Oman’s Zadjali Says Islamic Banks’ Guidelines Draft Almost Ready

Oman, whose banking industry more than doubled in five years, is close to finishing a draft rulebook for Islamic banking in the Gulf Arab country, said central bank governor Hamud al-Zadjali.

“We are preparing a rulebook for Islamic banking, and the first draft is almost complete,” al-Zadjali said in a phone interview today. The central bank met with local lenders on Jan. 25 to discuss the regulations, he said.

The guidelines won’t be completed before the banking law is amended by mid-year to incorporate lenders that comply with the religion’s ban on interest, al-Zadjali said. Oman approved the creation of two Islamic banks last year, Al Izz International Bank in October and Bank Nizwa in May.

Shariah-compliant banking will allow lenders in the country, home to almost three million people, the chance to tap growth in the global Islamic finance industry. Shariah financing is expanding as much as 16 percent a year and the industry may be valued at $1.5 trillion by the end of 2012, Raj Mohamed, managing director at Singapore-based consulting firm Five Pillars Pte, said Jan. 18.

Islamic banking assets may account for a 10th of Oman’s industry total within 12 months of starting services, Hilal Al Barwani, vice president of banking supervision at the central bank said Jan. 18. Oman’s banking assets jumped to 17.9 billion rials ($46.6 billion) in November from 7.02 billion rials the same month in 2006, according to central bank data.

To contact the reporter on this story: Dana El Baltaji in Dubai at [email protected]

To contact the editor responsible for this story: Claudia Maedler at [email protected]

 

http://www.bloomberg.com/news/2012-02-08/oman-s-zadjali-says-islamic-banks-guidelines-draft-almost-ready.html

Al Hilal Bank using digital pen solution

Al Hilal Bank has deployed new digital pen technology, to help cut document processing costs, improve authentication and speed up workflow.

The Abu Dhabi-headquartered Islamic bank is using the pen technology to digitize documents and record data using handwriting, then back up digital copies of the documents online.

The system, which was provided by BSTechnologies,is being used by Al Hilal’s direct sales team, and staff in Credit Finance, Finance Operations, and Sales Coordination. The device includes a camera and a GPS that digitize written documents to Al Hilal’s systems.

Al Hilal personnel simply write on a specially-printed copy of a particular document with the digital pen, which automatically records the handwriting in its memory. The recorded ink is then downloaded and matched with the image of the original document.

It also creates a new, exact copy of the handwritten document in PDF format, just as if it had been scanned or photocopied. The digital copy can then be easily saved, sent, archived, copied, deleted or retrieved depending on the bank’s requirements.

“Our digital pen -based system reflects our commitment to using technology to increase services and convenience for our customers.

Al Hilal Bank intends to adopt more digital systems offered by industry leaders such as BSTechnologies in line with our efforts to tap modern tools for the convenience of our mutual customers. We shall continue to redefine and raise the standards of modern, Shariah-compliant banking,” said Mohamed Zaqout, Head of Personal Banking, Al Hilal Bank.

“We are thrilled to bring to Al Hilal Bank a cutting-edge technology that reduces client waiting time, improves the management of business workflow queues, and drives down the costs involved in forms processing.

The technology is so simple and natural so it can be instantly and effortlessly used by young and old alike. Knowing how to write with a pen on a paper is enough to be able to use this technology,” added Abdullah Al Kaabi, CEO, BSTechnologies.

http://www.itp.net/587497-al-hilal-bank-using-digital-pen-solution

Libya Plans Law to Pave Way for Islamic Bond Sales Arab Credit

Nov. 1 (Bloomberg) — Libya’s central bank is preparing a law to allow lenders and issuers to sell Islamic bonds as part of its efforts to develop banking services after the fall of Muammar Qaddafi.

The regulator has formed a committee with the country’s banks to prepare the law, Ezzedin Ashur, deputy director of research and statistics at the Tripoli-based central bank, said in a telephone interview yesterday.

Libya has 15 banks, all of which have Shariah-compliant “windows,” he said.“Some banks have the desire to open standalone Islamic branches and we have local investors who want to set up Islamic banks,” he said.

“If we have Islamic banking with all of its services, its market share will be big. Many people have issues dealing with conventional banks.”Libya’s banking industry will be made Shariah-compliant, Mustafa Abdel Jalil, an Islamic jurist and former justice minister who heads the ruling National Transitional Council, said last week.

Albaraka Banking Group BSC, a Bahrain-based Islamic bank, will apply for a license in Libya, according to Chief Executive Officer Adnan Ahmed Yousif.Global sales of sukuk climbed to $18.9 billion in 2011, compared with $13.5 billion in the same period last year, data compiled by Bloomberg show.

Shariah-compliant banking may flourish in the North African countries where revolts this year toppled leaders who long persecuted Islamists. Along with Libya, Egypt is also preparing a law that will pave the way for the issuance of sukuk, while the Islamist party that won Tunisia’s election last week says it will encourage the establishment of stand-alone Islamic lenders.

Sovereign Debt

Only three sovereign Arab issuers, including Dubai, have Islamic bonds. The yield on Dubai’s 6.396 percent Shariah- compliant notes due in November 2014 fell 62 basis points, or 0.62 of a percentage point, last week to 5.12 percent, the lowest since Sept. 21. The yield rose nine basis points yesterday, according to data compiled by Bloomberg.

Almost all of Libya’s 6.6 million people are Muslims. Islamic banking services in the country, though, are limited to Murabaha, Ashur said. A Murabaha is a three-party contract where a customer places an order at a bank to purchase goods from a supplier by paying a deposit and securing the rest through a collateral. The bank sells the goods back to the customer at a mark-up with a fixed credit period.

Finish ‘Quickly’

The committee preparing the sukuk law “has been encouraged to finish its work quickly,” Ashur said, without giving a specific time-frame.

Libyan banks “have a lot to clear up” before they recover from the effects of the conflict, Albaraka’s Yousif said in a telephone interview on Oct. 24. Customers pulled money out of banks after fighting flared up in February, prompting authorities to place a 1,000 dinar ($826) monthly limit on individual withdrawals, Ashour, 57, said. The central bank eased the rules after the fall of Qaddafi, leaving the decision up to each lender “based on its liquidity,” he said.

“Our priority is to fix the liquidity problem at banks so that customers can withdraw money without any limits,” he said, adding that the central bank may print money to help lenders until “confidence in the banking industry returns.”

Libya’s economy will contract 34 percent this year and another 16 percent in 2012, according to projections by the Institute of International Finance Inc. Gross domestic product rose 13 percent in 2010, the data show. The country has no outstanding debt, according to Fitch Ratings.

Inflation Accelerates

The conflict drove the inflation rate to 13.2 percent in June from below 10 percent prior to February, Ashur said, citing the most recent official figures. The central bank aims to bring the rate down to “single digits,” he said.

The fighting prompted Fitch to withdraw Libya’s credit rating on April 13, citing “extreme political instability” and the loss of oil production. Standard & Poor’s gave the nation no rating on March 10, after previously ranking it BB, the second- highest non-investment grade and the same level as Jordan, Macedonia and Costa Rica.

Still, resuming “basic” banking services in Libya may not take long because “the regulations are there, the institutions exist,” Jarmo Kotilaine, chief economist at National Commercial Bank in Jeddah, Saudi Arabia, said.

“I’m sure the war caused physical damage and infrastructure disruptions, but getting business back up and running shouldn’t take too long,” he said in a telephone interview yesterday.

Crude Reserves

The time it will take Libyan authorities to develop Shariah-compliant banking “depends on whether they want their Islamic banks to have distinct regulations from conventional banks,” he said. “It’s a question of policy.”

Shariah-compliant debt in the six-nation Gulf Cooperation Council returned 8.4 percent this year, the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index shows. Non-Shariah compliant emerging- market bonds gained 7.9 percent in the period, according to JPMorgan Chase & Co.’s EMBI Global Composite Index.

Libya is home to the biggest crude oil reserves in Africa. The country was producing about 1.6 million barrels of oil a day before the conflict broke out in February. Output, which slid to a ’’trickle’’ during the fighting, may reach 600,000 barrels a day by the end of 2011 , according to the International Energy Agency.

Other signs of economic recovery include businessmen setting up so-called letters of credit to finance imports, Ashur said. “Cash is starting to get back to the banks.”

Billions Abroad

The Libyan central bank and the country’s sovereign-wealth fund have about $168 billion in assets abroad. About $50 billion of that is in bank deposits in European countries including Germany, the U.K., France and Italy, Farhat Bengdara, the central bank governor who broke with Qaddafi’s regime, said in an interview in August.

Western governments have begun to lift sanctions on Libya’s frozen assets. France has said it was releasing 1.5 billion euros ($2.1 billion) and the United Nations Security Council on Aug. 30 approved Britain’s request to release $1.6 billion of Libyan assets held in U.K. banks.

“It will take some time,” Ashur said, referring to the international drive to lift the asset freeze. “Once it’s complete, it will take just two to three weeks for the banking liquidity to return.”

http://www.businessweek.com/news/2011-10-31/libya-plans-law-to-pave-way-for-islamic-bond-sales-arab-credit.html

Islamic banks got good prospects HSBC

Recent regulatory changes in Kuwait and Qatar, retail client preferences for Shariah-compliant banking products, and stronger balance sheets and funding positions, offer better growth prospects for Islamic banks compared with conventional peers, HSBC said as it initiated coverage on four Islamic banks.

The brokerage initiated Saudi Arabia’s Alinma Bank and Qatar Islamic Bank with “overweight”.

In an October note, the brokerage said it expects Alinma, which has no legacy credit risk in its loan portfolio, to double its market share in the medium term, helped mainly by corporate lending.

HSBC said it expects Qatar Islamic Bank to gain from recent regulatory changes in the country that do not allow conventional banks to offer Islamic banking services.

The brokerage downgraded Abu Dhabi Commerical Bank to “neutral” from “overweight” saying slowing private sector activity, rising foreign exchange refinancing costs and a flattening US yield curve will impact net interest margins in the long term.

The brokerage also upgraded Qatar National Bank to “neutral” from “underweight” citing the bank’s excess capital.

The brokerage however, cut its price targets on Saudi Arabian banks including Riyad Bank and Samba as it expects the cash-rich corporate segment and direct intermediation by the government in the private sector to reduce their growth opportunities.

HSBC also cut its price targets on Abu Dhabi banks including UNB and Abu Dhabi Commercial Bank on slowing growth outlook.

The brokerage cut price targets on Egyptian banks EGB and Credit Agricole Egypt on weaker revenue growth.

http://www.iol.co.za/business/international/islamic-banks-got-good-prospects-hsbc-1.1161423

Sharia Boards in Islamic Banking and Finance: Opportunity for the youth and something India seems to have overlooked

India is all set to embrace Islamic Banking and Finance as reforming the current banking law to allow sharia compliant banking is on top of Finance Minister Pranav Mukherjee’s to-do list. Banking Laws Amendment Bill, 2010 proposes to bring about the necessary changes in Indian Banking Law to open doors for Islamic Banking and Finance in India – which has done extremely well even in non-Islamic countries like UK and Sri Lanka.

Apart from providing finance of their preference to one of the largest Muslim population in the world, it will enable Indian projects to receive finance from Middle East and other countries where lenders prefer Islamic finance to other conventional methods of financial transactions. However, is India ready to take on the opportunity?

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One of the key factor that will determine India’s success at Islamic finance is availability of trained personnel. For the youth in India, this brings fresh opportunity. Those who learn the intricacies of Islamic finance can look forward to meteoric growth as demand for experts will exceed supply right from the beginning. On the other hand, it will be a challenge before banks and financial institutions to find experts for various roles. One of the most difficult task may prove to be creation of a Sharia board which is required to govern and audit compliance of all the products and services with Islamic principles. Continue reading

Islamic Banking-Banking Of The Track Of Sharia

ABSA offers you exclusivebankingsolutions that your financial needs. ABSA Islamic banking is advised and guided by the Sharia supervisory independent, a group of experts in Sharia law and its application in economics.


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We are aware that customers seeking Shariah compliant banking solutions are essentially the same requirements as other bank customers and our solutions have been developed to ensure that you are able to manage your personal finances with ease, the freedom and flexibility.

Islamic banking is an alternative to the classic Bank that is available to anyone who tries a different approach to financial services, not only for members of the Muslim community who wish to exploit financially in accordance with the Sharia. Continue reading

Standard Chartered offers more value on Home Loans

Standard Chartered announced today the launch of its latest value-added promotion on Home Loans, offering loan amounts of up to AED 18 million at a loan-to-value ratio of as much as 80 per cent, up to 30 years loan repayment tenure and a special interest rate of 4.99 per cent per annum fixed for the first 12 months.

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The Standard Chartered Base Lending Rate (SCBLR) plus the Prescribed Rate will be applied thereafter. The promotion will be offered under Standard Chartered Bank’s Home Suite Bundle Account and will be available until the end of the Holy Month of Ramadan 2011.

The offer is also applicable for standard Mortgage and is available under Shariah-compliant terms through Saadiq, Standard Chartered’s Islamic Banking arm. Aside from the competitive rate and flexible tenures, the package also comes with a free credit card that holders can use to earn flight tickets on any airline. Home Suite customers may also avail of personal loans of up to AED 250,000. Continue reading

Sharia-compliant Islamic Banking in India, a wealthy proposition

Gold, two steps ahead: how the rich keep getting richer. New gold rpt Globally, Islamic finance is estimated to be worth about $300 billion, growing at 20% annually. With this growth, the need for Shariah compliant financial products has also increased. The product offerings are similar to normal banking products; however the main difference is that the funds collected are not for the purpose of accumulating/ paying interest or invested in any negative businesses that harm morality of the society. The basic principle of Islamic banking is the prohibition of interest.

India with a 13% Muslim population, the highest in a non-Islamic country, should have been in the forefront of Islamic banking initiatives, but it is yet to be permitted here. It will hugely benefit the Indian economy by attracting investments from the cash rich Middle Eastern economies on the lookout for new investment destinations. Five Indian companies, Reliance Industries, Infosys Technologies Wipro, Tata Motors and Satyam Computer Services figure in the Standard & Poor’s BRIC Shariah Index. Continue reading

Colleges Expanding Shariah Courses Amid Scholar Shortage: Islamic Finance

Universities are expanding Islamic finance courses as demand for professionals qualified in Shariah law outstrips supply in the $1 trillion industry.
The International Islamic University of Malaysia plans to start postgraduate courses specializing in Shariah-compliant capital markets, banking and insurance after enrollment for its general program in finance complying with Muslim tenets tripled in the past year, said Professor Mohd Azmi Omar, the dean of the institute.
Colleges Expanding Shariah Courses Amid Scholar Shortage: Islamic Finance

Colleges Expanding Shariah Courses Amid Scholar Shortage: Islamic Finance

La Trobe University in Melbourne, which started classes this year, is working with officials in Malaysia to offer industry-recognized qualifications.
A lack of skills is among the biggest challenges for the expansion of global Islamic banking, said Washington-based Patrick Imam, an economist at the International Monetary Fund. About 50,000 professionals will be needed over the next five to seven years to meet demand, according to Ishaq Bhatti, the director of La Trobe’s Islamic banking and finance program.
“There are very few people who are really good at both finance and the interpretation of Shariah law,” Imam said in an e-mailed reply to questions on Dec. 10. “To do Islamic banking you must be fluent in finance and Islamic principles, and typically they are either one or the other.”
Industry Standards
The Islamic finance industry, with assets the Kuala Lumpur- based Islamic Financial Services Board estimates will climb to $1.6 trillion by 2012, is developing global standards to improve regulations. The Manama, Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions said a shortage of scholars increases the risk of conflicts of interest as many sit on various advisory boards.
Sheikh Nizam Yaquby of Bahrain and Syria’s Abdul Sattar Abu Ghuddah, who each serve on 85 boards of Islamic financial institutions, ranked first among the top 20 religious experts in an October report from Zawya, an online Middle East business news and directory, and [email protected] AG, a Kronberg, Germany-based consulting company.
Experts are preparing the first standardized certification for scholars. A permanent committee is due to be selected by year-end to work on setting up a body to issue permits for those qualified to sit on Shariah boards, Aznan Hasan, the president of the oversight committee, said in an Aug. 30 interview in Kuala Lumpur.
“You could see the hunger and the thirst for Islamic finance when we first announced this program in July 2009,” La Trobe’s Bhatti said in an interview on Oct. 28 in Kuala Lumpur. “Initially, we thought 100 people were going to register, then we started getting very high-profile requests from governments and the industry, so we increased it to 200.”
Thailand, Senegal
Thailand, Senegal and Sudan are among countries seeking to tap the wealth of the world’s 1.6 billion Muslims by selling Islamic bonds, which are vetted by scholars for compliance with Shariah law.
Global sales of sukuk, which pay returns based on asset flows to comply with the religion’s ban on interest, fell 28 percent this year to $14.5 billion from the same period in 2009, according to data compiled by Bloomberg. Issuance reached a record $31 billion in 2007.
Shariah-compliant bonds returned 12 percent in 2010, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while debt in emerging markets gained 13 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.
Malaysia Yields
The difference between the average yield for sukuk in developing nations and the London interbank offered rate has narrowed 160 basis points, or 1.6 percentage point, to 308 this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
The yield on Malaysia’s 3.928 percent sukuk maturing in June 2015 was little changed today at 3.06 percent, according to prices from the Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was also little changed at 342, data compiled by Bloomberg show.
The U.K.’s Durham University, Al-Azhar University in Cairo and Ethica Institute of Islamic Finance in Dubai also offer Islamic finance courses. Harvard University in Cambridge, Massachusetts, runs an Islamic legal studies program through its law school, according to data on its website.
Durham University
Schools and colleges are facing a shortage of teaching staff for Islamic finance courses as demand increases, said Professor Rodney Wilson, a lecturer at the Centre for Middle East and Islamic Studies at Durham University.
“We need to appoint more staff” as Durham only has four lecturers for the classes, Wilson, who is based in London, said in an e-mailed response to questions yesterday.
La Trobe University is working with Malaysia’s Kuala Lumpur-based International Centre for Education in Islamic Finance to gain approval to provide the Chartered Islamic Finance Professionals certification, said Bhatti.
The Institute of Islamic Banking and Finance at the IIUM will start a Masters in Islamic capital markets in September 2011 in conjunction with the Malaysian Securities Commission, the institute’s dean said in an interview on Dec. 6.
“We have bankers, lawyers and fresh graduates attending our classes,” said Mohd Azmi, who also teaches Islamic capital markets at Trisakti University in Jakarta, Indonesia.

Universities are expanding Islamic finance courses as demand for professionals qualified in Shariah law outstrips supply in the $1 trillion industry.
The International Islamic University of Malaysia plans to start postgraduate courses specializing in Shariah-compliant capital markets, banking and insurance after enrollment for its general program in finance complying with Muslim tenets tripled in the past year, said Professor Mohd Azmi Omar, the dean of the institute. La Trobe University in Melbourne, which started classes this year, is working with officials in Malaysia to offer industry-recognized qualifications.
A lack of skills is among the biggest challenges for the expansion of global Islamic banking, said Washington-based Patrick Imam, an economist at the International Monetary Fund. About 50,000 professionals will be needed over the next five to seven years to meet demand, according to Ishaq Bhatti, the director of La Trobe’s Islamic banking and finance program.
“There are very few people who are really good at both finance and the interpretation of Shariah law,” Imam said in an e-mailed reply to questions on Dec. 10. “To do Islamic banking you must be fluent in finance and Islamic principles, and typically they are either one or the other.”
Industry Standards
The Islamic finance industry, with assets the Kuala Lumpur- based Islamic Financial Services Board estimates will climb to $1.6 trillion by 2012, is developing global standards to improve regulations. The Manama, Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions said a shortage of scholars increases the risk of conflicts of interest as many sit on various advisory boards.
Sheikh Nizam Yaquby of Bahrain and Syria’s Abdul Sattar Abu Ghuddah, who each serve on 85 boards of Islamic financial institutions, ranked first among the top 20 religious experts in an October report from Zawya, an online Middle East business news and directory, and [email protected] AG, a Kronberg, Germany-based consulting company.
Experts are preparing the first standardized certification for scholars. A permanent committee is due to be selected by year-end to work on setting up a body to issue permits for those qualified to sit on Shariah boards, Aznan Hasan, the president of the oversight committee, said in an Aug. 30 interview in Kuala Lumpur.
“You could see the hunger and the thirst for Islamic finance when we first announced this program in July 2009,” La Trobe’s Bhatti said in an interview on Oct. 28 in Kuala Lumpur. “Initially, we thought 100 people were going to register, then we started getting very high-profile requests from governments and the industry, so we increased it to 200.”
Thailand, Senegal
Thailand, Senegal and Sudan are among countries seeking to tap the wealth of the world’s 1.6 billion Muslims by selling Islamic bonds, which are vetted by scholars for compliance with Shariah law.
Global sales of sukuk, which pay returns based on asset flows to comply with the religion’s ban on interest, fell 28 percent this year to $14.5 billion from the same period in 2009, according to data compiled by Bloomberg. Issuance reached a record $31 billion in 2007.
Shariah-compliant bonds returned 12 percent in 2010, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while debt in emerging markets gained 13 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.
Malaysia Yields
The difference between the average yield for sukuk in developing nations and the London interbank offered rate has narrowed 160 basis points, or 1.6 percentage point, to 308 this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
The yield on Malaysia’s 3.928 percent sukuk maturing in June 2015 was little changed today at 3.06 percent, according to prices from the Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was also little changed at 342, data compiled by Bloomberg show.
The U.K.’s Durham University, Al-Azhar University in Cairo and Ethica Institute of Islamic Finance in Dubai also offer Islamic finance courses. Harvard University in Cambridge, Massachusetts, runs an Islamic legal studies program through its law school, according to data on its website.
Durham University
Schools and colleges are facing a shortage of teaching staff for Islamic finance courses as demand increases, said Professor Rodney Wilson, a lecturer at the Centre for Middle East and Islamic Studies at Durham University.
“We need to appoint more staff” as Durham only has four lecturers for the classes, Wilson, who is based in London, said in an e-mailed response to questions yesterday.
La Trobe University is working with Malaysia’s Kuala Lumpur-based International Centre for Education in Islamic Finance to gain approval to provide the Chartered Islamic Finance Professionals certification, said Bhatti.
The Institute of Islamic Banking and Finance at the IIUM will start a Masters in Islamic capital markets in September 2011 in conjunction with the Malaysian Securities Commission, the institute’s dean said in an interview on Dec. 6.
“We have bankers, lawyers and fresh graduates attending our classes,” said Mohd Azmi, who also teaches Islamic capital markets at Trisakti University in Jakarta, Indonesia.

http://www.bloomberg.com/news/2010-12-13/colleges-expanding-shariah-courses-amid-scholar-shortage-islamic-finance.html

ISLAMIC BANKING – Introduction

Although the concept of financial arrangement based on interest is prevalent since time immemorial, Islamic Banking is relatively a pristine area in the field finance in India. This is a two part article. Today I will be discussing basic principles and instruments involved in Sharia Banking. Next week I will talk about its prospects in India. Financial arrangements constitute an integral part of the process of economic development.

A financial system consisting of financial institutions, instruments and markets provides an effective payment and credit supply network and thereby assists in channeling of funds from savers to the investors in the economy.

Islamic economics is based on ‘socio economic justice’ as the primary objective. It is based on the belief that human beings are a creation of that one & the only god and all resources at their disposal are held by them in trust for the god to be used in a just manner for wellbeing of all. Islam provides guidelines to regulate the economy and seeks to curb the unbridled race for material pursuit.

Concern for equity and justice, halal and haram and a sense of responsibility towards the weaker sections of society and the need to share the economic resources with them, are some of the principles which guide and control the economic activity in Islam.
Fundamentals of Islamic Banking

All interest-free banks agree on the same basic principles. However, individual banks differ in their application. These differences can be because of several reasons including the laws of the country, objectives of the different banks, individual banks circumstances and experiences, the need to interact with other interest-based banks, etc.
The basic principle of Islamic banking is –

• Sharing of profit and loss and
• Prohibition of riba(usury)
• Prohibits any dealing in pork, pornography, and anything else which the Sharia deems haram.
• Gharar, which is uncertainty about the terms of contract or the subject matter, e.g. prohibits selling something which one does not own

Deposit accounts

All the Islamic banks have three kinds of deposit accounts: current, savings and investment.
Current accounts

Current or demand deposit accounts are virtually the same as in all conventional banks. Deposit is guaranteed.

Savings accounts

Savings deposit accounts operate in different ways. In some banks, the depositors allow the banks to use their money but they obtain a guarantee of getting the full amount back from the bank. Banks adopt several methods of inducing their clients to deposit with them, but no profit is promised.

In others, savings accounts are treated as investment accounts but with less stringent conditions as to withdrawals and minimum balance. Capital is not guaranteed but the banks take care to invest money from such accounts in relatively risk-free short-term projects. As such lower profit rates are expected and that too only on a portion of the average minimum balance on the ground that a high level of reserves needs to be kept at all times to meet withdrawal demands.

Investment account

Investment deposits are accepted for a fixed or unlimited period of time and the investors agree in advance to share the profit (or loss) in a given proportion with the bank. Capital is not guaranteed.

INSTRUMENTS INVOLVED

Sale and Buy Back Agreement (Bai’ al-Inah)

• The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount.
• The buying back agreement allows the bank to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency.

Deferred Payment Sale( Bai’ Bithaman Ajil)

• Sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.
• This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan.
• By the application of a discount rate, an Islamic bank can collect the market rate of interest.

Credit Sale( Bai muajjal)

• This is like a credit sale.
• It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments.
• It has to expressly mention cost of the commodity and the margin of profit is mutually agreed.

Profit Sharing (Mudaraba)

• An arrangement between the bank, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity.
• The entrepreneur provides expertise, labor and management.
• Profits made are shared between the bank and the entrepreneur according to predetermined ratio.
• In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor.
• It is this financial risk that justifies the bank’s claim to part of the profit.
• The profit-sharing continues until the loan is repaid.
• The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor’s profits.

Cost Plus (Murabaha)

• Sale of goods at a price, which includes a profit margin agreed to by both parties.
• The purchase and selling price, other costs, and the profit margin must be clearly stated at the time of the sale agreement.
• The bank is compensated for the time value of its money in the form of the profit margin.
• This is a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of profit determined by the profit margin.

Musawama

• A general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former.
• Thus, it is different from Murabaha in respect of pricing formula.
• Both the parties negotiate on the price.
• All other conditions relevant to Murabaha are valid for Musawamah as well.

Bai salam

• A contract in which advance payment is made for goods to be delivered later on.
• The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract.
• It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute.
• The objects of this sale are goods and cannot be gold, silver, or currencies. Barring this,
• Bai Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship.

Gift (Hibah)

• This is a token given voluntarily by a creditor to a debtor in return for a loan.
• This usually arises in practice when Islamic banks involuntarily pay their customers interest on savings account balances.
Istisnaa

• Under Istisna’a a party (bank) undertakes to produce a specific thing that is possible to be made according to agreed specifications at a determined price and fixed date of delivery
• As banks do not normally carry out manufacturing, a parallel contract for manufacture is instituted
• The bank charges the buyer the price it pays to the manufacturer plus a reasonable profit (monetary installment) and takes the risk of manufacture of the asset
Tawarruq

• Tawarruq is the mode adopted by banks to lend cash
• The customer buys a commodity from the bank under Murabaha which is then sold to a third person on cash at a price less than the purchase price.
• The customer hence obtains cash without taking an interest-based loan
• If the customer resells that commodity to the bank, it is called Al-‘inah

Ijarah

• The bank buys and leases out the asset for a rental fee, which includes the capital cost of the equipment plus a profit margin.
• The ownership of the equipment remains with the lessor bank and in case of a finance lease, is transferred on pre-determined terms.
• Available under both operating lease and finance lease (Ijara-wa-iktana)
• Widely used in house and aircraft financing

Joint Venture(Musharakah)

• A relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata.
• This is often used in investment projects, letters of credit, and the purchase or real estate or property.
• In the case of real estate or property, the bank assesses an imputed rent and will share it as agreed in advance.
• The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions.

Good Loan( Qard Hassan)

• This is a loan extended on a goodwill basis
• The debtor is only required to repay the amount borrowed.
• However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor.
• In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan.

Islamic Bonds (Sukuk)

• An Islamic equivalent of bond.
• However, fixed-income, interest-bearing bonds are not permissible in Islam.
• Hence, Sukuk are securities that comply with the Islamic law and its investment principles, which prohibit the charging or paying of interest.
• Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Islamic Insurance (Takaful)

• Takaful is insurance based on mutual co-operation, responsibility, protection and assistance between groups of participants
• It is akin to a cooperative insurance wherein members contribute a specific sum of money to a common pool
• Every policyholder pays his subscription to help those that need assistance
• Losses are divided and liabilities spread according to the community pooling system


Safekeeping (Wadiah)

• A bank is deemed as a keeper and trustee of funds.
• A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it.
• The depositor, at the bank’s discretion, may be rewarded with a hibah (gift) as a form of appreciation for the use of funds by the bank.
• In this case, the bank compensates depositors for the time-value of their money (i.e. pays interest) but refers to it as a gift because it does not officially guarantee payment of the gift.

Agency (Wakalah)

• This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney.
As already mentioned I will discuss the Sharia Banking in India next week.

http://www.yourstory.in/resources/legal-talk/1700-islamic-banking

Syed Burhanur Rahman, Attorney,New Delhi


Syed Burhanur Rahman is an alumnus of St. Stephen’s College and Campus Law Center,Delhi University.A Quiz aficionado,he has featured in premier T.V Quiz shows including Mastermind India(BBC),University Challenge Quiz(BBC) and Nat Geo Genius(National Geographic Channel).


An Attorney working with INDUS G & D Law(Delhi),his practice areas include Corporate Law,IPR and Taxation Law