Impact of Islamic Banking on Consumer Financing Sector

Impact of Muslim Banking on Consumer Financing sphere of influenceAbstractThis see finds out the realistic or whatsoever(prenominal) occurrenceual impact ca apply by the introduction of Muslim Banking on the consumer support sector gener tout ensembley, bit safe charge its main focus de nonatively on tol eonte Financing and machine Financing with desires in Pakistan. The total bounds affect in consumer support whether Muslim or Conventional where intromitd in this research, keeping 2003 as the base year of data initiation. Since 53% of Consumer m onenesstary backing was orbit delimit by brook and car financial support so they were kept in focus. Independent T-Tests were run on the investments as well as the return of both(prenominal)(prenominal) the sectors that is Muslim and Conventional banking sectors. The data was collected from the Statistical selective information W be sign Department of State Bank of Pakistan. The results show that the variance s in the investment sectors of both Muslim and Conventional differed from each other where H0 was jilted on the basis of value of t stats where as in the step-up comparison the variances were utter to be same at 10% outstanding level unless the path of crop stood at 29% and 9% in cases of Muslim and Conventional banking approveively proving the positive impact of Muslim Banking on Consumer Financings bulky sector of dramatics and railway car Financing in Pakistan . In case of any incongruity to State Bank of Pakistan or the AAOFI standards, the latter sh completely prevail.Chapter maven IntroductionThe intent to write this research was to countervail the detailual understanding as well as affect ca utilize c anyable to the introduction of Moslem Banking in Pakistan. It was acclaimed by the people relate to the assiduity that Muslim Banking had positively affected the banking sector here and crossways the globe. The total were quoted and percen drop backes c laimed provided no real research supported the declarations. So the actor thought of doing a research to dwell on the issue and distri neverthelesse a research with compliancy to Pakistan hence, configure the true standings of the conterparts cognize comm tho as Moslem Banking and Conventional Banking. Muslim Banking though has a untarnished institutionalised history of 35 years across the globe nonwithstanding has shited tremendous recognition in this utterly land tenure which sh wholly be wittnessed in the lit eyepatchture review ahead in this report. The evolution of Moslem Banking in Pakistan started as late as 2000 01 later the historical judgement of the lordly Court of Pakistan in1999 a exculpatest the prevailing saki found banking transcription. The Moslem banking emerged, though subsequently(prenominal) a valiant effort which continued over two decades earlier to its surfacing. Different reports, articles, a fighteness sessions, books and othe r relative material endowed to this unfeignedly innovation of Islamic Banks in Pakistan. metergh the clouds of uncertainity render lingered on this fresh instigated initiative ever since its emergence, save therefore again that has always remained a norm for innovative things in Pakistan. cubic yardgh Islamic Banking has come a long way aft(prenominal)(prenominal) its start almost a decade ago besides it still has a lot to prove to its spectators with respect to shariah compliance and market effectiveness in the Pakistans lucrative but stingent souk.Consumer Financing is a sector which has its part of exuberance attached to it in the banking and fiscal sector. When ever the monetary markets be flooded with accessive liquidity the get-go thing that magnetizes the banker is the consumer financing sector speci anyy in Pakistan where the yeilds were as high schoolschool as 15% on proceeds. The magnitude of House and simple machine pay together tend to weigh around at almost 53% of this sector so the proceedings in this neighborhood can be established by analysing these mentioned sectors. In view of the fact that the House Car financing sector provide a level playing celestial orbit for the conterparts that is Islamic and Conventional players, was a nonher reason for this assortment.In the untestedsprint but the comparative analysis is military personnelnersed as well as the background of both Islamic Banking and Finance with Consumer Financing has been discussed in comprehensive detail.Statement of the paradoxIslamic Banking ever since its emergence in Pakistan has pressd eyebrows of think and non related players. Is there a remnant? Which banking form sh tot each(prenominal)y prevail? Does Islamic Banking rescue enough weight to outset its conterpart? Can Islamic Banking loose the quest afterwards of organism a p bellel banking system and become the prefered banking operation in Pakistan? The research worker answers to these q uestions in the light of the literature review as well as by testing the viability of Islamic Banking sector to its conterpart Conventional Banking in the addition backed sectors of House and Car pay ( done banks) in Pakistan.Objective staple fiber purpose of this research is to look on the unlikeial impact of Islamic Banking in contrast to Conventional Banking on House Car Financing through Banks in Pakistan.Research ModelHypothesesH0 Islamic Banking does non impact House Car Financing through Banks In Pakistan.H1 Islamic Banking directly impacts House Car Financing through Banks In Pakistan.Chapter Two Literature f on the whole overThis segment will app rig out the comprehesive literature review with respect to Islamic Banking glob completelyy while Consumer Banking Sector in Pakistan.Islam as a encipher of LifeIslam acclaims its self to be a Deen which provides a complete enter of life to its practitioners. According to its claim Islam non only helps its followers or else also those who seek for help without believing in its core centre of attention for twenty-four hour period to twenty-four hour period hinderances. May it be a name for a believers child or be it the purpose of life, Islam alone tends to answer to on the whole the versatile queries of its disciple. This is the beauty of Islam but it can only lead to promised land only if every the resources of Islam argon kept in view or an adherent may astray from the righteous path.The main resources of Islam can be categorized as follows ledger e Karim The Holy Book direct upon Hazarat MuhammadAhadith e Mubarakah (Sayings of Hazarat Muhammad)Shariah (Implementation of Islam) Lives of Hazrat Muhammad and the Sahaba (Companions of Hazarat Muhammad)Hence the Deen, Islam, can be categorized into deuce-ace main branchesBeliefs (Aqaaid)Reformation and Rectification (Tassawuf) Islamic Laws and Principles (Fiqha).Since my paper would be plan of attack under the third bough of a healthy hie rarchy, that is, Islamic laws and Principle natural law (Fiqh). Further elaborating this division cognise as Fiqh (Islamic Laws and Principles) can be encourage sub-divided into the hobby sectionsPrayers (Forms of submissions to Allah T completelyah, Ibadaat)Societal or Civil Laws (Maamlaat)Criminal LawsConstitutional lawsSince my paper discusses the Societal or Civil laws (Maamlaat) or sooner absolutely specifying it would be dealing with financial aspects of this vast sub branch of Fiqh. Coming to the financial aspects of a Muslim or even an Oriental who believes in the candor of Islamic laws, the main concern of this individual is to abide by Islamic law and principles while earning bread and butter for himself and his family.The things permissible by Islamic code ar referred to as Halal while the things that be forbidden in Islamic Fiqh argon known as Haram. It is by province that a Muslim or even an Oriental who believes in Islamic laws can earn his living only throug h Halal ways. integrity way of distinguishing Halal is by identifying the barricades while the rest trunk permissible.Prohibitions in Islam for Financial ProceduresThe two of the main ills identified by Islam in financial procedures atomic number 18Riba (Interest)Gharar.Riba (Interest)In perspectives of Shariah money is considered to be a assessing way for value or worth quite than an overconfident within itself, it necessitates that an investor should non be able to obtain income from capital (or e actuallything that is treated as a kind of money) alone. This production of money from money ( normally known as wager) is Riba, which is interdict in Islam. Prohibation of Interest (Riba) in playscriptFollowing are the poetrys where Quran has out rightly identified avocation as a prohibition. In the followers pen our Creator nullifies the visual increase of wealth clear through interest group.And whatever Riba you give so that it may increase in the wealth of the peop le it does not increase with Allah Subhanahu Tallah (3039)At another beam it has been identified that the Jews werent allowed to indulge in interest.And because of their charging Riba while they were proscribed from it (4161)A verse which identifies the prohibition of interest and its form whether it be compounded.O those who believe do not eat up Riba doubled and redoubled (3130)Ribas eminent prohibition can be seen in the following verse while at the same time the permissible alternative of trading has been offered. Another all-important(prenominal) factor which can be witnessed here is that boastful of charity is being encouraged while interest is being regarded as a curse.Those who stock Riba ( rake-off or interest) will not stand but as stands the one whom the demon has driven craze by his touch. That is because they soak up tell merchandise is but like Riba and Allah Subhanahu Tallah has permitted trading and out(p) Riba. So, whoever receives an advice from his lord a nd stops, he is allowed what has passed, and his numerate is up to Allah Subhanahu Tallah . And the ones who revert back, those are the people of fire. There they remain forever.Allah Subhanahu Tallah destroys Riba and nourishes charities. And Allah Subhanahu Tallah does not like any sinful disbeliever. Surely those who believe and do entire deeds, establish Salah and pay Zakah, exhaust their yield with their lord, and there is no fear for them, nor shall they grieve.O those who believer, fear Allah and give up what still mud of Riba if you are believers. precisely if you do not, so listen to the declaration of struggle from Allah and his messenger. And if you repent, yours is your principal. Nevery you wrong, nor be wronged. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you actually know. And be fearful of a day when you shall be returned to Allah, then everybody shall be paid, in full, what he has make. A nd they shall not be wronged. (2 verses 275-281)Identifying one of the greatest ills of Interests parsimoniousness of wealth the rich be attack wealthier and the poor becoming underprivileged, the verse tends to circulate one of the populacey aliments cause by going against the prohibition.So that this wealth should not become confined only to the rich amongst you.(597)During the tenure of 1984 to 1994, $ 719 Billion dollars were O.K. as interest establish loans while $ 749 Billion were returned during the same tenure still leaving bum a liability of $ 1258 Billion. 225 people give 47% of the wealth of the realism at the same time 1 Billion and 30 Million people earn $ 1 periodic while 32% of the population of this world earns $ 4 day-to-day. These facts show that the constitute financial system has the above mentioned illness known as the niggardness of wealth.Prohibation of Interest (Riba) in hadithThe second source of Islam is the sayings of the Holy prophesier Muhamm adSallalaho Alaihi Wassallam. Ahadith of illusionistSallalaho Alaihi Wassallam which are on the prohibition of Riba (Interest) are as followsIn the following Saying the excess on either sides is regarded as riba.Gold for gold, ash grey for silvery, wheat for wheat, barley for barley, date for date, salt for salt, must be stir on both sides and hand to hand. Whoever pays more or de homosexualds more (on either side) indulges in Riba.1.( Sahih Muslim, Karachi, V.2, P.25)As per the following saying commercial interests being is exhibited.Ibn Juraij says in the pre-Islamic period, the tribe of Banu Amr bin auf utilize to wreak interest from the tribe of Banu-al-Mughira, and the Banu-al-Mughira used to pay this interest. When islam came,the later owned considerable amount of money to the former. And progress onthe Banu-al-mughira used to pay interest to Banu-thaqif.All the people multiform in the transaction of riba are found to be guilty and at fault as per quoted saying below. From Jabir the Prophet,Sallalaho Alaihi Wassallam, may cursed the receiver and the remunerator of interest, the one who records it and the two witnesses to the transaction and utterthey are all besides in guilt (Muslim,Kitab-al-Musaqat, Bab lani akili al-Riba wa mukilihialso in Tirmidhi and Musnad Ahmed)The implication or the inference of sins that a person attains on indulging himself in interest based proceeding is emphasized in the following quotes.FromAbdullah ibn Hanzalahthe Prophet,Sallalaho Alaihi Wassallam, verbalize a dirham of Riba which a firearm receives knowingly is worst than committing adultery thirty-six times(Mishkat al-Masabih, Kitab al-Buyu,Bab al -Riba,on the originatority of Ahmed and Daraqutni)From Abu Hurayrah the Prophet,Sallalaho Alaihi Wassallam said Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.(Ibn Majah)Interest based transaction reap no lettuces here or hereafter. The misery that o ne is bound to go through after death just for indulging himself in interest based proceeds in telescopic in the following quote.From Abu Hurayrah the Prophet,Sallalaho Alaihi Wassallam, said On the night of Ascension I came upon people whose stomachs were like houses with snakes microscopical from the out side. I asked Gabriel who they were. He replied that they were people who had received interest ( Ibn Majah, Kitab al-Tijarat, Bab al Taghlizi fi al-Riba also in Musnad Ahmad)Prohibation of Interest (Riba) in BibleIt is not that only in Islam, interest is prohibited even in Christianity, the prohibition of interest is eminent. We have even seen above that even Jews were prohibited from interest based activity according to the Qurans verse. Following are the quotes from the Bible proving the prohibition of Riba.Thou shalt not lend upon usury to thy brother usury of money, usury of victuals, usury of any thing that is lent upon usury. Deuteronomy 2319Lord, who shall abide in thy temple? Who shall dwell in thy holy hill? He that walketh uprightly, and worketh righteousness and speaketh the the true in his hearth. He that putteth not out of his money to usury, not taketh settle with against the innocent.Psalms 151, 2, 5He that by usury and unjust gain increaseth his substance, he shall gather it for him that will pity the poor. Proverbs 288Then I consulted with myself, and I rebuked the noble, and rules and said unto them, ye exact usury, every one of his brother. And I set a great assembly against them.Nehemiah 57After identifying that interest has been prohibited in the past as well as in the contemporary era by the Creator of mankind as He tends to proscribe this act, it would be important to understand the types of Riba which are as followsRiba Al Jahiliya/ Riba An NasiyahThat type of debt where qualify reimbursements period and an amount in sur prescribed of capital is fixed. (Usmani, 2002)Riba Al Fadl / Riba Al HadeesRiba Al Fadl means that the amou nt or replete(p)s paid back in excess other than the Qard (Loan) or which is taken in commuting of definite homegenous products and are utilized in their hand to hand purchase and deals matement as explained in the Hadees. (Sahih Muslim, Karachi, V.2, P.25). (Usmani, 2002)GhararThe second of the ailments identified by the Islamic Juriprudence is known as Gharar. Gharar, is usually understood to denote ambiguity in the submitual conditions and/or the uncertainty in the survival of an es dis confideial good in an go overment and this creates concerns for Islamic scholars in the light of Islamic Jurisprudence. Shariah does let in the ideology of Public benefit, denoting that, if nearthing is tremendously in the public favor, it may be executed and so hedging or alleviation of preventable championship threats, do come into this class but tho elaboration is as follows by Islamic Scholars Gharar is where the participants that is the buyer and seller, dont know what one bought and what the other alter. prof Mustafa Al-Zarqa the detective of Shariah has written Gharar can be be as the sale of possible goods whose characteristics or individuality can not be established, collectable to the dicey character which makes this form of care related to gambling. hadith forbidding this prototype of trading in Gharar (jeopardy) are available in books of Hadith. Some examples of Gharar transactions are (e.g. trading any fish limpid in the sea or a bird from a appeal of species flying in the sky an unborn calf in cow womb, are some of the saleable goods which cannot be probed and examined as their true traits are unknown. Islamic Jurisprudence researchers have addicted many complete definitions of Gharar. They have also evolved with the idea of Yasir (minor jeopardy) a financial deal with an in earthshaking risk is believed to be Halal (permissible) while transactions involving significant risk (Bayu-ul-Gharar) is deemed to be Haram.Gharar is one of those impediments which limit the power of decision making. An agreement that has any gene of Gharar is not valid from the Islamic Jurisprudence view, irrespective of whether the parties to the agreement agree upon the agreement.The lexical meaning of Gharar is to deceive, cheat, delude, lure, entice and uncertainty.Gharar can be delimit as follows The uncertainty that is constitute in the basic divisors of an agreement, wording, subject subject area, consideration and the liabilities. employment of events which have been prohibited in Ahadith because of Gharar areSale of unborn Camels tiddler still in the mother abdomen.Sale of flowers before they appear on the plant.Sale of fish that comes in one throw of net.Sale of sheepskin on the body of the animal.Qimar is that event in which there is a surmisal of total loss to one party.Every gambling is a form of Qimar but Qimar is not limited to gambling. The Contract in which the participants, at the moment of implementing the agreemen t, cannot realize or quite decide as to how much it would give or receive.Causes of GhararThough the conditions can be many but the most ordinarily occuring causes can be identified in (Samadani, 2007) are as followsUncertainity relating to the existence of thing exchangeUncertainity relating to the acception of thing exchangeUncertainity relating to the thing change itselfUncertainity relating to the priceUncertainity relating to the payment of priceUncertainity relating to both thing sold as well as the priceTypes of GhararSome types of Gharar are as followsBaitan fi Bai (Twin sales)Safaqa fi Safaqa (Twin gravels)Bai urban/urboonForward contractSuperficial bull whip effectIn the dark ages, many contracts were in vogue, where that condition would turn trade into reckon hunt. Like the seller would have different pieces of cloth and the buyer would estimate a stone and would get the cloth where the stone would land. The Holy ProphetSallalaho Alaihi Wassallam has disallowed all such contracts.After identification of the prohibitions in the current financial system where interest and Gharar (Uncertainity) are a part and fate of day to day proceedings. The need for a system which eliminated such illnesses was inevitable. Another reason was that, after the jolts of 1930s and other economicalal crisis of 1970 and now of 2008 that followed, the financial world started talk of the town about alternatives to the present systems of (Communism, Socailism and Capitalism). Though Capitalism is the largest spread system across the globe but by all means its jolting has been witnessed since 1839, 1930, 1970 and 2007. Is it at the verge of its end? Nobody knows but people have started flavour for options.Islamic EconomicsIslam provides an economic system based on rules and principles define by Islamic Jurisprudence. Human being is just a shop steward of wealth and the true ownership is with Allah Tallah. Islamic Economics point of loss is that it not onl y deals with the materialistic needs of human being rather it also fulfills the spirtual needs at the same time. The main theory tail end the Islamic economics is that money is only a means of exchange (in other words money tends to serve as an intermediary amidst the transaction of asset) and not a product that can be sold or discounted. Here it is noteworthy that a human being is not the true owner of wealth as it belongs Allah Tallah rather he has been given up only the right to use it as the second owner, keeping in mind that he would be questioned on the day of judgement of his usfruct. Islam doesnt resist the forces of law of demand and supply but does emphasis on the consumer as well as the government to abide by the rules of Islam. Islam as a Deen has the capability to accomadate all good things that life has to bring accept those which are outrightly against its divine principles.To summarise Islamic economics can be outlined as the humanitarian goal of achieving the we ll-being of all members of the human family which cannot be attained by concentrating primlairly on the materialistic needs of comfort and creating maximation of riches as the core intention of economics. Hence it is part and component part to raise the spirtual content of well being of the all society and prune all symptons of anomie, like family disintegration, heavy interest based debt payments, conflict and tension, crime, alcholism, dependance to drugs and psychological illness, all signifying lack of internal delight and satisfaction in the life of human beings. Captialism similar to socialism, both have fallen victimize to show the way to their followers such an overall welfare. As a prospective measure, it is seems almost inevitable to put down the outlines of a reinvigorated scheme of operations which helps maximise human well being as per the divine guidelines of Allah Tallah.As per (Khan, 1993) that since the unavailibilty of an Islamic society anywhere in the worl d the Islamic economics at present is scarely able to express or articulate Islamic position on economic issues as per its connotations.Islamic economics implies a serious execution of the Islamic strategy to raise the spirtual as well as the material well being of all people and to establish socio-economic justice, which is the vital objective of the Islamic message. On the spirtual side, the calm of mind that is fundamental to inner happiness cannot be attained drop by increasing the nearness of the human being to his Creator, which Islam is capable of obstetrical delivery about but secularism doesnot even aspire to. (Chapra, 1992).Islamic BankingBanks serve as the heart of any economy as they pump funds into the economic veins of a country. The four main functions that the bank performs arelending and stick to businesssecurities issuingasset management andforeign exchange trading. avocation has been given as an alternative to interest based transactions by Quran e Kareem as m entioned above. In the light of this fact the comtemporary Islamic scholars after reviewing the current financial system have comeup with different modes of financing to fulfill the much needed requirement. In the futher discussion we shall discuss those modes of financing. and firstly we would define Islamic banking as per the State Bank Of Pakistan.Islamic banking has the same utility as of conventional banking shut that it asserts to function in agreement with the rules of Islamic Jurisprudence, called Fiqh ul Muamalat (Islamic regulations for transactions). The indispensable law of Islamic banking is the sharing of gain and loss and the prohibition of interest and Gharar. The Islamic concepts, that are mainly used in Islamic banking are hit sharing combination of separate investor and worker (Mudharabah), safekeeping (Amanah), joint endanger (Musharkah), Diminishing Musharkah, cost plus profit (Murabahah), asset finance (Ijarah), manufacturing (Istisna) and agricultural go ods (Salaam). Islamic banking proposes to a anatomical structure of banking or democratic pooling actions that is dependable on Islamic Jurisprudence (Shariah) and channeled by Islamic economics. Islamic law prohibits interest the arrangement and payment of Usury. Islamic law also disallows trading in financial risk (since it is a form of gambling) discussed above as Gharar. In addition, Islamic Jurisprudence excludes fraternity in businesses which are deemed Haram (a going concern which deals in pork or alcohol). At the verge of 20th century, quite a few Islamic banks were crafted, to cater to this specific banking market. (Hassan, 2002)In an Islamic mortgage transaction, instead of swelled debt to the buyer, money is utilized to purchase the item that is, money is a strong point of exchange and not a commodity. Money cannot be rented, is a fact of Islamic Economics. The supplier acts as a direct vendor for the bank, after acquiring the goods the bank proceeds it to the cust omer at a gain, while allowing the buyer to payback the bank in installments (assets backed financing). However, for any appease in payment the bank cannot charge additional costs as profit or compensation. To mitigate its risk and close in on the vulnerability of the customers default, the bank keeps strict collaterals as its bail out. After the self-possession of goods the tangible asset is listed in the name of the buyer, by the Islamic banks. such(prenominal) a bargain is known as Murabaha.Likewise Ijara wa Iqtina or Ijara bi Tamleek, which is alternative to real estate capital finance. Islamic banks handgrip semblanceate income financings for means of transportations in a likewise manner (vending the automobile at a price, which is higher than the current value of the asset in the market, to the lessee and then holding up the title of the median(a) until the pre-agreed proceeds are paid up).The previous profits are taken into consideration oscilloscope up a profit and los s sharing ratio. Consequently the banks profit on the comparisonate income financing is equivalent to a specific property of the companys revenues. As soon as the investment amount of the restate income financing is reimbursed, the earning-distribution arrangement is terminated. This specific exercise is entitled as Musharaka.Supplementary to this, Mudaraba is risk capital financing where a talented worksman who provides labor while backup is offered by the bank, so that one executes business on behalf of the other. such participatory indulgence between capital and labor reflect the Islamic instaurations that the borrower should not absorb the peril/price of a collapse, since it is Allah Tallah who determines that failure or success, and intends that all those involved reap or bear it as per their responsiblenesss.Last, Islamic banking is move within Islamically permissible transactions, which eliminate those involving alcohol, pork, gambling, etc. Thus Islamic expend is t he only acknowledgeable form of investment, and asset backed transactions are encouraged at the same time the social illnesses are not propped up.The concepts and financing modes in Islamic banking are as followsShariah consultatory Council/ConsultantIslamic banks and banking organizations that offer Islamic banking products and services (IBPS banks) are necessary to establish Shariah advisory boards/ consultants to recommend them and to ensure that the procedures, activities and systems of the bank succeed with Shariah doctrine.Amanah (Safekeeping)In Amanah, a bank is reckoned as a warden and shop steward of endowments. Person depositions money in the bank and the bank assures to repay the whole amount of the belongings, or any portion of the remaining sum, when the depositor claims it. In this function the Bank becomes the Amin (the Guardian) while the saver is known as Rab-ul-Maal. In Amanah the bank cannot consume this money until and unless the depositor permits its Amin.M udarabah (Profit Loss Sharing)Mudarabah is a form or contract established between an investor and an entrepreneur, whereby the entrepreneur can finance the investments for its business proceedings. whatever gains generated shall be distributed between the investor and the entrepreneur as per the consented ratio, while only the investor stands all the losings if transpired, it has to be bared in mind that the due gaze of the entrepreneur will be evaluated and in case of carelessness he/she would have to bear the consequences. The profit-sharing maintained until the proportionate income financing is reimbursed. The bank receives its shell out for the time value of its money through a set proportion in profit earned that is attached to the debtors profits. (Hassan, 2002)It is a corporation in proceeds between investment and skill, where one provides funds whereas the other supplements proficiency, expertness and administration. The latter is called as the Mudarib. any(prenominal) profits accumulated are distributed amongst the participants on a pre-settled ratio, while loss is borne only by the investor.It is noteworthy that any increase in capital shall be the property of Rab-ul-Maal the capital provider according majority of jurist. For example if the sheep provided by rab-ul- maal investor and sheep gave birth to lamb, the lambs would be in the ownership of Rab-ul-Maal not the Mudarib (entrepreneur). The capital provider earns profit from the business on the basis of providing capital while the entrepreneur gets his divide with respect to his efforts and endeavors. (Usmani T. M., 2004)Musharkah (Joint Venture)This institution is normally applied for business partnerships or mutual ventures. The profits make are shared on a settled ratio, while if losings are sustained they will be divided on the justice funds allocation ratio. This model is different from fixed-income endowing (i.e. proceeds of propotionate income financings). The two different types o f Musharkah modes are Shirkat ul Ooqud and Shirkat ul Milk as per Islamic Jurisprudence. Further elaborating the types can be divided into specific main categories with foster sub types each.In Islamic finance the things taken into consideration are Shirkat ul Ooqud (Partnership in Trade) and Shirkat ul Amaal (Partnership in Services).Shirkat ul Amwal (Partnership in trade)Shirkat Ul Amal (partnership in services)Shirkat ul Amwal (partnership in trade) is the mode of partnership where all partners invest some capital into a commercial enterprise. Shirkat Ul Ammal (partnership in services) is the form of partnership where all the partners jointly undertake to render some services for their customers and the fee supercharged from them is distributed among them accordingly to an agreed ratio. (Usmani T. M., 2004)Musharkah translates itself into a relationship established under a pact by theImpact of Islamic Banking on Consumer Financing SectorImpact of Islamic Banking on Consumer Fi nancing SectorAbstractThis subscribe finds out the realistic or any factual impact caused by the introduction of Islamic Banking on the consumer financing sector generally, while keeping its main focus explicitly on House Financing and Car Financing through banks in Pakistan. The total banks involved in consumer financing whether Islamic or Conventional where included in this research, keeping 2003 as the base year of data initiation. Since 53% of Consumer financing was being define by House and Car financing so they were kept in focus. Independent T-Tests were run on the investments as well as the yield of both the sectors that is Islamic and Conventional banking sectors. The data was collected from the Statistical info Ware House Department of State Bank of Pakistan. The results show that the variances in the investment sectors of both Islamic and Conventional differed from each other where H0 was rejected on the basis of value of t stats where as in the growth comparison the variances were said to be same at 10% significant level but the means of growth stood at 29% and 9% in cases of Islamic and Conventional banking respectively proving the positive impact of Islamic Banking on Consumer Financings bulky sector of House and Car Financing in Pakistan . In case of any incongruity to State Bank of Pakistan or the AAOFI standards, the latter shall prevail.Chapter one IntroductionThe intent to write this research was to countermine the factual understanding as well as affect caused due to the introduction of Islamic Banking in Pakistan. It was acclaimed by the people related to the industry that Islamic Banking had positively affected the banking sector here and across the globe. The total were quoted and percentages claimed but no real research supported the declarations. So the author thought of doing a research to dwell on the issue and conduct a research with respect to Pakistan hence, configure the true standings of the conterparts known commonly as I slamic Banking and Conventional Banking.Islamic Banking though has a unstained institutionalised history of 35 years across the globe but has gained tremendous recognition in this short tenure which shall be wittnessed in the literature review ahead in this paper. The evolution of Islamic Banking in Pakistan started as late as 2000 01 after the historical judgement of the despotic Court of Pakistan in1999 against the prevailing interest based banking system. The Islamic banking emerged, though after a valiant effort which continued over two decades preceding to its surfacing. Different reports, articles, awareness sessions, books and other relative material endowed to this very existence of Islamic Banks in Pakistan. Though the clouds of uncertainity have lingered on this newly instigated initiative ever since its emergence, but then again that has always remained a norm for innovative things in Pakistan. Though Islamic Banking has come a long way after its start almost a decad e ago but it still has a lot to prove to its spectators with respect to shariah compliance and market effectiveness in the Pakistans lucrative but stingent souk.Consumer Financing is a sector which has its part of exuberance attached to it in the banking and financial sector. When ever the financial markets are flooded with accessive liquidity the first thing that magnetizes the banker is the consumer financing sector specially in Pakistan where the yeilds were as high as 15% on proceeds. The magnitude of House and Car finance together tend to weigh around at almost 53% of this sector so the proceedings in this neighborhood can be established by analysing these mentioned sectors. In view of the fact that the House Car financing sector provide a level playing depicted object for the conterparts that is Islamic and Conventional players, was another reason for this assortment.In the paper and the comparative analysis is conducted as well as the background of both Islamic Banking and Finance with Consumer Financing has been discussed in comprehensive detail.Statement of the paradoxIslamic Banking ever since its emergence in Pakistan has raised eyebrows of related and non related players. Is there a difference? Which banking system shall prevail? Does Islamic Banking have enough weight to outset its conterpart? Can Islamic Banking loose the tag of being a parellel banking system and become the prefered banking operation in Pakistan? The researcher answers to these questions in the light of the literature review as well as by testing the viability of Islamic Banking sector to its conterpart Conventional Banking in the asset backed sectors of House and Car finance (through banks) in Pakistan.Objective prefatory purpose of this research is to determine the differential impact of Islamic Banking in contrast to Conventional Banking on House Car Financing through Banks in Pakistan.Research ModelHypothesesH0 Islamic Banking does not impact House Car Financing throug h Banks In Pakistan.H1 Islamic Banking directly impacts House Car Financing through Banks In Pakistan.Chapter Two Literature look backThis segment will appraise the comprehesive literature review with respect to Islamic Banking globally while Consumer Banking Sector in Pakistan.Islam as a order of LifeIslam acclaims its self to be a Deen which provides a complete codification of life to its practitioners. According to its claim Islam not only helps its followers rather also those who seek for help without believing in its core incumbrance for day to day hinderances. May it be a name for a believers child or be it the purpose of life, Islam alone tends to answer to all the versatile queries of its disciple. This is the beauty of Islam but it can only lead to reason only if all the resources of Islam are kept in view or an adherent may astray from the righteous path.The main resources of Islam can be categorized as followsQuran e Karim The Holy Book sent upon Hazarat MuhammadAha dith e Mubarakah (Sayings of Hazarat Muhammad)Shariah (Implementation of Islam) Lives of Hazrat Muhammad and the Sahaba (Companions of Hazarat Muhammad)Hence the Deen, Islam, can be categorized into deuce-ace main branchesBeliefs (Aqaaid)Reformation and Rectification (Tassawuf) Islamic Laws and Principles (Fiqha).Since my paper would be coming under the third bough of a healthy hierarchy, that is, Islamic laws and Principle Jurisprudence (Fiqh). Further elaborating this division known as Fiqh (Islamic Laws and Principles) can be further sub-divided into the following sectionsPrayers (Forms of submissions to Allah Tallah, Ibadaat)Societal or Civil Laws (Maamlaat)Criminal LawsConstitutional lawsSince my paper discusses the Societal or Civil laws (Maamlaat) or rather absolutely specifying it would be dealing with financial aspects of this vast sub branch of Fiqh. Coming to the financial aspects of a Muslim or even an Oriental who believes in the virtue of Islamic laws, the main conc ern of this individual is to abide by Islamic law and principles while earning bread and butter for himself and his family.The things permissible by Islamic Jurisprudence are referred to as Halal while the things that are prohibited in Islamic Fiqh are known as Haram. It is by obligation that a Muslim or even an Oriental who believes in Islamic laws can earn his living only through Halal ways. iodine way of distinguishing Halal is by identifying the prohibitions while the rest remains permissible.Prohibitions in Islam for Financial ProceduresThe two of the main ills identified by Islam in financial procedures areRiba (Interest)Gharar.Riba (Interest)In perspectives of Shariah money is considered to be a assessing means for value or worth rather than an asset within itself, it necessitates that an investor should not be able to obtain income from capital (or everything that is treated as a kind of money) alone. This production of money from money (commonly known as interest) is Riba, which is prohibited in Islam. Prohibation of Interest (Riba) in QuranFollowing are the verses where Quran has out rightly identified interest as a prohibition. In the following verse our Creator nullifies the visual increase of wealth earned through interest.And whatever Riba you give so that it may increase in the wealth of the people it does not increase with Allah Subhanahu Tallah (3039)At another place it has been identified that the Jews werent allowed to indulge in interest.And because of their charging Riba while they were prohibited from it (4161)A verse which identifies the prohibition of interest and its form whether it be compounded.O those who believe do not eat up Riba doubled and redoubled (3130)Ribas eminent prohibition can be seen in the following verse while at the same time the permissible alternative of trading has been offered. Another important factor which can be witnessed here is that giving of charity is being encouraged while interest is being regarded as a curse.Those who take Riba (usury or interest) will not stand but as stands the one whom the demon has driven craze by his touch. That is because they have said traffic is but like Riba and Allah Subhanahu Tallah has permitted trading and prohibited Riba. So, whoever receives an advice from his lord and stops, he is allowed what has passed, and his matter is up to Allah Subhanahu Tallah . And the ones who revert back, those are the people of fire. There they remain forever.Allah Subhanahu Tallah destroys Riba and nourishes charities. And Allah Subhanahu Tallah does not like any sinful disbeliever. Surely those who believe and do good deeds, establish Salah and pay Zakah, have their reward with their lord, and there is no fear for them, nor shall they grieve.O those who believer, fear Allah and give up what still remains of Riba if you are believers. But if you do not, then listen to the declaration of war from Allah and his messenger. And if you repent, yours is your principal. Nei ther you wrong, nor be wronged. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful of a day when you shall be returned to Allah, then everybody shall be paid, in full, what he has earned. And they shall not be wronged. (2 verses 275-281)Identifying one of the greatest ills of Interests density of wealth the rich becoming wealthier and the poor becoming underprivileged, the verse tends to blossom forth one of the many aliments caused by going against the prohibition.So that this wealth should not become confined only to the rich amongst you.(597)During the tenure of 1984 to 1994, $ 719 Billion dollars were authorise as interest based loans while $ 749 Billion were returned during the same tenure still leaving behind a liability of $ 1258 Billion. 225 people possess 47% of the wealth of the world at the same time 1 Billion and 30 Million people earn $ 1 daily while 32% of the population of this world earns $ 4 daily. These facts show that the present financial system has the above mentioned illness known as the assimilation of wealth.Prohibation of Interest (Riba) in HadithThe second source of Islam is the sayings of the Holy Prophet MuhammadSallalaho Alaihi Wassallam. Ahadith of ProphetSallalaho Alaihi Wassallam which are on the prohibition of Riba (Interest) are as followsIn the following Saying the excess on either sides is regarded as riba.Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be bear upon on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba.1.( Sahih Muslim, Karachi, V.2, P.25)As per the following saying commercial interests existence is exhibited.Ibn Juraij says in the pre-Islamic period, the tribe of Banu Amr bin auf used to take interest from the tribe of Banu-al-Mughira, and the Banu-al-Mughira used to pay this interest. When islam came,the lat er owned considerable amount of money to the former. And further onthe Banu-al-mughira used to pay interest to Banu-thaqif.All the people involved in the transaction of riba are found to be guilty and at fault as per quoted saying below.From Jabir the Prophet,Sallalaho Alaihi Wassallam, may cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and saidthey are all alike in guilt (Muslim,Kitab-al-Musaqat, Bab lani akili al-Riba wa mukilihialso in Tirmidhi and Musnad Ahmed)The implication or the inference of sins that a person attains on indulging himself in interest based transactions is emphasized in the following quotes.FromAbdullah ibn Hanzalahthe Prophet,Sallalaho Alaihi Wassallam,said a dirham of Riba which a man receives knowingly is worst than committing adultery thirty-six times(Mishkat al-Masabih, Kitab al-Buyu,Bab al -Riba,on the authority of Ahmed and Daraqutni)From Abu Hurayrah the Prophet,Sallalaho Alaihi Wassalla m said Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.(Ibn Majah)Interest based transaction reap no profits here or hereafter. The misery that one is bound to go through after death just for indulging himself in interest based proceeds in visible in the following quote.From Abu Hurayrah the Prophet,Sallalaho Alaihi Wassallam, said On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the out side. I asked Gabriel who they were. He replied that they were people who had received interest ( Ibn Majah, Kitab al-Tijarat, Bab al Taghlizi fi al-Riba also in Musnad Ahmad)Prohibation of Interest (Riba) in BibleIt is not that only in Islam, interest is prohibited even in Christianity, the prohibition of interest is eminent. We have even seen above that even Jews were prohibited from interest based activity according to the Qurans verse. Following are the quotes from the Bible provi ng the prohibition of Riba.Thou shalt not lend upon usury to thy brother usury of money, usury of victuals, usury of any thing that is lent upon usury. Deuteronomy 2319Lord, who shall abide in thy synagogue? Who shall dwell in thy holy hill? He that walketh uprightly, and worketh righteousness and speaketh the truth in his hearth. He that putteth not out of his money to usury, not taketh reward against the innocent.Psalms 151, 2, 5He that by usury and unjust gain increaseth his substance, he shall gather it for him that will pity the poor. Proverbs 288Then I consulted with myself, and I rebuked the noble, and rules and said unto them, ye exact usury, every one of his brother. And I set a great assembly against them.Nehemiah 57After identifying that interest has been prohibited in the past as well as in the contemporary era by the Creator of mankind as He tends to proscribe this act, it would be important to understand the types of Riba which are as followsRiba Al Jahiliya/ Riba An NasiyahThat type of debt where contract reimbursements period and an amount in surplus of capital is fixed. (Usmani, 2002)Riba Al Fadl / Riba Al HadeesRiba Al Fadl means that the amount or goods paid back in excess other than the Qard (Loan) or which is taken in exchange of explicit homegenous products and are utilized in their hand to hand purchase and sale as explained in the Hadees. (Sahih Muslim, Karachi, V.2, P.25). (Usmani, 2002)GhararThe second of the ailments identified by the Islamic Juriprudence is known as Gharar. Gharar, is usually understood to denote ambiguity in the contractual conditions and/or the uncertainty in the survival of an essential good in an agreement and this creates concerns for Islamic scholars in the light of Islamic Jurisprudence. Shariah does include the ideology of Public benefit, denoting that, if something is tremendously in the public favor, it may be executed and so hedging or alleviation of preventable business threats, do come into this clas s but further elaboration is as follows by Islamic Scholars Gharar is where the participants that is the buyer and seller, dont know what one bought and what the other sold. prof Mustafa Al-Zarqa the researcher of Shariah has written Gharar can be defined as the sale of possible goods whose characteristics or individuality can not be established, due to the dicey character which makes this form of business related to gambling. Hadith forbidding this prototype of trading in Gharar (jeopardy) are available in books of Hadith. Some examples of Gharar transactions are (e.g. trading any fish move in the sea or a bird from a collection of species flying in the sky an unborn calf in oxen womb, are some of the saleable goods which cannot be probed and examined as their true traits are unknown. Islamic Jurisprudence researchers have given many complete definitions of Gharar. They have also evolved with the idea of Yasir (minor risk) a financial deal with an insignificant risk is believed t o be Halal (permissible) while transactions involving significant risk (Bayu-ul-Gharar) is deemed to be Haram.Gharar is one of those impediments which limit the power of decision making. An agreement that has any element of Gharar is not valid from the Islamic Jurisprudence view, irrespective of whether the parties to the agreement agree upon the agreement.The lexical meaning of Gharar is to deceive, cheat, delude, lure, entice and uncertainty.Gharar can be defined as follows The uncertainty that is present in the basic elements of an agreement, wording, subject matter, consideration and the liabilities. workout of events which have been prohibited in Ahadith because of Gharar areSale of unborn Camels treat still in the mother abdomen.Sale of flowers before they appear on the plant.Sale of fish that comes in one throw of net.Sale of sheepskin on the body of the animal.Qimar is that event in which there is a adventure of total loss to one party.Every gambling is a form of Qimar bu t Qimar is not limited to gambling. The Contract in which the participants, at the moment of implementing the agreement, cannot determine or rather decide as to how much it would give or receive.Causes of GhararThough the conditions can be many but the most commonly occuring causes can be identified in (Samadani, 2007) are as followsUncertainity relating to the existence of thing soldUncertainity relating to the possession of thing soldUncertainity relating to the thing sold itselfUncertainity relating to the priceUncertainity relating to the payment of priceUncertainity relating to both thing sold as well as the priceTypes of GhararSome types of Gharar are as followsBaitan fi Bai (Twin sales)Safaqa fi Safaqa (Twin contracts)Bai urban/urboonForward contractSuperficial bull whip effectIn the dark ages, many contracts were in vogue, where that condition would turn trade into apprize hunt. Like the seller would have different pieces of cloth and the buyer would stick out a stone and would get the cloth where the stone would land. The Holy ProphetSallalaho Alaihi Wassallam has disallowed all such contracts.After identification of the prohibitions in the current financial system where interest and Gharar (Uncertainity) are a part and parcel of day to day proceedings. The need for a system which eliminated such illnesses was required. Another reason was that, after the jolts of 1930s and other economic crisis of 1970 and now of 2008 that followed, the financial world started talk of the town about alternatives to the present systems of (Communism, Socailism and Capitalism). Though Capitalism is the largest spread system across the globe but by all means its jolting has been witnessed since 1839, 1930, 1970 and 2007. Is it at the verge of its end? Nobody knows but people have started feel for options.Islamic EconomicsIslam provides an economic system based on rules and principles defined by Islamic Jurisprudence. Human being is just a custodian of wealth and the true ownership is with Allah Tallah. Islamic Economics point of difference is that it not only deals with the materialistic needs of human being rather it also fulfills the spirtual needs at the same time. The main theory behind the Islamic economics is that money is only a means of exchange (in other words money tends to serve as an intermediary between the transaction of asset) and not a product that can be sold or discounted. Here it is noteworthy that a human being is not the true owner of wealth as it belongs Allah Tallah rather he has been given only the right to use it as the second owner, keeping in mind that he would be questioned on the day of judgement of his usfruct. Islam doesnt pass over the forces of law of demand and supply but does emphasis on the consumer as well as the government to abide by the rules of Islam. Islam as a Deen has the capability to accomadate all good things that life has to bring accept those which are outrightly against its divine principles.To summarise Islamic economics can be defined as the humanitarian goal of achieving the well-being of all members of the human family which cannot be attained by concentrating primlairly on the materialistic needs of comfort and creating maximisation of riches as the core intention of economics. Hence it is part and parcel to raise the spirtual content of well being of the whole society and write out all symptons of anomie, like family disintegration, heavy interest based debt payments, conflict and tension, crime, alcholism, dependance to drugs and psychological illness, all signifying lack of internal delight and satisfaction in the life of human beings. Captialism similar to socialism, both have fallen short to show the way to their followers such an overall welfare. As a prospective measure, it is seems almost inevitable to put down the outlines of a new scheme of operations which helps maximise human well being as per the divine guidelines of Allah Tallah.As per (Khan, 1993) th at since the unavailibilty of an Islamic society anywhere in the world the Islamic economics at present is scarely able to express or articulate Islamic position on economic issues as per its connotations.Islamic economics implies a serious execution of the Islamic strategy to raise the spirtual as well as the material well being of all people and to establish socio-economic justice, which is the vital objective of the Islamic message. On the spirtual side, the tranquility of mind that is fundamental to inner happiness cannot be attained except by increasing the nearness of the human being to his Creator, which Islam is capable of delivery about but secularism doesnot even aspire to. (Chapra, 1992).Islamic BankingBanks serve as the heart of any economy as they pump funds into the economic veins of a country. The four main functions that the bank performs arelending and deposit businesssecurities issuingasset management andforeign exchange trading. trading has been given as an alte rnative to interest based transactions by Quran e Kareem as mentioned above. In the light of this fact the comtemporary Islamic scholars after reviewing the current financial system have comeup with different modes of financing to fulfill the much needed requirement. In the futher discussion we shall discuss those modes of financing. But first we would define Islamic banking as per the State Bank Of Pakistan.Islamic banking has the same utility as of conventional banking except that it asserts to function in agreement with the rules of Islamic Jurisprudence, called Fiqh ul Muamalat (Islamic regulations for transactions). The indispensable law of Islamic banking is the sharing of gain and loss and the prohibition of interest and Gharar. The Islamic concepts, that are mainly used in Islamic banking are profit sharing combination of dislocated investor and worker (Mudharabah), safekeeping (Amanah), joint venture (Musharkah), Diminishing Musharkah, cost plus profit (Murabahah), asset f inance (Ijarah), manufacturing (Istisna) and agricultural goods (Salaam). Islamic banking proposes to a structure of banking or participatory pooling actions that is dependable on Islamic Jurisprudence (Shariah) and channeled by Islamic economics. Islamic law prohibits interest the collection and payment of Usury. Islamic law also disallows trading in financial risk (since it is a form of gambling) discussed above as Gharar. In addition, Islamic Jurisprudence excludes battle in businesses which are deemed Haram (a going concern which deals in pork or alcohol). At the verge of 20th century, quite a few Islamic banks were crafted, to cater to this specific banking market. (Hassan, 2002)In an Islamic mortgage transaction, instead of giving debt to the buyer, money is utilized to purchase the item that is, money is a medium of exchange and not a commodity. Money cannot be rented, is a fact of Islamic Economics. The supplier acts as a direct vendor for the bank, after acquiring the good s the bank proceeds it to the customer at a gain, while allowing the buyer to payback the bank in installments (assets backed financing). However, for any confine in payment the bank cannot charge additional costs as profit or compensation. To mitigate its risk and close in on the vulnerability of the customers default, the bank keeps strict collaterals as its bail out. After the possession of goods the tangible asset is listed in the name of the buyer, by the Islamic banks. Such a bargain is known as Murabaha.Likewise Ijara wa Iqtina or Ijara bi Tamleek, which is alternative to real estate capital finance. Islamic banks detainment proportionate income financings for means of transportations in a likewise manner (vending the automobile at a price, which is higher than the current value of the asset in the market, to the lessee and then holding up the title of the medium until the pre-agreed proceeds are paid up).The previous profits are taken into consideration lay up a profit an d loss sharing ratio. Consequently the banks profit on the proportionate income financing is equivalent to a specific proportion of the companys revenues. As soon as the investment amount of the proportionate income financing is reimbursed, the earning-distribution arrangement is terminated. This specific exercise is entitled as Musharaka.Supplementary to this, Mudaraba is venture capital financing where a talented worksman who provides labor while patronage is offered by the bank, so that one executes business on behalf of the other. Such participatory indulgence between capital and labor reflect the Islamic conceptions that the borrower should not absorb the peril/price of a collapse, since it is Allah Tallah who determines that failure or success, and intends that all those involved reap or bear it as per their obligations.Last, Islamic banking is jump within Islamically permissible transactions, which eliminate those involving alcohol, pork, gambling, etc. Thus Islamic put is the only acknowledgeable form of investment, and asset backed transactions are encouraged at the same time the social illnesses are not propped up.The concepts and financing modes in Islamic banking are as followsShariah informative Council/ConsultantIslamic banks and banking organizations that offer Islamic banking products and services (IBPS banks) are required to establish Shariah advisory boards/ consultants to recommend them and to ensure that the procedures, activities and systems of the bank coincide with Shariah doctrine.Amanah (Safekeeping)In Amanah, a bank is reckoned as a warden and custodian of endowments. Person deposits money in the bank and the bank assures to repay the whole amount of the belongings, or any portion of the remaining sum, when the depositor claims it. In this postal service the Bank becomes the Amin (the Guardian) while the saver is known as Rab-ul-Maal. In Amanah the bank cannot consume this money until and unless the depositor permits its Amin.Mu darabah (Profit Loss Sharing)Mudarabah is a form or contract established between an investor and an entrepreneur, whereby the entrepreneur can finance the investments for its business proceedings. Any gains generated shall be distributed between the investor and the entrepreneur as per the consented ratio, while only the investor stands all the losses if transpired, it has to be bared in mind that the due attentiveness of the entrepreneur will be evaluated and in case of carelessness he/she would have to bear the consequences. The profit-sharing maintained until the proportionate income financing is reimbursed. The bank receives its share for the time value of its money through a set proportion in profit earned that is attached to the debtors profits. (Hassan, 2002)It is a corporation in proceeds between investment and skill, where one provides funds whereas the other supplements proficiency, expertise and administration. The latter is called as the Mudarib. Any profits accumulated are distributed amongst the participants on a pre-settled ratio, while loss is borne only by the investor.It is noteworthy that any increase in capital shall be the property of Rab-ul-Maal the capital provider according majority of jurist. For example if the sheep provided by rab-ul- maal investor and sheep gave birth to lamb, the lambs would be in the ownership of Rab-ul-Maal not the Mudarib (entrepreneur). The capital provider earns profit from the business on the basis of providing capital while the entrepreneur gets his share with respect to his efforts and endeavors. (Usmani T. M., 2004)Musharkah (Joint Venture)This conception is normally applied for business partnerships or mutual ventures. The profits make are shared on a settled ratio, while if losses are sustained they will be divided on the candor funds allocation ratio. This model is different from fixed-income endowing (i.e. proceeds of propotionate income financings). The two different types of Musharkah modes are Shi rkat ul Ooqud and Shirkat ul Milk as per Islamic Jurisprudence. Further elaborating the types can be divided into specific main categories with further sub types each.In Islamic finance the things taken into consideration are Shirkat ul Ooqud (Partnership in Trade) and Shirkat ul Amaal (Partnership in Services).Shirkat ul Amwal (Partnership in trade)Shirkat Ul Amal (partnership in services)Shirkat ul Amwal (partnership in trade) is the mode of partnership where all partners invest some capital into a commercial enterprise. Shirkat Ul Ammal (partnership in services) is the form of partnership where all the partners jointly undertake to render some services for their customers and the fee charged from them is distributed among them accordingly to an agreed ratio. (Usmani T. M., 2004)Musharkah translates itself into a relationship established under a pact by the