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DECOUVREZ la FINANCE ISLAMIQUE
Devenez un super-pro de votre financement à l’International !
Animé par :
Arnaud RAYNOUARD,
Professeur de droit
Université Paris Dauphine
Kader MERBOUH,
Directeur de l’Executive Master Finance Islamique
Université Paris Dauphine, Casablanca et Kedge
Nadia MOLINIER,
Directeur juridique, Présidente
Club Ethink Finance Elite
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SUMMARY
I. WHY ISLAMIC FINANCE MATTERS ?
II. ISLAMIC FINANCE : A DIFFERENT WAY OF FINANCIAL INTERMEDIATION
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I. WHY ISLAMIC FINANCE MATTERS ?
1. OVERVIEW OF THE MAIN ACTORS
2. MARKETS SIZE
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II. ISLAMIC FINANCE : A DIFFERENT WAY OF FINANCIAL INTERMEDIATION
1. SOURCES OF ISLAMIC FINANCE
2. CORE PRINCIPLES OF ISLAMIC FINANCE
3. KEY INSTRUMENTS OF ISLAMIC FINANCE
4. HISTORIC OF ISLAMIC FINANCE INSTITUTIONS
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1. SOURCES OF ISLAMIC FINANCE
The framework of an Islamic financial system is based on elements of the Sharia (the law of Islam)
which governs Islamic societies.
− The Sharia is not a codified body of law.
− The Sharia does not prescribe general principles of law,
− The Sharia developed through four main Islamic juristic schools (Hanafi, Maliki, Shafi and
Hanbali)
The Sharia is derived from the following sources :
− Quran (the transcription of God's message to the prophet Mohammed)
− Sunna (the living tradition of the prophet Mohammed)
− Ijma (consensus within the community)
− ijtihad /qiyas (individual reasoning by analogy)
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2. CORE PRINCIPLES OF ISLAMIC FINANCE
The prohibition of all sources of unjustified enrichment and the prohibition of dealing in transactions that contain excessive risk or
speculation are among the most important teachings of Islam in establishing justice and eliminating exploitation in business
transactions. Accordingly, Islamic scholars have deduced from the Sharia three principles that form the benchmark of Islamic
economics and that distinguish Islamic finance from its conventional counterpart.
Three negative pillars
− PROHIBITION OF RIBA : The prohibition of usury (interest) is the most significant principle of Islamic finance.
− PROHIBITION OF GHARAR & MAYSIR : Any transaction that involves Gharrar (i.e. uncertainty & speculation) is prohibited.
Maysir refers to the acquisition of wealth by chance, whether or not it deprives the other’s right.
− PROHIBITION OF HARAM ACTIVITIES : Islam prohibits on moral grounds activities related to tobacco and other drugs, alcohol,
pork products, gambling involving money and non-money assets, speculation, pornography, and armaments and destructive
weapons.
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Two positive pillars
− PRINCIPLE OF PROFIT & RISK SHARING : According to a key Shari’ah ruling “reward comes with risk taking”.
Investment return has to be earned in tandem with risk-taking.
− PRINCIPLE OF OWNERSHIP & ASSET BACKING : The rulings of “do not sell what you do not own” for example,
short-selling and “you cannot be dispossessed of a property except on the basis of right” mandate asset
ownership before transacting.
Another major tenet of Islamic finance
− PRINCIPLE OF EQUITY : Scholars generally invoke this principle as a rationale with a view to protecting the
weaker contracting party in a financial transaction.
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3. KEY INSTRUMENTS OF ISLAMIC FINANCE
In Islamic finance, the term “loan” refers only to a benevolent loan (qard al hasan), a form of financial assistance
to the needy to be repaid free of charge. Other instruments of Islamic finance are not referred to as “loans’ but
rather as financing modes.
Islamic finance products are contract-based and may be classified into three broad categories :
− PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS)
− NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS)
− FEE-BASED PRODUCTS
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PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS)
PLS financing core principles of equity and participation, as well as its strong link to real economic activities, help promote a more
equitable distribution of income, leading to a more efficient allocation of resources.
MUSHARAKAH : A profit-and-loss sharing partnership. A Musharakah contract is a joint partnership where two or more
partners provide capital to finance an economic activity. Partners bear the risk with the potential for earning the highest reward.
Profits are distributed according to pre-agreed ratios, losses are shared in proportion to capital contribution.
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PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS)
MUDARABAH : A profit-sharing and loss-bearing contract where one party supplies funding (Ral al Maal) and the other provides
effort and management expertise with a view to generating a profit (Mudarib). The share in profits is determined by mutual
agreement on the basis of an agreed-upon ratio but losses, if any, are borne entirely by the financier, unless they result from the
mudarib’s negligence, misconduct, or breach of contract terms.
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NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS)
MURABAHAH : Within such a contract the bank purchases the commodity as per requisition of the client and sells him on cost-
plus profit basis. The bank is bound to disclose cost and profit margin to the client. Therefore, the bank, rather than advancing
money to a borrower, buys the goods from a third party and sell those goods to the customer on profit with a deferring payment
to a date agreed by the two parties.
Its characteristic is that “the seller should inform the purchaser of the price at which he purchased the product and stipulate an
amount of profit in addition to this”. (AAOIFI 2008)
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NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS)
IJARAH : A lease contract, whereby the leaser who remains the owner during the entire lease period is responsible for asset
maintenance, unless damage to the leased asset results from lessee negligence. This element of risk is required for making Ijarah
payments permissible.
A variety of Ijarah takes a hire-purchase form, whereby there is a promise by the leaser to sell the asset to the lessee at the end
of the lease agreement, with the price of the residual asset being predetermined. A second independent contract gives the
lessee the option to buy the leased asset at the conclusion of the contract or simply return it to owner.
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NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS)
SALAM : A contract is a form of forward agreement where delivery occurs at a future date in exchange for spot payment. A vital
condition for the validity of a salam is payment of the price in full at the time of initiating the contract, or else the outcome is a
debt-against-debt sale, which is strictly prohibited under Shari’ah. The subject matter, price, quantity, and date and place of
delivery should be precisely specified in the contract.
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NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS)
ISTISNA’ : A contract in which a commodity can be transacted before it comes into existence. The unique feature of istisna’ (or
manufacturing) is that nothing is exchanged at the time of contracting. It is perhaps the only forward contract where the
obligations of both parties are in the future. In theory, the istisna’ contract could be directly between the end user and the
manufacturer, but it is typically a three-party contract, with the bank acting as intermediary.
Under the first istisna’ contract, the bank agrees to receive payments from the client on a longer-term schedule, whereas under
the second contract, the bank (as a buyer) makes progress installment payments to the producer over a shorter period of time.
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FEE-BASED PRODUCTS
Islamic banks offer a wide spectrum of fee-based services using three types of contracts, wakalah, kafalah, or ju’ala. They are
usually auxiliary to the main murabaha transactions, though they generate various types of fees and commissions.
− WAKALAH : Within this contract, the bank is acting as the agent of a customer in a trade transaction or issuing a letter of
credit facility,
− KAFALAH : A financial guarantee whereby the bank gives a pledge to a creditor on behalf of the debtor to cover fines or any
other personal liability. It is widely used in conjunction with other financing modes or documentary credits,
− JU’ALA : An istisna’ contract that is applicable for rendering a specified service as opposed to the manufacturing of a product.
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FOCUS ON SUKUK PRODUCTS
Sukuk are defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as : “certificates of
equal value representing undivided shares in the ownership of tangible assets, usufructs and services or (in the ownership of)
the assets of particular projects or special investment activity”.
Sukuk are asset-backed trust certificates evidencing ownership of an asset or its usufruct. Sukuk represents undivided shares in
the ownership of tangible assets relating to particular projects or special investment activity.
A sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a
debt owed to the issuer of the bond. Under a sukuk structure the sukuk holders each hold an undivided beneficial ownership in
the underlying assets. Consequently, sukuk holders are entitled to a share in the revenues generated by the Sukuk assets.
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FOCUS ON SUKUK PRODUCTS – SUKUK IJARA
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1963
The Mit Ghamr Savings Bank in Egypt was opened, becoming the first modern Islamic bank on record.
The Pilgrims Saving Corporation of Malaysia began to incorporate basic Islamic banking concepts.
1975
The Islamic Development Bank opened in Saudi Arabia and gave the Islamic finance industry an international
presence. It recruited member countries and then offered them financial products to promote economic and community
development.
1979 The first Islamic insurance (or takaful) company — the Islamic Insurance Company of Sudan — was established.
1986 The Amana Income Fund, the world’s first Islamic mutual fund was created in Indiana.
1990
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was created to establish industry
accounting and auditing standards.
The Islamic bond market emerged when the first tradable sukuk were issued by Shell MDS in Malaysia.
1996 Citibank began to offer Islamic banking services when it established the Citi Islamic Investment Bank in Bahrain.
1999
The Dow Jones Islamic Market Index (DJIMI) was established, becoming the first successful benchmark for the
performance of Islamic investment funds.
2002
The Malaysia-based Islamic Financial Services Board (IFSB) was established as an international standard-setting body
for Islamic financial institutions.
2004 The Islamic Bank of Britain became the first Islamic commercial bank established outside the Muslim world.
4. HISTORIC OF ISLAMIC FINANCE INSTITUTIONS
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DECOUVREZ la FINANCE ISLAMIQUE

  • 1. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE Devenez un super-pro de votre financement à l’International !
  • 2. Animé par : Arnaud RAYNOUARD, Professeur de droit Université Paris Dauphine Kader MERBOUH, Directeur de l’Executive Master Finance Islamique Université Paris Dauphine, Casablanca et Kedge Nadia MOLINIER, Directeur juridique, Présidente Club Ethink Finance Elite MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 3. SUMMARY I. WHY ISLAMIC FINANCE MATTERS ? II. ISLAMIC FINANCE : A DIFFERENT WAY OF FINANCIAL INTERMEDIATION MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 4. I. WHY ISLAMIC FINANCE MATTERS ? 1. OVERVIEW OF THE MAIN ACTORS 2. MARKETS SIZE MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 5. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 6. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 7. II. ISLAMIC FINANCE : A DIFFERENT WAY OF FINANCIAL INTERMEDIATION 1. SOURCES OF ISLAMIC FINANCE 2. CORE PRINCIPLES OF ISLAMIC FINANCE 3. KEY INSTRUMENTS OF ISLAMIC FINANCE 4. HISTORIC OF ISLAMIC FINANCE INSTITUTIONS MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 8. 1. SOURCES OF ISLAMIC FINANCE The framework of an Islamic financial system is based on elements of the Sharia (the law of Islam) which governs Islamic societies. − The Sharia is not a codified body of law. − The Sharia does not prescribe general principles of law, − The Sharia developed through four main Islamic juristic schools (Hanafi, Maliki, Shafi and Hanbali) The Sharia is derived from the following sources : − Quran (the transcription of God's message to the prophet Mohammed) − Sunna (the living tradition of the prophet Mohammed) − Ijma (consensus within the community) − ijtihad /qiyas (individual reasoning by analogy) MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 9. 2. CORE PRINCIPLES OF ISLAMIC FINANCE The prohibition of all sources of unjustified enrichment and the prohibition of dealing in transactions that contain excessive risk or speculation are among the most important teachings of Islam in establishing justice and eliminating exploitation in business transactions. Accordingly, Islamic scholars have deduced from the Sharia three principles that form the benchmark of Islamic economics and that distinguish Islamic finance from its conventional counterpart. Three negative pillars − PROHIBITION OF RIBA : The prohibition of usury (interest) is the most significant principle of Islamic finance. − PROHIBITION OF GHARAR & MAYSIR : Any transaction that involves Gharrar (i.e. uncertainty & speculation) is prohibited. Maysir refers to the acquisition of wealth by chance, whether or not it deprives the other’s right. − PROHIBITION OF HARAM ACTIVITIES : Islam prohibits on moral grounds activities related to tobacco and other drugs, alcohol, pork products, gambling involving money and non-money assets, speculation, pornography, and armaments and destructive weapons. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 10. Two positive pillars − PRINCIPLE OF PROFIT & RISK SHARING : According to a key Shari’ah ruling “reward comes with risk taking”. Investment return has to be earned in tandem with risk-taking. − PRINCIPLE OF OWNERSHIP & ASSET BACKING : The rulings of “do not sell what you do not own” for example, short-selling and “you cannot be dispossessed of a property except on the basis of right” mandate asset ownership before transacting. Another major tenet of Islamic finance − PRINCIPLE OF EQUITY : Scholars generally invoke this principle as a rationale with a view to protecting the weaker contracting party in a financial transaction. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 11. 3. KEY INSTRUMENTS OF ISLAMIC FINANCE In Islamic finance, the term “loan” refers only to a benevolent loan (qard al hasan), a form of financial assistance to the needy to be repaid free of charge. Other instruments of Islamic finance are not referred to as “loans’ but rather as financing modes. Islamic finance products are contract-based and may be classified into three broad categories : − PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS) − NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS) − FEE-BASED PRODUCTS MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 12. PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS) PLS financing core principles of equity and participation, as well as its strong link to real economic activities, help promote a more equitable distribution of income, leading to a more efficient allocation of resources. MUSHARAKAH : A profit-and-loss sharing partnership. A Musharakah contract is a joint partnership where two or more partners provide capital to finance an economic activity. Partners bear the risk with the potential for earning the highest reward. Profits are distributed according to pre-agreed ratios, losses are shared in proportion to capital contribution. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 13. PLS FINANCING PRODUCTS (PARTICIPATIVE CONTRACTS) MUDARABAH : A profit-sharing and loss-bearing contract where one party supplies funding (Ral al Maal) and the other provides effort and management expertise with a view to generating a profit (Mudarib). The share in profits is determined by mutual agreement on the basis of an agreed-upon ratio but losses, if any, are borne entirely by the financier, unless they result from the mudarib’s negligence, misconduct, or breach of contract terms. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 14. NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS) MURABAHAH : Within such a contract the bank purchases the commodity as per requisition of the client and sells him on cost- plus profit basis. The bank is bound to disclose cost and profit margin to the client. Therefore, the bank, rather than advancing money to a borrower, buys the goods from a third party and sell those goods to the customer on profit with a deferring payment to a date agreed by the two parties. Its characteristic is that “the seller should inform the purchaser of the price at which he purchased the product and stipulate an amount of profit in addition to this”. (AAOIFI 2008) MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 15. NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS) IJARAH : A lease contract, whereby the leaser who remains the owner during the entire lease period is responsible for asset maintenance, unless damage to the leased asset results from lessee negligence. This element of risk is required for making Ijarah payments permissible. A variety of Ijarah takes a hire-purchase form, whereby there is a promise by the leaser to sell the asset to the lessee at the end of the lease agreement, with the price of the residual asset being predetermined. A second independent contract gives the lessee the option to buy the leased asset at the conclusion of the contract or simply return it to owner. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 16. NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS) SALAM : A contract is a form of forward agreement where delivery occurs at a future date in exchange for spot payment. A vital condition for the validity of a salam is payment of the price in full at the time of initiating the contract, or else the outcome is a debt-against-debt sale, which is strictly prohibited under Shari’ah. The subject matter, price, quantity, and date and place of delivery should be precisely specified in the contract. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 17. NON-PLS FINANCING PRODUCTS (COST PLUS BASIS CONTRACTS) ISTISNA’ : A contract in which a commodity can be transacted before it comes into existence. The unique feature of istisna’ (or manufacturing) is that nothing is exchanged at the time of contracting. It is perhaps the only forward contract where the obligations of both parties are in the future. In theory, the istisna’ contract could be directly between the end user and the manufacturer, but it is typically a three-party contract, with the bank acting as intermediary. Under the first istisna’ contract, the bank agrees to receive payments from the client on a longer-term schedule, whereas under the second contract, the bank (as a buyer) makes progress installment payments to the producer over a shorter period of time. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 18. FEE-BASED PRODUCTS Islamic banks offer a wide spectrum of fee-based services using three types of contracts, wakalah, kafalah, or ju’ala. They are usually auxiliary to the main murabaha transactions, though they generate various types of fees and commissions. − WAKALAH : Within this contract, the bank is acting as the agent of a customer in a trade transaction or issuing a letter of credit facility, − KAFALAH : A financial guarantee whereby the bank gives a pledge to a creditor on behalf of the debtor to cover fines or any other personal liability. It is widely used in conjunction with other financing modes or documentary credits, − JU’ALA : An istisna’ contract that is applicable for rendering a specified service as opposed to the manufacturing of a product. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 19. FOCUS ON SUKUK PRODUCTS Sukuk are defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as : “certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity”. Sukuk are asset-backed trust certificates evidencing ownership of an asset or its usufruct. Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity. A sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the bond. Under a sukuk structure the sukuk holders each hold an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to a share in the revenues generated by the Sukuk assets. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 20. FOCUS ON SUKUK PRODUCTS – SUKUK IJARA MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 21. 1963 The Mit Ghamr Savings Bank in Egypt was opened, becoming the first modern Islamic bank on record. The Pilgrims Saving Corporation of Malaysia began to incorporate basic Islamic banking concepts. 1975 The Islamic Development Bank opened in Saudi Arabia and gave the Islamic finance industry an international presence. It recruited member countries and then offered them financial products to promote economic and community development. 1979 The first Islamic insurance (or takaful) company — the Islamic Insurance Company of Sudan — was established. 1986 The Amana Income Fund, the world’s first Islamic mutual fund was created in Indiana. 1990 The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was created to establish industry accounting and auditing standards. The Islamic bond market emerged when the first tradable sukuk were issued by Shell MDS in Malaysia. 1996 Citibank began to offer Islamic banking services when it established the Citi Islamic Investment Bank in Bahrain. 1999 The Dow Jones Islamic Market Index (DJIMI) was established, becoming the first successful benchmark for the performance of Islamic investment funds. 2002 The Malaysia-based Islamic Financial Services Board (IFSB) was established as an international standard-setting body for Islamic financial institutions. 2004 The Islamic Bank of Britain became the first Islamic commercial bank established outside the Muslim world. 4. HISTORIC OF ISLAMIC FINANCE INSTITUTIONS MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE
  • 22. MONEY MONEY MONEY DECOUVREZ la FINANCE ISLAMIQUE MERCI POUR VOTRE ATTENTION Rendez-vous au prochain atelier : « Favorisez votre Croissance à l’International, Découvrez l’Ouverture de Capital »