The Islamic Finance Handbook

571 Pages·12.17 MB·English

by  Thiagaraja S.

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The Islamic
Finance Handbook
A Practitioner’s Guide to the
Global Markets
SASIKALA THIAGARAJA
ANDREW MORGAN
ANDREW TEBBUTT
GERALDINE CHAN
Editors
REDMoney
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Cover image: pseudopixels / iStockphoto.com
Cover design: Wiley
Copyright  2014 by John Wiley & Sons Singapore Pte. Ltd.
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Contents
Foreword ix
Preface xiii
Introduction 1
DaudVicaryAbdullah,PresidentandChiefExecutiveOfficer,
INCEIF—TheGlobalUniversityofIslamicFinance
Mohd-PisalZainal,DirectorofResearchandPublication,
INCEIF—TheGlobalUniversityofIslamicFinance
CHAPTER1 Australia 11
MichaelT.Skully,ProfessorofBanking,DepartmentofBanking
andFinance,MonashUniversity
CHAPTER2 Bahrain 23
HatimEl-Tahir,Director,IslamicFinanceGroup,Deloitte&Touche
(MiddleEast)
CHAPTER3 Bangladesh 43
MohammadAbdulMannan,ManagingDirectorandChiefExecutiveOfficer,
IslamiBankBangladeshLimited
CHAPTER4 Brunei 59
MuhdJamilAbasbinAbdul’Ali,LegalAdvisor,Abrahams,Davidson&Co.
TanThiamSwee,Partner,Abrahams,Davidson&Co.
LeeYunChin,Partner,Lee&Raman
CHAPTER5 Canada 77
JeffreyGraham,Partner,BordenLadnerGervaisLLP
CHAPTER6 China 93
WangYongbaoAhmedMusa,AssociateProfessor,Xi’anInternational
StudiesUniversity
CHAPTER7 Egypt 119
WalidS.Hegazy,ManagingPartner,Hegazy&Associatesinassociationwith
Crowell&Moring
HusseinM.Azmy,Associate,Hegazy&Associatesinassociationwith
Crowell&Moring
v
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vi CONTENTS
CHAPTER8 HongKong 129
AnthonyChan,ChiefExecutiveOfficer,NewLineCapitalInvestment,Ltd.
JessLee,LegalandProjectDevelopmentManager,NewLineCapital
Investment,Ltd.
CHAPTER9 India 141
H.Jayesh,FounderandPartner,JurisCorp
CHAPTER10 Indonesia 155
RifkiIsmal,AssistantDirector,IslamicBanking,BankIndonesia
CHAPTER11 Iran 175
FarhadNili,Director,MonetaryandBankingResearchInstitute,
CentralBankofIran
CHAPTER12 Japan 213
EtsuakiYoshida,AdjunctResearchFellow,CenterforFinanceResearchand
WasedaGraduateSchoolofFinance,AccountingandLaw,
WasedaUniversity
CHAPTER13 Jordan 227
KhawlaAlNobani,SpecialistinIslamicFinancialAdvisoryServices
CHAPTER14 Kazakhstan 239
YerlanAlimzhanulyBaidaulet,MemberofExecutiveDirectorsBoard,
IslamicDevelopmentBankGroup
CHAPTER15 Kenya 251
RahmaHersi,DirectorandFounder,AwalConsultingLimited
CHAPTER16 Kuwait 261
IssamAlTawari,ChairmanandManagingDirector,RasameelStructured
FinanceCompany
CHAPTER17 Luxembourg 287
BishrShiblaq,Head,DubaiRepresentativeOffice,Arendt&Medernach
FlorenceStainier,Partner,Arendt&Medernach
CHAPTER18 Malaysia 303
WanAbdulRahimKamil,Consultant,IslamicCapitalMarket,Securities
CommissionMalaysia
CHAPTER19 Maldives 337
AishathMuneeza,DeputyMinister,MinistryofIslamicAffairs,Maldives
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Contents vii
CHAPTER20 Nigeria 355
AuwaluAdo,InternalShari’ahAuditor,JaizBank
CHAPTER21 Oman 369
AzmatRafique,Head,IslamicBanking,AlYusrArabBank
CHAPTER22 Pakistan 385
MohammadShoaib,CFA,ChiefExecutive,AlMeezanInvestment
ManagementLimited
CHAPTER23 Qatar 413
SteveTroop,AdvisortotheChairmanandBoardofDirectors,
BarwaBank
CHAPTER24 SaudiArabia 421
NabilIssa,Partner,King&Spalding
JamesStull,SeniorAssociate,King&Spalding
CHAPTER25 Singapore 433
LeeKaSing,Head,DebtCapitalMarkets,MaybankKimEngSecurities
Pte.Ltd.
IanYeoTianChiang,SeniorAssociate,DebtCapitalMarkets,
MaybankKimEngSecuritiesPte.Ltd.
CHAPTER26 SouthAfrica 443
AmmanMuhammad,ChiefExecutiveOfficer,IslamicBankingDivision,
FirstNationalBank
CHAPTER27 SriLanka 461
ReyazMihular,ManagingPartner,KPMG
CHAPTER28 Tanzania 477
UwaizJassat,ActingHead,AbsaIslamicBanking,andHead,AbsaTakaful
CHAPTER29 Thailand 485
S.M.AamirShamim,SeniorVicePresidentandIBSpecialist,
TreasuryandInvestmentGroup,IslamicBankofThailand
CHAPTER30 Turkey 505
EserSagar,Expert,CapitalMarketsBoardofTurkey
AtilaYanpar,Expert,CapitalMarketsBoardofTurkey
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viii CONTENTS
CHAPTER31 UnitedArabEmirates 521
ShaikhDr.HussainHamedHassan,Chairman,ShariaBoard,DubaiIslamic
Bank,ManagingDirector,DarAlShariaLegal&FinancialConsultancy
CHAPTER32 UnitedKingdom 533
FaraMohammad,LegalConsultant
CHAPTER33 UnitedStates 547
AndrewM.Metcalf,Partner,MiddleEastandIslamicFinancePracticeGroup,
King&Spalding
IsamSalah,SeniorPartnerandGlobalHead,MiddleEastandIslamic
FinancePracticeGroup,King&Spalding
AbouttheEditors 559
ListofContributors 561
Index 563
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Foreword
F
ourdecadesago,itwasastrangethought,butnowithasemergedasawonderful
reality. I am referring to Islamic finance.
Indeed, it is a newly born but very fast growing industry in comparison to its
counterparts. Islamic banking does not have a history spread over centuries, but its
coreprincipleswereentrenchedinseventhcenturyAD.Infact,itsrootsareasdeepas
the roots of humankind itself, because Islamic banking is based on divine values—
thevaluesofjusticeandfairnessthattheGodAlmightyhasordainednosoonerthan
he created man.
Islamic finance has become a vital and growing reality and is based on divine
guidance, which has no room for injustice, discrimination, nontransparency, and
greed among human beings; it is fully in synch with the laws of nature.
ThejourneyofIslamicfinanceisquitefascinating,andisindeedverybeneficialas
it is about applying a viable alternative to the conventional banking and finance
industry,which is fast losingtrust due to successive crises that areforcing peopleto
write off their lending to conventional financial institutions.
Throughout this book, you will see the shining present and promising future of
Islamic finance all over the world.Although there are regulatory issues (which were
raisedbysomeoftheauthors),politicalandeconomicchallenges(asalsohighlighted
by the respected authors),and lackof awareness and misconceptions by thegeneral
public,thefutureisbrightandtheopportunitiesoutweighthechallengesasgathered
by almost all of the authors.
On one hand, Michael T. Skully discusses in detail the potential of the Islamic
financeindustryinAustralia,whichhasthefourth-largestfundmanagementindustry
in the world and has recently started to offer Islamic products. On the other hand,
Hatim El-Tahir presentsBahrainasaglobal leaderinthecross-borderinternational
sukuk market.
With regard to Bangladesh, a Muslim-dominated country, Abdul Mannan
establishes that the Islamic finance industry is experiencing faster growth than its
conventional counterpart. He concludes that sukuk may constitute a strong and
sustained capital market instrument for quickly transforming Bangladesh into a
middle-income country.
Awrite-uponBruneiexploresafewareasinwhichIslamicfinancialinstruments
can work efficiently; the authors of that chapter see a fresh impetus to rekindle the
spirit of Islamic finance in the Abode of Peace.
Wang Yongbao Ahmed Musa describes the efforts made to introduce Islamic
financeindustryinChina,andJeffreyGrahamestablishesIslamicfinanceasoneofthe
most rapidly growing segments in Canada, with Toronto possibly emerging as a
North American center for Islamic finance.
EgypthadexperiencedsomeprimitiveformofIslamicbankinginmid-1960s,but
duetopoliticalreasonsitdidnotcontinue,andHegazyandAzmydiscussindetailthe
ix
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x FOREWORD
reasons behind such deadlock and conclude that the challenges in Egypt are not
insurmountable.
The chapter on Hong Kong by Anthony Chan and Jee Lee suggests that
participants in the Islamic finance market not overlook role of Hong Kong as being
an excellent financial infrastructure and gateway to mainland China.
In India, the situation is different, as the potential for the industry to grow is
immense and the existence of Shari’ah-based funds is very limited. Jayesh explores
manypositivefactorsforthegrowth ofIslamic financeinIndia.Ipersonally believe
India will be the next big place for Islamic finance, although it may not be called
as such.
InIndonesia,theIslamicbankingindustryisonamuchhighergrowthtrajectory
thanthatoftherestoftheworld’sIslamicbankingindustry,andRifkiIsmaldiscusses
in detail the current situation of Islamic banking in that country.
Farhad Nili opines that Iran has been a pioneer in both the theoretical and the
operationalaspectsofIslamicbanking,butithasnotbeenwellintroducedabroaddue
tothelackofconstructiveinteractionofthecountrywiththeworld’slargestMuslim
population.
Etsuaki Yoshida presents a comprehensive picture of Islamic finance in Japan.
Islamic finance in Jordan started in 1978 with 2 million dinars, which has
increased to 125 million dinars. Khawla Al Nobani shares her analytical views
toward this growing market.
WhilediscussingtheIslamicfinancesituationinKazakhstan,YerlanAlimzhanuly
BaidaulethighlightstheroleofUAEaswellasIDBGroupintheempowermentofthe
Islamic finance industry in that country.
InKenya,Islamicfinanceisarelativelynewconcept,butthecountryislookingto
be the Islamic financial hub of East Africa. Rahma Hersi discusses many practical
concerns, which must be given due consideration.
IssamAlTawariexpectsthatIslamicfinancewillremainstronginKuwait,based
onthecountry’seconomicfundamentalsandtheexistingstrengthofIslamicbanking
inthecountry.KuwaitishometoKuwaitFinanceHouse,oneofthefirstIslamicbanks
in the world.
The authors of the chapter on Luxembourg strongly hope that this leading and
highlydiversifiedinternationalfinancialcenterwillcontinuetobeattheforefrontof
the development of the still young Islamic finance industry.
In the chapter on Malaysia, Wan Abdul Rahim Kamil provides an analytical
overviewofthe30-yeartrackrecordofbuildingasuccessfuldomesticIslamicfinancial
industry. He recognizes the key role of the country’s regulators in instilling market
confidence.Today,Malaysiaisregardedasthemostrobustcountryindevelopingand
implementing the Islamic finance industry’s regulations.
Aishath Muneeze concludes that the Islamic finance industry is expected to
flourish in the Maldives in the future and will exponentially increase.
Auwalu Ado highlights the great opportunity and potential that Nigeria has to
become the Islamic finance hub in Africa.
In Oman, where Islamic banking was introduced very recently, the healthy
growth of the industry is highly promising; Azmat Rique highlights a few unique
aspects of Islamic banking regulations in Oman.
Mohammad Shoaib discusses various regulatory issues and political and eco-
nomicthreatstotheIslamicfinanceindustryinPakistanandconcludesthatdespiteall