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Growth of islamic banking by karimi Growth of islamic banking by karimi Presentation Transcript

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  • Al Huda Int’l Conference 2010 ISLAMIC BANKING: The C ommon P erception & The F uture Prospects A bdul J abbar K arimi HMB-Islamic Banking Division [email_address] Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • TABLE OF CONTENTS
    • The common perception about Islamic Banking….
    • What is Islamic Banking ?
    • How is Islamic Finance today at Global Scene?
    • What about its future?
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi View slide
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Table of contents
    • THE COMMON PERCEPTION ABOUT ISLAMIC BANKING….
    • What is Islamic Banking ?
    • How is Islamic Finance today at Global Scene?
    • What about its future?
    View slide
    • Is this about Islam? Or about Banking?
    • What has Religion got to do with Banking?
    • Has Islamic Banking ever been practiced?
    • What is Islamic Banking?
    • Why Islamic Banking???
    • Where is the misconception and what is the acceptable answer?
    • How Banking could be Islamic?
    • How is it different from the Conventional Banking?
    • R U pricing your products on LIBOR/KIBOR basis? Still it is Islamic…!!!!....
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi The Common FAQs about Islamic Banking..??
    • The Basic Knowledge of Shariah Principles
    • Accounting & Shariah Standards by AAOIFI
    • Psychological Marketing / With reference to Quran + Sunnah
    • The mean to achieve the end must be right & Justified for a Muslim
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi How to make the customers perception in the desired direction?
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi What bothers Interest-based Financial Institutions to have Shariah Compliant Products?
      • Are the interest-based leading financial institutions suddenly converting to Islam?
      • Interest-based system has reached a level of stagnation & the Islamic system, which built momentum about three decades ago, is expanding at unflagging speeds (Malaysia, Bahrain and Pakistan who making steady progress).
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi Are IFI (Islamic Financial Institutions) Viable?
      • The commercial viability of Islamic finance is still a debatable issue
      • The system is a cross between the capitalist system and socialist order
      • The advantage of a fairer distribution
      • Reduced default risk and viability in micro-finance
      • Some thing that is Shariah Compliant would be more viable.
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi Islamic Banking: The Stakeholders Consumers Islamic Banking Institution Government Central Bank Staff Sponsors Management External Internal Legal Framework Demand for Products & Services Vision & Leadership Capital Regulations/Policies guidelines Shariah Adviser/Shariah Board Madrasas/ Religious Scholars Shariah supervision Public opinion/Religious Rulings Productivity
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi Shariah Risk: A Unique IB Characteristic
    • Basic Knowledge of Islamic Investment
    • Firm Belief + Assurance (Haqq ul Yaqeen or Ainul Yaqeen)
    • Commitment at all levels
    • CONFIDENCE OF DEPOSITORS & SAVERS
    • “ A bank licensed as an Islamic Bank may be running on a very sound financial footing. However, if the depositors came to know that the Bank has violated its Shari’ah mandate, the depositors will lose confidence and the finding will trigger deposit withdrawal and probably collapse of the bank. By contagion effect this can lead to financial instability threatening economic development.”
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Table of contents
    • THE COMMON PERCEPTION ABOUT ISLAMIC BANKING….
    • WHAT IS ISLAMIC BANKING ?
    • How is Islamic Finance today at Global Scene?
    • What about its future?
    • What is Islamic Banking?
      • “ Islamic Banking is interest free Asset Backed banking governed by the principles of Islamic Shariah”
      • “ The ends of the both banking systems are same but only the means to achieve these ends are different as one system is God given in contrast to its rival system which is ma made .”
      • ( Karimi , Abdul Jabbar- ‘Islamic Banking :A necessary system, published in the Finance & Business Review, The News, 18th Jun’ 2001 )
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • The Basic principles of Islamic Banking/Finance…(ICARE)
      • Interest Free Transactions
      • Contractual Certainty( Gharar free contracts)
      • Asset & Service Backing
      • Risk Sharing
      • Ethical Banking
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Table of contents
    • THE COMMON PERCEPTION ABOUT ISLAMIC BANKING….
    • What is Islamic Banking ?
    • HOW IS ISLAMIC FINANCE TODAY AT GLOBAL SCENE?
    • What about its future?
  • Islamic products and services offered by 300+ Financial Institutions around the world Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each country Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi United States: 20 - Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative Germany: 3 - Bank Sepah - Commerz Bank - Deutsche Bank Switzerland: 6
    • UK: 26 (primarily branches of Gulf and glo
    • bal banks)
    • - HSBC Amanah Finance
    • - Al Baraka International Ltd
    • - Takafol UK Ltd
    • - The Halal Mutual Investment Company
    • J Aron & Co Ltd (Goldman Sachs)
    • Britain Islamic Bank
    Bahrain: 26 - Bahrain Islamic Bank - Al Baraka - ABC Islamic Bank - CitiIslamic Investment Bank Malaysia: 49 2 - Pure Islamic Banks (Bank Islam, Bank Muamalat) Rest - conventional banks Saudi Arabia: 10 - Al Rajhi - SAMBA - Saudi Hollandi - Riyadh Bank UAE: 9 - Dubai Islamic Bank - Abu Dhabi Islamic Bank - HSBC Amanah Qatar: 4 - Qatar Islamic Bank - Qatar International Islamic Kuwait: 5 - Kuwait Finance House Iran: 8 Egypt: 7 - Alwatany Bank of Egypt - Egyptian Saudi Finance Indonesia: 4 Sudan: 9 Pakistan: 5 India: 3 Bangladesh: 3 Turkey: 7 - Faisal Finance Institution - Ihlas Finance House Yemen: 5 Planning to go for Islamic Banking
    • Establishment of IFSB ( Islamic Financial Services Board), IIFM (International Islamic Financial Market) & Accounting and AAOIFI (Auditing Organization for Islamic Financial Institutions)
    • In Feb 1999, Dow Jones introduced the Dow Jones Islamic Market Index (DJIM) of 600 companies worldwide whose business complies with Islamic Shariah laws.
    • At present there are more than 105 Islamic Funds operational through out the world with a total fund base of over USD 3.50 billion.
    Global Scenario…… Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • According to ‘The Banker’s 2009 survey, the volume of the Shariah Compliant Assets of the top 500 Islamic Financial Institutions grew by 28.6% rising to US$822bn from $639 in 2008 at a time when the top 1000 World Banks’ assets slumped to 6.8% from 21.6% from the previous year.
    • The Shariah Compliant Assets are projected to grow to US$ 1.60 trillion by 2012.
    • Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by 2010
    • The opportunities to tap the surplus funds of oil rich Muslim nations is strong as many non Muslim countries are trying to tap it including, Japan, UK, Singapore, France, Hong Kong US, Germany, Australia, Thailand, etc.
    Global Scenario……. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • The United Kingdom has emerged as a leading centre for offering Islamic Financial Services (IFS) as at present there are 22 banks in UK offering Islamic Financial Services, out of which 05 are fully Shariah Compliant (4 wholesale & 1 retail bank).
    • Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recently introduced Islamic mortgage products to cater to Britain's 2.5 million Muslims.
    • France by indicating the adjustments in its legal and fiscal framework aims to the development of Islamic Finance to cater the faith-based clientele in the country in addition to gain attention of Middle Eastern Investors holding abundant liquidity. (report by Standard & Poor, 2009)
    • German state became the first European government body to issue an Islamic bond last year -- a $121 million.
    Global Scenario……. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Governments of Bahrain ,Malaysia and now Pakistan have issued Islamic Bonds (Sukuk) in order to facilitate Islamic Banks in managing their liquidity.
    • Issuance of these bonds has also paved the way for Shariah compliant Government borrowings.
    • These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions.
    Global Scenario……. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Major business schools such as Oxford, Harvard, Rice and Durham has started post graduate programs in Islamic Finance
    • Harvard University has developed a major database by the name of Harvard Islamic Financial Information Program (HIFIP) for Islamic Banking.
    Global Scenario……. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Islamic Banking in Pakistan: An Overview Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Islamic Banking In Pakistan: An Overview
    • The Islamic banking market in Pakistan continued to expand during the last year as well and the assets growth has registered 59% p.a. growth since 2005 as stated by Deputy Governor SBP.
    • Assets = about PKR 370 bn + (Industry Share constitute 5.60%)
    • Deposits = about PKR 280bn + (Industry Share constitute 5.90%)
    • Financing and Investment = about PKR 230 bn +(Industry Share constitute 4.30%)
    • Projected growth for the next 5 years of Islamic Banking is 15% to 20% per annum.
    • The Islamic Banking Market share would reach 12% by 2012 as per strategy plan of SBP
    • In 2008 the assets of Islamic Banking increased by 34% as compared to the assets of overall industry by 8.8%. (SBP Bulletin)
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Islamic Banking In Pakistan: An Overview
    • There are 06 full fledged Islamic Banks and 13 Commercial Banks having Stand alone dedicated Islamic Banking Branches
    • At present there are more than 600 Islamic Banking Branches in Pakistan.
    • The six full – fledged Islamic Banks are...
    • 1.Meezan Bank
    • 2.Dubai Islamic Bank
    • 3.Al-Barakah Islamic Bank
    • 4.BankIslami
    • 5.Emirates Global Islamic Bank
    • 6.Dawood Islamic Bank
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Table of contents
    • THE COMMON PERCEPTION ABOUT ISLAMIC BANKING….
    • What is Islamic Banking ?
    • How is Islamic Finance today at Global Scene?
    • WHAT ABOUT ITS FUTURE?
  • 1. A FEW SAYINGS BY KEY PLAYERS FOR ISLAMIC BANKING………
    • "There is a segment within the current market that would switch to Islamic if the quality and benefits offered were as good as conventional financial products," says Ray Ferguson, CEO of Standard Chartered Bank UAE in Dubai.
    • “ A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis,” said. Brian Caplen , An editor of a London-based magazine
    • "Islamic banking isn't just for conservative or radical Muslims. It's mainstream business now, "That's why every bank wants a bigger piece of it." says Ross Mohamad Din , director of HSBC Amanah Malaysia
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • 2. What Motivates an individual? Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Universal Motivating Factors:
    • Fear
    • Reward (in Cash or Kind) )
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • “ O you who believe, Fear Allah and give up what remains of your demand for Interest, if you are indeed a believer. If you do not, then you are warned of the declaration of war from Allah and His Messenger; But if you turn back you shall have your principal: Deal not unjustly and you shall not be dealt with unjustly.” Al Baqarah 278 - 279 (Fourth Revelation) Motivating Factor- Fear Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • From Hazrat Abu Hurayrah (RA): The Prophet, peace be on him, said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother." (Ibn Majah) Motivating Factor- Fear What Hadith says about Riba? Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet may peace be on him, cursed the receiver and the payer of interest, the one who records it and the witnesses to the transaction and said; “They are all alike (in guilt).” Ref: (Muslim, Tirmidhi and Musnad Ahmed) What Hadith says about Riba? Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • 3. Changing the perceptions of the clients by offering the required basket of goods @ market rate addressing the Qs….. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • Q: Is It True Islamic Banking? (Profit Calculation Method)
    • Questions about IB Products :
    • Q: Cover business requirements?
    • Q: Cost effective? (Pricing formula…)
    • Q: Any complications? (LIBOR/KIBOR…)
    • Q: Why stage wise documentation?
    • Confusion about Islamic Banking
    • Biased advice of consulting conventional bankers should be dealt with carefully..
    • Different Opinions from Religious Scholars
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi The Common Perceptions: The Key Questions
  • Why Islamic Banking?
    • Market Approach
    • 20% of the world population is Muslims
    • 15 million Muslims residing in non-Islamic countries in Europe, mostly in France, Germany and in UK. And members of this community were not getting benefit from the conventional banking
    • Sizable proportion who will only avail financial services if assurance of Shariah Approval is given
    • The Oil Rich Middle East, which has a huge potential for investing in a Shariah approved financial system
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Why Islamic Banking?
    • Islamic Approach:
    • Interest has to be eliminated from the financial system on account of the followings;
    • Islamic Shariah/Law enjoins it (Qura’n + Sunnah)
    • Consensus of Ummah (Fiqh Academy of IDB (OIC)) issued fatwa (religious ruling that the Banking interest is harram in its all shapes….
    • Religious Boards of all Islamic Banks (IBs) have repeated the same fatwa of OIC Fiqh Academy.
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Accessing New Market segments through Islamic products Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Is our vision to create a Market Segment? The tale of Telecom. Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Telecom Revolution…Year 2000
    • “ In the Year 2000, after 8 years
    • mobile phone operator’s share was only 9%”
    No of connections and market share Source: Pakistan Telecommunication Authority Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Telecom Revolution…Year 2007
    • “ Now mobile phone operators share of the industry is 89%!!!
    No of connections and market share Source: Pakistan Telecommunication Authority Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Telecom Revolution…Year 2007
    • “ The market segment has become larger than the basic industry itself”
    Mobile Phone Industry 55 Mn Connections Fixed Line Industry 5 Mn Lines Source: Pakistan Telecommunication Authority Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • What is the inspiration…
    • “ Vision is to create an industry itself
    • and not a segment”
    Basic functionality with out the wire Financial solutions with out Riba Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Accessing New Market segments through Islamic products Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • At the time of branch opening… - 15 branches of 13 banks on the same road - IBB branch would in fact not be 14 th branch rather 1 st in that area offering Islamic products Accessing New Market segments through Islamic products Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • What does this Market Want ? Accessing New Market Segments through Islamic products Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • What does this Market Want? “ The winning formula” All things equal I Will prefer an Islamic Product I will Not bank with an Islamic Bank I will only bank with an Islamic Bank Research: Source: Oasis International research 2006 Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • What does this Market Want?
    • An Example…
    “ All things equal I will prefer an Islamic product” Launched in an area already having Conv.banking branches Highest incremental growth in the entire banking industry IBB Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • The road ahead… Accessing New Market Segments through Islamic products “ Nothing is more powerful than an idea whose time has come” Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
  • Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi
    • To address the challenges facing the IB industry including…
    • Diversification & Innovation in financial structures while adhering the Shariah credentials+
    • Standardization of products in the country and then across the globe+
    • Enhance understanding and capacities of IB Risk management +
    • An acceptable solution of liquidity placements..+
    • HR Training by having education of Islamic Finance at all levels…
    • Ref: For More Info. Read my article, ” CHALLENGES FACING ISLAMIC BANKS’ Published in DAWN on 04th December ’2006 ( http://www.dawn.com/2006/12/04/ebr12.htm ), on http://www.nzibo.com/governance.html ), ( www.gcu.edu.pk/library/NI_Dec06.htm - 219 k) and www.bankseta.org.za/downloads/IEDP_UK_2007_%20Islamic_Finance_Research_Report.pdf
    For having desired Future prospects…
  • The Main Motivating Factor and Driver of Islamic Banking …..
    • In anticipation of ROIA and in an effort to abide by the prohibition of Riba, a surprisingly increasing number of Muslim deposit holders all across the world, have non-interest bearing accounts and they refrain from Interest Based Banking.
    • This will also go true for Afghanistan as well……..
    • The rewards in this life and especially in the life hereafter are the main motivating factors for them.
    Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi “ ROIA” Concluding Point
  • Thank you Alhuda Conf. 8-9 June’ 2010 Islamic Banking: The Common Perception & the Future Prospects by : A. J. Karimi FOR FURTHER INFORMATION: Abdul Jabbar Karimi Cell: +92 300 8245995 Ph: +9221 32639665 Email: abduljabbar.karimi@gmail.com
  • CENTER OF ISLAMIC BANKING & ECNOMICS Head Office:   192- Ahmad Block, New Garden Town , Lahore, Pakistan  Ph: +92-42-35913096-8, 35858990, 38407850  Fax: +92 -42-35913056 E-mail :  [email_address] Web: www.alhudacibe.com