GLOBAL PERSPECTIVE ON ISLAMIC BANKING ... Surat Al Baqara, Holy Quran The Islamic finance industry...

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Transcript of GLOBAL PERSPECTIVE ON ISLAMIC BANKING ... Surat Al Baqara, Holy Quran The Islamic finance industry...


    ISSUE NO. 193 July – December 2015

    Ramadan - Shawwal 1436 - Rabi Al Awwal 1437


    Analysis – A Shari’ah Analysis of Murabaha Transactions; As Exectued in Islamic Financial Institutions

    Food for Thought – Currency and Purchasing Power: Some Shari’ah Concerns Country Focus: Islamic Finance in Sub-Saharan Africa

    Academic Article – Challenges of Realising Maqasid al Shari’ah (Objectives of Shari’ah) in the Islamic Capital Market: Special Focus on Equity-Based Sukuk

    Point of View – Maqasid al Shari’ah and the Financial Crisis IIBI Lectures IIBI Awards

  • Maqasid al-Shari’ah Literally, the intents, goals and higher objectives of

    Islamic rulings – the Shari’ah. In the context of financial transactions these advocate the principles of justice,

    rights, compassion and common good.

  • NEWHORIZON July – December 2015 IIBI 3


    Features 20 A Shari’ah Analysis of Murabah Transactions: As Executed in Islamic Financial Institutions

    Syed Ehsan Ullah Agha analyses the challenges of practising genuine profit and loss sharing on the asset side of Islamic finance with particular reference to murabaha transactions.

    22 Challenges of Realising Maqasid al-Shari’ah (Objectives of Shari’ah) in the Islamic Capital Market: Special Focus on Equity- Based Sukuk

    Dr. Asyraf Wajdi Dusuki’ argues strongly for Islamic financial institutions not only to conform to both the form and substance of Shari’ah, but also to the economic substance of Shari’ah in pursuit of economic and social justice. Unless Islamic finance strives to achieve these outcomes, he suggests the industry is merely an exercise in semantics.

    Regulars 05 NEWS A round up of the important stories from around the globe.

    14 SUKUK UPDATE Highlighting some of the key developments in the sukuk market.

    17 TAKAFUL NEWS This section is dedicated to news from the growing takaful industry.

    52 IIBI LECTURES Dr Abdul Rahman Yahia an Islamic banker practising in the USA describes his experiences of setting up an Islamic financial organisation in the USA. He makes the point that his bank, LARIBA, seeks to serve all people of all faiths and none, basing their message on the fact that they do not rent money; they invest in people and that they answer to a higher authority.

    37 Currency and Purchasing Power: Some Shari’ah Concerns Hifzur Rab addresses the question of whether currency should only be gold or silver or whether other measures of value are acceptable.

    43 Islamic Finance in Sub-Saharan Africa This report takes a broad look at the whole of sub-Saharan Africa and the prospects for Islamic finance in the region. It includes profiles of three countries, which seem to be ahead of the game in Islamic finance – Kenya, Nigeria and Senegal. It concludes that the journey towards a robust and well- regulated Islamic finance industry in the region is likely to be a long one.

    51 Maqasid al Shari’ah and the Financial Crisis

    Abdulkarim Ramadhan, currently studying for the IIBI’s Post Graduate Diploma, presents the views of one of Islamic finance’s future practitioners on how the principles and ethics of Islamic finance could have helped to head off the 2008 financial crisis.


    Mosque of Touba Senegal


    Cover picture: Bab Lalla Rihana, gate of the Great Mosque of Kairouan in Tunisia. This image was originally posted to, by Moumou82 (talk) and is licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license.

  • Ramadan - Shawwal 1436 - Rabi Al Awwal 1437

    www.islamic-banking.com4 IIBI


    Executive Editor’s Deal not unjustly, and ye shall not be dealt

    with unjustly.

    Surat Al Baqara, Holy Quran

    The Islamic finance industry does not exist in a vacuum. It can be affected by factors over which it may have little control. While it survived the 2008 global financial crisis virtually unscathed, the question that needs to be asked today is whether it will have such an easy ride through the current economic turbulence affecting markets across the globe and particularly the plummeting price of oil.

    Many of the countries, which have been leading the development of Islamic finance are heavily dependent on oil revenues and involved largely in attracting wholesale and non-retail business. In comparison their market share in the retail banking business remains insignificant even in Muslim majority countries. The hard fact is that Islamic finance cannot afford to rely on the revenues of oil producing countries largely in the Gulf as oil prices have been in decline for the last 18 months, hit by two main factors – over supply and sluggish economic performance around the world.

    There are also contradictory views on the impact of falling oil prices on the sukuk market. Some analysts think that oil-producing countries will seek to plug the hole in their revenues through sukuk issuance; others think that sukuk issuance will be depressed as governments pull back from major investment projects. Standard & Poors have even suggested that Islamic banks will also feel the impact as operating conditions deteriorate.

    While some markets like Malaysia have invested a great deal to encourage the expansion of the retail Islamic banking business however, the long-term expansion of the Islamic finance industry will suffer if Islamic commercial banks fail to move increasingly to the mainstream, making offerings of Islamic retail banking products a major part of their core services, such as mortgages, savings, insurance and retail investment products that include loans.

    ‘Retail banking is the cluster of products and services that banks provide to consumers and small businesses through branches, the Internet, and other channels’. It is generally held that the principal attraction of retail banking is the belief that its revenues are stable and some analysts also claim that retail banking offers high returns along with low risk. Here too Islamic banks to achieve significant success will need to compete with conventional banks without compromising the integrity of Shari’ah compliance and the Maqasid al Shari’ah that has the potential to take advantage of the growing number of both Muslims and non-Muslims seeking ethical financial products and services. Among the drivers for demand is the requirement that Islamic banks must build their knowledge to be able to educate the consumer base on the strength of Islamic finance, how it works without interest and its true benefits. As part of the consideration it may be necessary to see some rationalisation in the industry resulting in larger, better capitalised organisations that emerge fitter and stronger, more able to take on their conventional counterparts.

    This magazine is published to provide information on developments in Islamic finance, and not to provide professional advice. The views expressed in the articles are those of the authors alone and should not be attributed to the organisations they are associated with or their management. Any errors and omissions are the sole responsibility of the authors. The Publishers, Editors and Contributors accept no responsibility to any person who acts, or refrains from acting, based upon any material published in the magazine. The Editorial Advisory Panel exists to provide general advice to the editors regarding matters that may be of interest to readers. All decisions regarding the published content of the magazine are the sole responsibility of the Editors, and the Editorial Advisory Panel accepts no responsibility for the content.

    EXECUTIVE EDITOR Mohammad Ali Qayyum, Director General, IIBI

    ©Institute of Islamic Banking and Insurance ISSN 0955-095X

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    CxO Research Ltd Tel: + 0203 143 3021 Email:


    Tel: +44 (0) 207 433 0840 Fax: +44 (0) 207 433 0849 Email:

    PUBLISHED BY Institute Of Islamic Banking and Insurance (IIBI) 7 Hampstead Gate 1A Frognal London NW3 6AL United Kingdom Tel: +44 (0) 207 433 0840 Fax: +44 (0) 207 433 0849 Email:

    IIBI EDITORIAL ADVISORY PANEL Iqbal Khan M Iqbal Asaria Mohammed Amin Stella Cox Richard T de Belder Ajmal Bhatty Mufti Abdul Qadir Barkatullah Dr Imran Ashraf Usmani

    IIBI EDITOR Farida Rahman

    EDITOR Andrea Wharton

    Mohammad Ali Qayyum Director General IIBI

  • NEWHORIZON July – December 2015 IIBI 5

    IMF to Monitor Islamic Finance Industry


    Speaking at the Global Islamic Finance Conference, co-organized by the IMF (International Monetary Fund) the Central Bank of Kuwait and the Middle East Centre for Economics and Finance (CEF) in November 2015, Christine Lagarde, Managing Director of the IMF said that Islamic finance has the potential to contribute to higher and more inclusive economic growth by increasing access to banking services. She also said that Islamic finance has also shown its value in infrastructure investment and promoting financial stability.

    She sounded a note of caution saying, ‘Despite these important benefits, th