Towards a Theory of Islamic Financial Reporting

Towards a Theory of Islamic Financial Reporting
Anaf Masood, The Boston Consulting Group and
Mohammad Iqbal Tahir, GIFT Business School
January 2008

"This paper has two major streams. It seeks to devise an entity that will allow Muslims to raise the necessary finance to conduct large-scale commerce. Simultaneously, it presents ideas for a reporting scheme that suits this new structure. The need for a connection between the business form and its disclosure scheme is illustrated by reviewing the results of the attempts by the Accounting and Auditing Organization for Islamic Financials Institutions (AAOIFI) at setting accounting standards for a Mudaraba, a uniquely Islamic enterprise. The position of the Western corporation in Islamic law is then examined. It is found that Islam can only accept a separate legal entity that has unlimited liability. To overcome this constraint, a corporate structure that primarily channels investment through Islamic financial institutions is proposed.

The paper also identifies the quality and type of disclosures that any Islamic entity will need to make and then applies these criteria to create a reporting system for the proposed Islamic company. Among the central requirements, apart from financial information, are Zakat and Shariah compliance. It is pointed out in the paper that the proposed Islamic structure promotes a scheme of shareholder-regulated disclosure that can be used to achieve the necessary reporting standards. Even Shariah compliance can be handled for the most part internally through the Islamic bank's Shariah Supervisory Boards. It is, however, felt that Zakat is best policed by an independent agency, which would selectively audit returns submitted by the company. This method also has the advantage of accommodating the as yet unresolved difference about whether Zakat is a personal obligation or one owed by the corporate entity. Through the ideas contained in this paper, Muslims should be able to share in the benefits of modern, large-scale commerce without having to compromise their religious teachings."

Towards a Theory of Islamic Financial Reporting

Islamic Banking: How Has it Diffused?

Islamic Banking: How Has it Diffused?
IMF Working Paper - African Department
Imam, Patrick A. and Kpodar, Kangni
August 2010

Summary: "This paper investigates the determinants of the pattern of Islamic bank diffusion around the world using country-level data for 1992 - 2006. The analysis illustrates that income per capita, share of Muslims in the population and status as an oil producer are linked to the development of Islamic banking, as are economic integration with Middle Eastern countries and proximity to Islamic financial centers. Interest rates have a negative impact on Islamic banking, reflecting the implicit benchmark for Islamic banks. The quality of institutions does not matter, probably because the often higher hurdle set by Shariah law trumps the quality of local institutions in most countries. The 9/11 attacks were not important to the diffusion of Islamic banking; but they coincided with rising oil prices, which are a significant factor in the diffusion of Islamic banking. Islamic banks also appear to be complements to, rather than substitutes for, conventional banks."

Islamic Banking: How Has it Diffused?

London – the European hub for Islamic finance

London – the European hub for Islamic finance
by Gillian Walmsley
London Stock Exchange

"As the profile of Islamic finance continues to grow and with current market conditions highlighting the resilience of some features of the Islamic market model, several financial centres are becoming alive to the possibilities for fostering Islamic finance and attracting new investors to their markets".

London – the European hub for Islamic finance

Analysis of Stock Screening Principles in Islamic Mutual Funds Industry

Analysis of Stock Screening Principles in Islamic Mutual Funds Industry
Salman Ahmed Shaikh MS
Lecturer, University of East, Pakistan
January 2010

"There are certain principles that need to be followed to become shariah compliant. This paper will discuss how a company can become a shariah compliant KMI-30 company by using economic models and established deductive knowledge in Economic, Finance and Portfolio theory".

Analysis of Stock Screening Principles in Islamic Mutual Funds Industry

Islamic Banking and Finance: Fundamentals and Contemporary Issues

Islamic Banking and Finance: Fundamentals and Contemporary Issues
IRTI Seminar Proceedings
Salman Syed Ali, Ausaf Ahmad
2007

The paper "deals with the fundamentals of and the issues faced by Islamic finance at the theoretical level. It addresses various contemporary issues empirically and discusses some legal issues in the practice of Islamic banking and finance."

Islamic Banking and Finance: Fundamentals and Contemporary Issues

Islamic Finance: Growth and Prospects in Singapore

Islamic Finance: Growth and Prospects in Singapore
Habibullah Khan & Omar K. M. R. Bashar
U21Global
June 2008

Abstract: "Islamic finance has been growing rapidly since its launch in the 1970s. The major market for this industry is typically the Middle East and it is gaining popularity in the UK, USA and Southeast Asia. Malaysia is the leading Islamic finance industry in Southeast Asia while its neighbor Singapore is relatively a new market player. Singapore revised its regulatory framework and tax structure and gradually introduced various Shariah-compliant financial products in the last couple of years. This paper argues that despite having small domestic market and competition from Malaysia, Singapore can still position itself in a niche market in the region. Through its strategy of integrated financial and economic development, Singapore can create new opportunities for Islamic finance and related financial products in the region."

Islamic Finance: Growth and Prospects in Singapore

Case Study: Pilgrims Management & Fund Board

Towards Islamic Banking: A Case Study of Pilgrims Management & Fund Board, Malaysia
Khalid Rahman
Director Institute of Policy Studies
Islamabad, Pakistan

"Experiments have been undertaken all over the world and may prove helpful in overcoming our inhibition after removing unjustified apprehensions. The task has become all the more important particularly in the context of recent Supreme Court Shariat Appellate Bench Judgment since this will help make a whole hearted beginning. This, however, requires studying in detail the institutions claiming to be operating on interest-free basis, focusing particularly on the level of success they have achieved, compatibility with Shari’ah in their working and impact on society."

Case Study: Pilgrims Management & Fund Board

The Changing Face of Islamic Banking

The Changing Face of Islamic Banking
by Professor Sudin Haron
KLBS - Working Paper Series 011
November 2007

Abstract: "more and more parties have joined the bandwagon including non-Muslim institutions. This development has created a new dimension in Islamic banking system. Initially, Islamic banks were seen as institutions that operate based on religious doctrine. Today, many proponents believed that this doctrine is no longer applied by Islamic financial institutions. Majority appears to regard Islamic bank as a normal business entity with a profit maximization principle."

The Changing Face of Islamic Banking

Can Banks Survive without Interest?

Can Banks Survive without Interest?
By Muhammad Ayub
Senior Joint Director, Islamic Banking Department
State Bank of Pakistan, Karachi

Can Banks Survive without Interest?

Derivatives in Islamic Finance

Derivatives in Islamic Finance
Andreas A. Jobst
International Monetary Fund (IMF) - Monetary and Capital Markets Department (MCM)
Islamic Economic Studies, Vol. 15, No. 1
August 2007

Abstract: Despite their importance for financial sector development, derivatives are few and far between in countries where the compatibility of capital market transactions with Islamic law requires the development of shariah-compliant structures. Islamic finance is governed by the shariah, which bans speculation, but stipulates that income must be derived as profits from shared business risk rather than interest or guaranteed return. This paper explains the fundamental legal principles of Islamic finance, which includes the presentation of a valuation model that helps illustrate the shariah-compliant synthetication of conventional finance through an implicit derivative arrangement. Based on the current use of accepted risk transfer mechanisms in Islamic structured finance, the paper explore the validity of derivatives from an Islamic legal point of view and summarizes the key objections of shariah scholars that challenge the permissibility of derivatives under Islamic law. In conclusion, the paper delivers suggestions for shariah compliance of derivatives.

Derivatives in Islamic Finance

Islamic Finance: Debt versus Equity Financing in the Light of Maqasid al-Shari'ah

Islamic Finance: Debt versus Equity Financing in the Light of Maqasid al-Shari'ah
Eddy Yusof, Ezry Fahmy, Kashoogie, Jhordy and Anwar Kamal, Asim

International Islamic University Malaysia (IIUM)
April 2009

Abstract: "A hot topic among Islamic economists is the debt versus equity debate. Which of the two are more in line with justice and equality? Which of them is more productive in fulfilling the greater objectives of the Shariah? This paper is divided into sections. After the introduction, it is followed by problem statement as well as objective of the study. After that, section 4 briefs the research questions for answering the analysis in this paper. Section 5 deals with discussion obtained from literature review whichhighlights important issues regarding Maqasid Al-Shari’ah in term of justice and equality vis-àvis the current practice as well as ideal model of Islamic banking and finance. Finally, this paper ends up with conclusion."

Islamic Finance: Debt versus Equity Financing in the Light of Maqasid al-Shari'ah

Commodity murabaha: does it violate Islamic norms? Note

Commodity murabaha: does it violate Islamic norms? Note
Hasan, Zubair (November 2008)
INCEIF

Abstract: "Recently commodity murabaha has run into disrepute due to court decisions going against the use of this instrument in Islamic banks. This brief note argues that at fault has been the structure of contracts and the excessive use of the instrument. In principle, commodity murabaha is doubtless rooted deep in the Islamic Shari’ah."

Commodity murabaha: does it violate Islamic norms? Note

Opalesque Islamic Finance Intelligence - Tenth Issue

Islamic finance is riddled with dichotomies, it is almost natural to approach it in terms of good and bad, right and wrong, halal and haram. The reality however is sometimes not as clear cut, and we explore many of these dichotomies (and some of the ensuing gray areas) in this the tenth issue of Opalesque Islamic Finance Intelligence (download the PDF version). To start off our editorial note surveys a variety of research taken from the conventional finance world and how this relates to Islamic finance. This is promptly followed by our Featured Resource, which lists several of these academic studies.

We welcome Mohammed Amin in our Featured Structure section as he shares a descriptive analysis of takaful and how it differs with conventional insurance. Similarly, Lex Islamicus hears from Marjan Muhammad and Hakimah Yaacob, from the International Shari’ah Research Academy (ISRA), as they scrutinize the application of Ibra' and whether it should remain discretionary or mandatory in contractual agreements.

The Kulliyyah Korner profiles the work from Mobasher Zein as he has explored various areas of Islamic finance (from sukuk to hedge funds), whereas Joy Abdullah provides food for thought in the Islamic Window segment by looking into how Islamic values can be brought into the branding of Islamic banks and their products.

Blake Goud takes on our Opinion Column with his analysis of the recent publication by Zaid Ibrahim & Co entitled "Demystifying Islamic Finance" and the various issues that this publications tackles. Last but not least, our Industry Snapshot section has Omar Clark Fisher delving into corporate governance issues faced by the takaful industry.

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: Conventional Wisdom
Featured Resource: Conventional Wisdom - ESG/SRI Research
Featured Structure: How Conventional Insurance and Takaful Differ Numerically
Lex Islamicus: Ibra’: Should it be Discreationary?
Kulliyyah Korner: A Study of Islamic Finance: Searching for a New Path
The Islamic Window: Young but Disconnected
Industry Snapshot: Alignment of Corporate Governance and Company Performance: A Focus on Takaful
Opinion Column: Zaid Ibrahim Report on Islamic Finance

Opalesque Islamic Finance Intelligence - Tenth Issue

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