An Analytical Study of the Shariah Foundations of the Contemporary Islamic Banking in the Light of the Teachings of the Holy Prophet Muhammad ﷺ

Abstract

This paper describes in detail the Islamic principles of investment and partnership and then takes a closer look at the current banking practices in vogue in Inslamic Banking system of Pakistan. Islam is a complete code of life which sets high moral values in all the social aspects of human life including economics. The Science of economics has attained a pivotal role in the modern era. All economic activities are directly or indirectly controlled by the existing banking systems which work on the principle of interest. Although the contemporary Islamic banking system has gradually evolved and it is claimed that it works according to Islamic sharia; however, it is still a question whether this system works according to the true spirit and principles of Islam. The present study uses the descriptive analysis technique to give a detailed account of the conventional and Islamic banking and related current practices of banking in Pakistan. The paper gives an overview of bank, its types, and a little history if banking system. It also exhibits how “Interest/Riba” has been condemned in the Holy Quran and Sunnah. Then, the paper adderesses some of the criticism raged against the principles of investment being used in Islamic baamking. The paper suggests how an alternate to the existing interst based banking system may be introduces in the light of the recommendations put forth by the Council of Islamic Ideology. The contemporary Islamic banking thrives on its investment mostly made in Musharakah, Mudarabah, Murabaha, Ijara, As Salam, and Istisna’a. Very often, on having a close look into the tools and procedures of Islamic banking, we come to the conclusion that the existing Islamic banking system is not working according to the true spirit of Islam. Instead, it has muddled the concepts of permissible and impermissible things and practices contrary to the principles of Islamic Jurisprudence. Our Holy Prophet Muhammad ﷺ was also a successful trader but “ MUSHARKAH “and “MUDARABAH” were always done on the basic principles of profit and loss. Our Holy Prophet ﷺ has strictly prohibited interest and declared it an open war against Allah and His Prophet ﷺ. But instead of all these facts, it is has been found that our contemporary Islamic Banking system has camouflaged the Islamic Shariah and still works on net profit gain and not on profit and loss principle. Under these circumstances, it is the need of the hour and a challenge to Islamic finance scholars and the experts of economics to rethink, contemplate, and make reforms to evolve a new mechanism regarding the contemporary Islamic Banking in the light of Islamic Shariah.