The Merits of Islamic Finance

Source: CNBC

The Merits of Islamic Finance

Measuring the Performance of Islamic Banks by Adapting Conventional Ratios

Measuring the Performance of Islamic Banks by Adapting Conventional Ratios
Ahmed Mohamed Badreldin
The German University in Cairo
October 2009

Abstract: One consequence of the current financial crisis is that many countries began to reevaluate their financial systems and recognize its flaws and drawbacks. They also began the search for alternative systems for their economies; one of the proposed systems is the current Islamic financial model. This model is still in its infancy and many modifications and additions are required. It also lacks the necessary financial performance measurement tools similar to those used by conventional banks for managers and investors alike. This paper evaluates this lack of performance measures. It then adapts a currently applied ROE Analysis Tool used in conventional banks, to the currently established model of Islamic Banks and tests its applicability and evaluates its usefulness. The findings suggest that such an adapted model would be quite successful for use in Islamic banks and would offer much better analysis and basis of comparison within the Islamic financial system. It also suggests that much of the previously measured performance of Islamic Banks is unsound and should be revised for accuracy and reliability because of the flawed methods used for measurement in the first place.

Measuring the Performance of Islamic Banks by Adapting Conventional Ratios

Opalesque Islamic Finance Intelligence - Sixth Issue

Welcome to the sixth edition of Opalesque Islamic Finance Intelligence (download the pdf version), for this issue we aim to look further into various aspects of Islamic finance that might have been overlooked elsewhere. We begin with an editorial note that explores the linkage between the past and the present constituencies of Islamic finance (be that consumers, investors, or practitioners) or to put it in other words the generational change that is underway and the validity of applying a sustainability label to the industry.

This is promptly followed by our Featured Resource which highlights a survey of various training programs and certifications available in the marketplace, this is a far more detailed version of our earlier attempt (much credit goes to one of our readers). Similarly, the concept of brand identity (within the realm of Islamic finance) has been rarely discussed, hence we turn to the Industry Snapshot section where Joy Abdullah delves into the linkage between corporate culture and brand identity - as these relate to Islamic financial institutions.

Muqaddasah (call option using set-off) is dissected by Nikan in the Featured Structure section, a combination of murabaha and salam which might not be widely used in the market but presents a valuable illustration of how various instruments can be combined to create new permutations. Islamic Venture Capital has also been under-reported and our Allocator Interview profiles Jordan-based Ahmed Muhammed Almanasreh from Sanad Islamic Investments, who shares his views on Islamic VC in the MENA region.

Khalil once again provides food for thought in Lex Islamicus by discussing the debate over the commercialization of fatwas, whereas our Opinion Column hears from Furqan Ahmad who scrutinizes some of the core challenges being faced by the industry today. Always welcoming your comments & suggestions and a reminder that you can check the ever-growing Opalesque Islamic Finance Briefing and Opalesque Islamic Finance Intelligence, all available free in our Online Archive.

Download the complete issue of Opalesque Islamic Finance Intelligence here (registration required).

Alternatively you can read each section separately:

Editor's Note: Insufficient Funds
Featured Resource: Islamic Finance Training Programs & Certifications 2.0
Featured Structure: Call Option using Set-Off
Allocator Interview: Ahmed Muhammed Almanasreh, CEO, Sanad Islamic Investments
Lex Islamicus: Fatwa Incorporated
Opinion Column: The Future of Islamic Banking and Finance in the GCC and the World
Industry Snapshot: Importance of Corporate Culture in Brand Identity

Opalesque Islamic Finance Intelligence - Sixth Issue

CW: The Ethical Mutual Fund Performance Debate: New Evidence From Canada

The Ethical Mutual Fund Performance Debate: New Evidence From Canada
Rob Bauer, Jeroen Derwall, Roger Otten
January 2007

CW: The Ethical Mutual Fund Performance Debate: New Evidence From Canada

Islamic Finance Training Programs & Certifications 2.0

One of our earliest posts in the blog related to Islamic Finance Training Programs & Certifications, it remains one of our most popular links (and most downloaded documents). This suggests not only a strong interest to learn about Islamic finance but also the need for independent/objective analysis of the many options available to students (ourselves included). Here we present a more detailed review that has been drafted by one of our readers (Mansoor Munir Ahmed) and extend our sincere gratitude for his input (he wanted no credit for this work so further praise is in order).

As an aside - there is a significant debate amongst Islamic finance practitioners and young Muslim professionals about whether Islamic finance makes any sense at all, and whether it is worth trying to engage in this industry. We can only suggest 1) doing your homework before diving in and 2) knowing that every small effort counts. Here we have a contribution from a single individual that might look small in the greater scheme of things but as these add up the impact can be significant.

Introductory Level

1. The Islamic Banking Diploma - Emirates Institute for Banking and Financial Studies: It aims to disseminate knowledge and information about Islamic banking and finance and produce high caliber professionals with the necessary technical skills and knowledge in Islamic finance. The programs run five days per week, Sunday to Thursday – morning and evening sessions. It has three theoretical semesters (16 weeks each), and a summer course (8 weeks), which involves "Field Training" at an Islamic bank for non – bankers students, or a "Field Project" for bankers students who have at least three years of work experience in the banking sector.

2. IFQ (Islamic Finance Qualification) - conducted by CISI (formerly SII): A 2 hour exam is conducted with a 70% passing criteria. The exam is based on a book which is provided by the institute, it has 10 chapters and mostly based on Shariah Principles. The scope for the IFQ course is quite high as it has been recommened by a number of western based islamic financial institutes and some banks in Pakistan.

Vocational Qualifications - Accounting & Auditing

1. AAOIFI: the standard setter for the faith based Islamic industry are offering a Certified Islamic Professional Accounting (CIPA). It is the most re-known coursein the global Islamic financial market-place.

2. CIMA: has recently launched its Certificate in Islamic finance. It is ideal for those desiring to pursue their career in the accounting and auditing fields.

3. BIBF in association with AIA has introduced an Islamic Accounting and Compliance Diploma (DIAC). It covers the basics and lays down the foundation for the Islamic accounting & compliance concepts.

Intermediate Level - Distance Learning

1a. International Certificate in Banking Risk and Regulation - GARP: This course is directed to those interested to become risk management practitioners. This conventional financial knowledge is only meant to complement its counterpart (coming soon) Islamic risk management. In a qualitative approach, the International in Certificate in Banking Risk and Regulation presents a studied review of the following: Traded Market Risk Management and Regulation; Treasury Risk Management and Regulation; Credit Risk Management and Regulation; Operational Risk Management and Regulation; Supervision and Regulation. It has been suggested that candidates for the International Certificate should have both a reasonable understanding and some experience of banking. Therefore they are expected to know terms commonly used in the finance industry. To obtain the International Certificate in Banking Risk and Regulation, you will be required to pass one exam that consists of 120 multiple choice questions and will last 175 minutes. A candidate will need to answer 80 questions correctly in order to pass.

1b. The Certificate in Risk Management for Islamic Financial Institutions - GARP: The Certificate in Risk Management for the Islamic financial industry will be launched in the last quarter of 2009. An excellent added value skill for Risk managers. It will be an online course with an exam seating for every module.

Intermediate Level - Certification

2. Certified Islamic Finance Expert (CIFE) - AIMS: Distance learning program designed by AIMS to educate individuals in the areas of Islamic Economics, Islamic Finance, Product Development, Modes of Financing, Islamic Investment, Shari’a Standards & Rulings and Islamic Insurance. Pre-requisite for this program are:
- Applicants must possess an appropriate University or College degree from a recognized institution
- Applicants who do not hold a university or college degree, will be considered for admissions if they have a diploma in Finance/Banking/Insurance OR minimum three years full-time appropriate work experience in finance
- Applicant must be minimum 23 years of age

3. Certified Islamic Banker (CIB) - Professionals Institute of Excellence: The program is also a distance learning applicant, consisting of four modules but the date of examination is customized as per ‘persons’ availability. It is a specialized job-oriented corporate training program in Islamic Banking. The lectures are delivered by leading Islamic banking scholars and experts in Pakistan. The program is affiliated with the Pakistan Institute of Banking. The above is a broken link, for additional info contact pie.pakistan@gmail.com

4. Certified Islamic Banker (CIB) - AIMS: The program gives an in-depth study of Islamic financial and Islamic banking system. CIB is designed to produce highly skilled professionals and valued “Islamic Bankers” for the highly growing Islamic Banking industry. On the successful completion of this training, participants are capable of designing, implementing, consulting, operating and administering Riba-free Islamic financial products and services, within their organizations.

5. Certified Islamic Finance Executive (CIFE) - Ethica Institute of Islamic Finance: Offered from Dubai, UAE it claims to be the only accredited Islamic finance certificate available 100% online. It covers and explains all the standards of AAOIFI and discusses all Islamic modalities of finance in practice today (claims to be the only institute that delivers standardized certification based on AAOIFI).  Their program was recently nominated for “Best Islamic Finance Training Institution” by IB&F.

6. Certified Islamic Investment Analyst* (CeIIA) Program - IBFNet: Candidates are required to complete twelve credit points of approved study to be awarded the certificate. To qualify for entry to the Certified Islamic Investment Analyst, applicants normally must have: completed at least first two years of a\ recognized four-year undergraduate degree or equivalent in field of economics, commerce, business, accounting, law and related areas; preferably be part of the banking and financial services industry; have appropriate resources to facilitate ready access to the Internet (check this by visiting our Technical Page); have ready access to a personal e-mail address; and have the skills required to access and manipulate materials delivered electronically.

7. CIFA: Certified Islamic Financial Analyst Program (CIPA) - Shape Financial: SHAPE now offers a comprehensive three level certification program to develop financial service professionals with a deep and on-going knowledge of Islamic finance. The elements of the program are meant to assure that users understand and retain the Islamic rules applied to finance, banking, and investment. The program addresses the global Islamic financial markets.

8. Chartered Islamic Finance Professional (CIFP) - INCEIF: CIFP is a certification for those looking to procure the expertise in a broad spectrum of the Islamic banking and finance services industry including takaful and capital markets. It is online (and on campus) based facilitation and can be completed in a minimum of 18 months and a maximum of 6½ years. Bank Negara supports this course by offering scholarship to foreign students. To qualify a student must have Bachelor Degree or a Diploma from a recognised institution with a minimum of 5 years working experience in a related industry.

9. Diploma in Islamic Finance - Qatar Faculty of Islamic Studies: Providing a core focus on finance and economics, pertinent understanding of Shari’a rulings. In order for graduates to qualify for this program they must have a solid background in mathematical, statistical, and econometric technique and/or relevant work experience is not mandatory but will be considered an asset. The program has been divided into two routes (1) Asset Management; and (2) Auditing.

10. Diplôme d’Economie et de Finance Islamique (DEFI) - IIT France: This program is facilitated in French only, launched recently in November of 2009.

Intermediate Level - Legal Studies

1. Diploma in Law - University of London: A distance learning course consisting of four units. It is a qualification in its own right and also provides an entry route to the LLB. Successful completion of the Diploma gains credit for the first four subjects of the LLB degree. A number of British universities recognize the Diploma as an entry qualification for becoming a second-year, campus-based LLB student. This diploma will pave the way in ones career toward Masters in Islamic law. This program can be completed in 1-5 years.

2. Executive Diploma in Islamic Law (Islamic Banking) - IIUM: This course has a duration of 1 year on a part time basis, and is conducted in English. It is suitable for those with some experience in the Islamic finance industry. Here are some prerequisites:
- SPM 3 credits with 3 years of working experience, or
- STPM 2 principles with 2 years of working experience, or
- Diploma recognized by IIUM with 1 year working experience, or
- Degree in any discipline recognized by IIUM
It is being conducted by Harun M. Hashim Law Centre, International Islamic University, Malaysia.

3. Bachelor of Laws (LLB) and Diploma in Law - University of London: A programme for those who intend to obtain an LLB degree of international standing providing the first step on a career route to doing LLM in Shari’a or Islamic law Applicants who already have an undergraduate degree acceptable to the University may complete the LLB in two years through the nine-unit Graduate Entry Route. This can be completed in 3-8 years (or a minimum of 2 years on the Graduate Entry Route).

4a. LLB (Honors) - IIU: A 5 year (13 semesters) degree programme, anyone who has accomplished his A/level or F.A (having at leat 50% marks) can apply.

4b. LLB - IIU: A three year (7 semesters) degree programme course. The candidate should have at least Bachelor or equivalent degree from a recognized University, with at least 50% marks (C Grade).

4c. B.Sc in Islamic Banking & Finance - IIU: This programme {B.Sc (Hons)} is a 4 year program offered to candidates with alternative background such as: a) Candidates holding Higher Secondary Certificate from a Board of Intermediate and Secondary Education in Pakistan or equivalent qualification from recognized institutions within the country or abroad; b) Candidates with at least 45% marks in aggregate are eligible to apply. Preference will be given to candidates having studied Economics/Mathematics/ Statistics. Admissions are offered purely on merit in which the entry tests play important role. Foreign candidates may apply provisionally on the basis of paper qualification.

5. Post Graduate Diploma in Islamic Banking and Insurance - IIBF: The diploma aims to engrave the basic operational and fundamental theories on which the whole banking structure is designed. More details can be found on the website given below, its cost is £1,000 and is a distance learning course benefitting those who intend to carry it out on their own time.

6. Post Graduate Diploma in Islamic Banking - IIU: Can be achieved by candidates holding BA/B.Sc/BBA/B.Com degree or equivalent qualification from a recognized institution. Admission is granted purely on merit basis through admission test and interview. Preference will be given to nominees of Banks and Financial Institutions. The good thing about this course is that every student will be required to present a workshop on a project prescribed by the faculty, which will be evaluated accordingly. Alternatively the student will be required to join internship with an Islamic financial institution for a period of 6-8 weeks. The performance of the student will be evaluated by a committee of examiners in the faculty on the basis of the report submitted by the head of host institution.

7. Post Graduate Diploma in Islamic Banking & Finance - The Institute of Islamic Banking & Finance: An exclusive threshold Gateway Programme designed as a Distance Learning Program to offer knowledge resources in a comprehensive and compact manner motivating students to explore further avenues for knowledge. Any Graduate in any discipline from a recognized university with simple ability to understand English language as the entire material is designed in English language. MBA/BCom candidates enjoy convenience of understanding the subject with ease.

8. Postgraduate Diploma in Islamic Business and Finance (PGDIBF) Program - IBFNet: To qualify for entry to the Postgraduate Diploma in Islamic Business and Finance program, applicants normally must have completed CeIB/CeIIP/CeIIA (All of these courses have been mentioned in this database).

9. Postgraduate Diploma in Islamic Banking & Finance - Al Huda CIBE: Intended to impart the comprehensive knowledge of Islamic Banking and Islamic Insurance with its true sense and concept in the people who are unrelated to the banking or insurance professions. The purpose of the course is to equip the graduates with the Shari’a principles of Islamic finance to fulfill the global needs of human resources and to produce well equipped professionals with the knowledge of Islamic financial concepts and products.

10. Chartered Islamic Finance Professional (CIFP) - INCEIF: An online course which claims to equip its participants with extensive knowledge in Wealth Management, Takaful, Islamic Structured Products, Regulation & Supervision and Consultancy. To qualify the participant must have a recognized Bachelor Degree in any field; or a Diploma from a recognized institution with a minimum of 5 years working experience in the related banking or insurance industry.

11. Graduate Diploma in Islamic Economics and Finance (PGDIEF) - Al Jamia Al Islamiya: A 10 months integrated course on Islamic economics and finance dealing with subjects such as Islamic economics and their measures in Qur'an and Hadith, Accountancy with Computer application (Tally & Peachtree) and Functional Arabic etc.

Intermediate Level - Insurance/Takaful

1. Certified Takaful Professional (CTP) - AIMS: A distance learning program designed to produce highly skilled Islamic Insurance professionals for Takaful industry. Educational support is provided online by renowned Islamic Insurance experts. Complete study material is provided by AIMS. The candidate interested to pursue hie career in this course must possess an appropriate University or College degree from a recognized institution & those applicants who do not hold a university or college degree, will be considered for admissions if they have a diploma in finance/Insurance OR minimum two years full-time appropriate work experience in insurance. Lastly the applicant must be minimum 22 years of age.

2. Certified Islamic Insurance Professional (CeIIP) - IBFNet : A program in which candidates normally must have: completed at least first two years of a recognized four-year undergraduate degree or equivalent in field of economics, commerce, business, accounting, law and related areas; preferably be part of the banking and financial services industry; have appropriate resources to facilitate ready access to the Internet; have ready access to a personal e-mail address; and have the skills required to access and manipulate materials delivered electronically. Persons meeting the above requirements will be required to complete twelve credit points of approved study to be awarded the CeIIP.

Advanced Level - Masters in Islamic Banking & Finance

1. Masters in Islamic Banking & Finance - IIU: M.Sc leading to M.Phil in Islamic Banking & Finance, this programme is available to candidates with B.Sc.(Hons) or MA/ M.Sc degree in Economics/ Economics & Finance and Islamic Banking & Finance from IIUI with minimum CGPA of 2.0/4.0 or equivalent are eligible for admission to the first phase of the program in the relevant area. It has a sophisticated structure paving way for candidates to M.Phil.

2. M.Sc in Islamic Economics and Finance at Department of Economics - Loughborough University.

3. MA in Islamic Management, Banking and Finance - Markfield Institute of Higher Education.

4. Masters Programs in Business/Finance/Economics/Accounting with Islamic Orientation - International Islamic University Malaysia.

5. MBA program in Islamic Finance - University College of Bahrain: evening program suitable for those who cannot commit themselves to full time academic studies.

6. Masters in Islamic Finance - INCEIF: offers training in the key areas of Islamic economics, finance and Shariah in both theoretical and applied aspects. The area of specialization is in Takaful, Islamic Banking & Islamic Capital Markets. This course can be done in 2 years (Full time) and 4 years (part time).

7. Master of Science Islamic Finance - Bahrain Institute of Banking and Finance: An expensive course but it covers both the streams (i.e. Conventional & Islamic financial streams). This is broken down into seven finance courses and five Islamic finance courses.

8. MSc in Islamic Finance - Bangor University in Wales: Recently launched, it is a balanced finance and Islam course, with the emphasis on the first. Entry to the MSc/Diploma in Islamic Banking and Finance programme requires a good first degree in a relevant subject, e.g. economics, finance, accounting or management from a university, or a similar qualification from any other institution. Alternatively, possession of a suitable professional qualification and relevant practical experience may also be accepted. (A 2 year programme, with the first year as a "qualifying year", is also available for students whose backgrounds are different from those outlined above in order to prepare them more fully for their MSc in Islamic Banking studies). The university also provides MA in Islamic Finance.

9. Master of Science in Islamic Finance - QFIS: claims to offer, like its Diploma in Islamic Finance, a thorough understanding of Shari’a rules for finance and economics. The Admission requirements are general (i.e. a bachelor's degree in Finance, or Economics, or Business, or Shari'ah and/or relevant work experience).

10. MSc Finance & Law with Islamic Finance - Newcastle University: A 12 month full-time program, which consists of a total of 180 credits modules with focuses on Financial and Corporate Theory, Law, International Economics and Finance, Money and Banking, Credit risk Modelling etc.

11. MSc Degree Course in Islamic Banking - Salford Business School: soon to be launched, aims to be delivered in full and part time modes. The degree “will complement the School's existing postgraduate degrees in Banking and Finance by providing a solid core of general banking and financial principles together with three modules specific to Islamic Banking and Finance”. Apart from the usual Islamic knowledge on transaction, product and economics students will also study core modules on Business Research, Accounting Regulation & Compliance, International Financial Markets and strategy in Finance.

12. MBA Islamic Banking and Finance - Academy UK: This is a 12 months program which apart from the Shari’a aspects of finanicing also accentuates on Quantitative Methods for Finance and Risk Management.

13. The Cass Executive MBA is a two year part-time programme tailored to suit professionals in the industry. Like other MBA’s, the course is broken down into 3 elements – core modules, elective modules and the Business Mastery Project. It offers some exposure to Islamic finance under one of its streams.

14. MBA in Islamic Banking and Finance - AIMS: An online two-part program. The First Program is called “Certified Islamic Finance Expert (5 courses)” after which the student may become applicable for the “MBA Core courses” (7 courses and 1 Thesis). The whole program is self study, with material provided by AIMS, however, online academic support is also made available. Students are given Assignments and have to pass an online multiple choice "open book" examination with a 65% passing mark. The MBA degree is awarded in collaboration with Pebble Hills University.

Advanced Level - Masters in Shari’a Law & Usul ul Fiqh

1. LLM International Law - IIU: A two year (4 semesters) degree, qualifying eligibility is at least 50% marks in L.L.B or 2.50/4.00 CPGA.

2. LLM Shari’a (Islamic commercial Law) - IIU: A two year (4 semesters) degree, eligibility for this programme is that the candidate should hold L.L.B with at least 50% marks from a recognized university.

3. LLM Usul ul Fiqh - IIU: Entails a two year (4 semester) degree, for eligibility the candidate should hold L.L.B with at least 50% marks from a recognized university.

Advanced Level - Research & Doctorate

1. International Shari’a Research Academy - ISRA: ISRA has developed a dual qualification encompassing the Shari’a & financial related issues. This academy had been instated by Bank of Negara, Malaysia and is currently scholarship based.

2. PhD Program - INCEIF : can also be conducted through scholarship financed by Bank of Negara, Malaysia. The subjects covered range from Islamic Economics to Corporate Finance, Islamic Accounting, Usul Fiqh and Qawaid Fiqhiyyah, Islamic Law of Contracts, Mathematical Methods for Economics and Finance, Eonometrics, Islamic Capital Market and Islamic Wealth Management etc. This is followed by a Dissertation/Thesis in a wide variety of fields such as Fiqh Muamalat, Sukuk, Legal aspect of Islamic financial institutions, Economics policy and analysis of Islamic financial institutions, Accounting for Islamic financial institutions, Takaful and Re-Takaful etc.

3. PHD’s in Islamic Finance - Islamic Economics Research Center, King Abdulaziz University.

4. Ph.D Sharia (fiqh/usul-ul-fiqh) - IIU: prerequisites include holding a Masters degree from a recognized institute with first division or 3.0/4.0 CGPA.

5. MA in Islamic Political Economy and MSc in Islamic Economics and Finance at Institute of Middle Eastern and Islamic Studies - Durham University: can also assist in research for dissertations and thesis.

Islamic Finance Training Programs & Certifications 2.0

The Issue of sequence and Pre-Signingin Contract Execution: A Comparison of Shari'ah Rules and Current Practice

The Issue of sequence and Pre-Signingin Contract Execution : A Comparison of Shari'ah Rules and Current Practice
Assoc. Prof. Dr. Asmadi Mohamed Naim, Islamic Finance and Banking Unit, College of Business, Universiti Utara Malaysia (UUM)
ISRA Research Paper (No. 12/2010)

"Pre-signing refers to the event in which the customer signs a series of Shari'ah transactional documents (including legal documents) at a single sitting; and, thereafter, the bank shall sign the same documents at a separate sitting on a later date. Pre-signing of all the transaction documents is a questionable issue, as it represents a departure from the familiar sequence of offer and acceptance. The aim of this paper is to evaluate the current practices of Islamic banks in conducting pre-signing and analyze the Shariah implications. In doing this, the paper first discusses the pillars of contracts in the Shari'ah and reviews some fatwas on pre-signing. It then shares the findings from a survey conducted on pre-signing practices by Islamic banks in Malaysia. In the analysis section, four situations of pre-signing are highlighted and the Shariah implication of each is discussed."

The Issue of sequence and Pre-Signingin Contract Execution: A Comparison of Shari'ah Rules and Current Practice

Social Responsibility Trends at Islamic Financial Institutions

DinarStandard and Dar Al Istithmar, have just announced the release of a first-of-its-kind report on Corporate Social Responsibility (CSR) in Islamic Finance Institutions as well as recognizing social responsibility leaders from within the respondents with the Maqasid Al-Shari’a Awards. In fact it was in mid-2009 that we first encountered this survey (blog post here) and we look forward to its future editions. It is refreshing that the actual report is being disseminated upfront (in this space there seems to be an over-supply of press releases disguised as news) and most importantly we should note that the awards are based on a defined and objective set of criteria (i.e. not a popularity contest). This is a very positive signal which others in the industry will hopefully follow.

The full report is available here (pdf document).

Excerpt: The Social Responsibility Trends at Islamic Financial Institutions Report presents the aggregate results of an extensive survey on Social Responsibility at Islamic Financial Institutions (IFIs) carried out during summer and fall of 2009.

Some key findings of the survey:

Charity: 76% indicated that they had polices for charitable activities whilst 17% had none. Charitable activities remains a strong priority for IFIs, but most do not consider utilising their fund mobilizing capabilities to raise funds for charities or emergency causes (only 34% said they do.)

Responsible Investments: 55% responded yes to having some policy in investment quotas on social, developmental and environment orientated investments, whilst 38% did not have such policy. However, amongst the three types, environmental related investment quotas had the least focus (38%).

Clients: 100% of respondents answered yes to having a policy to screen prospective clients which is actively implemented. Similarly 97% have an organizational policy that deals with client responsibly.

Employees: 83% of respondents’ state having policies that provide equal opportunity to all their employees, 93% have policies that ensures merit-based salary and promotion, and 86% having policies that specifically prohibits any kind of discrimination. However, when it comes to having policy to monitor employees from different backgrounds and gender, the response was mix with only 52% admitting to having such a monitoring policy and 48% not having any such policy.

A sincere thanks to Dr. Sayd Farook for providing the report.

Social Responsibility Trends at Islamic Financial Institutions

Islamic Banking and Finance - Insight on Possibilities for Europe

Islamic Banking and Finance - Insight on Possibilities for Europe
WSBI, ESBG
October 2009

"The growing Muslim population in Europe – estimated today at over 14 million – means that there may be a significant portion of the population for whom their religious beliefs make traditional European financial practices inaccessible. In order to serve this portion of the population, Islamic finance may be an important new avenue for delivering financial services and addressing a market vacuum."

Islamic Banking and Finance - Insight on Possibilities for Europe

Islamic Capital Markets and Investment Banking: The Definitive Guide

Islamic Capital Markets and Investment Banking: The Definitive Guide

With the financial crisis, global finance decision makers are increasingly eyeing the unscathed Islamic capital markets for the next big investment opportunity. Find out what these opportunities are in the latest report, Islamic Capital Markets and Investment Banking: The Definitive Guide. The report provides an objective and actionable quantitative analysis of the global Islamic capital markets from authoritative and independent sources.

Included are sector-by-sector analysis of Islamic capital markets core areas including:

- Sharia-compliant derivatives

- Asset management

- Debt capital markets

- Treasury and interbank markets

- Private equity plus

- Comprehensive data on 150 banks and financial institutions

View sample pages of the report here. Highlighting this report (even though it is not freely available) as we contributed to certain portions of it.

Islamic Capital Markets and Investment Banking: The Definitive Guide

IFN Roadshow - 2010 Schedule

The Islamic Finance News Roadshow is a practical way to meet industry practitioners and learn about the current issues facing Islamic finance.  A far cry from the many expensive conferences out there, and it must be said they work hard to minimize advertorial-intensive presentations/speakers.  These free events have just entered their third year and have recently added nine developing Islamic financial markets to their list of cities being visited - check the roadshow venues and dates here.

IFN Roadshow - 2010 Schedule

Markets and the role of government in an economy from Islamic perspective

Markets and the role of government in an economy from Islamic perspective
Hasan, Zubair (2008)
INCEIF

Abstract: "This paper explains the notion of market in historical perspective and the role markets play in free enterprise economies. It lists the major market failures and the role governments are expected to play in regulating and supplementing markets including the promotion of CSR from Islamic perspective. The discussion is limited to product and factor markets."

Markets and the role of government in an economy from Islamic perspective

GFH Chart

The Rise and Fall of Gulf Finance House
By Mohammed Khnifer, Aatef Baig, and Frank Winkler
Reading University, May 2010

GFH Chart

UNEPFI & Islamic Finance

Over the recent past many parallels have been drawn between Islamic finance and sustainability, with further suggestions of convergence towards its CSR and SRI cousins (for instance refer to these various articles on Islamic finance and ethics).

Recently Michael Gassner (islamicfinance.de) has highlighted how Islamic finance institutions could (and should) support the United Nations Environment Program Finance Initiative (UNEP FI) which aims to forge a stronger link between sustainability and financial institutions around the globe.

There are currently two signatories (out of 200) that are loosely related to Islamic finance (namely NBK and Bank Muscat) and hopefully many more will follow - membership information of UNEP FI is available here.

There is further scope if one considers the United Nations Principles for Responsible Investing (UN PRI), so clearly much to look forward to if Islamic finance institutions truly recognize the reason for their existence. It is a difficult road ahead but something that deserves support and encouragement from all of us.

UNEPFI & Islamic Finance

Case Study: MIGA and Islamic Finance

Doraleh Container Terminal Case Study
World Bank Group

Multilateral Investment Guarantee Agency

Djibouti, April 2008

Abstract: "Increased liquidity in Islamic financial markets, spurred by oil revenues in the Gulf region, is creating a growing demand for deals structured using Islamic finance. In order to satisfy this demand, traditional business tools need to be adapted to meet the relatively unique and complex needs of Islamic finance. In 2007, Multilateral Investment Guarantee Agency (MIGA) was tapped to provide political risk insurance for a critical project in Djibouti that was being funded through an Islamic financing structure. The main challenge faced by the agency was that the project's Islamic financing structure had payment obligations spread out across numerous agreements, while MIGA's guarantee coverage for third party lenders normally considers such obligations under a single loan agreement. MIGA structured its guarantee in a way that addressed the key risks that concerned the project financiers, while meeting the strict requirements governing the Islamic structure. This resulted in the agency's first-ever guarantee coverage of an investment supported by an Islamic financing structure. The Doraleh Container Terminal project involves the development, design, construction, management, operation, and maintenance of a new container port terminal in the city of Doraleh, Republic of Djibouti."

Case Study: MIGA and Islamic Finance

Finance and Growth: The Role of Islamic Contracts

Finance and Growth: The Role of Islamic Contracts
Ismail, Abdul Ghafar and Tohirin, Achmad (2009)
Centre for Research in Islamic Economics and Finance
School of Economics, Universiti Kebangsaan Malaysia,
Centre for Islamic Economics Development and Studies
(P3EI) Faculty of Economics, Islamic University of Indonesia

Abstract: "Although, Islamic law has been in existence for more than fourteen hundred years, but its implementation have been subjected to the willingness of the rulers in the passage of history and civilization. Although, the study on financial contracts has been extensively reviewed, the role of Islamic contracts is not highlighted, except those in the historical institutional and contract theory literatures. The study that link finance and growth takes many dimensions. One of the dimensions is law and finance view. In the beginning, the studies that link the former only look at the finance variables and economic variables. Further development analyses the relationship at the system level, i.e. discussion whether bank-based vs. market-based matters on growth. Islamic finance comes up with its distinctive contracts and products of profit-loss sharing. It may give different character and notion in the financial system in particular and in the economic system in general. This paper is aimed at discussing Islamic laws which are relevant to finance. Most importantly the aspect of contracts as foundation for the distinctive Islamic financial products, i.e. the one resembling profit-loss sharing nature containing cooperative spirit, will be analysed to establish a strong connection with financial stability as pre-requisite to achieve the economic growth."

Finance and Growth: The Role of Islamic Contracts

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

IRTI, IFSB

2007

Abstract: "This document presents an overview of the past, present and expected future of the Islamic Financial Services Industry (IFSI). It addresses the challenges and opportunities of the various segments of IFSI. The strategic objectives and proposed initiatives are also outlined. Finally, the document states the recommendations covering the broad strategies and initiatives to be undertaken for developing the various components of IFSI. "

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance

This is a useful analysis of the Takaful industry as seen from a macro perspective, providing a fairly comprehensive review of industry with an emphasis on quantification of the market size and prospective growth.

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance
Swiss Re
2008

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance

World Business: Islamic Recovery

Some of the industry voices sharing their thoughts on the role of Islamic finance in the aftermath of the financial crisis. Over the past few months we have heard from many promoters as well as detractors, nevertheless it seems that balanced and objective views are increasingly harder to find.

Source: World Business

World Business: Islamic Recovery

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis
Rafe Haneef, Research Fellow, ISRA & Edib Smolo, Researcher, ISRA
ISRA Research Paper (No. 11/2010)

"In the last 27 years, the world has witnessed more than 124 distinct financial crises. The financial meltdown caused by the current global financial crisis brought the financial world to its knees. This paper aims to discuss how the Islamic finance industry can reshape itself by learning lessons from the global financial crisis. To achieve this aim, the paper first identifies the lessons that can be learnt from the crisis including risk transfer & imprudent credit growth, failure of risk management, liquidity and leverage, lax regulation and opaque disclosure. The paper then suggests how the economic agents’ behavior and responsibilities could be reshaped by highlighting the sellers’ standard of care and regulatory responsibility. The paper concludes that the global financial crisis revealed the weaknesses of the global financial architecture on one side and provided an opportunity for Islamic finance to show its inherent strengths and qualities on the other. To facilitate this, the paper offers some possible Shari‘ah-based solutions that can help the financial world avoid similar crises in the future."

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis

CW: The Determinants of Sin Stock Returns: Evidence on the European Market

The Determinants of Sin Stock Returns: Evidence on the European Market
Julie M. Salaber
November 2007

CW: The Determinants of Sin Stock Returns: Evidence on the European Market

Determinants of Islamic Bank Profitability

Determinants of Islamic Bank Profitability

by Professor Sudin Haron

KLBS - Working Paper Series 002

March 2004

Determinants of Islamic Bank Profitability

CW: The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning

The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning
Rients Galema, Auke Plantinga, Bert Scholtens
February 2009

CW: The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning

Analysis of Short-Term Asset Concentration in Islamic Banking

Analysis of Short-Term Asset Concentration in Islamic Banking
Abbas Mirakhor
International Monetary Fund (IMF)
October 1987

Abstract: In general the process of implementation of Islamic banking in the Islamic Republic of Iran and Pakistan appears to be proceeding with relative success. However, number of problems have surfaced during the transition period, among which is a tendency for short-term assets to dominate commercial bank portfolios. The negative effects on capital formation is one result of this portfolio behavior. The cause of this behavior is a set of regulations constraining profit-sharing activities of commercial banks. It is shown here that such regulations rather than reducing the risks of bankruptcies in the banking system may well increase them.

Analysis of Short-Term Asset Concentration in Islamic Banking

Opalesque Islamic Finance Intelligence - Fifth Issue

It has been quite impossible to escape the recent headlines emanating out of Dubai and specifically relating to Nakheel - to the point that one would have been tempted to avoid the topic altogether. We emphasize the need to take a forward-looking perspective for this the fifth edition of OIFI. We explore the broader implications of Nakheel as it relates to the future of sukuk specifically and to the Islamic financial marketplace as a whole within our editorial section.

Fortunately OIFI does not coordinate content with irrational exhuberance (or market 'standstills' for that matter), we remain focused on providing coverage of a wide range of topics - all very timely and relevant in their own right. Our Featured Resource section revisits various opinion pieces on ethics and Islamic finance, with a further segway into social responsibility and responsible investing.

In our Featured Structure section, Nikan explores various Shariah compliant short-selling solutions that have been developed over the past few years (and complemented by further analysis of each one). This review is further complemented by our Fund Manager Interview as we converse with Tocqueville's John Hathaway, who oversees one of the very first Islamic hedge funds.

Khalil continues his Lex Islamicus column with a specific look at contractual complexity and this is further complemented by our Industry Snapshot, where Hdeel Abdelhady from DLA Piper provides a critical analysis of some of the most noteworthy court cases involving Islamic law in recent years. Just as legal precedent is relevant and necessary, so is the need for developing the future talent in the industry as we hear from Fuwad Beg, of Yasaar Human Capital, exploring this theme in detail in our Opinion Column.

Once again we welcome your comments & suggestions, and a reminder that you can check the free online archive of Opalesque Islamic Finance Briefing (our daily news summary) which provides a historical data bank of industry news and articles, as well as the back issues of OIFI.

Download Opalesque Islamic Finance Intelligence here

Opalesque Islamic Finance Intelligence - Fifth Issue

CW: The Cost of Socially Responsible Investing

The Cost of Socially Responsible Investing
Tim Adler
May 2008

CW: The Cost of Socially Responsible Investing

Islamic Banking Theories, Practices and Insights for Nigeria

Islamic Banking Theories, Practices and Insights for Nigeria
Toni Uhomoibhi Aburime
Deakin University

Abstract: The broad aim of this paper is to introduce knowledge of Islamic banking theories and practices to banking and finance scholars and practitioners in Nigeria, as well as draw some useful insights on Islamic banking in Nigeria. Prohibition of interest, low consumer lending, profit and loss sharing and high real sector investing are primary characteristics of Islamic banks. Islamic banks operate the three conventional deposit accounts. They also engage in investment financing, trade financing, lending, and other financial services. Differences between Islamic and conventional banks lie in prohibition of interest, emphasis on Islamic principles of morality, emphasis on collateral, certainty of deposits and returns, liquidity risk and solvency risk; while similarities between Islamic and conventional banks lie in profit-making objective and nature of banking services. Though there is a dearth of Islamic banks in Nigeria, Islamic banking has become a fast growing concept. The emergence of full-fledged Islamic banks in Nigeria should be expected in the near future.

Islamic Banking Theories, Practices and Insights for Nigeria

LinkedIn Discussions - Highlights of 2009

Looking back at 2009 we thought useful to highlight some of the most heated discussions and lengthy debates which we have had over the year within our Linkedin group.

Here we have picked some of the most extensive and interesting discussions which are worth a review:

Shariah Compliant Structures:

- Murabaha Contracts - Shariah Compliance Revisited

- The use of LIBOR as a Benchmark by Islamic Banks

- Should you be able to pay for a promise (Wa'd)?

- Islamic Alternatives to LIBOR

- The Malaysian Islamic Bonds Model

Industry-related Issues:

- Why Islamic Finance Prohibits Short-selling...

- Islamic Finance, English Law and UK Courts

- The Employment of Shariah Scholars by Businessmen

- The role of Derivatives in Creating the Financial Crisis

- Does Islamic Finance Need a Voice?

LinkedIn Discussions - Highlights of 2009

CW: Socially Responsible Investors and Their Advisors

Socially Responsible Investors and Their Advisors
Meir Statman
November 2007

CW: Socially Responsible Investors and Their Advisors

CW: Socially Responsible Investments: Methodology, Risk Exposure and Performance

Socially Responsible Investments: Methodology, Risk Exposure and Performance
Jenke Ter Horst, Chendi Zhang, Luc Renneboog
June 2007

CW: Socially Responsible Investments: Methodology, Risk Exposure and Performance

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?
Assoc. Prof. Dr. Asyraf Wajdi Dusuki, Head of Research Affairs Department, ISRA
ISRA Research Paper (No. 10/2010)

"In 2009, Bursa Malaysia launched a new trading platform called Suq al-Sila’ or Commodity Murabahah House. It was introduced to facilitate certain Islamic financial transactions, particularly commodity murabahah based on tawarruq. This platform is claimed to provide genuine commodity transactions where possession and delivery of the commodity can take place without any hindrance, as opposed to the controversial widespread form of tawarruq that uses platforms like the London Metal Exchange (LME). This paper discusses the practice of tawarruq using Bursa Malaysia’s Commodity Murabahah House. In particular the paper comprehensively examines the debates over tawarruq which eventually lead to the OIC Fiqh Academy’s declaration that organized tawarruq is impermissible. This paper concludes that despite the criticisms and some unresolved Shari‘ah matters entangling the practice of tawarruq, the effort made by Bursa Malaysia to introduce a platform such as Commodity Murabahah House is commendable. Furthermore, since the nature of modern organized tawarruq may not strictly comply with Shari‘ah principles, the reasons behind using this facility should be carefully taken into consideration, especially situations of real urgency and cases of need."

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

Ewa Karwowski

University of London - Levy Economics Institute Working Paper

January 2009

Abstract: "This paper explores the significance of Islamic banking in Malaysia for stability in the country's economy as a whole. Neither conventional theory nor Islamic economics puts forward a systematic explanation of financial intermediation; consequently, neither is capable of identifying destabilizing elements in the system. Instead, a flow-of-funds approach similar to Minsky's own is applied to the (post-) modern consumption-led) business cycle and financial (and asset) market.

Malaysia's structural current account surplus contributes to the overcapitalization of domestic firms. This in turn finances a financial (as opposed to an industrial), consumption-led (instead of investment-led) business cycle, where banking favors destabilizing asset price inflation. Islamic banks operating interdependently with conventional ones contribute to economic destabilization channeling surplus funds from the corporate to the household sector."

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

The New Mainstream: Islamic Private Equity and Competitiveness

Is Islamic private equity under-rated or over-sold? Untapped or ill-deployed? There is very little data available on the viability, success (or for that matter failure) of current and previous efforts in this space. While advertorial in nature, this piece suggests a variety of opportunities are available due to three key factors: Demand, Means and Support. However it suggests that in order to activate this there are four challenges faced by the industry: Standardization, Engineering, Education and Human Capital.

The New Mainstream: Islamic Private Equity and Competitiveness
Seera Investment Bank
November 2008

The New Mainstream: Islamic Private Equity and Competitiveness

CW: Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices

Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices
Michael Schroder
September 2003

CW: Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices

Adopting and Measuring Customer Service Quality in Islamic Banks

Adopting and Measuring Customer Service Quality in Islamic Banks: A Case Study of Bank Islam Malaysia Berhad

by Shahril Shafie, Dr Wan Nursofiza Wan Azmi and Professor Sudin Haron

KLBS - Working Paper Series 001

2004

Adopting and Measuring Customer Service Quality in Islamic Banks

3rd IFSB Public Lecture on Financial Policy and Stability

3rd IFSB Public Lecture on Financial Policy and Stability

In conjunction with the 15th Meeting of its Council, the Islamic Financial Services Board (IFSB) is organising its 3rd Public Lecture on Financial Policy and Stability on 23 November 2009 in Kuala Lumpur, Malaysia. Bank Negara Malayia (BNM) is kindly hosting both the Meeting of the Council and the Public Lecture.

Mr. Paul Koster, Chief Executive of Dubai Financial Services Authority, and Mr. Jean Pierre Sabourin, Chief Executive Officer, Malaysia Deposit Insurance Corporation will speak in the Public Lecture, which is scheduled to be held at 1:30pm – 5.15pm.

You can view the downloadable programme at the IFSB website. Should you wish to attend the both the Public Lecture and the High Level Conference, or either one of these events, please fill up the online registration form, or email/fax in your details to the IFSB Secretariat.

For more information contact:
Ms. Puteri Bahrun
Email: puteri@ifsb.org
Tel: + 603 2698 4248 ext: 114

3rd IFSB Public Lecture on Financial Policy and Stability

Islamic Finance - Podcasts & Webcasts

Here we feature a collection of educational multimedia materials (both video webcasts as well as audio podcasts) offered by the CFA Institute. This provides an opportunity to learn about various concepts of Islamic finance, topics include structuring sukuk, corporate governance, and the role of standard setting bodies in Islamic finance (this is also complemented by various introductory pieces as well). The list of experts includes Professor Rodney Wilson, Shaykh Yusuf Talal DeLorenzo, Rushdi Siddiqui, Professor Simon Archer, Professor Rifaat Karim, Richard de Belder, and Mohammed Amin (among others).

This list will expand in the near future as they plan to add new webcasts periodically. Similarly we plan to highlight much more multimedia content in the near future.

These webcasts are available for free but a registration is required for non-members of CFA Institute (creating an account to login will be created instantly).

With thanks to Usman Hayat for his assistance with the materials.

Islamic Finance - Podcasts & Webcasts

DFSA - Enhancing Clarity and Accessibility of Islamic Finance Rules

Consultation Paper No. 66 Enhancing Clarity and Accessibility of Islamic Finance Rules

The DFSA is proposing to restructure the rules relating to Islamic finance to better promote the visibility and accessibility of the DFSA's regulatory regime (as it applies to Islamic financial activities conducted within the DIFC).

Comments and feedback can be sent to (note deadline is December 4th):
Dhammika Amukotuwa
Associate Director, Policy and Legal Services, DFSA
Email: DAmukotuwa@dfsa.ae

The relevant files are as follows:
Consultation Paper in PDF Format
Appendix 1 — Proposed New IFR Module
Appendix 2 — Sample of a Virtual Handbook

DFSA - Enhancing Clarity and Accessibility of Islamic Finance Rules

The Future of Takaful: Potholes in the Streets of Gold?

The Future of Takaful: Potholes in the Streets of Gold

by Peter Hodgins and Caroline Jaffer

Clyde & Co

August 2009

The Future of Takaful: Potholes in the Streets of Gold?

CW: Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios

Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios
Bernell K. Stone, John B. Guerard, Jr., Mustafa N. Gultekin, Greg Adams
June 2001

CW: Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios

Islamic Banks and Wealth Creation

Islamic Banks and Wealth Creation
Prof. Dr. Abdul Ghafar Ismail
ISRA Research Paper (No. 9/2010)

"This paper aims to examine how Islamic banks create wealth: how customers as depositors invest their money through the banks; how the banks invest the funds at their disposal; and how economic agents such as individuals, firms and government use these funds. It also examines how this money generates profit, which is then distributed to Islamic banks and depositors, and hence preserves and develops the wealth (mal) of economic agents. It also raises the larger question of whether Islamic banks contribute to the well-being of society by focusing on return to depositors and to shareholders."

Islamic Banks and Wealth Creation