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Islamic Banking and Finance Network
This blog explores the concept of Islamic Finance around the globe.
Monday, December 26, 2011
Saturday, December 24, 2011
Thursday, December 22, 2011
Wednesday, December 21, 2011
Monday, December 19, 2011
Islamic priority banking launched in Pakistan
Dubai Islamic Bank Pakistan (DIBP) has launched the country’s first Islamic priority banking solution, offering customers ’a gateway to an exquisite banking experience’
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A statement from the bank said DIBP's specially designed priority lounges will provide its customers with a hassle-free banking experience with its dedicated relationship managers. Dubai Islamic Bank Pakistan is offering both a Priority and Platinum Banking solution.
Dubai Lounge Priority Banking caters to the affluent segment, offering a variety of privileges including fee based waivers, VISA Gold Card, access to VIP airport lounges in Pakistan and a higher cash withdrawal limit.
Dubai Lounge Platinum Banking aims to be a symbol of exclusivity and unmatched benefits, providing high net worth customers with a varity of premium services including Pakistan's First Islamic Platinum Debit Card. A complimentary Priority Pass service for Platinum customers offers access to over 600 VIP airport lounges globally.
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
6:23 AM
|
0 Comments
Islamic priority banking launched in Pakistan
Dubai Islamic Bank Pakistan (DIBP) has launched the country's first Islamic priority banking solution, offering customers 'a gateway to an exquisite banking experience'
| | |
|
A statement from the bank said DIBP's specially designed priority lounges will provide its customers with a hassle-free banking experience with its dedicated relationship managers. Dubai Islamic Bank Pakistan is offering both a Priority and Platinum Banking solution.
Dubai Lounge Priority Banking caters to the affluent segment, offering a variety of privileges including fee based waivers, VISA Gold Card, access to VIP airport lounges in Pakistan and a higher cash withdrawal limit.
Dubai Lounge Platinum Banking aims to be a symbol of exclusivity and unmatched benefits, providing high net worth customers with a varity of premium services including Pakistan's First Islamic Platinum Debit Card. A complimentary Priority Pass service for Platinum customers offers access to over 600 VIP airport lounges globally.
posted by ibfn at
6:23 AM
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Tuesday, December 13, 2011
Islamic finance in the Middle East: Progress despite confusion and lack of information
Islamic finance in the Middle East: Progress despite confusion and lack of information
Estimates vary of the size and growth rates of assets held internationally under Islamic finance, but suggest that Islamic finance is a rapidly growing industry. While it represents a small proportion of the global finance market (estimated at 1%- 5% of global share), the Islamic finance industry has experienced double-digit rates of growth annually in recent years (estimated at 10%- 20% annual growth). Industry experts estimate that assets held under Islamic finance management doubled between 2007 and 2010 to reach around $1 trillion.
A survey of the top 500 Islamic financial institutions shows that Shari'ah-compliant assets in these institutions rose from $822 billion in 2009 to $895 billion in 2010. In 2010, 18 new banks offering SCF entered the market and six conventional banks started providing SCF via "Islamic finance windows."
The Middle East is the origin of Islam. Islamic banking has also taken its practical birth with the foundation of first Islamic bank in Dubai (Dubai Islamic BankDubai Islamic Bank) in 1975. There are 21 countries in Middle East and most of them are Islamic and have Islamic banking system. Though Islamic banking has been around for quite some time, the first experiment in modern times began in 1963 in Egypt.
Now, local players led by Saudi Arabia's Al Rajhi Banking & Investment Corporation and Islamic Development Bank, Kuwait's Kuwait Finance House, Bahrain's First Islamic Investment Bank and Al- Baraka Islamic Investment Bank, and UAE's Dubai Islamic Bank
| Dubai Islamic Bank | ||||||
| Al Islami | ||||||
| UAE | Financial Services | ||||||
| Quote | Chart | News | Profile | ||||||
| Last: 1.990 AED | 0.00 | 0% | ||||
| ||||||
and Abu Dhabi Islamic Bank have been joined by global financial institutions across the Middle East.
Middle East Progress
"); document.getElementById("Contextual_Logo072800ZNK").src = "http://www.zawya.com/website/bannerLoader.cfm?pagename=Story%20Pages&banner=Contextual_Logo&storyid=ZAWYA20111211082051&CBKeywords=dubai islamic bank&LOKeywords=uae&SNKeywords=political%20and%20public%20affairs%2Cgovernment%2Corganisations%20and%20institutions&MSKeywords=corporate%20banking%2Cmerchant%20banks%2Cpolitical%20and%20public%20affairs%2Cfinancial%20institutions%20and%20services%2Cbanking%2Ccorporate%20finance%2Cinstitutions%2Cislamic%20finance%2Cretail%20banking&randomVar=072800ZNK"; jQuery("#div_Contextual_Logo072800ZNK").css("display","none"); } jQuery(document).ready(function() { func_Contextual_Logo072800ZNK(); }); Algeria has one Islamic bank and the country is doing its best to increase the number of banks which are working on Islamic principles. Bahrain, now established as a major regional hub, has eased entry barriers for new Islamic banks. Currently, there are 6 Islamic retail banks and 20 Islamic wholesale banks in the country, resulting in the highest concentration of Islamic financial institutions in the Middle East. The regulatory framework is well-developed and reasonably transparent. The Prudential Information and Regulatory Framework is the first framework especially designed for Islamic finance and provides a good platform for overall governance. In Egypt, out of 7 banks with Islamic operations, only one has been established since 2000, reflecting the reluctance of institutions to enter this market. While Islamic windows are operational in 5 banks, a lack of adequate regulations impede the overall growth of Shari'ah-compliant finance.
Iraq has one Islamic bank, but due to present unrest in the country the chances of more Islamic banks are low until the political situation in the country improves.
In Iran, after the revolution of 1979, the banking system was nationalized. Shortly thereafter, in 1983, the Law of Usury-Free Banking was passed, and on March 21, 1984, interest free banks started to implement Islamic banking based on the 1983 law. Presently there are many Islamic banks in the country.
In Jordan, demand for Islamic banking is estimated to be high; however, no new Islamic banks have been established in recent years. One of the reasons behind this is the lack of government support for Islamic financial institutions. Contrary to countries like Kuwait, where Shari'ah-compliant banks are surely supported by the authorities, there are no strong connections between Islamic organizations and the Jordanian government. Therefore, the status quo in the banking industry between conventional and Islamic banking is maintained. The situation is similar to the one in Egypt.
In Kuwait, the number of Islamic banks that can operate in the country is limited. Currently, there are four licensed institutions, all of which used to be public. Islamic windows run by conventional banks are not allowed. Thus, new entries into the market seem unlikely unless there is a change in regulations. In addition to that, Kuwait is not granting any new licenses; therefore, the conversion of the Commercial Bank of Kuwait into a fully Islamic bank, announced in early 2008, is still not completed.
In Lebanon, the minimum paidup capital required from Lebanese conventional banks to establish an Islamic institution is $20 million, whereas the minimum capital required from a foreign bank is $100 million. There are four full-fledged Islamic banks in the country. Oman does not have an Islamic banking sector as it does not allow Shari'ah-compliant financial institutions, and the situation doesn't appear to be changing in the near future. The governor of the Central Bank of Oman believes that all banks should be international.
Qatar opted for an initial period of license restriction to test the Islamic banking concept with only two banks allowed until 2006. Since then however, as restrictions have been eased, the market has developed manifold and today many banks offer Shari'ah-compliant products. In 2005, the government established the Qatar Financial Center (QFC) to attract financial institutions and capital into the country. QFC regulations are liberal and allow a relatively quick and easy establishment of Islamic wholesale financial institutions.
The development of Islamic banking in Saudi Arabia is hampered by the lack of clear laws, and technically Shari'ah-compliant finance is against the constitution. In practice however, Islamic finance institutions are present in the market, but they operate in a challenging environment with many licensing conditions being discretionary and subject to strong government influence. This directly reflects on the fact that only 4 out of 14 banks have been opened since 2000.
The UAE market is relatively competitive, with a large number of banks serving a limited population. Additionally, in 2004 the Dubai International Financial Center was established with the objective of making UAE one of the major global onshore financial hubs. To this end, a lot of incentives were introduced, most importantly a much more liberal business environment than in the rest of the country, especially in terms of foreign ownership. In spite of retail banking being excluded from DIFC regulations, a number of international institutions (such as HSBC Amanah or Citibank) have established operations there. At present there are 11 Islamic banks working in the country.
Conclusion
Progress has been made in the regulation of Islamic financial institutions in the Middle East in view of the increasing market share of these institutions. There is better understanding of Islamic finance by the monetary authorities and closer cooperation between them and these institutions, sometimes with the involvement of the Islamic Development Bank. Efforts to standardize Islamic financial products continue in all countries. The standards developed by the Accounting and Auditing Organization of Islamic Financial Institutions are being adopted. The need to standardize such basic elements of Islamic finance as mudaraba, murabaha and ijara is widely felt as the present lack of uniformity is baffling. There are moves to coordinate the activities of the various Shari'ah advisory boards of Islamic financial institutions as the way they function remains a source of confusion. Currently, different Islamic banks issue the same products but in different ways. Lack of information in the Islamic financial industry is hampering its further growth and development. The absence of rating agencies, especially agencies that would rate products as well as institutions on the ground of their Shari'ah compliance, is the biggest example of this deficit.
About the Author
Fayaz Ahmad Lone is a Research Scholar in Islamic Finance, Department of Commerce, Aligarh Muslim University, India. Website: www.wdibf.com E-mail: Fayaz_pulwamy@yahoo.com
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
11:18 PM
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Islamic finance in the Middle East: Progress despite confusion and lack of information
Islamic finance in the Middle East: Progress despite confusion and lack of information
Estimates vary of the size and growth rates of assets held internationally under Islamic finance, but suggest that Islamic finance is a rapidly growing industry. While it represents a small proportion of the global finance market (estimated at 1%- 5% of global share), the Islamic finance industry has experienced double-digit rates of growth annually in recent years (estimated at 10%- 20% annual growth). Industry experts estimate that assets held under Islamic finance management doubled between 2007 and 2010 to reach around $1 trillion.
A survey of the top 500 Islamic financial institutions shows that Shari'ah-compliant assets in these institutions rose from $822 billion in 2009 to $895 billion in 2010. In 2010, 18 new banks offering SCF entered the market and six conventional banks started providing SCF via "Islamic finance windows."
The Middle East is the origin of Islam. Islamic banking has also taken its practical birth with the foundation of first Islamic bank in Dubai (Dubai Islamic BankDubai Islamic Bank) in 1975. There are 21 countries in Middle East and most of them are Islamic and have Islamic banking system. Though Islamic banking has been around for quite some time, the first experiment in modern times began in 1963 in Egypt.
Now, local players led by Saudi Arabia's Al Rajhi Banking & Investment Corporation and Islamic Development Bank, Kuwait's Kuwait Finance House, Bahrain's First Islamic Investment Bank and Al- Baraka Islamic Investment Bank, and UAE's Dubai Islamic Bank
| Dubai Islamic Bank | ||||||
| Al Islami | ||||||
| UAE | Financial Services | ||||||
| Quote | Chart | News | Profile | ||||||
| Last: 1.990 AED | 0.00 | 0% | ||||
| ||||||
and Abu Dhabi Islamic Bank have been joined by global financial institutions across the Middle East.
Middle East Progress
Algeria has one Islamic bank and the country is doing its best to increase the number of banks which are working on Islamic principles. Bahrain, now established as a major regional hub, has eased entry barriers for new Islamic banks. Currently, there are 6 Islamic retail banks and 20 Islamic wholesale banks in the country, resulting in the highest concentration of Islamic financial institutions in the Middle East. The regulatory framework is well-developed and reasonably transparent. The Prudential Information and Regulatory Framework is the first framework especially designed for Islamic finance and provides a good platform for overall governance. In Egypt, out of 7 banks with Islamic operations, only one has been established since 2000, reflecting the reluctance of institutions to enter this market. While Islamic windows are operational in 5 banks, a lack of adequate regulations impede the overall growth of Shari'ah-compliant finance.
Iraq has one Islamic bank, but due to present unrest in the country the chances of more Islamic banks are low until the political situation in the country improves.
In Iran, after the revolution of 1979, the banking system was nationalized. Shortly thereafter, in 1983, the Law of Usury-Free Banking was passed, and on March 21, 1984, interest free banks started to implement Islamic banking based on the 1983 law. Presently there are many Islamic banks in the country.
In Jordan, demand for Islamic banking is estimated to be high; however, no new Islamic banks have been established in recent years. One of the reasons behind this is the lack of government support for Islamic financial institutions. Contrary to countries like Kuwait, where Shari'ah-compliant banks are surely supported by the authorities, there are no strong connections between Islamic organizations and the Jordanian government. Therefore, the status quo in the banking industry between conventional and Islamic banking is maintained. The situation is similar to the one in Egypt.
In Kuwait, the number of Islamic banks that can operate in the country is limited. Currently, there are four licensed institutions, all of which used to be public. Islamic windows run by conventional banks are not allowed. Thus, new entries into the market seem unlikely unless there is a change in regulations. In addition to that, Kuwait is not granting any new licenses; therefore, the conversion of the Commercial Bank of Kuwait into a fully Islamic bank, announced in early 2008, is still not completed.
In Lebanon, the minimum paidup capital required from Lebanese conventional banks to establish an Islamic institution is $20 million, whereas the minimum capital required from a foreign bank is $100 million. There are four full-fledged Islamic banks in the country. Oman does not have an Islamic banking sector as it does not allow Shari'ah-compliant financial institutions, and the situation doesn't appear to be changing in the near future. The governor of the Central Bank of Oman believes that all banks should be international.
Qatar opted for an initial period of license restriction to test the Islamic banking concept with only two banks allowed until 2006. Since then however, as restrictions have been eased, the market has developed manifold and today many banks offer Shari'ah-compliant products. In 2005, the government established the Qatar Financial Center (QFC) to attract financial institutions and capital into the country. QFC regulations are liberal and allow a relatively quick and easy establishment of Islamic wholesale financial institutions.
The development of Islamic banking in Saudi Arabia is hampered by the lack of clear laws, and technically Shari'ah-compliant finance is against the constitution. In practice however, Islamic finance institutions are present in the market, but they operate in a challenging environment with many licensing conditions being discretionary and subject to strong government influence. This directly reflects on the fact that only 4 out of 14 banks have been opened since 2000.
The UAE market is relatively competitive, with a large number of banks serving a limited population. Additionally, in 2004 the Dubai International Financial Center was established with the objective of making UAE one of the major global onshore financial hubs. To this end, a lot of incentives were introduced, most importantly a much more liberal business environment than in the rest of the country, especially in terms of foreign ownership. In spite of retail banking being excluded from DIFC regulations, a number of international institutions (such as HSBC Amanah or Citibank) have established operations there. At present there are 11 Islamic banks working in the country.
Conclusion
Progress has been made in the regulation of Islamic financial institutions in the Middle East in view of the increasing market share of these institutions. There is better understanding of Islamic finance by the monetary authorities and closer cooperation between them and these institutions, sometimes with the involvement of the Islamic Development Bank. Efforts to standardize Islamic financial products continue in all countries. The standards developed by the Accounting and Auditing Organization of Islamic Financial Institutions are being adopted. The need to standardize such basic elements of Islamic finance as mudaraba, murabaha and ijara is widely felt as the present lack of uniformity is baffling. There are moves to coordinate the activities of the various Shari'ah advisory boards of Islamic financial institutions as the way they function remains a source of confusion. Currently, different Islamic banks issue the same products but in different ways. Lack of information in the Islamic financial industry is hampering its further growth and development. The absence of rating agencies, especially agencies that would rate products as well as institutions on the ground of their Shari'ah compliance, is the biggest example of this deficit.
About the Author
Fayaz Ahmad Lone is a Research Scholar in Islamic Finance, Department of Commerce, Aligarh Muslim University, India. Website: www.wdibf.com E-mail: Fayaz_pulwamy@yahoo.com
posted by ibfn at
11:18 PM
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Sunday, December 11, 2011
Islamic Banking: Developed by Indians, flourishing in other countries
A professional researcher on India-centric socio economic and political databases Shafeeq Rahman while stating that the core system of the interest-free banking, widely termed as the Islamic Banking System, is developed by economists of the Indian subcontinent expressed surprise over the fact that the region has gained nothing from it.
"The conceptual framework of Islamic banking is mainly developed by the Islamic economists of the Indian subcontinent; in particular, the complete non-interest banking module was developed for the first time in 1969 by Nejatullah Siddiqi though the business of Islamic banking flourished in West Asian countries, Iran, Malaysia and Indonesia", Shafeeque Rahman wrote in a recent article published in Tehelka.
Mohammad Nejatullah Siddiqui is a leading Indian Islamic scholar, whose specialisation is Islamic Economics. Author of numerous books and a recipient of the King Faisal Award for Islamic Studies, he has taught at the Aligarh Muslim University (AMU) and the King Abdul Aziz University, Jeddah. He was a Fellow at the University of California, Los Angeles and Vesting Scholar at the Islamic Development Bank (IDB) Jeddah.
Stating that Islamic Banking is now fast spreading its wings to other parts of the world, Shafeeque Rahman wrote, "The client network is now expanding beyond the conventional Muslim countries to European and other non-Muslim territories. In UK, it is estimated that $18.4 billion business was done by the end of 2008. According to newest Global Islamic Finance Report 2011, the Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent. It was worth a mere $150 billion in the mid-1990s."
"Apart from Islamic banks, mainstream banks and financial institutions are opening Islamic product windows to woo Muslim consumers. For instance, HSBC has HSBC Amanah for its Islamic financial services. The governments of Iran, Pakistan and Indonesia have officially adapted to Islamic policies to run their banking and finance structure. And due to its cosmopolitan society, Malaysia follows the parallel Islamic system alongside conventional banking", he wrote.
Shafeeque Rahman further wrote, "Banking without interest is a long term demand from Indian Muslims that has not been fulfilled so far due to the existing statutory and regulatory framework of Indian banking, which does not allow such an alternate system. Besides interest, a key point of contradiction is that conventional banks in India facilitate only intermediary services while banks have to be involved in trading and business activities in the Islamic banking system. Indian Muslims have seen several unsuccessful experiments in the unorganised sector and through the registration of NBFCS and cooperatives but the lack of government regulatory supervision has led to the failure of major interest-free banking initiatives."
"The non-availability of an interest-free banking option has distanced many Muslims from banking products and services. The Reserve Bank of India (RBI) data report for March 2010 indicates that banking participation in Muslim- concentrated districts is below the national average. They lack in banking access, infrastructure availability and low credit-deposit (CD) ratio", he wrote.
Islamic Banking believed to be an interest-free, participatory and ethical banking system, has been an emerging global paradigm of the banking system since the last quarter of the twentieth century. The essential feature of Islamic banking is the prohibition of taking and giving of interest in all form of banking and financial transaction. In place of an assured return on loan amount by the interest rate in the conventional banking system, the Islamic form of financing advocates the profit-loss sharing module. Taking a risk is the only provision that entitles one to profit, if there is no risk of loss then there is no assurance of profit to the depositor or the financer.
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
10:38 PM
|
0 Comments
Islamic Banking: Developed by Indians, flourishing in other countries
A professional researcher on India-centric socio economic and political databases Shafeeq Rahman while stating that the core system of the interest-free banking, widely termed as the Islamic Banking System, is developed by economists of the Indian subcontinent expressed surprise over the fact that the region has gained nothing from it.
"The conceptual framework of Islamic banking is mainly developed by the Islamic economists of the Indian subcontinent; in particular, the complete non-interest banking module was developed for the first time in 1969 by Nejatullah Siddiqi though the business of Islamic banking flourished in West Asian countries, Iran, Malaysia and Indonesia", Shafeeque Rahman wrote in a recent article published in Tehelka.
Mohammad Nejatullah Siddiqui is a leading Indian Islamic scholar, whose specialisation is Islamic Economics. Author of numerous books and a recipient of the King Faisal Award for Islamic Studies, he has taught at the Aligarh Muslim University (AMU) and the King Abdul Aziz University, Jeddah. He was a Fellow at the University of California, Los Angeles and Vesting Scholar at the Islamic Development Bank (IDB) Jeddah.
Stating that Islamic Banking is now fast spreading its wings to other parts of the world, Shafeeque Rahman wrote, "The client network is now expanding beyond the conventional Muslim countries to European and other non-Muslim territories. In UK, it is estimated that $18.4 billion business was done by the end of 2008. According to newest Global Islamic Finance Report 2011, the Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent. It was worth a mere $150 billion in the mid-1990s."
"Apart from Islamic banks, mainstream banks and financial institutions are opening Islamic product windows to woo Muslim consumers. For instance, HSBC has HSBC Amanah for its Islamic financial services. The governments of Iran, Pakistan and Indonesia have officially adapted to Islamic policies to run their banking and finance structure. And due to its cosmopolitan society, Malaysia follows the parallel Islamic system alongside conventional banking", he wrote.
Shafeeque Rahman further wrote, "Banking without interest is a long term demand from Indian Muslims that has not been fulfilled so far due to the existing statutory and regulatory framework of Indian banking, which does not allow such an alternate system. Besides interest, a key point of contradiction is that conventional banks in India facilitate only intermediary services while banks have to be involved in trading and business activities in the Islamic banking system. Indian Muslims have seen several unsuccessful experiments in the unorganised sector and through the registration of NBFCS and cooperatives but the lack of government regulatory supervision has led to the failure of major interest-free banking initiatives."
"The non-availability of an interest-free banking option has distanced many Muslims from banking products and services. The Reserve Bank of India (RBI) data report for March 2010 indicates that banking participation in Muslim- concentrated districts is below the national average. They lack in banking access, infrastructure availability and low credit-deposit (CD) ratio", he wrote.
Islamic Banking believed to be an interest-free, participatory and ethical banking system, has been an emerging global paradigm of the banking system since the last quarter of the twentieth century. The essential feature of Islamic banking is the prohibition of taking and giving of interest in all form of banking and financial transaction. In place of an assured return on loan amount by the interest rate in the conventional banking system, the Islamic form of financing advocates the profit-loss sharing module. Taking a risk is the only provision that entitles one to profit, if there is no risk of loss then there is no assurance of profit to the depositor or the financer.
posted by ibfn at
10:38 PM
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0 Comments
Saturday, December 10, 2011
Insurance and Shari’a - Pakistan
Insurance and Shari’a - Pakistan
By:Humayon Dar
With the widespread availability of financing after the liberalisation of financial sector, insurance is fast becoming a necessity in Pakistan. Car financing, for example, by banks and other forms of lending by banks and other financial institutions require the borrowers to buy insurance on the items purchased through financing. While shari'a compliant financing is now widely available from the fully-fledged Islamic banks like Meezan, Dubai Islamic, Bank Islami and others and from conventional banks like Muslim Commercial Bank, Bank Al Falah etc, the same cannot be said for shari'a compliant insurance, which is still at an initial stage of development. Although there are five takaful companies operating in Pakistan, their market share in the insurance market remains insignificant.
Takaful, supposedly a shari'a compliant version of cooperative or mutual insurance, is being provided by a small number of players in Pakistan. While takaful is being presented by the proponents of Islamic insurance, as a mutual or cooperative form of insurance in line with the shari'a requirements, it remains a fact that takaful business by and large is not cooperative in its governance structure and operations. All takaful operators in Pakistan (five in number) are set up as joint stock companies and not as mutual organisations. This raises a fundamental question whether takaful business is actually cooperative and follows principles of mutuality.
From shari'a viewpoint, conventional insurance has problems because it is interest-based and involves elements of gambling and contractual uncertainty. How
an insurance arrangement can be defined as a contract between two parties whereby one party (the insured) pays an amount of money (either in a lump-sum or in easy instalments during a certain time period) to another party (the insurer) who undertakes to pay certain amount of money (significantly larger than the money received from the insured) if and when the insured suffers a loss due to happening of an event in which the insured has a real interest. Thus, a person who buys car insurance pays a certain amount of money called insurance premium (either in a lump-sum or instalments) to an insurance company who undertakes to pay a certain amount of money in case the car's value suffers a loss due to an accident or fire, or indeed is stolen. Many insurance policies also pay for the third party damages.
an insurance arrangement can be defined as a contract between two parties whereby one party (the insured) pays an amount of money (either in a lump-sum or in easy instalments during a certain time period) to another party (the insurer) who undertakes to pay certain amount of money (significantly larger than the money received from the insured) if and when the insured suffers a loss due to happening of an event in which the insured has a real interest. Thus, a person who buys car insurance pays a certain amount of money called insurance premium (either in a lump-sum or instalments) to an insurance company who undertakes to pay a certain amount of money in case the car's value suffers a loss due to an accident or fire, or indeed is stolen. Many insurance policies also pay for the third party damages.
This arrangement is in effect exchange of unequal amounts of money between the insured (who pays less than what he receives) and the insured (who may actually get all the premia and pay nothing if no valid claim is made or pays a significantly higher sum following a valid claim by the insured). This is by definition a case of the prohibited interest or what is known as riba in Islam. Similarly, there are elements of gambling in the conventional insurance. The very fact that someone may receive a large sum of money by paying a relatively small "entry fee" (premium), dependent upon occurrence of a random event in its nature is gambling.
Given that insurance is now modern time commercial necessity, it was deemed important by the shari'a community to agree on a shari'a compliant alternative to this vital economic institution. Thus, cooperative insurance was deemed more in line with shari'a than the conventional insurance, which is commercial in its nature and practice.
The consequent takaful model that emerged is, however, also commercial in nature. Modern takaful businesses have a two-tier structure: a cooperative pool of funds and a commercial entity called takaful operator, which manages the takaful funds. In practice, it is the takaful operator that takes the lead role in takaful business, and hence controls all aspects of the business, which makes it more in line with the commercial insurance than cooperative takaful.
In Pakistan, prominent shari'a scholars like Mufti Taqi Usmani have for long emphasised on the need for a pure cooperative takaful business, based on the institution of waqf, but it has yet to emerge as a significant business activity in the country. Given the near failure of Islamic banks to commit themselves meaningfully to social responsibility, is it the right time for takaful companies to develop a pure cooperative business model to serve the communities rather than profiting from the market forces? If takaful companies fail to take this challenge, it will be a lost opportunity for which the stakeholders in the industry may have to regret for a long time to come. The writer is a Shari’a advisor to a number of banks and financial institutions and can be contacted at humayon@humayondar.com
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
11:58 PM
|
0 Comments
Insurance and Shari’a - Pakistan
Insurance and Shari'a - Pakistan
By:Humayon Dar
With the widespread availability of financing after the liberalisation of financial sector, insurance is fast becoming a necessity in Pakistan. Car financing, for example, by banks and other forms of lending by banks and other financial institutions require the borrowers to buy insurance on the items purchased through financing. While shari'a compliant financing is now widely available from the fully-fledged Islamic banks like Meezan, Dubai Islamic, Bank Islami and others and from conventional banks like Muslim Commercial Bank, Bank Al Falah etc, the same cannot be said for shari'a compliant insurance, which is still at an initial stage of development. Although there are five takaful companies operating in Pakistan, their market share in the insurance market remains insignificant.
Takaful, supposedly a shari'a compliant version of cooperative or mutual insurance, is being provided by a small number of players in Pakistan. While takaful is being presented by the proponents of Islamic insurance, as a mutual or cooperative form of insurance in line with the shari'a requirements, it remains a fact that takaful business by and large is not cooperative in its governance structure and operations. All takaful operators in Pakistan (five in number) are set up as joint stock companies and not as mutual organisations. This raises a fundamental question whether takaful business is actually cooperative and follows principles of mutuality.
From shari'a viewpoint, conventional insurance has problems because it is interest-based and involves elements of gambling and contractual uncertainty. How
an insurance arrangement can be defined as a contract between two parties whereby one party (the insured) pays an amount of money (either in a lump-sum or in easy instalments during a certain time period) to another party (the insurer) who undertakes to pay certain amount of money (significantly larger than the money received from the insured) if and when the insured suffers a loss due to happening of an event in which the insured has a real interest. Thus, a person who buys car insurance pays a certain amount of money called insurance premium (either in a lump-sum or instalments) to an insurance company who undertakes to pay a certain amount of money in case the car's value suffers a loss due to an accident or fire, or indeed is stolen. Many insurance policies also pay for the third party damages.
an insurance arrangement can be defined as a contract between two parties whereby one party (the insured) pays an amount of money (either in a lump-sum or in easy instalments during a certain time period) to another party (the insurer) who undertakes to pay certain amount of money (significantly larger than the money received from the insured) if and when the insured suffers a loss due to happening of an event in which the insured has a real interest. Thus, a person who buys car insurance pays a certain amount of money called insurance premium (either in a lump-sum or instalments) to an insurance company who undertakes to pay a certain amount of money in case the car's value suffers a loss due to an accident or fire, or indeed is stolen. Many insurance policies also pay for the third party damages.
This arrangement is in effect exchange of unequal amounts of money between the insured (who pays less than what he receives) and the insured (who may actually get all the premia and pay nothing if no valid claim is made or pays a significantly higher sum following a valid claim by the insured). This is by definition a case of the prohibited interest or what is known as riba in Islam. Similarly, there are elements of gambling in the conventional insurance. The very fact that someone may receive a large sum of money by paying a relatively small "entry fee" (premium), dependent upon occurrence of a random event in its nature is gambling.
Given that insurance is now modern time commercial necessity, it was deemed important by the shari'a community to agree on a shari'a compliant alternative to this vital economic institution. Thus, cooperative insurance was deemed more in line with shari'a than the conventional insurance, which is commercial in its nature and practice.
The consequent takaful model that emerged is, however, also commercial in nature. Modern takaful businesses have a two-tier structure: a cooperative pool of funds and a commercial entity called takaful operator, which manages the takaful funds. In practice, it is the takaful operator that takes the lead role in takaful business, and hence controls all aspects of the business, which makes it more in line with the commercial insurance than cooperative takaful.
In Pakistan, prominent shari'a scholars like Mufti Taqi Usmani have for long emphasised on the need for a pure cooperative takaful business, based on the institution of waqf, but it has yet to emerge as a significant business activity in the country. Given the near failure of Islamic banks to commit themselves meaningfully to social responsibility, is it the right time for takaful companies to develop a pure cooperative business model to serve the communities rather than profiting from the market forces? If takaful companies fail to take this challenge, it will be a lost opportunity for which the stakeholders in the industry may have to regret for a long time to come.
The writer is a Shari'a advisor to a number of banks and financial institutions and can be contacted at humayon@humayondar.com
The writer is a Shari'a advisor to a number of banks and financial institutions and can be contacted at humayon@humayondar.com
posted by ibfn at
11:58 PM
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Tuesday, December 6, 2011
Islamic finance solves economic problems, says KFH-Bahrain CEO
Kuwait Finance House-Bahrain CEO and MD Abdul Hakim Al-Khayyat said that Islamic banking has numerous advantages and capabilities that allow it to play a pivotal role in solving many economic problems in the GCC. Al-Khayyat added that Islamic banking is not operating at full swing yet, either as a result of lack of legislations or opportunities. He stressed that having a highly ethical Islamic financing system and the efficient collaboration among local and international institutions will contribute to the prosperity and development of the society and economy. He went on to say that Islamic banking services have paved the way for the future, and have become one of the most important alternatives that many economies worldwide seek. He noted that Islamic financing is based on real long-term guarantees, since it relies on assets. Moreover, he mentioned that governments need to issue more Sukuk, in order to provide short-term liquidity instruments. However, since legislations that organise the issuance of Sukuk in some countries are lacking, this significant instrument has been rendered obsolete, which erodes the efforts of Islamic banks to help markets overcome their crises.Furthermore, he explained that Islamic banks can play an efficient role in solving the housing problem through its role in construction projects and real estate development, not to mention several instruments that finance that sector, such as Murabaha, Ijara, and others.He remarked that KFH-Bahrain shoulders several major real estate projects, such as Durrat Al-Bahrain residential and entertainment project that costs $3 billion. The project occupies 20 square kilometers, and is expected to be as big as Manama City once it is complete. In addition, there is Al-Waha industrial project that establishes industrial compounds; thus increasing national income through attracting foreign investments. Diyar Al-Muharraq is another giant project that consists of residential and commercial units for people middle class and rich people.http://www.cpifinancial.net/v2/News.aspx?v=1&aid=10296&sec=Islamic%20...
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
10:18 PM
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Islamic finance solves economic problems, says KFH-Bahrain CEO
Kuwait Finance House-Bahrain CEO and MD Abdul Hakim Al-Khayyat said that Islamic banking has numerous advantages and capabilities that allow it to play a pivotal role in solving many economic problems in the GCC. Al-Khayyat added that Islamic banking is not operating at full swing yet, either as a result of lack of legislations or opportunities.
He stressed that having a highly ethical Islamic financing system and the efficient collaboration among local and international institutions will contribute to the prosperity and development of the society and economy. He went on to say that Islamic banking services have paved the way for the future, and have become one of the most important alternatives that many economies worldwide seek. He noted that Islamic financing is based on real long-term guarantees, since it relies on assets.
Moreover, he mentioned that governments need to issue more Sukuk, in order to provide short-term liquidity instruments. However, since legislations that organise the issuance of Sukuk in some countries are lacking, this significant instrument has been rendered obsolete, which erodes the efforts of Islamic banks to help markets overcome their crises.
Furthermore, he explained that Islamic banks can play an efficient role in solving the housing problem through its role in construction projects and real estate development, not to mention several instruments that finance that sector, such as Murabaha, Ijara, and others.
He remarked that KFH-Bahrain shoulders several major real estate projects, such as Durrat Al-Bahrain residential and entertainment project that costs $3 billion. The project occupies 20 square kilometers, and is expected to be as big as Manama City once it is complete. In addition, there is Al-Waha industrial project that establishes industrial compounds; thus increasing national income through attracting foreign investments. Diyar Al-Muharraq is another giant project that consists of residential and commercial units for people middle class and rich people.
http://www.cpifinancial.net/v2/News.aspx?v=1&aid=10296&sec=Islamic%20Finance
posted by ibfn at
10:18 PM
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Monday, December 5, 2011
Canada bankruptcy - Islamic finance in North America at risk?
Canada bankruptcy may hurt Islamic finance in North America.
By Shaheen Pasha and Cameron French
DUBAI/TORONTO (Reuters) - The insolvency of an Islamic mortgage lender in Canada may hinder the growth of sharia-compliant finance in North America, where the industry has struggled to gain traction in the absence of a supportive regulatory framework.
UM Financial Inc was ordered into receivership in October, leaving about $32 million worth of mortgages in the hands of Toronto's legal system. Accounting and business advisory firm Grant Thornton was appointed receiver by the Ontario Superior Court of Justice.
The case has exposed uncertainty over the legal treatment of sharia-compliant mortgages in default, and questions over the transparency and oversight of smaller Islamic lenders. Industry experts said this could make investors in Canada and the United States more wary of considering Islamic finance in future.
"The failure of an Islamic financial institution should not immediately be construed as a failure of sharia-based financing," said Sheikh Muddassir Siddiqui, sharia scholar and partner at SNR Denton in Dubai.
But he added that the insolvency could give Islamic finance a bad name if the Canadian legal system determined that Islamic mortgage holders were not the ultimate owners of property for which they had been paying.
Since Islam forbids the use of interest, sharia-compliant mortgages rely on a "diminishing musharaka" contract to help Muslims finance homebuying. A lender and a homebuyer share the costs of purchasing a home; the homeowner then pays rent to the lender while purchasing the lender's share of the house in installments. When the value of the house is eventually paid off, full title is transferred to the homeowner.
But it is unclear who ultimately owns the home in the case of a bankruptcy by the lender, if legal title remains with the lender. This raises concern that mortgage holders could lose their homes if creditors come after the lender's assets.
In UM Financial Inc's case, homeowners are in limbo while the receiver investigates the insolvency. Some clients say they are reluctant to continue their normal payments to a non-sharia compliant entity, which raises the risk of them losing their homes for non-payment.
CUSTOMERS IN LIMBO
Omar Rahman, a 28-year-old recent college graduate, said the mortgage on his family's home in the suburbs of Toronto was nearly paid in full. But the insolvency means the mortgage could be transferred to a non-Muslim lender, violating the family's conservative religious ideology, he said.
"The contract between us and UM Financial was sharia-compliant," Rahman said. "There are no guarantees that it won't be sold to a company that is not sharia-compliant, and that's a scary thought for us. We have actually stopped making any payments until everything gets resolved."
Another Toronto-based client of UM Financial Inc, who asked not to be named, said the experience had made him think twice about the use of Islamic finance.
"I thought that by working with a sharia-compliant lender and paying a premium over what I would have paid with a traditional mortgage, I was doing the right thing as a Muslim," he said.
"I almost think it would have been better to go the traditional route. At least there would be some accountability."
Such dissatisfaction is bad news for the development of Islamic finance in Canada, home to about 1.3 million Muslims. UM Financial Inc was one of the most established sharia-compliant mortgage providers in the country.
"I think this situation will cause reputational damage to the industry, similar in some ways to the situation in Egypt years ago when Egyptians lost millions of dollars in a corruption scandal involving a sharia-compliant institution," said Nabil Issa, partner at law firm King & Spalding in Dubai.
"That was a majority Muslim country and (the scandal) had repercussions on the growth of Islamic finance that are still being felt today."
Thousands of Egyptians were hurt in the 1980s by money management companies that touted Islamic investments at returns above prevailing interest rates and did not deliver on their promises. Egyptians were left with a distrust of the industry, which is one reason that the country has lagged Gulf Arab states in promoting Islamic finance.
In Canada and the United States, Islamic finance has largely been confined to mortgages because of a lack of regulatory standards in place to accommodate full-scale Islamic banking and issuance of sukuk, or Islamic bonds.
FINANCE
Walid Hejazi, professor at the University of Toronto's Rotman School of Management, said Islamic finance in Canada was hampered by the fact that big established banks were not involved in the industry. Smaller players therefore had difficulty seeking finance.
UM Financial obtained financing from Canada's Central 1 Credit Union, which called for repayment in November 2010. Central 1 then applied in March this year for the appointment of a receiver.
According to a suit filed against Central 1 Credit by UM Financial Inc, Central 1 Credit told the Islamic lender it "wished to discontinue its involvement in the Islamic finance business by the first quarter of 2012".
It turned down offers by other lenders to buy the sharia-compliant portfolio and prevent the receivership, Norman Ayoub, who was a board member of UM Financial Inc at the time, said in an emailed statement.
"To my knowledge at the time no mortgage was in default, nor was there a payment of the loan to Central in arrears," he said.
A spokesman for Central 1 declined to comment, referring the matter to the receiver. Representatives of Grant Thornton declined to comment.
Contacted by Reuters, UM Financial Inc's chief executive Omar Kalair declined to comment, citing pending court proceedings. But his attorney, Harvin Pitch of Teplitsky Colson, said in an emailed statement that Grant Thornton had not concluded that anyone in the company had broken Canadian law; it also said Kalair "has been cooperating with the receiver on all requests where allowed by law".
Harvin added that "the solution to the receivership is obviously a sale of the portfolio to a new lender who can service the clients hopefully in a sharia-compliant manner".
Grant Thornton has placed advertisements seeking buyers in Canadian newspapers.
UM Financial Group, an affiliate of UM Financial Inc, said it was in final talks with a Gulf-based Islamic bank for the two institutions jointly to enter the Canadian market as a finance company, potentially acquiring UM Financial Inc's portfolio. UM Financial Group did not elaborate on the identity of the Gulf institution.
SNR Denton's Siddiqui said the industry was hoping for a quick resolution, either through the courts or through the acquisition of the portfolio by a sharia-compliant lender.
"If no one comes to help it to meet its financial obligations, innocent customers may go through the agony of worrying about the possibility of losing their homes through no fault of their own. It will be a setback for the industry."
(Editing by Andrew Torchia and Will Waterman)
Posted via email from IBFN (Islamic Banking & Finance Network) at Posterous
posted by ibfn at
10:47 PM
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Canada bankruptcy - Islamic finance in North America at risk?
Canada bankruptcy may hurt Islamic finance in North America.
By Shaheen Pasha and Cameron French
DUBAI/TORONTO (Reuters) - The insolvency of an Islamic mortgage lender in Canada may hinder the growth of sharia-compliant finance in North America, where the industry has struggled to gain traction in the absence of a supportive regulatory framework.
UM Financial Inc was ordered into receivership in October, leaving about $32 million worth of mortgages in the hands of Toronto's legal system. Accounting and business advisory firm Grant Thornton was appointed receiver by the Ontario Superior Court of Justice.
The case has exposed uncertainty over the legal treatment of sharia-compliant mortgages in default, and questions over the transparency and oversight of smaller Islamic lenders. Industry experts said this could make investors in Canada and the United States more wary of considering Islamic finance in future.
"The failure of an Islamic financial institution should not immediately be construed as a failure of sharia-based financing," said Sheikh Muddassir Siddiqui, sharia scholar and partner at SNR Denton in Dubai.
But he added that the insolvency could give Islamic finance a bad name if the Canadian legal system determined that Islamic mortgage holders were not the ultimate owners of property for which they had been paying.
Since Islam forbids the use of interest, sharia-compliant mortgages rely on a "diminishing musharaka" contract to help Muslims finance homebuying. A lender and a homebuyer share the costs of purchasing a home; the homeowner then pays rent to the lender while purchasing the lender's share of the house in installments. When the value of the house is eventually paid off, full title is transferred to the homeowner.
But it is unclear who ultimately owns the home in the case of a bankruptcy by the lender, if legal title remains with the lender. This raises concern that mortgage holders could lose their homes if creditors come after the lender's assets.
In UM Financial Inc's case, homeowners are in limbo while the receiver investigates the insolvency. Some clients say they are reluctant to continue their normal payments to a non-sharia compliant entity, which raises the risk of them losing their homes for non-payment.
CUSTOMERS IN LIMBO
Omar Rahman, a 28-year-old recent college graduate, said the mortgage on his family's home in the suburbs of Toronto was nearly paid in full. But the insolvency means the mortgage could be transferred to a non-Muslim lender, violating the family's conservative religious ideology, he said.
"The contract between us and UM Financial was sharia-compliant," Rahman said. "There are no guarantees that it won't be sold to a company that is not sharia-compliant, and that's a scary thought for us. We have actually stopped making any payments until everything gets resolved."
Another Toronto-based client of UM Financial Inc, who asked not to be named, said the experience had made him think twice about the use of Islamic finance.
"I thought that by working with a sharia-compliant lender and paying a premium over what I would have paid with a traditional mortgage, I was doing the right thing as a Muslim," he said.
"I almost think it would have been better to go the traditional route. At least there would be some accountability."
Such dissatisfaction is bad news for the development of Islamic finance in Canada, home to about 1.3 million Muslims. UM Financial Inc was one of the most established sharia-compliant mortgage providers in the country.
"I think this situation will cause reputational damage to the industry, similar in some ways to the situation in Egypt years ago when Egyptians lost millions of dollars in a corruption scandal involving a sharia-compliant institution," said Nabil Issa, partner at law firm King & Spalding in Dubai.
"That was a majority Muslim country and (the scandal) had repercussions on the growth of Islamic finance that are still being felt today."
Thousands of Egyptians were hurt in the 1980s by money management companies that touted Islamic investments at returns above prevailing interest rates and did not deliver on their promises. Egyptians were left with a distrust of the industry, which is one reason that the country has lagged Gulf Arab states in promoting Islamic finance.
In Canada and the United States, Islamic finance has largely been confined to mortgages because of a lack of regulatory standards in place to accommodate full-scale Islamic banking and issuance of sukuk, or Islamic bonds.
FINANCE
Walid Hejazi, professor at the University of Toronto's Rotman School of Management, said Islamic finance in Canada was hampered by the fact that big established banks were not involved in the industry. Smaller players therefore had difficulty seeking finance.
UM Financial obtained financing from Canada's Central 1 Credit Union, which called for repayment in November 2010. Central 1 then applied in March this year for the appointment of a receiver.
According to a suit filed against Central 1 Credit by UM Financial Inc, Central 1 Credit told the Islamic lender it "wished to discontinue its involvement in the Islamic finance business by the first quarter of 2012".
It turned down offers by other lenders to buy the sharia-compliant portfolio and prevent the receivership, Norman Ayoub, who was a board member of UM Financial Inc at the time, said in an emailed statement.
"To my knowledge at the time no mortgage was in default, nor was there a payment of the loan to Central in arrears," he said.
A spokesman for Central 1 declined to comment, referring the matter to the receiver. Representatives of Grant Thornton declined to comment.
Contacted by Reuters, UM Financial Inc's chief executive Omar Kalair declined to comment, citing pending court proceedings. But his attorney, Harvin Pitch of Teplitsky Colson, said in an emailed statement that Grant Thornton had not concluded that anyone in the company had broken Canadian law; it also said Kalair "has been cooperating with the receiver on all requests where allowed by law".
Harvin added that "the solution to the receivership is obviously a sale of the portfolio to a new lender who can service the clients hopefully in a sharia-compliant manner".
Grant Thornton has placed advertisements seeking buyers in Canadian newspapers.
UM Financial Group, an affiliate of UM Financial Inc, said it was in final talks with a Gulf-based Islamic bank for the two institutions jointly to enter the Canadian market as a finance company, potentially acquiring UM Financial Inc's portfolio. UM Financial Group did not elaborate on the identity of the Gulf institution.
SNR Denton's Siddiqui said the industry was hoping for a quick resolution, either through the courts or through the acquisition of the portfolio by a sharia-compliant lender.
"If no one comes to help it to meet its financial obligations, innocent customers may go through the agony of worrying about the possibility of losing their homes through no fault of their own. It will be a setback for the industry."
(Editing by Andrew Torchia and Will Waterman)
posted by ibfn at
10:47 PM
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0 Comments
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