An Analysis of the Role and Competency of the Shari'ah Committees (SCs) of Islamic Banks and Financial Service Providers

An Analysis of the Role and Competency of the Shari'ah Committees (SCs) of Islamic Banks and Financial Service Providers
Dr. Rusni & Reasearch team
ISRA Research Paper (No. 18/2010)

Abstract: "IFSB’s Guiding Principles on Shari'ah Governance Systems for Institutions Offering Islamic Financial Services defines “Shari'ah governance system” as the set of institutional and organisational arrangements through which an institution offering Islamic financial services oversees Shari'ah compliance, i.e., that Islamic banking products and operations are in accord with Shari'ah principles. This requires the establishment of a Shari'ah advisory board. The Shari'ah governance of Islamic financial institutions (IFIs) in Malaysia consists of two components: the Shari'ah apex body, which is the Shari'ah Advisory Council (SAC) established by the Commission, and the Shari'ah advisors appointed by the respective institutions (Shari'ah Committees). Their roles are directing, reviewing, supervising and approving or rejecting the activities of IFIs in order to ensure compliance with Shari'ah rules and principles. The extent to which Islamic banks comply with Shari'ah principles is, to a great extent, determined by the role of such boards. Consequently, this body needs sufficient authority to enable its members to perform their functions effectively. However, many issues have arisen about the role and competency of Shari'ah advisors. This research aims to examine the current practice of Shari'ah advisory in Malaysia from the perspectives of advisors, bankers and regulators. The research focuses on the roles and functions practically played by the Shari'ah advisors and the IFIs’ expectations of them. Problems faced by the Shari'ah advisors, bankers and regulators need to be specifically identified so that measures to bridge the gaps between them may be proposed. This will ensure a harmonious relationship between all stakeholders as well as ensuring that the dayto-day running of IFIs will be compliant with Islamic law."

An Analysis of the Role and Competency of the Shari'ah Committees (SCs) of Islamic Banks and Financial Service Providers

Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions

Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions (BNM GPS1)

Bank Negara Malaysia
December 2004

These Guidelines aim at achieving the following:
(a) to set out the rules, regulations and procedures in the establishment of a Shariah Committee;
(b) to define the role, scope of duties and responsibilities of a Shariah Committee; and
(c) to define relationship and working arrangement between a Shariah Committee and the SAC of Bank Negara Malaysia.

Guidelines on the Governance of Shariah Committee for the Islamic Financial Institutions

Islamic Mutual Funds as Faith-Based Funds in a Socially Responsible Context

Islamic Mutual Funds as Faith-Based Funds in a Socially Responsible Context
Gianfranco Forte, Bocconi University
Federica Miglietta, Bocconi University
August 2007

Abstract: "Defining social investing and its boundaries is a challenging task. Since the religious beginning of ethical investments, many overlapping investment styles have been grouped into the bucket of socially responsible investments, or SRI. This includes, for instance, faith-based investments. In this paper we study the underlying principles of SRI and Islamic funds as investment classes, and try to determine whether Islamic mutual funds, as faith-based investments, can be included into the category of socially responsible mutual funds, or if they exhibit distinguishing characteristics that indicate that they would be more fittingly grouped in a separate investment family. We address the question from both a qualitative and quantitative point of view. Comparing ideas, ratios and investment styles underlying SRI and comparing them to Islamic portfolios, we identify the potential inconsistencies related to some of the investment decisions. Together with a qualitative assessment of the differences and similarities, we discuss, in the quantitative section of our study, the different sector and country composition of two generic portfolios, SRI and Islamic (proxied by relevant European indices), derived from the application of the investment screens. In addition, through a cointegration analysis on FTSE indices, we show that FTSE Islamic, exhibits peculiar and interesting portfolios' differences in terms of econometric profile, compared to conventional and SRI indices. This paper attempts to unify the studies regarding SRI, with the available studies on Islamic investments. To the best of authors' knowledge, this is the first time that SRI and Islamic indices are analysed and compared."

Islamic Mutual Funds as Faith-Based Funds in a Socially Responsible Context

Internationalization of Islamic Financial Institutions: Challenges and Paths to Solution

Internationalization of Islamic Financial Institutions: Challenges and Paths to Solution
Samy Nathan Garas
Al Baraka Center for Islamic Economics

Abstract: "The Islamic Financial Institutions (IFIs) have witnessed a significant growth recently and become a new player in banking industry. As IFIs move towards the international markets, they confront several challenges on internal and external levels. Internally, IFIs still have limited recognition by investors, marginal contribution to the macro economy and limited customer service. Externally, IFIs have lack of communication with other players in the financial markets. Their products are not totally promoted to the international investors and their system is not completely regulated and recognized by central banks. This paper will address these challenges and provide a conceptual framework of solutions."

Internationalization of Islamic Financial Institutions: Challenges and Paths to Solution

The Nature of Infaq and its Effects on Distribution of Wealth

The Nature of Infaq and its Effects on Distribution of Wealth
Aziz, Farooq, Mahmud, Muhammad and Karim, Emadul (December 2008)
Federal Urdu University of Arts, Science and Technology,
Karachi Campus, Karachi, Pakistan, Khadam Ali Shah
Bukhari Institute of Technology (KASBIT)

Abstract: "Infaq is one of the basic terms of Quran, which is used in Quran, at almost sixty places. It is basically pious spending in the way of Allah. It has a significant importance in Islamic economic principles, with reference to redistribution of wealth and elimination of poverty. At different places Quran has described its different aspects, e.g. its need, conditions, ways and monetary and non monetary results. It is used by holy prophet, Peace be upon him (P.B.U.H) at different occasions to fulfill the needs of individuals and society as well. In order to ensure the better distribution of wealth which is the need of time, it is necessary to follow the orders of Infaq as given in Quran, and also the guidelines provided by holy prophet P.B.U.H., therefore, the basic objective of this paper is to analyze the role of these spending particularly infaq as a tool of equitable income distribution in an Islamic society."

The Nature of Infaq and its Effects on Distribution of Wealth

Case Study: Farmers Commercial Bank

Risk Management: Islamic Financial Policies
Case Study of Farmers’ Commercial Bank

Ahmed Gaber

Farmer’s Commercial Bank

Case Study: Farmers Commercial Bank

Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead

Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead
IMF - Monetary and Exchange Affairs Department
V. Sundararajan and Luca Errico
2002

Summary: "The provision and use of financial services and products that conform to Islamic religious principles pose special challenges for the identification, measurement, monitoring, and control of underlying risks. Effective and efficient risk management in Islamic financial institutions has assumed particular importance as they endeavor to cope with the challenges of globalization. This requires the development of not only a more suitable regulatory framework, but also new financial instruments and institutional arrangements to provide an enabling operational environment for Islamic finance. The recent establishment of the Islamic Financial Services Board, facilitated by the IMF, addresses these needs."

Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead

Determinants of Islamic and Conventional Deposits in the Malaysian Banking System

Determinants of Islamic and Conventional Deposits in the Malaysian Banking System

by Professor Sudin Haron and Dr Wan Nusofiza Wan Azmi

KLBS - Working Paper Series 007

June 2005

Determinants of Islamic and Conventional Deposits in the Malaysian Banking System

Interest, Mark up and Time Value of Money

Interest, Mark up and Time Value of Money
By Muhammad Ayub
Senior Joint Director, Islamic Banking Department
State Bank of Pakistan, Karachi

Interest, Mark up and Time Value of Money

A Capital Adequacy Framework for Islamic Banks

A Capital Adequacy Framework for Islamic Banks: The Need to Reconcile Depositors’ Risk Aversion With Managers’ Risk Taking
Dadang Muljawan, Research Economist, Bank Indonesia
Humayon A. Dar, Lecturer, Department of Economics, Loughborough University, Loughborough, UK
Maximilian J.B. Hall, Professor, Department of Economics, Loughborough University, Loughborough, UK

Abstract: "This paper combines modern banking theory and principal-agent analysis to develop a framework for an optimal capital structure for Islamic banks. The proposed capital regulation includes a minimum risk-based equity capital cushion [as required under the Basel Accord], a prudent assets-liabilities [capital] structure [i.e. appropriate proportions of PLS- and non-PLS-based assets and liabilities] and a minimum ‘financial participation’ requirement."

A Capital Adequacy Framework for Islamic Banks

A Note on Sukuk and their role in Islamic Finance

A Note on Sukuk and their role in Islamic Finance
Dr. Mohammad Nejatullah Siddiqi
LSE/HIFP Seminar
February 2008

"This note argues that distancing sukuk from debt is necessary to make them free of riba and elements of maysir (gambling). This can be done by making sukuk based on real assets to the exclusion of murabaha receivables. It also requires doing away with the commitment to redeeming sukuk at their original price on expiry of their term. These steps may save Islamic finance from contributing to the trend towards inequity and instability germane to conventional debt based financial system. Oil rich Muslim countries issuing sukuk should especially avoid financial products likely to further worsen the distribution of income and add to popular discontent."

A Note on Sukuk and their role in Islamic Finance

Islamic Finance - Luxembourg

New Arendt & Medernach publication on Islamic finance

Islamic finance has been one of the driving forces of the development of Luxembourg for a long time. Indeed, as early as in 1983, Luxembourg became the domicile of the first Shari'ah-compliant insurance company in Europe. The Luxembourg Stock Exchange played a leading role as the first European Stock exchange to enter the sukuk market in 2002. Luxembourg has a long experience in the Islamic finance field and there is a clear and strong willingness from market participants and authorities to further support the development of this activity.

Islamic Finance - Luxembourg

Review on Sukuk Researches: Where are We Now?

Review on Sukuk Researches: Where are We Now?
Dodik Siswantoro
Faculty of Economics
University of Indonesia

Abstract: "The development sukuk has been growing so fast for the last couple years since the first issuance in Malaysia in the early 1990s, known as Islamic Private Debt Securities (IPDS). However, in Indonesia, sukuk just issued in 2001 by PT Indosat Tbk, a telecommunication company based on mudharabah basis. Then, it followed by others which are dominantly in the form of ijarah (leasing) basis. But, the government Islamic bond or sukuk offered lately in 2008, this may be caused by unavailability of supporting regulations such as the difference of common and civil laws. This paper tries to identify some researches in sukuk. It identifies some approaches and methodologies in each research, such as qualitative and quantitative method, and then grouped into specific topics. However, researches are in qualitative and quantitative approaches in almost equal. Constraints found are due to lack of available data, existing unresolved discussions in conceptual background and unsystematic recording researches such as lack of refereed and regular journals."

Review on Sukuk Researches: Where are We Now?

Obstacles to Islamic Economics Research

Obstacles to Islamic Economics Research
Seventh International Conference on Islamic Economics,
Islamic Economics Research Center, KAAU
April 2008

"This paper emphasizes six factors as main obstacles to progress in research in Islamic Economics. They are: Lack of proper historical studies; Lack of relevant empirical studies; Lack of adequate institutional support; Non-observance of ethical norms relating to research and publications; Poor vision of Islamic society and economy that fails to distinguish between the essential and the peripheral, and, last but not the least; Failure to distinguish between the divine and the human in the Islamic heritage. In what follows we discuss each one of these, with the existing Islamic economics literature in mind. We then suggest possible ways of removing these obstacles to further progress in Islamic economics research. wa billah al-tawfiq"

Obstacles to Islamic Economics Research

Islamic Investment: Evidence From Dow Jones and FTSE Indices

Islamic Investment: Evidence From Dow Jones and FTSE Indices
Khaled A. Hussein
IRTI - IDB

"Despite the increasing attention to Islamic investment, the empirical studies on Islamic indices and/or funds are scarce. Due to increased monitoring costs, availability of a smaller investment universe, and restricted potential for diversification, it has been argued that unscreened benchmarks should outperform Islamic (ethical) investment. This paper examines the impact of the Shari[ah screening on the performance of FTSE Global Islamic index and Dow Jones Islamic Market Index (DJIMI) using a number of performance measurement techniques. We particularly examine whether returns earned by investors who purchases shares in the FTSE Global Islamic and DJIMI indices are significantly different from their indices counterparts, both in the short-run and long-run. In order to capture the impact of the changes in the economic conditions on the indices performance, we divide the sample period into bull and bear market periods. Our findings provide strong evidence to reject the assumption that shari'ah investing offer inferior investment performance compared to unscreened portfolios."

Islamic Investment: Evidence From Dow Jones and FTSE Indices

An Islamic Pricing Benchmark

An Islamic Pricing Benchmark
Prof. Dato' Dr. Mohd Azmi Omar, Asst. Prof. Dr. Azman Md Noor, Prof. Dr. Ahamed Kameel Mydin Meera & Research Team
ISRA Research Paper (No. 17/2010)

Abstract: "The Islamic finance and banking industry has developed tremendously in recent years. The viability of this industry as an alternative method of investment can no longer be denied. As the current global economic and financial crisis laid bare the systemic problems of conventional finance, the Islamic financial system has been offered as a solution by its proponents. However, Islamic finance has been using conventional finance benchmarks, such as KLIBOR, COFI, LIBOR, etc. to determine its own cost of funds, and hence its return on financial investments. This is so because Islamic finance, if not part of the existing conventional finance, has always served as a financial intermediary for surplus and deficit units. Islamic banking, as the dominant institution in the Islamic finance industry, has gone beyond the function of a financial intermediary, for it also serves as a wakil, custodian, partner, entrepreneur, and guarantor. Nonetheless, Islamic finance has yet to come up with an alternative Islamic Pricing Benchmark (IPB) to determine its cost of capital. The need for having such an IPB for Islamic finance cannot be overemphasized; that would make it more comprehensive and independent from the conventional benchmarks that rely on interest rates, the very thing that Islamic finance abhors. Therefore, this project aims to develop an Islamic pricing benchmark model for the Islamic banking industry, more specifically for Malaysia, given its prominence in the Islamic finance industry. The project has reviewed the Shari'ah perspective on an Islamic pricing benchmark and has also examined the conventional pricing benchmark being used by banks. The paper further discusses the theoretical formulation of an Islamic benchmark. Thereafter, using sectoral industry and macroeconomic data, it tests the viability of the benchmark using simulation."

An Islamic Pricing Benchmark

Islamic Finance: An Ethical Alternative to Conventional Finance?

Islamic Finance: An Ethical Alternative to Conventional Finance?
Aziz Tayyebi
The Association of Chartered Certified Accountants
August 2008

"Whether the Islamic finance industry continues to escape the full force of current economic turmoil remains to be seen. What is clear is that the rapid growth in this area of finance and its ethical foundations make Islamic finance an increasingly serious alternative to conventional finance."

Islamic Finance: An Ethical Alternative to Conventional Finance?

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance
Shaikh, Salman
2009

"This paper suggests an alternate approach to corporate finance in an interest free economy by looking beyond practiced Islamic finance and suggesting alternatives for corporate finance in sourcing funds i.e. i) Ijara with embedded options, ii) limited liability partnership, iii) equity modes like Musharakah and Mudarabah iv) income bonds and v) convertible income bonds. It also suggests alternatives for corporate finance in using funds i.e. i) Islamic income funds, ii) Islamic REITs, iii) Treasury Bonds, iv) income bonds v) convertible income bonds, vi) foreign currency reserves, vii) making strategic expansion, and viii) equity investments in other companies. It also suggests methods of valuation by suggesting an alternate means of pricing capital in interest free economy and use of appropriate discount rate i.e. Nominal GDP growth rate in public finance and corporate finance in CAPM, dividend discount model, project valuation, calculating NPV, valuing income bonds and stocks. It also discusses how the problems of scarcity of capital will be solved and alternatives for insurance in an interest free economy."

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance

Elimination of Interest from the Economy - A Response to Issues and Challenges

Elimination of Interest from the Economy
A Response to Issues and Challenges
By Prof. Khurshid Ahmad
Chairman, Institute of Policy Studies

"Definition of Riba: The judgement is based upon some assumptions or concepts at the conceptual level. Riba have been defined in clear terms. While doing this, the Court has taken into account the controversy that has been taking place about riba in different circles, giving due consideration that all viewpoints being presented were not insincere, many think honestly about the differences. Yet, the court has rightly come to the conclusion that riba covers all forms of interest, usury, bank interest, public utilities and government schemes if they are based on a pre-determined fixed return related to time. It is also very clear that there could be other forms of exploitation and Islam is as much against those forms of exploitation as the exploitation in the form of riba. This should not in any way make the riba concept flexible, yet extension to new situation is not ruled out."

Elimination of Interest from the Economy - A Response to Issues and Challenges

Role of Islamic Banks in Economic Development

Role of Islamic Banks in Economic Development
Shahid Saleem
University of Punjab, Pakistan - CIMA UK

Abstract: The purpose of this working paper is to give the real meaning of DEVELOPMENT from Islamic perspective. Most of Muslim countries are LDCs and using the religious and social ideology of Islam is very useful to establish institutions and to bring moral and ethical change for development in these countries. Islam appears to be the only dynamic religion and tells us about prevention of interest, similar to Christian and Jewish theologies. But at the same time gives a comprehensive setoff trade and financing modes, not easily and completely described in any other religion or social order. Even TFP, a modern concept for collective efficiency has been advised in Islam, shunning to self interest and individualism of materialistic economics. Some scholars of WEST consider use of Islamic banking more suitable for economic development, while others consider Islam as obstacle & threat to development of Muslim countries. We hope that the paper will be useful in this regard to provide another valuable theoretical dimension to this field of study.

Role of Islamic Banks in Economic Development

Profitability Determinants of Islamic Banks: A Cointegration Approach

Profitability Determinants of Islamic Banks: A Cointegration Approach
by Professor Sudin Haron and Dr Wan Nursofiza Wan Azmi
KLBS - Working Paper Series 004
December 2004

Profitability Determinants of Islamic Banks: A Cointegration Approach

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions
Zaid Ibrahim & Co.
May 2010

Demystifying Islamic Finance identifies 15 most frequent misconceptions and 10 main value propositions of Islamic finance. It highlights, among other things, that Islamic finance is not a mere replica of conventional finance. It also negates the notion that Islamic finance is superior and immune from unethical practices. The publication emphasises that Islamic finance is practical for stakeholders who wish to add depth to their financial system; enhance diverse product offerings and widen their customer base. In consequence to this, it shares the belief that the Islamic Finance opportunity will amplify avenues for investment and capital raising.

To download the complete publication click here (PDF document).
Many thanks to Madzlan Hussain from Zaid Ibrahim & Co. for sharing this with us.

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions

5th Islamic Markets Programme

5th Islamic Markets Programme (IMP) 
"Gearing Up to Meet Future Challenges"
4 - 9 July 2010, Securities Commission Malaysia, Kuala Lumpur

The program (which can be found here) aims to provide participants with the ability to evaluate issues regarding the need for clarity, certainty and sound legal and regulatory foundations surrounding capital market products based on Shariah fundamentals.


A wide variety of issues are covered and participants will gain an understanding of the ethical foundations of Islamic finance; how it differs from conventional finance and how its differences make it a more stable system; and will also be able to articulate what needs to be done to provide Islamic finance with a sustaining regulatory and legal framework and why the Malaysian approach has been resilient.

For further details, email sidc@sidc.com.my.
To register, please fill up the registration form (pdf).
Download the programme brochure (pdf).

5th Islamic Markets Programme

Derivatives and Islamic Finance

Derivatives and Islamic Finance
By Muhammad Ayub
Senior Joint Director, Islamic Banking Department
State Bank of Pakistan, Karachi

Derivatives and Islamic Finance

4th International Islamic Capital Market Forum

4th International Islamic Capital Market Forum (IICMF)
"Sukuk: Transferring the Best Practices"
1 July 2010, Kuala Lumpur

The 4th International Islamic Capital Market Forum (IICMF) will be hosted by the Securities Commission Malaysia on 1 July 2010 in Kuala Lumpur. The full program can be found here and it covers a wide range of topics:  starting with a comprehensive overview of the sukuk framework (from the regulatory, governance and and legal perspectives) to very specific issues in sukuk (industry outlook, Fiqh implications, best practices, as well as overall portfolio allocation).

For further details, email sidc@sidc.com.my.
To register, please fill up the registration form (pdf).
Download the programme brochure (pdf).

4th International Islamic Capital Market Forum

Ernst & Young's Islamic Funds & Investment Report 2010

Ernst & Young's Islamic Funds & Investment Report 2010
After quite a few press releases the 'actual' report is now available. Click here to download a copy of the report (one-time registration required on their site).

Ernst & Young's Islamic Funds & Investment Report 2010

IFSB - Published Standards

This post is long overdue, the various published standards that have been issued by the IFSB are a must-read for anyone involved in or looking to enter into Islamic banking and finance.  Even more so when they are freely available from the IFSB website.  We list the direct links below and have created a boxlet (bottom-right of the page) with the same information for ease of navigation:

• IFSB-1: Guiding Principles of Risk Management for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)
• IFSB-2: Capital Adequacy Standard for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)
• IFSB-3: Guiding Principles on Corporate Governance for Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds
• IFSB-4: Disclosures to Promote Transparency and Market Discipline for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
• IFSB-5: Guidance on Key Elements in the Supervisory Review Process of Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
• IFSB-6: Guiding Principles on Governance for Islamic Collective Investment Schemes
• IFSB-7: Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate investment
• IFSB-8: Guiding Principles on Governance For Takaful (Islamic Insurance) Undertakings
• IFSB-9: Guiding Principles on Conduct Of Business For Institutions Offering Islamic Financial Services
• IFSB-10: Guiding Principles On Shariah Governance Systems For Institutions Offering Islamic Financial Services

IFSB - Published Standards

Opalesque Islamic Finance Intelligence - Ninth Issue

Welcome to the ninth issue of Opalesque Islamic Finance Intelligence (download the PDF version), it's a busy edition! We touch on equity screening in our editorial section, while the Featured Resource covers multimedia and interactive sources. The Featured Structure section has Nikan analyzing how successive parallel Murabahas can be used to construct a Profit Rate Swap.

Lex Islamicus hears from Hakimah Yaacob and Edib Smolo, both from the International Shari’ah Research Academy (ISRA), as they dissect the approach taken by Enlgish courts towards Islamic finance contracts. Furthermore, the Kulliyyah Korner hears from Ezry Fahmy, Jhordy Kashoogie and Asim Anwar Kamal who co-authored a study on the relationship between Shariah compliant structures and the Maqasid al-Shari'ah.

As part of our ongoing survey (The Islamic Window) Joy Abdullah delves into the perception of Islamic finance, particularly from outside of the industry. This is complemented in the Industry Snapshot by Deloitte's David Vicary who provides his views on the importance of education and financial literacy. Our Opinion Column shares the views of Nihad Awad from CAIR, on a topic that might not appear to be related to Islamic finance at the outset, although we argue the industry has an opportunity to contribute here in a positive way.

As always, we are keen to hear your comments & suggestions and remember that you can visit our online archive (see reference link) for access to our ever-growing databank of Opalesque Islamic Finance Briefing as well as all of the back issues of Opalesque Islamic Finance Intelligence.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each article separately in the OIFI Archive:
Editor’s Note: Equity Screening and the Golden Calf
Featured Resource: Islamic Finance Multimedia
Featured Structure: Shariah Compliant Profit Rate Swap
Lex Islamicus: It is not a murabaha contract; it is just an English law of contracts
Kulliyyah Korner: Debt versus Equity Financing in the Light of Maqasid al-Shari'ah
The Islamic Window: Industry Perception
Industry Snapshot: What Makes Sense?
Opinion Column: A Muslim Response to 'Draw Muhammad Day'

Opalesque Islamic Finance Intelligence - Ninth Issue

Ernst & Young’s World Takaful Report 2010

Ernst & Young’s World Takaful Report 2010
The third edition of Ernst & Young’s World Takaful Report 2010: Managing performance in a recovery, was unveiled recently. The report reveals that the Takaful industry is expected to surpass US$8.8 billion in contributions in 2010.


Click here to download a copy of the report presentation.
Click here to download a copy of the report (one-time registration required on their site).

Ernst & Young’s World Takaful Report 2010

The Concept and Operations of Swap as a Hedging Mechanism for Islamic Financial Institutions

The Concept and Operations of Swap as a Hedging Mechanism for Islamic Financial Institutions

Assoc. Prof. Dr. Asyraf Wajdi Dusuki & Shabnam Mokhtar
ISRA Research Paper (No. 14/2010)

"This paper has been prepared to discuss the concept and operations of the swap instrument as a hedging mechanism in the Islamic financial system. The main objective of this paper is to give a clearer picture of the swap mechanism as offered by the international Islamic financial institutions and how its operations are structured in accordance with Shariah principles and contracts. In preparing this paper, ISRA has held a series of internal discussions as well as with outside parties, including Shariah experts and operating officers from international banks directly involved in the structuring of Shariah-compliant swap products. Documents related to the products and related academic materials were also referred to, giving a wider and thorough perspective on the issue."

The Concept and Operations of Swap as a Hedging Mechanism for Islamic Financial Institutions

Shariah, Economics and the Progress of Islamic Finance: The Role of Shariah Experts

Shariah, Economics and the Progress of Islamic Finance: The Role of Shariah Experts
Dr. Mohammad Nejatullah Siddiqi
Seventh Harvard Forum on Islamic Finance
April 2006

"Discussing the role of Shariah experts in the development of Islamic economics and Islamic finance calls for a look at the nature of economics and the focus of Shariah. The chief concerns of economics over the ages have been efficiency and equity. Shariah in its broader sense that gives primacy to objectives over rules and regulations shares these concerns. However the same may not apply to shariah meaning fiqh : i.e., laws codified at a particular time and place. The historical context in which we approach our subject today sends mixed signals. The schools of traditional Shariah learning had long tilted towards teaching codified fiqh with few insights into the objectives, the maqasid al-shariah. But the new assignments given to Shariah scholars trained in these schools increasingly called for paying attention to objectives while interpreting the rules. How far have they been able to meet this challenge, is one of the questions whose answer I will try to explore. I begin by first narrating what happened in the name of Islamic economics during the last century then trying to understand where we find ourselves today and how we arrived where we are in the business of Islamic finance."

Shariah, Economics and the Progress of Islamic Finance: The Role of Shariah Experts

Concept Paper on Shariah Governance Framework for Islamic Financial Institutions

Concept Paper on Shariah Governance Framework for Islamic Financial Institutions
Bank Negara Malaysia, May 2010

This concept paper was released recently and its proposed framework is divided into six sections:

Section I - General Requirements of Shariah Governance Framework
General requirements of the Shariah governance structure that describes the essential key functional or key organs

Section II - Oversight, Accountability & Responsibility
Outlines the level of accountability and responsibility of the board of directors, Shariah committee and management of the IFI.

Section III - Independence
Aims at safeguarding the independence of the Shariah committee in ensuring sound Shariah decision, and emphasis on the role of the board of directors in recognizing the independence of the Shariah committee.

Section IV - Competency
Highlights requirements and expected competencies to ensure key functions are capable of implementing Shariah governance.

Section V - Confidentiality & Consistency
Minimum set of rules that emphasis on the importance of observing and preserving confidentiality and improving consistency by the Shariah committee.

Section VI - Shariah Compliance & Research Functions
Prescribe the functions of the internal Shariah review, Shariah audit, Shariah risk management process and the Shariah research functions.

Concept Paper on Shariah Governance Framework for Islamic Financial Institutions

The Rise and Fall of Gulf Finance House

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

This paper dissects the balance sheet and business model of Gulf Finance House (see GFH dividend/stock price chart), and scrutinizes the existence of a "pre-exit premium" in their activities - on top of the usual exit fees and/or performance fees. The study suggests that this practice (uncommon even for conventional Private Equity businesses - much less for an Islamic Private Equity house) was pioneered by GFH and it is this same practice that brought them down to their knees. This is perhaps the first case study wholly dedicated to GFH, and it goes on to suggest that there is a connection between the Murabaha model and their Islamic Private Equity model.

Many thanks to Mohammed Khnifer for sharing their paper.

The Rise and Fall of Gulf Finance House

Islamic Finance and Economics as Reflected in Research and Publications

Islamic Finance and Economics as Reflected in Research and Publications
S. Nazim Ali, Ph.D.
Harvard Law School

"The development of the Islamic Finance (IF) industry is closely linked to the research pursued in its field. As soon as new theories are generated by researchers, the industry picks them up and implements them. And as soon as the industry encounters new problems, they turn to the researchers to find a way to overcome them. A closer look at the relationship between research and the industry makes several trends apparent. This paper aims to discuss and analyze those trends so as to offer a general understanding of this burgeoning field."

Islamic Finance and Economics as Reflected in Research and Publications

Deloitte's New Islamic Finance Portal

The Deloitte Islamic finance portal has been recently launched as a resource for all participants in the Islamic Finance industry and will feature regular insights from practitioners and their Sharia'a Scholar. They will discuss a variety of topics including the key opportunities and challenges facing the Islamic Finance industry.

In addition, a multimedia glossary section is available to those new to the industry seeking to learn more. Topics covered in these webcasts include Musharaka, Mudarabah, Murabaha, Ijarah, Salam, Istisna' and Sukuk.  This is complemented with an interview with their own Sharia'a Scholar, Mufti Hassaan Kaleem, who provides a candid discussion on his background and his views of the Islamic finance industry. Furthermore, there are periodical blogposts from their Global Leader in Islamic Finance (Daud Vicary Abdullah) in the View from the front segment of the site.

Deloitte's New Islamic Finance Portal

Deloitte Webcast: Interview with Sheikh Muhammad Taqi Usmani

For their new Islamic financ portal, Deloitte has as an inaugural feature an exclusive interview with Sheikh Muhammad Taqi Usmani (Chairman of the AAOIFI Sharia'a board), in which he revisits some of the important Sharia'a issues which are currently being discussed in the industry.  Amongst the topics covered in the webcast, Sheikh Taqi Usmani provides clarity on the recent rulings from the OIC Fiqh Academy on the use of Tawarruq, and gives his view on the application of Islamic Finance in the post financial crisis era.

Deloitte Webcast: Interview with Sheikh Muhammad Taqi Usmani

An Introduction to Takaful – An Alternative to Insurance

An Introduction to Takaful – An Alternative to Insurance
By Muhammad Ayub
Senior Joint Director, Islamic Banking Department
State Bank of Pakistan, Karachi

An Introduction to Takaful – An Alternative to Insurance

Islamic Banking: Interest-Free or Interest-Based?

Islamic Banking: Interest-Free or Interest-Based?
Beng Soon Chong, Nanyang Technological University (NTU)
Ming-Hua Liu, University of Macau
Pacific-Basin Finance Journal

October 2007

Abstract: A unique feature of Islamic banking, in theory, is its profit-and-loss sharing (PLS) paradigm. In practice, however, we find that Islamic banking is not very different from conventional banking. Our study on Malaysia shows that only a negligible portion of Islamic bank financing is strictly PLS-based and that Islamic deposits are not interest-free, but are closely pegged to conventional deposits. Our findings suggest that the rapid growth in Islamic banking is largely driven by the Islamic resurgence worldwide rather than by the advantages of the PLS paradigm and that Islamic banks should be similarly regulated as their western counterparts.

Islamic Banking: Interest-Free or Interest-Based?

A Roadmap for Making Islamic Finance Sources More Accessible

A Roadmap for Making Islamic Finance Sources More Accessible
The Role of Secondary Services in the Dissemination of Research
S. Nazim Ali
Director, Islamic Finance Project
Harvard Law School

Abstract: "Secondary services, particularly electronic databases, have revolutionized research by bringing together more resources for one’s disposal. This virtual network has exponentially increased the availability of information, thus making relevancy one of the most important questions in data collection. The Internet may be useful for finding introductory information because the turn-over time is short and the resources are practically unlimited. However, the internet is inherently flawed as a research tool for serious researchers because there is no barrier to entry, hence regardless of credentials or veracity anyone can post anything as a “fact.” The issue of quality assurance then becomes important. Quality assurance can stem from professional authority (who is writing the article), institutional authority (where is the research being undertaken), or a publisher’s authority (by whom is it being published). Therefore, though the Internet is a good source of industry news, market
news, and consumer perceptions, established outlets (both print media and electronic) should be preferred."

A Roadmap for Making Islamic Finance Sources More Accessible

Multimedia & Interactive

We have made some additions to the blog - there is a new "Multimedia & Interactive" boxlet on the top right hand side to easily navigate to this content (alternatively all these posts can be found using the Multimedia label).

You will also notice we separated our document archive (right hand side menus), we now have two different sets: "Industry Reports & Articles" and "Academic Papers & Case Studies". We are finding it increasingly necessary to develop a more precise catalogue, and in that sense we look forward to contribute to the Islamic Finance Library as it develops.

Last but not least we have added 'addtoany' functionality, this will enable you to share any specific post with your friends/peers regardless of what network you use (Linkedin, Facebook, etc, etc).

Multimedia & Interactive