McKinsey reports that Islamic Financial Institutions (IFI) is one of the fastest growing sectors at 20% growth per annum. IFI is distinguished from financial institutions in terms of its service and contribution towards social justice and wealth equality. In practice, the industry requires a framework that measures both divine and man-made risk and return. This is an introduction to “How Islamic is Your Bank” that proposed the qualitative and quantitative measures which are simplified into an indexing system based on Hukm’ Takflifi. Seeing the scope of this assignment, I have decided to produce a 3-part series, where part 1 focuses on unique Islamic performance ratio and indexing mechanism. Part 2 investigates in-depth breakdown of each contribution component and corresponding accounting recognition of these measurements according to all components of trade within the Quran, Sunnah and Fiqh. Part 3 applies the indexing onto the capital markets, sukuk and project valuation. Ultimately, we strive to build a model bank which leads to the resurgence of the Islamic banking sector, especially in regards to Salam Banking.

1. Prepared by,
Jessica Low Sher Peng
A150018 – Masters in Islamic Finance Practitioner
Handphone Line : +6010 8888825
Email : jls@makamincapal.com
ON A SCALE OF 1 to 10 :
HOW ISLAMIC IS YOUR BANK?
AC5023 Islamic Accounting with Dr. Bello Lawal
Master of Islam Finance in Practice (MIFP)
The Global University of Islamic Finance (INCEIF)

2. Syariah
Mandatory
and Permissibility
Profitability product
& service sales
Profitability from sales +
Impact on social
and ecology
1.Transparency
2.Efficient
3.Measurable
4.Ratio Benchmark
1. Zakat
2. Industry Screening (-ve)
3. Non-Interest bearing
1. Syariah Contracts
2. Risk and Return
EXCELLENCE = 10
BASELINE = 1
reference : Hukm’ Taklifi, Usl Fiqh
Wajib + Haram + Makruh + Mubah + Manduh
COMPLIANCE = 3
How Islamic is Your Bank :
Definition by degree in practice of Islamic doctrines and teachings
AC5023 Islamic Accounting with Dr. Bello Lawal
Jessica Low Sher Peng A150018

3. Q: WILL I NEED TO SPEND MORE?
A: Operating Expenses/Operating Income Ratio
TOWARDS EXCELLENCE
Question of Profit Maximisation
ASSUME THAT ALL STATUTORY REGULATIONS AND RESERVES RATIOS ARE MET
Q: WILL I MAKE LESS PROFIT ?
A : ROE and ROA, Dividends Per Share

4. Q: WILL I NEED TO SPEND MORE?
ASK: HOW DID I SPEND?
A: Operating Expenses/Operating Income Ratio, Zakat collection and areas of
Impact
TOWARDS EXCELLENCE
Question of Benefit Maximization
ASSUME THAT ALL STATUTORY REGULATIONS AND RESERVES RATIOS ARE MET
Q: WILL I MAKE LESS PROFIT ?
ASK : HOW DID I MAKE MY PROFIT?
A : ROE and ROA, Dividends Per Share, financing portfolio according to
economic sector

5. Baseline
0 - 1
Compliance
1.2 - 3
Social Ecology
0%
Loans
Culture
Arts
Zakat
Negative
Screening
Positive
Screening
Transparency
3.1 – 8
Standards
and Audit
Efficiency Expenses
8.1 - 9
Financial
Innovation
/
Reporting
9.1 - 10
Ehsan Indexing System
How Islamic is Your Bank? : 1 to 10 Scale
Boards Ratio
Earning
Spending
BASELINE
COMPLIANCE
EXCELLENCE
AC5023 Islamic Accounting with Dr. Bello Lawal
Jessica Low Sher Peng A150018
Interest
Bearing
Disclosure
0%
Interest
Bearing
Income
Industry Leadership
PSR /
LSR
C
S
R
S
E
1
0.
5
0.25
Syariah
Compliant
DJIM
Screening

6. Scarcity Darruriyah
Illustration of Indexing System
How Islamic is Your Bank : Operational Indicators
Abundance
AC5023 Islamic Accounting with Dr. Bello Lawal
Jessica Low Sher Peng A150018
Assets
Capital
Labor
Hajiyyah Tafsiniyyah
Commingling. Unclear
source of funds and
utilization
High RoE with low dividends
per share and depositors
PSR ratio
Above 50 Wealth income
equality ratio (CEO and
junior executive)
Below 10 Wealth income
equality ratio (CEO and
junior executive)
Between 10 to 50 Wealth
income equality ratio (CEO
and junior executive)
High RoE with High
Dividends per Share but low
depositors PSR ratio
High Gearing to Investment
Ratio
Low Gearing to Investment
Ratio
High RoE, Equal Dividends
per Share to depositors
PSR ratio
Risk / Return
Exposure
Fair
Redistribution
Wealth
Equality
Negative changes in performance 0 Positive changes in performance

7. WILL I NEED TO SPEND MORE?
WILL I MAKE LESS PROFIT?
MODEL COMPARISON BETWEEN TOP ISLAMIC AND TOP
SUSTAINABLE BANK

8. BANK SIMILARITY PROFILE
Bank
Name Dubai Islamic Bank Triodos Bank
Sector Islamic Banking Sustainable Banking
Establishment 1975 1980
Location UAE Netherlands
Asset Under
Management USD 40.1 b USD14 b
Reputation
The first Islamic bank in the
world. Top 5 establishments
The worlds top sustainable bank in the
world.
Presence
Standards
Applied
7 Countries
AAOIFI
Audited 2015 Statement KPMG
5 Countries
IAS G4 Reporting
Audited 2015 Statement PwC
Screening
Process
Syariah Compliant Both business and charities are valuated
on social or ecological benefit.
Table 1 : Comparison of bank similarity profiling for DIB and Triodos

9. Q: WILL I NEED TO SPEND MORE?
Triodos : 0.28
Inclusive of all social benefactor
payable 24% USD140mil
DIB : 2.266
Revised* inclusive all zakat
payable 2% USD59mil
Highlights
Operating Income/Operating Expense Ratio
An Expenses charged
immediately as part of PNL for
social benefit reflect true social
inclusion
A Percentage charged to
income and transferred from
zakat payable to DIB
Foundation for utlization
How did I spend?
Yes.

10. Q: WHERE?
DIB : $59M out of $2984M
Exhaustive redistribution of
collection is necessary. Only 63%
was used 2015
Highlights
DIB Zakat Contributions
Issues : Used $37 or 63%.
What happens to the balance?
Missing transparency of fund
utilization. The zakat
management transferred to DIB
Foundation. Weightage of
programs undetermined.

11. Q: WHERE?
TRIODOS : $142 out of $581
Since it was expensed out,
then 100% funds were utilised
for the given benefit
Highlights
TRIODOS Social Contributions
(Quantitative)
Issues : Impact cannot be
quantified but qualified. It
cannot be standardized as it is
based on localization

12. Q: WHERE?
TRIODOS : Transparency of reporting
and ease in understanding for profit +
impact social and ecological total
expensed = $
Highlights
TRIODOS Social Contributions
(Qualitative)
Environmental Report
Green Energy
Organic Food
Co- Workers Report
Elderly Care
Microfinance Borrowers and Savers
Progressive Education
Cultural Visits

13. WILL I MAKE LESS PROFIT ?
Highlights
DIB :
Net Profit $1037mil
ROE 17%
ROA 2.56%
Dividends Per Share $0.11
Iwad is measured. Capitalising
equity and not paying
dividends fairly. Possibility
risk-transfer between manager
and owner too?
TRIODOS :
Net Profit $46.4mil
ROE 5%
ROA 0.5%
Dividends Per Share $2.73
Risk and Return sharing is
evident. Equal amount where
treatment is called Fair Equity
Value. Treatment of
Note Triodos maintains high dividend per share. shareholder as a
benefactor for contributions. Similar to takaful concept of profit and
surplus sharing
No.

14. Highlights
WHERE ? Negative and Positive Screening Process
Financing portfolio only reflects Syariah
screening. Fail to reflect any pillars of Maqasid
Al-Syariah
Deen, Nafs, Aql, Progeny, Wealth
Financing portfolio reflects screening
process and distinctive value-based
banking : People, Planet, Profit
Note :Investment - Energy, Climate, Emerging Markets, Real Estate, Art and Culture, Sustainable Food and Agriculture, SRI

15. Scarcity Darruriyah
Illustration of Indexing System
How Islamic is Your Bank : Operational Indicators
Abundance
AC5023 Islamic Accounting with Dr. Bello Lawal
Jessica Low Sher Peng A150018
Assets
Capital
Labor
Hajiyyah Tafsiniyyah
Commingling. Unclear
source of funds and
utilization
High Dividends per Share to
depositors PSR ratio
Above 50 Wealth income
equality ratio (CEO and
junior executive)
Below 10 Wealth income
equality ratio (CEO and
junior executive)
Between 10 to 50 Wealth
income equality ratio (CEO
and junior executive)
High Dividends per Share to
depositors PSR ratio
High Gearing to Investment
Ratio
Low Gearing to Investment
Ratio
Equal Dividends per Share
to depositors PSR ratio
Risk / Return
Exposure
Fair
Redistribution
Wealth
Equality
Negative Changes in performance 0 Positive Changes in performance
DIB
3.4
Triodos
9.1

16. Prepared by,
Jessica Low Sher Peng
A150018 – Masters in Islamic Finance Practitioner
Handphone Line : +6010 8888825
AC5023 Islamic Accounting with Dr. Bello Lawal
Master of Islam Finance in Practice (MIFP)
The Global University of Islamic Finance (INCEIF)
ON A SCALE OF 1 to 10 :
HOW ISLAMIC IS YOUR BANK?
Share your answer : sherpeng@gmail.com