Islamic Finance Definition of IslamicFinance, Islamic Finance is any finance activity which is carried out withinthe stipulated principles of Islamic law. The components ofthis Islamic financial services industry consists of a) Islamic bankingindustry b) Islamic capital markets c) Islamic insurance d) Islamic non bankingfinancial services and e) Islamic money market Islamic Methods of FinanceIslamic methods of finance refer to the applications of the concepts of Islamto the financial aspects of one’s life. Islamic BankingIslamic banking is any banking activity carried out on the broad principles ofIslamic methods of finance.
The establishmentof regulatory bodies such as Accounting and Auditing Organization for Islamicfinancial institutions in the 1990s and Islamic Financial Services Board in2002 to oversee the standardization of the banking practices of Islamic methodsof finance has also contributed to the growth of Islamic financial institutionsacross the globe. Islamic holdingbanks, these banks are established with the objective to assist other Islamicbanks to identify Islamic investment opportunities and to finance them. Several Islamicfinancial institutions are offering their products and services across the UK,Europe and the USA. While Dubai in the Middle East has been attracting a lot ofIslamic financial pool, London is not lagging behind and is expected to becomethe Islamic Economy hub in the West. As efforts arebeing made to introduce and implement Islamic finance in India, this studywould help the conveners and policy makers of Islamic finance to understand thedemographic profile of the potential customers of Islamic banks and their levelof awareness of and their perception towards Islamic finance in general andIslamic banking in particular. Surge in IslamicFinance Service Industry Thelast five years have witnessed a huge expansion in the Islamic Finance Service Industry.The annual market capitalization of the stocks meeting the Dow Jones IslamicMarket Index Criteria in Islamic countries is estimated at US $ 300 billion. Islamicbanking is also gradually moving into the retail banking space with theintroduction of Islamic cards and Shariah compliant consumer finance products.
- Thesis Statement
- Structure and Outline
- Voice and Grammar
- Conclusion
Anotherboost to Islamic banking is coming from the pro-active approach of theregulators particularly under the aegis of the Islamic Finance Service Board. Someof the ways in which the Islamic finance industry is integrating into theglobal financial system and adding value are outlined below: Convergencebetween ethical investments and Islamic finance. Theattraction of Islamic Finance to the non-Muslim investors all over the worldlies in their quest for diversifying their portfolios Islamic Finance providesthem new asset classes, new instruments and new products with low correlationwith established asset classes or products.
Onthe asset side Islamic banks take ownership stakes in the contractualrelationships and offer products and services different from those offered byconventional banks. IslamicBanking in Pakistan Stepsfor Islamization of banking and financial system of Pakistan were started in1977-78.Separate Interest free counters started operating in all thenationalized commercial banks and one foreign bank on January 1, 1981 tomobilize deposits on profit and loss sharing basis. Alegal framework is designed to encourage practice of Islamic banking by banksand financial institutions as subsidiary operations of their main operations. Settingup new full fledged commercial banks to carry out exclusively banking businessbased on proposed Islamic products. Accordingly, the State Bank issued detailedcriteria in December 2001 for establishment of full-fledged Islamic commercialbanks in the private sector.
AlMeezan Investment Bank received the first Islamic commercial banking licensefrom SBP in January 2002 and the Meezan Bank Limited commenced full-fledgedcommercial banking operation from March 20, 2002.TheGovernment as also the State Bank is mainly concerned with stability andefficiency of the banking system and safeguarding the interests, particularly,of small depositors. (Article: 1)Aneconomic theory of Islamic finance Money is issuedin AlJarhi’s model in the form of central bank investment deposits or centraldeposits for short with banks, placed on the basis of PLS.The return on CDswould ?ow back to the central bank as seignior age for the ultimate bene?t ofthe government budget.Owing to thedifferent nature of banks’ assets and liabilities, an Islamic banking systemwould be more stable relative to conventional banking. Assuming no regulatoryhindrances, Islamic banks, like universal banks, can carry out ?nance using amultiplicity of contracts.Like universalbanks, Islamic banks can therefore hold equity in the businesses they ?nancewhile supplying them with funds under mudarabah, wakalahand Salam or any othercontract.
In mixed systemswith the absence of any means of internalization, Islamic bankers have tocompete with conventional bankers who use the classical loan contract, which issimpler, requiring fewer procedures and less documentation than the Islamicmodes of ?nance.Universal banksare de?ned as large scale banks that operate extensive networks of branches,provide many di?erent services, hold several claims on ?rms, and participatedirectly in the corporate governance of the ?rms that rely on the banks assources of funding or as securities underwriters”.AlJarhi, M.A.”Islamic banks and universal banks: need for leveled playing ?eld”,paper presented at the International Seminar on Islamic Banking: RiskManagement, regulation and supervision organized by the ministry of financeIndonesia, the Central Bank Indonesia and the Islamic Research and TrainingInstitute,Jakarta,30September 2 October. Methodology Its methodologyis simple. It starts with listing the contributions to economic analysisrelevant to the required rationale in the theories of banking, finance, price,money and macroeconomics to identify the main rationale for Islamic finance.
Aconcise description of the author’s model for an Islamic economic system withinwhich Islamic finance can be operational is provided. Findings The paper finds distinct advantages of Islamicfinance, when properly applied within the author’s model. Islamic finance cantherefore be a candidate as a reform agenda for conventional finance. It opensthe door for significant monetary reform in currently prevalent economicsystems. (Article: 2)Financial reporting ofintangible assets in Islamic finance Objectives of thestudy To con?rm and seek the consensus of expert opinions for the purpose offacilitating the formulation of appropriate policy and effective strategy forreporting intangible assets in the Islamic ?nancial services industry, theprincipal objectives of the study are designed as follows: to highlight issueson speci?c ?nancial reporting requirements on intangible assets as speci?ed inIAS 38 Intangible Assets and relevant standards with reference to Islamic?nancial transactions and to elicit professional accounting and shariaexpert opinion and views on the risk exposures of adopting ?nancial reportingrequirements of ?nancial assets as economic consequences of Islamic ?nancialtransactions.
Importance ofpossession and control of intangible assets both the accounting and shariafocus groups agree on the importance of possession and control of the asset. Transferable as apertinent dimension to recognize an intangible asset the transferable dimensionof the intangible component is pertinent to enable recognition of a separableintangible component as an intangible asset. On the contrary,if the intangible asset is a signi?cant separable and transferable component,both the rights to possess, control and bene?t as an asset as well as rights tousufruct should be reported separately from tangible assets.Financialreporting of intangible assets measurable value with certainty and management choice for cost or valuation model oninitial and subsequent measurement of tangible and intangible asset value withcertainty, both the accounting and sharia focus groups acknowledged theeconomic consequences of valuation of investors and creditors’ interest.
The riskcharacteristics of an intangible asset, or the intangible component of atangible asset, may change over its lifecycle. Economic decisionusefulness as propagated by the ?nancial reporting standards in reportingintangible assets would require additional disclosures on the intangiblecomponent of tangible assets in terms of sharia compliance and risk baseddisclosures. Methodology The study usesthe qualitative research method by way of interviews followed by focus groupdiscussions with professional accountants/accounting academics and shariascholars/advisors from academia, the industry and regulatory bodies. Analysisof relevant literature is made to understand the subject matter and shariarelated issues.
Findings The studyobserves that the accounting dimensions of tangible assets are generallyconsistent with Sharia requirements. However, significant variation arises whenthe dimensions of intangible assets are represented in financial assets. (Article: 3)Integrating the socialmaslaha into Islamic finance The author thanksOxford Centre for Islamic studies and Harvard Law School ILSP Islamic Finance Project for creating anintellectually stimulating environment for his studies on Islamic finance aswell as the writing of this particular article.
Al Rajhi Bankwhich is one of the first Islamic banks in the world says: “Ourresponsibility to our community has always been at the fore front of ourobligations and is one of the main objectives of the Bank.” Likewise, HSBCAmanah which is one of the important Islamic financial institutions in the westdeclares that: In exercising all its banking or developmental activities, theIslamic bank takes into prime consideration the social implications that may bebrought about by any decision or action taken by the bank. Given the factthat few other institutions in Muslim countries match the financial power andinternational networking that the Islamic banks enjoy today which furtherincreases these banks’ responsibilities, any serious attempt to realize theabove mentioned broad principles must consider the essential link between theseprinciples and the structural elements of Islamic finance, such as the types ofcontracts that Islamic banks rely on. Studies onIslamic finance from the perspective of both modern economics and Islamic lawhave so far largely ignored the domain of social functions, which has in turnresulted in the fact that we have very little, if any, discussion on, let alonesolutions for, the fundamental structural problems Integrating social maslaha173 ARJ 25,3 174 of Islamic banking.
Finally, becausemost of the Islamic financial institutions that exclusively focus on themurabaha based mechanisms have become rather like capitalistic banks, theysuffer some problems in terms of maintaining their “Islamic” imagefor certain groups in the Muslim world. Sharia, economicsand the progress of Islamic finance: the role of sharia experts and IntegratingIslamic finance into the mainstream: Regulation, Standardization andTransparency, Islamic Finance Project. Methodology The paper adoptsa critical analytic approach in considering the reasons of the failure of thesocial dimension of Islamic financial intermediation based on real figures ofselected Islamic banks. Findings Concepts of SR and corporate socialresponsibility (CSR) are not enough to describe Islamic Banks’responsibilities. Also, this failure cannot be understood only with referenceto the “external environment”, i.e.
competition-driven, capitalistic market conditions;but it is also closely related to the transformation of Islamic finance into analmost exclusively murabaha based Islamic banking, which promotes moreindividual maslahah than social maslahah. Compared to the murabaha, otherproduct structures such as mudaraba and musharaka seem to be better instrumentsfor expanding welfare and alleviating poverty. (Article: 4)The global financialcrisis and Islamic finance: a review of selected literature Edib Smolo, AbbasMirakhor,”The global financial crisis and its implications for the Islamicfinancial industry”, International Journal of Islamic and Middle EasternFinance and Management. The way forwardfor both Islamic and conventional finance is, inter alia, greater reliance onrisk sharing to inject more discipline in the system; the establishment of astrong and comprehensive regulatory body to safeguard the resilience of thesystem; and the integration of Zakat, Awqaf and other voluntary institutionsinto the financial system to cater for the financial needs of the poor.
Introduction Theglobal financial crisis, with its gargantuan amount of bankruptcies and otherfinancial distresses, has proven to be one of the major financial crises everknown in modern history. First, thefinancial system in the modern economy has gained, over the years, a dominantrole to the extent that any instability of the financial sector is likely to betransmitted to the real economy. To him, financialinnovation was meant to enable the underprivileged to have access to affordablehousing facilities; the end result was totally the opposite, as it wasfinancial innovation itself that has failed them.Al Suwailemprovides a background discussion of the theoretical debate on the place of thefinancial sector in the economy, the impact of financial crises on the real economyand the macroeconomic imbalances which characterized the American economy, inparticular, over the past decades.
Lim, M.M.,”Old wine in a new bottle: subprime mortgage crisis causes andconsequences”, Working paper No. 532, The Levy, Economics Institute ofBard College, New York, NY. Minsky, H., “Financial crises: systemic oridiosyncratic” Methodology The papercritically reviews selected writings of prominent Islamic economics on therecent financial crisis.
FindingsMost of theauthors reviewed acknowledged the technical mistakes put forth by many conventionalanalysts as causes of the crisis. However, they have showed that the adoptionof the principles of Islamic finance would have prevented most of those mistakes.The way forward,therefore, for both Islamic and conventional finance is, inter alia, greaterreliance on risk sharing to inject more discipline in the system; theestablishment of a strong and comprehensive regulatory body to safeguard theresilience of the system; and the integration of Zakat, Awqaf and othervoluntary institutions into the financial system to cater for the financialneeds of the poor. (Article: 5)Towards restructuring thelegal framework for payment system in international Islamic trade finance First, the possibilityof harmonizing UCP 600 with Islamic finance products by modifying the former tosuit the needs of the Islamic economic system; and second, the feasibility ofoverhauling the UCP 600-based documentary system of payment by producing anindependent system for the Islamic banks across the word. The role ofInternational Islamic Trade Finance Corporation As part of its mission tofurther economic development, enhance social progress and advance internationaltrade of member countries, the Islamic Development Bank established theInternational Islamic Trade Finance Corporation in May 2006 but it formallycommenced operations in 2008. The internationalIslamic trade financing facilities Different Islamic banks utilize varioussharia compliant facilities for international trade financing. The establishmentof Islamic commercial banks in the 1970s and the further development of theIslamic finance industry in the 1980s and 1990s saw a gradual increase ininternational trade financing by Islamic financial institutions. The Sharia Boardof Faisal Islamic Bank of Bahrain followed the same line of argument in itsresolution on a similar question involving the issuance of a LC.
4.2 shariarulings on documentary credit system of selected banks just like the firstgeneration Islamic banks such as the Jordan Islamic Bank, Dubai Islamic Bank andFaisal Islamic Bank, the KFH has been actively involved in internationalShar?ah compliant trade financing. Can pay for anyactual harm caused by delay Faisal Islamic Bank of Bahrain Ujrah kafalah,musharakah, or aqd al-bay Wakalah and aqd al bay Faisal Islamic Bank of BahrainFatawa Mustafa alZarqa Faisal Islamic Bank of Bahrain Faisal Islamic Bank ofBahrain Kuwait Finance House kafalah Ujrah Kuwait Finance House Kuwait FinanceHouse Wakalah Ujrah Kuwait Finance House Source/institution kafalah Islamicfinance facility Prohibition of riba 9. The Islamic FiqhCouncil of OIC may convene an international workshop of Islamic financialinstitutions across the world to come out with acceptable standards forinternational trade payment and financing based on Islamic law. Methodology A partialcomparison of both the UCP 600 and the sharia framework for documentary creditis given through the content analysis of relevant sources. Findings The AAOIFI Shar?ahStandard on Documentary Credits as well as other applicable Shar?ah resolutionsof Islamic financial institutions, does provide a good framework for a Shar?ah compliantdocumentary credit system which is unique to trade in Islamic finance products,but there is scope for further improvement, taking into consideration the twopossibilities proposed in the available literature on the subject harmonizationor bifurcation of rules.
The UCP 600 also allows for the exclusion ormodification of the rules to suit the specific needs of the Islamic financeindustry. Conclusion Islamic FinanceDefinition of Islamic Finance, Islamic Finance is any finance activity which iscarried out within the stipulated principles of Islamic law. The components ofthis Islamic financial services industry consists of a) Islamic bankingindustry b) Islamic capital markets c) Islamic insurance d) Islamic non-bankingfinancial services and e) Islamic money market Islamic Methods of FinanceIslamic methods of finance refer to the applications of the concepts of Islamto the financial aspects of one’s life. The establishmentof regulatory bodies such as Accounting and Auditing Organization for Islamicfinancial institutions in the 1990s and Islamic Financial Services Board in2002 to oversee the standardization of the banking practices of Islamic methodsof finance has also contributed to the growth of Islamic financial institutionsacross the globe.
Objectives of thestudy To con?rm and seek the consensus of expert opinions for the purpose offacilitating the formulation of appropriate policy and effective strategy forreporting intangible assets in the Islamic ?nancial services industry, theprincipal objectives of the study are designed as follows: to highlight issueson speci?c ?nancial reporting requirements on intangible assets as speci?ed inIAS 38 Intangible Assets and relevant standards with reference to Islamic?nancial transactions and to elicit professional accounting and sharia expertopinion and views on the risk exposures of adopting ?nancial reportingrequirements of ?nancial assets as economic consequences of Islamic ?nancialtransactions. Towards restructuringthe legal framework for payment system in international Islamic trade financeFirst, the possibility of harmonizing UCP 600 with Islamic finance products bymodifying the former to suit the needs of the Islamic economic system; andsecond, the feasibility of overhauling the UCP 600-based documentary system ofpayment by producing an independent system for the Islamic banks across theword. The Sharia Boardof Faisal Islamic Bank of Bahrain followed the same line of argument in itsresolution on a similar question involving the issuance of a LC. 4.
2 shariarulings on documentary credit system of selected banks just like the firstgeneration Islamic banks such as the Jordan Islamic Bank, Dubai Islamic Bankand Faisal Islamic Bank; the KFH has been actively involved in internationalShar?ah compliant trade financing. Can pay for anyactual harm caused by delay Faisal Islamic Bank of Bahrain Ujrah kafalah,musharakah, or aqd al bay Wakalah and aqd al bay Faisal Islamic Bank of BahrainFatawa Mustafa alZarqa Faisal Islamic Bank of Bahrain Faisal Islamic Bank ofBahrain Kuwait Finance House kafalah Ujrah Kuwait Finance House Kuwait FinanceHouse Wakalah Ujrah Kuwait Finance House Source/institution kafalah Islamicfinance facility Prohibition of riba .