Brief explanation on Islamic finance and Islamic financing opportunities for SMEs in the Kingdom of Bahrain.

1. Royal University for Women
Ahmed M. Alkhan
April 11, 2012

2.  History of modern Islamic Banking – Timeline
 Islamic Banking – A Theological Perspective
 Basic Islamic Banking products
 Islamic Banks in Bahrain –
SME/Entrepreneurship financing

3. History of Modern Islamic Banking

4.  1963 Egypt – Pioneering efforts of Ahmed Al-
Najjar
 1975 – Dubai Islamic Bank
 1977 – Faisal Islamic Bank of Sudan
 1979 – Bahrain Islamic Bank
 1980’S Boom of Islamic Finance Industry
 Approximately $ 1.3 Trillion industry
 Estimated to be $ 6 Trillion industry by 2020

5. Islamic Banking

6. Islam
Aqeedah
(Faith &
Belief)
Shari’a
(Practices &
activities)
Ibadah (Man-
to-God
worship)
Mu’amilat
(Man-to-man
activities
Political
Activities
Economic
activities
Banking &
Financial
activities
Other
Economic
activities
Social
Activities
Akhlaq
(Morals &
Ethics)

7.  Source:
 Derived from Qur’an, Sunnah, Qiyas (Analogy),
and Ijma’ (Consensus)
 Shari’a Studies: Under Fiqh Al-Mu’amilat
Main Concept:
 Prohibition of Usury
 Financial Screening (Total Debt : Total Equities)
 Industrial Screening (Pork, Gambling, Alcoholic
Beverages, etc.)
 Sale/Trade, Profit Sharing principles

8.  “Those who take Riba shall be raised like those
who have been driven to madness by the touch
of the Devil; this is because they say: ‘Trade is
just like interest’ while God has permitted trade
and forbidden interest…” (Al-Baqarah 2:275)
 “Allah deprives Riba of all blessing but blesses
charity; he loves not the ungrateful sinner.” (Al-
Baqarah 2:276)
 “O believers, fear Allah, and give up what is still
due to you from Riba if you are true believers. If
you do not do so, then take notice of war from
Allah and his Messenger. But if you repent, you
can have your principal…” (Al-Baqarah 2:278-9)

9.  Al-Rum – Verse 39
 Al-Nisaa’ – Verse 161
 Al-Emran – Verse 130
 Question: Is Usury prohibited in any other
religion?

10.  The views of J.L. Hanson, expressed in his
Dictionary of Commerce and Economics
 “Usury: A term now restricted to the charging of
a very high rate of interest on a loan, but
formerly used in connection with interest
whether the rate charged was high or low. The
medieval church, following the law of Moses and
the writings of Aristotle and other Greek
philosophers, condemned the payment of
interest on a loan as usury and unjust. The usury
laws passed in the sixteenth century prohibited a
rate of interest in England in excess of 5 per
cent”

11.  25 “If you lend money to any of My people who
are poor among you, you shall not be like a
moneylender to him; you shall not charge him
interest.” (Exodus 22:25)
 36 “Take no usury or interest from him; but fear
your God, that your brother may live with you”
(Leviticus 25:36)
 19 " You shall not charge interest to your brother
-- interest on money or food or anything that is
lent out at interest.(Deuteronomy 23:19)

12. Islamic Banking

13. Murabaha
Mudharaba
Ijara
Istisna’
Musharaka

14. Client
approaches
Bank, shows
interest in
buying
commodity A.
Bank allows
agent/client to
act on behalf of
Bank
Agent buys
commodity A on
spot payment at
price P (Title deed
transferred to
Bank)
Agent sells
commodity A to
client on deferred
payments
(installments) on
behalf of Bank at
price P + mark up
Bank pays Agent
agency fees for
acting as an agent

15. Bank
Rub il Mal
Mudharib
(Entrepreneurship)
Invests in any
Shari’a compliant
IGA
Profit/Loss
Outcome

16. 2. Bank (Rub il Mal)
provides capital to
Entrepreneur
(Mudharib)
3. Entrepreneur
Invests in any
Shari’a compliant
IGA activity
3. Profit (Loss)
generated from
investment.
4. Profit distributed
based on a pre-
determined ratio [on
trust basis]
1. Product
developed by
Islamic product
development team

17. Bank
Contractor
Muqawil
Client
1. Approaches
Bank, shows
Interest in
Building house
2. Bank
Contracts
with a
contractor
3. Builds as
instructed, hands
building over to
client on behalf
of Bank as per
Bank’s request
4. Client will
offer to buy from
Bank at pre-
agreed upon
price
5. Bank
accepts/declin
e sale to client

18. Islamic Banks in Bahrain

19.  Bahrain Islamic Bank (BIsB)
 Kuwait Finance House (KFH)
 Bahrain Development Bank (BDB)
 ITHMAAR
 BMI Bank

20. SME (Small & Medium Enterprises) Banking:
 Business Accounts
 Business Installment Finance
 Trade & Working Capital Facilities
 Express Trade
 Commercial Mortgage Finance
 Commercial Vehicle Finance
 Merchant Finance
 Foreign Exchange & Treasury Services

21. What are the products offered by BisB under
Enterprise Financing?
 BisB offers four ways to help obtain the
finance scheme:
 Direct Financing: which will offer three
products
 Auto and Equipment Financing: (Murabaha).
 Working Capital Financing: (Tas’heel).
 Trade Finance Transactions: Letter of Credit
(LC) and Letter of Guarantee (LG).
 BISB's corporate credit card

22.  Minimum Limit: BD10,000.
 Maximum Limit: BD250,000.
 Profit Rate: 4% reducing.
 Processing Charges: BD150 flat, paid cash by
the customer.
 Takaful Life Insurance: Individual policy
covering the full amount and duration of
finance.
 Grace Period: 2 months.
 Maximum Duration: 5 years.

23.  Bahrain Development Bank – SME /
Entrepreneurship financing, Islamic available
 Note: BDB’s 5 day entrepreneurship course is
simply excellent.
 Tamkeen Subsidizing profit rates 4% (2% customer
and 2% Tamkeen)

24.  BMI – Tamkeen Subsidized
 KFH – Ijara Muntahia Bitamleek, Istisna’,
Murabaha to the purchase orderer
 ETC.

25.  http://www.tentmaker.org/lists/UsuryScript
ureList.html
 http://shariah-fortune.com/history-of-
islamic-banking
 Understanding Islamic Finance – Muhammad
Ayub p.44-45, 54