Abstract:
Islamic banking and finance is fast becoming the need of 21st century with a rapidly
growing base of pious Muslim population that feels that the Riba based mode of
commercial banking is not acceptable for carrying out their business and finance
transactions. In Pakistan Islamic banking too is developing a strong foothold that has
achieved 30% growth rate since 2010. The potential of Islamic banking is encouraging in
Pakistan considering that it is a predominantly Muslim country, this reason is enough to
ensure that when sound Islamic banking with correct implementation of Islamic rules and
principles is put in place, it would automatically result in a large section of population to
shift from interest based (Riba) to non-interest based banking system. This study will
highlight the importance of Islamic banking by pointing out that most of the commercial
banking instruments are interest based in nature as compared to the Islamic banking
products. To highlight this important fact a detailed discussion on five important Islamic
banking products (Murabaha, Bai bi thamin ajil, Wadia (Gift), Mudaraba, Musharaka)
and five commercial banking products (Home Mortgage, Trade Financing, Money
Deposit, Investment, Venture Capital) will be carried out and it will be explained and
reasoned out that Islamic banking products are permissible while commercial banking
products are not permissible when analyzed in the light of Shariah rules and sayings. The
main purpose for which this study is conducted is to find out answer to the question that
whether the presence of interest in a financial instrument (venture capital financing,
money deposit etc.) results in the impermissibility of the sale and purchase operations
carried out with the help of the financial instrument.
