Islamic Banking and Finance

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]Objectives of Shari`ah in the Prohibition of Usury (Riba)[/FONT]

Implications for Modern Islamic Finance

This paper is an attempt to determine and define the objectives of the prohibition of riba from the main texts in the Qur'an and in the contemporary contexts that take into consideration a contemporary interpretation of the Islamic concept of generation of returns or revenues. We noticed that although the condition of being asset-based is a necessary condition for Islamic financing, it is not sufficient.

We need two more conditions to pass the criteria of Islamism: The underlying asset must be of the kind that is liable to produce return, growth, or increment, and the transaction must be genuinely meant for what it is for or what defines it.

Together, these three conditions channel financing contracts in the desired or designed direction that is meant by the prohibition of riba and at the same time guaranteed to make it (by the nature of the described processes) subject to the moral or ethical screening that Shari'ah at large calls for and aims at.

http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1203758907675&pagename=Zone-English-Living_Shariah%2FLSELayout

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]UK promotes City as center for global Islamic finance [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]LONDON: The Islamic Sukuk market received a potentially major boost in the UK budget 2009 announced by Chancellor of the Exchequer Alistair Darling in the House of Commons last week. [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]The chancellor confirmed in his budget statement three further measures on alternative finance instruments (the euphemism for Islamic finance referred to in the UK legislation) as part of the ongoing drive to promote the UK as a center for Islamic finance.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]The measures are aimed at anyone (institution) wishing to obtain finance by issuing Alternative Finance Investment Bonds (AFIBs) (the UK euphemism for Sukuk) using land assets as securities under the arrangements for issuing the bonds in the United Kingdom.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]They include: (a) provision of relief from stamp duty land tax (SDLT) in respect of transactions undertaken as part of the issue of alternative finance property investment bonds; (b) provision of relief from tax on capital gains in respect of transfers of land to and from Sukuk issuance vehicles; and (c) ensuring that the person obtaining the financing will continue to be entitled to claim capital allowances while the land is held by the Sukuk issuance vehicle.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]It is a stated ambition of the Labour government to further promote the City of London as a center for global Islamic finance, trade and investment and to create a level playing field between conventional and equivalent Islamic financial products[/FONT]

http://www.islamonline.com/news/articles/28/UK_promotes_City_as_center_for_global_Islamic_fina.html

 

[AbuKhalid]

I live in a country which is 100% Muslim (so they say), but there isn't a single Islamic bank. What a state this Ummah is in.

 

[Cordoba]

What country is that, if I may ask?

 

[AbuKhalid]

What country is that, if I may ask?

The Maldives.

 

[Cordoba]

I'm sure you'll have an Islamic Bank soon, In-Shaa-Allah, as this is the future

Even China is now thinking about it:

[FONT=Arial,Geneva,Verdana,Sans-Serif]Chinese Interest in Islamic Banking[/FONT]

According to Western estimates, China has a Muslim minority in the Xinjiang province with a population between 70 and 90 million. Yet until today, Islamic banking has confined itself to standing on the Chinese borders [and looking in]. Islamic Banking has a presence in Singapore – a country which borders China – as well as Hong Kong – the island under Chinese control – but has not crossed onto mainland China.

To be honest I cannot find any justification to the long delay of Islamic Banking in making this crossing, especially since the Chinese government has been making overtures to this industry. This can be seen with regards to the People's Bank of China gaining membership to the Islamic Financial Services Board [IFSB]. The IFSB – whose premises are in the Malaysian capital Kuala Lumpur - is an international body concerned with promoting, strengthening, and developing standards of Islamic financial services.

China – from time to time- has sent positive messages to the Islamic banking industry; this includes monetary authorities in Hong Kong attempting to provide a sound environment for Islamic banking operations by amending their laws to the specifications of Islamic banking, especially with regards to Islamic Sukuk [bonds], as well as the establishment of Islamic indexes on the Hong Kong stock exchange.

Perhaps the newest and most important of these initiatives is what was proposed by the Financial Committee affiliated to the Chinese National Party [Kuomintang] on 3 March 2009 during a session of the People's Political Consultative Conference where they proposed the "development of Islamic banking operations [in China]." In order to justify the importance of adopting this proposal, the Financial Committee was quoted by Arabic.China.Org.Cn as saying "China, in its capacity as a large oil importer, should develop Islamic banking operations as this will…benefit China's economic development."

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[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]Vatican offers Islamic finance system to Western Banks[/FONT]

The Vatican says Islamic finance system may help Western banks in crisis as alternative to capitalistm

Friday, 06 March 2009

The Vatican offered Islamic finance principles to Western banks as a solution for worldwide economic crisis.

Daily Vatican newspaper, 'L'Osservatore Romano, reported that Islamic banking system may help to overcome global crisis, Turkish media reported.

The Vatican said banks should look at the ethical rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis.

"The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service," the Vatican's official newspaper Osservatore Romano said in an article in its latest issue late yesterday.

Author Loretta Napoleoni and Abaxbank Spa fixed income strategist, Claudia Segre, say in the article that "Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral". Sukuk may be used to fund the "'car industry or the next Olympic Games in London," they said.

They also said that profit share, gained from sukuk, may be an alternative to the interest. They underlined that sukuk system could help automotive sector and support investments in infrastructure area.

Islamic sukuk system is similar to bonos of capitalist system. But in sukuk, money is invested concrete projects and profit share is distributed to clients instead of interest earned.

Pope Benedict XVI in an Oct. 7 speech reflected on crashing financial markets saying that "money vanishes, it is nothing" and concluded that "the only solid reality is the word of God." The Vatican has been paying attention to the global financial meltdown and ran articles in its official newspaper that criticize the free-market model for having "grown too much and badly in the past two decades."

The Osservatore's editor, Giovanni Maria Vian, said that "the great religions have always had a common attention to the human dimension of the economy," Corriere della Sera reported today

http://www.worldbulletin.net/news_detail.php?id=37814

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]West ready for faith-based alternative[/FONT]

SINGAPORE | Backers of Shariah-compliant finance see an opportunity for expansion amid the global economic downturn, and some Western banks are welcoming this growing source of new business. ...

Shariah finance means institutions and norms that fit with Islamic law. Fully compliant Islamic financial institutions are prohibited from interest payments and require transactions to be backed by tangible assets.

Speculation and hedge funds are off limits — ditto for anything connected to porn, gambling, alcohol or pork. Shariah finance targets Muslims who want to avoid what are deemed "un-Islamic" Western banks or financial practices, and appeals to clients' faith as well as their bottom line. ...

Depending on the measurements used, the Shariah finance sector manages assets of $700 billion to $800 billion, according to the Islamic Financial Services Board, an industry body. Standard and Poor's estimates that the sector could reach $4 trillion before long

http://www.washingtontimes.com/news/2009/apr/13/shariah-bankers-west-ready-for-faith-based-alterna/

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]World Islamic Funds & Capital Markets Conference [/FONT]
Bahrain, 25 & 26 May 2009

[FONT=verdana,arial,helvetica,sans-serif]Bahrain: With the leaders of international & regional financial institutions rapidly revising their strategies in the context of the global financial crisis, the 5th Annual World Islamic Funds & Capital Markets Conference (WIFCMC 2009) could not come at a more opportune time.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]Held in strategic partnership with the Central Bank of Bahrain under the theme of Islamic Investments: Shifting Gears, WIFCMC 2009 will provide the springboard for new ideas and insights that will catalyse the industry's growth. [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]The conference is the world's largest gathering of Islamic investment leaders and according to David McLean, Managing Director of MEGA, WIFCMC 2009 will be the most crucial meeting in its 5 years of history as more than 400 experts seek to chart a renewed growth path for the Shari'ah-compliant investment markets. [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]Speaking ahead of the conference, Charles Peal, Chairman of the BLME Umbrella Fund at Bank of London and the Middle East said that "recovering from the current financial crisis will require thought leadership and innovation by Islamic investors and fund managers. The 5th Annual World Islamic Funds & Capital Markets Conference in 2009 will be a good place to discuss which changes will really work".[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]WIFCMC 2009 will feature insightful discussions by international and regional speakers into the real opportunities for Shari'ah-compliant investments. Key messages will focus on ways to [/FONT][FONT=verdana,arial,helvetica,sans-serif]kick-start the Sukuk market, revive growth and manage risk as well as identify asset classes offering most resilience in the current economic climate. [/FONT]
[FONT=verdana,arial,helvetica,sans-serif]The conference also features the launch of the Ernst & Young Islamic Funds & Investments Report. The 2009 edition of the EY Report is even more eagerly anticipated given the challenging global economic climate. This year's report will provide much needed clarity and insight into the changing market landscape and future growth opportunities for leading players in the Islamic investments industry.[/FONT]
[FONT=verdana,arial,helvetica,sans-serif]WIFCMC 2009 has attracted the support of the leading players in the global Islamic investments industry. Platinum sponsors include HSBC Amanah, the global Islamic banking division of the HSBC Group; Bahrain Islamic Bank, the first Islamic commercial bank in the Kingdom of Bahrain; and Reef Real Estate Finance, the premier financing house in the kingdom of Bahrain.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]A record number of sponsors have partnered with this year's conference. Other leading institutions partnering with WIFCMC 2009 include Bahrain Financial Exchange, Tharawat Investment House, LM Investment Management, Deutsche Bank, ITS, BNP Paribas, Elaf Bank, BLME, Capinnova, DCAP Limited, NCB Capital, Ernst & Young, Dowjones, Khandwala Securities Limited, BMB Islamic, Bahrain Association of Banks, Riyada Consulting, MA Foi, Path Solutions, Ohad Trust, SKOPOS Consulting, Gulf Custody Company, and Standard & Poor's.[/FONT]

[FONT=verdana,arial,helvetica,sans-serif]More than 400 industry leaders will gather for the 5th Annual World Islamic Funds & Capital Markets Conference 2009 at the Gulf Hotel in Bahrain on the 25th & 26th May to shape the future of the global Islamic investments market.[/FONT]

http://islamonline.com/news/articles/28/World_Islamic_Funds_&_Capital_Markets_Conference_.html

http://www.megaevents.net/islamic_funds/

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]Islamic Banking: Road to the future? [/FONT]

In the broad global context of economic mayhem that is doing the rounds of news and views, where leading names have been swept into crevices of history, Islamic banking has emerged relatively unscathed because they enjoy a built-in stabiliser to help them cope with economic downturns, guided as it is by the Islamic Shariah which limits types of activities and resultantly, exposure.

[FONT=verdana,arial,helvetica,sans-serif]There, however, is no room for complacency and there is a lot of work to be done, felt the panel at the latest episode of the Qatar Today Round Table (QTRT) which reached the consensus that Islamic banking, as a method, is not only a viable alternative to conventional banking, but it also is more human and transparent, and can be applied universally. And as with conventional banking, this form of banking is also under constant refinement and research, especially in the context of the fact that Islamic banking has less exposure to activities that are not agreed to by the Shariah and hence, safer than conventional banks, the susceptibility of which has been thrown open by the global crisis. [/FONT]


[FONT=verdana,arial,helvetica,sans-serif]"As advocates of Islamic banking, we realise that there is lot of work to be done. Strong liquidity management mechanisms are an important part of developing Islamic banking further, and will lead onto the Islamic Banks maturing to the same level as the conventional banks. Greater transparency is also needed, as well as creating a 'harmonisation' of the transactions and standards," ed Professor Mohammed K Najdawi, Dean of the College of Business & Economics, Qatar University, at the recent QTRT that had Islamic bankers bring their wealth of experience to the Table. ...[/FONT]


[FONT=verdana,arial,helvetica,sans-serif]This growth is driven by the flow of oil, and the support of the Government in the region. According to Fitch Agency, the records of the largest five Islamic banks in the region have grown by more than 20 percent in the first quarter of this year alone. At a time when Governments in the US and Europe are concerned to save their banks or trying to stop the collapse of more banks in their financial systems, the global crisis has brought the resilience of Islamic banking to the fore since these institutions have largely been insulated from the impact of the meltdown. Islamic financial institutions have avoided the worst credit crisis in general and have continued their growth in the middle of this crisis. [/FONT]


[FONT=verdana,arial,helvetica,sans-serif]"Moody's says that in the face of a sharp fall in real estate prices, stocks of Islamic banks will fall in the region of 10 and 50 percent, over the year, provided all other factors remain constant. [/FONT]


[FONT=verdana,arial,helvetica,sans-serif]All big and strong banks will continue to exist, but many smaller ones will perish by being acquired by larger banks and real estate has a great hand in this entire conundrum. Islamic banks insist on taking guarantees and have adequate capital and reserves to avoid future risks&this is a positive factor in their operations. However, analysts also warn that the collapse of the regional stock markets will have a negative impact on the workings of institutions that follow the Islamic Shariah in Q4 of this year." [/FONT]


[FONT=verdana,arial,helvetica,sans-serif]Impact of recession [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]It is difficult to make a strait jacket assessment of the impact of the recession on Islamic banks since new patterns are emerging every single day as existing contracts. [/FONT]

[FONT=verdana,arial,helvetica,sans-serif]"We need to break the impact in two stages in the beginning many had thought that Islamic banks are far away from the crisis and are not affected at all because of the Shariah that governs it, to keep it away from the much debated types of investments that conventional banks do, for instance, trading on loans or debt instruments or buying stocks of companies that engage in un-Islamic activities."[/FONT]

[FONT=Times New Roman,Times,Serif]http://islamonline.com/news/articles/28/Islamic_Banking_Road_to_the_future_.html[/FONT]

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]BBC: [/FONT][FONT=Arial,Geneva,Verdana,Sans-Serif]Is Islamic finance the answer?[/FONT]

In practical terms, the most significant difference is that charging interest is not allowed in Islamic finance

Neither are most forms of speculative investment permitted, such as hedging or derivatives trading.

"We don't recognise the concept of interest... to look for some profit from trading money," explains Dr Bambang Brodjonegoro from the Islamic Development Bank.

"In the Islamic concept, money is strictly for the purpose of exchange or storing value, but not for the transaction of looking for excessive profit," he says.

Sharing risks

How then, does an Islamic bank, and a customer who puts money in that bank, make a profit?
The system is asset-based, with tangible assets or commodities at the heart of it. There are buyers and sellers, not borrowers and lenders.

http://news.bbc.co.uk/2/hi/business/8025410.stm

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]Islamic finance must remain responsive to change[/FONT]

[FONT=Arial,Geneva,Verdana,Sans-Serif]The consensus was predictably mature amongst regulators and dignitaries at the Sixth Annual Summit of the Islamic Financial Services Board (IFSB) held last Thursday and Friday in Singapore. [/FONT]

[FONT=Arial,Geneva,Verdana,Sans-Serif]These included the intrinsic strengths of the Islamic financial sector which supposedly puts emphasis on financing the real economy; that much work needs to be done to ensure the robustness of the industry; that future growth will only come with innovation, which in the light of the global financial crisis has assumed a certain negativity; and that to meet the future challenges of global financial services, the Islamic finance sector needs to be further regulated. ....[/FONT]

[FONT=Arial,Geneva,Verdana,Sans-Serif]On the positive side, there is a growing realism as to the challenges facing the global Islamic financial sector and the steps that need to be taken to ensure its soundness and resilience to external and internal shocks. New entrants to the market such Korea are impressed about the value proposition of Islamic finance. “We truly believe that Islamic finance is a good innovation in the global financial market. We are committed to facilitating it in Korea. The global financial crisis has shown that financial services cannot be divorced from the real economy,” explained Kim Jong Chang, governor of the Financial Supervisory Service of Korea[/FONT]

[FONT=Times New Roman,Times,Serif]http://islamonline.com/news/articles/28/Islamic_finance_must_remain_responsive_to_change.html[/FONT]

 

[Cordoba]

[FONT=Arial,Geneva,Verdana,Sans-Serif]Bahrain-based Islamic bank to be called Al-Istikhlaf or Al-Emaar[/FONT]

“Istikhlaf Bank” or “Al-Emaar Bank” will be launched in Bahrain by the end of the year according to Adnan Ahmed Yousif, Chairman of Union of Arab Banks.

The new $10 billion institution will be listed on the Bahrain Stock Exchange and NASDAQ Dubai via an initial public offering. Describing what he called “the godfather of Islamic banks," Yousif said the bank "will be established with a $10 billion capital and right now we are at a stage of forming the shareholders, there will be a private placement of $6.5 billion and we plan a $3.5 billion initial public offering for the bank."

Yousif, who is the Chief Executive of Al Baraka Banking Group said Al Baraka was still considering whether to invest. Ernst & Young is advising on the bank's formation.

Al Baraka’s Chairman Sheikh Saleh Abdulla Kamel said the new institution so far had about ten shareholders including the Islamic Development Bank, Saudi Investment Bank and the Kuwait Real Estate Bank.

The bank had originally planned to launch in the first quarter, but the global financial crisis had meant most investors were “rethinking their positions,” Sheikh Saleh said.

“The bank is being set up to invest and develop our area and to create financial paper,” Sheikh Saleh said, adding that the bank would be called either Al-Istikhlaf or Al-Emaar.

http://www.cpifinancial.net/v2/News.aspx?v=1&aid=2178&sec=Islamic%20Finance