Islamic Banking The New Form of Banking in
Islamic Banking ‘The New Form of Banking in Oman’ 23 -01 -2012 www. bankmuscat. com
Table of Contents Concept of Islamic Banking How Islamic Banking differs? Growth banking Factors for Islamic banking windows Way Forward www. bankmuscat. com
How Islamic Banking Differs? www. bankmuscat. com
What is Riba in Holly Quran? www. bankmuscat. com
. Key Differences with Conventional Banking Asset backed Transactions must typically be backed by assets. No returns on lending of cash Interest free Payment / receipt of interest is prohibited. Profit is encouraged Restricted investments Investments, or the tangible assets backing investment instruments, should not belong to prohibited industries (e. g. alcohol) Extreme uncertainty and/or lack of transparency (Gharar) is prohibited (e. g. in options, futures and other derivatives) Risk-sharing Based on the principle of assuming risk to obtain rewards to foster justice in transactions; risk sharing is fine but risk transfer is not www. bankmuscat. com
Asset Products Structures Asset Side Products Home Finance Car Finance Personal Finance Credit Card Short Term Fin Long Term Fin Dim Musharika Murabaha Tawarruq Murabaha Ijara Tawarruq Bai ul Ina Salam Musharika Murabaha Dim Musharika Ujra Tawarruq Istisna Islamic products can be structured using different underlying contracts vis-à-vis risk implications, regulatory directions, market dynamics and sharia advisor. www. bankmuscat. com
Liabilities Products Structures Liabilities /Fee Products Business A/c Saving A/c Fixed Deposits Bancatakaful Mutual Funds Sukuks Qarz Modariba Wakala Ijara Wadiah Wakala Modariba Tawarruq Musharika Istisna Salam www. bankmuscat. com
Potential of Islamic Banking www. bankmuscat. com
Global Industry Highlights Market size Estimated over US$ 1 trillion in 2011 Geographic reach Presence in over 75 countries Growth rate Approx. 20% over the past decade Expected growth rate 15 -20% p. a. in the foreseeable future Industry players Over 450 Islamic financial institutions worldwide, another 100150 likely to come into existence in the next 10 years Source: Industry reports www. bankmuscat. com
Islamic banking Potential in Oman q GCC Islamic banking represents 26% of total market size (En. Y) q IFIs will have 60% market share in GCC by 2015 (IFSB) q Islamic banking assets in Oman will be 8 -10% over next few years (Oliver Wyman) q Given GCC fact sheet, Islamic banking assets in Oman could be $10 bio q 59% very interested and 26% quite interested (IFAAS) Source : S& P report www. bankmuscat. com
Meethaq home finance q Started operations in 2008 q Total portfolio is over RO 75 Mio q Total Meethaq customers are over 2000 q Majority of the customers are first time borrowers q Pioneer of Islamic Banking in Oman www. bankmuscat. com
Drivers for Growth in Oman www. bankmuscat. com
Driver for Growth in Oman Oil Revenues of GCC States Muslim Population Growth Window’s business model Training / Awareness Sharia governance structure Islamic Finance Growth Regulatory Reforms/ Legal Framework Government Support Legal System/ Accounting Standards www. bankmuscat. com
Islamic banking Windows www. bankmuscat. com
Pros & Cons of Window ADVANTAGES Windows Operations q. Easy head- start in new market q. Leverage on existing infrastructure q. Instant tweaking to gear up IT systems q. Cost to do the business is lower q. Value added services to customers DISADVANTAGES q. Public perception – too close to parent CHALLENGES q. Need public awareness about window’s operations www. bankmuscat. com
S y s t e m a n d C o n t r o l s Funds Segregation F u n d a m e n t al s Sharia Framework IT System Separate Book CBO Framework Business Ethics Corporate Governance Funds Segregation Assurance External/ Regulator’s Audit Sharia Inspection Funds Segregation Policies IIFM, AAOIFI & IFSB ALM Guidelines www. bankmuscat. com
Window’s Governance Structure • Separate capital allocation • Stand alone Islamic branches (vs. Islamic counters in conventional branches) • Separate books of accounts • Separate IT system • Reporting standard (AAOIFI vs. IFRS with additional disclosures) • Organization structure • Independent Sharia Board www. bankmuscat. com
Way forward www. bankmuscat. com
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