FIN 463 : Islamic Banking and Finance

School of Business Studies, IBA Karachi

Program: BBA/BSAF
Department Offering: Finance
Class ERP Number: 7660 & 7661
Faculty: Dr. Irum Saba

Class Details

2:30pm to 3:45pm, City Campus

Class Room 7, Aman Tower
Class Timing and
Room
4:00pm to 5:15pm City Campus
Class Room 7, Aman Tower

Session Days Tuesday and Thursday

Credit Hours: 3 Credit Hours

Email isaba@iba.edu.pk

Contact # 021 38104701 Extension: 1854

Course Description

This course covers the theory and application of canonical Islamic laws to modern financial
transactions. It begins with the fundamental guidelines in Islam for the economic systems,
dealings (Mu’amlaat) and transactions and covers how they compare with the modern-day
financial systems. It inculcates how some financial transactions or banking methods can in
fact be in accordance with the laws of Islam and the need for such ‘Shariah complaint’
financial products today. The course covers regulatory landscape for IFIs in Pakistan and
discuss Shariah governance framework. Role of international Islamic financial institutions
in developing the Islamic finance industry is also explained in this course.

Undergraduate Program Learning Competencies

1. Effective Communication Skills

Students will develop ability to become effective speakers, listeners, writers, and team members.

2. Knowledge of Core Business Disciplines

Students will gain a broad-based multidisciplinary exposure to a range of business disciplines.

3. Critical Thinking Skills

Students will develop the ability to classify, analyze and evaluate the available data using appropriate
techniques for effective decision making
4. Ethics
Students will develop an awareness and understanding of ethical issues.

5. Glocal Mindset
Students will develop a focus on global connections with local contexts through awareness of diversity across
cultures and markets.

Course Learning Outcomes (CLOs)

1. Understand the concept of Islamic finance and the main prohibitions in Islamic law.
Understand local and global Islamic financial institutions (mapped to PLO501)
2. Appreciate and understand the methodologies by which laws are derived from
primary and secondary sources.
3. Examine modes of financing used in Islamic banks
4. Regulations for Islamic finance industry in Pakistan. Understand the limitations and
challenges faced by Islamic finance and banking industry today and ethical
dilemmas. (Mapped PLO401)

AOL Assessment Mapping

PLG mapped: This course is not mapped for AOL assessment.

Teaching and Learning Methodology

1. Students are required to revise the lectures and read the topics prior to the lecture.
During the lecture, we will discuss the topic and issues related to the topic
2. Cases, in-class, and home assignments based on industry information will be used
as a companion to the lectures.
3. Home assignments will be discussed in the class and will add to the class
participation marks.

Course Learning Outcomes mapped to Program Learning Competencies

Knowledge
Effective
of
Communicat Critical Glocal
Core Ethics
Program ion Skills Mindset
Business
Learning Goals Skills
Areas

Course
Learning
Outcomes

1 (LG401) X
2 (LG501) X

Mapping to
Session and
Course Learning Content
Topic
Outcomes

Introduction and preliminary reflection on Islamic

Economic and Financial System

What do we mean by Islamic banking, Islamic

Finance, or Shariah complaint?

What are the sources of Islamic Law? Is the

prevalent financial system Shariah complaint? Can a
Session 1-3:
system possibly be Shariah complaint?
Preliminaries
and Overview CLO 1
The need for Islamic finance.
of Islamic
Banking and
Important Islamic Financial Institutions across the
Finance
world IDB, ISRA, AAOIFI, IIFM, IILM, IFSB, CIBAFI, CIIF,
etc.

Role of Regulators in Islamic Financial Landscape of

Pakistan
Islamic banking for all

State Bank of Pakistan, SECP

Develop building blocks of Islamic Economic and

Financial System

What does Riba mean? Is modern day interest

included in Riba?
Quranic prohibitions on Riba
Session 4-5: Ahadith regarding Riba
Introduction Types of Riba
to Islamic CLO1 Riba present in the Prophet (SAW)’s time and Riba
Financial today
System Why is Riba impermissible?
Is a financial system possible without Riba
How to identify Riba from different transactions
The main prohibitions in Islam – Riba, Gharar, Maysir

Types of Riba
Types of Gharar

Session 6-7: CLO 2 Readings on Islamic Jurisprudence

Shariah -
Islamic Law & How laws are derived from Shariah: the four sources
Legal Theory of Islamic law, fundamentals of Islamic jurisprudence
The different levels of permissibility in Islam: Haram,
 Makruh, Mubah, Mubstahab, Wajib/Fard with
examples

The case of Differences of Opinions in Islamic law:

the existence, inherent need. Is this necessarily bad?

Explain the injunctions of Islamic contracts and

examine rules for conditions and stipulations
The Contract of Sale in Islam
Session 8-9:
The meaning of Fasid (voidable) and Batin (voidable)
Contracts in CLO 2
contracts. Evaluate the conditions for both binding
Islam
and void Islamic sales

Basic Rules of Sales Contract

Understanding Time Value of Money

Session 10:
Explain the building blocks of finance and the
Contracts in CLO2
concept of time value of money.
Islam
Understanding Legal Maxims and its applications

Asset and Liability Side Management of

Session 11:
Islamic Banks
Types of Sale CLO2
Case Study of BankIslami and Meezan Bank
in Islam &
Analyze the asset and liability side features of
Khiyars
Islamic banks

Murabaha/Bai Muajjal
Conditions for validity of Murabaha
Risk transfer in Murabaha
Common Issues in Murabahah
Session 12: Discuss the distinguishing features of Murabaha and
Bai its use on the asset side of Islamic banks
CLO3
Murabaha & Types of Murabahah-based products of Islamic banks
CM today. Why is it such a common mode of financing?
Comparison of Murabaha-based and Interest-based
products

Commodity Murabaha - PMEX

Islamic concept of partnership and its use on both

the asset and liability side of Islamic banks
Musharkah and the Ideal Islamic Financing Model.
Risk sharing in Musharakah
Rules and common issues in Musarakah
Session 13:
CLO3 Why is Musharakah-based Islamic banking difficult in
Musharakah
the modern world?
Introduction to debt-based and risk-sharing Islamic
financial contracts
Comparison of Musharkah with Conventional finance

Session 14: CLO3 The Prophet (SAW)’s Mudarabah with Hazrat Khadija
Mudarabah RA
Differences between Mudarabah and Musharakah
Conditions for Mudarabah
 Readings: Khan (2010); Usmani (2010). Examine the
ideal nature of Musharkah and Mudarbah and
analyze the impediments in their implementation.

Conditions for Ijarah.

Types of Ijarah
Ijarah and conventional sale
Common issues in Ijarah
Session 15: Discussion on the distinguishing features of Islamic
Ijarah & leasing
CLO3
Diminishing Diminishing Musharakah meaning, utility in
Musharakah financing;
Comparison between Musharakah, Ijarah and DM
Discussion on the distinguishing features of DM and
its use in Islamic house financing
Calculations and exercises on DM

Case of Salam from Prophet SAW, for farmers in

Madinah
Salam and the general prohibition of forward sale.
Conditions for Salam.
Sessions 16-
Meaning and conditions for Istisna
17: Salam
CLO3 How to distinguish Ijarah and Istisna transactions:
and Istisna
Who owns the materials used?
Examine the distinguishing features of Salam and its
use in agriculture financing. Also discuss the
characteristics of Istisna and its application to
project financing

Meaning and need for Takaful

Conditions for Takaful
Session 18:
CLO3 Differences between Insurance and Takaful
Takaful
Models for Takaful: The Wakala model
Issues in Takaful industry today

Meaning of Sukuk
Sessions 19-
Discuss Issues related to Sukuk structuring
20: Sukuk &
The need for Islamic finance for the Muslim world
Implementin
CLO3 Common misconceptions and criticisms on Islamic
g Islamic
banking
financial
Understanding how Islamic finance can be
solutions.
implemented in a secular legal setting.

Session 21-
22: Innovations and limitations in Islamic finance
CLO4
Regulations Regulations and laws related to IFIs.
of Islamic Ethical Dilemma
Finance

Session 23:
CLO2, 3 &4 Discussion of annual reports of different Islamic
Annual
financial institutions from around the globe.
Reports

Session 24- CLO4 Modaraba Sector

25: Islamic The case of microfinance
finance and
financial Islamic finance and ethical financing
inclusion

Session 26-
30 : CLO 3 & 4
Final Group Presentations
Presentation
s & Revision

Text Book and Pre-Course Reading Material, Important Dates

Main reference:
Islamic Financial System, published by International Shariah Research Academy (ISRA),
Malaysia 2022
Mufti Imran Muhammad Usmani, “Meezan Bank’s Guide to Islamic Banking”
Islamic Law of Contract by Dr. Tahir Mansoori 2020
Supporting References:
Mufti Taqi Usmani, “An Introduction to Islamic Finance”.
Islamic Banking Bulletin 2021-2022
Vogel, F. E. and Hayes, S. L. Islamic Law and Finance: Religion, Risk and Return (VH)

Prerequisite Skills and Knowledge to take this Course

Since it is a finance elective, there are pre-requisites for this course. Students needing help
can come for counseling on Tuesday and Thursday (1:00 p.m. to 2:30 p.m.) 2 nd Floor, Aman
CED, Main Campus

Assessments and Grading Scheme

Assessment Due Date Remarks

Ongoing Class Participation is regularly

Class Participation
monitored by the instructor
Ongoing (end of
Project and session/ as announced Details to be given via LMS
Presentation
in class)
Guest Speaker
As announced in class Participation and attendance is
Session and Study
mandatory
Field Trip
Quizzes and Ongoing Mandatory
Assignments
Exams Exam Weeks Mid Term and Final Term
This course follows absolute grading.
 Marks Head Marks

Quizzes and Home

10
Assignments

Project and
15
Presentation

Class Participation &

5+5
Guest Lecture

Study Field Trip 05

Mid Term Exam 25

Final Term Exam 35

Total Marks 100

Comments and/or Suggestions

• Since subsequent topics build on previously learned material, it is imperative that

students keep up with the material. In addition, you should ensure that lectures are
understood properly.
• A student who misses a class is responsible for obtaining any information on course
content, due dates, test dates, etc.
• Unethical behavior (cheating, plagiarism, proxy attendance) will be strictly
penalized.

Technology & Innovation

• All course materials will be posted on LMS and grades will be posted on ERP.
Students are responsible to stay updated on these platforms. For discussions and
course related queries, Facebook group will be utilized.

Experiential Learning Exposure(s)

• There will be guest speaker sessions on selected topics.

• Students will do one group project as part of the course.

Social Contribution / Impact

• The course will emphasize on the concept of business sustainability through Islamic
Finance. Students will learn about Green Finance and how Islamic Finance revolves
around the 17 Sustainable Development Goals (SDGs).

Academic Conduct
IBA policy

Attendance Policy

IBA policy

Plagiarism Policy

IBA policy

Withdrawal Policy

IBA policy