Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products` 1 Novemebr...

Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

1 Novemebr 02, 2010

Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`2

Islamic Banking:

How we can move on to next phase?

Abdul Jabbar KarimiHead- HMB IB Products, Research &TrainingHMB-Islamic Banking Division

Novemebr 02, 2010

Novemebr 02, 20103

Possible Outcomes..To know that who are stakeholders of this growing child understanding the basic science of Islamic Banking/Finance in order to enable the participants to appreciate the need of the subject and look into it to make the industry as mainstream banking sector

To understand the minimum responsibilities and consequently the roles being Muslim have to be played to move on…..to next phase…

The future....of Islamic Finance is in our hands at most..Mostly in your hands…. “the customer….”


TABLE OF CONTENTS

1.What I mean by next phase?2.How to move on?

1. Theory: one’s perception and position taking

2. Practice: what needs to be done? 3.Do we really want to move to next phase?

4.I am optimistic for the Isl. Banking Future…4 Novemebr 02, 2010


5

TABLE OF CONTENTS

Let us look a glance on Islamic Banking Current Scenario……

Novemebr 02, 2010Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

The Presence of Islamic Finance:About 1100 institutes offering Islamic Products around the world

Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each country

United States: 20- Al Manzil Financial Services- American Finance House- Failaka Investments- HSBC - Ameen Housing Cooperative

Germany: 3- Bank Sepah- Commerz Bank- Deutsche BankSwitzerland: 6

UK: 26 (primarily branches of Gulf and global banks)- HSBC Amanah Finance - Al Baraka International Ltd- Takafol UK Ltd- The Halal Mutual Investment Company-J Aron & Co Ltd (Goldman Sachs)-Britain Islamic Bank

Bahrain: 26 - Bahrain Islamic Bank- Al Baraka- ABC Islamic Bank - CitiIslamic Investment Bank

Malaysia: 492 - Pure Islamic Banks (Bank Islam, Bank Muamalat)Rest - conventional banks

Saudi Arabia: 10- Al Rajhi - SAMBA- Saudi Hollandi - Riyadh Bank

UAE: 9- Dubai Islamic Bank- Abu Dhabi Islamic Bank- HSBC Amanah

Qatar: 4- Qatar Islamic Bank- Qatar International Islamic

Kuwait: 5- Kuwait Finance House

Iran: 8

Egypt: 7- Alwatany Bank of Egypt- Egyptian Saudi Finance

Indonesia: 4

Sudan: 9

Pakistan: 5India: 3Bangladesh: 3

Turkey: 7- Faisal Finance Institution- Ihlas Finance House

Yemen: 5Planning to go for Islamic Banking

6 Novemebr 02, 2010Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

1100 institutions are offering Islamic Financial Products/Services Growth Rate @ 28% since 2006

According to ‘The Banker’s 2009 survey, the volume of the Shariah Compliant Assets of the top 500 Islamic Financial Institutions grew by 28.6% rising to US$822bn from $639 in 2008 at a time when the top 1000 World Banks’ assets slumped to 6.8% from 21.6% from the previous year.

The Shariah Compliant Assets are projected to grow to US$1.60 trillion by 2012.

Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by 2010

Global Scenario


The United Kingdom has emerged as a leading centre for offering Islamic Financial Services (IFS) as at present there are 22 banks in UK offering Islamic Financial Services, out of which 05 are fully Shariah Compliant (4 wholesale & 1 retail bank).

Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recently

introduced Islamic mortgage products to cater to Britain's 2.5 million Muslims.

France by indicating the adjustments in its legal and fiscal framework aims to the development of Islamic Finance to cater the faith-based clientele in the country in addition to gain attention of Middle Eastern Investors holding abundant liquidity. (report by Standard & Poor, 2009)

German state became the first European government body to issue an Islamic bond last year -- a $121 million.

Global Scenario…….


The opportunities to tap the surplus funds of oil rich Muslim nations is strong as many non Muslim countries are trying to tap it including, Japan, UK, Singapore, France, Hong Kong US, Germany, Australia, Thailand, etc.

These institutions are playing a key role in setting up and

standardizing Shariah , Financial and Accounting standards for

Islamic Financial Institutions.

Major business schools such as Oxford, Harvard, Rice and Durham

has started post graduate programs in Islamic Finance

Harvard University has developed a major database by the name of

Harvard Islamic Financial Information Program HIFIP) for Islamic

Banking.

Global Scenario…….


Islamic Banking In Pakistan: An OverviewThe Islamic banking market in Pakistan continued to expand during the last year as well and the assets growth has registered 59% p.a. growth since 2005 as stated by Deputy Governor SBP. Assets = about PKR 411 bn + (Industry Share constitute 6.10%)Deposits = about PKR 330bn + (Industry Share constitute 6.40%) Financing and Investment = about PKR 230 bn +(Industry Share constitute 4.30%) Projected growth for the next 5 years of Islamic Banking is 15% to 20% per annum.The Islamic Banking Market share would reach 12% by 2012 as per strategy plan of SBPIn 2008 the assets of Islamic Banking increased by 34% as compared to the assets of overall industry by 8.8%. (SBP Bulletin)


Novemebr 02, 201011

A FEW SAYINGS BY KEY PLAYERS FOR ISLAMIC BANKING………

"There is a segment within the current market that would switch to Islamic if the quality and benefits offered were as good as conventional financial products," says Ray Ferguson, CEO of Standard Chartered Bank UAE in Dubai.

“A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis,” said. Brian Caplen, An editor of a London-based magazine

"Islamic banking isn't just for conservative or radical Muslims. It's mainstream business now, "That's why every bank wants a bigger piece of it." says Ross Mohamad Din, director of HSBC Amanah Malaysia


Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`12 Novemebr 02, 2010

TABLE OF CONTENTS

1.What I mean by next phase?


Next Phase shall be starting…..o Islamic banking must be able to become domestic

player with an international quality in services and performance, i.e. first best choice that caters equally the here (Dun’ya) on the same competitive conventional banking lines…

o Positioning Islamic Banking as a beyond banking ,i.e. more than just a bank…..

o 20% + Country Business /(deposits+ Assets) to be done through Islamic Banking …


TABLE OF CONTENTS

2. How to move on?

Theory:one’s perception andposition taking

Practice: what needs to be done?


15

The Position of Banking And Finance Within IslamISLAM

SHARIA

practices & activitiesAQIDAH

faith & beliefAKHLAQ

morality & ethics

IBADAT MUAMALAT

man-to-Allah worship man-to-man activities

SOCIALACTIVITIES

OTHER ECONOMICACTIVITIES

BANKING & FINANCIALACTIVITIES

POLITICALACTIVITIES

ECONOMICACTIVITIES

How to move on? Theory:

Novemebr 02, 2010Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`16

How

to move on?

Theory:


““O you who believe, Fear Allah and give up what remains of your O you who believe, Fear Allah and give up what remains of your demand for Interest, if you are indeed a believer. If you do not, then you demand for Interest, if you are indeed a believer. If you do not, then you are warned of the declaration of war from Allah and His Messenger; But are warned of the declaration of war from Allah and His Messenger; But if you turn back you shall have your principal: Deal not unjustly and you if you turn back you shall have your principal: Deal not unjustly and you shall not be dealt with unjustly.”shall not be dealt with unjustly.”

Al Baqarah 278 - 279 (Fourth Revelation)Al Baqarah 278 - 279 (Fourth Revelation)



1.1. From Hazrat Abu Hurayrah (RA), The Prophet, peace be on From Hazrat Abu Hurayrah (RA), The Prophet, peace be on him, said:him, said:

""Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.” (Ref: Ibn-e-Majah)

2. From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet may peace be on him, cursed the receiver and the payer of interest, the one who records it and the witnesses to the transaction and said; “They are all alike (in guilt).” Ref: (Muslim, Tirmidhi and Musnad Ahmed)



19

What is Islamic Banking?

““Islamic Banking is interest free Asset Islamic Banking is interest free Asset Backed banking governed by the Backed banking governed by the principles of Islamic Shariah”principles of Islamic Shariah”

““The ends of the both banking systems are same but only the means to achieve these ends are different as one system is God given in contrast to its rival system which

is ma made.” .” ((KarimiKarimi, Abdul Jabbar- ‘Islamic Banking :A necessary system, published in , Abdul Jabbar- ‘Islamic Banking :A necessary system, published in

the Finance & Business Review, The News, the Finance & Business Review, The News, 18th Jun’ 200118th Jun’ 2001))



How to move on? Practice (Practical

Steps):


Consumers

Government

Central Bank

Staff Sponsors

Management

External

Internal

Legal Framework

Demand for Products & Services

Vision & Leadership

Capital

Regulations/Policies guidelines

Shariah Adviser/Shariah Board

Madrasas/

Religious Scholars

Shariah supervision

Public opinion/Religious Rulings

Productivity

Islamic Islamic Banking Banking

InstitutionInstitution

How to move on? Practice (Practical

Steps):


Next Phase?:The minimum steps to go into next phase …

1. Perception Change: To build understanding in Islamic banking as Beyond Banking …various forums…more efficient socialization and educational program for public interest ….(all)

2. Businesses to take it in their TOP priorities list (Customer)

3. Feasible Regulatory Environment , addressing the IB challenges (Liquidity, Legal, Taxation, + ) on priority basis ..(Govt. /SBP)

4. Big banks to play role/think seriously… ..(Govt. /SBP)

5. Positioning, Differentiation and Branding, positioning the IB

as the most attractive one in country and abroad (IIFS) + Shariah +Customer

6. IB to be accessible for all kinds of people and all segments /PLS Based Products on assets side (IIFS +Customer)

7. HR Service quality: Professional +Religious touch (Staff)


Next Phase?...And….8. Unanimity of views of Religious

Scholars (RS)….for o the “products and services offered by

Islamic Banking”, o the prohibition of “Banking Interest” …

Shariah Doctor o the differences, if any, in terms Shariah

interpretation should remain within the circles of scholars….

9. CUSTOMERS’ total commitment for Islamic banking as

the only choice to bank with.. “Haq-ul-Yaqeen”


Unanimity of views…An example….The Question about MURABAHA


Murabaha ….

The basic purpose of Murabahah Sale has been described in Fiqh books in these words:

ال الذي الغبي الن البيع من النوع هذا الى ماسة والحاجةالذكي فعل يعتمد ان الى يحتاج التجارة في يهتدي

ربح وزيادة اشترى ما بمثل نفسه وتطيب المهتدي" the main purpose of (Murabahah) sale is to protect the innocent general consumer lacking expertise in the various items of trade from the wiles and stratagems of sharp traders.”

Usually there are three parties to a Murabahah transaction where the bank is involved:

1. The one who promise to buy (Customer)2. The Bank3. The vendor (supplier to the Bank)


3. Do we really want to move to next phase?

Novemebr 02, 2010

Brunei, 3Indonesia, 3 Malaysia, 38

Pakistan, 2Sudan, 4

Quatar, 8

Bahrain, 12

Kuwait, 24

UAE, 33

Saudi Arabia, 100

Turkey, 9

UK, 10

Iran, 320

End 2008

The Trillion Dollar Cake

Amount in Billion of USD


1 Year To Go

Already LIVE

Novemebr 02, 2010

And the long way…


I am optimistic for the Islamic Banking Future…


Karimi says,

“I am optimistic regarding the future /tomorrow of Islamic Banking that it is going to be the mainstream banking chosen as choice by almost all iffWe successfully provided the products that cater the needs of the customers on equal grounds .….. “tomorrow is of Islamic Banking…..Why??An illustration….with comparison…..

I m optimistic for IB ….

Novemebr 02, 2010

30Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products` Novemebr 02, 2010

Is our vision to create a Market Segment?

The tale of Telecom.


Telecom Revolution…Year 2000

, 0%

306,493 , 9%

3,056,460 , 91%

“In the Year 2000, after 8 yearsmobile phone operator’s share was only 9%”

No of connections and market share

Source:

Pakistan Telecommunication Authority



4,884,607 , 8%

1,757,198 , 3%

55,617,101 , 89%

“Now mobile phone operators share of the industry is 89%!!!

No of connections and market share

Source:




“The market segment has become larger than the basic industry itself”

Mobile Phone Industry

55 Mn Connections Fixed LineIndustry

5 Mn Lines

Source:



What is the inspiration…

“ Vision is to create an industry itself and not a segment”

Basic functionality with out the wire

Financial solutions with out Riba


What does this Market Want?

80%

10%10%

“The winning formula”

All things equal I Will prefer an

Islamic Product

I will Not bank with an Islamic

Bank

I will only bank with an Islamic

Bank

Research:

Source:

Oasis International research 2006


What does this Market Want?An Example…

“All things equal I will prefer an Islamic product”

Launched in an area already having

Conv.banking branches

Highest incremental growth in the entire

banking industry

IBB


The road ahead…

Whom to go Shariah Doctor?“..Pleasure of Allah SWT is only possible when we’ll adhere the minimum Shariah boundaries…. Having business within prescribes lines by Quran + Sunnah ”

38 Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

Novemebr 02, 2010

The Main Motivating Factor and Driver of The Main Motivating Factor and Driver of Islamic Banking …..Islamic Banking …..

In anticipation of ROI (H+H), i.e. the investment that brings return for In anticipation of ROI (H+H), i.e. the investment that brings return for

here and herein after in an effort to abide by the prohibition of Riba, a here and herein after in an effort to abide by the prohibition of Riba, a

surprisingly increasing number of Muslim deposit holders all across the surprisingly increasing number of Muslim deposit holders all across the

world, have non-interest bearing accounts and they refrain from world, have non-interest bearing accounts and they refrain from

Interest Based Banking. Interest Based Banking.

39Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

“ROI” (h+h)

Concluding Point

Novemebr 02, 2010

ThanksThanks

40Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

FOR FURTHER INFORMATION:

Abdul Jabbar KarimiHead-HMB Islamic Banking Products

HBZ Plaza (Hirani Centre)Islamic Banking Division

Cell: +92 300 824 5995D/L: +9221 32639665D/L: +9221 32644406

Email: [email protected]

Novemebr 02, 2010

Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products` 1 Novemebr...

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