Marketing Strategy of Islamic Banks

The following paper from KLBS was presented in May 2005 at the International Seminar on Enhancing Competitive Advantage on Islamic Financial Institutions in Jakarta. The study highlights how the new Islamic banks in the Malaysian market (and the new Islamic windows of conventional banks) have exhibited a much more aggressive marketing strategy than their established counterparts. It goes on to specify key elements such as product placement, pricing & promotion, distribution channeles, etc.

Marketing Strategy of Islamic Banks: A Lesson from Malaysia

by Professor Sudin Haron and Dr Wan Nursofiza Wan Azmi

KLBS - Working Paper Series 006

May 2005

Marketing Strategy of Islamic Banks

Islamic Capital Markets: Products, Regulation and Development

Islamic Capital Markets: Products, Regulation and Development

IRTI Seminar Proceedings

Salman Syed Ali

2008

Abstract: "Islamic capital markets are among the important and growing segments of Islamic finance. These markets are experiencing inflow of innovative financial products and receiving increased investor attention. At the same time various countries and regions competing to position themselves as financial centres are gradually amending and strengthening their regulatory framework. These developments are opening new avenues for Islamic financial markets and posing new challenges."

Islamic Capital Markets: Products, Regulation and Development

Islamic Capital Market Products - Developments & Challenges

Islamic Capital Market Products - Developments & Challenges

IRTI Occasional Papers

Salman Syed Ali

2005

Abstract: "The development of Islamic capital markets is integral part of development of capital markets in general. Such markets are essential for efficient resource mobilization and allocation. It is more so in an Islamic economy because prohibition of interest implies greater reliance on equities and asset based financing.

The paper focuses on the state of equity and stable income products (sukuk) in Islamic capital markets. Taking Bahrain, Malaysia, Pakistan, and Sudan as sample it surveys the size of the markets for stocks and ijarah sukuk and highlights the issues in their development. [Excluded from the analysis are the other products, the regulatory issues, and the aspects of market micro-structure]. This is done with the purpose to understand how to enhance the proportion of Islamic products in the capital markets of the IDB-member countries. Availability of appropriate products will induce the firms to use the markets in the member countries for raising the funds and investing them there."

Islamic Capital Market Products - Developments & Challenges

CW: Is there a Difference? The Performance Characteristics of SRI Equity Indexes

Is there a Difference? The Performance Characteristics of SRI Equity Indexes
Michael Schroder
July 2005

CW: Is there a Difference? The Performance Characteristics of SRI Equity Indexes

Eid Greetings

Hari Raya Eidul Fitri, Maaf Zaher dan Batin!

From the Islamic Finance Resources Team


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Eid Greetings

A Note on Islamic Economics

A Note on Islamic Economics

IRTI (IDB Prize Winners)

Abbas Mirakhor

Executive Director, IMF

2007

A Note on Islamic Economics

KPMG: Growth and Diversification in Islamic Finance

A broad overview by KPMG on Islamic finance, worth noting Section 3 which outlines a variety of barriers to entry - amongst them the ever increasing gap in Human Capital and (very current in recent headlines) the need for regulatory and legal frameworks. Also page 13 talks about Women in Islamic Finance, highlighting various industry voices on the challenges faced. While this particular piece dates back t0 2007, it seems that many of the key challenges are still present to this day and some remain unaddressed.

Growth and Diversification in Islamic Finance

KPMG International

2007

KPMG: Growth and Diversification in Islamic Finance

Sukuk and their Contemporary Applications

This particular piece sparked an industry-wide debate on the day-to-day practice of various sukuk structures (mainly murabaha and musharaka versions). For a short review of the paper and its market implications also check this short brief from Norton Rose. Among other things Taqi Usmani goes on to discuss 'The Higher Purposes of Islamic Economics', but mainly he focuses his attention on these three key points:

1. Bond Holders' Ownership of Enterprise Assets
2. Regular Distributions to Sukuk Holders
3. Guaranteeing the Return of Principal

Sukuk and their Contemporary Applications
Muhammad Taqi Usmani
President of the AAOIFI Shariah Council
2007

Sukuk and their Contemporary Applications

CW: Investing in Socially Responsible Mutual Funds

Investing in Socially Responsible Mutual Funds
Christopher Geczy, Robert F. Stambaugh, David Levin
October 2005

CW: Investing in Socially Responsible Mutual Funds

Case Study: Islamic Microfinance in Australia

The perspective from downunder is rather different than other periphery markets, but noticeably Islamic finance has been developing through community organizations and grassroots initiatives for quite some time now, MCCA being an example. This paper gives some color to the viability of microfinance and other financing schemes in Australia, particularly interesting as local demand might be small but it proves crucial to the viability of Islamic finance.

Islamic Microfinance: A Case Study of Australia
Abu Umar Faruq Ahmad
Professor A. B. Rafique Ahmad
Journal of Islamic Economics, Banking and Finance
August 2008

Abstract: "Microfinance services are commonly viewed for those traditionally considered non bankable. Microfinance tool can be adapted in every environment, based on the local needs and
economic situation. In Australia, Islamic microfinance enterprises that mostly rely on their shareholders’ savings proved to be very successful in providing microfinance to their clientele."

Case Study: Islamic Microfinance in Australia

Islamic Marketing Ethics

Ethics, governance, corporate behaviour, branding - all in all, how does one combine marketing and Islamic finance? On the other hand, what is the level of recognition and validity given by Muslim customers to Shariah compliant investments? How does one determine the level of preference for a compliant solution versus a conventional one? Is there such a preference or is it perceived as a penalty on financial performance? Is there a way to quantify all this? Can this methodology be applied to other services beyond banking products (from insurance & car financing to food, clothing, etc?). A vast topic indeed!

This specific piece from KAU provides a good starting point for discussion. Note the original link to the paper is broken, shown here is a mirror link.

Islamic Marketing Ethics and Its Impact on
Customer Satisfaction in the Islamic Banking Industry
Abul Hassan, Abdelkader Chachi, Researcher, Islamic Economics Research Centre, King Abdulaziz University, Jeddah, Saudi Arabia, and
Salma Abdul Latiff, Director of Centre for Islamic Banking, Finance and Management, University Brunei Darussalam.

With thanks to Joy Abdullah for suggesting the topic.

Islamic Marketing Ethics

Basel II and Regulatory Framework for Islamic Banks

Basel II and Regulatory Framework for Islamic Banks
M. Kabir Hassan, University of New Orleans
Mehmet F. Dicle, University of New Orleans

"Even though Islamic banks offer profit and loss sharing accounts and therefore expose limited risk of insolvency, systemic risks still exist and deserve much attention."

"Basel II introduces a new approach to evaluating credit risk. Although the scope of Basel II does not include Islamic banks, the new models of credit risk rating introduce compatibility for Islamic banks."

Basel II and Regulatory Framework for Islamic Banks

Opalesque Islamic Finance Intelligence - Third Issue

First of all we would like to extend to all a blessed Ramadan Mubarak. As Muslims around the globe observe the holy month we take this opportunity to pause and reflect on where Islamic finance stands today and what’s in store for the industry’s future. As millions of Muslims reflect, so does the industry ponder on its very own direction, principles and ultimate purpose.

This is barely our third edition, but the feedback can be summarized by one of our readers (a director of an Asian-based investment bank) who put it plainly: “there is some really good stuff in this thing”. We push forward and for this edition of OIFI we begin by addressing what we term the 'Two Schools of Islamic Finance' as we delve into a rather unassuming - although significant - division in opinion on how the practice of Shariah compliance should be approached. Interpretation can have far reaching implications, take for instance the Majallah (the civil code of the Ottoman caliphate) which is regarded as the first attempt to codify Islamic law and remains an important source of reference to the present day.

We follow with one of our most requested items – and a good indicator of industry renaissance – a compilation of Islamic finance training programs and certifications. Thereafter, Nikan tackles a more specific discussion on Wa’d in our Featured Structure section, whereas Khalil delves into a forward looking analysis of Islamic financial instruments and arbitration channels in his Lex Islamicus column. Their perspectives are complemented by additional opinions on the role of the Islamic finance framework in our Discussion Board.

This month’s edition includes a Manager Interview with Dieter Küffer, of Sustainable Asset Management, regarding their Islamic water strategy. Their SRI background is by no means accidental, as our Opinion Column further profiles views on social responsibility and corporate governance from Sayd Farook and Usama DeLorenzo respectively. To round it all out, the spirit of transparency is alive and well in our final piece which explores the rather unusual: products from the graveyard (liquidated, obsolete, dare we say unsuccessful).

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. It’s all there, it’s all free.

New subscribers can set up their Opalesque subscriptions here.

Download Opalesque Islamic Finance Intelligence here

Opalesque Islamic Finance Intelligence - Third Issue

Shariah Compliant Structured Product: Consecutive or Rolled Murabaha

Structured Product, by its nature is something that can deliver diverse risky cashflows to investors. Delivering this to a conventional investor involves hedging, sometimes statically, sometimes dynamically with vanilla options, swaps and swaptions, basis and asset swaps, correlation product and a whole host of other, 'slightly less exotic' product. That being said, structured product is a huge business, one that generates large returns for banks (less so recently) and makes structurers on the Islamic Structuring side look for ways to deliver the same cashflows to Islamic Investors?

Can it be done? Yes, well, maybe, or depending on our viewpoint, definitely not. There are two standard methods for delivering structured product cashflows to investors that are in common use today. Both are exceptionally simple and banks seem to believe they are applicable in a wide variety of cases. As we have already spoken at some length on the Wa'd Swap (see here, here, and here), we will focus on the Rolled Murabaha.

Sample Structured Product
We take as a case in point a principal protected commodity-linked range-accrual. The example structure will be as follows with initial price of $100.

Final Payoff in year 5: $100 + (LIBOR(t)+Spread)x Num x $100
where Num = (1/252) number of days over the 5Y of the product that
Commodity(t) is between LB (Lower Bound) and UB (Upper Bound). (1/252 would usually be some other more conventional daycount convention, but we don't want to go into that here.)


Conventional Structure
To structure this conventionally we need the following:

1. We purchase a zero-coupon bond. With prevailing rates at 5% and the structure maturing in 5Y, the cost is around $75.
2. With the remaining $25, we enter into the risky trade, effectively purchasing a warrant/option linked to this range accrual cashflow. If we simplify the structure to say that it pays (HighFixedInterestRate)xNum x $100, we note that this is merely a set of daily digital options on the commodity, struck at LB and UB. The payoff of each daily digital is exactly HighFixedInterestRate x $100 x 1/252. Each payoff is tiny, so the premium for each daily digital is also tiny. Combined it will be $25 worth.
   
3. In reality, nobody would hedge using daily digitals. The trader uses a model to determine greeks (deltas, gammas, vegas) with respect to the commodity and commodity vol, etc. The structure is a bit tricky since the gamma switches signs at the boundaries, effectively leading to more erratic hedging behaviour. Nonetheless, it is a very standard product.
   

We should fully expect that Spread is relatively large to make this attractive, and that in a backtest the structure will appears to have some amazing return over the last 10 years (as though someone actually offered us the structure for the last 10 years? NOT!).


Rolling Murabaha: Shariah Compliant Alternatives
This would be a standard commodity-linked range-accrual product. Unfortunately, we cannot deliver it exactly as is, but with some very minor modifications.

1. First we enter into a 5Y murabaha which matures at value $100 (the principal protection). The markup will be prevailing 5Y swap rates (since there is no 5Y LIBOR). If rates are close to 5%, then we effectively use $75 for this.
   
2. The bank offers the investor a unilateral undertaking to enter into a subsequent murabaha starting in 5Y for the duration of 1M. This second murabaha will have a markup of (LIBOR+Spread)xNum x $100 where this markup is determined from today to year 5 at which point it is fixed.
3. If the markup is less than or equal to 0 (it will not be negative in this specific example but we can devise cases where it easily could be), the client receives $100 in year 5 and chooses not to roll into the second murabaha.
   
4. If the markup is in fact positive , the client will choose excercise the wa'd and roll into the second murabaha, receiving $100 + (LIBOR+Spread)xNum x $100 in 5Y and 1M.
   

This is not exactly fair as stated. The $100 from the first murabaha should at least get 1M libor over the final month. But except for some minor pricing and minor timing related differences, we have managed to replicate the conventional range-accrual structure.

The deconstructionalist approach
Now, principal protected product can easily be decomposed into a risk-free principal protection piece (well, not exactly risk-free since it is usually financial paper!), and a risky option/warrant. Oftentimes this warrant can and will be traded separately, depending on the risk-profiles of the end-user. In Europe, most retail want principal protection, while in Asia, warrants are quite common.

In this specific case, we can split off the first murabaha as an ordinary murabaha (i.e., a zero-coupon bond). In the above example we invested $75 in the first murabaha. Where did the remaining $25 go?

It was spent on the warrant. Effectively, we spent $25 to purchase a wa'd (promise) to enter a murabaha starting in 5Y time, maturing in 5Y1M, with a markup linked to a particularly off-market rate of (LIBOR+Spread)xNum x $100.

We have effectively purchased a promise. And this undertaking allows us to enter into a murabaha not at the prevailing rate of 1M LIBOR at that time, but instead some odd range-accrual-linked cashflow.

Note that unlike the conventional structure which can be sold to a third party or resold to the bank, this rolled murabaha is not transferrable. Otherwise it would be bay' al dayn (sale of debt). The wa'd swap structure is fully transferrable.

The Criticism: Short but Sweet
We state the criticism of this structure succinctly.

1. The structure involves entering a murabaha with a markup linked to a possibly non-shariah-compliant underlying/cashflow. The muslim investor, by buying this product, enables, enjoins or effectly invests in non-compliant products. (that extra $25 that was set aside to buy daily digitals in the conventional case? Well, here it 'buys a promise to enter a murabaha'. Effectively, it allows/compels the hedging bank to hedge using options and futures, etc, all haram assets. Consequently, Sh Yusuf Talal DeLorenzo's objection to the Shariah-Conversion Technology applies here (see here). NB: If the second murabaha had a markup linked only to halal underlyings then Sh Yusuf's objection does not apply.
   
2. The structure involves a purchase of a promise (to enter a second murabaha). Can promises be purchased? Wa'd is a unilateral promise with no consideration under virtually all definitions. Can it be purchased? I believe most shaykhs would say no. A promise is an intangible which cannot be owned and cannot be the subject matter of sale in Islam. One cannot even buy usufruct, let alone intangibles such as promises. Instead the nomenclature is that the offering bank asks to charge an 'upfront fee' to offset expenses for offering this wa'd/undertaking. But a 'fee' is consideration. The wa'd has suddenly been turned into a unilateral promise for consideration.
   

This sort of structure allows a whole range of otherwise haram activities to be made 'legitimized' merely through the linking process. Is this right?

Note that this method for packaging structured product is in fact very common. Many if not most structured product are delivered this way. The wa'd swap is playing catchup.

Note as well that all the interesting and more intricate structures we have talked about in this blog are rarely used for structured product cashflows. Why? Because they are more costly and not nearly as general!

The wa'd swap and the rolled murabaha are so simple we can even devise platforms for their issuance and standardized legal matter for each new product. It has revolutionized Islamic Structuring. No need to think of how to adapt this or that Islamic Contract and combine them to deliver interesting end-results. Instead we can just jam it all into Murabahas or Wa'd swaps.

Mass production on the way!

Shariah Compliant Structured Product: Consecutive or Rolled Murabaha

Role of Microfinance in Poverty Alleviation

Abstract: "This case study discusses how microfinance contributes to poverty alleviation. It talks about programs that have poverty reduction effects such as developing livelihood enterprises and developing growth enterprises."

Role of Microfinance in Poverty Alleviation

IRTI Research Papers

Mohammed Obaidullah

2008

Role of Microfinance in Poverty Alleviation

Present Scenario and Future Potentials of Takaful

A few inquiries from our Linkedin Takaful subgroup have highlighted the need for more specific metrics on Takaful (as well as more background information such as country specific data and substantiated growth projections).

This is a brief overview and we will endeavour to followup with the various Takaful models that are currently used in the market.

Present Scenario and Future Potentials of Takaful
Kazi Md. Mortuza Ali
Prime Islami Life Insurance Limited, Bangladesh

Abstract: "The idea of having a Shariah based insurance system (Takaful) stems from the desire of the followers of Islam to conduct their affairs in day to day life according to the teachings of Islam and within the framework of Islamic law. Takaful is based on the concept of cooperation, brotherhood and solidarity of the members of the society who voluntarily agree to contribute money to support a common goal of providing mutual financial aid to the members of the group under certain terms and conditions. Takaful has emerged as a complementary and supportive system of Islamic Banking movement throughout the world."

Present Scenario and Future Potentials of Takaful

Case Study: Islamic Banking in Jordan

This is one of what we hope will be many country-specific papers that we will be featuring going forward. An array of global reports and statistics are available on Islamic finance but it seems equally sensible to tackle specific markets as well, not just to learn about their idiosyncracies but also to refine the understanding of some Islamic finance markets that tend to be over shadowed by other larger markets.

Islamic Banking Performance in the Middle East: A Case Study of Jordan
A. S. Saleh and R. Zeitun
Faculty of Commerce - Economics
University of Wollongong
October 2006

"The aim of this paper is to examine and analyse the Jordanian experience with Islamic banking, and in particular the experience for the first and second Islamic bank in the country, Jordan Islamic Bank for Finance and Investment (JIBFI), and Islamic International Arab Bank (IIAB) in order to evaluate the Islamic banks’ performance in the county. The paper goes further to shed some light on the domestic as well as global challenges, which are facing this sector."

Case Study: Islamic Banking in Jordan

Islamic Finance - Opportunity for Long Term Growth

Here is a recent paper from State Street which gives a brief introduction of Islamic finance but - most importantly - gives an overview of various key areas of development (funds, sukuk, takaful, new products, etc). It is also evidence of increased awareness from the part of conventional financial institutions from across the globe.

Islamic Finance - Opportunity for Long Term Growth

State Street - Vision Series

February 2009

Nice quote: "What makes Islamic finance uniquely different — and uniquely global — is the common bond that its Muslim customers share: their religion, whose moral lessons are shared through the teachings of the Koran, but whose legal principles and codes are governed by Shariah, or Islamic law ... While Shariah’s faith-based principles continue to hold strong appeal for Muslims, the pragmatic benefits arising from its application are becoming increasingly attractive to non-Muslims as well, particularly during the current economic crisis and the intense focus on risk management we are witnessing."

Islamic Finance - Opportunity for Long Term Growth

Binding Wa'd - Is it Permissible?

Here is some background information on wa'd as part of our Linkedin discussion, the reason we are highlighting this item is the fact that a variety of products/solutions are based on wa'd and we are bound to see more products coming into the market using this type of contract. The issue is mainly whether or not you can pay for a promise (or more broadly whether you can provide some type of consideration for a promise), since the wa'd in its simple form is no more than a unilateral promise.

The Binding Unilateral Promise (wa’d) in Islamic Banking Operations: Is it Permissible for a Unilateral Promise (wa’d) to be Binding as an Alternative to a Proscribed Contract?
Rafic Yunus Al-Masri
Assistant Professor, Islamic Economics Research Centre
Faculty of Economics, King Abdulaziz University
Jeddah – Saudi Arabia

Binding Wa'd - Is it Permissible?

Islamic Banks' Profitability in an Interest Rate Cycle

A couple of recent discussions in our Linkedin forum delved into the various risks faced by Islamic financial institutions and whether any of these would be specific and/or more concentrated due to the nature of their business model. Here is a short piece that - although outdated - provides a good starting point for exploring the issue further.

Islamic Banks' Profitability in an Interest Rate Cycle
Anouar Hassoune
International Journal of Islamic Financial Services (now IBF Review)
July - Sept 2002

Excerpts: "All in all, not only does Islamic banks’ profitability seem less volatile than that of conventional peers, but it is also higher on average, at least in the GCC region. These two elements are essential for assessing the soundness of Islamic banks’ financial profile and creditworthiness. Islamic banks thus seem less vulnerable to the cyclical nature of returns on assets and costs of liabilities."

"On the other hand, Islamic banks lose on the grounds of liquidity, assets and liabilities concentrations and operational efficiency what they tend to win in the field of profitability."

Islamic Banks' Profitability in an Interest Rate Cycle

The Development of Islamic Finance in the GCC

A recent piece surveying the development of Islamic finance in the GCC, examining the extent to which government policy (i.e. legislation and regulation), has facilitated the development of the industry in the region. Governance systems are also looked at, especially the preferred self-governance approach that has been developed by Islamic financial institutions in the region.

The development of Islamic finance in the GCC
The Kuwait Programme on Development, Governance and Globalisation

Rodney Wilson, Durham University

May 2009

The Development of Islamic Finance in the GCC

The view from Riyadh: Fictitious Murabaha

A short editorial piece (in Arabic) courtesy of Al-Eqtisadiah that collects a range of points of view regarding Murabaha structures. In particular, they explore the what they term factious/fictitious murabaha activities undertaken by brokers. It is followed by an interview with Aznan Hasan on the same issue.

The view from Riyadh: Fictitious Murabaha

Introducing Islamic Banks into Conventional Banking Systems

Here is an interesting piece from the IMF that outlines the different approaches by which Islamic banking can develop in a country - this being relevant to markets which are not yet active. A few things to highlight, such as the discussion on Islamic windows and check pages 10-11 for a brief review of using tawarruq to transition from a conventional balance sheet to a Shariah compliant one. Most importantly, the role of regulators and/or supervisory agencies is discussed in later sections of the paper.

Introducing Islamic Banks into Conventional Banking Systems
Juan Solé

IMF Working Paper

Monetary and Capital Markets Department

July 2007

Abstract: "Over the last decade, Islamic banking has experienced global growth rates of 10-15 percent per annum, and has been moving into an increasing number of conventional financial systems at such a rapid pace that Islamic financial institutions are present today in over 51 countries. Despite this consistent growth, many supervisory authorities and finance practitioners remain unfamiliar with the process by which Islamic banks are introduced into a conventional system. This paper attempts to shed some light in this area by describing the main phases in the process, and by flagging some of the main challenges that countries will face as Islamic banking develops alongside conventional institutions."

Introducing Islamic Banks into Conventional Banking Systems

Paper: A Shariah Compliant Proposal for Equity Risk Management

Value Preservation through Risk Management

A Shariah Compliant Proposal for Equity Risk Management

Bacha, Obiyathulla/I

Management Center

Kulliyyah of Economics & Management Sciences

International Islamic University Malaysia

With thanks to Charles Stromeyer for highlighting the paper.

Paper: A Shariah Compliant Proposal for Equity Risk Management

Paper: Shariah Compatible Futures

Sharia Compatible Futures

Abdul Rahim Al-Saati
Associate Professor
Economics Department
King Abdulaziz University
Jeddah – Saudi Arabia

With thanks to Charles Stromeyer for highlighting the paper.

Paper: Shariah Compatible Futures

Opalesque Islamic Finance Intelligence - Second Issue

Dear All,

First of all we would like to extend our sincere gratitude for the warm reception and the extensive feedback received following the first edition of Opalesque Islamic Finance Intelligence (OIFI).

Our maiden issue (available here) saw OIFI building a readership of well over 2,000 and this only solidifies our commitment to explore industry-specific content, encourage critical discussions and lively interaction. All of which we resume in this our second installment, where we explore the specifics of Shariah scholars and Shariah boards.

It is the most essential question for practitioners and non-practitioners alike: how do you achieve Shariah compliance? While there is no clear cut answer we run through a Shariah Compliance Toolkit that delves into the mechanics of engaging Shariah advisors, the existing business models, procedures & timelines, agency & monetary costs, as well as some recent developments.

Our Featured Resource section sheds further light on various Fatwa databases and search engines that are useful in specific areas of research.

In this issue, we explore how the manufacturing process has fared in this regard in the Featured Structure section, highlighting some of the recent entries into the landscape of Islamic products (such as CPPI vehicles and other structured notes).

We further focus the attention on the perspective of the boutique (or more specifically the perspective of a non-Islamic financial institution) as it pertains to creating and developing solutions. Our Allocator Interview examines the experience of Amiri Capital in putting together a Shariah compliant platform and the challenges faced in bringing products to market.

While we have dissected exotics, even the most vanilla of contracts isn’t exempt from scrutiny, as we look at the intricacies of modern murabaha contracts in the Lexicus Islamicus column. Moreover, differing opinions on this and other instruments have reignited the debate of whether Shariah boards (and their approval process) should rest within financial institutions or at the country level, with the Discussion Board opening the floor to industry voices.

Finally, from these various inputs we probe the outputs as well - surveying the bad habits of Islamic fund managers in our Industry Snapshot section.

Once again we welcome your comments & suggestions, and please check the archive of Opalesque Islamic Finance Briefing which is now available online here providing a free historical data bank of industry news (over 3,300 articles) as well as back issues of OIFI. It's all there, it's all free.

New subscribers can set up their Opalesque subscriptions here.

Download Opalesque Islamic Finance Intelligence here

Opalesque Islamic Finance Intelligence - Second Issue

CW: International Evidence on Ethical Mutual Fund Performance and Investment Style

International Evidence on Ethical Mutual Fund Performance and Investment Style
Rob Bauer, Roger Otten, Kees C. G. Koedijk
March 2002

CW: International Evidence on Ethical Mutual Fund Performance and Investment Style

Academic Papers & Case Studies

Some minor changes to the blog: we have created a new submenu (right hand side) that compiles "Academic Papers and Case Studies" which have been profiled so far. There is a substantial amount to be included in the future, but the hope is that this aids in the navigation of information currently available.

In addition, our Linkedin forum now has three new subgroups to focus on certain topics/discussions (feedback is very much appreciated):

Islamic Finance - Accounting & Auditing
Islamic Finance - Careers & Education
Islamic Finance - Takaful & Pensions

Academic Papers & Case Studies

Understanding Islamic Finance: Local Innovation and Global Integration

Understanding Islamic Finance: Local Innovation and Global Integration
Shamshad Akhtar, Zeti Akhtar Aziz, Robert W. Hefner, Nik Norzrul Thani, Angelo Venardos, Frank E. Vogel and Ibrahim Warde
The National Bureau of Asian Research

"What is Islamic finance (IF)? Islamic finance has recorded dramatic growth over the last decade or so, with a presence in more than 75 Muslim and non-Muslim countries and total financial assets now estimated to exceed $1 trillion. With the integration of IF and Islamic banking into the global economy, IF’s appeal as a market for and source of global capital is increasing. The industry’s rapid growth is marked by increases in Islamic financial products and services, the development of the industry’s regulatory frameworks, and enhanced international linkages.

To gain a better understanding of the phenomenal rise of IF in general, of Southeast Asia’s particular role as an epicenter for IF innovation and development, and of the opportunities and challenges facing IF as an economically viable global financial industry, Asia Policy presents insights from a panel of senior finance officials, industry practitioners, and scholars."

Understanding Islamic Finance: Local Innovation and Global Integration

CSR Survey for Islamic Financial Institutions

We would like to invite everyone to participate in a first-of-its kind Corporate Social Responsibility (CSR) survey of Islamic Finance Institutions. Your participation will enable, in confidence, to benchmark your Institutions CSR efforts compared to your peers. This is the last week for submissions and we would hope you are represented along with others in the Islamic Finance Industry, which includes some of the most prominent Islamic Financial Institutions in the world.

The Survey is supported by AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institution) and is being organized by Dinar Standard--a market intelligence consultancy focussed on the OIC (Organization of the Islamic Conference) member countries and Dar Al Istithmar--a leading Islamic Finance advisory firm.

The output will be an Islamic Finance CSR Trends Report to be released publicly August 31st, 2009. Each institution submitting the survey will also receive a confidential benchmark report that will highlight their performance compared to their peers in aggregate. Major CSR accomplishments of the Industry will also be recognized by the introduction of Maqasid Al-Sharia CSR Awards.

Please find the PDF version of the survey attached which can also be downloaded here. You may fill in this form electronically or print and send it back to us as a scanned copy by email. Also, you can fill in this survey online if you so wish.

For and on behalf of Sayd Farook

Senior Consultant Structuring and Legal

Dar Al Istithmar

Organizing Institutions:

Dar Al Istithmar

Dinar Standard

Supported by:

AAOIFI

CSR Survey for Islamic Financial Institutions

Stock Market Volatility Transmission in Malaysia: Islamic Versus Conventional Stock Market

Another empirical study from KAU's Islamic Economics Research Centre, which delves not just on a comparison between conventional and Islamic equities, but also on the impact that interest rate fluctuations have on either one.

Stock Market Volatility Transmission in Malaysia: Islamic Versus Conventional Stock Market
Rosylin Mohd. Yusof and M. Shabri Abd. Majid
Islamic Economics Research Centre
King Abdul Aziz University, Jeddah, Saudi Arabia

Abstract: "This study attempts to explore the extent to which the conditional volatilities of both conventional and Islamic stock markets in Malaysia are related to the conditional volatility of monetary policy variables."

"The study finds that interest rate volatility affects the conventional stock market volatility but not the Islamic stock market volatility. This highlights the tenet of Islamic principles that the interest rate is not a significant variable in explaining stock market volatility."

Stock Market Volatility Transmission in Malaysia: Islamic Versus Conventional Stock Market

Opalesque Islamic Finance Intelligence - Free Archive

Reminder to sign up here for Opalesque Islamic Finance Intelligence (OIFI).

OIFI is produced by leading alternatives publisher Opalesque Ltd. and Amsar Partners LLP (select "Opalesque Islamic Finance Intelligence" for our FREE monthly premium subscription, and "Islamic Finance Briefing" for FREE daily news updates).

For more information on Opalesque Islamic Finance Intelligence visit the Opalesque site, and also please feel free to check their online archive from Opalesque Islamic Finance Breifing for a historical data bank of industry news as well as back issues, testimonials page and other useful information.

Opalesque Islamic Finance Intelligence - Free Archive

Moody's Report: The Future of Sukuk, Substance over form?

This is a link to a relatively recent publication from Moody's highlighting some of the issues in the Sukuk (in particular, how a whole swathe of the market was declared possibly haram, yet the market still lumbers on). This report highlights issues about Asset-Backed vs Asset-Based Sukuk, the fact that very few sukuk actually involve true sales or give sukuk investors any recourse (i.e., typically their claims will most likely be treated as pari passu with senior debtholders). This of course has severe repurcussions to actual ratings and window-dressing should make Shariah Compliance seem all the more questionable.

It speaks about AAOIFI standards, the question of legitimacy of purchase undertakings, and most importantly, whether the current debate and stalemate will jolt the market into an demand for actual compliance.

Definitely worth a read.

Thanks to Juweria Amin of IBFNet.

Moody's Report: The Future of Sukuk, Substance over form?

4th Seminar on Legal Issues in the Islamic Financial Services Industry

4th Seminar on Legal Issues in the Islamic Financial Services Industry
The Islamic Financial Services Board (IFSB)
28-29 September 2009, Bank Negara Malaysia, Kuala Lumpur

The Seminar programme is designed to focus on the following areas:

• Duties and responsibilities of Sharī`ah Boards from a legal and regulatory perspective;
• IFSI insolvency and asset recovery framework - Gaps and challenges;
• Interlink/interface between civil law systems and Sharī`ah rules and principles and effective dispute resolution mechanism; and
• Challenges in managing legal risks in Islamic financial services

For details on online registration please click here.
To download the registration form directly click here.

4th Seminar on Legal Issues in the Islamic Financial Services Industry

Islamic Finance: Global Trends & Challenges

Islamic Finance: Sustainability and Challenges
Shamshad Akhtar
The National Bureau of Asian Research

"Islamic finance must be recognized as a parallel system that will augment, and be augmented by, a deeper knowledge and experience of the conventional financial system. As such, the industry’s long-term growth and sustainability depend on: (1) how Islamic finance interfaces with and benefits from complementing and supplementing the conventional system, and (2) how Islamic finance adapts and conforms to international regulations and supervision while remaining aligned with the technicalities and nuances of Islamic financial instruments and their associated risks. Properly exploiting the unique features of Islamic finance with appropriate adaptability, and without compromising principles of sharia (Islamic law), will be critical to the growth and promising future of the Islamic finance industry.

Touching on some of these debates, the essay begins by addressing trends in Islamic finance, then turns to lay the case for the sustainability of Islamic finance, and concludes with a discussion of some key prospects and challenges facing the industry."


Enhancing Interlinkages and Opportunities: The Role of Islamic Finance
Zeti Akhtar Aziz
Bank Negara Malaysia

"Five years ago discussions regarding Islamic finance focused on the challenges of developing an efficient and robust Islamic financial system. Today the Islamic financial system has evolved significantly to become a dynamic and competitive form of financial intermediation in the global financial system. This essay addresses the transformation and innovation that have taken place in these five years in both the national and international Islamic financial systems and concludes with an examination of necessary elements for sustaining the systems’ growth. Most significant have been the development of the Islamic financial markets, the growth in the range of financial products and services, the increasing significance of the international dimension of Islamic finance, the development of an international Islamic financial architecture, and the enhanced international interlinkages that have been brought about by these developments."

Islamic Finance: Global Trends & Challenges

Trends in Islamic-Finance Regulation

Following on our previous posting on Regulatory Perspectives on Islamic Finance, here is a more recent discussion (published at the end of last year) from the point of view of the US Department of Commerce. While this is very much a summary overview, it does prove interesting in terms of how Islamic finance in gradually viewed by regualtors and participants in 'periphery markets'.

Trends in Islamic-Finance Regulation
Scott Schmith
US Department of Commerce
International Trade Administration

Trends in Islamic-Finance Regulation

English Language Fatwa Databases

This is the culmination of our modest attempts to find available and free online resources for English speakers wanting to study Islamic Finance.

Many other sources are available only in hardcopy (e.g., Sh Yusuf Talal DeLorenzo's books from IIBI, Dr Wahbah al Zuhayli's two volumes on Islamic Finance, the AAOIFI Shariah Standards), but there are still some very good sources of fataawa available online and Insh'Allah this offers readers some benefit.

Fataawa Banks for Fiqh Al Mu'amalat

• Al Baraka Group Fatwa Bank (Product-Specific Fatawa)
• Assembly of Muslim Jurists of America
• Bank Negara Malaysia
• Fatwa Management System: World Fatwa Mgt and Rsrch Inst, Universiti Sains Islam Malaysia
• Harvard Islamic Finance Information Program (HIFIP) (Free Login Needed)
• International Shari'ah Research Academy for Islamic Finance (ISRA)
• IIBF Shariah Advisory Unit Fatwas
• IslamQA Principles of Fiqh-Transactions
• IslamWeb Fatwa Center (Transactions and Inheritance)
• Monzer Kahf Fatawa Listing
• Malaysia International Islamic Financial Centre (MIFC) (see The Shariah Resolution Book, for product-specific fataawa/resolutions)
• Securities Commission Shariah Advisory Council Resolutions

Fataawa Banks --General (i.e., Not Islamic Finance Specific)

• Fatwa Online
• Fatwa Islam
• IslamOnline

Lists of Links to Fataawa Banks (Many out of date)

• Fatwa Resources, Konsultasi Muamalat
• Fatwa Resources, Muslim Investor.com
• Rulings on Islamic Banking, IslamicBanking.com
• Mejelle (Ottoman Codification of Hanafi Fiqh)
• Risala (Maliki Fiqh)
  

Thanks as well to IslamicBanking.com, Konsultasi Muamalat, and MuslimInvestor.com, and to Kamal Abdelkarim Hassan Kamal Hassan and Siti Faridah from IBFnet.

Please send in comments and updates. The only way we can keep this "fresh" is if you help alert us of bad links and new developments! JAK!

English Language Fatwa Databases

The Stock-Exchange from an Islamic Perspective

This is an interesting study of capital markets (albeit slightly outdated) presented from a governance point of view and evaluated through Shariah guidelines, published by the King Abdulaziz University Islamic Economics Research Centre (also checkout their archive for a lot more interesting content).

The notion of a standalone Islamic stock exchange (as opposed to having conventional and Shariah compliant products side by side) is debatable due to issues relating to implementation and practicality. However, the paper's focus is on how to restrain/control gharar.

It proposes two "Shariah restraints": [1] "calling for the provision of relevant information on one hand, and [2] the analytical ability to estimate true exchange values on the other. These two main restraints are intended to attack the problem of gharar, or to put it differently, they are intended to account for closer convergence of the actual share’s price with its true expected economic value."

The paper inlcudes a curious quote from John Maynard Keynes:

“The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils" (1970)

Keynes, it seems, would have made for a great scholar!

The Stock-Exchange from an Islamic Perspective

Monetary Authority of Singapore - Islamic Banking Guidelines

Not often do we see regualtory bodies issuing comprehensive statements that directly address the operation of Islamic finance activities, even more so in jurisdictions that are only at the early stages of developing their market offerings. There is a lot to be said about how these guidelines provide direction (they read more as a disclaimer) to market participants and whether it is a valid approach to allow market forces to dictate what is and what is not Shariah compliant. Much to pick through here and a lot of reading between the lines, feedback and comments are - as always - highly appreciated.

Guidelines on the Application of Banking Regulations to Islamic Banking

Monetary Authority of Singapore

May 2009

Monetary Authority of Singapore - Islamic Banking Guidelines

IICMF Conference: Islamic Structured Products and Current Issues in Islamic Finance

The Securities Commission in Malaysia will host the Third International Islamic Capital Markets Forum in Kuala Lumpur (follow link for more information) on 30 July 2009, themed "Islamic Structured Products and Current Issues in Islamic Finance."

Structured products have become popular as a wholesale fund product and a popular deposit instrument for Islamic Banks as well as an investment linked product for takaful.

Mark this event in your diary now. For further details please email icmforum@seccom.com.my

• Topics will address the landscape and current views on Shariah-compliant structured products and hedging tools, an examination of the building blocks in constructing these products, the approach and philosophies in regulating the Islamic capital market in Malaysia and case studies.
• A panel of speakers will deliberate on the resilience of Islamic finance, factors which are curtailing its further expansion and the development of Islamic finance products in achieving Shariah harmonisation.
• A face-to-face deliberation with renowned practitioners, Shariah scholars as well as regulators.

Featuring two of our regular contributors: Bernardo Vizcaino and Nikan Firoozye!

Note: for those who cannot attend, we will spend some time surveying the landscape of structured product from Himalayas to Perfect Asset Allocation/Rainbow Options to TARNs to LIFTS to Range Accruals to Expert Trader Options, etc. Some are possible in Shariah-compliant format, some less easily so, and some with obvious benefit to investors, and some only with obvious benefit to issuers/investment banks (Caveat Emptor, i.e., buyer beware!). Expect some serious debate.

IICMF Conference: Islamic Structured Products and Current Issues in Islamic Finance