Islamic Finance News & Resources: Bank

Showing posts with label Bank. Show all posts

As scholars quibble, sharia banks eye convergence

KUALA LUMPUR/LONDON (Reuters) - Jurists may never fully agree on how to interpret the sharia but controversial Islamic finance structures are likely to be dropped eventually as the industry strives to reach wider markets.

Disputed contracts like bai bithaman ajil and bai inah will probably be pushed to the sidelines while mudaraba and musharaka bond structures will be modified as governments and corporates try to narrow a gap in opinion that shuts out some investors, some bankers say.

"As more cross-border transactions take place and there is a need for meeting standards and requirements of a broader segment of market, naturally there will be a trend toward convergence," said Zarinah Anwar, chairman of the Securities Commission, which regulates Malaysia's capital markets.

The interpretation of religious scriptures is key to the $1 trillion Islamic banking industry as issuers and investors look to the sharia to determine if contracts are halal or haram.
Resource, Source: Reuters

Chinese Interest in Islamic Banking

We will not be able to say that Islamic banking has become a strong competitor to conventional banking unless it is able to surmount the Great Wall of China and settle upon the Chinese mainland and take advantage of what is considered to be one of the world's fastest growing economies. According to the World Bank, the Chinese economy is expected to experience a growth of 6.5 percent –during the [global] financial crisis – while during the same period of time the World Bank expects world growth not to exceed 1.5 percent. China is considered to be the US's largest creditor, and its investment in US bonds exceed one trillion dollars, while its own monetary reserve stands at nearly two trillion dollars, according to the CNN Arabic website. A Price Waterhouse report predicted that by 2050 the Chinese economy would surpass the [combined] economy of the G7 countries. The report based its prediction on Chinese purchasing power, which is founded upon the savings culture that is prevalent among the Chinese population, and their aversion to debt. China is also considered to be one of the more attractive countries for foreign investment which helps to finance this rapid growth. By the end of 2007 foreign investment in China reached approximately $74 billion.

Source: Al Huda

Ajman Bank Cruises to Market with Irresistible New Lexus Finance Offer

Ajman Bank offers customers the opportunity to buy a stylish new Lexus up with a 0% profit rate until 1st July 2009, based on three year finance agreement

Ajman Bank, the emirate's first Islamic commercial bank, is set to drive customers wild with a fantastic opportunity to purchase a brand new, luxury Lexus from Al-Futtaim Motors at a 0% profit rate. The new offer, which is valid until 1^st July 2009, gives potential buyers the option to place a 15% down payment with a three year financing agreement at an outstanding zero percent profit rate. So if you've been contemplating driving away with a Lexus, or need an excuse to indulge yourself, then now is the time!

Source: Zawya

Is Islamic finance the answer?

By Robin Brant
Malaysia correspondent, BBC News, Kuala Lumpur

Experts in Islamic finance believe their way of doing business has shielded them from the global credit crisis. But how does it differ from conventional Western finance?

A former executive director of the International Monetary Fund, Dr Abbas Mirakhor, says wider Islamic economics relies on God's guidance, handed down almost 1,400 years ago.

There is a "consciousness of a supreme creator and a system that he has provided", he says.

What we know as the conventional Western way does not have that, which is "really the major difference between the two", he adds.

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

"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?

A man reads a copy of the Qur'an
The Qur'an contains principles Muslims must follow when they do business

The system is asset-based, with tangible assets or commodities at the heart of it. There are buyers and sellers, not borrowers and lenders.

Here is a comparison.

In Los Angeles a customer who wants to borrow money to buy a car would go to a conventional bank and agree a loan. The bank would hand over the money.

There would be regular repayments, which include interest accrued on the loan.

In Lahore a customer could go to an Islamic bank and sign a contract with the bank to buy a car from them.

The bank would not loan the money but buy the car itself. Then it would sell it to the customer at a mark up.

The customer would agree to pay back the cost in instalments over a regular period.

One of the core principles at the heart of Islamic economics is risk sharing. The bank and the people who put their money in it share any profit, or loss, from investments.

"In Islam we appreciate merit, so if someone works harder in a business...they (the bank) will get the sharing benefit," explains Dr Brodjonegoro.

"The more important thing is that there will be no bank that rules everything. It will be bank and borrowers at the same level and they share the risk and benefit."

Alternative way

This sense of equality is important. It is one of the defining characteristics which proponents of Islamic economics say make it different from the conventional western way.

It is time for Islamic finance to pause and think of the direction it is taking
Prof. Habib Ahmed, Islamic finance expert

Islamic economics also highlights a belief in benefitting the wider Muslim community.

The former IMF Executive Director Dr Mirakhor says that it chimes with "a movement toward becoming more 'other conscious'...having consciousness about the other fellow, about the general public interest."

This contrasts with what he described as the "simple narrow basis of self interest which motivates, supposedly, the economic agents in the liberal economic system."

Some see the Islamic model as an alternative. Others see it as complementary to the system which has dominated the western world.

"I don't think that this Islamic banking system is the alternative, that we have one or the other. I think this is a complimentary service, a way of doing service," says Prof Ekmeleddin Ihsanoglu, Secretary General of the Organization of Islamic Countries.

"It needs to be an option there where people can find different ways of doing the same thing."

Compromising principles

London is emerging as a major financial centre for Islamic finance. Islamic banking products are also widely used by non Muslims in Malaysia.

"This is an alternative system that can be applied to everybody. Everybody can use it regardless of their religion," says Dr Brodjonegoro from the Islamic Development Bank.

Major banks like Britain's HSBC and Citi of the US have set up Islamic banking subsidiaries that are flourishing. Some of the champions of the Islamic way want to see business expand beyond the natural market of Muslim countries.

They believe that now, more than ever, there is a market for non Muslims who share in the values espoused in Islamic economics.

But there are some who fear that by expanding the Islamic way is becoming less Islamic.

Time to reflect

"Unfortunately what is happening is that Islamic finance in some ways is moving more and more closely to the conventional finance," says Prof Habib Ahmed, a world authority on Islamic finance.

"If you look at the development in the past few years, Islamic finance appears to be mimicking most of the products of conventional finance."

There has never been a better time to champion an economic model which is different to the one laying in shreds on Wall Street, says Prof Ahmed. But he believes that the Islamic concept is being diluted.

"As people after this crisis are looking for solutions...the Islamic finance industry is moving towards that very system," he says.

"I think it is time for Islamic finance to pause and think of the direction it is taking".

Source: BBC

Islamic banking

Image by AFP/Getty Images via Daylife

It is a young industry and a growth industry, and continues to evolve and expand both financially and geographically. It is indigenous and community-focused: it caters to devout Muslims in indigenous Muslim societies as well as in Muslim minorities of non-Muslim countries. Furthermore, it is an inclusive paradigm: non-Muslim individuals and communities that seek ethical financial solutions have also been attracted to Islamic banking.

The first modern Islamic financial institutions emerged in the 1960s and 1970s. Since then, Islamic banking has spread to a large number of Muslim countries, including the GCC and the Arab world at large, South and Southeast Asia, and even Muslim communities in the West. Bahrain is considered a hub for Islamic banking, with significant activity also taking place in Kuala Lumpur and London. Islamic financial institutions have taken the form of commercial banks, investment banks, investment and finance companies, insurance companies, and financial service companies. They follow different banking models: private institutions in a conventional economy (as in the GCC and the West), attempts at national Islamic banking systems (as in Sudan, Iran and Pakistan), and dual banking models (as in Malaysia). They also take different forms: wholly Islamic institutions, Islamic subsidiaries of conventional banking groups, and Islamic banking windows within conventional banks.

This is an industry that is still evolving, developing and growing. It has gone from commercial banking to syndicated transactions and equities, and more recently, into debt issuance and structured products. Its sophistication and product offering have developed along with this change. At an earlier stage, industry growth was in part a reflection of economic growth in the Islamic world, fuelled primarily by oil wealth. This created a growing middle-wealth segment and hence made banking a necessary service to the larger segment of the population. In the past several years, increased awareness about Islamic banking has led to conversion from conventional banking and continued high growth (15-20% in key markets).

In Indonesia, the growth of Syariah banking has been phenomenal with a consistent above 48% asset growth annually since 2001 (since 2003, the growth rate has been above 94%). In 1997, the country had only one Syariah commercial bank. As of June 2005, there are now 3 Syariah banks and 20 Syariah Banking Units (these are conventional banks which have been granted Syariah banking licenses). This is expected to continue and to accelerate in the future as existing Syariah banks are expanding both their branch networks and their balance sheet.

source: HSBC