Islamic Finance PDF
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GLOBAL MARKET BRIEFINGS Islamic Finance: A Guide for International Business and Investment ConsultantEditor: RoderickMillar Editor: HabibaAnwar Publishers’note Everypossibleefforthasbeenmadetoensurethattheinformationcontained in this publicationis accurateatthetimeofgoingtopressandneitherthe publishers nor any of the authors, editors, contributors or sponsors can accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refrainingfromaction,asaresultofthematerialinthispublicationcanbe acceptedbytheeditors,authors,thepublisheroranyofthecontributorsor sponsors. GMB Publishing Ltd and its authors, editors, contributors, partners, sponsors or endorsing bodies make no warranty, express or implied, concerningtheinformation,andexpresslydisclaimallwarranties. 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Contents Publishers’note ii Contents iii AbouttheContributors vii Foreword xv Foreword xvii PARTONEBackgroundtoIslamicFinance 1 1.1 ReligiousFoundationsofIslamicFinance 3 RoderickMillar 1.2 TheDevelopmentofIslamicFinanceintheUK 9 MichaelAinley,AliMashayekhi,RobertHicks,Arshadur RahmanandAliRavalia,TheFinancialServicesAuthority 1.3 IslamicAlternativestoConventionalFinance 13 PervezSaid,IslamicBankingDepartment,StateBankof Pakistan 1.4 TheInstitutionalInfrastructureSupportingtheIslamic FinanceIndustry 21 ProfessorRodneyWilson,DurhamUniversity,UK PARTTWOIslamicFinanceinPractice 29 2.1 RetailBanking:CurrentandSavingsAccountsandLoans 31 RoderickMillar 2.2 PersonalFinance:CreditCards 37 DrSalehAlfuraih,AlRajhiBank 2.3 IslamicMortgages 43 SultanChoudhury,IslamicBankofBritain,andShaherAbbas, IslamicFinanceAdvisoryandAssuranceServices 2.4 TradeFinance 53 RichardTdeBelder,DentonWildeSapteLLP 2.5 WorkingCapital 65 DrSalmanKhan,AbuDhabiIslamicBank iv Contents 2.6 CommercialRealEstateandProjectFinancing 75 RichardTdeBelder,DentonWildeSapteLLP 2.7 SyndicatedandStructuredIslamicFinance 83 RichardTdeBelder,DentonWildeSapteLLP 2.8 InvestmentBanking 93 RichardTdeBelder,DentonWildeSapteLLP 2.9 IslamicCapitalMarkets 103 MansurMannan,CreditSuisse 2.10 SecondaryMarketsinIslamicFinance 117 MajidDawood,YasaarLtd 2.11 ScreeningandPurificationCriteria:Shari’aApplicationto Investments 125 IqbalAsaria,YasaarLtd 2.12 Takaful 129 MohammedKhan,PricewaterhouseCoopers 2.13 Takafulvs.ConventionalInsurance 139 MohammedKhan,PricewaterhouseCoopers 2.14 HumanResourcesandTrainingforIslamicFinancial Activities 143 MohammadShafique,InstituteofIslamicBankingand Insurance 2.15 Taxation 149 MohammedAmin,PricewaterhouseCoopers PARTTHREERegulatoryIssues 161 3.1 Prudential,RegulatoryandSupervisoryCriteria 163 TimPlewsandAntonyHainsworth,CliffordChance 3.2 BaselIIandCapitalAdequacy 169 NatalieSchoon,BankofLondonandMiddleEast 3.3 RegulationsandChallengesintheUK 177 MichaelAinley,AliMashayekhi,RobertHicks,Arshadur RahmanandAliRavalia,TheFinancialServicesAuthority 3.4 Shari’aSupervisoryBoardsandShari’aCompliance 185 RichardTdeBelder,DentonWildeSapte,LLP Appendices 193 Appendix1:Contributors’ContactDetails 195 Appendix2:CaseStudy:ConversionofaCommercialBankto 199 IslamicBanking RoderickMillar Contents v Appendix3:GlossaryofIslamicFinanceTerms 203 Index: 211 About the Contributors Abu Dhabi Islamic Bank (ADIB) was established in 1998, and is one of the leading Islamic banks in the world. ADIB seeks to provide Islamic financial solutions for the global community, and to play an active role in thedevelopmentoftheIslamicbankingandfinanceindustry.ADIBaimsto maintain a corporate culture that revolves around satisfying customer needs,andtoprovidecustomerswithqualityandcost-effectiveproductsand services. An essential associated goal is to use financial innovation and researchtodevelopnewproductsthatarebothcommerciallysuccessfuland solidlyincompliancewithShari’a. Dr Salman Khan is the head of Shari’a at ADIB in Dubai, where he is responsibleforlookingaftertheShari’a-relatedneedsofallADIBbranches in the Northern Emirates of the United Arab Emirates. He possesses multifaceted experience and expertise across the full range of activities related to Shari’a and advisory. His particular strengths include Shari’a review, Shari’a advisory, Shari’a coordination, product development, and providing Islamic finance training. Dr Khan possesses proven academic credentials,havingstudiedatOxford,Cambridge,andLondon.Previously, heworkedasseniorproductmanageratDarAlIstithmar(aDeutscheBank majority-owned and UK-based specialist Shari’a advisory firm). Subse- quently,healsoworkedatBMBIslamic−aShari’aadvisorywithafocuson investment banking products and funds. He is a National Institute of BankingandFinance-certifiedIslamicfinancepractitioner. AlRajhiBankisthelargestIslamicbankinggroupintheworld,recognized for being instrumental in bridging the gap between modern financial demandsandintrinsicIslamicvalues.Oneofthefastestgrowingandmost progressive banks in Saudi Arabia, it has a vast network of over 500 bank branchesallovertheKingdom.Leveragingonitsestablishedprinciplesand operationsintheMiddleEast,AlRajhiBankventuredoutasaninternational bankbysettingupitsfirstoverseasoperationsinMalaysiainOctober2006. Operatingonthesameplatformasthehomebank,AlRajhiBankMalaysia extensively uses the latest banking technology to consistently provide customerswithspeedandconvenienceinIslamicbanking. DrSalehAlfuraihisheadofconsumerfinanceatAlRajihiBank.After graduatingfromKingFahadUniversityinDhahran,SaudiArabia,majoring incomputerscience,hecompletedamastersprogrammefromtheUniversity viii AbouttheContributors ofSouthernCalifornia,LosAngeles,andaPhDfromNewcastleUniversity. Hehasparticipatedintensivelyinthecreditcardindustryfromatechnical, legal,business,andShari’aperspective.Heisdeemedoneofthepioneersin IslamicbankingduetohisprofoundbackgroundonShari’aprincipals,and hisstrongtechnicalabilityandinnovativenessinbusinessgenerally. Bank of London and Middle East (BLME) is a wholly Islamic bank, authorizedandregulatedbytheFinancialServicesAuthority,basedinthe CityofLondon.BLMEisdedicatedtoofferingShari’a-compliantinvestment and financing products to businesses and high net-worth individuals in Europe and in the Middle East and North Africa region. BLME’s products andservicesareavailabletobothIslamicandnon-Islamicinstitutions,from those who use Islamic finance regularly to institutions who have had no previousinvolvementwithIslamicfinance.BLMEaimstoserviceallclients byembracingthevirtuesoffairnessandrespect,withatrulydifferentiated serviceandproductoffering. NatalieSchoonisheadofproductdevelopmentforBLME.Natalieholds a PhD in residual income models and the valuation of conventional and Islamic banks, and has been working for international financial organiza- tions since the start of her career. Natalie began her career in Islamic financeinthemid1990swhileworkinginBahrain,KuwaitandDubai. Credit Suisse is one of the world’s leading banks that provides itsclients with privatebanking,investmentbankingandassetmanagementservices worldwide. Credit Suisse offers advisory services,comprehensive solutions and innovative products to companies, institutional clients and high-net- worthprivateclients,aswellasretailclientsinSwitzerland.CreditSuisse isactiveinover50countries,employsapproximately49,000people,andis comprised of a number of legal entities around the world, with its headquartersinZu¨rich. MansurMannanisafellowoftheInstituteofCharteredAccountantsin England and Wales, and has extensive experience as a professional accountantinboththeUKandtheMiddleEast.HehasworkedwithShamil BankofBahrain,wherebesidesheadingauditandcompliancefunctions,he participated in technical committees on Islamic finance. He moved to the UKtoassistinsettingupthefirstIslamicbankinthecountry,andin2005, he joined Credit Suisse as member of the finance structuring team with a mandate to provide Islamic solutions for finance transactions, as well as structuredproductsonaglobalbasis.HisexperienceinstructuredIslamic financialtransactionsisextensive,rangingfrommurabaha-basedfinancing tocomplexmusharakatradesandsukuks. Denton Wilde Sapte, LLP is an international law firm with over 600 lawyers, and a network of offices and associated offices spanning the UK, Europe,MiddleEast,CommonwealthofIndependentStatesandAfrica.Its expertise covers the full range of commercial legal services and its clients AbouttheContributors ix includemanyoftheworld’sleadingcompanies.Toensurethefirmdelivers the sharpest focus to its work, it has focused its business on the following core client sectors: energy, transport and infrastructure, financial institu- tions,realestate,retail,technology,mediaandtelecoms.Thefirm’soffering is underpinned by in-depth knowledge of these sectors, backed by a full rangeofcommerciallegalservices,eachtunedtothespecificneedsofthese industries. Richard T de Belder is a partner at Denton Wilde Sapte, and has recently returned to the UK after working as the managing partner of the AbuDhabioffice.HehasbeeninvolvedintheMiddleEastsince1979,and has spent 20 years living and working in the United Arab Emirates and Oman. He has extensive experience advising on a wide range of financial transactionsintheMiddleEast,theUKandtheUS,includingmanyIslamic finance transactions such as sukuk, murabaha, ijara,mudaraba, istisna’a, musharaka,wakala,etc. Durham University is the third oldest university in England, and its teaching of Arabic and Islamic studies dates from the 19th century. The university’s Islamic Finance Programme − the largest of its type − focuses onacademicandprofessionalresearch.Thereare25postgraduatestudents currentlyworkingondoctoraltheses,andamaster’sprogrammeinIslamic financebyresearchisalsooffered.EachJuly,theuniversityhostsasummer school in Islamic finance, and other regular seminars and workshops are also organized. Three staff members are involved in the Islamic Finance Programme − Professors Rodney Wilson, Habib Ahmed and Dr Mehmet Asutay,allofwhomhavepublishedextensively. Professor Rodney Wilson is the director of postgraduate studies at Durham University’s School of Government and International Affairs. He currentlychairstheacademiccommitteeoftheInstituteofIslamicBanking andInsuranceinLondon,andisactingasconsultanttotheIslamicFinancial ServicesBoardforitsShari’aGovernanceGuidelines.Hispreviousconsul- tancyexperienceincludesworkfortheIslamicDevelopmentBankinJeddah, SaudiArabia,andtheministryofeconomyandplanninginRiyadh.Hehas written numerous books and articles on Islamic finance for leading internationalpublishers,aswellasprofessionalguides. Institute of Islamic Banking and Insurance (IIBI) is a leading organizationdedicatedtothepromotionofIslamicfinancebyenhancingthe supply of suitably trainedpersonnel forthe Islamicbankingindustry.Itis the only organization of its kind in the West, and has made a significant contributiontotheeducationandtrainingofpeopleinIslamicbankingand insurance through a postgraduate diploma course being offered since the early 1990s, publications, lectures, seminars, workshops, research and Shari’aadvisoryservices.IIBIalsoprovidesconsultancyservicestovarious organizationsforthedevelopmentofeducationandtrainingprogrammesin thissector.
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