Islamic.banking-The Common Perception&Future Prospects by Karimi.k

8/8/2019 Islamic.banking-The Common Perception&Future Prospects by Karimi.k

http://slidepdf.com/reader/full/islamicbanking-the-common-perceptionfuture-prospects-by-karimik 1/48

Al Huda Int·l Conference 2010

ISLAMIC BANKING:

The Common

P erception &

The F uture Prospects

A bdul J abbar KarimiHMB-Islamic Banking [email protected]

Alhuda Conf. 8-9 June¶ 2010

1 Islamic Banking: The Common Perception & theFuture Prospects by : A. J. Karimi



TABLE OF CONTENTS

The common perception aboutIslamic Banking«.

What is Islamic Banking ?How is Islamic Finance today atGlobal Scene?What about its future?

Alhuda Conf. 8-9 June¶ 20102Islamic Banking: The Common Perception & theFuture Prospects by : A. J. Karimi



Alhuda Conf. 8-9 June¶ 2010Islamic Banking: The Common Perception & theFuture Prospects by : A. J. Karimi3

Table of contents

THE COMMON PERCEPTION

ABOUT ISLAMIC BANKING«.Wh at is Islamic Banking ?How is Islamic Finance today at Global Scene?Wh at about its future?



Is this about Islam? Or about Banking?

What has Religion got to do with Banking?Has Islamic Banking ever been practiced?What is Islamic Banking?Why Islamic Banking???

Where is the misconception and what isthe acceptable answer?How Banking could be Islamic?How is it different from the Conventional

Banking?R U pricing your products on LIBOR/KIBORbasis? Still it is Islamic«!!!!....


The C ommon FAQs about Islamic Banking..??



T he Basic Knowledge of ShariahPrinciplesAccounting & Shariah Standards byAAOIFIPsychological Marketing / Withreference to Quran + SunnahT he mean to achieve the end must beright & Justified for a Muslim


How to mak e t he custom e rs p e rc e ption in t he

d e sir e d dir e ction?




W h at bot he rs Int e r e st-bas e d FinancialInstitutions to h av e S h aria h C ompliant Products?

Are the interest-based leading financialinstitutions suddenly converting toIslam?Interest-based system has reached a

level of stagnation & the Islamicsystem, which built momentum aboutthree decades ago, is expanding atunflagging speeds (Malaysia, Bahrain

and Pakistan who making steadyprogress).






Islamic Banking: The Stak eh old e rs

Consumers

IslamicIslamicBankingBanking

InstitutionInstitution

G overnmentCentralBank

StaffSponsors

Management

External

Internal

Legal Framework

Demand for Products & Services

Vision & Leadership

Capital

Regulations/Policies guidelines

Shariah Adviser/ShariahBoard

Madrasas/

ReligiousScholars

Shariah supervision

Public opinion/ReligiousRulings

Productivity




S h aria h Risk: A Uniqu e IB Ch aract e ristic

Basic Knowledge of Islamic InvestmentFirm Belief + Assurance (Haqq ul Yaqeenor Ainul Yaqeen)Commitment at all levels

CONFIDE

NCE

OF DEP

OSI

TORS & SAVERS³ A bank licensed as an Islamic Bank may be running on a very

sound financial footing. However, if the depositors came toknow that the Bank has violated its Shari¶ah mandate, thedepositors will lose confidence and the finding will trigger

deposit withdrawal and probably collapse of the bank. Bycontagion effect this can lead to financial instabilitythreatening economic development.´




Table of contents

THE COMMON PERCEPTION ABOUT ISLAMICBANKING«.

WHAT IS ISLAMIC BANKING ?How is Islamic Finance today at Global Scene?Wh at about its future?



W h at is Islamic Banking?

³ Islamic Banking is interest free Asset³ Islamic Banking is interest free AssetBacked banking governed by theBacked banking governed by the principles of Islamic Shariah´ principles of Islamic Shariah´

³³ The ends of the both banking systems are same but onlythe means to achieve these ends are different as onesystem is God given in contrast to its rival system whichis ma made .´.´

((KarimiKarimi , Abdul Jabbar , Abdul Jabbar-- µIslamic Banking :A necessary system , published inµIslamic Banking :A necessary system , published inthe Finance & Business Review , The News , the Finance & Business Review , The News , 18th Jun¶ 200118th Jun¶ 2001))


Islamic Banking: The Common Perception & theFuture Prospects by : A. J. Karimi




The Basic principl e s of Islamic

Banking/Financ e« (I C ARE)1.1. Interest Free TransactionsInterest Free Transactions2.2. Contractual Certainty(Contractual Certainty( Gharar Gharar freefree

contracts)contracts)3.3. Asset &Asset & ServiceService BackingBacking4.4. Risk SharingRisk Sharing5.5. Ethical BankingEthical Banking




Table of contents

THE COMMON PERCEPTION ABOUT ISLAMICBANKING«.Wh at is Islamic Banking ?

HOW IS ISLAMIC FINANCETODAY AT GLOBAL SCENE?

Wh at about its future?



Islamic products and s e rvic e s off e r e d by 300+Financial Institutions around t he world

Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for eachcountry

U nited States: 20- Al Manzil Financial Services- American Finance House- Failaka Investments- HSBC- Ameen Housing Cooperative

Germany: 3

- Bank Sepah- Commerz Bank- Deutsche BankSwitzerland: 6

U K: 26 (primarily branches of Gulf and glo

bal banks)- HSBC Amanah Finance- Al Baraka International Ltd- Takafol UK Ltd- The Halal Mutual InvestmentCompany-J Aron & Co Ltd (GoldmanSachs)-Britain Islamic Bank

Bahrain: 26- Bahrain Islamic Bank- Al Baraka- ABC Islamic Bank- CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks(Bank Islam, BankMuamalat)Rest - conventional banks

Saudi Arabia: 10- Al Rajhi

- SAMBA- Saudi Hollandi- Riyadh Bank

U AE: 9- Dubai Islamic Bank

- Abu Dhabi Islamic Bank- HSBC Amanah

Qatar: 4- Qatar Islamic Bank- Qatar International Islamic

Kuwait: 5- Kuwait FinanceHouse

Iran: 8

Egypt: 7- Alwatany Bank of Egypt- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5India: 3Bangladesh: 3

Turkey: 7- Faisal FinanceInstitution- Ihlas FinanceHouse

Yemen: 5Planning to go for IslamicBanking





Establishment of Establishment of IFSB (IFSB (Islamic Financial Services Board),Islamic Financial Services Board),

IIFMIIFM (International Islamic Financial Market) & Accounting(International Islamic Financial Market) & Accounting

andand AAOIFI AAOIFI (Auditing Organization for Islamic Financial(Auditing Organization for Islamic Financial

Institutions)Institutions)

In Feb 1999, Dow Jones introduced the Dow Jones IslamicIn Feb 1999, Dow Jones introduced the Dow Jones Islamic

Market Index (DJIM) of 600 companies worldwide whoseMarket Index (DJIM) of 600 companies worldwide whose

business complies with Islamic Shariah laws.business complies with Islamic Shariah laws.

At present there are more than 105 Islamic Funds At present there are more than 105 Islamic Funds

operational through out the world with a total fund base of operational through out the world with a total fund base of

over USD 3.50 billion.over USD 3.50 billion.

Global Scenario««





According to µThe Banker¶s 2009 survey , the volume of the

Shariah Compliant Assets of the top 500 Islamic FinancialInstitutions grew by 28.6% rising to US$822b n from $639 in2008 at a time when the top 1000 World Banks¶ assets slumped to6.8% from 21.6% from the previous year.

The Shariah Compliant Assets are projected to grow to US$1 .60

trillion by 20 1 2.

Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by2010

The opportunities to tap the surplus funds of oil rich Muslimnations is strong as many non Muslim countries are trying to tap itincluding , Japan , UK , Singapore , France , Hong Kong US , Germany , Australia , Thailand , etc.

Global Scenario««.





The United Kingdom has emerged as a leading centre for offeringIslamic Financial Services (IFS) as at present there are 22 banks in

UK offering Islamic Financial Services , out of which 05 are fullyShariah Compliant (4 wholesale & 1 retail bank).

Lloyds TSB Bank PLC (LYG ) , Britain's fourth-largest , recentlyintroduced Islamic mortgage products to cater to Britain's 2.5million Muslims.

France by indicating the adjustments in its legal and fiscalframework aims to the development of Islamic Finance to cater thefaith-based clientele in the country in addition to gain attention of Middle Eastern Investors holding abundant liquidity. (report byStandard & Poor , 2009)

German state became the first European government body to issuean Islamic bond last year -- a $121 million.






Governments of Bahrain ,Malaysia and nowGovernments of Bahrain ,Malaysia and now

Pakistan have issued Islamic Bonds (Sukuk) inPakistan have issued Islamic Bonds (Sukuk) in

order to facilitate Islamic Banks in managing their order to facilitate Islamic Banks in managing their

liquidity.liquidity.

Issuance of these bonds has also paved the wayIssuance of these bonds has also paved the way

for Shariah compliant Government borrowings.for Shariah compliant Government borrowings.

These institutions are playing a key role in settingThese institutions are playing a key role in setting

up and standardizing Shariah , Financial andup and standardizing Shariah , Financial and

Accounting standards for Islamic Financial Accounting standards for Islamic Financial

Institutions.Institutions.






Major business schools such as Oxford, Harvard,Major business schools such as Oxford, Harvard,

Rice and Durham has started post graduateRice and Durham has started post graduate

programs in Islamic Financeprograms in Islamic Finance

Harvard University has developed a major databaseHarvard University has developed a major database

by the name of Harvard Islamic Financial Informationby the name of Harvard Islamic Financial Information

Program (HIFIP) for Islamic Banking.Program (HIFIP) for Islamic Banking.






Islamic Banking in Pakistan:An O v e rvi e w





Islamic Banking In Pakistan: An OverviewThe Islamic banking market in Pakistan continued to expand during

the last year as well and the assets growth has registered 59% p.a.growth since 2005 as stated by Deputy Governor SBP.A sse t s = about PKR 370 bn + (Industry Share constitute 5.60%)D ep o si t s = about PKR 280bn + (Industry Share constitute 5.90%)

F inancing and I nves t men t = about PKR 230 bn +(Industry Shareconstitute 4.30%)

Projected growth for the next 5 years of Islamic Banking is 15%to 20% per annum.

The Islamic Banking Market share would reach 12% by 2012 as per strategy plan of SBP

In 2008 the assets of Islamic Banking increased by 34% ascompared to the assets of overall industry by 8.8%. (SBP Bulletin)





Islamic Banking In Pakistan: An OverviewThere are 06 full fledged Islamic Banks and 13

Commercial Banks having Stand alone dedicated IslamicBanking Branches

At present there are more than 600 Islamic BankingBranches in Pakistan.

The six full ± fledged Islamic Banks are...1.Meezan Bank2.Dubai Islamic Bank3.Al-Barakah Islamic Bank

4.BankIslami5.Emirates Global Islamic Bank6.Dawood Islamic Bank






Islamic Banking: The Common Perception & the

Future Prospects by : A. J. Karimi23

Table of contents

THE COMMON PERCEPTION ABOUT ISLAMICBANKING«.Wh at is Islamic Banking ?How is Islamic Finance today at Global Scene?

WHAT ABOUT ITS FUTURE?



1 . A FE W SAYI NG S BY KEY PLAYERS F O R ISLAMI C BA N KI NG«««

"There is a segment within the current market that wouldswitch to Islamic if the quality and benefits offered were asgood as conventional financial products, " says R ayFerguson, CEO of Standard Chartered Bank U AE inDubai.

³A conservative approach to risk and a close link betweenthe financial sector and real assets has helped shield thesector from the worst of the credit crisis,´ said. BrianCaplen , An editor of a London-based magazine

"Islamic banking isn't just for conservative or radicalMuslims. It's mainstream business now, "That's why everybank wants a bigger piece of it. "says R oss Mohamad Din , director of HSBC Amanah

Malaysia



Future Prospects by : A. J. Karimi



2 . W h at Motivat e s anindividual?






Univ e rsal Motivating Factors:

1. Fear

2. Reward (in Cash or Kind) )






³O you who believe, Fear Allah and give up what remains of ³O you who believe, Fear Allah and give up what remains of your demand for Interest, if you are indeed a believer. If you doyour demand for Interest, if you are indeed a believer. If you donot, then you are warned of the declaration of war from Allahnot, then you are warned of the declaration of war from Allahand His Messenger; But if you turn back you shall have your and His Messenger; But if you turn back you shall have your principal: Deal not unjustly and you shall not be dealt withprincipal: Deal not unjustly and you shall not be dealt withunjustly.únjustly.´

Al Baqarah 278 Al Baqarah 278 - - 279 (Fourth Revelation)279 (Fourth Revelation)

Motivating Factor- F e ar






From Hazrat Abu Hurayrah (RA):From Hazrat Abu Hurayrah (RA):The Prophet, peace be on him, said:The Prophet, peace be on him, said:

"Riba has seventy segments, the least"Riba has seventy segments, the leastserious being equivalent to a manserious being equivalent to a mancommitting adultery with his owncommitting adultery with his ownmother. " mother. "

(Ibn Majah)(Ibn Majah)

Motivating Factor- F e ar

What Hadith says about Riba?






From Hazrat Jabir Ibn-e-Abdullah (RA): TheProphet may peace be on him , cursed the

receiver and the payer of interest , the onewho records it and the witnesses to thetransaction and said; ³ They are all alike (inguilt).´

R e f: (Muslim, T irmid h i and Musnad A h m e d)

W h at Hadit h says about Riba?






3. Ch anging t he p e rc e ptionsof t he cli e nts by off e ring

t he r e quir e d bask e t of goods @ mark e t rat e addr e ssing t he Qs « ..






Q: Is It True Islamic Banking? (Profit Calculation Method)

Questions about IB Products:Q: Cover business requirements?Q: Cost effective? (Pricing formula«)

Q: Any complications? (LIBOR/KIBOR«)Q: Why stage wise documentation?

Confusion about Islamic Banking

Biased advice of consulting conventional bankers should be dealt withcarefully..Different Opinions from Religious Scholars




The Common P e rc e ptions: The Ke y Qu e stions



W h y Islamic Banking?Market Approach

20% of the world population is Muslims

15 million Muslims residing in non-Islamic countries inEurope, mostly in France, Germany and in UK. Andmembers of this community were not getting benefitfrom the conventional banking

Sizable proportion who will only avail financial servicesif assurance of Shariah Approval is given

The Oil Rich Middle East, which has a huge potentialfor investing in a Shariah approved financial system






W h y Islamic Banking?

Islamic Approach:Interest has to be eliminated from the financialsystem on account of the followings;

Islamic Shariah/Law enjoins it (Qura¶n + Sunnah)

Consensus of Ummah (Fiqh Academy of IDB(OIC)) issued fatwa (religious ruling that theBanking interest is harram in its all shapes«.

Religious Boards of all Islamic Banks (IBs) haverepeated the same fatwa of OIC Fiqh Academy.











Is our vision to cr e at e a Mark e tS e gm e nt?

T he tale of T elecom.






Telecom Revolution«Year 2000

, 0%

306,493 ,9%

3,056,460 ,91%

Ín theYear 2000, after 8 yearsmobile phone operator·s share was only 9%µ

No of connectionsand market share

Source:Pakistan Telecommunication Authority







4 , 4 ,607 ,%

,757 , ,3%

,617 ,101 ,8 9

Ńow mobile phone operators share of the industry is89%!!!

No of connectionsand market share








´The market segment has become larger than the basicindustry itselfµ

Mobile PhoneIndustry55 Mn Connections Fixed Line

Industry5 Mn Lines


Alhuda Conf. 8-9 June¶ 201038Islamic Banking: The Common Perception & the




W h at is t he inspiration «

´ Vision is to create an industry itself and not a segmentµ

Basic functionality without the wire

Financial solutions without R iba





Accessing NewMarket segments

through Islamicproducts





At the time of branch opening«

- 15 branches of 13 bankson the same road

- IBB branch would in fact

not be 14th

branch rather 1st

in that area offering Islamicproducts

Accessing New Market segmentsthrough Islamic products





W h at do e s t h is Mark e tW ant ?

Accessing New Market Segmentsthrough Islamic products





W h at do e s t h is Mark e t W ant?

80

1010

³T he winning formula´ All things equal IWill prefer anIslamic Product

I will Not bankwith an Islamic

Bank

I will only bankwith an Islamic

Bank

Research:

Source:

Oasis International research 2006





W h at do e s t h is Mark e t W ant?An Example«

³A ll things equal I will prefer an Islamic product´

Launched inan areaalreadyhaving

Conv.bankingbranches

Highest incrementalgrowth in the entire

banking industry

IBB





The road ahead«

Accessing New Market Segmentsthrough Islamic products

³N othing is more powerful thanan idea whose time has come´






46

To address the challenges facing the IB industry including«

Diversification & Innovation in financial structures whileadhering the Shariah credentials+

Standardization of products in the country and then acrossthe globe+

Enhance understanding and capacities of IB Riskmanagement +

An acceptable solution of liquidity placements..+

HR Training by having education of Islamic Finance at alllevels«Ref: For More Info. Read my article, ́ CHALLENGES FACING ISLAMIC BANKS¶ Published inDAWN on 04th December ¶2006 ( http://www.dawn.com/2006/12/04/ebr12.htm ), onhttp://www.nzibo.com/governance.html ), (www.gcu.edu.pk/library/NI_Dec06.htm - 219 k) andwww.bankseta.org.za/downloads/IEDP_UK_2007_%20Islamic_Finance_Research_Report.pdf

For having desired Future prospects«



The Main Motivating Factor and Driver of The Main Motivating Factor and Driver of Islamic Banking «..Islamic Banking «..

InIn anticipationanticipation of of ROIAROIA andand inin anan efforteffort toto abideabide byby thethe prohibitionprohibition of of Riba,Riba,aa surprisinglysurprisingly increasingincreasing number number of of MuslimMuslim depositdeposit holdersholders allall acrossacross thetheworld,world, havehave nonnon--interestinterest bearingbearing accountsaccounts andand theythey refrainrefrain fromfrom InterestInterestBasedBased BankingBanking. .

ThisThis willwill alsoalso gogo truetrue for for Af ghanistan asas wellwell««««.. ..

TheThe rewardsrewards inin thisthis lifelife andand especiallyespecially inin thethe lifelife hereafter hereafter areare thethe mainmainmotivatingmotivating factorsfactors for for themthem. .



³ R O I A ´

C oncluding Point



T hank youT hank you



F OR FU RTHER IN F ORM A TION:

Ab dul Ja bb ar Karimi

C ell : +92 300 8245995

Ph : +9221 32639665 E mail : a b dulja bb [email protected]

Documents

Islamic.banking-The Common Perception&Future Prospects by Karimi.k