Islamic Bank of Britain’s first ‘Islamic Finance Question Time’

Islamic Bank of Britain plc (IBB) has held an exclusive event, entitled Islamic Finance Question Time – an open, public Q&A session hosted by the Bank’s Shar’ah Scholars.  Islamic Finance Question Time is the first event of its kind, and the only time a UK Islamic bank has given public access to the Scholars that form its Shari’ah Supervisory Committee (SSC).

IBB, a wholly-owned subsidiary of Qatar International Islamic Bank, is the UK’s only wholly Shari’ah-compliant retail bank in the UK.  It was originally established in 2004 and has attracted over 50, 000 customers.

Chairman of the IBB SSC, Sheikh Dr Abdul Sattar Abu Ghuddah said, “Islamic finance is as old as the religion of Islam itself.  However, there is still a lot of misunderstanding around how it works and the need for Muslims to manage their finances in Shari’ah-compliant manner.  The IBB SSC hopes the Islamic Finance Question Time event has shed some light on the matter and gone some way to encouraging the further take-up of Shari’ah Finance amongst the Muslim community.”

Samir Alamad, Senior Manager, Shari’ah Compliance at IBB who works closely with the IBB SSC on a day to day basis, said, “The feedback from attendees of Islamic Finance Question Time has been very positive.  The public welcomed the opportunity to engage with the IBB SSC so openly.  The event is the first time a UK Islamic bank has given open access to its SSC, and this reflects the open and transparent way the bank works with its customers.”

Over 150 guests attended the event, held at the Bloomsbury Hotel in London.  Over 10 questions were put to the panel leading to a debate lasting over 1.5 hours. Among these questions, the following generated a lively and informed discussion amongst the panel and their guests:

 

Islamic Bank of Britain’s first ‘Islamic Finance Question Time’

 

Why don’t you use the rental market rate for your Home Purchase Plan product?

Islamic banks use BBR or LIBOR to price their products as these are the most accurate, widely accepted and consistent benchmarks for financing. This allows Islamic banks to meet the important Shari’ah criteria of avoiding uncertainty.  If rental rates were to be used as a benchmark instead, there would be too much variation.  Not only would this go against the Shari’ah it would also be more costly for the customer.  Rental rates fluctuate across a wide spectrum depending  on location, condition of the property and other aspects, e.g. rent charged for a property in London would be three or four times more expensive than a similar property in the North. Hence, the Islamic bank would end up offering many various rental rates which would not be practical.  The customer would also be disadvantaged by having to pay more if the rental rate was to be used as a benchmark.

Importantly, basing the rental rates of HPPs on benchmarks such as LIBOR or BBR does not affect the actual contracts that the product is based on.  The rent or lease agreement are not rendered Haram, or not compliant with Shari’ah.  Established benchmarks such as BBR and LIBOR therefore play an important role.  They allow the bank to meet the Shari’ah requirements for a benchmark that is widely accepted, consistent, transparent and reliable which in turns eliminates any uncertainty around pricing.

An Islamic benchmark is currently being developed and this is a great step forward for the industry.  Once established it will eliminate the confusion that exists over the use of BBR or LIBOR, as explained above.

Is it permissible under the Shari’ah to quote a profit rate for Fixed Term Deposit savings accounts?

It is important to clarify that this Shari’ah compliant savings product(s) is called ‘Fixed Term’ and not ‘fixed return’. It is usually offered under the Islamic principle of Wakala (an agency agreement).  With this product, the Islamic bank provides an expected profit rate over a set period of time as a ‘target’ based on the investment activity it will undertake with the deposits.  The ‘Fixed’ element relates to the length of time the bank will undertake the investment activity for the customer. For example, two years for the Two Year Fixed Term Deposit Account.

These savings products do not offer a fixed return, in the same way that conventional banks that pay interest, do.  Under Shari’ah, the bank cannot guarantee a rate of return, because with investment there is always an element of risk.

However, Islamic banks mitigate this risk for the customer in many ways, so that the customer’s deposits and return do not suffer.  Essentially, the bank monitors the investment activity, and its performance, very closely.  If, at any time, it looks likely that the customer’s return may be less than the expected profit rate the bank will contact the client and offer them the option to close the account and take back the full deposit amount and the profit accrued up to that date.  Alternatively, the customer can choose to carry on till the end of the term on the lower expected profit rate from that point.

This process is all in accordance with Shari’ah which encourages trade, and forbids Riba.  Shari’ah also mandates that risk is part of all transactions and that these risks are managed responsibly to ensure the best possible outcome for all parties.

URL: http://www.cpifinancial.net/news/post/13822/islamic-bank-of-britains-first-islamic-finance-question-time

Islamic Bank of Britain's Sharia Supervisory Committee host UK's first 'Islamic Finance Question Time'

Islamic Bank of Britain plc ( IBB ), (www.islamic-bank.com) last week held an exclusive event, entitled Islamic Finance Question Time. The event, held on 23rdApril 2012, was an open, public Q&A session hosted by the Bank’s Sharia Scholars. Islamic Finance Question Time is the first event of its kind, and the only time a UK Islamic bank has given public access to the Sharia Scholars that form its Sharia Supervisory Committee (SSC).

 

Nizam Muhammed Saleh Yaqoobi, and Mufti Abdul Qadir Barkatulla. The SSC welcomed questions from the public about Islamic Finance in order to facilitate a lively debate. The aim of the event was to demystify Islamic finance and provide an insight into how it offers a faith-based alternative to conventional finance and banking.

Commenting on the event, Chairman of the IBB SSC, Sheikh Dr Abdul Sattar Abu Ghuddah said, “Islamic finance is as old as the religion of Islam itself. However, there is still a lot of misunderstanding around how it works and the need for Muslims to manage their finances in Sharia compliant manner. The IBB SSC hopes the Islamic Finance Question Time event has shed some light on the matter and gone some way to encouraging the further take-up of Sharia Finance amongst the Muslim community.”

Samir Alamad, Senior Manager, Sharia Compliance at IBB who works closely with the IBB SSC on a day to day basis, also commented, “The feedback from attendees of Islamic Finance Question Time has been very positive. The public welcomed the opportunity to engage with the IBB SSC so openly. The event is the first time a UK Islamic bank has given open access to its SSC, and this reflects the open and transparent way the Bank works with its customers.”

Over 150 guests attended the event, held at the Bloomsbury Hotel in London. Over 10 questions were put to the panel leading to a debate lasting over 1.5 hours. Of these questions, the following generated a lively and informed discussion amongst the panel and their guests:

Q1 Why don’t you use the rental market rate for your Home Purchase Plan product?

Islamic banks use BBR or LIBOR to price their products as these are the most accurate, widely accepted and consistent benchmarks for financing. This allows Islamic banks to meet the important Sharia criteria of avoiding uncertainty. If rental rates were to be used as a benchmark instead, there would be too much variation. Not only would this go against the Sharia it would also be more costly for the customer. Rental rates fluctuate across a wide spectrum depending on location, condition of the property and other aspects, e.g. rent charged for a property in London would be three or four times more expensive than a similar property in the North. Hence, the Islamic bank would end up offering many various rental rates which would not be practical. The customer would also be disadvantaged by having to pay more if the rental rate was to be used as a benchmark.

Importantly, basing the rental rates of HPPs on benchmarks such as LIBOR or BBR does not affect the actual contracts that the product is based on. The rent or lease agreement are not rendered Haram, or not compliant with Sharia. Established benchmarks such as BBR and LIBOR therefore play an important role. They allow the Bank to meet the Sharia requirements for a benchmark that is widely accepted, consistent, transparent and reliable which in turns eliminates any uncertainty around pricing.

An Islamic benchmark is currently being developed and this is a great step forward for the industry. Once established it will eliminate the confusion that exists over the use of BBR or LIBOR, as explained above.

 

SHARIAH FUNDS

 

Q2 Is it permissible under the Sharia to quote a profit rate for Fixed Term Deposit savings accounts?

It is important to clarify that this Sharia compliant savings product(s) is called ‘Fixed Term’ and not ‘fixed return’. It is usually offered under the Islamic principle of Wakala (an agency agreement). With this product, the Islamic bank provides an expected profit rate over a set period of time as a ‘target’ based on the investment activity it will undertake with the deposits. The ‘Fixed’ element relates to the length of time the bank will undertake the investment activity for the customer. For example, two years for the Two Year Fixed Term Deposit Account.

These savings products do not offer a fixed return, in the same way that conventional banks that pay interest, do. Under Sharia, the bank cannot guarantee a rate of return, because with investment there is always an element of risk.

However, Islamic banks mitigate this risk for the customer in many ways, so that the customer’s deposits and return do not suffer. Essentially, the bank monitors the investment activity, and its performance, very closely. If, at any time, it looks likely that the customer’s return may be less than the expected profit rate the bank will contact the client and offer them the option to close the account and take back the full deposit amount and the profit accrued up to that date. Alternatively, the customer can choose to carry on till the end of the term on the lower expected profit rate from that point.

This process is all in accordance with Sharia which encourages trade, and forbids Riba. Sharia also mandates that risk is part of all transactions and that these risks are managed responsibly to ensure the best possible outcome for all parties.

IBB is the UK’s only wholly Sharia compliant retail bank in the UK. It was formed in 2004 and has attracted over 50, 000 customers. The Bank offers the largest range of Sharia compliant retail financial products in the UK and these include current, savings and business banking accounts, Home Purchase Plans and Buy to Let Purchase Plans. IBB also works with carefully selected partners to offer Sharia compliant wealth management products and services.

In order to guarantee that the products and services from IBB are genuinely Sharia compliant, IBB has in place a panel of respected Sharia Scholars, called the Sharia Supervisory Committee (SSC). Their work is supported by a dedicated a Sharia Compliance Officer (SCO). Both the SCO and the SSC are trained experts in the interpretation of Islamic law and its application within modern day Islamic financial institutions. They both review every product and aspect of IBB ‘s business operations to ensure that Sharia compliance is always maintained.

About Islamic Bank of Britain
Islamic Bank of Britain plc (Bank) has pioneered Sharia compliant retail banking in the UK and has launched a wide range of products, including the Home Purchase Plan (the halal mortgage alternative) Current Accounts and Savings Accounts. The Bank was also the first to introduce Sharia compliant business banking to the UK, and now offers a wide range of institutional and business banking products and services, including Commercial Property Finance.

Several of the Bank’s products remain unique in the UK retail market.

The Bank is authorised and regulated by the Financial Services Authority and is a member of Financial Services Compensation Scheme. All products offered by the Bank are fully approved by the Bank’s Sharia Supervisory Committee (SSC).

Sharia compliant banking operates without the use of interest. The products that are offered are structured in a different way to those provided by conventional banks

Whilst the Bank offers products and services that are designed in accordance with Sharia principles, it is an inclusive Bank and welcomes customers of all faiths.

Interviews with Islamic Bank of Britain are available on request.

URL: http://www.zawya.com/story/ZAWYA20120501062817/Islamic-Bank-of-Britains-Sharia-Supervisory-Committee-host-UKs-first-Islamic-Finance-Question-Time/


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

Islamic firm offers to build bridge in Sabarimala

The Shariah-based financial institution, Al Barakah Financial Services, started by the previous government, will set up a Bailey bridge in the famous Hindu pilgrimage centre of Sabarimala.

islamic firm,build bridge,al barakah,al barakah finance, shariah finance,shariah institution,mohammed ali,Mr Oommen Chandy, interest free institution,bailey bridge

The Bailey bridge is a portable, prefabricated truss bridge, which is used to connect banks in an emergency. But it’s sturdy and the pace of assembly does not undermine its stability.

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Are Shariah advisories becoming an endangered species?

Not that the issue is new. There have been calls for the registration of Shariah advisories for the last two decades — not by an industry Shariah body but by the regulators in the country in which they are based and in those countries in which they offer advisory services.Market players have long been concerned by the small pool of experienced Shariah advisers serving the Islamic finance industry and that an elite few sit on as many as 89 boards per adviser. This they claim could lead to conflicts of interest and is simply not the best practice in terms of advisory.

Are Shariah advisories becoming an endangered species?

Are Shariah advisories becoming an endangered species?

True financial services clients do complain that many of their Shariah advisers are sometimes very difficult to get hold of simply because they have so much on their plate because of the number of boards on which they sit and some of them have teaching commitments at universities and colleges.

Not surprisingly, some of the top Shariah advisers have reportedly spoken out against any efforts to restrict their trade by restricting the number of boards on which they can sit on. With due respect to AAOIFI, its efforts will carry no weight, simply because they are not steeped in law and they only carry voluntary adoption — a feature which is not very established or strong in the Islamic finance culture and industry.

There is of course an eminent precedent in this issue — the case of Malaysia, where not only have all Shariah advisories got to be registered under section 377 of the Capital Markets and Services Act 2007 (CMSA) and the provisions of the Central Bank Act 2009. Similarly, in Malaysia an individual Shariah scholar can only sit on the board of one institution in a particular market segment — commercial bank, investment bank, Takaful operator etc.

This is the law of the land and any Shariah advisory that does not like it is free to leave and do business elsewhere. The above measures have not led to any exodus of Shariah scholars from Malaysia. On the contrary, it has given space for the emergence of the new generation of Shariah advisories for the growing Islamic finance market. Similarly, the UAE Insurance Authority has reportedly already introduced regulations that restrict Shariah advisories to sit on no more than two Shariah boards of UAE Takaful operators. Similarly the State Bank of Pakistan is also following the Malaysian example.

One senior executive at a major global financial consultancy stressed to Arab News on the basis of anonymity, “My gut feeling is that the Malaysians are right. The same argument can be applied to the global consultancies such as KPMG, PriceWaterhouseCoopers (PWC), Ernst & Young (E&Y) and Deloittes etc, but the difference is that they are now in a mature industry. I do not think that Islamic finance is necessarily a mature industry and, as such, may need external guidance. The other difference, of course, is that the Big Four accounting firms are regulated externally, something the scholars cannot claim to be. In addition, while the Big Four accounting firms are auditors to the banking majors such as Citigroup, HSBC, Deutsche, Standard Chartered Bank, BNP Paribas, Societe Generale, Credit Suisse, UBS etc, they have different partners involved on each account and Chinese Walls in place.”

Why is the registration of Shariah advisories and the restriction of the number of boards they can sit on potentially beneficial to the Islamic finance sector. The reasons are manifold.

According to [email protected], overall there are 1,141 Shariah advisory board positions available in 28 countries. The average board size is 3.33 scholars per board, across the entire universe. Perhaps more importantly, the top 10 scholars hold 450 out of 1,141 board positions that are available and represent 39.44 percent of the universe. Two Shariah advisories sit on a staggering 85 boards while another on 79 boards.

It does not require expertise in mathematics or quantum physics to ascertain that apart from conflict of interest, it is nigh physically impossible for a single scholar to service so many accounts. He or she would have to be a wonder scholar or a super advisory, arguably with magical powers. And no amount of hard work can mitigate this fact. It would be of course a different case if the scholars are organized as Shariah advisory companies but with more than one Shariah partner, in the same way the accounting, auditing and legal firms are structured.

This impacts on the quality of the Shariah advice and the efficiency of the process. This is important because the longer it takes for a Shariah advisory to advise because of pressure of work due to the number of accounts and less time, the more the cost of the Shariah advisory. This is inevitably passed on the hapless customer and is particularly so in the case of a new product or service.

The next logical step in Shariah advisory is for the eventual phasing out of individual scholars sitting on boards and being replaced by Shariah advisory firms or consultancies, which would have a pool of Shariah scholars with the same hierarchy in terms of expertise and management.

The registration requirement would also weed out the self-styled amateurs from the real experts, who in fact have more to gain from such a development. In Saudi Arabia, a few years ago there was a free-for-all when self-styled Shariah scholars were giving fatwas “legitimizing” the real estate investment offerings of a spate of companies, many of whom were not even registered by the Ministry of Commerce let alone the regulatory authorities. The result was that ordinary investors were exposed to potentially huge losses and only the intervention of the Ministry of Interior (not the Ministry of Finance, nor the Saudi Arabian Monetary Agency (SAMA) saved them from disaster.

Shariah scholars argue that registration requirement and restriction to one board would stint the growth of the global Islamic finance industry. This argument may have been valid in the past, but more universities especially in Malaysia, Jordan and Kuwait etc. are churning out the next generation of Shariah advisories, who are not only competent in Fiqh Al-Muamalat (Islamic Law relating to financial transaction) but also familiar with modern banking and finance.

Similarly, some Shariah scholars argue that in many countries there is no critical mass of scholars. This argument is self-defeating because with a pool of over 1,141 scholars there are enough to go around. Individual scholars too are not restricted to give advice to banks only in their home market. They can do so in other countries as long as it is for one institution per market segment.

However, the spectacular growth of the Islamic finance market may also turn out to be the end of days for Shariah advisory as we know it today. The market is getting sophisticated and bankers also are now much more familiar with the structures of Islamic financial products. A new generation of Islamic bankers are emerging who are conversant with both Islamic financial law and with banking and finance.

As such, Shariah advisories should realize that the more the sector develops the weaker their position becomes. In the halcyon days of Islamic finance, Shariah advisories were put on a pedestal partly because of the ignorance and unfamiliarity of the bankers with Fiqh Al-Muamalat. Today the situation is changed dramatically and scholars are now in a position of weakness.

In Malaysia, for instance, they are rigorously regulated. Even some of the top GCC scholars operating on Malaysian boards are registered with the Securities Commission Malaysia and are subject to the provisions of its act. So, if they already succumb to the Malaysian legal provisions, why not in their own countries.

Shariah advisories can complain as much as they wish to, but if their home regulators decide to adopt the Malaysian example, then they will be obliged to follow the provisions of any new laws governing the registration and regulation of such Shariah advisory in Islamic finance. They can of course take out legal action against their regulator perhaps under restrictive trade regulations (if they exist) or migrate to another jurisdiction where such laws are not yet in place.

In Malaysia, the law is very comprehensive and has provisions on criteria for registration, renewal of registration, fit and proper requirements, and even for foreign Shariah advisories operating in the local market.

Instead of resisting change, Shariah advisories should rise to the occasion to embrace change. Lest, individual Shariah advisories sitting on a cornucopia of Boards, are increasingly becoming an endangered species.

http://arabnews.com/economy/islamicfinance/article214156.ece

South Korea to Learn From Malaysia on Islamic Finance

South Korea wants to learn about Islamic finance from Malaysia, President Lee Myung Bak said today following a local newspaper report that parliament had rejected a bill that would pave the way for a sale of sukuk.Parliament’s Strategy and Finance Committee failed to pass legislation that would exempt a tax on Islamic bonds, or sukuk, which pay assets returns to comply with the religion’s ban on interest, according to an article in the Chosun Ilbo on Dec. 8.

South Korea to Learn From Malaysia on Islamic Finance

South Korea to Learn From Malaysia on Islamic Finance

“We also want to participate with Malaysia in financial sectors like bonds, when a possible opportunity arises,” Lee told reporters in Putrajaya, outside the Malaysian capital of Kuala Lumpur during a two-day visit that ends today.

The bill, which was first proposed to parliament by the Ministry of Strategy and Finance in September 2009 to help diversify funding sources, was scuttled earlier this year amid opposition from church leaders. A sale of sukuk would be South Korea’s first.

Lee Man Sub, head pastor at the Korean Association of Church Communication, was among leaders seeking to stop the plan on concern Islamic charities would funnel contributions to terrorist activities from zakat, a tax paid by Muslims with wealth to be distributed to the poor and needy.

Shariah-compliant bond sales in South Korea could potentially reach $1 billion a year, Lee Yul Hee, head of the Islamic finance team at the Seoul-based Korea Investment & Securities Co., said in August. Malaysia is the world’s biggest market for sukuk and a global hub for financing that complies with religious tenets.

http://www.businessweek.com/news/2010-12-10/south-korea-to-learn-from-malaysia-on-islamic-finance.html