Islamic Banking and Finance: Historical Perspective and Future Prospects: Economistan

PROFITING FROM PROPHETIC TEACHINGS

Islamic banking and finance had its major beginnings in the year 1975 with the establishment of the Islamic Development Bank. Islamic banking has flourished in various countries since then with Malaysia, Indonesia, UAE, Pakistan and Saudi Arabia being in the forefront. Islamic banking has also recently done rather well in non-Muslim countries with the reported size of UK Islamic banking overtaking that of majority Muslim countries like Pakistan. Islamic banking assets are thought to be anywhere from 700 billion dollars to 900 billion dollars as of 2009. The credit crunch that has affected much of the western world has not taken its toll on the Islamic Banks, mainly because of the nature of the underlying transactions which admonish Riba and encourage instead a partnership based approach. The result is that the actual profit or loss is shared with the shareholders rather than an arbitrary number called Riba or “interest” which they have to come up with to please the investors regardless of the market situation. In this way, Islamic Banking also helps in depicting the true state of the economy.

Islamic indices historically have also been outperforming the other indices with the Dow Jones Islamic Developed World Index outperforming the MSCI World Index consistently over the past few years. Growth in Islamic banking has also been stellar and it has been growing at a healthy rate of 15-20% per year according to estimates. Moody’s has projected that Islamic banking would expand to a total value of $4 trillion dollars in another five years. The reason to this growth can also be attributed to the western banks taking interest in the Islamic banking instruments. Lloyd’s bank in the UK spread Islamic instruments to all of its two thousand branches in 2006 from five branches a year earlier. HSBC, Standard Chartered and Citigroup are some of the conventional western banks which have invested in Islamic banking.

Islamic bonds called Sukuk have been....

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London emerges as leading centre for Islamic finance: The News

By Aamir Ghauri

LONDON: London has emerged as a leading world centre for Islamic finance in the last few years and despite the financial crunch provides an example how Islamic banking can provide a safer alternative to conventional financial models.

The global market for Islamic financial services rose by 37 per cent to $729bn at the end of year 2007.

In 2008, International Financial Services London’s Islamic Finance report notes that the industry has felt the influence of the credit crunch and downturn in the global economy, Sukuk issuance has more than halved and the value of equity funds has fallen.

Islamic banks, however, have been less affected than many conventional banks as they are prohibited from activities that have contributed to the credit crunch, such as investment in toxic assets and dependence on wholesale funds.

London has been consolidating its position as the key western centre for Islamic finance in 2008.

Two Islamic banks, Gatehouse Bank and European Finance House, have been granted licences bringing to five the number of fully Shariah compliant banks in the UK.

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Problems with Islamic Finance: Dawn

By Syed Imad-ud-Din Asad

ISLAMIC banking has accomplished growth rates that tremendously outpace conventional banking. While there are banking norms common to both — Islamic and western financial systems — certain norms are exclusive to Islam. Some of the Islamic restrictions render certain western banking practices and transactions void.

The main prohibition are riba and gharar. Most of the present-day Islamic scholars are of the view that riba includes both interest and usury. Gharar signifies ambiguity, uncertainty or lack of specificity in the terms of a financial contract.

As riba is prohibited, suppliers of capital become investors instead of creditors. Also, investment can only be made in permitted commodities and activities. For instance, one cannot deal in import and export of alcohol and narcotic substances. Similarly, money is not allowed to be invested in a casino.

A variety of Islamic banking instruments and transactions are available in different markets. These may be classified as equity, debt or fee based services/ products. The first includes musharaka and mudaraba; the second consists of salam, istisna, istijrar, qard, murabaha, ijara, bai-bithaman-ajil, bai-al-einah, bai-al-dayn, and tawarruq; the third comprises services based on wakala and kafala.

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Britain's Islamic finance sector: Telegraph

By Martin Beckford, Religious Affairs Correspondent

The study says that the UK has by far the largest number of banks for Muslims – whose products prohibit interest payments and investment in alcohol or gambling firms – of any western country.

There are now five "fully Sharia-compliant" banks in the UK while another 17 leading institutions including Barclays, RBS and Lloyds Banking Group have set up special branches or subsidiary firms for Muslim clients.

The $18billion (£12bn) in assets of Britain's Islamic banks dwarf those of some states where Islam is the main religion, including Pakistan, Bangladesh, Turkey and Egypt.

In addition, there are 55 colleges and professional institutions offering education in Islamic finance in Britain – more than anywhere else in the world.

The growth of the UK as a centre for Islamic finance has been helped in recent years by the Government, according to the new report by International Financial Services London, which has extended tax relief on Sharia-compliant mortgages to companies and made the trade in "Sukuk" bonds easier.

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SBP declared second best central bank: The News

KARACHI: The fourth annual Islamic Finance News Poll results are in after a record breaking 2,491 unique votes were cast by the Islamic finance industry’s leading practitioners and participants.In the financial sphere, 2008 was deemed by many as an annus horribilis with the global markets plummeting following in large to the US mortgage industry, said a statement of the State Bank of Pakistan on Saturday.

The Islamic finance industry also succumbed to market forces but by and large fared better than its conventional counterparts, it noted.What is clear, from the results of the 2008 Islamic Finance news poll, is that the more focused and specialised Islamic financial institutions are favoured to those of the larger global historically conventional institutions with Islamic operations.With 2,491 votes cast, this is the industry’s most comprehensive and definitive survey.

In the Best Overall Islamic Bank category, Kuwait Finance House again ran out easy favourites for the second year running. Malaysia’s CIMB Islamic Bank climbed one place to second this year with Saudi Arabia’s Al Rajhi Banking and Investment Corporation taking third spot. One notable absentee from this category is the two times winner and runner-up in 2007, Dubai Islamic Bank.

As more of the world’s financial centres announce their interest in attracting Islamic finance to their shores one would assume the Best Central Bank in Promoting Islamic Finance category would be more competitive. Not so. For the fourth straight year Bank Negara Malaysia was voted number one with more than double the votes of their nearest rival, the State Bank of Pakistan, which itself leapfrogged the Central Bank of Bahrain into second place this year.

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Malaysia Maybank plans stake in Pakistan takaful firm: Reuters

KUALA LUMPUR, June 25 (Reuters) - Malaysia's Malayan Banking Bhd (MBBM.KL: Quote, Profile, Research), the country's largest in asset terms, plans to buy a 30 percent stake in Pak-Kuwait Takaful Company Ltd, the Malaysian lender said on Wednesday.

Pak-Kuwait Family Takaful is in the process of applying for license from the authorities in Pakistan to operate the family takaful (Islamic insurance) business, it said.

(Reporting by Jalil Hamid)

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Pakistan's Faysal Bank to Expand, Open Islamic Unit: Bloomberg

By Naween A. Mangi

June 5 (Bloomberg) -- Faysal Bank Ltd. plans to expand its domestic branch network in Pakistan and start a new Islamic division to take advantage of rising demand for Shariah-compliant products and farm loans. Shares rose.

The bank will increase its number of outlets to 150 by December 2009, and will start the Islamic banking unit next week, Chief Executive Officer Naved A. Khan said in Karachi yesterday, in his first interview since taking the helm in March. Faysal Bank, Pakistan's ninth-biggest, has 107 branches across the nation and plans to add 23 this year.

Khan is seeking to keep up with bigger rivals including Bank Alfalah Ltd. He said he wants to expand to be better prepared for the eventual end of a ``downturn'' in the credit market. Overseas banks such as ABN Amro Holding NV and Standard Chartered Plc are expanding in Shariah-compliant finance, a market Standard & Poor's estimates is worth $500 billion and growing 10 percent annually on booming oil revenue.

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