1 Islamic Banking How we can move on
1 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Islamic Banking: How we can move on to next phase? Abdul Jabbar Karimi Head- HMB IB Products, Research &Training HMB-Islamic Banking Division 2 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Possible Outcomes. . üTo 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 üTo understand the minimum responsibilities and consequently the roles being Muslim have to be played to move on…. . to next phase… üThe future. . of Islamic Finance is in our hands at most. . Mostly in your hands…. “the customer…. ” 3 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
TABLE OF CONTENTS What I mean by next phase? 2. How to move on? 1. 2. Theory: one’s perception and position taking Practice: what needs to be done? Do we really want to move to next phase? 4. I am optimistic for the Isl. Banking Future… 3. 4 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
TABLE OF CONTENTS Let us look a glance on Islamic Banking Current Scenario…… 5 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
The Presence of Islamic Finance: About 1100 institutes offering Islamic Products around the world Germany: 3 United States: 20 - Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative - Bank Sepah - Commerz Bank - Deutsche Bank Switzerland: 6 UAE: 9 - Dubai Islamic Bank - Abu Dhabi Islamic Bank Bahrain: 26 - HSBC Amanah Kuwait: 5 - Bahrain Islamic Bank - Kuwait Finance - Al Baraka House Qatar: 4 - ABC Islamic Bank - Citi. Islamic Investment Bank - Qatar Islamic Bank - Qatar International Islamic UK: 26 (primarily branches of Iran: 8 Pakistan: 5 Gulf and glo bal banks) India: 3 - HSBC Amanah Finance Bangladesh: 3 - Al Baraka International Ltd Turkey: 7 - Takafol UK Ltd - Faisal Finance - The Halal Mutual Investment Sudan: 9 Institution Malaysia: 49 Company - Ihlas Finance 2 - Pure Islamic Banks -J Aron & Co Ltd (Goldman House 10 Saudi Arabia: Egypt: 7 (Bank Islam, Bank Sachs) - Al Rajhi Alwatany Bank of Egypt Muamalat) -Britain Islamic Bank SAMBA - Egyptian Saudi Finance Rest - conventional banks - Saudi Hollandi Indonesia: 4 - Riyadh Bank Yemen: 5 Planning to go for Islamic Banking Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each country Islamic Banking: How we can move on to next phase? Novemebr 02, 2010 6 by A. J. Karimi, Head HMB IB Products`
Global Scenario 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$822 bn 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 7 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 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. 8 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
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. 9 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Islamic Banking In Pakistan: An Overview The 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 330 bn + (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 SBP In 2008 the assets of Islamic Banking increased by 34% as compared to the assets of overall industry by 8. 8%. (SBP Bulletin) 10 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
A FEW SAYINGS BY KEY PLAYERS FOR ISLAMIC BANKING……… v "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. v “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 v "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 11 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
TABLE OF CONTENTS 1. What I mean by next phase? 12 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
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 … 13 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
TABLE OF CONTENTS 2. How to move on? Theory: one’s perception and position taking Practice: what needs to be done? 14 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Theory: 15 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Theory: 16 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Theory: “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 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 shall not be dealt with unjustly. ” Al Baqarah 278 - 279 (Fourth Revelation) 17 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Theory: 1. From Hazrat Abu Hurayrah (RA), The Prophet, peace be on him, said: "Riba has seventy segments, the least serious being " equivalent to a man committing adultery with his own mother. ” (Ref: Ibn-e-Majah) 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) 2. From Hazrat Jabir Ibn-e-Abdullah (RA): 18 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Theory: What is Islamic Banking? “Islamic Banking is interest free Asset Backed banking governed by the 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. ” (Karimi, Abdul Jabbar- ‘Islamic Banking : A necessary system, published in the Finance & Business Review, The News, 18 th Jun’ 2001) 19 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Practice (Practical Steps): 20 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
How to move on? Practice (Practical Steps): Regulations/Policies guidelines Central Bank Legal Framework Government Public opinion/Religious Rulings Consumers Madrasas/ Religious Scholars Demand for Products & Services External Internal Islamic Banking Institution Shariah supervision Vision & Leadership Management Capital Sponsors 21 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Productivity Shariah Adviser/ Shariah Board Staff Novemebr 02, 2010
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. 3. Businesses to take it in their TOP priorities list (Customer) Feasible Regulatory Environment , addressing the IB challenges (Liquidity, Legal, Taxation, + ) on priority basis. . (Govt. /SBP) 4. 5. Big banks to play role/think seriously…. . (Govt. /SBP) 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. 22 HR Service quality: Professional +Religious touch (Staff) Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
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” 23 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Unanimity of views… An example…. The Question about MURABAHA 24 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Murabaha …. The basic purpose of Murabahah Sale has been described in Fiqh books in these words: ﻻ ﻳﻬﺘﺪﻱ ﻓﻲ ﺍﻟﺘﺠﺎﺭﺓ ﻻﻥ ﺍﻟﻐﺒﻲ ﺍﻟﺬﻱ ﻭﺍﻟﺤﺎﺟﺔ ﻣﺎﺳﺔ ﺍﻟﻰ ﻫﺬﺍ ﺍﻟﻨﻮﻉ ﻣﻦ ﺍﻟﺒﻴﻊ ﻳﺤﺘﺎﺝ ﺍﻟﻰ ﺍﻥ ﻳﻌﺘﻤﺪ ﻓﻌﻞ ﺍﻟﺬﻛﻲ ﺍﻟﻤﻬﺘﺪﻱ ﻭﺗﻄﻴﺐ ﻧﻔﺴﻪ ﺑﻤﺜﻞ ﻣﺎ ﺍﺷﺘﺮﻯ ﻭﺯﻳﺎﺩﺓ ﺭﺑﺢ " 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. ” v. Usually there are three parties to a Murabahah transaction where the bank is involved: 1. The one who promise to buy (Customer) 2. The Bank 3. The vendor (supplier to the Bank) 25 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
3. Do we really want to move to next phase? The Trillion Dollar Cake End 2008 26 Amount in Billion of USD Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
And the long way… 1 Year To Go y Alread 27 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` LIVE Novemebr 02, 2010
I am optimistic for the Islamic Banking Future… 28 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
I m optimistic for IB …. 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 iff We successfully provided the products that cater the needs of the customers on equal grounds. …. . “tomorrow is of Islamic Banking…. . Why? ? An illustration…. with comparison…. . 29 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
30 Islamic 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. 31 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Telecom Revolution…Year 2000 Source: Pakistan Telecommunication Authority No of connections and market share “In the Year 2000, after 8 years mobile phone operator’s share was only 9%” 32 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Telecom Revolution…Year 2007 No of connections and market share “Now mobile phone operators share of the industry is 89%!!! Source: 33 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Pakistan Telecommunication Authority Novemebr 02, 2010
Telecom Revolution…Year 2007 Mobile Phone Industry 55 Mn Connections Fixed Line Industry 5 Mn Lines “The market segment has become larger than the basic industry itself” Source: 34 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Pakistan Telecommunication Authority Novemebr 02, 2010
What is the inspiration… Basic functionality with out the wire Financial solutions with out Riba “ Vision is to create an industry itself and not a segment” 35 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Source: Oasis International research 2006 What does this Market Want? Research: I will only bank with an Islamic Bank “The winning formula” 36 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` I will Not bank with an Islamic Bank All things equal I Will prefer an Islamic Product Novemebr 02, 2010
What does this Market Want? An Example… IBB Launched in an area already Highest incremental having growth in the entire Conv. banking industry branches “All things equal I will prefer an Islamic product” 37 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
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
Concluding Point The Main Motivating Factor and Driver of Islamic Banking …. . “ROI” (h+h) 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 surprisingly increasing number of Muslim deposit holders all across the world, have non-interest bearing accounts and they refrain from Interest Based Banking. 39 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
Thanks FOR FURTHER INFORMATION: Abdul Jabbar Karimi Head-HMB Islamic Banking Products HBZ Plaza (Hirani Centre) Islamic Banking Division Cell: +92 300 824 5995 D/L: +9221 32639665 D/L: +9221 32644406 Email: ajk 313@gmail. com 40 Islamic Banking: How we can move on to next phase? by A. J. Karimi, Head HMB IB Products` Novemebr 02, 2010
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