This document provides an overview of the growth and current state of Islamic finance. Key points include:
1) Islamic finance has grown significantly in recent decades, fueled by rising oil revenues in Gulf nations that have increased liquidity and investment.
2) Acceptance of Islamic finance is also growing beyond predominantly Muslim regions as its principles of risk-sharing and asset-backed investments appeal to more investors.
3) Countries like Malaysia have been pioneers in developing Islamic finance through regulatory frameworks and educational institutions to establish themselves as hubs for the industry.
The document discusses trends in the global Islamic finance industry, prospects for its sustainability, and key challenges. It notes that Islamic finance has grown to nearly a $1 trillion industry spread across 70 countries, with some regions like the Gulf seeing exceptional growth. While initially faith-driven, Islamic finance is becoming institutionalized and seen as a parallel system that can complement conventional finance. The prospects for sustainability are promising due to growing investments across hubs and recognition of Islamic finance's appeal beyond religion. However, challenges remain around further developing regulatory frameworks and adapting innovative products without compromising sharia principles.
The document discusses Islamic finance and its growth. It provides details about a conference held by the National Bureau of Asian Research on Islamic finance in Southeast Asia. It summarizes the opening and closing keynote addresses which discussed linking Asia and the Middle East through sukuk markets, building a financial architecture through research, and managing regulatory challenges. The document also provides background on Islamic financial principles and the opportunities it provides through interregional linkages and new investment opportunities.
The document summarizes Islamic finance, its relevance and growth. It discusses how Islamic finance prohibits interest and certain investments based on religious principles. It has grown significantly in recent decades to become a mainstream part of the global financial system, with an estimated market size of $750 billion. The future of Islamic finance looks promising as the industry develops new products and reaches new markets and populations around the world.
Islamic finance refers to means of raising capital in accordance with Shariah or Islamic law. Islamic law views money as a measuring tool rather than an asset, and views interest payments as favoring lenders over borrowers. Key principles are derived from the Quran and teachings of the Prophet Muhammad. Islamic finance must avoid interest, gambling, and uncertainty, and must involve real economic activities like trade. It uses contracts like mudarabah, musharakah, and salam. The future of Islamic finance involves greater participation from Western and Asian institutions and continued development of standards and institutions.
Islamic Project Finance in Saudi Arabiafinancedude
1) The article discusses the $5.8 billion financing for the $9.9 billion Petro-Rabigh project in Saudi Arabia, which included a $600 million Islamic financing tranche. This represented the first use of Islamic financing in a multi-sourced project financing in Saudi Arabia.
2) The Islamic financing structure was based on an Istisna'a (procurement agreement) and Ijara (lease), combining structures used successfully elsewhere in the Gulf. However, there was skepticism that these could work in Saudi Arabia due to legal/regulatory differences.
3) With support from Saudi authorities, a key change was allowing a "special purpose company" to enable the Islamic structure. This case
This document summarizes an Islamic finance presentation on emerging opportunities for Islamic ship financing. It outlines the concepts of Islamic finance, including a prohibition on interest (riba) and a focus on profit and loss sharing. It discusses the progress of Islamic banking, current market size, and recent deals in Islamic ship financing. Structures for Islamic ship financing include existing vessel financing using an ijara (lease) structure and newbuild vessel financing using an istisna'a (procurement contract) structure. Case studies of recent Islamic ship financing deals are also presented.
This document provides information about the Global Islamic Finance Report 2021 (GIFR 2021), including its production partners, sponsors, editorial team, and table of contents. Specifically, it notes that GIFR 2021 is a joint publication between the Cambridge Institute of Islamic Finance and Ajman University Center for Excellence in Islamic Finance. It also lists the organizations and individuals that contributed to and supported the report. The document concludes by outlining the various chapters that will be included in GIFR 2021, focusing on the role of Islamic finance in a post-COVID world.
This document summarizes the development of Islamic finance in the Gulf Cooperation Council (GCC) states. It finds that the GCC collectively accounts for over 40% of global shariah-compliant financial assets, led by Saudi Arabia, Kuwait, UAE, Bahrain, and Qatar. Government policy has generally facilitated Islamic finance's expansion through legislation and regulation, though some GCC states were initially cautious. The banking sector has grown rapidly, offering deposits, financing for trade, real estate, and consumer credit. Sukuk issuance and financial centers have also contributed to the industry's growth, with Bahrain emerging as a major Islamic finance hub. Overall, the GCC states have played a leading role in the global development of Islamic
The document discusses trends in the global Islamic finance industry, prospects for its sustainability, and key challenges. It notes that Islamic finance has grown to nearly a $1 trillion industry spread across 70 countries, with some regions like the Gulf seeing exceptional growth. While initially faith-driven, Islamic finance is becoming institutionalized and seen as a parallel system that can complement conventional finance. The prospects for sustainability are promising due to growing investments across hubs and recognition of Islamic finance's appeal beyond religion. However, challenges remain around further developing regulatory frameworks and adapting innovative products without compromising sharia principles.
The document discusses Islamic finance and its growth. It provides details about a conference held by the National Bureau of Asian Research on Islamic finance in Southeast Asia. It summarizes the opening and closing keynote addresses which discussed linking Asia and the Middle East through sukuk markets, building a financial architecture through research, and managing regulatory challenges. The document also provides background on Islamic financial principles and the opportunities it provides through interregional linkages and new investment opportunities.
The document summarizes Islamic finance, its relevance and growth. It discusses how Islamic finance prohibits interest and certain investments based on religious principles. It has grown significantly in recent decades to become a mainstream part of the global financial system, with an estimated market size of $750 billion. The future of Islamic finance looks promising as the industry develops new products and reaches new markets and populations around the world.
Islamic finance refers to means of raising capital in accordance with Shariah or Islamic law. Islamic law views money as a measuring tool rather than an asset, and views interest payments as favoring lenders over borrowers. Key principles are derived from the Quran and teachings of the Prophet Muhammad. Islamic finance must avoid interest, gambling, and uncertainty, and must involve real economic activities like trade. It uses contracts like mudarabah, musharakah, and salam. The future of Islamic finance involves greater participation from Western and Asian institutions and continued development of standards and institutions.
Islamic Project Finance in Saudi Arabiafinancedude
1) The article discusses the $5.8 billion financing for the $9.9 billion Petro-Rabigh project in Saudi Arabia, which included a $600 million Islamic financing tranche. This represented the first use of Islamic financing in a multi-sourced project financing in Saudi Arabia.
2) The Islamic financing structure was based on an Istisna'a (procurement agreement) and Ijara (lease), combining structures used successfully elsewhere in the Gulf. However, there was skepticism that these could work in Saudi Arabia due to legal/regulatory differences.
3) With support from Saudi authorities, a key change was allowing a "special purpose company" to enable the Islamic structure. This case
This document summarizes an Islamic finance presentation on emerging opportunities for Islamic ship financing. It outlines the concepts of Islamic finance, including a prohibition on interest (riba) and a focus on profit and loss sharing. It discusses the progress of Islamic banking, current market size, and recent deals in Islamic ship financing. Structures for Islamic ship financing include existing vessel financing using an ijara (lease) structure and newbuild vessel financing using an istisna'a (procurement contract) structure. Case studies of recent Islamic ship financing deals are also presented.
This document provides information about the Global Islamic Finance Report 2021 (GIFR 2021), including its production partners, sponsors, editorial team, and table of contents. Specifically, it notes that GIFR 2021 is a joint publication between the Cambridge Institute of Islamic Finance and Ajman University Center for Excellence in Islamic Finance. It also lists the organizations and individuals that contributed to and supported the report. The document concludes by outlining the various chapters that will be included in GIFR 2021, focusing on the role of Islamic finance in a post-COVID world.
This document summarizes the development of Islamic finance in the Gulf Cooperation Council (GCC) states. It finds that the GCC collectively accounts for over 40% of global shariah-compliant financial assets, led by Saudi Arabia, Kuwait, UAE, Bahrain, and Qatar. Government policy has generally facilitated Islamic finance's expansion through legislation and regulation, though some GCC states were initially cautious. The banking sector has grown rapidly, offering deposits, financing for trade, real estate, and consumer credit. Sukuk issuance and financial centers have also contributed to the industry's growth, with Bahrain emerging as a major Islamic finance hub. Overall, the GCC states have played a leading role in the global development of Islamic
11.islamic banking a study of the relevant operating modes in current financi...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
Islamic banking a study of the relevant operating modes in current financial ...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
The global Islamic finance industry has grown rapidly over the past decade and now manages over $1 trillion in assets. Several factors are driving continued growth, including increased capital from Muslim-majority countries, the rise of Islamic multinationals, and growing retail demand. While the industry has potential to tap into the large Muslim population worldwide, it still needs to educate customers and differentiate itself more from conventional finance. Regulatory challenges and a lack of skilled professionals could hamper further expansion.
Islamic finance has grown rapidly in recent decades and become a significant part of the global financial system, with estimated assets exceeding $1 trillion. There are two main models of Islamic finance - the Arab model which originated in the 1970s focused on asset management, while the Malaysian model emphasized generating financing. Malaysia in particular has been innovative in developing sharia-compliant financial instruments and a dual banking system. For Islamic finance to be economically sustainable, it must continue to interface productively with conventional finance by creating positive synergies rather than assuming competition between the systems.
The document discusses the global financial crisis and proposes Islamic finance as a solution. It provides background on the causes of the crisis, including risky mortgage products and loose lending practices. It then outlines several principles of Islamic finance, such as prohibitions on usury and speculation, that could have helped avoid the crisis. The finance minister of Bahrain is quoted saying that adhering to Islamic rules helped the country avoid riskier assets and weather the recession well. The conclusion argues that Islamic finance principles of linking finance to real economic activity could help reduce debt and speculation and promote stability.
Islamic Finance and Economic Growth in the Kingdom of Saudi Arabia (KSA): An ...scmsnoida5
This paper examines the relationship between
the development of Islamic finance system and
economic growth in the Kingdom of Saudi
Arabia. The relationship between Islamic
banking and economic growth is done using
econometric analysis. In this analysis, we use
Islamic banks’ financing credited to private
sector through modes of financing as a proxy for
the development of Islamic finance system and
Gross Domestic Product (GDP), Gross Fixed
Capital Formation (GFCF) and Foreign Direct
Investment inflow (FDI) as proxies for real
economic growth. For the analysis, the unit root
test, co-integration test and Granger causality
tests were done. Based on the availability of data,
time series data from 1990 to 2010 is used to
examine the relationship between Islamic banks’
financing and GDP, FDI, and GFCF. Data for
all variables are stationary after first difference.
The co-integration results provide an evidence of
a unique cointegrating vector. In other words, there is a long-term stable relationship between
Islamic banks’ financing and economic growth
in the Kingdom of Saudi Arabia. That means
Islamic banks’ financing and economic growth
relationships are moving together in the longrun.
The results from causality tests show that causality
relation exist from the Islamic banks’ financing
to investment and Foreign Direct Investment
(FDI) of the Kingdom of Saudi Arabia. The
results indicate that Islamic finance is a suitable
environment for attracting FDI and FDI
reinforces economic growth.
The document provides an overview of the Islamic finance industry. It discusses the history and origins of Islamic finance, the key players and geographic clusters, major products and deals, and current trends. The global Islamic finance market is growing rapidly at 10-15% annually and has reached $265 billion in assets, though there remains a need for standardization and professional training to further develop the industry.
Global trends in islamic banking - MIM Mediterranean Economic Forum 2014Jassim Mahadik
This document summarizes global trends in Islamic banking. It discusses the growth of the Islamic banking industry from $781 billion in 2008 to an estimated $1.6 trillion in assets currently. The three main types of Islamic banking systems - full-fledged, dual, and conventional plus - are described. Recent developments include mergers and acquisitions of Islamic banks as well as moves toward centralized Sharia boards and standardization. Challenges facing the industry include a lack of risk management techniques and the need for more education and research.
The document discusses Islamic investment funds and Sharia-compliant investing. It notes that Sharia-compliant funds such as those available through UCITS platforms in Dublin and Luxembourg are growing in popularity with both Muslim and non-Muslim investors. Management fees for Sharia funds are comparable to conventional funds. The document also outlines the size and growth of the global Sukuk market as an important aspect of Sharia-compliant fixed income investing.
The document discusses the principles of Islamic financial systems. It covers topics such as the fundamental principles of Islam like tawhid (unity of God), khilafah (vicegerency), and adalah (justice). It also discusses maqasid al-shariah (objectives of shariah), the strategy of Islamic economics, differences between conventional and Islamic financial systems, principles of Islamic banking like prohibition of interest and risk sharing, and objectives of seeking human welfare through allocating resources in accordance with Islamic teachings.
Trust Fund: A Product Combining Waqf, Zakah and Sadaqah for Socio-Economic A...Islamic_Finance
This paper introduces Waqf, Zakah and Sadaqah, which are currently being mobilised by the non-Financial Institutions (non-FIs) such as charitable organisations and Non-Governmental Organisations (NGOs) as additional components of Islamic finance industry, to complement the efforts of financial intermediaries as a contributor to key socio-economic development. The paper presents various aspects of a case study regarding the use of Trust Fund Instrument by the Islamic Development Bank (IDB) for socio-economic development in its member countries including a project run with the co-operation of Bill & Melinda Gates Foundation (Gates Foundation) for polio eradication in Pakistan as part of the Global Polio Eradication Initiative (GPEI).
The document provides an overview of the global Islamic asset management sector. It finds that while the number of Islamic funds has significantly increased over the past five years, assets under management have grown only marginally and remain a small fraction of total Islamic finance assets. Malaysia, Saudi Arabia, and Luxembourg collectively host 71% of global Islamic funds. Sukuk funds outperformed benchmarks after the 2008 crisis but have struggled more recently. Achieving scale remains a key challenge for the industry.
Islamic finance has moved from being just another buzzword in last decade to an extremely popular and viable alternative in today’s interconnected financial world. Islamic asset management has been at the forefront of revolution along with Islamic Banking.
The document discusses Islamic investment funds and their growth globally. Some key points:
- Over 750 Islamic funds globally now manage $60 billion in assets across various classes like equity, real estate, commodities.
- Popular locations for Islamic funds include Luxembourg, Cayman Islands, and Bahrain which are used as distribution hubs for the Middle East.
- Islamic funds are growing in popularity not just with Muslims concerned with Sharia compliance, but also with non-Muslims seeking socially responsible and ethical investments with comparable or higher returns than conventional funds.
This document summarizes the Islamic finance education landscape and developments in 2016. It finds that while the Islamic finance industry is growing, there is a shortage of qualified human resources which poses a risk. In 2016, several developments aimed to address this, including new Islamic finance centers in Pakistan backed by the UK, and a partnership between the BIBF and University of Bolton for an MBA program. Online education is growing, with initiatives launched by organizations like IDB's IRTI on edX and IFSB's new e-learning portal. Looking to 2017, online learning is expected to continue growing, which will benefit Islamic finance education and the industry overall.
This document discusses opportunities for Islamic finance in Australia. It provides an overview of Crescent Investments Australasia, which focuses on Shariah compliant wealth management products. It notes that Australia's Muslim population is growing and represents over $3 billion in household purchasing power. The document outlines what Islamic finance entails, including prohibiting interest and emphasizing profit/loss sharing and asset-backed transactions. It acknowledges legislative challenges around taxation but highlights opportunities in areas like Islamic superannuation funds, which could represent $3-6 billion in assets. Overall the document argues there is significant potential to expand Islamic finance in Australia.
This two-day training workshop on Islamic Microfinance will be jointly organized by the Yemen Microfinance Network (YMN) and AlHuda Center of Excellence in Islamic Microfinance on September 16-17, 2012 in Sana'a, Yemen. The training aims to provide education and training to microfinance professionals on Islamic financial systems and products. It will cover topics such as the concepts and applications of Islamic microfinance, Shariah principles, product mechanisms, models of Islamic microfinance, and microtakaful. Speakers will include experts from Pakistan. Attendees will gain knowledge on global best practices and opportunities in the emerging field of Islamic microfinance.
1) Pakistan was one of the first countries to implement Islamic banking in the 1960s and 1970s, with the founder of Pakistan calling for an Islamic banking system when establishing the State Bank of Pakistan in 1948.
2) Egypt started the first modern Islamic bank, called Mit Ghamr Savings Bank, in 1963 based on profit-sharing principles without interest. It succeeded in attracting many depositors and financing local projects until being shut down for political reasons in 1967.
3) Malaysia established Tabung Haji in 1962 as the first Islamic bank in Asia to help Muslims save for the hajj pilgrimage, and it remains an important Islamic financial institution today.
The document summarizes the presentation by Mr. MamodeRaffick Nabee Mohomed on the Al Barakah Multi-purpose Co-operative Society Limited in Mauritius. Al Barakah was established in 1998 as an Islamic financial cooperative to provide halal financing and investment opportunities for Muslims according to Islamic principles. It operates according to the Mauritian Cooperative Societies Act and provides services like home and vehicle financing based on murabahah. While challenges remain, opportunities exist to further develop Islamic finance through cooperatives in Mauritius and projects with Al Barakah.
Islamic Finance : Research Directions for Young ResearchersMahmoud Sami Nabi
This document summarizes a presentation on future research directions for young researchers in Islamic finance. It provides an overview of the growth of the Islamic financial services industry, particularly in banking assets, sukuk issuances, takaful contributions, and Islamic funds. It then discusses potential areas for future research, including ensuring Islamic finance develops in accordance with its distinguishing principles of risk sharing, ethics, and connection to the real economy. Examples are given of deviations in Islamic bank practices from theoretical models. The role of international institutions and lessons from other countries' experiences are also addressed.
This document provides information on the Master of Commerce (MCom) distance education programme offered by Dr. C.V. Raman University Institute of Open and Distance Education. It includes the programme duration, eligibility criteria, scheme and contents of examination over four semesters. The courses offered are Management Concepts, Managerial Economics, Business Environment, Cost Analysis and Control in the first semester and Functional Management, Advanced Accounting, Advanced Statistical Analysis, Corporate Legal Framework in the second semester. Specialization subjects are offered in the fourth semester in areas such as Marketing, Finance, Computer Applications, Taxation, Banking and Commerce.
This document is a project report submitted by a student to Mumbai University on strategies implemented by Skoda Auto India. It includes an introduction to Skoda's operations in India, the company's history, products offered in India. It discusses Skoda's levels of strategic management in India, focusing on business strategy as it competes with other luxury car brands. The report also includes a SWOT analysis and BCG matrix to analyze Skoda's strategies and product portfolio in India.
11.islamic banking a study of the relevant operating modes in current financi...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
Islamic banking a study of the relevant operating modes in current financial ...Alexander Decker
This document summarizes the history and operating modes of Islamic banking. It discusses:
1) Islamic banking emerged in the 1960s/70s as an alternative to interest-based banking guided by Islamic principles. Currently there are over 300 Islamic banks worldwide.
2) The main operating modes of Islamic banking include profit and loss sharing (mudarabah), equity partnerships (musharakah), and fixed-return contracts like murabaha (cost-plus sale).
3) Murabaha contract allows banks to purchase goods for clients and sell them at a markup, functioning as a financing mechanism while avoiding interest. It has become widely used in practice.
The global Islamic finance industry has grown rapidly over the past decade and now manages over $1 trillion in assets. Several factors are driving continued growth, including increased capital from Muslim-majority countries, the rise of Islamic multinationals, and growing retail demand. While the industry has potential to tap into the large Muslim population worldwide, it still needs to educate customers and differentiate itself more from conventional finance. Regulatory challenges and a lack of skilled professionals could hamper further expansion.
Islamic finance has grown rapidly in recent decades and become a significant part of the global financial system, with estimated assets exceeding $1 trillion. There are two main models of Islamic finance - the Arab model which originated in the 1970s focused on asset management, while the Malaysian model emphasized generating financing. Malaysia in particular has been innovative in developing sharia-compliant financial instruments and a dual banking system. For Islamic finance to be economically sustainable, it must continue to interface productively with conventional finance by creating positive synergies rather than assuming competition between the systems.
The document discusses the global financial crisis and proposes Islamic finance as a solution. It provides background on the causes of the crisis, including risky mortgage products and loose lending practices. It then outlines several principles of Islamic finance, such as prohibitions on usury and speculation, that could have helped avoid the crisis. The finance minister of Bahrain is quoted saying that adhering to Islamic rules helped the country avoid riskier assets and weather the recession well. The conclusion argues that Islamic finance principles of linking finance to real economic activity could help reduce debt and speculation and promote stability.
Islamic Finance and Economic Growth in the Kingdom of Saudi Arabia (KSA): An ...scmsnoida5
This paper examines the relationship between
the development of Islamic finance system and
economic growth in the Kingdom of Saudi
Arabia. The relationship between Islamic
banking and economic growth is done using
econometric analysis. In this analysis, we use
Islamic banks’ financing credited to private
sector through modes of financing as a proxy for
the development of Islamic finance system and
Gross Domestic Product (GDP), Gross Fixed
Capital Formation (GFCF) and Foreign Direct
Investment inflow (FDI) as proxies for real
economic growth. For the analysis, the unit root
test, co-integration test and Granger causality
tests were done. Based on the availability of data,
time series data from 1990 to 2010 is used to
examine the relationship between Islamic banks’
financing and GDP, FDI, and GFCF. Data for
all variables are stationary after first difference.
The co-integration results provide an evidence of
a unique cointegrating vector. In other words, there is a long-term stable relationship between
Islamic banks’ financing and economic growth
in the Kingdom of Saudi Arabia. That means
Islamic banks’ financing and economic growth
relationships are moving together in the longrun.
The results from causality tests show that causality
relation exist from the Islamic banks’ financing
to investment and Foreign Direct Investment
(FDI) of the Kingdom of Saudi Arabia. The
results indicate that Islamic finance is a suitable
environment for attracting FDI and FDI
reinforces economic growth.
The document provides an overview of the Islamic finance industry. It discusses the history and origins of Islamic finance, the key players and geographic clusters, major products and deals, and current trends. The global Islamic finance market is growing rapidly at 10-15% annually and has reached $265 billion in assets, though there remains a need for standardization and professional training to further develop the industry.
Global trends in islamic banking - MIM Mediterranean Economic Forum 2014Jassim Mahadik
This document summarizes global trends in Islamic banking. It discusses the growth of the Islamic banking industry from $781 billion in 2008 to an estimated $1.6 trillion in assets currently. The three main types of Islamic banking systems - full-fledged, dual, and conventional plus - are described. Recent developments include mergers and acquisitions of Islamic banks as well as moves toward centralized Sharia boards and standardization. Challenges facing the industry include a lack of risk management techniques and the need for more education and research.
The document discusses Islamic investment funds and Sharia-compliant investing. It notes that Sharia-compliant funds such as those available through UCITS platforms in Dublin and Luxembourg are growing in popularity with both Muslim and non-Muslim investors. Management fees for Sharia funds are comparable to conventional funds. The document also outlines the size and growth of the global Sukuk market as an important aspect of Sharia-compliant fixed income investing.
The document discusses the principles of Islamic financial systems. It covers topics such as the fundamental principles of Islam like tawhid (unity of God), khilafah (vicegerency), and adalah (justice). It also discusses maqasid al-shariah (objectives of shariah), the strategy of Islamic economics, differences between conventional and Islamic financial systems, principles of Islamic banking like prohibition of interest and risk sharing, and objectives of seeking human welfare through allocating resources in accordance with Islamic teachings.
Trust Fund: A Product Combining Waqf, Zakah and Sadaqah for Socio-Economic A...Islamic_Finance
This paper introduces Waqf, Zakah and Sadaqah, which are currently being mobilised by the non-Financial Institutions (non-FIs) such as charitable organisations and Non-Governmental Organisations (NGOs) as additional components of Islamic finance industry, to complement the efforts of financial intermediaries as a contributor to key socio-economic development. The paper presents various aspects of a case study regarding the use of Trust Fund Instrument by the Islamic Development Bank (IDB) for socio-economic development in its member countries including a project run with the co-operation of Bill & Melinda Gates Foundation (Gates Foundation) for polio eradication in Pakistan as part of the Global Polio Eradication Initiative (GPEI).
The document provides an overview of the global Islamic asset management sector. It finds that while the number of Islamic funds has significantly increased over the past five years, assets under management have grown only marginally and remain a small fraction of total Islamic finance assets. Malaysia, Saudi Arabia, and Luxembourg collectively host 71% of global Islamic funds. Sukuk funds outperformed benchmarks after the 2008 crisis but have struggled more recently. Achieving scale remains a key challenge for the industry.
Islamic finance has moved from being just another buzzword in last decade to an extremely popular and viable alternative in today’s interconnected financial world. Islamic asset management has been at the forefront of revolution along with Islamic Banking.
The document discusses Islamic investment funds and their growth globally. Some key points:
- Over 750 Islamic funds globally now manage $60 billion in assets across various classes like equity, real estate, commodities.
- Popular locations for Islamic funds include Luxembourg, Cayman Islands, and Bahrain which are used as distribution hubs for the Middle East.
- Islamic funds are growing in popularity not just with Muslims concerned with Sharia compliance, but also with non-Muslims seeking socially responsible and ethical investments with comparable or higher returns than conventional funds.
This document summarizes the Islamic finance education landscape and developments in 2016. It finds that while the Islamic finance industry is growing, there is a shortage of qualified human resources which poses a risk. In 2016, several developments aimed to address this, including new Islamic finance centers in Pakistan backed by the UK, and a partnership between the BIBF and University of Bolton for an MBA program. Online education is growing, with initiatives launched by organizations like IDB's IRTI on edX and IFSB's new e-learning portal. Looking to 2017, online learning is expected to continue growing, which will benefit Islamic finance education and the industry overall.
This document discusses opportunities for Islamic finance in Australia. It provides an overview of Crescent Investments Australasia, which focuses on Shariah compliant wealth management products. It notes that Australia's Muslim population is growing and represents over $3 billion in household purchasing power. The document outlines what Islamic finance entails, including prohibiting interest and emphasizing profit/loss sharing and asset-backed transactions. It acknowledges legislative challenges around taxation but highlights opportunities in areas like Islamic superannuation funds, which could represent $3-6 billion in assets. Overall the document argues there is significant potential to expand Islamic finance in Australia.
This two-day training workshop on Islamic Microfinance will be jointly organized by the Yemen Microfinance Network (YMN) and AlHuda Center of Excellence in Islamic Microfinance on September 16-17, 2012 in Sana'a, Yemen. The training aims to provide education and training to microfinance professionals on Islamic financial systems and products. It will cover topics such as the concepts and applications of Islamic microfinance, Shariah principles, product mechanisms, models of Islamic microfinance, and microtakaful. Speakers will include experts from Pakistan. Attendees will gain knowledge on global best practices and opportunities in the emerging field of Islamic microfinance.
1) Pakistan was one of the first countries to implement Islamic banking in the 1960s and 1970s, with the founder of Pakistan calling for an Islamic banking system when establishing the State Bank of Pakistan in 1948.
2) Egypt started the first modern Islamic bank, called Mit Ghamr Savings Bank, in 1963 based on profit-sharing principles without interest. It succeeded in attracting many depositors and financing local projects until being shut down for political reasons in 1967.
3) Malaysia established Tabung Haji in 1962 as the first Islamic bank in Asia to help Muslims save for the hajj pilgrimage, and it remains an important Islamic financial institution today.
The document summarizes the presentation by Mr. MamodeRaffick Nabee Mohomed on the Al Barakah Multi-purpose Co-operative Society Limited in Mauritius. Al Barakah was established in 1998 as an Islamic financial cooperative to provide halal financing and investment opportunities for Muslims according to Islamic principles. It operates according to the Mauritian Cooperative Societies Act and provides services like home and vehicle financing based on murabahah. While challenges remain, opportunities exist to further develop Islamic finance through cooperatives in Mauritius and projects with Al Barakah.
Islamic Finance : Research Directions for Young ResearchersMahmoud Sami Nabi
This document summarizes a presentation on future research directions for young researchers in Islamic finance. It provides an overview of the growth of the Islamic financial services industry, particularly in banking assets, sukuk issuances, takaful contributions, and Islamic funds. It then discusses potential areas for future research, including ensuring Islamic finance develops in accordance with its distinguishing principles of risk sharing, ethics, and connection to the real economy. Examples are given of deviations in Islamic bank practices from theoretical models. The role of international institutions and lessons from other countries' experiences are also addressed.
This document provides information on the Master of Commerce (MCom) distance education programme offered by Dr. C.V. Raman University Institute of Open and Distance Education. It includes the programme duration, eligibility criteria, scheme and contents of examination over four semesters. The courses offered are Management Concepts, Managerial Economics, Business Environment, Cost Analysis and Control in the first semester and Functional Management, Advanced Accounting, Advanced Statistical Analysis, Corporate Legal Framework in the second semester. Specialization subjects are offered in the fourth semester in areas such as Marketing, Finance, Computer Applications, Taxation, Banking and Commerce.
This document is a project report submitted by a student to Mumbai University on strategies implemented by Skoda Auto India. It includes an introduction to Skoda's operations in India, the company's history, products offered in India. It discusses Skoda's levels of strategic management in India, focusing on business strategy as it competes with other luxury car brands. The report also includes a SWOT analysis and BCG matrix to analyze Skoda's strategies and product portfolio in India.
Concept of Curriculum: Meaning and Concept of curriculum, Meaning of curricul...DrGavisiddappa Angadi
The document discusses various aspects of curriculum including its meaning, concept, types, and key terms. It provides definitions of curriculum, explaining it refers to the totality of a student's learning experiences, both inside and outside of school. It outlines several definitions of curriculum provided by different educational experts. It also discusses the concept of curriculum and different dimensions it can be evaluated in.
It then discusses key terms related to curriculum - curriculum framework, syllabus, and textbook. It provides definitions and comparisons of these terms. Specifically, it states that a curriculum framework outlines learning outcomes and standards, a syllabus refers to topics covered in a subject, and a textbook is a manual used for studying a particular subject.
Finally, it
Cash management is a marketing term used in corporate and private banks. Bank cash management system is a system in which cash is managed primarily for larger business customers. Cash management process is pre-requisite to execute payments, collect receivables and manage liquidity. It is more often used to describe specific services such as cash concentration, automated clearing house facilities and zero balance accounting.
This document is a portfolio management project presented to Prof. Muzammil. It includes analysis of various stocks including Microsoft, Coca Cola, American Airlines, and others. Key details analyzed for each stock include the 12-month price target range, consensus recommendations from analysts, earnings growth rates, and price-earnings ratios. The project also outlines the group members and acknowledges the teacher for their guidance. Various stock purchase and sale decisions are presented based on fundamental analysis and news events.
A project report on stress management at icici prudentialBabasab Patil
This document provides an introduction to stress management at ICICI Prudential Life Insurance. It discusses the history and origins of life insurance dating back to the 12th century. It outlines key milestones like the nationalization of insurance in India in 1956 and establishment of the Insurance Regulatory and Development Authority in 1999. ICICI Prudential maintains a leading market share of around 39% in private life insurance. The introduction examines stress management in the workplace and its importance for employee well-being and productivity.
A study of cash management at standard chartered bankProjects Kart
The document is a project report submitted for a Bachelor of Business Administration degree. It examines cash management practices at Standard Chartered Bank. The report includes an introduction that defines cash management and describes Standard Chartered Bank's cash management services. It also includes sections on objectives, research methodology, literature review, industry profile, company profile, results and analysis, a case study, limitations, conclusions, and recommendations. The company profile section provides an overview of Standard Chartered Bank's history and products, with a focus on its cash management services.
Basics of cash management for financial management & reportingSoaga Hameed Gbola
This paper examines the basics of cash management for financial management and financial reporting purposes. This study makes use of descriptive research method to examine the importance, essence, influence, relationship, and impact of cash management on financial management and financial reporting. It establishes the strong impact of cash management on corporate survival, linkage to practically every account on financial report, maximisation of shareholders’ wealth, fraud prevention and detection, and liquidity enrichment. It also ascertains the need for the use of net cash flows as a measure of performance. Organisations should give cash management serious attention and make it a strategic partner, and should maintain a dedicated cash module for cash management because accrual accounting is not adequate for cash management. Regulatory bodies should enhance disclosure requirements in respect of cash and cash equivalents to enhance transparency and prevent creative cash management.
Reebok faces high rivalry among existing firms in the athletic shoe industry. There are stable numbers of competitors and firms closely watch each other's moves and retaliate with countermoves. While barriers to entry are low, requiring large investments, established brands have strong name recognition that helps sell shoes. The bargaining power of buyers is moderate as major retailers can negotiate lower prices, while the power of suppliers is also moderate as there are multiple shoe material suppliers. However, the threat of substitutes is high as many companies produce similar athletic and casual shoes.
This presentation summarizes Classic Wears Pvt Ltd's inventory management practices. It discusses the company's inventory cycle and factors that affect inventory purchases and policies. Key problems identified include a lack of computerization, excess old stock, and wastage. Suggestions provided to address these issues include implementing a just-in-time system to reduce stock obsolescence, computerizing the store department for easier recording, and controlling wastage by having production returns remaining materials.
An analysis on inventory management at whirlpool of india limitedjaspreetharpreet
This document is a summer project report submitted by R. Gopal in partial fulfillment of an MBA degree from Sri Manakula Vinayagar Engineering College in Puducherry, India. The report analyzes inventory management practices at Whirlpool of India Limited in Puducherry. It includes an introduction to the topic, a literature review, research methodology, data analysis using inventory management tools like EOQ, safety stock, ABC analysis, and inventory turnover ratio. The report makes recommendations to improve Whirlpool's inventory management.
The document provides an overview of Ranbaxy Laboratories Ltd's project report on studying the working capital management of the company. It includes an introduction stating the importance of working capital management. It then discusses the pharmaceutical industry profile in India and Ranbaxy's research and development activities. The remainder of the report appears to analyze Ranbaxy's financial performance and working capital management through various ratios and comparisons to its competitors and industry standards.
This document discusses inventory management. It defines inventory and describes the variables involved in inventory problems including controlled variables like order quantity and timing, and uncontrolled variables like costs. It describes the objectives of inventory management as maintaining optimal inventory levels to maximize profitability. Different types of inventories like raw materials, work in progress, and finished goods are explained. The functions and importance of inventory management are provided along with methods like periodic review and fixed order quantity systems. The economic order quantity model and assumptions are outlined.
The document discusses the Indian government's decision to demonetize Rs. 500 and Rs. 1000 currency notes. It provides background on the increase in fake currency and black money fueling corruption. The government aims to curb these issues by removing the higher denomination notes from circulation. While this creates short-term hardship, the long-term goals are to bring transparency, reduce corruption, and benefit ordinary citizens and the economy. The impacts on various sectors and pros and cons are debated.
This document summarizes a research report on the relationship between working capital management and profitability. The report analyzes data from 60 Pakistani textile companies over 2001-2006. The results show a statistically significant negative relationship between profitability (measured by return on assets) and the number of days accounts receivable, inventory, and accounts payable are outstanding. Proper management of working capital through optimizing current assets and liabilities can thus improve company profits. The report also acknowledges the importance of balancing liquidity and profitability in working capital management.
Strategic management project report finallllllllllllllllllllsaad ali
This document contains an analysis of Coca-Cola's strategic management. It includes an industry profile of the beverage industry in Pakistan, Coca-Cola's company profile, mission and vision statements, an analysis of Coca-Cola's micro-environment using Porter's five forces model, a SWOT analysis, and several strategic planning matrices to evaluate Coca-Cola's strategies and position relative to competitors like Pepsi. The document provides an overview of Coca-Cola's business and strategies in Pakistan.
The document discusses inventory management at Apex Auto Ltd. It describes the company's objectives to study inventory management techniques and their impact on working capital. The document outlines the methodology used, including analyzing ratios and inventory statements. It also provides an overview of the metal fabrication industry and Apex Auto Ltd's profile.
A project report on the inventory management at ranna sugar ltdBabasab Patil
This document provides an overview of inventory management practices at Ranna Sugar Ltd, a sugar manufacturing company in India. It discusses the company profile, objectives, products, and departments. Key points include:
1) Ranna Sugar Ltd is located in Bagalkot district of Karnataka and has over 500 employees. It produces sugar, bagasse-based power, and utilizes byproducts.
2) The objectives include sugar, alcohol, and byproduct manufacturing and utilization. It aims to train people in sugar technology.
3) Inventory management is studied to control costs and eliminate waste. ABC analysis classifies items into A, B, C based on value and control required.
3) Findings show A
This document discusses working capital and its components. It defines working capital as the capital required to finance short-term operating needs such as inventory, accounts receivable, and cash. It also discusses the operating cycle as the continuous flow of cash being converted into inventory, then receivables, and back into cash. Finally, it notes that companies must determine the optimal level of working capital to support operations without having excess funds tied up in current assets.
This document provides an overview of Islamic investment banking. It discusses how the global financial crisis has highlighted strengths of the Islamic banking model such as its more conservative approach and emphasis on asset-backed transactions. However, it also notes that many Islamic banks in the GCC region have a narrow focus on real estate, lacking the diversified product and service offering of conventional investment banks. The foreword argues that Islamic banks should use this opportunity to strengthen the Islamic investment banking model and build a more resilient industry through long-term strategies including diversification and partnerships with conventional banks.
The document discusses major challenges facing Islamic banking and finance, including building capacity and awareness, developing proper legal and regulatory frameworks, addressing issues from globalization, establishing accounting and auditing standards, and ensuring compliance with Islamic principles prohibiting interest, speculative risk, and sinful activities. It emphasizes the need to build talent and expertise through education and training to strengthen the foundations and allow further growth of the industry.
The document discusses the future prospects of Islamic financial institutions in Malaysia. It provides an overview of Islamic finance principles and products, the role and functions of Islamic financial institutions in Malaysia, and the opportunities and challenges they may face. Specifically, it notes that Malaysia has played a leading role in developing the global Islamic finance industry and regulating domestic Islamic banking. The future prospects for growth appear positive due to government support and liberalization measures, though institutions will need to continue innovating and competing with conventional options.
Back alley banking in arab countries by Bashar H. MalkawiBashar H Malkawi
The document discusses the history and growth of Islamic finance. It notes that Islamic economics was founded in the 1940s based on Quranic principles prohibiting interest and requiring profit/loss sharing. The market for Islamic financial products has grown significantly in recent decades and now comprises over $1.35 trillion in assets globally. Many non-Islamic banks now offer Islamic windows or subsidiaries to serve the growing market.
Ey center-in-islamic-finance-for-africa-newBenett Momory
The document discusses Islamic finance and its potential for growth in Africa. It provides an overview of Islamic finance principles and structures like Mudaraba and Murabaha. While initially based on profit/loss sharing models, Islamic finance has diversified with many new products. It has three sectors - banking, Takaful insurance, and capital markets. The document argues Islamic finance can help fund growth in Africa as the industry and many African economies are expanding. It identifies opportunities in banking, Sukuk bonds, asset management and Takaful. The Center for Islamic Finance in Africa aims to support clients and develop the industry on the continent.
Islamic banking aims to comply with sharia (Islamic law) which prohibits riba (usury or interest). It operates deposit accounts and provides financing through modes like joint ventures, profit-sharing, and leasing which are asset-backed. Islamic banks were spared from the Euro crisis as they do not engage in speculation, toxic assets, or debt trading and are based on profit/loss sharing and asset-backed financing. While initially a niche, Islamic finance is gaining mainstream acceptance globally as regulations develop and investors understand Islamic structures.
1) The document analyzes the performance of Islamic mutual funds compared to conventional funds using data from 46 Islamic mutual funds between 1997-2002.
2) It finds that during the market boom period, Islamic equity funds demonstrated high positive returns, even higher than their benchmarks. However, during the market decline in 2000-2001, Islamic fund returns dropped along with the overall market decline.
3) The analysis uses various performance measures to compare returns of Islamic funds to market benchmarks and evaluates funds by investment category. The results show Islamic funds perform similarly to conventional funds, with no significant outperformance or underperformance.
Islamic finance current, future trends and challengesHosam alden
This document summarizes the current state of Islamic finance, future opportunities, and challenges. It discusses how Islamic finance emerged in the 1960s and has grown significantly in recent decades, with over $200 billion in assets currently. The key principles of Islamic finance are outlined, including prohibitions on interest and risk/profit sharing. Common instruments like murabaha, ijara, mudaraba and musharaka are described. Norms around avoiding riba (interest), gharar (uncertainty), and encouraging mutual cooperation are also covered. The document concludes that while Islamic finance remains a niche market globally, prospects for growth are strong given demand from Muslims worldwide and opportunities to channel savings ethically. However, it also faces challenges from differences
The Islamic capital markets have seen growth in Sukuk issuances from the Middle East and new entrants like Turkey. However, there are still challenges to creating sustainable and credible Islamic capital markets. Key issues discussed include the need for clear laws and regulations to attract cross-border deals, developing local currency markets beyond just Malaysia and Saudi Arabia, and changing investor mindsets to accept more equity-like risks in line with Islamic finance principles. Moving forward, players aim to integrate Islamic finance more into real economic activities like infrastructure and promote more asset-backed securities.
Is Islamic Finance really the value proposition it claims to be? Assessment a...saydfarook
This presentation provides a stocktake of where the Islamic Finance industry is currently positioned and what are the long term prospects for the industry. It also provides a short-medium term broad overview of what can be expected from Islamic Finance.
The document discusses Islamic finance, including its key principles and differences from conventional finance. It provides an overview of the growth of Islamic finance globally and in the UK. The UK government plans to issue the first sovereign Islamic bonds from a non-Muslim country in 2014 in order to tap into the growing Islamic finance market. This move could signify a new era for the financial world and demonstrate to both Muslim and non-Muslim audiences that Islamic finance offers ethical and socially-responsible alternatives to conventional banking.
The document provides an overview of a presentation on recent issues in Islamic finance and the modern economy. The presentation covers the main principles of Islamic finance including a ban on interest (riba), promotion of fairness and equity, profit and loss sharing, and the zakat mechanism. It also discusses the differences between Islamic finance and conventional finance which allows interest, as well as governance, growth, human capital development issues, and La Trobe University's role in and plans for its new Master of Islamic Banking and Finance program.
Islamic Banking: Inclusion in the Indian Banking SectorIOSR Journals
Innumerable changes have been witnessed in the Indian banking sector since last six decades. Various generations of financial sector reforms has changed the face and complexion of the Indian Banking Sector which is adopting various innovative practices with the focus on inclusive growth. Islamic banking is one such practice which is being considered in full fledged manner which otherwise has been practiced in an informal way. Islamic banking has set its foot on the path of rapid growth throughout the globe and India could not be isolated from it, looking at immense potential. The 1st Ernst & Young World Islamic Banking Competitiveness Report 2011 presented at the 18th Annual World Islamic Banking Conference stated that Islamic banking assets with commercial banks globally will reach US$1.1 trillion in 2012, a significant jump of 33% from their 2010 level of US$826 billion. The conventional banking as practiced by the Indian banking sector in its present form does stand in the way of the principles of Islamic banking which prohibits transaction on the basis of interest and operate on profit and loss based on Islamic principles. Introduction of interest free banking will require a lot of changes in the Banking Regulation Act.
Islamic finance has grown in two main areas in North America: retail finance like Islamic home financing and non-interest bearing bank accounts, and investment of GCC funds in North American industries. The report provides an analysis of what has been achieved in these areas and where Islamic finance may develop going forward. While some funds left after 9/11, Islamic finance continued growing in scale along these two tracks. The growth has been facilitated by Islamic investment banks opening regional offices in North America and many CEOs having educational backgrounds from North American institutions.
Islamic FINANCE AND BANKING SYSTEM Philosophies, Principles & Practices.pdfccccccccdddddd
This chapter provides an overview of economics and the Islamic economic system. It discusses:
1) The definition of economics and its origins in household management and resource allocation at a national level.
2) The two main branches of economics - microeconomics which analyzes individual behavior and macroeconomics introduced by Keynes which analyzes whole economies.
3) A brief history of the Islamic economic system which has existed since the time of the Prophet Muhammad but efforts to integrate Islamic principles only began in the 1970s. The chapter lays the foundation for understanding Islamic finance as part of the broader Islamic economic framework.
Sadiq Consulting-Your Ethical Finance Partner in ChinaAbdullah Han
Al-Sadiq Consulting is an ethical investment advisory firm based in China that advocates for Islamic finance in the Greater China region. It aims to be the leading consultancy in China by diversifying the economy through Islamic finance. The management team has extensive experience in Islamic banking and finance, China's economy, and working with Chinese companies and investors. Al-Sadiq provides services such as Shariah-compliant investment consulting, fundraising for Chinese companies and projects, and asset management consulting. It also operates the Society of Islamic Banking and Finance Professionals new media platform to educate the Chinese finance industry on Islamic finance.
ISLAMIC ACCOUNTING PRACTICES - THE IMPORTANCE OFISLAMIC CAPITAL MARKET IN MA...Nur Adillah Arifah Nazri
Capital markets are an important component of the financial system for raising funds for long-term investment. They provide opportunities for diversification of risk through cross-sectional risk sharing. The long-term investments are facilitated through a series of short-term contracts in the form of tradable securities enabling the investors an opportunity to exit or enter through trade. Thus they provide an element of liquidity to the otherwise illiquid assets. The secondary market also provides pricing and valuation of assets on a continued basis thus eliminating arbitrage and inefficiencies
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Data shown here represent activity of a wide range of ad formats for DFA advertisers in the EMEA Region from January to December 2009.
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1. FEBRUARY 2009
ISLAMIC FINANCE 01 Foreword
01 History and Current State of Islamic Finance
Opportunity for 03 Growth Fueled By Oil
03 Acceptance Grows as Liquidity Crosses Borders
Long-Term Growth 04 Islamic Finance’s Shariah Pillars
05 Malaysia: A Pioneer
The continued trend toward risk-averse
06 Islamic Mutual Funds
investments is bringing Islamic finance
into the spotlight. In this paper, we explore 07 Expanding into Non-Muslim Nations
the industry’s emergence, growth and 08 Sukuk Market
unique investment philosophy, as well 09 Takaful Market
as its challenges and limitations.
10 The Drive for New Shariah-Compliant Products
10 Risks
12 Conclusion
13 Glossary
2. This is State Street
With $12 trillion* in assets under custody and $1.4 trillion* in assets under management,
State Street is the world’s leading provider of financial services to institutional investors.
Our broad and integrated range of services spans the entire investment spectrum, including
research, investment management, trading services and investment servicing. By using any
combination of these services, our customers can deliver more value to their clients, control
costs, launch new products and expand globally.
With operations in 27 countries serving customers in more than 100 markets, State Street
delivers the tools and services that global institutional investors need to be successful.
*As of December 31, 2008
State Street’s Vision Series distills our unique research, perspective and opinions into
publications for our customers around the world.
3. Foreword
The growth of modern Islamic finance has been steadily intensifying for more than
two decades, but interest in the story of its success accelerated last year as the more
conventional financial industry faltered. Though Islamic finance has not been immune
to the effects of the global financial crisis, its resiliency is important to note.
The sector continues to garner attention because of its unique investment philosophy,
which significantly differs from traditional approaches, particularly as it relates to
risk. The increased interest has underscored the need for more education, as the
distinct moral and legal codes that govern Islamic finance are neither widely known
nor well understood.
To help investors better understand the structure of 1992. Our offices in Southeast Asia are also expanding
Islamic finance and its strategic investment trends, services to the Islamic finance market.
State Street hosted its first Islamic Finance Congress in
As Islamic finance attracts an increasingly global group
October 2008. The event provided an educational
of investors in the years ahead, we believe the industry
overview of Islamic finance on topics that included
will respond with new products that will offer greater
Shariah law and risk management, as well as current
variety and sophistication for a host of complex, cross-
market trends and opportunities.
border transactions.
Organized by State Street’s Muslim Professional
Employee Network, the meeting highlighted the History and Current State of Islamic Finance
emergence of Islamic finance and State Street’s The financial crisis has no doubt heightened the appeal
commitment to this expanding investment market, of Islamic finance, but its tenets — lower leverage,
which the company has been involved in for nearly a transparency and no speculation — make it an
decade, providing customers with custody and fund attractive investment option in any market environment.
accounting, as well as investment management.
As of December 31, 2008, State Street Global Advisors Although its roots can be traced back 14 centuries,
(SSgA) managed a Shariah-compliant portfolio of Islamic finance is still in the early stages of growth, and
more than $6 billion. A new office in Doha, Qatar, has there are no signs of it slowing. In fact, the industry has
strengthened State Street’s presence in the Middle East, only scratched the surface of the world’s estimated
adding to existing offices in Dubai first established in 1.5 billion Muslims — who represent 20 percent of the
ISLAMIC FINANCE • 1
4. Figure 1: Islamic Investment Product Depth
Sophisticated client Emerging Maturing Mature
investment product Private Equity Structured Products Equity
depth needs
Hedging Products Cash Management Real Estate
Fixed Income
Source: Aamir A. Rehman, “The Commercial Impact of Islamic Finance: Industry Overview and Implications, October 2008.
”
world’s total population1 — and it is starting to appeal to the often poorer parts of the Muslim population whose
non-Muslims as well. religious beliefs may have prevented them from
participating in conventional financial activities.
To understand the rise of modern Islamic finance, it’s
Conversely, Sheikh Saleh Kamel of Saudi Arabia
important to examine the principles of Shariah, the
founded the first Islamic Bank in that region because he
moral and legal code that governs the industry’s
wanted to use Islamic laws to grow his business and
development, impacts the underlying structure of its
wealth. Today, it has evolved into a sophisticated
products and services, and ultimately serves as one of
multinational business that is engaged in private equity
its biggest selling points to investors.
and project finance, as well as fund, asset and wealth
Any discussion of Islamic finance must also consider management. As indicated in Figure 1, the evolution of
the socioeconomic and geopolitical drivers that have Islamic investment products reflects a concerted effort
played an integral role in its growth. Rising oil revenues to accommodate a growing global customer base.
sparked a transfer of wealth to the Middle East, and that
What makes Islamic finance uniquely different — and
liquidity, in turn, inspired the region to establish new
uniquely global — is the common bond that its Muslim
ventures to diversify income sources and build more
customers share: their religion, whose moral lessons are
stable economies that will be less dependent on
shared through the teachings of the Koran, but whose
revenue from hydrocarbon sources. Countries from
legal principles and codes are governed by Shariah, or
Southeast Asia to North Africa have used Islamic
Islamic law (see call-out on page 4). While Shariah’s
finance to encourage their populations to broaden the
faith-based principles continue to hold strong appeal for
range of available personal finance services. Malaysia’s
Muslims, the pragmatic benefits arising from its
efforts to promote Islamic finance within its borders
application are becoming increasingly attractive to
have given it a unique opportunity to strengthen its
non-Muslims as well, particularly during the current
presence in global financial markets.
economic crisis and the intense focus on risk
It is also essential to understand the new products that management we are witnessing.
have evolved, as Islamic finance tries to strike a balance
At its core, Shariah specifies that money has no intrinsic
between finding solutions that comply with Shariah
value of its own and should be used as a tool for
and meeting the economic and transactional needs of
measuring the value of assets. This basic concept has
its investors.
an exceptional impact on Islamic finance’s development.
Historically, Muslim nations such as Malaysia have used Islamic financial institutions aren’t able to charge
Islamic finance as a vehicle to offer banking services to interest, even on basic deposit accounts. They also can’t
1 Gallup Center for Muslim Studies, March 2008.
2 • VISION FOCUS
5. employ many hedging and derivative instruments Growth Fueled By Oil
commonly used in more conventional finance activities. The founding of the first large Islamic banks in the
Shariah also requires that financial transactions be linked 1970s, including Dubai Islamic Bank and Albaraka
to an underlying activity or hard asset, providing a direct Banking Group, is generally considered to mark the
connection between financial and productive flows. birth of modern Islamic finance. The industry’s growth,
Furthermore, it demands that risk, as well as profits and however, really began to accelerate in the early 1990s,
losses, be shared between a financier and its customer. bolstered in large part by liquidity in the Gulf from one
This principle aims to encourage both parties to conduct crucial source: oil.
appropriate due diligence before agreeing to a transaction, Some analysts estimate that the rise of the oil industry
including the evaluation of whether the agreement will helped to propel Islamic finance’s growth rate to about
generate sufficient wealth to compensate for any risks. 10 percent a year, while others say the rate reached as
Proponents of Islamic finance say that these and other high as 20 percent during the past five years.
Shariah principles provide a built-in system of checks The influx of capital generated by rising oil prices has
and balances for financial transactions, and are what spurred massive investment in infrastructure and real
give the industry resilience and stability — even in estate development projects in the Gulf Cooperation
today’s challenging environment. They also propel the Council (GCC) states of Bahrain, Kuwait, Oman, Qatar,
industry to innovate so that it can meet the increasingly Saudi Arabia and the United Arab Emirates, driving
sophisticated financial needs of consumers. demand for sukuks (Islamic bonds) and loans.
So far, it appears that the global financial crisis has had The liquidity also has led to significant wealth
limited direct effects on Islamic finance as investors accumulation among individuals, spurring the need for
seek out asset classes and markets they hope will Islamic asset management services. GCC leaders have
provide stability. In fact, demand for Islamic financial announced plans to boost domestic investment in the
products and services in the global market may be hopes of diversifying the area’s economies beyond oil,
exceeding current availability. generating jobs and building new cities.
In recognition of this growing market, a number of Already, their vision is impacting investors. An estimated
global financial centers, including London, Tokyo and 25 percent of the portfolios of GCC states’ wealthy
Hong Kong, have initiated plans to integrate Islamic private investors is held in local financial products — an
finance into their financial systems, and some are increase from 15 percent in 2002.2 By the end of this
looking at Islamic finance as a way to enhance their own year, the number of Islamic mutual funds may rise to
financial markets. With more than 500 Islamic financial 925, an annualized growth rate of 28 percent since
institutions (IFIs) operating around the world, the scope 2000 (see call-out on page 6). The GCC’s foreign
of Islamic financial business is quickly expanding. investment choices will ultimately influence interest
With it has come product innovation. rates, liquidity and financial markets worldwide.
With total assets under management by Islamic financial Acceptance Grows as Liquidity Crosses Borders
institutions now exceeding $600 billion, the industry has
Support differs for Islamic finance among neighbors of
become a viable option for investors and a competitive
the GCC in the Middle East and North Africa.
form of financing for commercial enterprises. It is also
One explanation lies in the varying interpretations of
allowing for the further diversification of risks and is
Shariah that exist between different schools of Islamic
contributing to an efficient international allocation of
thought. For the most part, North Africa follows a less
resources across borders.
conservative interpretation of Islamic doctrine.
2 “Investing the Gulf’s Oil Profits Windfall, The McKinsey Quarterly, May 2008.
”
ISLAMIC FINANCE • 3
6. Islamic Finance’s Shariah Pillars
Islamic finance is based on Shariah, or Islamic law, which is Shariah also places limitations on debt. Under Islamic law,
designed to promote social and economic justice, and which money is used to measure the value of assets and has no
provides guidelines for all aspects of Muslim life ranging value of its own. Based on this definition, Shariah does not
from religion and politics to economics and business. permit debt-related contracts, since debt is a form of money.
If it’s part of a transaction, it should be sold at face value. As
There are five pillars of Shariah, as it relates to Islamic
a result, instruments used in conventional finance for
finance, which differ from conventional finance. They are:
unsecured corporate debt are forbidden.
• Ban on interest (riba)
• Ban on uncertainty (gharar) Shariah is also concerned with promoting ethical investing,
• Promotion of risk- and profit-sharing and it is this code that helps investors to determine whether
• Promotion of ethical investments that enhance society an investment is halal (acceptable) or haram (unacceptable).
• Promotion of asset-backed transactions in which each Industries backed by tangible assets that engage in accepted
financial transaction must be tied to a tangible and social behaviors are generally considered halal, which
identifiable underlying asset include computers or computer software, energy,
telecommunications, textiles, transportation and chemical
As part of its oversight of business and financial relationships, manufacturing. Haram businesses are seen as those
Shariah promotes risk-sharing, entrepreneurship, transparency conducting unacceptable activities, such as producing or
and the preservation of property rights, while discouraging marketing alcohol, gambling, conventional financial services,
speculative behavior. Shariah also outlines a variety of pork and pork products, and pornography.
traditional contract agreements that comply with Islam’s
religious and ethical principals in an effort to ensure that all Financial institutions and others who engage in Islamic
parties receive fair and just treatment. In addition to provisions finance try to ensure compliance with these principles by
commonly found in Western law that safeguard parties from consulting with a Shariah supervisory board that commonly
misrepresentation, Shariah contract law includes protections consists of Shariah scholars with experience in business and
that aim to eliminate forms of exploitation. financial matters. These boards are viewed as both an
auditor for the company offering the financial service or
Among these protections is the prohibition of riba, or product, and a consumer advocate for the company’s clients.
unwarranted gains, and gharar, or levels of ambiguity or
uncertainty. It is the prohibition of riba that results in the Shariah compliance is what lends a financial product or
banning of interest charges under Shariah, since it is service its legitimacy in the Islamic marketplace. Proponents
considered a cost that is accrued irrespective of the of Islamic finance view Shariah principles as mitigating
performance of an investment and may not create wealth if many concerns, especially in light of recent business
there are business losses. Restrictions on gharar are corruption scandals, the global credit crisis, and fears
what prevent Islamic financial institutions from employing of economic recession that currently challenge the
many derivative-type instruments typically used in global environment.
conventional finance.
4 • VISION FOCUS
7. For example, historically the banking clientele of the North the global Islamic financial system and to increase
African region known as the Maghreb was not particularly foreign entry and participation. As an example, Malaysia
opposed to the concept of interest, and tolerated has issued new licenses to foreign fund managers
conventional financing and the use of interest rates. In and stockbrokers, and has increased the issuance of
some countries, such as Libya and Morocco, Islamic licenses in Islamic banks and takaful (Islamic
banks had been considered by some to have ties to insurance) companies.
Islamic political parties and were therefore denied licenses.
The Ninth Malaysia Plan, for example, which covers
Countries such as Jordan, Tunisia and the Sudan, in 2006 to 2010, seeks to position Malaysia as a
contrast, have welcomed Islamic finance as an global hub for Islamic capital markets, products and
opportunity to foster economic development. services, and, in particular, as a center for origination,
distribution, trading, and fund and wealth management.
Gradually those nations with mainly Muslim populations
that had hesitated to permit Islamic banks have started The growth in Islamic finance in Malaysia has been
to embrace such institutions. For example, in February supported by a significant investment in human capital,
2007, Tunisia passed legislation authorizing the creation culminating in the establishment of the International
of the country’s first Islamic bank. The following month Centre for Education in Islamic Finance (INCEIF) in
Morocco’s central bank, Bank Al-Maghrib, allowed 2006. The INCEIF boasts international faculty and
Moroccan banks to offer Islamic banking services for students from more than 40 countries, and offers a
the first time in the country’s history. three-year Chartered Islamic Finance Professional
(CIFP) qualification that includes an internship with an
The emergence of Islamic finance in North Africa and
Islamic financial institution, as well as master’s and
other countries in the Middle East fulfills two purposes.
Ph.D. programs in Islamic finance.
First, it allows surplus liquidity to be allocated to an area
considered culturally similar and in need of foreign This year Malaysia established the International Shariah
direct investment. Second, it guarantees the recycling of Research Academy (ISRA) to conduct Shariah research
liquidity from the Gulf in profitable asset classes that are on contemporary Islamic finance issues. Specifically,
eligible as Shariah-compliant investments, namely the academy provides a platform to promote
tourism, real estate and infrastructure. engagement and dialogue among global Shariah
scholars in the hope that such discussions will assist
Malaysia: A Pioneer with the convergence of views from different
Oil has not been the only catalyst for growth in Islamic jurisdictions in the global Islamic financial system.
finance. The industry found a powerful ally across the After three decades of nurturing the Islamic finance
Pacific in Muslim Asia, led by the pioneering country of industry, Malaysia has succeeded in developing a
Malaysia, which has pledged to encourage innovation system that operates in parallel with conventional
and development of an international infrastructure. finance. Islamic banking assets now constitute
Islamic finance in Malaysia started as a strategy for 16 percent of the Malaysian market, while the takaful
greater financial inclusion. It provided a means for the sector oversees 7 percent. In the capital markets,
government to reach out to the underserved segment of Islamic private securities outstanding amount to
its society by offering basic banking and insurance $79 billion, or 54 percent of total securities in the
products that were compatible with Shariah principles. market.3 Malaysia’s government issued the first sukuk
in 2002. The country now accounts for over 62 percent
The country has made significant strides in liberalizing of global Islamic bonds outstanding, representing the
its market to promote greater financial integration with
3 Keynote address by Bank Negara Malaysia Governor Zeti Akhtar Aziz at the State Street Islamic Congress, Boston, October 6, 2008.
ISLAMIC FINANCE • 5
8. Islamic Mutual Funds
Due to the unique investing approach dictated by Shariah, Frequent trading of shares is also forbidden under Islamic
Islamic mutual funds weathered the credit crisis better than law because it is viewed as a form of gambling. As a result,
their mainstream peers during 2008. Their conservative the turnover in Islamic portfolios is considerably lower than
investment strategy enabled Islamic funds to avoid that of mainstream funds.
the crushing losses associated with the holding of
The result has been that many Islamic mutual funds have
collateralized debt obligations and other high-risk
fared better than their more conventional counterparts.
instruments in recent months.
The performance and the investment philosophy of Islamic
Because Islamic mutual funds must be Shariah compliant, mutual funds in today’s economic environment is driving
the funds must avoid investing in banks or other firms that some non-Muslim investors, who are increasingly risk averse
earn money by charging interest. This stems from the and intolerant of leverage, to seek out more Shariah-
Prophet Mohammed’s teachings that expressed that debts compliant investments. As evidenced in Figure 2, the
must be repaid only with the amount that was loaned. number of Islamic mutual funds has increased significantly
over the years.
Islamic mutual funds (like other faith-based funds) must
screen out so-called “sin stocks, which include firms
” Islamic mutual funds, however, are not immune from the
involved with alcohol, tobacco, gambling, pornography and economic downturn. These funds traditionally have high
weapons. Additionally, Shariah-compliant funds must also exposure to real estate and thus are vulnerable to declining
avoid companies involved in pork processing or that are housing prices.
highly leveraged. These rules limit the funds’ investable
universe to approximately half of all of the publicly traded
stocks in the US.
Figure 2: Number of Islamic Mutual Funds
1200
925
960
706
539
720
414
319
480
233
183
126
105
102
240
0 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08E ‘09E
Source: Booz & Company.
6 • VISION FOCUS
9. largest sukuk market in terms of amount outstanding London recently became the only non-Muslim competitor
and number of issues. to join the major financial hubs to handle Islamic
transactions, which had previously been dominated by
Expanding into Non-Muslim Nations Dubai, Kuala Lumpur and Bahrain. London offers some
Since the 1990s, Islamic banks in the Gulf and Muslim distinct competitive advantages: its large size and reach,
Asia have made significant inroads in attracting retail the liquidity in its secondary market, large human
customers to their products and services. And their resource capacity and expertise, as well as its already
efforts are succeeding. In those regions, an estimated deep and efficient markets where investors can switch
20 percent of banking customers would likely choose from one asset class to another, including sukuk.
an Islamic financial product over a conventional one London also benefits from a strong legal environment.
with a similar risk-return profile.4 Notable among initiatives related to Islamic finance was
Islamic financial institutions are now expanding to non- a sukuk-friendly amendment to the country’s tax law
Muslim countries, following a similar development path announced in 2007. The tax regime applied to sukuk
by focusing first on the retail segment. Their strategy coupons makes them deductible, which means they are
has been effective among parts of the Muslim now equivalent to interest and no longer viewed as
population in Europe that traditionally avoided using rental payments.
conventional banking facilities because of the practice The UK itself may consider issuing sukuk notes, which
of charging interest, or riba. would make it the third sovereign outside of the Middle
Among countries in Europe, the UK has expressed a East to issue Shariah-compliant paper after Malaysia in
leading interest in expanding its Islamic financial base. 2002 and Germany’s state of Saxony-Anhalt, which
Standard & Poor’s estimates that as many as 300,000 issued a five-year sukuk in 2004. The largest sukuks to
retail customers in that country may be interested in date were those issued by Nakheel Group of Dubai for
Shariah-compliant banking services. $3.52 billion in the first quarter of 2007, which were
listed in both Dubai and London.
In August 2004, the UK’s Financial Services Authority
(FSA) approved a banking license for the Islamic Bank Also among non-Muslim countries experiencing growth
of Britain, the country’s first Islamic bank to serve the in Islamic finance is the US, where an estimated 5 to 7
consumer market with Shariah-compliant products. The million Muslim residents are calling for more Islamic
licensing of the European Islamic Investment Bank, the financial opportunities — particularly in the wake of the
UK’s first independent Shariah-compliant investment subprime lending crisis.5
bank, followed in March 2006. Its mission is to recycle Shariah-compliant financing in the US mainly exists for
institutional and private liquidity in the Gulf into Shariah- personal home mortgages by such companies as
compliant asset classes with high returns, such as real Guidance Residential, University Islamic Financial,
estate, industrial, infrastructure and tourism in mature, Devon Bank and American Finance House Lariba. The
efficient and diversified Western economies. Federal National Mortgage Association (Fannie Mae)
A rising number of conventional global banking firms and the Federal Home Mortgage Corp. (Freddie Mac)
have created units dedicated to servicing the Islamic buy Shariah-compliant mortgage contracts from
market. Licensing a takaful company or allowing intermediaries, allowing the origination of further
conventional issuers to offer takaful products may be mortgages. In 2007, Freddie Mac bought more than
the next step in the UK’s strategy to enhance its position $250 million in Islamic home loans.
in the Islamic finance industry.
4 “Chief Drivers Behind Islamic Finance’s Global Expansion, Standard & Poor’s, Islamic Finance Outlook 2008.
”
5 “Islamic Finance: Overview and Policy Concerns, Congressional Research Service, July 29, 2008.
”
ISLAMIC FINANCE • 7
10. • MANFA’A – Assets usufruct selling, which refers to
Figure 3: Global Sukuk Issuance selling the right to use assets but with limitations
$US billions
• IJARA – A leasing contract that transfers the use of an
$46.7
60
asset to a lessee in exchange for periodic payments
48
• MUSHARAKA – A shared equity partnership where two
$27.2
36 or more partners supply capital to a joint venture
• MUDARABA – An agency partnership where one partner
$10.5
24
supplies capital and the other provides expertise
$7.2
$5.7
$1.0
$0.9
12
$0.3
• MURABAHA – An installment credit agreement used
0 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07
in the sale of tangible assets at a reasonable markup
Source: International Islamic Finance Market, August 2008. in which payments can be spread over time
• ISTISNA – A deferred delivery contract used to
Shariah-compliant mutual funds are also offered in the finance the sale of an asset that is under construction
US, as are Shariah-compliant transactions in private or does not yet exist
equity and real estate.
• BAY AL-SALAM – A forward-sale contract in which the
buyer pays in advance for an asset to be delivered
Sukuk Market
at a specific future time
Alongside the global advancement of Islamic finance is
the growing international appeal of its fastest-growing The sukuk market’s tremendous growth has been
product: sukuk. In 2007, new issuance of global sukuks spurred by the rising funding requirements of emerging
reached a record $47 billion, up 70 percent from the market economies in Asia and the Middle East.
prior year, as evidenced in Figure 3. Although the sukuk While the issuance levels are down from a year ago
market experienced a marked slowdown in 2008, because of deteriorating global market conditions, lower
experts predict it will gain ground as global investor interest and the widening of credit spreads, the
markets recover. sukuk market is still expected to remain resilient over
the long-term.
Generally, sukuk refers to bond-like obligations, the
majority of which are unsecured. Restrictions within The sukuk market’s expansion has been fueled mainly
Shariah prohibit the use of conventional debt by Islamic by corporate issuances, which accounted for more than
borrowers, mainly because of the definition of money as 85 percent of sukuks in the first half of 2008. Most
a means of exchange, or a measure of value, and not an sukuks are being issued in markets where liquidity is
income-generating asset in itself. The funding of still abundant and the appetite for Shariah-compliant
existing ventures or assets consistent with Shariah, and instruments is high, such as in GCC countries and
the sharing of risks and rewards, are two key principles in Malaysia.
that differentiate sukuks from conventional debt.
Massive infrastructure projects in the Gulf, estimated in
Sukuks can range from equity-like instruments with an excess of $1.6 trillion, will require huge amounts of
outright ownership interest in the issuer to asset-backed funding. Banks in the Gulf also are trying to balance
and asset-based securities. There are 14 ways to structure their loans with stable funding through sukuks to
sukuks, according to the Accounting and Auditing accommodate the rapid increase in residential real
Organization for Islamic Financial Institutions (AAOIFI), but estate lending. Financial institutions in the Gulf are
so far issuers are using mainly seven structures: experiencing widening mismatches between longer-
term maturities on the loans they extend and the
8 • VISION FOCUS
11. shorter-term financing that backs them, creating Muslim Asia, providing them with non-bank alternatives
demand for access to longer-term funding. for longer-term funding.
The sukuk market could help introduce more The sukuk market is expected to widen its geographic
standardization and encourage further innovation in reach, given that entities located in more than
structuring Shariah-compliant products, particularly 20 countries, many of which are non-Muslim, have
in such areas as real estate, which provide cash expressed interest in issuing the paper.
flow-generating assets to back the paper.
In 2007, more than 100 sukuks were issued from
Most sukuks are over-the-counter instruments, with 10 countries, and the UK government published
listed sukuk accounting for only about a quarter of a “consultation” seeking views from the public about
outstanding sukuks issued worldwide. The secondary the potential issue of a wholesale British sterling-
market is virtually nonexistent, since many Islamic denominated sukuk. The state-owned Japan Bank for
finance scholars stipulate that sukuks may only be International Cooperation also voiced its intention to
resold at face value. issue sukuks.
The US dollar has traditionally been the preferred During the past two years, sukuk structures have
currency for sukuk issuers, but during the past combined different risk-return features, greatly
five years has experienced a decline. The percentage of enhancing their appeal for global investors. Examples of
US dollar-denominated sukuks declined to 42 percent innovations include convertible sukuks to IPO shares or
in 2007 from 85 percent in 2002, reflecting the 6 issued equity shares, sukuks with put/call options and
US dollar’s recent weakness and a rise in issuances in subordinated sukuks, which are part of tier-2 capital of
local currency. The other major currencies of issuance Islamic banks.
in 2007 were the Malaysian ringgit, the UAE dirham and
the Saudi Arabian riyal, the latter two reflecting the large Takaful Market
amount of liquidity in the Gulf that sukuk issuers are Takaful is another Islamic financial product gaining a
trying to tap. Sukuk issuance in US dollars is expected large following, particularly in the GCC where economic
to pick up again mainly because issuers are financing growth and a sizable underinsured population are
infrastructure projects in the Gulf, where most costs are creating an opportunity for the development of the
dollar-denominated. market. The GCC insurance market alone has a
Sukuks present specific credit risks, particularly with potential size of $20 billion7 as substantial infrastructure
regard to delays in scheduled payments, events of investments in the region are generating a need to
default and reporting standards. For example, from an insure related risks. Currently, the GCC takaful market is
issuer’s perspective there is a pricing gap between growing at about 40 percent a year.
sukuks and conventional debt instruments. Sukuks Takaful, which involves the concepts of cooperative risk
require more complex legal structures that result in sharing and community well being, was approved by
higher advisory fees. Investors may require higher rates the Grand Council of Islamic Scholars as a Shariah-
of return from sukuks to compensate for their relatively compliant alternative to traditional insurance in 1985.
illiquid nature, smaller market size and lack of proven
legal and bankruptcy systems in issuers’ jurisdictions. The main challenge for the takaful industry is to
increase awareness of the benefits of insurance among
Issuers are looking to sukuks as an alternative means of retail customers. It suffers a lack of economies of scale
tapping cash-rich investors from the Middle East and and an inability to more effectively diversify risks.
6 “The Sukuk Market Continues to Soar and Diversify, Held Aloft by Huge Financing Needs, Standard & Poor’s, March 11, 2008.
”
7 “Takaful: A New and Viable Insurance Business Model or Just a Marketing Opportunity?” Standard & Poor’s, Islamic Finance Outlook 2008.
ISLAMIC FINANCE • 9
12. Success will depend on the industry’s ability to provide hedging against risks associated with currency and
innovative products and high-quality service, as well as profit rates structures. The committee also approved a
an increased awareness of the need for insurance to contract to commence hedging operations with one of
create demand for it. the counterparties.
It is reviewing other proposals presented by several
The Drive for New Shariah-Compliant Products
parties for hedging mechanisms that include the use of
While the selection of products at large Islamic financial diminishing partnerships as a mode of financing in the
institutions remains relatively narrow, some newly construction and development of highways, Shariah
created Shariah-compliant instruments are beginning to rules related to liquidity management and rules
rival those of conventional banks. governing third-party guarantees.
On the deposit side, these instruments include profit-
sharing investment accounts (PSIAs), which give Risks
depositors the right to share in Islamic banks’ profits There are risks involved with any investment, and
and losses. In addition, several money market, equity, Islamic finance is no exception. Not surprisingly, some
real estate, private equity and infrastructure funds are of the more significant risks for the industry lie in its
now being offered. relationship with Shariah.
As capital markets and legal frameworks develop, there Compliance with Shariah’s code and principles poses the
are growing prospects for a structured finance market in biggest risk in modern Islamic finance because it
the Middle East. Originators are examining how it may constitutes the necessary first step toward acceptance of a
be possible to securitize assets as confidence in this product and service by Muslim consumers and investors.
form of financing increases. To prove compliance means that the product and service
must first have the approval of a religious authority.
Legal issues, high liquidity in the region and a lack of
benchmarks pose challenges. Still, legal developments This is why the single most important factor in the
in some jurisdictions, including new mortgage management of risk in Islamic finance are the Shariah
legislation being introduced in Saudi Arabia and the supervisory boards. These boards generally consist of at
introduction of foreign ownership laws in Dubai and least three Shariah scholars who have specialized
Saudi Arabia, indicate a willingness to try to facilitate qualifications in finance or economics. They often
some securitization. participate in a product’s research and development
before issuing a fatwa, or ruling, on its compliance with
Also, the need to diversify the region’s investor base and
Shariah law.
reduce dependence on the performance of oil markets
may be a significant incentive for securitization. Lastly, In recognition of the importance of this religious
securitization shares an important feature with Shariah approval, some areas now require a Shariah supervisory
compliance: asset-driven returns. board as well as a fatwa for any company offering
Islamic financial services and products. Such
Financial derivatives and hedging instruments may
certification signifies that a product not only complies
prove more difficult to develop, mainly because of
with jurisdictional regulations, but has also been
Shariah’s prohibition of interest and activities that have
scrutinized by an authority on Islamic transactional law.
a high risk of uncertainty.
However, the presence of a fatwa or a Shariah
The industry, however, is moving forward to try to find
supervisory board does not guarantee market
new avenues. The Islamic Development Bank’s Shariah
acceptance that a product is Shariah compliant. In fact,
Committee approved a Shariah-compliant concept for
there are several reasons for the failure of a product or
10 • VISION FOCUS
13. service in the Muslim community, including differences There is a growing need to address differences in
of legal philosophy among various jurisdictions, a lack of jurisprudence and legal methodology across geographic
detailed disclosure in a fatwa, the failure of an investor regions, particularly with regard to financial products
Shariah board to comprehend the operations or and services for which there is no precedent or clear
structures described in a fatwa, or simply the rejection ruling from the classical texts. As Islamic financial
by consumers who feel that a fatwa has not adequately products evolve, the law is only beginning to catch up in
addressed their concerns. In some instances, a its interpretation and application. Modern Shariah
rejection may come from an independent Shariah supervisory boards have had to help companies
authority, such as an imam or community leader, which innovate and be proactive about how to use nominate
could lead to general rejection by the public. contracts8 as building blocks for achieving financial and
contractual objectives. For example, the adaptation of
The perception of whether a product or service is
contracts helped to bring about interest-free alternatives
Shariah compliant, or whether an institution is engaged
to conventional mortgages for the financing of homes.
in activities that are deemed unlawful under Shariah,
leads to reputation risk. Again, the Shariah supervisory The development of consistent and universally accepted
board plays a crucial role in conducting due diligence accounting and regulatory standards is also becoming
and helping to ensure compliance to mitigate this risk. increasingly important for the industry as Islamic
financial activity flows across borders. The industry is
Companies — particularly those that conduct business
responding by establishing a global financial
globally — are careful about choosing scholars who sit
architecture that includes the AAOIFI, which was
on their boards. These institutions generally establish
founded in 1990, and the Islamic Financial Services
Shariah supervisory boards with scholars of
Board (IFSB), established in 2002. These organizations
international repute whose backgrounds cover a broad
have been essential for the stability of the system,
cultural and linguistic constituency, and who represent
primarily because they have played a key role in
the major schools of jurisprudence and the main
reconciling accounting and regulatory standards across
geographical regions of the Muslim world.
different jurisdictions. They have also been instrumental
With the rise of Islamic finance, demand for these in instituting international best practices.
scholars has intensified, leading to a worldwide shortage
The importance of setting global standards was
of skilled Shariah scholars to serve on these boards.
highlighted recently when the Shariah board of the
There is also a shortage of workers skilled in marketing
AAOIFI in Bahrain declared that many of the innovative
and executing the products and services. Subsequently,
sukuk structures failed to comply with religious rules.
regulators and industry participants are moving quickly
Buying back the underlying assets of a sukuk at a
to develop solutions in education and training.
predetermined price, the board said, represents a
Malaysia’s establishment of its INCEIF certification guarantee, rendering it in violation of Shariah. The
program in 2006 is one example. The Islamic AAOIFI issued new guidelines to address this concern,
Development Bank also set up a $600,000 Technical but the warning temporarily stunted participation in the
Assistance Sub-Account Facility with the International sukuk market.
Monetary Fund aimed at helping member countries
Market, credit, funding and liquidity risks also pose
implement common legal and regulatory standards for
unique challenges to Islamic financial institutions
Islamic financial institutions.
because of Shariah compliance.
8 Nominate contract: A type of contract that occurs so frequently that it has acquired a name and individual characteristics (e.g., purchase and sale).
ISLAMIC FINANCE • 11
14. The management of market risks is often more difficult Conclusion
for Islamic banks than their conventional counterparts The unprecedented volatility persisting throughout world
because of the limited number of risk management financial markets today is giving rise to a new world
tools and instruments available to them. For example, order that is redefining the structure and regulation of
hedging instruments such as derivatives are generally the financial services industry. Expressly, there is
forbidden. The institutions find some assistance in heightened awareness for greater diversification of risks
the prohibition of gharar (uncertainty), which can in the management of funds.
temper their risk profile by limiting the size of their
trading operations. Against a backdrop of a challenging global environment,
Islamic finance is emerging as a competitive form of
Collateral coverage at Islamic financial institutions is intermediation in the international financial system.
often higher for conventional banks since they have an At State Street, we believe its expansion may contribute
obligation to back any transaction with a tangible, to a more efficient allocation of capital globally — as
underlying asset. Still, certain transactions carried out well as to greater financial stability — as financial
by Islamic banks can bear above-average credit risk, linkages among the East Asian, West Asian and
namely musharaka (venture capital financing) and Middle East regions evolve.
mudaraba (trust financing), which can increase the
risks carried by the banks. In addition, in murabaha For Islamic finance to be fully embraced across the
(mark-up financing) and ijara, the existence of full globe, the industry will need to continue to expand
collateral could lead Islamic banks to be less vigilant business parameters and create new product offerings.
when assessing the creditworthiness of their borrowers. Specifically, we believe the industry must increase its
investment in research and development to yield new
Funding and liquidity risk is one of the most critical issues instruments, regulatory structures, best practices and
for Islamic financial institutions since only a small higher standards of risk management to meet the
secondary market exists to enable them to manage requirements of the international community. These
liquidity. Their assets are generally not sellable on a solutions need to combine market requirements with
secondary market, and they aren’t able to invest in fixed- Shariah compliance, as the forces of innovation will
income instruments for treasury management purposes. expose the divergence of Shariah views that underlie a
Liquidity risk is of particular concern with regard to PSIAs, number of Islamic financial transactions.
should PSIA holders decide to withdraw their deposits at Moving forward, one of our highest priorities as a global
maturity. Islamic institutions have developed some layers financial system is to find ways to restore confidence in
of protection to deal with this, namely profit equalization the markets — and we believe Islamic finance will
reserves, mudarib fees and investment risk reserves. provide that opportunity. Opening the door to additional
alternative forms of investing, particularly ones that
emphasize the sharing of risk and reward, will certainly
help to facilitate our goal. Despite an impending market
recovery, we are likely to see a continued trend toward
risk-averse investments and intense scrutiny of
investment practices across the board, which will give
Islamic finance a boost for years to come.
12 • VISION FOCUS
15. Glossary
ACCOUNTING AND AUDITING ORGANIZATION FOR ISLAMIC INTERNATIONAL SHARIAH RESEARCH ACADEMY (ISRA):
FINANCIAL INSTITUTIONS (AAOIFI): Founded in 1990, the Founded by Bank Negara Malaysia (BNM) as part of its
AAOIFI is a non- profit group that prepares accounting, effort to establish Malaysia as an Islamic financial hub,
auditing, governance, ethics and Shariah standards for the ISRA aims to promote applied research in the area
Islamic financial institutions and the industry. of Shariah and Islamic finance. It also acts as a
repository of knowledge for Shariah views or fatwas and
CHARTERED ISLAMIC FINANCE PROFESSIONAL (CIFP)
undertakes studies on contemporary issues in the
QUALIFICATION: The CIFP is the world’s first certification
Islamic financial industry.
in Islamic finance that aims to provide individuals with
expertise in the Islamic banking and financial services ISLAMIC FINANCIAL SERVICES BOARD (IFSB): Established
industry, including takaful and capital markets. in 2002, the IFSB is an international organization that
The professional certification program aims to produce aims to set standards and guiding principles for the
high-caliber professionals with the necessary technical Islamic financial services industry, which includes the
skills and knowledge in Islamic finance. banking, capital markets and insurance sectors. The
IFSB also conducts research and coordinates initiatives
FATWA: A fatwa is an Islamic religious ruling or a
on industry-related issues, and organizes seminars and
scholarly opinion on a matter of Islamic law. It usually is
conferences for regulators and industry stakeholders.
issued by a recognized religious authority in Islam.
MAGHREB: A region in North Africa that generally
FINANCIAL SERVICES AUTHORITY (FSA): The FSA is an
applies to all of Morocco, Algeria and Tunisia.
independent organization responsible for regulating the
financial services industry in the UK. MUDARABA: A form of trust financing. Under this
arrangement, an investment is made on someone’s
GHARAR: An Arabic word meaning risk, uncertainty and
behalf by an individual considered to be more skilled.
hazard. It is differentiated from the word riba in that the
The contract between the two parties has one side
prohibition of riba is absolute, while some degree of
providing the funds, and the other providing the
gharar, or uncertainty, is considered acceptable in
expertise, and both agree in advance to the division of
Islamic finance.
any profits made.
GULF COOPERATION COUNCIL (GCC): A trade block
MUDARIB: In a Mudaraba contract, the expert who
involving the six Arab states of the Persian Gulf:
manages the investment is known as a Mudarib.
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the
United Arab Emirates. MURABAHA: A form of mark-up financing. A contract for
purchase and resale that allows the customer to make
IJARA: A lease-to-own contract in which a bank buys
purchases without having to take out a loan and
and then leases an item to a customer for a specified
pay interest.
rental over a specific period.
MUSHARAKA: A word that means “partnership.
”
INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC
In Islamic finance the contract involves one party
FINANCE (INCEIF): Established by the Bank Negara
placing capital with another, and both sharing the risk
Malaysia, the central bank of Malaysia, in March 2006,
and reward.
the INCEIF offers education and training in Islamic
finance, including a professional certificate known as the
Chartered Islamic Finance Professional qualification, as
well as master’s and Ph.D. programs.
ISLAMIC FINANCE • 13
16. PROFIT-SHARING INVESTMENT ACCOUNTS (PSIAS): Offered
by many Islamic banks, PSIAs are relatively similar to the
time deposits of conventional banks. They are structured
so that depositors are entitled to receive a share of a
bank’s profits, but also must bear all potential losses.
RIBA: An Arabic word meaning interest.
SHARIAH: Islamic law.
SUKUK: An Islamic financial certificate, similar to a bond
in conventional finance, that complies with Shariah.
TAKAFUL: Based on Shariah, takaful is a type of Islamic
insurance, with members contributing money into a
pooling system to guarantee each other against loss or
damage.
14 • VISION FOCUS