Pillars of Islamic Banking and Finance

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Pillars of Islamic Banking & Finance
By: Munawwar Ali Kartio
Research Scholar MBA (Finance), DAIBP, LLB, PGD (Islamic Banking & Finance)

Under Supervision of
Prof Dr. Iqbal Ahmed Panhawar
Pro-Vice Chancellor

بسم الله الرحمن الرحيم



Islam emphasis justice and equity in all spheres of human society and refrains from all sorts of exploitation in financial dealings. It encourages active participation in economic activity instead of earning money on utilization of money. Islam allows freedom in economic activities with certain limitations to differentiate between Halaal & Haraam. Islamic finance is based on the principles and rules laid down by Islamic Shariah. In Islamic financing system there is greater return because there is a greater risk. Islamic financial institute invest and get the profit not the interest.

Being a complete code of life Islam realizes importance of justice, equity and human welfare in society, It is not mere a relationship between believer and Allah, restricted to worship only but it deals and guides every aspect of human life. Justice and equity require a set of laws or ethical values, which everyone accepts with heart & soul and complies with loyally. The Islamic financial system promotes justice in a manner that on the one hand the financier has to share in the risk so as not to transfer the entire burden of losses (if any) to the entrepreneur/user of funds and the other is that an equitable share of financial resources mobilized by financial institutions should become available to the poor to eliminate /reduce poverty, inequalities of income and wealth by providing equal opportunities to active participation in economic activity.

Islamic Economic System is based on following pillars

1. Belief in Divine Guidance:
It is the firm belief of every Muslim that commands given by Divine revelations through the last holy messenger Muhammad (PBUH) are to be followed in letter and spirit and cannot be violated on the basis of one’s rationale arguments or his inner desires. 2. Earning and Spending in Halaal ways:

Islam has given detailed regulations for the conduct of our economic life which concerns mainly the earning and use of wealth. Islam strictly refrains from seeking earnings from illegal and unethical avenues and its use and spending as well. Islam sanctifies productive labour and indeed makes earning of righteous livelihood a religious obligation.

3. Right to property:
Wealth in all its forms is created by Allah (SWT) and He is absolute owner of it and the man being his naib/vice regent has right of property with certain limitations and restrictions imposed by the real owner regarding its use and spending. Islam recognizes individual‘s right to hold property for personal use and production but it abhors glaring inequities of income and wealth and exploitation of the poor by rich.

4. Freedom of speech and Action:
Islamic system allows the individual liberty and freedom of choice to do his duty. The power of discretion frees him from historical determinism. However, Islam limits individual freedom with social responsibility to make him liable for social evils in society.

5. Distribution Of Zakah

Every Muslim who owns wealth more than his needs must have to pay the fixed rate of Zakah to the Islamic state. It helps the fair distribution of wealth in the society which provides social security to poor and needy. The Islamic state is responsible for providing the basic necessities of life to each and every citizen. Zakah is no doubt a means of narrowing the gap between the rich and the poor.

6. Law of Inheritance
The Islamic law of inheritance is an effective tool to control the concentration of wealth in few hands. It provides a very detailed schedule regarding redistribution of the total wealth of the deceased.

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