Islamic Banking

Islamic finance, which borrowed features such as products from conventional banks, can now return the favor by lending its set of principles for good governance and responsibility, the Raja Muda of Perak, Raja Dr Nazrin Shah said on Tuesday.

“To date, Islamic banks have borrowed from conventional finance in terms of products.But, I think, the time has come where the flow of information and knowledge can and should flow the other way as well,” he said in his keynote address at the second day of the World Capital Markets Symposium, here.

He said Islamic finance could also help the global finance industry to be more aware of following the rules and curtailing excess as well as create an infrastructure of honesty, fairness and integrity.

“But, I also believe Islamic finance can offer much more than this,” Raja Nazrin, who is also the financial ambassador for the Malaysia International Islamic Financial Centre, said.

“At its heart, Islamic finance is an ispiration towards good finance.As we have seen, good finance is about trust, and trust is a cornerstone of stability.

“Therefore, I believe that Islamic finance can help break the vicious cycle of boom and bust that has come to characterise global finance,” he said.

Islamic finance is now a truly global market, participating across borders with a vast range of investment alternatives including sukuk, mutual funds, commodity funds, equity traded funds, real estate investment trusts, shariah compliant derivatives and hedge funds.

Recent developments also included the possibility of an Islamic bank in France, the publishing of a book on Islamic finance in Italian and shariah compliant real estate funds in Australia.

There is also news of expected sukuk issuances from the United Kingdom, Australia and Korea.

There have also been a diverse range of issuers of shariah compliant products including the World Bank, the Islamic Financial Centre, the German state of Anhalt-Saxony, Aston-Martin and Shell, which pioneered the sukuk.

“The world is interested and I believe Islamic finance to be up to the challenge,” Raja Nazrin said, adding that the industry is growing with more demand seen from non-Muslim investors, not only in Malaysia but also abroad.

He stressed that one of the most important goals of the Islamic finance industry should be to integrate into the global financial system.

–BERNAMA

The global market for sukuk (Sharia-compliant bonds) has grown tremendously in recent years. Total outstanding sukuk rose from $8 billion in 2003 to around $100 billion in 2008. Sukuk provides companies and governments with access to financing and liquidity and offer a much needed Sharia-compliant instrument to investors. While the growth of the fixed income market in the Kingdom has been dwarfed by that of the equity market, we think that conditions are in place for strong growth in sukuk issuance and trading.

An important step was the launch by Tadawul of an automated order-driven secondary market for sukuk in mid-June. Previously, sukuk transactions were in an over-the-counter market, meaning that they were executed through bank treasuries and settled by Tadawul. Liquidity was very low, as most sukuk issues were held until maturity. The introduction of the new platform is intended to encourage investors to more actively trade sukuk. With the new system, investors can buy and sell sukuk through their brokers.

With the new trading platform in place, we think the following factors will stimulate supply from issuers and demand from investors in Saudi Arabia:

* Predictability and portfolio diversification: The collapse in the stock market last year has encouraged investor interest in more predictable assets such as sukuk. Given the very limited investment channels open to investors in the Kingdom, sukuk could also play in important role in portfolio diversification.
* Problems raising finance from traditional sources: Companies needing to raise finance have generally used a combination of bank loans and IPOs. With banks reluctant to lend and low valuations making IPOs unattractive, sukuk issuance should emerge as an important source of funding.
* Balance sheet mismatches: Little long-term bank lending is available, meaning that companies borrowing to finance long-term projects face an asset-liability mismatch on their balance sheets. Long-term sukuk would ease this problem.
* Healthy sukuk pipeline: Following two successful sukuk issues earlier this year, other local companies have announced their intention to issue sukuk, in addition to some GCC governments.

Notwithstanding the bright future for sukuk, there are still formidable challenges may impede growth. Liquidity is very low; there were only 50 transactions in the first two months of trading on the sukuk market. In addition, the local market lacks breadth and depth (there are only five listed sukuk) and there are no indications that the government will begin actively issuing sukuk (government support is generally a key factor in the development of debt markets). Furthermore, the lack of skilled human resources, Sharia-compliance standardization and innovative product development remain serious issues.

Background

The use of sukuk has become increasingly popular in recent years both for governments and companies. In part this has stemmed from the dramatic growth in Islamic banking that has been the result of the large inflows of liquidity (primarily oil revenues) into the Islamic world and a greater appetite among businesses and individuals to conduct their finances in a Sharia-complaint way. As the take up of Islamic financial services grew, demand from issuers for a product that performs a similar function to a bond leapt. Demand from investors has also surged as growing wealth within the Islamic world has made regional credit risk more attractive and greater understanding of the instrument and clarity of documentation, supported by credit ratings from international agencies, has enhanced investor comfort with sukuk.

Malaysia accounts for around 47 percent of global sukuk issuance by market value, followed by the GCC, which is the source of a further 46 percent. Sukuk issuance is not limited to Islamic countries and there have been issues from institutions in Singapore, Sri Lanka, Canada, Thailand, the UK and US. Recently, the second largest bank in Russia, VTB, indicated that it is considering a sukuk. The growing interest in sukuk worldwide reflects the spread of Islamic banking and the desire of foreign issuers to tap the liquidity within the GCC. As it is the structure of the instrument that has to be Sharia-compliant, rather than the issuer or the purchaser, the supply and demand for sukuk is set to grow in nontraditional markets.

Sukuk are generally built around one of six main contracts: Ijara, Mudaraba, Musharaka, Murabaha, Istisina and Istithmar. Ijara accounts for around 32 percent of global sukuk issuance followed by Musharaka and Mudaraba. The Saudi sukuk market is dominated by the Istithmar. The variation in the dominance of structures is explained by the lack of Sharia-compliance standardization. It is the responsibility of Sharia boards to determine what structures are Sharia-compliant and given that there are no universally agreed standards, boards across countries exercise considerable discretion in arriving at their opinions. Some countries adopt a conservative interpretation of Sharia, while others are more flexible, leading to an inconsistency about what is considered Sharia complaint. For instance, most Ijara structures that have been issued in other countries do not meet Sharia-compliance requirements in Saudi Arabia. This lack of Sharia standardization poses a great challenge to growth of sukuk.

Source

MALAYSIA must look at developing other areas of Islamic finance beyond just Islamic bonds, or sukuk, experts said.

“Malaysia has all the right ingredients to trailblaze in Islamic finance, but it must go beyond sukuk. We need to develop other new products as well,” said Ali Abbas Zaidi, Maybank Investment Bank’s head of Islamic markets.

Ali was a panellist in a discussion yesterday on the future of Asia’s Islamic investment industry at the IFN Issuers and Investors forum in Kuala Lumpur.

Malaysia is an international Islamic hub and widely known for having the world’s largest sukuk market. It also houses some 145 syariah investment funds.

Securities Commission managing director Datuk Nik Ramlah Nik Mahmood, who chaired the session, agreed with Ali on the need for product innovation in other areas.

“From our perspective, sukuk is very important. But there’s also a whole host of petro-market products that can be (introduced),” she said.

Ali said that new products could be developed in all areas, such as private equity, infrastructure, liquidity, asset and project financing.

“It could underpin any type of economic activity,” he remarked.

Ali said there was much that could be learned and leveraged on from the conventional finance industry.

What makes a difference is the way the products are used, he pointed out.

Mohamad Nedal Alchaar, secretary-general of standard setter Accounting and Auditing Organisation for Islamic Financial Institutions, highlighted that there was no such thing as “toxic products” in the industry, only “toxic practices”.

To a question by Nik Ramlah on whether Islamic finance should take advantage of the recent failures in conventional finance to become more prominent, Nedal said he did not think it was appropriate to do so.

“I recognise the opportunities that we have today after the global financial crisis, but … I don’t think it’s appropriate for us to ride on ailing bodies.

“I think we have our own merits. Islamic finance has a lot to offer and should rise independently from this crisis.

“We should detach ourselves from the crisis and sell what we have on ethics, governance,” he said.

An estimated 1,200 delegates attended the three-day IFN forum, an annual event said to be the world’s largest gathering of industry experts and practitioners.

BY: Adeline Paul Raj

The Securities & Investment Institute (SII) has signed an agreement with the Institute of Islamic Banking and Insurance (IIBI) to promote the UK as the hub of Islamic finance.

The London-based IIBI is one of the world’s leading independent organisations dedicated to the development and implementation of Islamic finance, achieved through education, training, research and publications.

The SII and IIBI will share their expertise and advocate the services of each other. As part of the deal, the IIBI will encourage its members to study for the SII’s ground-breaking Islamic Finance Qualification (IFQ) as an entry level exam in the field. The SII will promote the IIBI’s Diploma and post graduate Diploma in Islamic finance as qualifications for further progression for students following achievement of the IFQ. IIBI and the SII may choose to also develop a long-term strategy to include market research and demand relating to specialist Islamic Finance modules such as Sukuk (Islamic bonds).

The SII managing director, Ruth Martin, said: “We are delighted to work with the IIBI to promote our common goals for the development of Islamic finance skills within the UK.”

Mohammad A. Qayyum, director general, IIBI, said: “We are looking forward very much to working closely with SII in strengthening the UK’s position as the leading centre for Islamic finance qualifications. The agreement with SII will undoubtedly afford greater scope of advancement of competent persons in the Islamic financial services industry.”

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This week saw the meeting of the World Islamic Economic Forum (WIEF), the equivalent of the Muslim world’s Davos, held this year in Jakarta. In attendance were heads of states and senior government figures from across the Muslim world, including Indonesia, Malaysia, Morocco, UAE and Qatar, with delegates from 38 countries.

The purpose of the WIEF is to increase trade and business activity among Muslim countries and beyond. I had the privilege of chairing one of the sessions. Fazil Irwan, director at the WIEF Foundation explained to me that WIEF’s central pillar is to develop itself as a networking conduit between the Muslim and non-Muslim world, as they believe business collaboration can generate greater prosperity and mutual understanding. Established in 2004, WIEF gives particular focus on investing in women and the young; understandable given the high levels of unemployment among these two categories in Muslim countries.

The Muslim world’s economic performance is generally dire. Despite making up one-fifth of the world’s population, it produces a measly 7% of its output. Much of the discussion at the WIEF revolved around the global economic meltdown and its impact on Muslim countries that are now facing economic contraction, job losses and greater poverty due to the reckless model of unfettered market liberalism. With the interconnectivity that comes with globalisation, no state is immune. The systemic failure of the current banking model has generated much more official interest in Islamic finance. Shariah-compliant finance is based on financing secured against underlying tangible assets and involves risk-sharing between the parties in the pursuit of genuine commercial activities, rather than profiteering from paper instruments whose trail often led back to highly leveraged low-quality debt (better known now as toxic debt). There was a widespread view among those attending (including non-Muslims) that Islamic finance could provide one possible way out of the current malaise and become an important foundation in a new, more stable world economic order.

One official pointed out that it is not the labeling of products as “Islamic” that is the solution, as it is perfectly possible for a shariah-compliant bank to create sophisticated financial products that end up mirroring the conventional system. What is needed is ethical standards for the financial system based on transparent risk assessments and controlled debt levels. Whether such a model of greater fairness and integrity should be necessarily labelled with the exclusive term “Islamic” is a separate debate. Gordon Brown yesterday, in his speech to Congress, spoke in similar terms when he said that “markets should be free but never values-free, that the risks people take should never be separated from the responsibilities they meet”.

The conference showed the efforts the Muslim world is making to help pull the world out of recession. Indonesia itself is home to the world’s largest Muslim population, the third largest democracy and the fourth largest population, at 230 million. It is also a member of the G20. Its stable democracy and impressive economic growth over the last decade has marked Indonesia out as a front-line state in the west’s greater desire for a more respectful engagement with the Muslim world after the Bush years.

Indonesia is seen as a possible template of how to deal with Muslim democracies and markets, new and old. In her recent visit to Jakarta in February, Hillary Clinton asked colleagues whether Indonesia held lessons for Pakistan, a state with the sixth largest population but far less stable. Given the different role Islam plays in Pakistani and Javanese culture and public life it is not immediately clear what those lessons might be. Indonesia is also strategically important given its commanding presence over the narrow Strait of Malacca, through which supertankers transport Middle Eastern oil to the Pacific Rim. There is great excitement here that President Obama may choose Jakarta to deliver his promised address to the Muslim world from a Muslim capital, the home of his childhood school.

The way out of the current economic crisis will require innovative thinking and a meeting of minds. The WIEF provides one such forum.

By: Asim Siddiqui - guardian.co.uk

With global finance on its knees, this summer’s business graduates face an even trickier jobs market than most. But there is one area of banking still experiencing boom time – Islamic finance – and universities have been quick to grasp its possibilities.

This September will see new courses and postgraduate qualifications in Islamic finance springing up throughout the UK and elsewhere in Europe, reflecting the fact that it has become one of the fastest-growing sectors of the global banking industry, expanding by between 15% and 20% a year. Assets held by institutions adhering to Islamic finance principles now amount to nearly 1 trillion dollars.

In the UK, interest in the sector also reflects the government’s commitment to promoting Britain as an Islamic finance centre. The UK already leads Europe in the number of Islamic finance training courses it offers, from entry to postgraduate level, and in 2006 saw the launch of the Islamic Finance Qualification, a joint initiative between a Lebanese business school and the Securities and Investment Institute.

London gateway

Last December, the Treasury published a paper setting out the government’s aim for London to be “Europe’s gateway to international Islamic finance”. This acknowledged that the industry was still young and therefore not yet experiencing skills shortages, but predicted that it soon would be. It stated: “The pool of potential applicants in the UK will have to keep up with the rapid growth of the market.”

Universities have responded enthusiastically. Newcastle University is offering an MSc in finance and law with Islamic finance from next academic year. Henley Business School at the University of Reading has been offering an MSc in investment banking and Islamic finance since last year, with students spending the second part of the year in Kuala Lumpur. The University of Bangor in Wales has also been running its Islamic finance MA and MSc for a year and is considering introducing a new MBA in the subject, while the first students to take an Islamic finance option as part of an executive MBA offered in Dubai by Cass Business School will graduate this summer. Durham, which has been offering postgraduate research degrees in Islamic finance for some time, is now introducing a taught MA and MSc (the MSc is more quantitative), to respond to demand. Elsewhere in Europe, Reims Management School is offering a new specialist course in Islamic banking and finance for students on its masters in management programme, taught in English.

Student demand is driving the subject as much as any urging from governments. According to Rodney Wilson, founder and director of the Islamic finance programme at Durham, it is coming mainly from south-east Asia, particularly Malaysia, and the Middle East, although there is plenty of interest from the UK as well.

Joanna Gray, professor of financial regulation at Newcastle Law School, says she is keen that their new degree course is not just seen as something for Muslims. “It’s for anyone interested in a fast-developing industry that in the UK has been quite busy in the past few years to accommodate forms of investment in finance that are sharia-compliant.”

Sharia principles

Islamic finance really dates from the mid-1970s, with attempts to make products available through conventional banking, such as loans and mortgages, compatible with sharia principles. Sharia law prohibits any transaction that involves paying interest or investing in certain economic sectors such as gambling or pornography. It demands that both the investor and recipient of the investment must share any risk, and transactions have to be underpinned by tangible assets.

In the years immediately after 9/11, anything involving money and Muslims was viewed with suspicion by many in the west because of fears about terrorism, and Islamic finance is still taking off faster in the UK and France than in the US. But in the current global financial climate the principles it is based on have struck a chord.

“There is an extent to which, to a westerner, Islamic finance products look very similar to ethical finance products,” says Stefan Szymanski, professor of economics at Cass. “There is a demand for morally upright investment vehicles, and Islamic finance is the Islamic version of that.”

Philip Molyneux, head of the business school at Bangor, suggests that even if western banks do not want to introduce specific Islamic finance products – and an increasing number do – they still want to know how it is that many Islamic institutions escaped the worst effects of the credit crunch.

He has been surprised that demand for the MA and MSc has come not just from recent graduates and bankers wanting to improve their career prospects, but also from sharia scholars, who play a key role in Islamic finance. Any new financial product must be passed by them as sharia-compliant, so many financial institutions must now have scholars standing by ready to give their verdict. These scholars often disagree, and can even change their minds, but this offers plenty of scope for the kind of intellectual arguments that universities relish, not to mention graduate jobs.

On the whole, most of the new Islamic finance courses steer well clear of religious issues in favour of legal and financial questions because these are what most interest students. Khalid El Sheik applied for Bangor’s Islamic finance MA because, having taken a first degree in computer science in Sudan before switching to a career in marketing, he felt his CV needed a business boost. He saw it as a chance to mark himself out from other students and to have a headstart in an area that was likely to offer plenty of future employment opportunities. “I had read about Islamic banking and how it was going to increase in future, and how most of the banking sector is now looking to it,” he says. His fellow students at the university, including one from China, had the same idea, he says.

Szymanski agrees that it is the idea of the moment in many universities, and while Cass is still waiting to see how the market develops before introducing any similar courses, it is certainly considering the possibility.

“You just have to measure how many billions of dollars Islamic finance already handles in a year,” he says. “If that grows over the years, it will become a universal part of every business school.”

By: Harriet Swain - Guardian.co.uk

Mumbai: “Unless there are amendments in the Banking Regulation Act of India, 1949, Islamic Banking system can be introduced in India,” said Abdul Hasib, former Director, Reserve Bank of India. The Islamic Banking system will be helpful for underprivileged and marginalized people, he said.

He was addressing a seminar on Global Financial Crisis and Islamic Economic System organized by Jamaat-e-Islami Hind in Mumbai on Saturday. Advocating for introduction of Islami Banking in the country Abdul Hasib said: the high profile Raghuram Rajan Committee on Financial Sector reforms in India has advocated the introduction of Islamic banking in India. He also differentiated between Islamic financial system and interest free banking and said that many other countries have started Interest Free banking.

While the world is facing the severest Financial Crisis in the new century there is an exception to it. Islamic banking and financial system has largely been unaffected and more so proved to be resilient because it’s transparent, ethical and based on sharing and caring, observed Abdur Raqeeb, convenor, National Committee on Islamic Banking. While France, Japan, UK and other countries have opened the door for this Multi Billion dollar business, India should not distance itself, he urged. He also shunned the misconception that Islamic financial system is for Muslims only. He said it is for all human beings. It makes sure that the monitory resources do not remain among few rich but revolves in the whole society.

Interest and no transparency are the basic factor of deepening financial crisis where billions of dollars were lost, Dr.Sharique Nisar an Economists and expert in Islamic Banking explained. He also explained different Islamic Financial Products prevailing in the world like, Musharakah, (Participation), Mudarabha (speculation), Qarde Hasna ( Interest Free Loan), Ijara, (Leasing). He urged, “The people must be taught about this alternative financial system which is just and fair and a general awareness must be created.

Maulana Riyaz Ahmed Khan, Vice President Jamaat-e-Islami, Hind, Maharshtra, concluded: “The current financial system has resulted the accumulation of the Financial resources into the 20 percent of the population and majority is fighting for only 20 percent of the wealth. He also added, “Islamic financial system is aimed at reversing the scene and aimed at the welfare of the society and not of the rich.”

Dr.Rahmatullah, Economists, JF Patil, Head of Economic Department, Kolhapur University also addressed the gathering.

By Rehan Ansari

Economic Challenges of Muslims in America - Lecture by Dr. Jamal Badawi

Buying a Car or Home Without Riba (Interest)

LAHORE: Islamic banks have withstood the recent turmoil in the global banking industry triggered by the subprime mortgage crisis because their rules do not allow dealings in products like derivatives, options or papers that caused the meltdown.

While financial institutions in the developed world lined up for huge state assistance, the few Islamic banking institutions in these countries like the European Islamic Bank in the United Kingdom emerged unscathed from the crisis.

“The recent financial crisis exposed the flaws in the western banking system and proved that Islamic banks are safe which do not offer any risky product in line with the injunctions of Islam,” said Al-baraka Islamic Bank Country Head Shafqat Ahmad. He said the French president had appreciated the modes of financing offered by Islamic banks and expressed willingness to allow the setting up of these banks in France.

Shafqat said Shariah experts ensured that Islamic banks operated strictly according to the Islamic financial laws. “These banks do give profit to their depositors but it is based on the true principle of profit and loss. This is the reason that profits on savings in Islamic banks are not pre-determined.” However, “Islamic banks generally distribute more profit to their depositors than conventional banks.”

An Islamic Shariah expert said majority of the credit provided by Islamic banks was under the Morahaba mode (sale-purchase agreement). Explaining, he said “an Islamic bank purchases an item, for instance cotton, on behalf of the client (in fact the client selects the quality and quantity of cotton and the bank makes the payment) and the client agrees to the date when the amount will be returned. The Islamic bank charges certain profit on the purchased cotton that the client has to pay along with the principal amount.”

When reminded that conventional banks almost did the same and instead of profit they called it mark-up, the Shariah expert said “the difference is that even if the client fails to make payment on time the bank does not charge any additional amount while conventional banks levy punitive interest and net payable amount increases with time.”

Shafqat said normally Islamic banks did not penalise the debtor if the payment was not unduly delayed. However, he pointed out that in view of the prevailing culture in Pakistan some people took undue advantage of that and deliberately delayed the payment.

He said banks were then forced to impose a penalty on unduly late payments. However, the penalty was not added to the income of the bank and was set aside by Shariah experts to be given as charity.

Islamic banking in Pakistan registered the most robust growth last fiscal year at a time when the global financial crisis hit the peak. The number of Islamic bank branches doubled during the period to 524. There are six dedicated Islamic banks in the country while 13 conventional banks have opened Islamic banking windows which operate on the same laws that govern dedicated Islamic banks.

The share of Islamic banking in Pakistan has increased from two per cent in 2001 to 4.9 per cent in 2009. Total deposits in Islamic banks have increased from Rs8 billion in 2001 to Rs206 billion in 2009.

LAHORE: Islamic banks have withstood the recent turmoil in the global banking industry triggered by the subprime mortgage crisis because their rules do not allow dealings in products like derivatives, options or papers that caused the meltdown.

While financial institutions in the developed world lined up for huge state assistance, the few Islamic banking institutions in these countries like the European Islamic Bank in the United Kingdom emerged unscathed from the crisis.

“The recent financial crisis exposed the flaws in the western banking system and proved that Islamic banks are safe which do not offer any risky product in line with the injunctions of Islam,” said Al-baraka Islamic Bank Country Head Shafqat Ahmad. He said the French president had appreciated the modes of financing offered by Islamic banks and expressed willingness to allow the setting up of these banks in France.

Shafqat said Shariah experts ensured that Islamic banks operated strictly according to the Islamic financial laws. “These banks do give profit to their depositors but it is based on the true principle of profit and loss. This is the reason that profits on savings in Islamic banks are not pre-determined.” However, “Islamic banks generally distribute more profit to their depositors than conventional banks.”

An Islamic Shariah expert said majority of the credit provided by Islamic banks was under the Morahaba mode (sale-purchase agreement). Explaining, he said “an Islamic bank purchases an item, for instance cotton, on behalf of the client (in fact the client selects the quality and quantity of cotton and the bank makes the payment) and the client agrees to the date when the amount will be returned. The Islamic bank charges certain profit on the purchased cotton that the client has to pay along with the principal amount.”

When reminded that conventional banks almost did the same and instead of profit they called it mark-up, the Shariah expert said “the difference is that even if the client fails to make payment on time the bank does not charge any additional amount while conventional banks levy punitive interest and net payable amount increases with time.”

Shafqat said normally Islamic banks did not penalise the debtor if the payment was not unduly delayed. However, he pointed out that in view of the prevailing culture in Pakistan some people took undue advantage of that and deliberately delayed the payment.

He said banks were then forced to impose a penalty on unduly late payments. However, the penalty was not added to the income of the bank and was set aside by Shariah experts to be given as charity.

Islamic banking in Pakistan registered the most robust growth last fiscal year at a time when the global financial crisis hit the peak. The number of Islamic bank branches doubled during the period to 524. There are six dedicated Islamic banks in the country while 13 conventional banks have opened Islamic banking windows which operate on the same laws that govern dedicated Islamic banks.

The share of Islamic banking in Pakistan has increased from two per cent in 2001 to 4.9 per cent in 2009. Total deposits in Islamic banks have increased from Rs8 billion in 2001 to Rs206 billion in 2009.

LAHORE: Islamic banks have withstood the recent turmoil in the global banking industry triggered by the subprime mortgage crisis because their rules do not allow dealings in products like derivatives, options or papers that caused the meltdown.

While financial institutions in the developed world lined up for huge state assistance, the few Islamic banking institutions in these countries like the European Islamic Bank in the United Kingdom emerged unscathed from the crisis.

“The recent financial crisis exposed the flaws in the western banking system and proved that Islamic banks are safe which do not offer any risky product in line with the injunctions of Islam,” said Al-baraka Islamic Bank Country Head Shafqat Ahmad. He said the French president had appreciated the modes of financing offered by Islamic banks and expressed willingness to allow the setting up of these banks in France.

Shafqat said Shariah experts ensured that Islamic banks operated strictly according to the Islamic financial laws. “These banks do give profit to their depositors but it is based on the true principle of profit and loss. This is the reason that profits on savings in Islamic banks are not pre-determined.” However, “Islamic banks generally distribute more profit to their depositors than conventional banks.”

An Islamic Shariah expert said majority of the credit provided by Islamic banks was under the Morahaba mode (sale-purchase agreement). Explaining, he said “an Islamic bank purchases an item, for instance cotton, on behalf of the client (in fact the client selects the quality and quantity of cotton and the bank makes the payment) and the client agrees to the date when the amount will be returned. The Islamic bank charges certain profit on the purchased cotton that the client has to pay along with the principal amount.”

When reminded that conventional banks almost did the same and instead of profit they called it mark-up, the Shariah expert said “the difference is that even if the client fails to make payment on time the bank does not charge any additional amount while conventional banks levy punitive interest and net payable amount increases with time.”

Shafqat said normally Islamic banks did not penalise the debtor if the payment was not unduly delayed. However, he pointed out that in view of the prevailing culture in Pakistan some people took undue advantage of that and deliberately delayed the payment.

He said banks were then forced to impose a penalty on unduly late payments. However, the penalty was not added to the income of the bank and was set aside by Shariah experts to be given as charity.

Islamic banking in Pakistan registered the most robust growth last fiscal year at a time when the global financial crisis hit the peak. The number of Islamic bank branches doubled during the period to 524. There are six dedicated Islamic banks in the country while 13 conventional banks have opened Islamic banking windows which operate on the same laws that govern dedicated Islamic banks.

The share of Islamic banking in Pakistan has increased from two per cent in 2001 to 4.9 per cent in 2009. Total deposits in Islamic banks have increased from Rs8 billion in 2001 to Rs206 billion in 2009.

By Mansoor Ahmad

The Institute of Bankers of Sri Lanka (IBSL) has launched the first Diploma Course in Islamic Banking with the assistance of the country’s pioneering institution in Islamic Financial Services, Amana Investments Limited. The Amana resource pool has facilitated the course by designing the Diploma structure, including its contents, practical knowledge and training. The IBSL has included the Diploma in Islamic Banking (DIB) as one of its core Diplomas for the year 2009, and has selected Amana Investments as its Strategic Partner to provide the resource personnel for this course.

The course structure is based on research conducted by M.Z.M. Sheroz, Amana’s Training Officer, on the GAP analysis, the training need analysis and projection of core competencies for the finance sector in 2009.

The course includes a 92 hour comprehensive study spread over 6 months, covering areas such as origins of Islamic Finance, Sources of Sharia Law, Islamic Economic Theory and Applied Economics, Islamic Financial Products and their respective documentation, Principles of Sharia Accounting, Risk Management, as well as Islamic Takaful (Insurance) and Capital Markets. The DIB programme has already begun with its first batch of students. It has generated an overwhelming response of over 60 students, including employees of conventional banks. The course director and lecturer for the programme is Mr. Fairoze Burah, head of HR and Administration at Amana Investments. He is supported by Mr. Moulavi Siraj, Sharia Supervisor at Amana and other senior managers of the Amana Group. Other local Islamic Finance professionals are also invited as guest lecturers during the program. Mr. Burah is a qualified HR practitioner and training specialist, having over 20 years of experience in his field. He holds a Master of Business Administration (MBA) degree specialising in Human Resources Management from the Postgraduate Institute of Management, University of Sri Jayewardenepura, and conducts regular skills development training programmes. Mr. Moulavi Siraj has a BA in Islamic Finance from the International Peace University, Capetown, South Africa and also a Diploma in Comparative Religions from the Islamic Propagation Centre International, Durban. Mr. Siraj is proficient in all aspects of Sharia and has previous teaching experience at the Asian Institute of Management.

Explaining why Amana joined hands with IBSL, Burah said “IBSL is one of the best regarded institutions when it comes to banking studies, and most students find the institute very accessible. The Diploma itself is affordably priced. We want the youth to embrace and benefit from Islamic Finance as it has the potential of being a US$ 4 trillion industry”. He added, “the course learning is evaluated by individual assignments, group projects and presentations, student journals as well as periodic examinations up to the final exam.”

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