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Islamic Banking In Saudi Arabia: Financing Instruments
ialjasser@KSU.EDU.SA
Ibrahim A. Aljasser King Saud University, Saudi Arabia
The First Annual Conference of Islamic Economics & Islamic Finance @ ECO-ENA, Inc., Canada
Venue: Toronto University: Chestnut Conference Center, Armoury suite
August 30th & 31st, 2013
Banking in Saudi Arabia
History and Development
Islamic Banks
Islamic Financing in Saudi Banks
Individual Financing
o Buying Joint-Stock Companies Shares
o Auto Financing
o Real Estate Financing
Calculation method
Conclusion
Content
Saudi Banks 12
Non Saudi banks 11
Islamic 4
Conventional 8
Banks in Saudi Arabia
Classification of Saudi Banks
History and Development
Banking in Saudi Arabia
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History and Development
Banking in Saudi Arabia
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ATM
History and Development
Banking in Saudi Arabia
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10000000
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Debit Card
History and Development
Banking in Saudi Arabia
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600000
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1200000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Accounts Value-SR millions
Checking Accounts Saving Accounts Total
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Banking in Saudi Arabia
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Consumption Loans Value-SR millions
Real State Cars & Equipments Others
Despite possessing the ingredients, qualification, and the high position in the Islamic world, and despite the great wealth and the domestic demand, still Saudi Arabia is still absent from the competition to be the capital of Islamic banking.
Many have put the blame on Saudi Arabian Monetary Agency (SAMA) and the Ministry of Finance.
Islamic banking is not officially recognized.
Islamic Banking in Saudi Arabia
This may be the reason for this: Lack of initiative of the supervisory authorities, namely the
Ministry of Finance and Monetary Foundation to promote this sector and protect it from deviation and enhance its credibility before the world
Weakness of the credibility of Islamic financing instruments as a result of the similarity of Islamic financing to interest-based financing mechanism.
The lack of uniform legislative committee for Islamic banking to determine the pillars and regulations of the Organization of Islamic banking, as well as determine which products can be classified that are compatible with Islamic banking.
Weak academic interest in Islamic banking and the lack of support for the advancement of related research in Islamic.
Buying Joint-stock companies shares.
Auto Financing
Real Estate Financing
Rules and Regulations
Customers must have their salaries transferred electronically to their bank account.
Only government employees and some large companies are given the opportunity to have
individual loans.
Markup percentage rate depends on predefined classifications from the bank.
Individual Financing.
Financing instrument that enable individual customers to buy joint-stock companies
shares and repay the value of these shares by monthly installments.
This method would allow individual customers to sell the purchased shares instantly
and get the cash money.
The selling price for these shares is marked up based on percentage value above the
current market price of the shares.
The customer is then given the opportunity either to keep the purchased shares or
sell them in the stock market.
Buying Joint-stock companies shares
Similar process to buying stock shares.
The objective of the customer is purchasing a new car, while in the previous
process, the objective is getting the cash money.
The customer repays the price of the car to the bank plus predetermined profit
margin by monthly installments compatible with the customer's monthly salary.
Auto Financing
Real Estate Financing
Almost an identical to auto financing,
except:
Markup rate is greater.
Loan extends from 10 to 20 years.
Down payment is required
Calculation method
All banks apply the simple interest formula to calculate the total amount of loan,
then divide the total amount by the number of months.
Example:
Loan amount is 100000.
Profit margin percentage rate is 2%.
Number of financing years is 5.
The total loan with profit margin is 100000*(1+2%*5)=110000.
Monthly installments equals 110000/60=1833.33
Islamic Banking
Conclusion
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