Islamic Finance

235 Pages·2017·1.33 MB·English

GLOBAL MARKET BRIEFINGS
Islamic Finance: A Guide
for International Business
and Investment
ConsultantEditor:
RoderickMillar
Editor:
HabibaAnwar
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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.