates but not raisins? A complete legal definition differs in every fiqh. Scholars such as Taoos and Qatada hold that Riba Al Fadl includes these specified types only, however a majority of Islamic scholars believe that some other commodities should also be included. In order to answer the question, which other commodities should be included, some fiqhs hold that the characteristics, which are common amongst these items, can be used as basis (illat) for Riba Al Fadl. An illat is the attribute of an event that entails a particular divine ruling in all cases possessing that attribute; it is the basis for applying analogy. Ribawi goods are therefore goods that exhibit one of the efficient causes occasioning application of Riba rules. Various schools define these causes differently:

Imam Abu Hanifa
Imam Abu Hanifa sees only two common characteristics namely:

1) Weight
2) Volume

Meaning all these six goods are sold by either weight or volume. Therefore all those commodities, which have weight or volume and are being exchanged, with the same commodity will fall under the rules of Riba Al Fadl.

The laws of Riba Al Fadl
After closely analyzing the meaning and interpretation of the above ahadith and their explanation in further ahadith along with issues raised in reference work of Hanafi fiqh, the following rules and laws governing Riba Al Fadl are derived:

1. It is evident that the exchange of homogeneous commodities will only be required if they differ in quality and characteristic e.g. different genus of rice and wheat, superior quality gold and inferior quality gold, mineral salt and sea salt etc. The exchange of any of these six commodities with itself, but differing in types/quality (which is called barter in modern terminology), even when considering market rate, is prohibited in unequal amount. The reason being that by exchanging these commodities in unequal amounts there is a fear of developing the rationale in a person eventually leading to interest (sood) based earnings and illegal benefits. Such transactions might also lead to defrauding. For example, a shrewd trader may claim that a kilogram of a specific brand of wheat is equivalent to 3 kilograms of the other kind because of the excellence of its quality, or this unique piece of gold ornament is equivalent in value to twice its weight in gold; in such transactions there undoubtedly is defrauding of people and harm to them.

As a step to prevent this state, the Shariah has made it a law that exchange of any of these six commodities with itself but differing in quality, is allowed in only one of the following forms:

a) Any difference in value/quality should be ignored and the commodities should be exchanged in equal amounts (equal weight and volume).

b) Instead of direct exchange of commodities of the same kind, a person should sell his commodity against cash at the market value and buy someone else's commodity in exchange of cash proceeds at the market value.

2. One of the ways of transacting commodities of the same kind is that a person has a raw material and someone else has a product made of that material and both decide to exchange their product. In this case, one has to see whether:

a) The characteristics of this product has been totally changed by the industry: For eg. the remarkable changes that transform raw cotton into cloth or iron into machinery. In this case, it is permissible to transact lesser amount of cloth against greater amount of raw cotton or raw iron having more weight against machinery having lighter weight.

b) Little difference has been made to its original form after its formulation: For eg. Gold, which changes its shape in the form of jewelry. In this case, the Shariah holds that such a transaction should not happen in the first place or if it does, the exchange should be in equal weights in order to discourage unfair deals. Another alternative would be to sell gold against cash and the cash proceeds are used to buy the needed jewelry. This is because it is not possible in a barter transaction, except for an expert, to visualize the fair equivalent of one commodity in terms of all other goods. Hence, the equivalent may be established only approximately thus leading to some injustice to one or the other party. The use of money could therefore help reduce the possibility of an unfair exchange.

3. Different commodities can be unequally exchanged but deferred payment is not allowed. For eg. One kg wheat can be sold against 2 kg date or one gram of gold can be exchanged against 4 grams of silver on the condition that they are spot transactions reason being that such a transaction will surely be carried on the market rate. For eg. a person who wants to exchange silver for gold on spot will only transact as per the market rate. However, if the transaction is on credit, there is a possibility, no matter how minor, of stepping into interest that cannot be ignored. For eg. a buyer who has traded 80 tolas silver on credit today on the understanding that it will be exchanged against 2 tolas gold after a month has in fact no means to find in advance that 40 tolas silver will be equivalent to one tola gold after a month. Therefore this ascertaining of value in advance actually signifies its roots in interest and gambling. Similarly the seller who has accepted credit has in fact yielded to gambling by hoping that the ratio of gold and silver might come down from 1:40 to 1:35. The law of exchanging different commodities only at spot has been established due to this reason.

The general conditions of sale, however, should be borne in mind while making a trade transaction so that the goods are specified in addition to the cash aspect of the transaction. The correct way of specifying is that gold and silver should be under the possession of the sellers or delivered at the place of contract because both goods have the original (natural) price, which cannot be specified until they are delivered.

This rule applies to only exchange of gold and silver. Other goods can be exchanged against each other without delivery and can be specified any other way but will be restricted to cash transaction.

Hadees-e-Qudsi
Allah Subhan-o-Tallah has declared that He will become a partner in a business between two Mushariks until they indulge in cheating or breach of trust (Khayanah).

Definition and classification of Musharakah
The literal meaning of Musharakah is sharing. The root of the word "Musharakah" in Arabic is Shirkah, which means being a partner. It is used in the same context as the term "shirk" meaning partner to Allah. Under Islamic jurisprudence, Musharakah means a joint enterprise formed for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the ratio of the contribution. It is an ideal alternative for the interest based financing with far reaching effects on both production and distribution. The connotation of this term is little limited than the term "Shirkah" more commonly used in the Islamic jurisprudence. For the purpose of clarity in the basic concepts, it will be pertinent at the outset to explain the meaning of each term, as distinguished from the other. "Shirkah" means "Sharing" and in the terminology of Islamic Fiqh, it has been divided into two kinds:

Shirkat-ul-milk (Partnership by joint ownership):

It means joint ownership of two or more persons in a particular property. This kind of "Shirkah" may come into existence in two different ways:

Optional (Ikhtiari): At the option of the parties e.g., if two or more persons purchase equipment, it will be owned jointly by both of them and the relationship between them with regard to that property is called "Shirkat-ul-Milk Ikhtiari" Here this relationship has come into existence at their own option, as they themselves elected to purchase the equipment jointly.
b) Compulsory (Ghair Ikhtiari): This comes into operation automatically without any effort/action taken by the parties. For example, after the death of a person, all his heirs inherit his property, which comes into their joint ownership as a natural consequence of the death of that person.

There are two more types of Joint ownerships (Shirkat-ul-Milk):
· Shirkat-ul-Ain
· Shirkat-ul-Dain

A property in shirkat-ul-milk is jointly owned but not divided yet, is called Musha. In Shirkat-ul-milk undivided shares or other assets can be used in the following manner:
a) Mushtarik Intifa': Mutually or jointly using an asset by taking turns under circumstances where the partners or joint owners are on good terms.
b) Muhaya: Under this arrangement the owners will set turns in days for example one may use the product for 15 days and then the other may use it for the rest of the month.
c) Taqseem: Referring to division of the jointly owned asset. This may be applied for property where the asset that is owned can be divided permanently for example jointly taking a 1,000 sq. yards plot and making a house on 500 yards by each of the 2 owners.
d) Under a situation where the partners are not satisfied with Muhaya arrangement, the property or asset jointly held can be sold off and proceeds

(2) Shirkat-ul-Aqd (Partnership by contract): This is the second type of Shirkah, which means, "a partnership effected by a mutual contract". For the purpose of brevity it may also be translated as "joint commercial enterprise." Shirkat-ul-Aqd is further divided into three kinds:
(i) Shirkat-ul-Amwal (Partnership in capital) where all the partners invest some capital into a commercial enterprise.
(ii) Shirkat-ul-Aamal (Partnership in services) where all the partners jointly undertake to render some services for their customers, and the fee charged from them is distributed among them according to an agreed ratio. For example, if two people agree to undertake tailoring services for their customers on the condition that the wages so earned will go to a joint pool which shall be distributed between them irrespective of the size of work each partner has actually done, this partnership will be a shirkat-ul-aamal which is also called Shirkat-ut-taqabbul or Shirkat-us-sanai or Shirkat-ul-abdan.
(iii) Shirkat-ul-wujooh (Partnership in goodwill). The word has its root in the Arabic word Wajahat meaning goodwill. Here the partners have no investment at all. They purchase commodities on deferred price, by getting capital on loan because of their goodwill and sell them at spot. The profit so earned is distributed between them at an agreed ratio.

Each of the above three types of Shirkat-ul-Aqd are further divided into two types:
a) Shirkat-Al-Mufawada: (Capital & labour at par): All partners share capital, management, profit, risk in absolute equals. It is a necessary condition for all four categories to be shared amongst the partners; if any one category is not is not shared, then the partnership becomes Shirkat-ul-Ainan. Every partner who shares equally is a Trustee, Guarantor and Agent on behalf of the other partners.

b) Shirkat-ul-Ainan: A more common type of Shirkat-ul-Aqd where equality in capital, management or liability might be equal in one case but not in all respect meaning either profit is equal but not labour or vice versa.

All these modes of "Sharing" or partnership are termed as "Shirkah" in the terminology of Islamic Fiqh, while the term "Musharakah" is not found in the books of Fiqh. This term (i.e. Musharakah) has been introduced recently by those who have written on the subject of Islamic modes of financing and it is normally restricted to a particular type of "Shirkah", that is, the Shirkat-ul-Amwal, where two or more persons invest some of their capital in a joint commercial venture. However, sometimes it includes Shirkat-ul-Aamal also where partnership takes place in the business of services.

It is evident from this discussion that the term "Shirkah" has a much wider sense than the term "Musharakah" as is being used today. The latter is limited to "Shirkat-ul-Amwal " only i.e. all the partners invest some capital into a commercial enterprise, while the former includes all types of joint ownership and those of partnership.

The basic rules of Musharakah
Musharakah or Shirkat-ul-amwal is a relationship established by the parties through a mutual contract. Therefore, it goes without saying that all the necessary ingredients of a valid contract must be present here also. For example, the parties should be capable of entering into a contract; the contract must take place with free consent of the parties without any duress, fraud or misrepresentation, etc.

But there are certain ingredients, which are peculiar to the contract of "Musharakah". They are summarized here:

Basic rules of Capital:
The capital in a Musharakah agreement should be:
a) Quantified (Ma'loom): Meaning how much etc.
b) Specified (Muta'aiyan): Meaning specified currency etc.
c) Not necessarily be merged: The mixing of capital is not required.
d) Not necessarily be in liquid form: Capital share may be contributed either in cash/liquid or in the form of commodities. In case of a commodity, the market value of the commodity shall determine the share of the partner in the capital.

Management of Musharakah
The normal principle of Musharakah is that every partner has a right to take part in its management and to work for it. However, the partners may agree upon a condition that the management shall be carried out by one of them, and no other partner shall work for the Musharakah. But in this case the sleeping partner shall be entitled to the profit only to the extent of his investment, and the ratio of profit allocated to him should not exceed the ratio of his investment, as discussed earlier.

However, if all the partners agree to work for the joint venture, each one of them

Shall be treated as the agent of the other in all matters of business. Any work done by one of them in the normal course of business shall be deemed as authorized by all partners.

Basic rules of distribution of Profit
1. The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business and not in proportion to the capital invested by him. E.g. if it is agreed between them that 'A' will get 1% of his investment, the contract is not valid.
2. It is not allowed to fix a lump sum amount for anyone of the partners or any rate of profit tied up with his investment. Therefore if 'A' & 'B' enter into a partnership and it is agreed between them that 'A' shall be given Rs.10, 000/- per month as his share in the profit and the rest will go to 'B', the partnership is invalid.
3. If both partners agree that each will get percentage of profit based on his capital percentage, whether both work or not, it is allowed.
4. It is also allowed that if an investor is working, his profit share (%) could be more than his capital base (%) irrespective whether the other partner is working or not. Eg. if 'A' & 'B' have invested Rs.1000/- each in a business and it is agreed that only 'A' will work and will get 2/3rd of the profit while 'B' will get 1/3rd. Similarly if the condition of work is also imposed on 'B' in the agreement, then also the proportion of profit for 'A' can be more than his investment.
5. If a partner has put an express condition in the agreement that he will not work for the Musharakah and will remain a sleeping partner throughout the term of Musharakah, then his share of profit cannot be more than the ratio of his investment. However, Hanbali school of thought considers fixing the sleeping partners share more than his investment to be permissible.
6. It is allowed that if a partner is not working, his profit share can be established as less than his capital share.
7. If both are working partners, the share of profit can differ from the ratio of investment. Eg. Zaid & Bakar both have invested Rs.1000/- each. However Zaid gets 1/3rd of the total profit and Bakar 2/3rd, this is allowed. This opinion of Imam Abu Hanifa is based on the fact that capital is not the only factor for profit but also labour and work. Therefore although the investment of two partners is the same but in some cases quantity and quality of work might differ.
8. If only a few partners are active and others are only sleeping partners, then the share in the profit of the active partner could be fixed at higher than his ratio of investment eg. 'A' & 'B' put in Rs.100 each and it is agreed that only 'A' will work, then 'A' can take more than 50% of the profit as his share. The excess he receives over his investment will be compensation for his services

Termination of Musharakah
Musharakah will stand terminated in the following cases:

1. If the purpose of forming the Shirkah has been achieved. For example, if two partners had formed a Shirkah for a certain project for e.g. buying a specific quantity of cloth in order to sell it and the cloth is purchased and sold with mutual investment, the rules are simple and clear in this case. The distribution of profit will be as per the agreed rate whereas in case of loss, each partner will bear the loss according to his ratio of investment.
2. Every partner has the right to terminate the Musharakah at any time after giving his partner a notice that will cause the Musharakah to end. For dissolving this partnership, if the assets are liquidated, they will be distributed pro-rata between the partners. However, if this is not the case, the partners may agree either:
a) To liquidate the assets or
b) Distribute the assets as they are.
In case of a dispute between partners whether to seek liquidation of assets or distribute non-liquid assets, the distribution of non-liquid assets will be preferred. Because after the termination of Musharakah, all the assets are in the joint ownership of the partners and a co-owner has a right to seek partition or separation and no one can compel him on liquidation. But if the assets are in a form that cannot be distributed such as machinery, then they shall be sold and the sale-proceeds shall be distributed.
3. In case of a death of any one of the partners or any partner becoming insane or incapable of effecting commercial transaction, the Musharakah stands terminated.
4. In case of damage to the share capital of one partner before mixing the same in the total investment and before affecting the purchase, the partnership will stand terminated and the loss will only be borne by that particular partner. However, if the share capital of all partners has been mixed and could not be identified singly, then the loss will be shared by all and the partnership will not be terminated.

Termination of Musharakah without closing the business
If one of the partners wants termination of the Musharakah, while the other partner or partners like to continue with the business, this purpose can be achieved by mutual agreement. The partners who want to run the business may purchase the share of the partner who wants to terminate his partnership, because the termination of Musharakah with one partner does not imply its termination between the other partners.

However, in this case, the price of the share of the leaving partner must be determined by mutual consent. If there is a dispute about the valuation of the share and the partners do not arrive at an agreed price, the leaving partner may compel other partners on the liquidation or on the distribution of the assets themselves.

The question arises whether the partners can agree, while entering into the contract of the Musharakah, on a condition that the liquidation or separation of the business shall not be effected unless all the partners or the majority of them wants to do so. And that a single partner who wants to come out of the partnership shall have to sell his share to the other partners and shall not force them on liquidation or separation.

This condition may be justified, especially in the modern situations, on the ground that the nature of business, in most cases today, requires continuity for its success, and the liquidation or separation at the instance of a single partner only may cause irreparable damage to the other partners.

If a particular business has been started with huge amounts of money which has been invested in a long-term project, and one of the partners seeks liquidation in the infancy of the project, it may be fatal to the interests of the partners, as well as to the economic growth of the society, to give him such an arbitrary power of liquidation or separation. Therefore, such a condition seems to be justified, and it can be supported by the general principle laid down by the Holy Prophet in his famous hadith:
"All conditions agreed upon by the Muslims are upheld, except a condition which allows what is prohibited or prohibits what is lawful".

Interest based financing Musharakah
1. A fixed rate of return on a loan advanced by the financier is predetermined irrespective of the profit earned or loss suffered by the debtor. Musharakah does not envisage a fixed rate of return. The return is based on the actual profit earned by the joint venture.

2. The financier cannot suffer loss. The financier can suffer loss, if the joint venture fails to produce fruits.
3. Results in injustice either to the creditor or to the debtor. If the debtor suffers a loss, it is unjust on the part of the creditor to claim a fixed rate of profit. Also if the debtor earns a very high rate of profit, it is injustice to the creditor to give him only small proportion of the profit leaving the rest for the debtor. The returns of the creditor are tied up with the actual profits accrued through the enterprise. The greater the profits of the enterprise, the higher the rate of return to the creditor. If the enterprise earns enormous profits, all of it cannot be secured by the debtor exclusively but will be shared by common people e.g. Depositors in the bank.

MURABAHA

Murabaha is one of the most commonly used modes of financing by Islamic Banks and financial institutions.

Definition
Murabahah is a particular kind of sale where the seller expressly mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit thereon. Thus, Murabahah is not a loan given on interest; it is a sale of a commodity for cash/deferred price.

The Bai' Murabahah involves purchase of a commodity by a bank on behalf of a client and its resale to the latter on cost-plus-profit basis. Under this arrangement the bank discloses its cost and profit margin to the client. In other words rather than advancing money to a borrower, which is how the system would work in a conventional banking agreement, the bank will buy the goods from a third party and sell those goods on to the customer for a pre-agreed price.

Murabahah is a mode of financing as old as Musharakah. Today in Islamic banks world-over 66% of all investment transactions are through Murabahah.

Difference between Murabahah and Sale
A simple sale in Arabic is called Musawamah - a bargaining sale without disclosing or referring to what the cost price is. However when the cost price is disclosed to the client it is called Murabahah. A simple Murabahah is one where there is cash payment and Murabahah Muajjal is one on deferred payment basis.

Arguments against Murabahah
An argument that arises in Murabahah is that profit or interest both are the same and Murabahah financing is the same as conventional banking. Islamic scholars however argue that in several respects a Murabahah financing structure is quite different to an overdraft organized along conventional lines and the former offers several benefits to the bank and its customers.

Basic rules for Murabahah
Following are the rules governing a Murabahah transaction:

1. The subject of sale must exist at the time of the sale. Thus anything that may not exist at the time of sale cannot be sold and its non-existence makes the contract void.
2. The subject matter should be in the ownership of the seller at the time of sale. If he sells something that he has not acquired himself then the sale becomes void.
3. The subject of sale must be in physical or constructive possession of the seller when he sells it to another person. Constructive possession means a situation where the possessor has not taken physical delivery of the commodity yet it has come into his control and all rights and liabilities of the commodity are passed on to him including the risk of its destruction.
4. The sale must be instant and absolute. Thus a sale attributed to a future date or a sale contingent on a future event is void. For example, 'A' tells 'B' on 1st January that he will sell his car on 1st February to ‘B’. The sale is void because it is attributed to a future date.
5. The subject matter should be a property having value. Thus a good having no value cannot be sold or purchased.
6. The subject of sale should not be a thing used for an un-Islamic purpose.
7. The subject of sale must be specifically known and identified to the buyer. For Example, 'A' owner of an apartment building says to 'B' that he will sell an apartment to 'B'. Now the sale is void because the apartment to be sold is not specifically mentioned or pointed to the buyer.
8. The delivery of the sold commodity to the buyer must be certain and should not depend on a contingency or chance.
9. The certainty of price is a necessary condition for the validity of the sale. If the price is uncertain, the sale is void.
10. The sale must be unconditional. A conditional sale is invalid unless the condition is recognized as a part of the transaction according to the usage of the trade.

Step by step Murabahah Financing
1. The client and the institution sign an overall agreement whereby the institution promises to sell and the client promises to buy the commodity from time to time on an agreed ratio of profit added to the cost. This agreement may specify the limit up-to which the facility may be availed.
2. An agency agreement is signed by both parties in which the institution appoints the client as his agent for purchasing the commodity on its behalf.
3. The client purchases the commodity on behalf of the institution and takes possession as the agent of the institution.
4. The client informs the institution that it has purchased the commodity and simultaneously makes an offer to purchase it from the institution.
5. The institution accepts the offer and the sale is concluded whereby ownership

as well as risk is transferred to the client.

All the above conditions are necessary to affect a valid Murabahah. If the institution purchases the commodity directly from the supplier, it does not need any agency agreement.

The most essential element of the transaction is that the commodity must remain in the risk of the institution during the period between the third and the fifth stage.

The above is the only way by which this transaction is distinguished from an ordinary interest-based transaction.

Issues in Murabahah
Following are some of the issues in Murabahah financing:

1. Securities against Murabahah
Payments coming from the sale are receivables and for this, the client may be asked to furnish a security. It can be in the form of a mortgage or hypothecation or some kind of lien or charge.

2. Guaranteeing the Murabahah
The seller can ask the client to furnish a 3rd party guarantee. In case of default on payment the seller may have recourse to the guarantor who will be liable to pay the amount guaranteed to him. There are two issues relating to this:

a) The guarantor cannot charge a fee from the original client. The reason being that a person charging a fee for advancing a loan comes under the definition of riba.
b) However the guarantor can charge for any documentation expenses.

3. Penalty of default
Another issue with Murabahah is that if the client defaults in payment of the price at the due date, the price cannot be changed nor can penalty fees be charged.

In order to deal with dishonest clients who default in payment deliberately, they should be made liable to pay compensation to the Islamic Bank for the loss suffered on account of default. However these should be made subject to the following conditions:

a) The defaulter may be given a grace period of at-least one-month.
b) If it is proven beyond doubt that the client is defaulting without valid excuse then compensation can be demanded.

ISTISNA'

Istisna' is a sale transaction where a commodity is transacted before it comes into existence. It is an order to a manufacturer to manufacture a specific commodity for the purchaser. The manufacturer uses his own material to manufacture the required goods.

In Istisna', price must be fixed with consent of all parties involved. All other necessary specifications of the commodity must also be fully settled.

Cancellation of contract:
After giving prior notice, either party can cancel the contract before the manufacturing party has begun its work. Once the work starts, the contract cannot be cancelled unilaterally.

Difference between Istisna' and Salam

Istisna' Salam
1. The subject on which transaction of Istisna' is based, is always a thing which needs to be manufactured. The subject can be anything that needs manufacturing or not.
2. The price in Istisna' does not necessarily need to be paid in full in advance. It is not even necessary to pay the full price at delivery. It can be deferred to any time according to the agreement of the parties. The payment may also be made in installments. The price has to be paid in full in advance.
3. The time of delivery does not have to be fixed in Istisna'. The time of delivery

An essential part of the sale.
4. The contract can be cancelled before the manufacturer starts the work. The contract cannot be cancelled unilaterally.

Istisna' Ijarah
1. The manufacturer either uses his own material and if it is not available with him, obtains it to make the ordered goods. The material is provided by the customer and the manufacturer uses only his labor and skill meaning that his services will be hired for a specified fee paid to him.
2. The purchaser has a right to reject the goods after inspection as Shariah permits somebody who purchases a thing not seen by him, to cancel the sale after seeing it. The right of rejection only exists if the goods do not conform to the specifications agreed upon between the parties at the time of contract. Right of rejection of goods after inspection does not exist.

Time of delivery
As pointed out earlier, it is not necessary in Istisna' that the time of delivery is fixed. However, the purchaser may fix a maximum time for delivery which means that if the manufacturer delays the delivery after the appointed time, he will not be bound to accept the goods and to pay the price.

In order to ensure that the goods will be delivered within the specified period, some modern agreements of this nature contain a penal clause to the effect that in case the manufacturer delays the delivery after the appointed time, he shall be liable to a penalty which shall be calculated on daily basis. Can such a penal clause be inserted in a contract of Istisna' according to Shariah? Although the classical jurists seem to be silent about this question while they discuss the contract of Istisna', yet they have allowed a similar condition in the case of Ijarah. They say that if a person hires the services of a person to tailor his clothes, the fee may be variable according to the time of delivery. The hirer may say that he will pay Rs. 100/- in case the tailor prepares the clothes within one day and Rs. 80/- in case he prepares them after two days.

On the same analogy, the price in Istisna' may be tied up with the time of delivery, and it will be permissible if it is agreed between the parties that in the case of delay in delivery, the price shall be reduced by a specified amount per day.

Istisna' as a mode of financing
Istisna' may be used to provide financing for house financing. If the client owns a land and seeks financing for the construction of a house, the financier may undertake to construct the house on the basis of an Istisna'. If the client does not own the land and wants to purchase that too, the financier can provide him with a constructed house on a specified piece of land. The financier does not have to construct the house himself. He can either enter into a parallel Istisna' with a third party or hire the services of a contractor (other than the client). He must calculate his cost and fix the price of Istisna' with his client that allows him to make a reasonable profit over his cost. The payment of installments by the client may start right from the day when the contract of Istisna' is signed by the parties. In order to secure the financier as a security may keep the title deeds of the house or land, or any other property of the client the payment of installments, until the client pays the last installment. The financier will be responsible to strictly conform to the specifications in the agreement for the construction of the house. The cost of correcting any discrepancy would have to be borne by him.

Istisna' may also be used for similar projects like installation of an air conditioner plant in the client's factory, building a bridge or a highway.

The modern BOT (buy, operate and transfer) agreements may be formalized through an Istisna' agreement as well. So, if the government wants to build a highway, it may enter into an Istisna' contract with the builder. The price of Istisna' maybe the right of the builder to operate the highway and collect tolls for a specific period.

IJARAH (LEASING)

Basic Rules
Transferring of usufruct not ownership
In leasing an owner transfers its usufruct to another person for an agreed period, at an agreed consideration.

Subject of lessee
Should be valuable, identified and quantified.

All consumable things cannot be leased out
The corpus of the leased property remains in the ownership of the seller, and only its usufruct is transferred to the lessee. Thus, anything, which cannot be used without consuming, cannot be leased out. For example money, wheat etc.

All liabilities of ownership is borne by lessor
As the corpus of the leased property remains in the ownership of the lessor, all the liabilities emerging from the ownership shall be borne by the lessor.

· The period of lease must be determined in clear terms.

· It is necessary for a valid lease that the leased asset is fully identified by the parties.

Lease for specific purpose
The lessee cannot use the leased asset for any purpose other than the purpose specified in the lease agreement. However, if no such purpose is specified in the agreement, the lessee can use it for whatever purpose it is used in the normal course.

· The lessee is liable to compensate the lessor for every harm to the leased asset caused by any misuse or negligence.

· The leased asset shall remain in the risk of the lessor throughout the lease period in the sense that any harm or loss caused by the factors beyond the control of the lessee shall be borne by the lessor.

· A property jointly owned by two or more persons can be leased out, and the rental shall be distributed between all joint owners according to the proportion of their respective shares in the property.

· A joint owner of a property can lease his proportionate share only to his co-sharer, and not to any other person.

· The rental must be determined at the time of contract for the whole period of lease.

· It is permissible that different amounts of rent are fixed for different phases during the lease period, provided that the amount of rent for each phase is specifically agreed upon at the time of affecting a lease. If the rent for a subsequent phase of the lease period has not been determined or has been left at the option of the lessor, the lease is not valid.

· The determination of rental on the basis of the aggregate cost incurred in the purchase of the asset by the lessor, as normally done in financial leases, is not against the rules of Shariah, if both parties agree to it, provided that all other conditions of a valid lease prescribed by the Shariah are fully adhered to.

· The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.

· The rent or any part thereof may be payable in advance before the delivery of the asset to the lessee, but the amount so collected by the lessor shall remain with him as 'on account' payment and shall be adjusted towards the rent after its being due.

· The lease period shall commence from the date on which the leased asset has been delivered to the lessee.

· If the leased asset has totally lost the function for which it was leased, the contract will stand terminated.

· The rentals can be used on or bench marked with some Index as well. In this case the ceiling and floor rentals can be identified for validity of lease.

Lease as a mode of financing
Lease is not originally a mode of financing. It is simply a transaction meant to transfer the usufruct of a property from one person to another for an agreed period against an agreed consideration. However, certain financial institutions have adopted leasing as a mode of financing instead of long term lending on the basis of interest.

This transaction of financial lease may be used for Islamic financing, subject to certain conditions. It is not sufficient for this purpose to substitute the name of 'interest' by the name of 'rent' and replace the name of 'mortgage' by the name of 'leased asset'. There must be a substantial difference between leasing and an interest-bearing loan. That will be possible only by following all the Islamic rules of leasing, some of which have been mentioned earlier.

To be more specific, some basic differences between the contemporary financial leasing and the actual leasing allowed by the Shariah are indicated below:

The commencement of lease
Unlike the contract of sale, the agreement of Ijarah can be effected for a future date. Hence, it is different from Murabaha.

In most cases of the 'financial lease' the lessor i.e. the financial institution purchases the asset through the lessee himself. The lessee purchases the asset on behalf of the lessor who pays its price to the supplier, either directly or through the lessee. In some lease agreements, the lease commences on the very day on which the price is paid by the lessor, irrespective of whether the lessee has effected payment to the supplier and taken delivery of the asset or not. It may mean that lessee's liability for the rent starts before the lessee takes delivery of the asset. This is not allowed in Shariah, because it amounts to charging rent on the money given to the customer, which is nothing but interest, pure and simple.

Rent should be charged after the delivery of the leased asset
The correct way, according to Shariah, is that the rent will be charged after the lessee has taken delivery of the asset, and not from the day the price has been paid. If the supplier has delayed the delivery after receiving the full price, the lessee should not be liable for the rent of the period of delay.

Difference between Murabahah and leasing:
In Murabahah, as mentioned earlier, actual sale should take place after the client takes delivery from the supplier, and the previous agreement of Murabahah is not enough for effecting the actual sale. Therefore, after taking possession of the asset as an agent, he is bound to give intimation to the institution, and make an offer for the purchase from him. The sale takes place after the institution accepts the offer.

The procedure in leasing is different, and a little shorter. Here the parties need not effect the lease contract after taking delivery. If the institution, while appointing the client its agent, has agreed to lease the asset with effect from the date of delivery, the lease will automatically start on that date without any additional procedure. There are two reasons for this difference between Murabahah and leasing:

a) It is a necessary condition for a valid sale that it should be affected instantly. Thus, a sale attributed to a future date is invalid in Shariah. But leasing can be attributed to a future date. Therefore, the previous agreement is not sufficient in the case of Murabahah, while it is quite enough in the case of leasing.
b) The basic principle of Shariah is that one cannot claim a profit or a fee for a property the risk of which was never borne by him. Applying this principle to Murabahah, the seller cannot claim a profit over a property, which never remained under his risk for a moment. Therefore, if the previous agreement is held to be sufficient for affecting a sale between the client and the institution, the asset shall be transferred to the client simultaneously when he takes its possession, and the asset shall not come into the risk of the seller even for a moment. That is why the simultaneous transfer is not possible in Murabahah, and there should be a fresh offer and acceptance after the delivery.

In leasing, however, the asset remains under the risk and ownership of the lessor throughout the leasing period, because the ownership has not been transferred. Therefore, if the lease period begins right from the time when the client has taken delivery, it does not violate the principle mentioned above.

Termination of Lease
If the lessee contravenes any term of the agreement, the lessor has a right to terminate the lease contract unilaterally. However, if there is no contravention on

the part of the lessee, the lease cannot be terminated without mutual consent. In some agreements of the 'financial lease' it has been noticed that the lessor has been given an unrestricted power to terminate the lease unilaterally whenever he wishes, according to his sole judgment. This is again contrary to the principles of Shariah.

In some agreements of the 'financial lease' a condition has been found to the effect that in case of the termination of lease, even at the option of the lessor, the lessee shall pay the rent of the remaining lease period.

This condition is obviously against Shariah and the principles of equity and justice. The basic reason for inserting such conditions in the agreement of lease is that the main concept behind the agreement is to give an interest-bearing loan under the ostensible cover of lease. That is why every effort is made to avoid the logical consequences of the lease contract.

Naturally, such a condition cannot be acceptable to Shariah. The logical consequence of the termination of lease is that the lessor should take the asset back. The lessee should be asked to pay the rent as due up to the date of termination. If the termination has been effected due to the misuse or negligence on the part of the lessee, he can also be asked to compensate the lessor for the loss caused by such misuse or negligence. But he cannot be compelled to pay the rent of the remaining period.

Insurance of the assets
If the leased property is insured under the Islamic mode of Takaful, it should be at the expense of the lessor and not at the expense of the lessee, as is generally provided in the agreements of the current 'financial leases'.

The residual value of the leased asset
Another important feature of the modern 'financial leases' is that after the expiry of the lease period, the corpus of the leased asset is normally transferred to the lessee. As the lessor already recovers his cost along with an additional profit thereon, which is normally equal to the amount of interest which could have been earned on a loan of that amount advanced for that period, the lessor has no further interest in the leased asset. On the other hand, the lessee wants to retain the asset after the expiry of the leased period.

For these reasons, the leased asset is generally transferred to the lessee at the end of the lease, either free of any charge or at a nominal token price. In order to ensure that the asset will be transferred to the lessee, sometimes the lease contract has an express clause to this effect. Sometimes this condition is not mentioned in the contract expressly; however, it is understood between the parties that the title of the asset will be passed on to the lessee at the end of the lease term. This condition, whether it is express or implied, is not in accordance with the principles of Shariah. It is a well-settled rule of Islamic jurisprudence that one transaction cannot be tied up with another transaction so as to make the former a pre-condition for the other. Here the transfer of the asset at the end has been made a necessary condition for the transaction of lease The original position in Shariah is that the asset shall be the sole property of the lessor, and after the expiry of the lease period, the lessor shall be at liberty to take the asset back, or to renew the lease or to lease it out to another party, or sell it to the lessee or to any other person. The lessee cannot force him to sell it to him at a nominal price, nor can such a condition be imposed on the lessor in the lease agreement. But after the lease period expires, and the lessor wants to give the asset to the lessee as a gift or to sell it to him, he can do so by his free will.

However, some contemporary scholars, keeping in view the needs of the Islamic financial institutions have come up with an alternative. They say that the agreement of Ijarah itself should not contain a condition of gift or sale at the end of the lease period. However, the lessor may enter into a unilateral promise to sell the leased asset to the lessee at the end of the lease period. This promise will be binding on the lessor only. The principle, according to them, is that a unilateral promise to enter into a contract at a future date is allowed whereby the promisor is bound to fulfill the promise, but the promisee is not bound to enter into that contract. It means that he has an option to purchase, which he may or may not exercise. However, if he wants to exercise his option to purchase, the promisor cannot refuse it because he is bound by his promise. Therefore, these scholars suggest that the lessor, after entering into the lease agreement, can sign a separate unilateral promise whereby he undertakes that if the lessee has paid all the amounts of rentals and wants to purchase the asset at a specified mutually acceptable price, he will sell the leased asset to him for that price. Once the lessor signs this promise, he is bound to fulfill it and the lessee may exercise his option to purchase at the end of the period, if he has fully paid the amounts of rent according to the agreement of lease.