...In the name of Allah, the Most- Merciful, the Very-Merciful Looking for New Steps in Islamic Finance jìÑíá=jìÜ~ãã~Ç=q~èá=rëã~åá Islamic banking industry has grown rapidly during the past three decades spreading its operations in many parts of the globe. Making its first debut in the small Savings Association of Mitghamr (Egypt) in 1963, its strength has now reached over 250 financial institutions operating in more than 40 countries with assets valuing USD 750 billions, and an annual growth rate of 15 per cent. Almost all the giant conventional banks are in queue to establish their Islamic units to capture the new emerging market. This rapid growth of Islamic financial industry is, no doubt, encouraging for those who wished to relieve themselves from the prohibition of interest on the one hand and to remain a part of the modern market economy on the other. Now that a substantial period of more than three decades has passed on the experience of Islamic Banks and Financial Institutions, it is imperative to review what they have achieved so far and what they have missed. It is, no doubt, a great achievement of these institutions that they relieved the Muslims from clear prohibition of riba, and came up with some alternatives that might be adopted in financial market without indulging in interest. In an atmosphere entirely dominated by interest-based transactions, it was really a formidable task. I do not agree with those who criticize them on the basis of utopian idealism, and...
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...analysis of Mudarabah & a new approach to equity financing in Islamic finance Shaikh, Salman Ahmed International Association of Islamic Banks 01. July 2011 Online at http://mpra.ub.uni-muenchen.de/19697/ MPRA Paper No. 19697, posted 19. September 2011 / 12:03 A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Ahmed Shaikh Project Director, Islamic Economics Project islamiceconomicsproject@gmail.com www.islamiceconomics.viviti.com Abstract Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order. Keywords: Interest free economy, Islamic Economic System, Mudarabah, Agency Problem, Moral Hazard...
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...history in Islamic finance that dates back to 1978 when the Islamic Banking System Holdings Limited Luxembourg was established as the first Islamic financial institution in Europe. This was followed by the establishment of Takafol S.A. in 1982, the first Islamic insurance company in Europe. Such history has improved the attractiveness of Luxembourg within Islamic finance industry. There are some recent developments: Since April 2008, the Minister of Finance has set up a task force bringing together key actors of the Islamic finance industry in Luxembourg. Its mission is to look at how Islamic finance can be further developed in Luxembourg. In 2008, the Association of the Luxembourg Funds Industry (ALFI) launched a working group focusing on the development of Luxembourg as a center of excellence for Shariah compliant funds. In early 2009, the Luxembourg Deutsche Bank launched "Al Mi'yar", a Luxembourg domiciled platform which aims at smoothing the issuance of Shariah compliant securities. In 2009, the Central Bank of Luxembourg became a member of the Islamic Financial Services Board (IFSB) and, as such, is the first Central Bank of the European Union to become a member of that institution. In January 2010, the Luxembourg Tax Authority published a circular, the object of which is to clarify the tax treatment of Murabaha and Sukuk transactions and ensure that they benefit from the same tax treatment as conventional financing products. In April 2010, Luxembourg for Finance (LFF) issued...
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...Islamic Economic Studies Vol.9, No. 2, March 2002 FINANCING MICROENTERPRISES: AN ANALYTICAL STUDY OF ISLAMIC MICROFINANCE INSTITUTIONS HABIB AHMED ∗ While conventional microfinance institutions (MFIs) have expanded their operations in the last two decades, poverty-focused MFIs based on Islamic principles are lagging behind. This paper provides the theoretical basis, operational framework, and empirical support for the establishment of Islamic MFIs. After critically evaluating the conventional MFIs, an Islamic alternative is presented. The theoretical part of the paper shows that there is a great potentiality of Islamic MFIs that can cater for the needs of the poor. Islamic MFIs have some inherent characteristics that can mitigate some of the problems faced by conventional MFIs. Empirical evidence from three Islamic MFIs operating in Bangladesh, in general, supports some of the theoretical assertions. The case studies, however, reveal that Islamic MFIs have not yet tapped some of the sources of funds, nor have they used the variety of financial instruments in their operations. 1 ?. INTRODUCTION With the failure of experimenting in top-down (trickle down) development policies for a few decades to alleviate poverty in most developing countries, financing microenterprises is considered a “new paradigm” for bringing about development and eradicating absolute poverty. 1 Though the importance of developing small-scale enterprises has been discussed for a long time, the innovative...
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...an Introduction to Islamic Finance = = = jìÑíá=jìÜ~ãã~Ç=q~èá=rëã~åá `çåíÉåíë= Foreword Some Preliminary Points _ÉäáÉÑ=áå=aáîáåÉ=dìáÇ~åÅÉ= qÜÉ=_~ëáÅ=aáÑÑÉêÉåÅÉ=ÄÉíïÉÉå=`~éáí~äáëí=~åÇ=fëä~ãáÅ= bÅçåçãó= ^ëëÉíJÄ~ÅâÉÇ=cáå~åÅáåÖ= `~éáí~ä=~åÇ=båíêÉéêÉåÉìê= mêÉëÉåí=mê~ÅíáÅÉë=çÑ=fëä~ãáÅ=_~åâë= 6 9 V NM NO NQ NR Musharakah qÜÉ=`çåÅÉéí=çÑ=jìëÜ~ê~â~Ü= qÜÉ=_~ëáÅ=oìäÉë=çÑ=jìëÜ~ê~â~Ü= Distribution of Profit Ratio of Profit Sharing of Loss 17 NV OP 23 24 24 qÜÉ=k~íìêÉ=çÑ=íÜÉ=`~éáí~ä= j~å~ÖÉãÉåí=çÑ=jìëÜ~ê~â~Ü= qÉêãáå~íáçå=çÑ=jìëÜ~ê~â~Ü= Termination of Musharakah without Closing the Business OR OU OU 29 Mudarabah _ìëáåÉëë=çÑ=íÜÉ=jìÇ~ê~Ä~Ü= aáëíêáÄìíáçå=çÑ=íÜÉ=mêçÑáí= qÉêãáå~íáçå=çÑ=jìÇ~ê~Ä~Ü= `çãÄáå~íáçå=çÑ=jìëÜ~ê~â~Ü=~åÇ=jìÇ~ê~Ä~Ü= 31 PO PP PQ PR ÅçåíÉåíë= Musharakah & Mudarabah as Modes of Financing mêçàÉÅí=cáå~åÅáåÖ= Securitization of Musharakah Financing of a Single Transaction Financing of the Working Capital 37 PU 39 42 43 pçãÉ=lÄàÉÅíáçåë=çå=jìëÜ~ê~â~Ü=cáå~åÅáåÖ= Risk of Loss Dishonesty Secrecy of the Business Clients’ Unwillingness to Share Profits House Financing on the Basis of Diminishing Musharakah Diminishing Musharakah for Carrying Business of Services Diminishing Musharakah in Trade RO aáãáåáëÜáåÖ=jìëÜ~ê~â~Ü= 52 54 55 56 RT 59 63 63 Murabahah fåíêçÇìÅíáçå= Some Basic Rules of Sale Bai’ Mu’ajjal (Sale on Deferred Payment Basis) 65 SR 66 70 jìê~Ä~Ü~Ü= pçãÉ=fëëìÉë=fåîçäîÉÇ=áå=jìê~Ä~Ü~Ü= Murabahah...
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...SECTION A: LIST OF SYARIAH COMPLIANCE COMPANY In Malaysia, Kuala Lumpur Stock Exchange Shari’ah Index (KLSESI) was introduced in 1997 by Securities Commission (SC). KLSESI was introducing to provide an avenue for Muslims investors to participate in equity investment in accordance to Shari’ah principle. This index comprised of firms listed on both the Main and the Second Board, and Masdeq at KLSE (Bursa Malaysia). KLSESI is the tool in Islamic capital market (ICM) plan where the activities carried out in that market are not conflict with the conscience of Muslims and religion of Muslim. Besides, the ICM represents an assertion of religious law in capital market transactions where the market should be freed from the involvement of prohibited activities by Islam. Under this index, it focuses on the core activity and level of interest income of company to determine whether a particular company is permissible or not in the index. Before companies listed on KLSE, they should make sure that their investments are permissible under Shari’ah law. The activities are considered impermissible if the operations are based on the interest; involve gambling, manufacture or sale haram products or contains elements of gharar. Furthermore, for companies that compromised both permissible and non-permissible elements, there are several additional criteria. The criteria are: a) The core activities of the companies must not contravene the principles of Shari’ah as outlined in the four criteria...
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...between Islamic Finance and conventional Finance principles. In order to do this, firstly it is necessary to determine the scope and establish some of the fundemental concepts that define Islamic Finance, or "Sharia compliant banking" as it is often referred to. After this, it will be possible to discuss some of the advantages that Islamic Finance institutions have over the typical conventional banks. As of 2014, Islamic Financial institutions represented around 1% of the total assets throughout the world, with an estimated value of around $2 trillion. There exist in the region of around 300 institutions throughout the world that adopt a financial approach dictated by the principles of Islam. This number has been growing as a result of the financial crash in 2008 where many conventional banks faced liquidity issues; investors disillusioned with the performance and practices of conventional banks increasingly sought to invest their assets with Islamic Finance institutions. However, the fact that only 1% of institutions currently adopts the Islamic Finance approach shows that conventional banking methods are still more popular with investors and institutions alike. Most of the Islamic Finance institutions are based in the Middle East, but there has been a significant increase in Islamic Finance institutions in the main financial centres of this world (London, Shanghai and New York). The following table displays some of the similarities and differences between Islamic and conventional...
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...Islamic Banking and Finance To Dr Mohammad Omar Zubair, who is a source of inspiration for all those working in the field of Islamic economics and finance Islamic Banking and Finance New Perspectives on Profit-Sharing and Risk Edited by Munawar Iqbal Islamic Development Bank, Saudi Arabia David T. Llewellyn Loughborough University, UK Edward Elgar Cheltenham, UK • Northampton, MA, USA In association with: International Association of Islamic Economics Islamic Development Bank The Islamic Foundation © Dr Munawar Iqbal and Professor David T. Llewellyn 2002 (on behalf of the Steering Committee for the Fourth International Conference on Islamic Economics and Banking held at Loughborough University, UK, August 13–15, 2000) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Islamic Banking and Finance: New Perspectives on Profit-Sharing and Risk / edited by Munawar Iqbal, David T. Llewellyn p. cm. “Some of the papers were presented...
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...1 Muslim Bank enters into Modaraba transaction with five Modarib, workout the transactions on prescribe format on the following terms: ➢ Ali Associates Rs.800,000 MF@10%, Profit 40:60 proceeds Rs.810,000 ➢ Scan Group Rs.700,000 MF@7% Profit 35:65 Expected Proceeds 812,000 ➢ Golden Spot Rs.600,000 MF @8% profit 55:45 Proceeds Rs.770,000 ➢ Karachi Electric Rs.400,000 MF @9% profit 50:50 Proceeds Rs.578,000 ➢ Sailor Services Rs.100,000 @5% Profit 60:40 Proceed 55,000. 2 Muslim Bank enters into Modaraba transaction with five Modarib, workout the transactions on prescribe format on the following terms: ➢ Ali Associates Rs.100,000 MF@7%, Profit 40:60 proceeds Rs.210,000 ➢ Scan Group Rs.200,000 MF@8% Profit 35:65 Expected Proceeds 312,000 ➢ Golden Spot Rs.300,000 MF @9% profit 55:45 Proceeds Rs.470,000 ➢ Karachi Electric Rs.400,000 MF @10% profit 50:50 Proceeds Rs.578,000 ➢ Sailor Services Rs.500,000 @5% Profit 60:40 Proceed 455,000. 3 Muslim Bank enters into Modaraba transaction with five Modarib, workout the transactions on prescribe format on the following terms: ➢ Ali Associates Rs.20,000 MF@7%, Profit 40:60 proceeds Rs.40,000 ➢ Scan Group Rs.70,000 MF@9% Profit 35:65 Expected Proceeds 92,000 ➢ Golden Spot Rs.50,000 MF @6% profit 55:45 Proceeds Rs.70,000 ➢ Karachi Electric Rs.90,000 MF @10% profit 50:50 Proceeds Rs.12000,000 ➢ Sailor Services Rs.40,000 @5.5% Profit 60:40 Proceed 35,000. 4 Skyline Services is holding 1 million shares of...
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...Islamic finance A brief summary ------------------------------------------------- Islamic Finance One of the most innovative trends in our Islamic world is our Islamic banking system. This industry is growing in manner that lead most of the large conventional banks like J.P.Morgan and MorganStanly to open divisions concerned with Islamic finance products. According to Middle East newspaper, Middle-East Newspaper (30/05/2008) there are around 300 Islamic banks around the world ,130 of them are in GCC countries. Global Trader (19/07/2011) This industry has grown from $ 150 million in 1990, to around $ 1 trillion. Moreover, Islamic banking sectors currently holding more than $ 1.3 trillion in Assets. ABNA (31/03/2012) Most of those assets are located in Malaysia, Saudi Arabia, Iran and Sudan. banking operations are based on three fundamental Principles: * Prohibition of Riba * Prohibition of Gharar * Principles of Islamic Share'a This chapter would insight more on these three philosophy and going to explain each them in details. ------------------------------------------------- Riba Riba can be defined as “any Contractual increase above what is required”. It can be divided into two main points: 1. Ribba Al Nassiah: Riba that is related to Time ( e.g. If you did not pay on time there will be an penalty to pay with the debt) 2. Ribba Al Fadhel: which is related to unequally exchange of commodities that was mention by the prophet...
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...Islamic Modes of Finance Theory and Key Shariah Principles Modes Of Finance • Two are ideal modes which provide an alternative to interest banking and if implemented on a national level will result in much fairer distribution of wealth in society 1. Mushaarakah – رآ (equity finance) 2. Mudhaarabah - ر (equity finance - sleeping partner) • Two are not ideal as they replicate the effects of conventional banking but nevertheless are tolerated in Shariah 3. Ijaarah - ( إ رةleasing) 4. Muraabahah - ( اcost plus pricing) We will also briefly analyse Salam - , Istisnaa‘ – ع Tawarruq – رق اand 1 Mushaarakah • “Mushaarakah” literally means sharing • “Mushaarakah” is derived from “shirkah” which means “being a partner”. • Mushaarakah is “a joint enterprises formed for conducting business in which all partners share the profit according to an agreed ratio while the loss is shared according to the ratio of investment” • It is an ideal alternative for interest based financing with far reaching effects on the economy. Types of Shirkah SHIRKAH SHIRKAT-UL-MILK joint ownership SHIRKAT-UL-‘AQD joint enterprise OPTIONAL via joint purchase NON OPTIONAL inheritance SHIRKATUL-AMWAAL SHIRKATUL-‘AMAL SHIRKATUL-WUJOOH mushaarakah Mushaarakah • The term Mushaarakah has been introduced recently by those who have written on the subject of Islamic modes of financing • It is normally restricted to a particular type of “Shirkah”, i.e. Shirkat-ul-amwaal...
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...Case Study: National Bank of Kuwait - Islamic Global Real Estate Securities Fund – Class A Objective The objective of the Fund is to provide its shareholders with long-term growth through investing in a diversified portfolio of global real estate securities. The fund offers two Portfolios: - Class A Portfolio: The Class A Portfolio of the Fund will invest substantially all of its assets in the Class A Portfolio of the Wafra-Pramerica Fund. Class A Portfolio of the Wafra-Pramerica Fund may incur Portfolio Leverage on a Shariah compliant basis. Such Portfolio Leverage would be in addition to any Property Leverage affecting the entities in which the Wafra-Pramerica Fund invests. The two portfolios of the Wafra-Pramerica Fund will seek to make investments in a diversified portfolio of real estate securities in compliance with the Shariah Criteria. Real estate securities include securities of real estate investment, development and operating companies, including real estate investment trusts, and the securities of companies providing management and investment advisory services to real estate investment, development and operating companies. Fund Features • Well diversified Global Real Estate Securities • Monthly liquidity • Two different Classes of Shares • All Investments are in accordance with the Islamic Shariah Principles Task: Reference to the documents available in NBK website about Islamic Global Real Estate Securities Fund – Class A, answer 3 of the...
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...Bangladesh is the first country in the Southeast Asia to have an Islamic bank. The idea to have an Islamic banking system is recommended by Organisation of the Islamic Conference (OIC) in 1978. The founder of this successful establishment is late Fouad Abdul Hameed Al-Khateeb. He is the Saudi Arabia’s first ambassador stationed at Bangladesh from 1977- 1982. He also organized a team with other scholars to start a project to establish Islamic bank and financial institutions based on shariah. In 1983, Islami Bank Bangladesh Limited (IBBL) was established and followed by the others such as Al-Arafah Islami Bank and Shahjalal Islami Bank Ltd. However, to trigger the effort that can make this idea come true is not easy. Bangladesh is also facing the challenges regarding the problem that comes through this phenomenon in this Islamic world. First of all, the modes of investments like Mudarabah and Musharakah are not really practices in Islamic banking services. It is because there are insufficient factors such as committed entrepreneur and committed professional who can create new instruments. Furthermore, the absence of Islamic money market have made banks cannot invest their surplus fund so their profit will be affected. The ability of Islamic bank in Bangladesh to use tradable financial instrument is also not clear because the absence of suitable long term assets. The progression of Islamic finance in Bangladesh has growth in positive value in last few decades. It is because...
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...F ing nk e Introduction to Islamic Capital Market P. 32 Islamic Wealth Management Opportunities Review Part II: GCC P. 28 GIF Magazine Special Report: Takaful in 2010 and Beyond P. 23 gif Interview Interview with Dr. Alberto Brugnoni: “Islamic Finance is not the exception, but the rule of normal financial behaviour” . Dr. Alberto Brugnoni is an international consultant in Islamic finance and ethics and is Founder and Director General of AASAIF, an organisation that participates in some of the most important international initiatives in Islamic finance. Dr. Brugnoni acted as Chair for the recent International Takaful Summit 2010 in London and moderated the session entitled “Enabling and Expanding the Scope of Takaful”. Here, Dr. Brugnoni speaks with Global Islamic Finance Magazine about why the Summit was such a big success, his work with Islamic microfinance, and the state of the Islamic finance industry in Europe. How did you find the International Takaful Summit? It was a great success for two reasons. 1) It was very well attended, with more than 450 delegates signing in. 2) We had institutional support. Nick Anstee, the Lord Mayor of London attended the opening session and spoke, as well as sitting in on several sessions. We also had dinner in the House of Lords at the invitation of Lord Mohamed Sheikh, which added credibility to the event. It was nice weather, nice atmosphere: It was 38 Global Islamic Finance September 2010 not just a formal...
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...The potential of Islamic infrastructure finance in Africa Summary: Lack of funding for infrastructure has been identified as one of the key hurdles hindering African infrastructure development. Africa ranks on the bottom of developing regions in access to infrastructure services and the continent’s total infrastructure financing needs amounts to a staggering circa. USD 93 billion per year until 2020 (Africa Infrastructure Country Diagnostic, 2009). Five years have since lapsed since these estimates were published and the gap continues to widen. Islamic financial institutions that offer Islamic financial products are required by Sharia Law to establish a Shariah Supervisory Board made of Islamic jurists known as fuqha. Over the years, Islamic finance has become an important source of capital for large infrastructure projects. It is estimated that global Islamic assets stood at USD1.6 trillion as of December 2011 (Islamic Development Bank, 2011). In order to attract Islamic Infrastructure funds, a financier is obliged to find ways of overcoming challenges associated with Islamic Finance through innovation (McMillen, 2011). Sharia law prohibits Islamic financial institutions from leveraging their balance sheets through the use of debt for liquidity purposes. Islamic banks use retail banking deposits from devoted Muslims and tend to avoid the bond markets. High risks associated with Islamic financing and infrastructure finance makes Islamic financing uncompetitive...
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