Mr Faraaz First Global Investment Presentation


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Mr Faraaz First Global Investment Presentation

  1. 1. How Islamic Banking Becomes Safe in International Financial Crises Presented By: Faraaz Shaul Hameed
  2. 2. Thrust of the Presentation <ul><li>First Global at a glance </li></ul><ul><li>Sri Lanka as business center </li></ul><ul><li>Introduction </li></ul><ul><li>Issues & Challenges in the Islamic Finance World? </li></ul><ul><li>Basics of islamic finance (IF) </li></ul><ul><li>The financial crisis – what caused it? </li></ul><ul><li>Why did the financial systems crumble? </li></ul><ul><li>Islamic finance – An alternative </li></ul>
  3. 3. First Global at a glance <ul><li>Recognized contributor to Islamic finance locally and globally </li></ul><ul><li>First Global incorporated as public limited liability company in November 2007 in Colombo, Sri Lanka </li></ul><ul><li>Received Aspiring Leader award in the global Islamic finance industry </li></ul><ul><li>Instrumental in Abu Dhabi Commercial Bank’s venture into Islamic Banking, branded “Meethaq” </li></ul><ul><li>Silver Award for Financial Related Services at Sri Lanka Malaysia Business Awards 2008, </li></ul><ul><li>First Global with Investec Capital were joint lead arrangers for the first-ever Sri Lankan Sukuk </li></ul><ul><li>In the Islamic Business & Finance Awards 2008 conducted by CPI Financial, First Global was a finalist in the categories Best Advisory Services and Best Investment House along with prominent players like Ernst & Young, McKenzie, and Unicorn Investment Bank </li></ul>
  4. 4. Our business lines
  5. 5. Sri Lanka as business center Size 65,610 sq. km Population 20.2 million Per Capita GNP USD 1,969 Languages Sinhala, Tamil, English Ethnic Groups Buddhists 77% Hindus 8% Muslims 9% Christians 6% <ul><li>Strategically located at crossroads of East and West </li></ul><ul><li>Business-friendly open economy with attractive and transparent investment laws offering the most business-friendly climate in South Asia </li></ul><ul><li>Highly literate labour force with high quality of life </li></ul><ul><li>“ Peace dividend” as end of almost three decades of ethnic war enables public spending on infrastructure projects </li></ul><ul><li>Reawakening Programme aims to restore livelihoods through agriculture and irrigation projects </li></ul>
  6. 7. Issues & Challenges in the Islamic Finance World? No International Islamic Money Market Absence of/Underdeveloped Islamic Capital Market? No Common Agreement on Shari'ah Issues? No Lender of Last Resort? No Harmonization of Islamic products or instruments? Non-acceptance of standards, accounting practices by the industry players? No secondary market for global Issues? Integration of Islamic and International financial markets . Emerging Stock Markets not fully compatible with Shari'ah Innovation on Islamic Funds, still very slow No uniform regulatory and legal framework Educating the masses – lack of awareness
  7. 8. Islamic Banking & Finance is safe, given the global crisis - beyond economic and financial benefits… Moral Ethical Social Religious and more … . Law & Justice Ethics & Etiquettes Commerce & Economy Politics & Governance Social, moral & ethical life Knowledge & learning Hygiene Human Rights & Relations
  8. 9. Basics of islamic finance (IF) <ul><li>The following is the Fundamental Difference between Islamic Finance and its conventional counterparts </li></ul>
  9. 10. The financial crisis – what caused it? <ul><li>Reckless lending fuelled by greed and irresponsible and excessive risk taking to achieve higher profits </li></ul><ul><li>Banks losing their vocation – traders rather than lenders </li></ul><ul><li>Very fancy instruments developed with no substance other than a lot of hype and lack of transparency of its underlying value </li></ul>
  10. 11. The financial crisis – what caused it? <ul><li>Rising defaults among mortgage borrowers </li></ul><ul><li>Low interest rates causing a housing bubble that was bound to eventually burst </li></ul><ul><li>Insufficient regulations of sub prime mortgage lending practices </li></ul><ul><li>Insufficient monitoring of complex financial products and services, </li></ul><ul><ul><li>Rating agencies and derivatives markets </li></ul></ul><ul><li>‘ Short selling’ </li></ul><ul><ul><li>Selling assets that one does not own </li></ul></ul><ul><li>Rating Agencies giving very liberal ratings to instruments </li></ul>
  11. 12. Why did the financial systems crumble? <ul><li>Over supply of houses in US housing market </li></ul><ul><li>Speculative purchases of real estate </li></ul><ul><li>Indiscriminate mortgage lending </li></ul><ul><li>Rising Interest rates leading to resetting of mortgage loans together with oil price hikes in turn high default rates </li></ul><ul><li>Unprecedented financial leverage which gave high profits during the good times now led to very large losses </li></ul><ul><li>Banks holding such paper had to raise additional capital </li></ul>
  12. 13. Islamic finance – An alternative <ul><li>Basic principles </li></ul><ul><li>Prohibitions </li></ul><ul><li>How could Islamic finance have prevented the crisis </li></ul><ul><li>Can Islamic finance come out of the mess? </li></ul><ul><li>Islamic Finance Infrastructure Institutions (IFII’s) </li></ul><ul><li>Successes of Islamic finance </li></ul>
  13. 14. Basic principles <ul><li>Islamic economics and financial system is based on values, ideals and morals </li></ul><ul><li>Ethical practices and fairness in all endeavors </li></ul><ul><li>Prohibits economic and financial transactions that engage lying, gambling, cheating, monopoly, exploitation, greed, unfairness and unjustly taking people’s money </li></ul><ul><li>Promotes participation in profit, loss and actual exchanges of money and assets </li></ul><ul><li>No constant winner or loser; yet profit and loss is mutually shared </li></ul><ul><li>In a nutshell- Islamic Finance centers around Justice!! </li></ul>
  14. 15. Prohibitions – Riba/Usury (Interest) <ul><li>Money is only a means of exchange – no intrinsic value </li></ul><ul><li>Trading of debts/receivables prohibited </li></ul><ul><li>Payment and receipt of interest is totally prohibited </li></ul><ul><li>Interest bearing investments are prohibited </li></ul><ul><li>Earnings must be by ‘profit sharing investments’ or ‘fee based’ returns </li></ul><ul><li>Risk sharing - the risk taker is justly rewarded </li></ul><ul><li>Interest rate may be used as a means of calculating profit element or quantum of rent </li></ul>
  15. 16. Prohibitions – Maisir (Speculation) <ul><li>Gambling or any form of speculation akin to gambling </li></ul><ul><ul><li>Swaps, futures, options and other derivatives </li></ul></ul><ul><ul><li>Contracts that insure for a profit </li></ul></ul><ul><li>Speculation is taboo under Islamic law </li></ul><ul><li>Money proffered must be backed by collateral </li></ul><ul><li>Islamic Financial instruments must always carry a face value </li></ul><ul><li>Prohibition of selling that which you don’t own </li></ul><ul><ul><li>Selling anothers debt and engaging in high risk investments </li></ul></ul>
  16. 17. Prohibitions – Gharar (Uncertainty) <ul><li>Uncertainty as to fundamental terms in a contract </li></ul><ul><li>Subject matter, price or time of delivery must be fixed in advance </li></ul><ul><li>Conventional insurance prohibited </li></ul>
  17. 18. How could Islamic finance have prevented the crisis <ul><li>No lending on interest </li></ul><ul><li>No selling on of mortgages or debts such as discounting promissory notes and cheques with postponed payments </li></ul><ul><li>Financial derivatives are not permitted in Islamic finance </li></ul><ul><li>Prohibits short selling - identified as a significant contributor to the global crisis </li></ul>
  18. 19. Can Islamic finance come out of the mess? <ul><li>It is believed that Islamic finance could emerge as a strong contender provided it overcomes the following challenges: </li></ul><ul><li>Work towards eliminating the perception that Islamic finance is merely a interest bearing debt in disguise </li></ul><ul><li>Aim for commonality in the application of Shari’ah to all Islamic finance products offered </li></ul><ul><ul><li>Currently many differences in the application of Shari’ah in different parts of the world </li></ul></ul><ul><li>Standardize Islamic finance products such that they look and feel the same wherever offered </li></ul>
  19. 20. Islamic Finance Infrastructure Institutions (IFII’s) General Council for Islamic Banks and Financial Institutions
  20. 21. Islamic Finance Infrastructure Institutions (IFII’s) <ul><li>Must have ‘common thread’ to work together, whilst having ‘diversity’ in their mandates. </li></ul><ul><li>Some of the areas looked into by these IFII’s are: </li></ul><ul><ul><li>Regulations… </li></ul></ul><ul><ul><li>Corporate Governance… </li></ul></ul><ul><ul><li>Capital Adequacy… </li></ul></ul><ul><ul><li>Risk & Liquidity Management… </li></ul></ul><ul><ul><li>Islamic Capital Market… </li></ul></ul><ul><ul><li>Accounting & Auditing Standards… </li></ul></ul><ul><ul><li>Rating… </li></ul></ul><ul><ul><li>Guidelines & Recommendations… </li></ul></ul><ul><ul><li>Awareness Programs… </li></ul></ul><ul><li>Otherwise: </li></ul><ul><ul><li>Loss of talents, skills, resources, etc. </li></ul></ul><ul><ul><li>Overlapping goals and objectives </li></ul></ul><ul><ul><li>Duplications and Repetitions </li></ul></ul><ul><ul><li>Deviation from the ‘common goal’ </li></ul></ul>
  21. 22. Successes of Islamic finance <ul><li>Rapid growth of 15% - 20% annually </li></ul><ul><li>US$ 4 Trillion worth market sector </li></ul><ul><li>Crossed boundaries of Islamic world and spreading in non-Islamic countries </li></ul><ul><ul><li>UK, Germany, USA, France, Japan, Hong Kong, Thailand, etc. </li></ul></ul><ul><li>Dow Jones Islamic Market Indexes – Benchmarks for Islamic investment related categories have outperformed their non-Shari’ah compliant counterparts by 3 to 4 % in key indexes </li></ul><ul><li>Osservatore Romano, Vatican’s official newspaper – ‘The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service’ </li></ul>
  22. 23. Thank You & Jazaka Allah Khair
  23. 24. Mohamed Faraaz Shaul Hameed MBA(USA) BBA,PGDIBM-UK,AMABE-UK,DIBF-SL,DHRM-UK,DIBM-UK,DIM-UK Mr. Faraaz is a Professional Banker for more than 20 years locally and internationally and embarked into Islamic Banking in 2007, and to date, he has gained a wealth of knowledge and experience, through his diverse positions held in various organizations * in Banking Operations, Management Consultancy, Business Management, Strategic Planning & Budgeting, Islamic Banking & Finance, Retail, Commercial and Investment Banking, Business Development, Compliance, Treasury training and career development etc. Deputy CEO/Acting CEO First Global Investments (Holdings) Sri Lanka [email_address] <ul><li>* Organizations </li></ul><ul><li>Commercial Bank Ltd, Sri Lanka (Best bank for last 11yeras-in Sri Lanka) </li></ul><ul><li>Al - Rajhi Bank, Saudi Arabia </li></ul><ul><li>Seylan Bank, Sri lanka </li></ul><ul><li>Thomas Cook Ltd, India </li></ul><ul><li>Standard Chartered Bank , Sri Lanka </li></ul><ul><li>Habib Bank Ltd- Pakistan </li></ul><ul><li>Amana Bank , Sri Lanka </li></ul><ul><li>First Global Investments Holdings Limited, Sri Lanka </li></ul>