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  • Journal of Islamic Banking and Finance July Sept. 2012 1



    O ye who believe Fear God and give up what remains of your demand for usury if ye are indeed believers.

    If ye do not, take notice of war from God and His Apostle. But if ye turn back ye shall have your capital sums. Deal not

    unjustly, And ye shall not be dealt with unjustly.



    The articles published in this Journal contain references from the

    sacred verses of Holy Quran and Traditions of the prophet (p.b.u.h) printed for the understanding and the benefit of our readers. Please maintain their due sanctity and ensure that the pages on which these

    are printed should be disposed of in the proper Islamic manner.

  • 2 Journal of Islamic Banking and Finance July Sept. 2012

    Journal Of

    Islamic Banking and Finance The Quarterly Journal of Islamic Banking and Finance is an official publication of International Association of Islamic Banks Karachi, Pakistan. It is a refereed quarterly journal, as well as a pioneer for the studies in Islamic banking and finance being published since 1984. The journal has wide readership at home and abroad. Its clientele include IMF, World Bank, Central Commercial/Banks Universities, Educational Institutions, and Public Libraries in Pakistan/abroad. Etc

    Subscription Rates (Including postage) S u b s c r I p t I o n One year Two years Per single Copy

    Pakistan Rs. 750.00 Rs. 1300.00 Rs. 160.00 Overseas US$. 70.00 US$. 130.00 US$. 17.00 Old Issues of One Year Pakistan Rs. 400.00 Overseas US$. 20.00 For Students*

    Pakistan Rs. 550.00 Overseas US$. 35.00

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    B-5 (1st Floor), Kehkashan Apartments, Block No. 7, Main Clifton Road,

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  • Journal of Islamic Banking and Finance July Sept. 2012 3

    Journal of Islamic Banking and Finance

    Volume 29 July Sept. 2012 No. 3 Founding Chairman Muazzam Ali (Late)

    Former Chairman * Pakistan Press Foundation (Pak) * Pakistan Press International (Pak) * Institute of Islamic Banking & Insurance (UK) * Former Vice Chairman DAR AL-MAAL AL-ISLAMI TRUST, GENEVA, SWITZERLAND

    Chairman Basheer Ahmed Chowdry Editor Aftab Ahmad Siddiqi

    Associate Editor Mazhar Ali

    Co-ordinator Research & Marketing Mohammad Farhan Business Executive A. N. Haqqani

    Published by International Association of Islamic Banks Karachi, Pakistan. Ph: 35837315 Fax: 35837315 Email: ia _ ib @

    Registration No. 0154 Printed at M/S Maaz Prints, Karachi

    Board of Editorial Advisors S. A. Q. Haqqani Dr. Hasan uz Zaman Dr. Mohammad Uzair Altaf Noor Ali (ACA)

    International Advisory Panel

    Professor Dr. Md. Masum Billah Corporate Advisor & Consultant to Global Islamic Banks & Financial Market. Malaysia.

    Professor Dr. Rodney Wilson School of Government and International Affairs, Durham University, UK

    Dr, R. Ibrahim Adebayo Department of Religions, University of Ilorin, Nigeria

    Prof. Dr. Zubair Hasan The Global University of Islamic Finance, Kuala Lumpur, Malaysia Dr. Waheed Akhtar Assistant Professor, Comsats Institute of Information Technology (CIIT), Lahore, Pakistan Dr. Manzoor Ahmed Al-Azhari, PhD Legal Policy (Shariah & Law) Chair, Department of Islamic Studies Institute of Religious Education & Research (IRER) HITEC University Taxila Cantt Pakistan Professor Dr. Khawaja Amjad Saeed FCA, FCMA Hailey College of Banking & Finance University of Punjab, Lahore, Pakistan

    Dr. Mehboob ul Hassan Professor, Department of Business Administration, Sindh Madarsatul Islam University, Karachi, Pakistan Mr. Salman Ahmed Shaikh External Reviewer Bankers Academy USA, Karachi, Pakistan Prof/ Dr. Habib ur Rahman Head Business Administration Deptt Sarhad University of Science & Information Technology, Peshawar, Pakistan Dr Muhammad Zubair Usmani Jamia Daraluloom Karachi

  • 4 Journal of Islamic Banking and Finance July Sept. 2012

  • Journal of Islamic Banking and Finance July Sept. 2012 5

    Journal of Islamic Banking and Finance

    Volume 29 July Sept. 2012 No. 3

    C O N T E N T S 1. Editors Note 09 . 2. Analysis of Islamic Mutual Funds Operations in Pakistan 14 By Salman Ahmed Shaikh 3. Islamic home finance: legality, pricing, and profit Models compared 24 By Prof. Dr. Zubair Hasan 4. Practices of Insurance Operators in Malaysia: Conventional 40 Vs. Unconventional Life Insurance By Sheila Nu Nu Htay, Wan Reena Zahirah Wan Rosli Shaharuddin & Hanudin Amin 5. Econometric Analysis of Attitudinal Differences of Islamic Banking in Pakistan 54 By Munawwar Ali Kartio, Dr. Anwar Ali Shah G. Syed & Faiz M. Shaikh 6. Riba Regime, Lean Purses and Angry Heavens: Palliatives 61 and Opportunities in the Nigerian Economy By Mubarak Oladosu 7. Focus on Difference between Interest and Trade Profit 70 By Muhammad Ayub 8. The Constitutionality of Islamic Banking and Financing Services 75 By A.S. Orisankoko & K.K. Eletu 9. Examining the Prudence of Islamic Banks: A risk Management Perspective By Dr. Muhammad Imran Ashraf Usmani 93 10. Development of Islamic Banking Industry Focus on Country Models: 100 Sudan, Indonesia . 9. Note To Contributors of Articles 105 10. Order Form for Subscription/Ad to the Journal 106

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  • 8 Journal of Islamic Banking and Finance July Sept. 2012

  • Journal of Islamic Banking and Finance July Sept. 2012 9

    Editors Note This is a paper on Analysis of Islamic Mutual Funds Operations in Pakistan

    by Salman Ahmed Shaikh. It pays tribute to Islamic Finance for its phenomenal growth, for its expansion to other sectors and for attracting finances from Muslims and non Muslim investors. It also shows appreciation for its good performance during the recent lean period. The paper gives two Tables showing annualized returns on Islamic and non Islamic mutual funds and Islamic and non Islamic voluntary pension funds under different categories. These show that Islamic funds earned better returns in quite a few categories.

    The paper observes that KSE and Al Meezan made a debut in launching the Islamic index in 2008. Their screening methodologies, approved by the Shariah scholars, have been described in the paper. Besides this, the rules of sales of Islamic fiqha have also been quoted. It critically examined the screening rules and finds that several restrictions have been placed on investment, though they do not appear in Holy Quran and have been initiated by Shariah scholars. Similarly the paper discusses the issues in investment management and has quoted Mufti Taqi Usmani who held that Murabaha was not a mode of financing. The paper has also discussed anomalies in Income Purification Methodology and Inconsistencies in Corporate Governance.

    The paper has highlighted many a deficiency in the present practice of Islamic banking which therefore deserve notice of concerned quarters.

    This is an article on Islamic home finance: legality, pricing, and profit Models compared by Zubair Hasan about home finance. These days house building loans are being issued to borrowers under Musharakah, Mutanaqisah Partnership model which is being considered as free of interest by jurists and bankers both. However the other method known as ZDBM model is cheaper to the borrower and also not costlier to the banker.

    Housing is a vital necessity of human beings and no one can live without a house. Banks therefore started the scheme of house building loans. But the return of the loan and the profit for the bank were both a tortuous process and was a source of great trouble for the borrower and was also costly affair as return on loan to Islamic banks and conventional banks was not much different.

  • 10 Journal of Islamic Banking and Finance July Sept. 2012

    The writer of the article Dr. Zubair Hasan devised a Diminishing Balance Model for this purpose which did not involve much trouble for the borrower but was also cheaper. This was known as ZDBM. This model became quite popular but many queries were raised in a seminar against this system. This article has clarified all the doubts raised. It also gives an illustration to further elucidate the benefits of the ZDBM. The article also carries several Tables which also prove benefits of the scheme and also that it will not cause any loss to the banker.

    Then explanatory illustration, figures and statistics, have succeeded in establishing that the ZDBM model is worth following and all queries have been reasonably answered supported by figures and diagrams. Those who raised objections may now be convinced of their futility and adopt the models for the benefit of both borrowers and bankers.

    This article on Pr

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