Lecture Two: Recent History Of Islamic Banking And Finance

(Anderson Graduate School of Management, University of California, Los

Angeles, 7 November 2001)

During the eighteenth, nineteenth and the first half of the twentieth centuries
almost all of the world of Islam was colonized by the European countries. They
managed the economies and finances of these countries in their own interests
and in their own ways. Other than the native elites who had to get involved, the
Muslim masses stayed away from interest-based financial institutions. As the
national consciousness grew and freedom movements promised to bear fruits
during the second half of the last century, the urge to manage their affairs in
accordance with their own values and traditions also eme rged in these countries.
Indonesia gained independence in 1945 and Algeria in 1963 . In between these
two dates, all Muslim majority countries became independent. The discussion
on the management of their respective economies in order to promote their own
interests had, as an offshoot, brought the Islamic financial movement into
being. While nationalism made them focus on rapid economic development,
religion, the other motivating force in freedom struggle, made many turn to
Islam for guidance. Theoretical Literature. Early theoretical work on the
subject appeared during 1940s through 1960s, in Urdu, Arabic and English. The
focus was not banking and finance in the narrow sense but the economic system
as a whole. The writer would , general ly speaking, criticize capitalism and
socialism and proceed to outline a system based on Islamic injunctions relating
to moderation in consumption, helping the poor, encouragement of economic
enterprise, avoidance of waste, justice and fairness, etc. The poor tax, zakat, and
prohibition of interest would be emphasized in this context. It would be argued
that Muslims should not adopt the conventional system of money, banking and
finance blindly. They must purge it of prohibited interest and modify it to suit
the just and poor-friendly economic system of Islam. Some of these writers
went beyond generalities and suggested that the early Islamic contracts provided
sound bases for restructuring banking so that it was free of interest and served
the goals of Islam. The youngest of Islamic countries, Pakistan, made the
commitment to abolish Riba a part of its constitution.

Professional Muslim economists as well as Shariah scholars made

significant contributions to the subject so that by the end of 1960s s ome kind of
a blueprint of Islamic banking was available. Bankers and businessmen had also
joined the task of evolving a workable model since efforts were on in several
Muslim countries to put the idea into practice. The political conditions in Arab
countries were not favorable for any initiative at the state level. But private
practical initiatives had a greater chance of mobilizing the monies needed for
such a venture in these countries, as we shall see when tracing the history of the
practice of Islamic banking.

The earliest theoretical model was based on two -tier

mudaraba, profit sharing replacing interest in bank-depositor as well as bank-
borrower relationship. Islamic banks would be financial intermediaries, like
conventional commercial banks, only they would purge interest from all their
operations, relying on partnership and profit-sharing instead. They could
operate demand deposits like their conventional counterparts and offer other
services against fees, like other banks. Banks directly doing business and
entering the real estate market in order to make profits for their depositors and
shareholders( partners ) was not a part of this mode

But practitioners in the Arab world did not see much scope in this model.
Accepting deposits into investment accounts on profit -sharing basis was all
right, but their profitable employment needed direct involvement in business.
Merchant banking was also nearer to the milieu with which Shariah scholars
were familiar. They felt more at ho me with a model in which savings were
mobilized on profit sharing basis but their profitable use was based on familiar
Islamic contracts of sale and purchase and leasing, etc

Murabaha, i.e, cost plus or mark up financing entered into the model of Islamic
banking in the second half of the nineteen -seventies. By this time practice had
revealed the difficulties of applying the mudaraba ( profit -sharing) contract in
dealing with businessmen in a legal environment that failed to provide any
protection to the financier in this case, unlike the protection it provided to
interest based finance. Adverse selection in an environment dominated by
interest-based institutions was another serious problem. Other Islamic contracts
like salam, istisna¶ and wakala were also being explored. Shariah scholars,
many of them formally advising Islamic financial institutions, made significant
contributions in developing the model.

One of the specific needs to meet was financing house purchase on terms
acceptable Islamically. Three models of interest free finance were developed.
The first, which formed the basis of the House Building Finance Corporation of
Pakistan (1980 ),was based on joint ownership and rent sharing, eventually
leading to the home dweller possessing it in full a s he/she purchased the
government owned part bit by bit. The second was a cooperative in which
members pooled resources and got funded in turn, the pooled resources being
profitably invested while waiting. The third method is based on murabaha, the
customer paying the higher deferred price in installments.

In practice small variation were introduced to ensure Shariah compatibility as

well as financial viability.

During 1980s the subject of Islamic banking and finance received broad based
academic and professional attention. A number of Muslim countries began
considering implementation of the idea officially and appointed expert bodies to
work out the details. Several universities started teaching the subject and
encouraged research resulting into hundred s of PhD dissertations, some of them
in the universities in Europe and America. Numerous seminars and conferences
drew attention to the subject in places as wide apart as Kuala Lumpur, Dhaka,
Islamabad, Bahrain, Jeddah, Cairo, Khartoum, Sokoto ( Nigeria ), Tunis,
Geneva, London and New York. A number of research centers made Islamic
economics their field, paying special attention to money and banking. Some of
these launched academic journals providing forums for exchange of views and
dissemination of information on a world-wide scale

During the 1990s the model was further developed and refined. The liabilities
side saw frameworks put in place for handling trust funds, venture capitals, and
financial papers based on ijara ( leasing ) salam ( forwards ) and m urabaha
(mark up ). The special techniques for launching Shariah compatible mutual
funds were also developed in this period. This involved selecting companies
whose shares could be traded as they did not violate any Shariah norms . This
selection was made by screening out the undesirables. The first norm was that
the products in which the company dealt should not be prohibited ones like
alcohol or pork. The other was that its finances should be free of interest
bearing loans and its revenue free of interest income. Since the condition about
debt finance would eliminate almost all shares traded on the stock exchange,
some scholars allowed a leverage of 30% or less. There could be other criteria
also but these two are the main, common to all existing Islamic f unds. Once the
filtering process was complete, managing a portfolio became a professional job.
This is why the phenomenon of Islamic mutual funds, even though endorsed by
a group of Shariah scholars, owes itself to the initiative of professional players
in the field
 As the launching of the Dow Jones Islamic Indexes evidenced, Islamic
finance too needed the modern tools designed to handle the complex web of
financial transactions. The Indexes track Shariah compliant stocks from around
the world.

Advantages of Islamic Banking and Finance

Before we turn to Islamic banking in practice, let us note some of its features
emphasized in the literature. Justice and fairness to all concerned was the main
feature of a model of financial intermediation whose core was profit-sharing.
Interest was essentially unfair because our environment does not guarantee
positive returns to business enterprise financed with borrowed money capital.
Current practice penalizes entrepreneurship by obliging it to return t he principal
even when part of it is lost due to circumstances beyond the entrepreneur¶s
control. Justice requires that money capital seeking profit share the risk attached
to profit making. A just system of financial intermediation would contribute to a
more equitable distribution of income and wealth. Islamic finance will foster
greater stability as it synchronizes payment obligations of the entrepreneur with
his or her revenues .This is possible only when the obligation to pay back the
funds acquired from the financier and pay a profit is related to realization of
profits in the project in which the funds are invested, as it is in the profit -sharing
model. Contrary to this, in the debt-financing model the payment obligations of
the entrepreneur are dated as well as fixed in amount. The same is the case with
the financial intermediaries, their commitment to the depositors in time and
saving accounts is to pay back the sum deposited with interest added. When a
project fails and businessman defaults, the financial intermediary must also
default with ripple effects destabilizing the whole system. The debt based
financial system of capitalism is inherently prone to recurrent crises. This
malaise of the capitalist financial system is well discussed by Hyman P.
Minskey in his book, Stabilizing an Unstable Economy ( New Haven and
London, Yale University Press,1986.) The linking of depositors¶ entitlements to
the actual profitability of the projects in which their monies are invested
through the services of the financial intermediary, the bank, would almost
eliminate the risk of runs on the bank insofar as the investment accounts are
concerned. A report or rumor that the bank investments are not doing well will
not prompt a rush of withdrawals from investment accounts as depositors could
get only what is actually salvageable. Waiting till the situation improves would
be a more rational option. Islamic finance is more efficient as it allocates
investable fund on the basis of expected value productivity of proje cts rather
than on the criterion of creditworthiness of those who own the projects, as is the
case in debt based finance. There is no guaranty that the most promising
projects seeking finance will come from the most wealthy. As Schumpeter has
shown the most innovative may be empty handed. But debt finance would not
serve these. It would prefer those who, on the basis of other assets owned by
them, would be able to pay back the sum borrowed, interest added, even when
the project being financed failed to create additional wealth. Last but not the
least, Islamic finance will be less prone to inflation and less vulnerable to
gambling-like speculation, both of these being currently fueled by the presence
of huge quantities of debt instruments in the market. Deb t instruments function
as money substitutes while equity -based financial instruments do not. And
speculators find it much easier to manipulate debt instruments than those based
on profit-sharing. It is true that these advantages belong to a system whose
core is profit- sharing. But even murabaha (cost plus or mark up ) financing
keeps the system far less vulnerable to inflation and gambling -like speculation
than the conventional debt based arrangements . Murabaha is firmly linked with
exchange of real goods and services. It is a price, to be paid later. It is
essentially different from money given as a loan which may or may not be
linked to production or exchange of real goods and services. An Islamic system
of finance in which profit-sharing and mark up financing both exist side by side
would still retain the advantages noted above. Islamic Banking Practice: Early
Initiative. A number of interest free saving and loan societies are reported to
have been established in the Indian subcontinent during 1940s . But efforts to
arrange finance for business enterprises seem to have started later. One
pioneering but short lived experiment was that in Mit Ghamr in the Nile valley
in Egypt in 1963. Same year saw the establishment of Tabung Haji in Malaysia.
Money being saved for meeting the cost of the pilgrimage to Makkah is
profitably invested by this organization which is still working.the Phillipine
Amanah Bank was also established during the same period to enable Muslims to
meet some of their financial needs without involving interest. An interest free
bank in Karachi, Pakistan was established by some individuals around the same
time but it did not survive for long. Islamic Banking Practice In The Private
Corporate Sector

The Dubai Islamic Bank was established in 1975 under a special

law allowing it to engage in business enterprise while accepting deposits into
checking accounts, which were guaranteed, as well as into investment accounts
which were to receive a share in the profit accruing due t o their use in business
by the bank. Within the next ten years, i.e. by 1985, 27 more banks were
established in the same manner in the Gulf countries, Egypt, Sudan, etc. Many
more were to follow all over the Muslim world. Also by 1985, over 50
conventional banks, some of them located at money centers like London, were
offering Islamic financial products. This was followed by up by some of the
major conventional banks establishing Islamic branches dealing exclusively in
Islamic products. Citi-Islamic in Bahrain and Grindlays in Karachi were
followed by the National Commercial Bank in Saudi Arabia establishing over
50 Islamic branches by 1990s. Islamic investment companies and Islamic
insurance companies also appeared in the late 1970s and grew in number. Lat er,
in 1990s, a number of Islamic mutual funds appeared, many of them being
managed by reputed western firms. By the year 2000, there were 200 Islamic
financial institutions with over US$ 8 billions in capital, over $100 billions in
deposits, managing assets worth more than $ 160 billions. About 40% of these
are in the Persian Gulf and the Middle East, another 40% in south and south -
east Asia, the remaining equally divided between Africa on the one hand and
Europe and the Americas on the other hand. Two thirds of these institutions are
very small, with assets less than 100 million US dollars.

Two Islamic banks operated in Europe for some years. Islamic

Bank of Denmark was converted into an investment company and Al Barakah
London had to stop deposit taking. As the Bank of England explained, a
deposit taking institution had to guarantee its repayment in full in order to
qualify for a banking license. As of now, western societies are served either by
Islamic mutual funds or by grass roots initiatives at the community level
financing the purchase of houses and other consumer durables. Islamic Banking
at the State Level Pakistan µIslamized¶ banking between 1979 and 1985 through
a series of Ordinances issued by the Federal government an d a number of
circulars issued by the State Bank of Pakistan, the country¶s central bank. Even
though profit sharing replaced interest as the basis of time deposits and saving
accounts, the actual rates paid are not market determined as all major banks
were nationalized during the previous regime. On the assets side mark up
became the main basis of bank finance for business. Some financial products
based on profit-sharing were launched but their role in the market is minimal.
Government finances remain conventional, burdened with huge interest based
foreign and domestic debts. Private initiative played little role in the
Islamization process and the market hardly got a chance to throw up Shariah
compatible financial instruments . The whole process was conducted with some
speed by the bureaucracy under orders from the top. Even the recommendation
of the Islamic Ideology Council to make a start from the assets side was not
heeded. Iran passed its usury free banking laws in 1983. All banks are
nationalized. In accordance with the school of Islamic law followed in Iran,
depositors may get µrewards¶ on their savings provided they are not committed
in advance. Financing of domestic and external trade is done on mark up basis.
But sharing modes do play a significant role in financing agriculture and
industry. Interest free loans are available for the poor to meet such needs as
housing, their source being the state. Sudan launched Islamic banking in 1984
whose coverage was later extended to the entire financial sector in 1989.
Sharing based modes of finance are used in agriculture and industry and the
government is considering sharing based investment certificates to be sold to
public, the funds so mobilized to be used in developmental projects. The poor
state of the economy stands in the way of the market playing any significant
role in the process. But the recent phenomenon of oil as an increasing source of
public revenue is likely to make a difference. Malaysia had its first officially
sponsored Islamic bank in 1983. All other banks also offer Islamic financial
products. Overall supervision vests in the country¶s central bank, Bank Negara
Malaysia, which has a board of Shariah scholars to advise it. Malaysian Islamic
financial system allows sale of debt instrume nts based on receivables from sale
of real goods and services and those based on leasing. The government issues
bonds (Malaysian Government Investment Certificates, MGICs) to be redeemed
at par but carrying coupons conferring financial benefits that vary. Malaysia has
an active Islamic money market trading in assets based securities. Indonesia¶s
Bank Muamalat, established 1994 under state patronage, has about 400
branches all over the country. Its financial operations follow the Malaysian
model. There are other smaller Islamic banks too, e.g. the Shariah Bank. Turkey
does not practice Islamic banking at the state level, but several Islamic banks
were launched under special licenses in late eighties -early nineties. They are
still functioning, along with other non-bank Islamic financial institutions.

The Islamic Development Bank:- The Organization of Islamic

Conference ( OIC ) took several steps culminating in the establishment of a
bank of Islamic countries which would serve the entire Muslim ummah (
community of the faithful ). Share capital, initially fixed at US dollars two
billion was supplied by member countries the largest coming from Saudi
Arabia, Kuwait, Libya , United Arab Emirates and Iran. It started operations in
1975 with head quarters at Jeddah, Saudi Arabia. Clause one of its charter states
that it was ³to foster economic development and social progress of member
countries and Muslim communities individually as well as jointly in accordance
with the principles of shariah.´ In compliance, the IDB does not deal with
interest. By the year 2000 the Islamic Development Bank ( IDB ) had financed
inter-Islamic trade to the tune of over 8 billion US dollars mostly using the
mark up technique. It also gives loans, taking only service charges ac cording to
actual administrative expenditures. But it does try to promote sharing based
modes of financing. It is also managing an investment portfolio in which
individual Islamic banks place their surplus liquidity. Even though it can not,
and does not aspire to, serve as a lender of last resort for all Islamic banks, it is
trying to help them solve their liquidity problems. It fosters technical
cooperation between member countries and has established or sponsored a
number of institutions for this purpose. The Islamic Chamber of Commerce and
the Islamic Foundation for Science, Technology and Development are two of
these. It is also distributing scholarships for higher learning and technical
education to Muslim students in countries in which Muslims are in a minority.
In order to fulfill its mission, the IDB has established the Islamic Research and
Training Institute (IRTI). It conducts in house research, sponsors external
research, publishes a research journal, conducts training courses, organizes
seminars and conferences and maintains a data base on Islamic countries¶
economies, etc.The Islamic Development Bank interacts with all regional and
international financial institutions like the International Monetary Fund (IMF),
the World Bank, the Asian Development Bank, etc. Islamic Banking and
Finance as Part of the International Community The IMF issued its first study
on Islamic banking in 1987. Since then more than a dozen research papers have
come from that forum on important aspects of Islamic finance. I MF has
reported no problems in dealing with member countries committed to Islamic
banking. On the other hand Islamic financial institutions too never faced any
problems dealing with regionaland international financial institutions. The
Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) is in contact with the standards committee of the Bank of
International Settlements based at Basel, Switzerland . All Islamic financial
institutions operate within the system supervised by their respective central
banks and other relevant authorities. They are neither working in isolation nor
engaged in creating a separate space of their own. They are inspired by a vision
of financial arrangements more conducive to justice and development for all,
especially the poor and the weak. This is a goal hopefully cherished by al l.

No emergence of Islamic banking

Islamic Bank

AN EMERGING NEW MODE OF 'FINANZKAPITAL' IN THE WORLD

Abstract

Islamic banking is making a debut in the world of 'Finanzkapital'. Despite being

new in the world of finance and still hesitant to make bold claims, it is emerging
slowly but steadily. The men who took upon themselves the task of piloting the
Islamic mode of 'Finanzkapital' belong to the new generation of Muslims. Not
only are they endowed with a strong Islamic faith but are also equipped with the
necessary technical wherewithal to rise to this occasion. The one who first
started the ball rolling in this direction was Dr. Ahmed El-Naggar, an Egyptian
economist. Among others who joined him later, were the late King Faisal and
his son Prince Muhammad. Tunku Abdul Rahman too played the pioneering
role in the establishment of the Islamic Development Bank in Jeddah. Although
the superstructure of Islamic banking is still in the making and there are quite a
large number of fundamental issues waiting to be resolved, the spirit to make
this premier pas a success seems undaunted. While some Muslim countries have
already set up Islamic banks, there are others where at least a part of the
banking business has been Islamized. Pakistan is among those countries which
have set up special counters for interest -free banking.

As Islamic economics is not only confined to mere 'finance', quite

a large number of steps are also being taken to orientate the economic contours
of these countries compatible with the basic tenets of Islam. Zakat and Ushr
have already been introduced in Pakistan. In addition, serious efforts are under
way to find new ways and means towards raising funds through taxation etc. for
purpose of meeting both the budgetary and developmental outlays.

The World of Islam, today, finds itself in an enviable position. Not

only is it now largely liberated from the colonial yoke, but is also endowed with
the fabulous oil wealth. With a view to enable the Muslim countries to break
their centuries-old economic stagnation, the present exercise into Islamic
banking is destined to open up a new epoch of resurgent development and
distributive justice. If this effort got crowned with success, not only will it
benefit the Muslims, but will also usher in a new era of efficient and broad-
based growth and development in the whole world.

Introduction:-For centuries the Islamic economic doctrines have remained

dormant and been unable to face the more aggressive and vested -interests
specific socio-economic order inaugurated by the West. Whatever may have
been the reasons for this fate behind the unsuccessful character of the Islamic
economic banking system which operates on the cardinal principle of 'interest',
the Islamic economic doctrines abhor and forbid all those transactions which
directly or indirectly deal with interest or riba, the terminus tecknicus used for
this in the Holy Qur'an. One could judge the explicit and emphatic character of
prohibition of riba from the following verse of the Holy Qur'an : " Allah,
permitteth trading and forbiddeth riba Allah hath blighteth riba and made
Sadaqat fruitful. Allah loveth not the impious and guilty." (al -Qur'an, II : 275-
276). order in the past, one thing that seems to be emerging on the international
economic front is the fact that the world of Islam has in recent years started
getting awakened from this (chronic) slumber. Apart from political awakening,
some of the Muslim countries are today anxiously exploring prospects of
liberating themselves from the economic order thrust upon them over the past
few centuries by the more powerful Western countries. A special need for this
change has been felt on account of the domination of the Western and
Communist countries in the realm of economic activity. Banking and finance is
one area where the Muslim countries feel inclined to do something
fundamentally different. The reason behind this desire is the fact that unlike
WesternY
The above Qur'anic injunction was known to the Muslim community for all the
past centuries and there were many a Muslim who, inspite of placing their funds
with Western banks, did not accept interest which accrued on their deposit
accounts, but none tried to establish banking and financing institutions
compatible with the dictates and spirit of Islam. In some countries where
Muslims ruled, the most convenient practice followed was to let the non -
Muslims carry on banking and frequently even commerce and trading. One
possible reason responsible for the successful development of banking and
financing institutions by Western nations in the Muslims countries was perhaps
again the alleged non-Islamic character of these institutions Nevertheless, it
seems quite intriguing that despite the explicit verdict in the Holy Qur'an:

" O ye who believe, ... give up what remainetk (due to you) from ribs, if ye are
(in truth) believers. And if ye do not, then be warned of war (against you) from
Allah and His Messenger." (al-Qur'an, II: 278-279)

The Western banking and financing institutions were allowed to be set up in

Muslim countries and there is ample evidence to prove that even Muslims
themselves were not hesitant to establish interest-bound banks. There are also
enough instances where Muslim countries became signatories to the
establishment o? Interest-bound international institutions like the International
Monetary Fund and the International Bank for Reconstruction and
Development. Despite the acceptance of Western banking institutions by the
Muslim countries, the West does not seem to be inclined to allow the
establishment of Islamic banks in their countries. This is evident from a recent
effort made by leading members of the Muslim community in South Africa to
set up an Islamic bank on the basis of equity and profit and loss sharing with a
share capital of 2 million Rands. The government did not approve the
application saying that: "The registration of an additional banking institution at
this juncture would not be in the public interest."' Other Western countries are
likely to adopt similar attitude because t he establishment of Islamic banks based
on the principle of profit and loss rather than interest would shake the very
foundations of Western banking institutions. The two banking institutions, one
working on the basis of interest and the other on profit and loss, represent two
different socio-economic orders. The difference, rather the cleavage between the
two is of such a magnitude and quality that there are no prospects of any
convergence between their goals. Both work for and aim at the realization of
different goals. If some-how the ultimate result comes out to be not too
divergent from each other, this is more incidental rather than inherent and
innate.

Growth of Western Banking System

The Western banking system grew as it did historically was supposed to serve
the interests of the powerful class of entrepreneurs, whether businessmen,
industrialists or stock traders. The banks operated through the ingenious
mechanism of dividing the society into savers and investors. Both these groups
were assigned a certain role to play in the society. While the savers were
encouraged to do a large part of the 'passive capital -formation', the investors
were inspired to use initiative and enterprise to ma ke the best use of this capital
through investment activity. The result of this 'division of capital -saving and
capital-investing' was that while the former class continued to remain
condemned vegetating on paltry rewards, the latter class grew in wealth a nd
stature day in and day out. Notwithstanding other factors which led to the
emergence of capitalism in Europe, the role of banking institutions seems to
have served as the principal agent responsible for having "triggered off this
development. It is indeed a great irony of human history that people who saved
capital were the least to benefit from it, while those who dexterously collected
and used it through the mechanism of investment were the ones who profited
the most. The way this system operates, enables the investors to appropriate the
lion's share of the earned profit, while only the remainder falls to the lot of the
savers. In some cases, as is the situation in Pakistan at present, the savers were
condemned to have even a negative rate of return, wh ile the intermediaries,
namely, the banks and the final investors were the ones who made fortune on
these savings.

Factors Hindering Growth of Islamic Banking

Many factors led to the non-emergence of banking institutions along with
Islamic principles in the Muslim countries. One was the treatment of the
doctrine of ribs more as a religious commandment rather than as an economic
imperative. It was this approach which led to theological interpretation of
concepts, such as, ribs and, in this way, economic rationality and egalitarian
thrust inherent in Islamic principles were thrown overboard. The Muslim
scholars unfortunately kept themselves so much immersed with religious
obligations and the concomitant trivialities that the great Islamic concepts of
economic utility and human welfare were never allowed to be transformed into
gigantic institutions serving the greater cause and dynamic pursuits of the larger
Ummah. It is, in fact, this non-enterprising spirit of the Muslim people which
kept them down on the economic front for centuries, while other nations,
although not well endowed in terms of great religious commandments, were
quick to set up institutions on the basis of human institution, reflection and
endeavor. Max Weber also admits this phenomenon when he says that while the
majority of the great ideas were born in the Orient, it was the Occident which
transformed them into great institutions. Not only does this verdict apply to riba,
it even holds true in the case of Zakat. While the concept of Zakat is fourteen
hundred years old, the forerunners of the present 'welfare state' or 'social
security system' are no more than two hundred years old. The latter
development, it may be mentioned here, wasn't, however, all too natural.' ... it
arose as a way to combat socialism by mitigating some of the most conspicuous
excesses of capitalism and thus removing the mobilization basis of the Social
Democrats. As against this, the Qur'an concepts, such as Zakat and Sadaqat,
aimed at offsetting the inequalities inheren t in human social and economic
order, were taken more or less as rituals rather than as the necessary
wherewithal for institutionalizing social justice and social security. Similarly the
doctrine of riba was also not understood in its broader and deeper pe rspective,
and, as a result, the great revolution that it was supposed to usher in on the
socio-economic front was frustrated.

Many factors have given birth to the above situation. One of them, for instance,
was the notion that theological doctrines and d ogmas were anachronistic in
nature. Perhaps there was some truth in this approach as far as it related to older
religions like Christainty and Hinduism, but surely it wasn't applicable to Islam,
a religion committed to progress and human emancipation. The tragedy that
overtook the Muslim world was the time perspective. In the period during
which the great banking institutions were established, the Muslim world had
become the victim of intellectual decadence or it was forced to come under the
influence or hegemony of non-Islamic nations. It is this era of decline which
forced the Muslim world to submit itself to alien institutions arid, worse still, to
antithetical intellectual concepts. Although many Muslim countries are now
sovereign and active as far as the resurgence of Islam is concerned, there is no
denying the fact that the century's old Western supremacy in the world of
finance and trading is still far from being shaken.

Is\lamic Concepts under Scrutiny

The great concepts enunciated by Islam are at pr esent passing through an era of
intellectual scrutiny and inquiry. The task before the Muslim scholars is not
simply to understand and interpret the Islamic doctrines in the light of the
contemporary challenges, but also to prove the economic viability of these
concepts. It is here where Islam must compete with other civilizations on an
equal footing. We come back once more to the role of interest -free banking in
the process of socio - economic, development. As mentioned earlier, the
Western banking system, although it has over the past successfully removed
some of its earlier shortcomings, nevertheless it still continues to serve as a
financial arm of the capitalist class. The savers who generally represent a large
majority of the population in the Muslim c ountries are continually .deprived of
their legitimate share in national income. Because of the manipulations through
the discount rate and, the concomitant cartelization of banks in respect of their
rates of interest offered on deposits, it is the saver who gets the least reward for
his efforts. The largest chunk of the profit is taken away by the investor and the
bank serving as the intermediary between the saver and the investor. Through
this modus operandi, it is the saver who is generally placed in a p osition of
unequal relationship with the investor. As experience has shown, it is the
investor who gains the most and passes on only the residual gain to the saver. I
am reminded of a German proverb which says 'A saver always finances his own
decline'. In Pakistan this proverb seems to be quite valid because the large
majority of savers generally get a negative return on their savings if calculated b
y giving due weight to inflation. The banks play the role of deposit collectors in
the rural areas and dump these funds into the urban centers. The result is just
catastrophic. Not only are the rural people given an inadequate return on their
savings, but are also deprived of the opportunities to use their 'own' capital for
local development purposes. The capita l which is moved to the urban centers
also creates a situation where a scarce commodity like capital is made plentiful
with the result that the pattern of development financed with capital turns out to
be more capital-intensive with the concomitant consequ ences of more demand
for imports and the built-in-need for more foreign aid. Such a strategy is, of
course, a volte-face on the development front. Not only does it lead towards
further sharpening of income distribution but also neglects the proper and full er
use of the local resource endowment. The economic principle of 'opportunity
cost' is thus thrown overboard.Side by side with lesser utilization of local
resources, inequitable reward for the savers' capital, the present banking system
also leads to greater propensity to consume and the accompanying lesser growth
of investible funds. Because of the cartelization of banks in respect of fixed
rates of interest offered on deposits, there also does not take place the required
competition among the banks towar ds making optimum utilization of the capital
resource. This too is a serious drawback in the existing working of the Western
banking institutions.

Interest-Free Banking System

Unlike Western banking institutions the interest -free Islamic banks are endowed
with certain inherent features which make them quite distinct. For instance,
operate as they do largely on the basis of profit and loss sharing, the majority of
their clients are not savers but holders of profit and loss accounts. In this way
not only are the holders of PLS accounts enabled to get a much larger share of
the investment-return, but are also psychologically converted from traditional
savers into investors. It may be mentioned here that unlike a traditional saver
who generally saves to finance some expenditure in future, an investor generally
thinks of not meeting a particular expenditure in future, but much more in terms
of building reproductive assets and services for the purpose of future command
over resources in a dynamic sense. The Islamic banks operating to fulfill the
latter function contribute towards acceleration of investment activity along with
the realization of other concomitant goals of better income distribution, higher
efficiency of capital and lesser attraction for demonstrati ve expenditure. An
investor's Weltanschauung is world apart from that of a traditional saver. The
efficiency of capital increases under the Islamic banking system, because,
unlike the payment of a predetermined rate of interest on deposits, the banks are
now forced to work efficiently for considerations of attracting clients on the
basis of the rate of profit already announced by them in recent years and in the
light of their future profit projections. Under the existing interest -bound savings,
the banks are obliged to pay a pre-determined rate of interest which is generally
no more than a quarter of the actual rate of profit earned on an average unit of
investment.

The Islamic banking system has also the advantage of promoting investment
habits among the large majority of the people which in the longer perspective
lead to lesser consumption and better distribution of income. There is also
another advantage bound up with the Islamic banking system . It emerges as a
result of the elimination of interest-bearing credit facilities offered to a
businessman or a limited company. While under the Western banking system a
limited company can meet its additional requirements of capital by obtaining a
loan carrying a fixed rate of interest, the same company will, have t o obtain
funds on profit and loss-sharing basis under an Islamic banking system. The
difference between the two is that while in the case of the former the company
directors and shareholders pay the usual rate of interest, in the latter case, they
will have to part with the larger part of the profit earned on the funds obtained
from the bank under the PLS scheme . In the latter cast, it will not be the
directors and shareholders of the company who will be able to appropriate the
largest chunk of the profit earned on funds borrowed/ obtained from the bank,
but it will be the original savers who by virtue of having opened their PLS
accounts with the concerned bank will now become the legitimate recipients of
the largest chunk of the profit earned by the company . The maximum that the
bank can do in this case would be that it will retain a certain amount as
management charge. The practice of the PLS scheme is going to have far
reaching impact on the social structure of the population. ' Instead of the earlier
capitalistic inequitable distribution of the profits earned on savings between the
savers and the investors the Islamic banking system will enable the savers'
community to receive a much larger share of the profit earned on their deposits.
One must also mention here a special feature bound up with the issuance of
credit under the Western banking system. This is that the borrowers of funds
from the Western banking system can claim tax exemption on the amount of
interest paid by them. In order to enable the Islam ic (banks to compete with the
Western banks, it would therefore be desirable either to withdraw the above tax -
exemption or allow similar tax exemption on the basis of the 'profit' passed on
by the investors to the savers through the intermediary banks. Pro f. Dr.
Rittershausen of the Cologne University told me and Ahmed El -Naggar in
1960-both of us were then doctoral students that the tax-exemption granted on
the amount of interest paid by the borrowing firm was one of the cardinal
privileges enjoyed by the entrepreneurial class under the capitalistic system.

Some Distinctive Features of the Islamic Banking System

It is clear from our above analysis that the Islamic banking system is far
superior to the Western banking system. This is evident from the speci al
features enjoyed by the Islamic banking system. The Islamic banking system is
committed to efficient utilization of 'capital'. Savers being PLS holders force the
banks to compete with each other and look for attractive investment
opportunities. This leads to higher efficiency of capital. Under an Islamic
banking system a large majority of the savers will switch over to PLS accounts,
which will earn them better reward than is available under the Western banking
system. This will also mean a better distribution of income. The change from a
traditional saver to an investor will reduce the propensity to consume and
thereby contribute towards increasing the propensity to save/invest.

The shift from interest-bearing deposits to PLS will increase the share of the

savers and reduce the 'unearned' income of the borrowers under the older
system. This egalitarian character of 'investment management' will remove
sharp income differentials between different income echelons.The first
experiment in interest -free banking was undertaken by Prof. Dr. Ahmad El -
Naggar during the early sixties in the Nile Delta. This maiden attempt covered a
large number of villages.4 After achieving success in the Nile Delta, Dr. El -
Naggar moved to Saudi Arabia and started a campaign for the establishment of
Islamic banks throughout the Muslim World. In this struggle he was fortunate to
get the support of Prince Muhammad and his illustrious father King Faisal.
With hard work and persistent endeavors Dr. El -Naggar was able to steer
through many difficulties and saw his efforts crowned with success when the
Islamic Development Bank was established in Jeddah in 1975. Over the past
few years, he has been instrumental in the establishment of no less than a dozen
Islamic banks spread over the wider canvas of the Muslim world. Countries at
present having one or more Islamic banks are Egypt, Sudan, Jordan, Kuwait,
Dubai, Bahrain and Sharjah. Malaysia and Mauritania have also recently set up
one Islamic Bank each. The reports so far received from the Islamic banks
reveal that the performance of these banks has been quite satisfactory and it is
hoped that they will be able to offer a much better service and reward to their
clients than the competing Western banks. Egypt is the leader on the Islamic
banking front. A few years ago Dr. El-Naggar set up the International Institute
of Islamic Banking and Economics, Lefkosa (Turkish Cyprus)/Cairo to cater for
the intellectual and operational needs of the Islamic banks. This institute also
offers training facilities to banks staff in Islamic banking. There also exists an
International Association of Islamic Banks with headquarters in Cairo. This
institution helps member Muslim countries towards the establishment of Islamic
banks.

Islamic Banks : Both Efficient and Distributive

With the successful working of the Islamic banks, the Muslim world is again
heading towards a new era of financial institutions and equitable socio -
economic development. The results so far obtained from the experience of the
few Islamic banks look quite baffling. Not only the new PLS accounts are
improving the efficiency of capital, but are also contributing towards the
betterment of the existing pattern of income distribution. Even the present high
propensity to consume rampant among the Muslim peoples is expected to go
down in the long run and in its place there will emerge an overall acceleration
of investment. These are revolutionary changes, if properly handled they are
sure in due course of time to overshadow older and more sophisticat ed Western
banking institutions.

The Islamisation of the banking sector is likely to come of age in the next
decade or two. The other thrust of the Muslim countries is likely to be on Zakat
and other taxation measures. With proper planning and careful imp lementation,
they too can play their role in changing the unequal relationship perpetrated on
social groups. While doing all this, we must not lose sight of the fact that all
these great doctrines of Islam are not rituals, they are in fact the foundation -
pillars of an egalitarian and development -inducing order.

The Totality Thesis Despite the too obvious superiority of the interest -free
banking system over the Western banking system, there are Muslim scholars
who, for some reason, are still feeling hesitan t to come out openly for the
abolition of interest. One observes this, for instance, from a study recently
published in Pakistan. It says: "To think of abolishing riba without reference to
the 'totality' of the Islamic economic system is to put the cart be fore the horse.
In fact, there is a real danger that the abolition of riba and its replacement by the
profit-sharing system will increase the level of economic exploitation of the
poor by the rich, thereby negating the basic Islamic principle of al -'Adl wal
Ihsan.

It seems that the authors have not understood the basic message of the Holy
Qur'an and have tried in vain to underrate the issue by tying it up with the
change in the totality of the Islamic economic system. The Islamic banking
system as explained in this paper is not going to strengthen the forces of
exploitation, as apprehended by the authors. On the contrary, the Islamic
banking system will eradicate the existing exploitation by the investors/banks of
the savers. Not only this, the Islamic banks will also improve the efficiency of
capital and will inspire many a saver to become active investors. The process of
Islamisation in the banking sector is sure to have positive spill over and trickle
down impact on the broader social canvas resulting in more equitable
distribution of income and quicker development. No doubt the 'totality thesis'
has its own merit, but there is no reason why one should wait endlessly lor it
and stop looking for partial solutions to set the ball of Islamization rolling in t he
Muslim countries. We know there are numerous excesses at present obtaining in
the Muslim world, but aren't we forgetting that the gravest of all sins that a
Muslim can commit is the dealing with riba-bound business. The Holy Qur'an
says :

"Those who devour riba, shall rise up before God like men whom Satan has
demented by his touch." (al-Quran, II : 275)

Beyond Theological Frontiers

In this exercise of Islamisation one will have to be quite careful in not letting
himself be misled by the historical endowment of the Muslim civilization. The
riba doctrine as well as several others must be interpreted in the light of the
Qur'ari and the contemporary challenges. If, however, we let ourselves be
dictated by interpretations of early scholars and jurists, t he results might not
always be much rewarding; our approach must be beyond theological frontiers
and surely away from barren discourses. In this scientific era, it is time that we
look at ribs strictly from the point of view of the Holy Qur'an and examine how
it could serve as a new intellectual break -through on the economic and banking
front. It is only through such an attitude of mind that we can clear a backlog of
more than a millennium. The existing order needs to be corrected and the
abolition of riba will be just one effective way of making a start. ***By: M.A.
Hussein Mullick

Islamic Banking And Finance

INTRODUCTION

1.1 Introduction

Islamic banking, a financial innovation, has come to be seen as the most

µvisible¶ aspect of Islamization. Notwithstanding its novelty, it has made
considerable progress, measured by the rapidity with which it has been adopted
in the Muslim (even non-Muslim) countries in a relatively short period of time.
However, the progress made by Islamic banking is seen by some Muslim
economists as more apparent than real because it is not being run exclusively
(or even mostly) on the basis of the Sharicah-favored profit and loss sharing
(PLS) principle; rather, the fixed-rate type of financial instruments, which are
seen as a µdeviation¶ from the Islamic ideal, have proliferated. It is argued in
this paper that there is no warrant whatsoever for this misplaced µfinancial
puritanism¶, which has obfuscated the subject and its manifestations. The fact of
the matter is that, deviation or no t, the fixed-rate financial instruments, duly
approved by the Sharicah, form an integral part of Islamic banking; and that it
would be counterproductive to limit the possibilities of this institution just to the
PLS principle. Hence, respecting the prefere nces of the consumers, Islamic
banks should aim to evolve a risk-minimizing µmixed¶ investment portfolio,
containing both the variable and fixed -rate of return types, without any
µimperfection complex¶. Even more important, rather than pursue an ambiguous
financial ideal, which cannot be reached, the focus of the future reform. Should
be to produce something strikingly original which can win the
acknowledgement of the people. To this end. Islamic banking should be
informed with an earnest knowledge of the e thical objectives of an Islamic
economic system, the truth of which can be established only by the quality of
social justice and the primacy it accords to the needs of the underclass in
society. If Islamic banking is unmindful of its economic consequences and
remains hooked on µprocedural purity¶, it will

From Wikipedia, the free encyclopedia

Jump to: navigation, search This article may need to be rewritten entirely to
comply with Wikipedia's quality standards. You can help. The discussion page
may contain suggestions. (May 2009)

This article needs additional citations for verification.

Please help improve this article by adding reliable references. Unsourced

material may be challenged and removed. (January 2008)

Part of a series on

Islamic

jurisprudence

(Fiqh)
Economic

History

Zakat

Jizya · Nisab · Khums

Sadaqah (Waqf)

Bayt al-mal

Banking

Riba · Murabaha

Takaful · Sukuk

Inheritance

Political

Political aspects of Islam

Islamic leadership

Caliphate · Imamah

Wilayat al-faqih

Bay'ah · Dhimmi

Marital

Intentions · Contract

Rights and obligations

Mahr

Nikah

Misyar · Halala · Urfi

Khula · Nikah Mutµah

Polygyny · Talaq · Iddah

Ma malakat aymanukum

Adoption

Sexual

Techniques

Masturbation

Hygiene

Extramarital sex

(Haram zada)

Criminal

Hudud

Blasphemy

Maisir (gambling)

Zina (extramarital sex)

Hirabah (unlawful warfare)

Fasad (mischief)

Rajm (stoning)

Tazir (discretionary)

Qisas (retribution)

Diyya (compensation)

Etiquette

Adab

Sex segregation

Mahram

Honorifics
Toilet

Theological

Baligh

Salat

Raka'ah · Qibla · Turbah

Sunnah salat

(Tahajjud ‡ Tarawih)

Nafl salat

Sawm

Hajj

Ihram (Clothing ‡ Mut'ah)

Tawaf

Umrah (with Hajj)

Hygiene

Sexual · Toilet

Taharah · Ihram

Wudu · Masah

Ghusl · Tayammum

Miswak · Najis

Dietary

Dhabihah

Alcohol · Pork

Compared with kashrut

Military
Defensive jihad

Offensive jihad

Hudna

Istijarah (asylum)

Ma malakat aymanukum

Prisoners of war

Islamic studies

v·d·e

Public Finance

A series on Government

Policies

Economic policy

Fiscal policy · Monetary policy

Trade policy · Investment policy

Agricultural policy · Industrial policy

Social policy · Policy mix

Fiscal policy

Tax policy · Budgetary policy

Revenue · Spending · Budget

Deficit or Surplus · Deficit spending

Debt (External · Internal)

Finance ministry · Fiscal union

Monetary policy

Money supply · Interest rate

Monetary base · Discount window

Reserve requirements

Bank reserves · Gold reserves

Central bank · Monetary union

Trade policy

Tariff · Non-tariff barrier

Balance of trade · Gains from trade

Trade creation · Trade diversion

Protectionism · Free trade

Commerce ministry · Trade bloc

Revenue and Spending

Tax revenue · Non-tax revenue

Mandatory spending

Discretionary spending

Optimum

Balanced budget (Fiscal)

Price stability (Monetary)

Growth (Trade and Investment)

v·d·e

Also known as participant banking Islamic banking refers to a system of

banking or banking activity that is consistent with the principles of Islamic law
(Sharia) and its practical application through the development of Islamic
economics. Sharia prohibits the payment or acceptance of interest fees for loans
of money (Riba, usury), for specific terms, as well as investing in businesses
that provide goods or services considered contrary to its principles (Haraam,
forbidden). While these principles were used as the basis for a flourishing
economy in earlier times, it is only in the late 20th century that a number of
Islamic banks were formed to apply these principles to private or semi -private
commercial institutions within the Muslim co mmunity.[citation
needed]Contents

1 History of Islamic banking

1.1 Introduction

1.1.1 Riba

1.2 Modern Islamic banking

1.2.1 Largest Islamic banks

2 Principles

3 Shariah Advisory Council/Consultant

4 Fundamentals of Islamic finance

5 Usury in Islam

6 Islamic financial transaction terminology

6.1 Bai' al 'inah (sale and buy -back agreement)

6.2 Bai' bithaman ajil (deferred payment sale)

6.3 Bai' muajjal (credit sale)

6.4 Musharakah

6.5 Mudarabah

6.6 Murabahah

6.7 Musawamah

6.8 Bai salam

6.8.1 Basic features and conditions of Salam

6.9 Hibah (gift)

6.10 Ijarah

6.10.1 Advantages of Ijarah

6.10.2 Ijarah thumma al bai' (hire purchase)

6.10.3 Ijarah-wal-iqtina

6.11 Musharakah (joint venture)

6.12 Qard hassan/ Qardul hassan (good loan/benevolent loan)

6.13 Sukuk (Islamic bonds)

6.14 Takaful (Islamic insurance)

6.15 Wadiah (safekeeping)

6.16 Wakalah (power of attorney)

7 Islamic equity funds

8 Islamic derivatives

9 Islamic laws on trading

10 Microfinance

11 Controversy

12 See also

13 Notes

14 References

15 Further reading

16 External links

[edit] History of Islamic banking

[edit] Introduction

Main article: Islamic economics in the world

Further information: Early reforms under Islam and Islamic capitalism

During the Islamic Golden Age, early forms of proto-capitalism and free
markets were present in the Caliphate,[1] where an early market economy and
an early form of mercantilism were developed between the 8th -12th centuries,
which some refer to as "Islamic capitalism".[2] A vigorous monetary economy
was created on the basis of the expanding levels of circulation of a stable, high -
value currency (the dinar) and the integration of monetary areas that were
previously independent.

A number of economic concepts and techniques were applied in early Islamic

banking, including bills of exchange, the first forms of partnership (mufawada)
such as limited partnerships (mudaraba), and the earliest forms of capital (al -
mal), capital accumulation (nama al -mal),[3] cheques, promissory notes,[4]
trusts (see Waqf),[5] transactional accounts, loaning, ledgers and
assignments.[6] Organizational enterprises independent from the state also
existed in the medieval Islamic world, while the agency institution was also
introduced during that time.[7][8] Many of these early capitalis t concepts were
adopted and further advanced in medieval Europe from the 13th century
onwards.[3]

[edit] Riba

The word "Riba" means excess, increase or addition, which according to

Shariah terminology, implies any excess compensation without due
consideration (consideration does not include time value of money). The
definition of riba in classical Islamic jurisprudence was "surplus value without
counterpart", or "to ensure equivalency in real value", and that "numerical value
was immaterial." During this period, gold and silver currencies were the
benchmark metals that defined the value of all other materials being traded.
Applying interest to the benchmark itself (ex natura sua) made no logical sense
as its value remained constant relative to all other mat erials: these metals could
be added to but not created (from nothing). Applying interest was acceptable
under some circumstances. Currencies that were based on guarantees by a
government to honor the stated value (i.e. fiat currency) or based on other
materials such as paper or base metals were allowed to have interest applied to
them.[9] When base metal currencies were first introduced in the Islamic world,
the question of "paying a debt in a higher number of units of this fiat money
being riba" was not relevant as the jurists only needed to be concerned with the
real value of money (determined by weight only) rather than the numerical
value. For example, it was acceptable for a loan of 1000 gold dinars to be paid
back as 1050 dinars of equal aggregate weig ht (i.e., the value in terms of weight
had to be same because all makes of coins did not carry exactly similar weight)..

[edit] Modern Islamic banking> Interest-free banking seems to be of very

recent origin. The earliest references to the reorganisation of banking on the
basis of profit sharing rather than interest are found in Anwar Qureshi (1946),
Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed
by a more elaborate exposition by Mawdudi in 1950.[citation needed] The
writings of Muhammad Hamidullah 1944, 1955, 1957 and 1962 should be
included in this category.[citation needed] They have all recognised the need for
commercial banks and their perceived "necessary evil," have proposed a
banking system based on the concept of Mudarabha - profit and loss
sharing.[citation needed]

In the next two decades interest -free banking attracted more attention, partly
because of the political interest it created in Pakistan and partly because of the
emergence of young Muslim economists. Works specifically devoted to this
subject began to appear in this period. The first such work is that of Muhammad
Uzair (1955).[citation needed] Another set of works emerged in the late sixties
and early seventies. Abdullah al -Araby (1967), Nejatullah Siddiqi (1961, 1969),
al-Najjar (1971) and Baqir al-Sadr (1961, 1974) were the main
contributors.[citation needed]

The early 1970s saw institutional involvement. The Conference of the Finance
Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study
in 1972, the First International Conference on Islamic Economics in Mecca in
1976, and the International Economic Conference in London in 1977 were the
result of such involvement. The involvement of institutions and governments
led to the application of theory to practice and resulted in the establishment of
the first interest-free banks. The Islamic Development Bank, an inter -
governmental bank established in 1975, was born of this process.[10]

The first modern experiment with Islamic banking was un dertaken in Egypt
under cover without projecting an Islamic image ²for fear of being seen as a
manifestation of Islamic fundamentalism that was anathema to the political
regime.[citation needed] The pioneering effort, led by Ahmad Elnaggar, took
the form of a savings bank based on profit-sharing in the Egyptian town of Mit
Ghamr in 1963. This experiment lasted until 1967 (Ready 1981), by which time
there were nine such banks in country.[11] This section requires expansion.

In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank
which, currently, is still in business in Egypt. In 1975, the Islamic Development
Bank was set-up with the mission to provide funding to projects in the member
countries. The first modern commercial Islamic bank, Dubai Islamic Bank,
opened its doors in 1975. In the early years, the products offered were basic and
strongly founded on conventional banking products, but in the last few years the
industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10 -15% per year and with signs of
consistent future growth.[12] Islamic banks have more than 300 institutions
spread over 51 countries, including the United States through companies such as
the Michigan-based University Bank, as well as an additional 250 mutual funds
that comply with Islamic principles. It is estimated that over US$822 billion
worldwide sharia-compliant assets are managed according to The
Economist.[13] This represents approximately 0.5% of total worl d estimated
assets as of 2005.[14] According to CIMB Group Holdings, Islamic finance is
the fastest-growing segment of the global financial system and sales of Islamic
bonds may rise by 24 percent to $25 billion in 2010.[15]
The Vatican has put forward the idea that "the principles of Islamic finance may
represent a possible cure for ailing markets."[16]

[edit] Largest Islamic banksBanking

Types of banks

Central bank

Advising bank

Commercial bank

Community development bank

Credit union

Custodian bank

Depository bank

Export credit agency

German public bank

Investment bank

Industrial bank

Islamic banking

Merchant bank

Mutual bank

Mutual savings bank

National bank

Offshore bank

Private bank

Savings and loan association

Savings bank

Swiss bank

Deposit accounts

Savings account

Transactional account

Money market account

Time deposit

ATM card

Debit card

Credit card

Electronic funds transfer

Automated Clearing House

Electronic bill payment

Giro

Wire transfer

Banking terms

Anonymous banking

Automatic teller machine

Loan

Money creation
Substitute check

List of banks

Finance series

Financial market

Financial market participants

Corporate finance

Personal finance

Public finance

Banks and Banking

Financial regulation

v·d·e

See also: Islamic Development Bank

Shariah-compliant assets reached about $400 billion throughout the world in

2009, according to Standard & Poor¶s Ratings Services, and the potential
market is $4 trillion.[17][18] Iran, Saudi Arabia and Malaysia have the biggest
sharia-compliant assets.[19]

In 2009 Iranian banks accounted for about 40 percent of total assets of the
world's top 100 Islamic banks. Bank Melli Iran, with assets of $45.5 billion
came first, followed by Saudi Arabia's Al Rajhi Bank, Bank Mellat with $39.7
billion and Bank Saderat Iran with $39.3 billion.[20][21] Iran holds the world's
largest level of Islamic finance assets valued at $235.3bn which is more than
double the next country in the ranking with $92bn. Six out of ten top Islamic
banks in the world are Iranian.[22][ 23][24] In November 2010, The Banker
published its latest authoritative list of the Top 500 Islamic Finance Institutions
with Iran topping the list. Seven out of ten top Islamic banks in the world are
Iranian according to the list.[25] you can find more in formation specially in
Persian in http://www.islamicfinance.ir/

[edit] Principles Islamic banking has the same purpose as conventional banking
except that it operates in accordance with the rules of Shariah, known as Fiqh
al-Muamalat (Islamic rules on transactions). The basic principle of Islamic
banking is the sharing of profit and loss and the prohibition of riba (usury).
Common terms used in Islamic banking include profit sharing (Mudharabah),
safekeeping (Wadiah), joint venture (Musharakah), cost plus ( Murabahah), and
leasing (Ijar). In an Islamic mortgage transaction, instead of loaning the buyer
money to purchase the item, a bank might buy the item itself from the seller,
and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in
installments. However, the bank's profit cannot be made explicit and therefore
there are no additional penalties for late payment. In order to protect itself
against default, the bank asks for strict collateral. The goods or land is
registered to the name of the buyer from the start of the transaction. This
arrangement is called Murabaha. Another approach is EIjara wa EIqtina, which
is similar to real estate leasing. Islamic banks handle loans for vehicles in a
similar way (selling the vehicle at a higher-than-market price to the debtor and
then retaining ownership of the vehicle until the loan is paid).

An innovative approach applied by some banks for home loans,

called Musharaka al-Mutanaqisa, allows for a floating rate in the form of rental.
The bank and borrower form a partnership entity, both providing capital at an
agreed percentage to purchase the property. The partnership entity then rents out
the property to the borrower and charges rent. The bank and the borrower will
then share the proceeds from this rent based on the current equity share of the
partnership. At the same time, the borrower in the partnership entity also buys
the bank's share of the property at agreed installments until the full equity is
transferred to the borrower and the partnership is ended. If default occurs, both
the bank and the borrower receive a proportion of the proceeds from the sale of
the property based on each party's current equity. This method allows for
floating rates according to the current mark et rate such as the BLR (base
lending rate), especially in a dual -banking system like in Malaysia.
There are several other approaches used in business transactions. Islamic banks
lend their money to companies by issuing floating rate interest loans. The
floating rate of interest is pegged to the company's individual rate of return.
Thus the bank's profit on the loan is equal to a certain percentage of the
company's profits. Once the principal amount of the loan is repaid, the profit -
sharing arrangement is concluded. This practice is called Musharaka. Further,
Mudaraba is venture capital funding of an entrepreneur who provides labor
while financing is provided by the bank so that both profit and risk are shared.
Such participatory arrangements between capita l and labor reflect the Islamic
view that th be borrower must not bear all the risk/cost of a failure, resulting in
a balanced distribution of income and not allowing lender to monopolize the
economy.

Islamic banking is restricted to Islamically acceptabl e transactions, which

exclude those involving alcohol, pork, gambling, etc. The aim of this is to
engage in only ethical investing, and moral purchasing.

In theory, Islamic banking is an example of full-reserve banking, with banks

achieving a 100% reserve ratio.[26] However, in practice, this is not the case,
and no examples of 100 per cent reserve banking are observed.[27]

Islamic banks have grown recently in the Muslim world but are a very small
share of the global banking system. Micro -lending institutions founded by
Muslims, notably Grameen Bank, use conventional lending practices and are
popular in some Muslim nations, especially Bangladesh, but some do not
consider them true Islamic banking. However, Muhammad Yunus, the founder
of Grameen Bank and microfinance banking, and other supporters of
microfinance, argue that the lack of collateral and lack of excessive interest in
micro-lending is consistent with the Islamic prohibition of usury (riba).[28][29]

[edit] Shariah Advisory Council/Consultant

Islamic banks and banking institutions that offer Islamic banking products and
services (IBS banks) are required to establish a Shariah Supervisory Board
(SSB) to advise them and to ensure that the operations and activities of the
banking institutions comply with Shariah principles. On the other hand, there
are also those who believe that no form of banking that involves interest
payments can ever comply with the Shariah.[30]

In Malaysia, the National Shariah Advisory Council, which has been set up at
Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the
operations of these institutions and on their products and services. (See: Islamic
banking in Malaysia). In Indonesia the Ulama Council serves a similar purpose.

A number of Shariah advisory firms have now emerged to offer Shariah

advisory services to the institutions offering Islamic financial services. Issue of
independence, impartiality and conflicts of interest have also been recently
voiced. The WDIBF World Database for Islamic Banking an d Finance has been
developed to provide information about all the websites related to this type of
banking.[31]

[edit] Fundamentals of Islamic finance

The term ³Islamic banking´ refers to a system of banking or banking activity

that is consistent with Islamic law (Shariah) principles and guided by Islamic
economics. In particular, Islamic law prohibits usury, the collection and
payment of interest, also commonly called riba in Islamic discourse. In addition,
Islamic law prohibits investing in businesses that are considered unlawful, or
haraam (such as businesses that sell alcohol or pork, or businesses that produce
media such as gossip columns or pornography, which are contrary to Islamic
values). In the late 20th century, a number of Islamic banks were cre ated to
cater to this particular banking market.

[edit] Usury in Islam

The criticism of usury in Islam was well established during the Prophet
Muhammad (S.A.W) life and reinforced by several of verses in the Qur¶an
dating back to around 600 AD. The origin al word used for usury in this text was
Riba, which literally means ³excess or addition´. This was accepted to refer
directly to interest on loans so that, according to Islamic economists Choudhury
and Malik (1992), by the time of Caliph Umar, the prohibit ion of interest was a
well-established working principle integrated into the Islamic economic system.
This interpretation of usury has not been universally accepted or applied in the
Islamic world. A school of Islamic thought which emerged in the 19th Cent ury,
led by Sir Sayyed, argues for an interpretative differentiation between usury, or
consumptional lending, and interest, or lending for commercial investment
(Ahmed, 1958). Nevertheless, Choudhury and Malik provide evidence for ³a
gradual evolution of the institutions of interest-free financial enterprises across
the world´ (1992: 104). They cite, for instance, the current existence of
financial institutions in Iran, Pakistan and Saudi Arabia, the Dar -al-Mal-al-
Islami in Geneva and Islamic trust companies in North America. This growing
practice of Islamic banking will be discussed more fully in a later section as a
modern application of usury prohibition.

[edit] Islamic financial transaction terminology This section may require

cleanup to meet Wikipedia's quality standards. Please improve this section if
you can. The talk page may contain suggestions. (February 2010)

[edit] Bai' al 'inah (sale and buy -back agreement)

Bai' al inah is a financing facility with the underlying buy and sell transactions
between the financier and the customer. The financier buys an asset from the
customer on spot basis. The price paid by the financier constitutes the
disbursement under the facility. Subsequently the asset is sold to the customer
on a deferred-payment basis and the price is payable in installments. The second
sale serves to create the obligation on the part of the customer under the facility.
There are differences of opinion amongst the scholars on the permissibility of
Bai' al 'inah, however this is practised in Malaysia (A set of strict conditions
must be complied) and the like jurisdictions.[32][33]

[edit] Bai' bithaman ajil (deferred payment sale)

This concept refers to the sale of goods on a deferred payment basis at a price,
which includes a profit margin agreed to by both parties. Like Bai' al 'inah, this
concept is also used under an Islamic financing facility. Interest payment can be
avoided as the customer is paying the sale price which is not the same as
interest charged on a loan. The problem here is that this includes linking two
transactions in one which is forbidden in Islam. The common perception is that
this is simply straightforward charging of interest disguised as a sale

[edit] Bai' muajjal (credit sale)

Literally bai' muajjal means a credit sa le. Technically, it is a financing technique

adopted by Islamic banks that takes the form of murabahah muajjal. It is a
contract in which the bank earns a profit margin on the purchase price and
allows the buyer to pay the price of the commodity at a futur e date in a lump
sum or in installments. It has to expressly mention cost of the commodity and
the margin of profit is mutually agreed. The price fixed for the commodity in
such a transaction can be the same as the spot price or higher or lower than the
spot price. Bai' muajjal is also called a deferred -payment sale. However, one of
the essential descriptions of riba is an unjustified delay in payment or either
increasing or decreasing the price if the payment is immediate or delayed.

[edit] Musharakah

Musharakah (joint venture) is an agreement between two or more partners,

whereby each partner provides funds to be used in a venture. Profits made are
shared between the partners according to the invested capital. In case of loss,
each partner loses capital in the same ratio. If the Bank provides capital, the
same conditions apply. It is this financial risk, according to the Shariah, that
justifies the bank's claim to part of the profit. Each partner may or may not
participate in carrying out the business. A working partner gets a greater profit
share compared to a sleeping (non -working) partner. The difference between
Musharaka and Madharaba is that, in Musharaka, each partner contributes some
capital, whereas in Madharaba, one partner, e.g. A financial instit ution, provides
all the capital and the other partner, the entrepreneur, provides no capital. Note
that Musharaka and Madharaba commonly overlap.[34]
[edit] Mudarabah

"Mudarabah" is a special kind of partnership where one partner gives money to

another for investing it in a commercial enterprise. The investment comes from
the first partner who is called "rabb-ul-mal", while the management and work is
an exclusive responsibility of the other, who is called "mudarib".

The Mudarabah (Profit Sharing) is a con tract, with one party providing 100
percent of the capital and the other party providing its specialist knowledge to
invest the capital and manage the investment project. Profits generated are
shared between the parties according to a pre -agreed ratio. Compared to
Musharaka, in a Mudaraba only the lender of the money has to take losses.

[edit] Murabahah

Main article: Murabahah

This concept refers to the sale of goods at a price, which includes a profit
margin agreed to by both parties. The purchase and selling price, other costs,
and the profit margin must be clearly stated at the time of the sale agreement.
The bank is compensated for the time value of its money in the form of the
profit margin. This is a fixed-income loan for the purchase of a real ass et (such
as real estate or a vehicle), with a fixed rate of profit determined by the profit
margin. The bank is not compensated for the time value of money outside of the
contracted term (i.e., the bank cannot charge additional profit on late payments);
however, the asset remains as a mortgage with the bank until the default is
settled.

This type of transaction is similar to rent-to-own arrangements for furniture or

appliances that are common in North American stores.

[edit] Musawamah
Musawamah is the negotiation of a selling price between two parties without
reference by the seller to either costs or asking price. While the seller may or
may not have full knowledge of the cost of the item being negotiated, they are
under no obligation to reveal these cost s as part of the negotiation process. This
difference in obligation by the seller is the key distinction between Murabaha
and Musawamah with all other rules as described in Murabaha remaining the
same. Musawamah is the most common type of trading negotiati on seen in
Islamic commerce.

[edit] Bai salam

Bai salam means a contract in which advance payment is made for goods to be
delivered later on. The seller undertakes to supply some specific goods to the
buyer at a future date in exchange of an advance price fully paid at the time of
contract. It is necessary that the quality of the commodity intended to be
purchased is fully specified leaving no ambiguity leading to dispute. The objects
of this sale are goods and cannot be gold, silver, or currencies based o n these
metals. Barring this, Bai Salam covers almost everything that is capable of
being definitely described as to quantity, quality, and workmanship.

[edit] Basic features and conditions of Salam

The transaction is considered Salam if the buyer has paid the purchase price to
the seller in full at the time of sale. This is necessary so that the buyer can show
that they are not entering into debt with a second party in order to eliminate the
debt with the first party, an act prohibited under Sharia. The id ea of Salam is to
provide a mechanism that ensures that the seller has the liquidity they expected
from entering into the transaction in the first place. If the price were not paid in
full, the basic purpose of the transaction would have been defeated. Mus lim
jurists are unanimous in their opinion that full payment of the purchase price is
key for Salam to exist. Imam Malik is also of the opinion that the seller may
defer accepting the funds from the buyer for two or three days, but this delay
should not form part of the agreement.

Salam can be effected in those commodities only the quality and quantity of
which can be specified exactly. The things whose quality or quantity is not
determined by specification cannot be sold through the contract of salam. For
example, precious stones cannot be sold on the basis of salam, because every
piece of precious stones is normally different from the other either in its quality
or in its size or weight and their exact specification is not generally possible.

Salam cannot be effected on a particular commodity or on a product of a

particular field or farm. For example, if the seller undertakes to supply the
wheat of a particular field, or the fruit of a particular tree, the salam will not be
valid, because there is a possibility that the crop of that particular field or the
fruit of that tree is destroyed before delivery, and, given such possibility, the
delivery remains uncertain. The same rule is applicable to every commodity the
supply of which is not certain.

It is necessary that the quality of the commodity (intended to be purchased

through salam) is fully specified leaving no ambiguity which may lead to a
dispute. All the possible details in this respect must be expressly mentioned.

It is also necessary that the quantity of the commodity is agreed upon in

unequivocal terms. If the commodity is quantified in weights according to the
usage of its traders, its weight must be determined, and if it is quantified
through measures, its exact measure should be known. What is norm ally
weighed cannot be quantified in measures and vice versa.

The exact date and place of delivery must be specified in the contract.

Salam cannot be effected in respect of things which must be delivered at spot.

For example, if gold is purchased in exchan ge of silver, it is necessary,
according to Shari'ah, that the delivery of both be simultaneous. Here, salam
cannot work. Similarly, if wheat is bartered for barley, the simultaneous
delivery of both is necessary for the validity of sale. Therefore the con tract of
salam in this case is not allowed.

[edit] Hibah (gift)

This is a token given voluntarily by a debtor to a debitor in return for a loan.

Hibah usually arises in practice when Islamic banks voluntarily pay their
customers a 'gift' on savings accoun t balances, representing a portion of the
profit made by using those savings account balances in other activities.
It is important to note that while it appears similar to interest, and may, in effect,
have the same outcome, Hibah is a voluntary payment m ade (or not made) at
the bank's discretion, and cannot be 'guaranteed.' However, the opportunity of
receiving high Hibah will draw in customers' savings, providing the bank with
capital necessary to create its profits; if the ventures are profitable, then some of
those profits may be gifted back to its customers as Hibah.[35]

[edit] Ijarah

Ijarah means lease, rent or wage. Generally, Ijarah concept means selling the
benefit of use or service for a fixed price or wage. Under this concept, the Bank
makes available to the customer the use of service of assets / equipments such
as plant, office automation, motor vehicle for a fixed period and price.

[edit] Advantages of Ijarah

Ijarah provides the following advantages to the Lessee:

Ijarah conserves the Lessee' capital since it allows up to 100% financing.

Ijarah gives the Lessee the right to access the equipment on payment of the first
installment. This is important as it is the access and use (and not ownership) of
equipment that generates income.

Ijarah arrangements aid corporate planning and budgeting by allowing the

negotiation of flexible terms

Ijarah is not considered Debt Financing so it does not appear on the Lessee'
Balance Sheet as a Liability. This method of "off -balance-sheet" financing
means that it is not included in the Debt Ratios used by bankers to determine
financing limits. This allows the Lessee to enter into other lease financing
arrangements without impacting his overall debt rating.
All payments towards Ijarah contracts are treated as operating expenses and are
therefore fully tax-deductible. Leasing thus offers tax-advantages to for-profit
operations.

Many types of equipment (i.e computers) become obsolete before the end of
their actual economic life. Ijarah contracts allow the transfer of risk from the
Lesse to the Lessor in exchange for a higher lease rate. This higher rate can be
viewed as insurance against obsolescence.

If the equipment is used for a relatively short period of time, it may be more
profitable to lease than to buy.

If the equipment is used for a long period but has a very poor resale value,
leasing avoids having to account for and depreciate the equipment under normal
accounting principles.

[edit] Ijarah thumma al bai' (hire purchase)

Parties enter into contracts that come into effect serially, to form a complete
lease/ buyback transaction. The first contract is an Ijarah that outlines the terms
for leasing or renting over a fixed period, and the second contract is a Bai that
triggers a sale or purchase once t he term of the Ijarah is complete. For example,
in a car financing facility, a customer enters into the first contract and leases the
car from the owner (bank) at an agreed amount over a specific period. When the
lease period expires, the second contract c omes into effect, which enables the
customer to purchase the car at an agreed to price.

The bank generates a profit by determining in advance the cost of the item, its
residual value at the end of the term and the time value or profit margin for the
money being invested in purchasing the product to be leased for the intended
term. The combining of these three figures becomes the basis for the contract
between the Bank and the client for the initial lease contract.

This type of transaction is similar to the contractum trinius, a legal maneuver

used by European bankers and merchants during the Middle Ages to sidestep
the Church's prohibition on interest bearing loans. In a contractum, two parties
would enter into three concurrent and interrelated legal contr acts, the net effect
being the paying of a fee for the use of money for the term of the loan. The use
of concurrent interrelated contracts is also prohibited under Shariah Law.

[edit] Ijarah-wal-iqtina

A contract under which an Islamic bank provides equip ment, building, or other
assets to the client against an agreed rental together with a unilateral
undertaking by the bank or the client that at the end of the lease period, the
ownership in the asset would be transferred to the lessee. The undertaking or t he
promise does not become an integral part of the lease contract to make it
conditional. The rentals as well as the purchase price are fixed in such manner
that the bank gets back its principal sum along with profit over the period of
lease.

[edit] Musharakah (joint venture)

Musharakah is a relationship between two parties or more, of whom contribute

capital to a business, and divide the net profit and loss pro rata. This is often
used in investment projects, letters of credit, and the purchase or r eal estate or
property. In the case of real estate or property, the bank assess an imputed rent
and will share it as agreed in advance.[34] All providers of capital are entitled to
participate in management, but not necessarily required to do so. The profi t is
distributed among the partners in pre-agreed ratios, while the loss is borne by
each partner strictly in proportion to respective capital contributions. This
concept is distinct from fixed-income investing (i.e. issuance of loans).[citation
needed]

[edit] Qard hassan/ Qardul hassan (good loan/benevolent loan)

This is a loan extended on a goodwill basis, and the debtor is only required to
repay the amount borrowed. However, the debtor may, at his or her discretion,
pay an extra amount beyond the princi pal amount of the loan (without
promising it) as a token of appreciation to the creditor. In the case that the
debtor does not pay an extra amount to the creditor, this transaction is a true
interest-free loan. Some Muslims consider this to be the only type of loan that
does not violate the prohibition on riba, since it is the one type of loan that truly
does not compensate the creditor for the time value of money.[36]

[edit] Sukuk (Islamic bonds)

Main article: Sukuk

Sukuk, plural of ϙ ιSakk, is the Arabic name for financial certificates that are
the Islamic equivalent of bonds. However, fixed -income, interest-bearing bonds
are not permissible in Islam. Hence, Sukuk are securities that comply with the
Islamic law (Shariah) and its investment principles, whi ch prohibit the charging
or paying of interest. Financial assets that comply with the Islamic law can be
classified in accordance with their tradability and non -tradability in the
secondary markets.

[edit] Takaful (Islamic insurance)

Main article: Takaful

Takaful is an alternative form of cover that a Muslim can avail himself against
the risk of loss due to misfortunes. Takaful is based on the idea that what is
uncertain with respect to an individual may cease to be uncertain with respect to
a very large number of similar individuals. Insurance by combining the risks of
many people enables each individual to enjoy the advantage provided by the
law of large numbers. See Takaful for details.

[edit] Wadiah (safekeeping)

In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits
funds in the bank and the bank guarantees refund of the entire amount of the
deposit, or any part of the outstanding amount, when the depositor demands it.
The depositor, at the bank's discretion, may be rewarded wi th Hibah (see above)
as a form of appreciation for the use of funds by the bank.

[edit] Wakalah (power of attorney)

This occurs when a person appoints a representative to undertake transactions

on his/her behalf, similar to a power of attorney.

[edit] Islamic equity funds

Main article: Sharia investments

Islamic investment equity funds market is one of the fastest -growing sectors
within the Islamic financial system. Currently, there are approximately 100
Islamic equity funds worldwide. The total assets managed through these funds
currently exceed US$5 billion and is growing by 12 ±15% per annum. With the
continuous interest in the Islamic financial system, there are positive signs that
more funds will be launched. Some Western majors have just joined the fr ay or
are thinking of launching similar Islamic equity products.

Despite these successes, this market has seen a record of poor marketing as
emphasis is on products and not on addressing the needs of investors. Over the
last few years, quite a number of funds have closed down. Most of the funds
tend to target high net worth individuals and corporate institutions, with
minimum investments ranging from US$50,000 to as high as US$1 million.
Target markets for Islamic funds vary, some cater for their local mar kets, e.g.,
Malaysia and Gulf-based investment funds. Others clearly target the Middle
East and Gulf regions, neglecting local markets and have been accused of
failing to serve Muslim communities.
Since the launch of Islamic equity funds in the early 1990 s, there has been the
establishment of credible equity benchmarks by Dow Jones Islamic market
index (Dow Jones Indexes pioneered Islamic investment indexing in 1999) and
the FTSE Global Islamic Index Series. The Web site failaka.com monitors the
performance of Islamic equity funds and provide a comprehensive list of the
Islamic funds worldwide.

[edit] Islamic derivatives

See also: Financial derivatives

With help of Bahrain-based International Islamic Financial Market and New

York-based International Swaps and Derivatives Association, global standards
for Islamic derivatives were set in 2010. The ³Hedging Master Agreement´
provides a structure under which institutions can trade derivatives such as
profit-rate and currency swaps.[15]

[edit] Islamic laws on trading

The Qur'an prohibits gambling (games of chance involving money) and insuring
ones' health or property (also considered a game of chance). The hadith, in
addition to prohibiting gambling (games of chance), also prohibits bayu al -
gharar (trading in risk, where the Arabic word gharar is taken to mean "risk" or
excessive uncertainty).

The Hanafi madhab (legal school) in Islam defines gharar as "that whose
consequences are hidden." The Shafi legal school defined gharar as "that whose
nature and consequences are hidden" or "that which admits two possibilities,
with the less desirable one being more likely." The Hanbali school defined it as
"that whose consequences are unknown" or "that which is undeliverable,
whether it exists or not." Ibn Hazm of the Zahiri school wrote "Gharar is where
the buyer does not know what he bought, or the seller does not know what he
sold." The modern scholar of Islam, Professor Mustafa Al -Zarqa, wrote that
"Gharar is the sale of probable items whose existence or characteristics are not
certain, due to the risky nature that makes the trade similar to gambling." Other
modern scholars, such as Dr. Sami al-Suwailem, have used Game Theory to try
and reach a more measured definition of Gharar, defining it as "a zero -sum
game with unequal payoffs".[37]

There are a number of hadith that forbid trading in gharar, often giving specific
examples of gharhar transactions (e.g., selling the birds in the sky or the fish in
the water, the catch of the diver, an unborn calf in its mother's womb etc.).
Jurists have sought many complete definitions of the term. They also came up
with the concept of yasir (minor risk); a financial transaction with a minor risk
is deemed to be halal (permissible) while trading in non-minor risk (bayu al-
ghasar) is deemed to be haram.[38]

What gharar is, exactly, was never fully decided upon by the Muslim jurists.
This was mainly due to the complication of having to decide what is and is not a
minor risk. Derivatives instruments (such as stock options) have only become
common relatively recently. Some Islamic banks do provide brokerage services
for stock trading.

[edit] Microfinance

Microfinance is a key concern for Muslims states and recently Islamic banks
also. Microfinance is ideologically compatible with Islamic f inance, capable of
Shariah-compliancy, and possesses a sizeable potential market. Islamic
microfinance tools can enhance security of tenure and contribute to
transformation of lives of the poor.[39] The use of interest found in
conventional microfinance pr oducts and services can easily be avoided by
creating microfinance hybrids delivered on the basis of the Islamic contracts of
mudaraba, musharaka, and murabaha. Already, several microfinance institutions
(MFIs) such as FINCA Afghanistan have introduced Isl amic-compliant
financial instruments that accommodate sharia criteria.

[edit] Controversy
In Islamabad, Pakistan, on June 16, 2004: Members of leading Islamist political
party in Pakistan, the Muttahida Majlis-e-Amal (MMA) party, staged a protest
walkout from the National Assembly of Pakistan against what they termed
derogatory remarks by a minority member on interest banking:

Taking part in the budget debate, M.P. Bhindara, a minority MNA [Member of
the National Assembly]...referred to a decree by an Al -Azhar University's
scholar that bank interest was not un-Islamic. He said without interest the
country could not get foreign loans and could not achieve the desired progress.
A pandemonium broke out in the house over his remarks as a number of MMA
members...rose from their seats in protest and tried to respond to Mr Bhindara's
observations. However, they were not allowed to speak on a point of order that
led to their walkout.... Later, the opposition members were persuaded by a team
of ministers...to return to the house...the government team accepted the right of
the MMA to respond to the minority member's remarks.... Sahibzada Fazal
Karim said the Council of Islamic ideology had decreed that interest in all its
forms was haram in an Islamic society. Hence, he said, no member had the right
to negate this settled issue.[40]

Some Islamic banks charge for the time value of money, the common economic
definition of Interest (Riba). These institutions are criticized in some quarters of
the Muslim community for their lack of strict adherence to Sharia.

The concept of Ijarah is used by some Islamic Banks (the Islami Bank in
Bangladesh, for example) to apply to the use of money instead of the more
accepted application of supplying goods or services using money as a v ehicle. A
fixed fee is added to the amount of the loan that must be paid to the bank
regardless if the loan generates a return on investment or not. The reasoning is
that if the amount owed does not change over time, it is profit and not interest
and therefore acceptable under Sharia.

Islamic banks are also criticized by some for not applying the principle of
Mudarabah in an acceptable manner. Where Mudarabah stresses the sharing of
risk, critics point out that these banks are eager to take part in profit -sharing but
they have little tolerance for risk. To some in the Muslim community, these
banks may be conforming to the strict legal interpretations of Sharia but avoid
recognizing the intent that made the law necessary in the first place.[citation
needed]

The majority of Islamic banking clients are found in the Gulf states and in
developed countries. With 60% of Muslims living in poverty, Islamic banking is
of little benefit to the general population. The majority of financial institutions
that offer Islamic banking services are majority owned by Non-Muslims. With
Muslims working within these organizations being employed in the marketing
of these services and having little input into the actual day to day management,
the veracity of these institutions and their services are viewed with suspicion.
One Malaysian Bank offering Islamic based investment funds was found to
have the majority of these funds invested in the gaming industry; the managers
administering these funds were non Muslim.[40] These types of stories
contribute to the general impression within the Muslim populace that Islamic
banking is simply another means for banks to increase profits through growth of
deposits and that only the rich derive benefits from implementation of Islamic
Banking principles.

Hence, the controversy that surrounds Islamic Banking continue s. Is Islamic

Banking really Islamic? This is a question that still is a matter of debate among
the Muslim academia.

In Korea a proposal to open the country to Islamic Banking has been

controversial.

[edit] See also

Contractum trinius

An outline of islmaic banking

Islamic banking presupposes another banking system which is not Islamic. The
one which is not Islamic has been in practice for the last several centuries, in
almost all the countries of the world, including the Muslim World. Several
countries of the Muslim world are now trying to switch over to the Islamic
banking system, and some of them have partly succeeded in introducing the
Islamic banking order in their economy. Pakistan is one of them.Bank in their
territories but they have not fully switched over to an Islamic banking
systemThis means the Islamic Bank will function in these counties side by side
with other banks following the other banking system. More or less all
otherbanks of all other countries follow broadly a single system, that is t he
system of charging interest or Riba.

Thus we find there are, broadly, two systems of banking prevalent in this world,
the interest or Riba-oriented banking and Riba-free banking. Riba-oriented
banking is age-old and has been in circulation for several c enturies, at least from
the days when the Muslims went into oblivion after they lost their power and
influence

That the Muslims once ruled this world and shaped its destiny for almost one
thousand years is a fact of history. It was they who invented banking; another
fact of history. Most of the banking terms like 'cheque' derived from the Arabic
word sooq, zero or cypher from the Arabic world sefar.It was the Muslims,
who, in the Middle Ages, controlled the affairs of the world from Spain to
China. They were compelled to invent a method to arrange payment for their
goods and services, carried by their ships over the high seas to China, India,
Ceylon, Sumatra, Java, and several other points of the South East and Far East.
Instead of carrying huge amounts of c urrency (and in those days paper currency
had not been introduced), Muslim merchants and shop owners used to
issue'cheques' and 'pay slips' to facilitate mutual payments. These cheques and
pay slips were honoured by the givers and receivers with so much trust that a
small breach of trust would have resulted in a major war between the states.

This practice of issuing cheques and drafts for all their imports and exports
gradually grew into a tolerable banking system in the later part of the Abbasid
period and certainly in to full fledged banking system under the Ottoman empire
The Ottomans spread their sphere of rule through half of Europe including
Russia, Yugoslavia and Bulgaria; and in their long association with the
Europeans they succeeded in introducing the banking system which later
developed into modern Western banking. When banking passed into European
hands they did away with all the Islamic elements in it and introduced the 'life
of interest' to make it more attractive and 'dazzling'. 'Dazzling' beca use money
has an attraction for its owner. The more one has the more one is attracted to it.
And nothing is more tantalizing than the fixed and assured quota of money that
interest or Riba promises to the lender. Without taking any risk, a lender of
money is assured of a fixed interest that will accrue to him.

Now Islam sees the whole operation in a different perspective; Islam does not
place the emphasis on money; it places the whole emphasis on man. Man as the
vicegerent of his Creator on this earth is the most important of all the creations
in this universe. And, since he is the most important creation, he must employ
all the resources of this world to bring relief to all creations including himself.
But, while employing all available resources, he must not lose his position as
the vicegerent of his Creator nor should he allow himself to become a 'pawn' in
the attainment of his worldly desires. He must fulfil the needs of this world to
vindicate his position, but not to the extent that he loses sight of hi s goal.

Let us examine this assertion in the light of Western belief and practice.
Westerners believe, and rightly believe, that they must work hard with their
technology to produce what they need for survival. This means they remain
conscious human beings capable of employing technology to their use anbenefit
to produce the maximum. But in Russia it seems as though machines have taken
the place of human beings, and human beings are used and treated just like
machines. So, in this case, the machine is more important than man.

Similarly, in the Western economy, the role of money and interest has occupied
a place which has derogated from man's position as the supreme being on this
earth. He pursues money as if he had been born to become its slave.

Once we are clear in our minds about the position of man in relation to money,
we can discuss how best to use money for our maximum benefit.

There are tvvo ways of using money to make it serve us. One is to lend it
advance it to businesses, banks, trades, industries, etc., and to allow it generate
more money by fixing a rate of interest on the amount lent advanced. The other
is to employ this money in the above sectors and trade with it to generate more
funds without fixing any rates of interest riba. This latter way i s the Islamic way
of employing money to generate me money
In both cases, the objective is to generate more money by employing money,
but the one system gives the edge to the employer to exploit its borrower while
the other encourages the employer and the b orrower utilise the funds for their
mutual benefit as well as for the benefit of society In Islam the benefit osociety
is as important as private benefit. No one should pursue his economic interests
in a way that will jeopardise the interests of others

or the state. In short, a man must not be selfish in pursue of his own interests.
In the Western economy the money becomes a commodity and everybody is
anxious to trade in this commodity and earn the maximum profit. If thi s target
requires him to forgo his principles and his morals, will not hesitate to do so. If
his craze for maximum reward urges him forget about his religion, as vicegerent
of his Creator, he will not have the least hesitation in doing so. In short, he
becomes a slave to his lust for money. And this is the result of the inducement
of interest when allowed to play its ugly role in matters of lending and
borrowing.In contrast to this, Islam encourages a lender, the owner of capital,
utilise his money in a tra de asking the borrower to invest the money in his
enterprise. And when the stipulated period of time is over, they can divide the
profits according to their terms of agreement; if they fail to make and profit they
can share the loss or they can reventure i nto another prdject try their luck again.
This joint venture or shared venture, stipulating the sharing of loss or profit, is
approved in Islam.

Man is not the maker of his own destiny. He is at his best a struggler for his
destiny. He can and should put in his best efforts to improve his lot, but I may
or may not succeed in his efforts. If, after putting in his best, he does not meet
with success, this is not his fault. But the riba-oriented economy puts all the
blame on him and compels him to pay through the nose all the interest that may
have accumulated over the year or years. This is the naked injustice of riba.

This injustice represented by riba is such a great economic injustice that not
only cripples the man who borrows, it also cripples the whole society. Society
becomes the victim of riba day-in and day-out, and that is why the Quran has
condemned it in the strongest terms and has warned the Muslims that, "if you do
not (desist from usury), then prepare for war from Allah and His Prophet".
(2:279).

-------------------
The author is Chairman, Shefa Welfare Trust & Hizbul Qurraa, Dhaka,
Bangladesh.

Printer Friendly Email this Article

More Articles :-

A Historical Background of Modern Islamic Banking

- By S.M. Imam-ud-Din - 03 Sep 2003

Budgeting and Taxation in The Time of The Prophet Muhammad (P.B.U.H)

- By Muhammad Hamidullah - 08 Nov 2003

Money and Banking in an Islamic Economy

- By M. Umer Chapra* - 29 Oct 2003

Taxation in Early Islam

- By Abdul 'Aziz Duri ± 0

7 Nov 2003

Modern origen

Islamic Economy

Mudharabah, Murabahah, Musyarakah, Mukhabarah, Ijarah, Istismar, Akad,

Ba'i, Salam, Riba, Dain, Hiwalah, Syirkah, Zakat, Islamic Banking, Insurance,
Islamic Finance, Islamic Moneter

Home

Akuntansi Islam

Asuransi Syariah

Ekonometrik

Finance and Moneter

Islamic Banking

Islamic Business
Islamic Economy

Islamic Management

Murabahah

Statistik

Uncategorized

Home > Finance and Moneter, Islamic Banking, Islamic Economy,

Uncategorized > ISLAMIC BANKING AND FINANCE IN THE
CONTEMPORARY WORLD

ISLAMIC BANKING AND FINANCE IN THE CONTEMPORARY WORLD

August 22, 2010 isa7695 Leave a comment Go to comments

DISSERTATION

Shakeel Ahmad (shakeeluae@gmail.com)

Facilitator: Dr. H. K. Pradhan (pradhan@xlri.ac.in)

Executive Post Graduate Program (Ex-PGP) in Management

XLRI (http://www.xlri.ac.in), Dubai (http://www.xlri -dubai.net/)

Approved for submission: February 2004

Acknowledgements

I am grateful to Dr. H.K. Pradhan, my guide, for his cont inuous encouragement
that enabled this study of a subject that had remained within my heart, since
early ages. His teachings of International Financial Management provided
insights beyond theoretical concepts, and his friendly style inspired the quest for
excellence. I am thankful to XLRI, an institution that provided me with the
opportunity to pursue this post graduate study in management, for which this
dissertation project was undertaken.

I take this opportunity to express my sincerest gratitude to all the members of

Islamic Banking and Finance Community (IBFnet) in the Yahoogroups mailing
list. Islamic finance community has worked hard in providing a wealth of
resources on the internet. They deserve appreciation and rewards from no less
an entity than Allah SWT Himself.

Special thanks go to Dr. Obaidullah, the IBFnet¶s founder. This dissertation

work would not have been possible without the special help and encouragement
from Dr. Shahid Ebrahim ± it is difficult to express my special thanks for him,
in a few words.

Finally, the time that I devoted on the Ex -PGP, and this project, was taken away
from my family whose support acted not only as facilitator but also was a
source of continuous inspiration.

Exploratory Channel:

Sequence Title Page

1 Introduction 3

2 Why Islamic Banking? 4

3 Islamic Banking and Finance (IFB) Sector, now 6

4 Why is Islamic Banking and Finance (IBF) creating ripples? 6

6 Literature Review 7

7 Islamic Banks 10

8 Brief History 11

9 Concepts behind Islamic Banking and Finance 13

10 Distinguishing Features 13

11 Role of Islamic Banks 14

12 Prohibition of Interest 14
13 Table-2: Comparison between Riba and Profit 15

14 Table-3: Differences between Islamic & Conventional Banking 16

15 Key Islamic Financial techniques/ Products 17

16 Box-1: Islamic Financial Instruments 19

17 Islamic Derivative Products 21

18 Advantages of Islamic Finance 21

19 Box-2: Landmark Islamic finance deal inked 23

20 Perceived Disadvantages of IBFs 24

21 Impediments to the growth of IBFs 24

22 Recommendations to counter Impediments to growth of IBFs 36

23 Latest Developments 38

24 Box-3: How Islamic is Bank Negara¶s IIMM? 40

25 Islamic Bonds (Sukuk) Funds 41

26 Box-4: Conventional Investors find Islamic Bonds attractive 41

27 Box-5: US$250 Government Islamic Leasing Securities 42

28 Box- 6: Islamic Development Bank launches bond issue worth $400m 43

29 Box-7: Latest Trends & Challenges 45

30 Box-8: Bahrain: LMC to issue $1.2b bonds 46

31 Rating Agencies 48

32 Basel II Implications 49

33 Important Institutions 49

34 Conclusion 51

35 References 54

36 Appendix-A0: Estimation of TAI for UAE 59

37 APPENDIX-A: Competitiveness of Banking Sector In Case of Opening
Local Markets to GCC Banks 59

38 APPENDIX-B: Islamic Financial Institutions in the World 61

39 APPENDIX-C: Islamic Equity Funds in the World

68

40 APPENDIX-D: The Dow Jones Islamic Market Indexes 72

41 APENDIX-E1: Assets, Deposits and Loans of 53 Conventional local Banks

in GCC 73

42 APENDIX-E2: Assets, Deposits and Loans of 8 Islamic local Banks in GCC

74

Introduction: To start with graphics may not be a novel idea, but if you are
associated in any way with promoting deposits or instruments of a conventional
bank anywhere in the world, these graphics must already have left some alarm
bells ringing in your mind. 32.83% CAGR in Deposits and 24.69% CAGR in
total assets over a four-year period in a country which was written off the books
of financial wizards and stock-market punters after the Asian Currency Crisis.
In figure±1, the rapid rise can be seen not in one aspect but in all major aspects
of banking and finance reinforcing the belief that the growth rate witnessed was
an all encompassing one. The question that arises at this moment is whether this
growth rate is sustainable. An answer to that would be pre mature without
looking at the reasons behind this phenomenon, and whether the same success
story is repeated anywhere else in the world.

We will try to answer some of the above questions, and also try to see if the
growth in Islamic banking and finance sec tor could have been better. If yes, we
will try to peep into the reasons behind less than expected growth.

Much has been written by historians about the feudal lords who by virtue of
charging high interest rates controlled those in desperate need to financ e their
survival. Financial clout led to political clout and ended up in enslaving the
masses. Before the historians touched upon this exploitation of the masses,
religious scriptures had already warned of usurious acts existing in the society.

In the Old Testament (King James Version), Exodus, Chapter 22, verse 25:
If you lend money to any of my people that is poor by thee, thou shalt not be to
him as an usurer, neither shalt thou lay upon him usury.

Leciticus, Chapter 25, verses 34-36:

And if thy brother be waxen poor, and fallen in decay by thee; then thou shalt
relieve him: yea though he be a stranger, or a sojourner, that he may live with
thee.

Take thou no usury of him, or increase: but fear thy God; that thy brother may
live with thee.

Why Islamic Banking? The New Testament also contains edicts on the same
line. Thus the very mention of usury and the suggestion to avoid indulging in
this act in Judaism and Christianity implies its existence in ancient times and the
ills that it carried along for the society.

Despite the warning against this practice, the system prospered. Modern
financial system learnt a lesson from these religious warnings and tried to adopt
a system that limited the extent of usurious exploitation to a great extent. By
creating a market for debt, based upon µperfect competition¶, it propounded an
end to exploitative nature of usury and thus evolved the system of interest rates
which was supposed to be determined by the market forces freely competing
with each other. What we see today i s an expansion of the ancient feudal system
into a global arena with nations facing the same plight as did individuals earlier.

From the traditional Jewish lending system of the Shylocks to the Indian feudal
system, there is no need to strain our memories much. What is definitely cause
for stress is the false claim of the contemporary world order to have relieved the
masses of this burden of debt. Figures 2a and 2b show how countries, instead of
individuals, are getting trapped into slavery. There is no dou bt that Debt to GDP
ratio is a robust indicator of the Debt burden of countries. If we compare the
ratios that triggered the 1980s Debt crisis with the levels being experienced,
now, we can see that the situation is no better, and could be enough cause for
the unipolar world of the day. Despite the claim that modern interest -based
system is not exploitative or usurious, because the interest rates or debt -service
payments are within limits, Figures 2c and 2d provide a different picture
altogether.
The transition of the world from a multipolar world order to a unipolar one has
not been without pain and suffering. It is not easy to emphatically pronounce
that the cause for this has been the interest-based system, but nobody should
doubt that the cause has been the financial system as a whole. Interest-based
system is one component of the economic system where the concept of money
itself, as a worthless piece of paper carrying immense power, may be ill -
conceived.

Fig-3a and 3b: Interest rates and export prices in Latin America (1972-1986)

Source: Andres Bianchi et al., ³Adjustment in Latin America, 1981-86,´ in V.

Corbo, M. Goldstein, and M. Khan, ed., Growth Oriented Adjustment
Programs, Washington, D.C.: International Monetary Fund and The World
Bank, 1987.

Similarly, the argument that low interest rates cannot cause countries to lose
their sovereignty also does not hold much ground. The diagnosis of the Debt
Crisis of early 80s suggests that even low interest rates (Figure-3a), acting as a
trap (particularly when they are floating rate, as majority of debt was) could
cause countries to come down to their knees. Flushed with funds, due to the
sharp oil price increase in 1973 -74 leading to booming deposits by Oil -rich
countries, international commercial banks wer e eager to lend at lower interest
rates enticing the third world to borrow more and more. The debt burden
measured by Debt-to-GDP ratio (Fig-2b) is an indication of the inevitable crisis
that was waiting to happen.

The urge to have a system that claims to provide a solution to such financial
crises grows after every financial (monetary, exchange rate, stock market or
Debt) crisis. It is not hard to understand that if the value of money carried its
real worth, currency crises could be avoided. If the paper b eing traded in stock
exchanges were actually trading at their genuine value, with no speculation,
bubbles that occasionally burst would not exist. If the interest -free banking
system could see the light of the day, no debt -crises would occur, as all the
financing would be PLS (Profit-and-Loss Sharing arrangement of Islamic
financial system). Islamic banking and finance based on the Islamic economic
system must be taken seriously, therefore.
This paper looks into the realities associated with this system which is growing
at a much faster pace than its counterpart, and is making its conventional
competitors stand up and have a look. The success of the Islamic system can be
gauged by the rush among the conventional banks to open their own µIslamic
windows¶ not just in countries dominated by Muslims but also in rest of the
world. Some of the Western banks already having dedicated Islamic
subsidiaries are: Citibank, HSBC, American Express, ABN Amro, BNP Paribas,
Bank of America, Stantad Chartered, Commerzbank, Bar clays, Deutche Bank,
ANZ Grindlays, Golman Schs, Royal Bank of Canada, Pictet & Cie, UBS,
Flemings, Merrill Lynch and Kleinwort Benson. And the list is growing. With
countries like Pakistan, Sudan and Iran adopting 100% Islamic Banking, the
prospects of more countries to follow suit rising, the conventional counterparts
cannot sit back and see their market share being eaten away.

Islamic Banking and Finance (IFB) Sector, now: It is difficult to obtain exact
figures on the size of the Islamic financial sector. Without doubt, it is small in
comparison to the conventional financial sector but it is experiencing strong
growth. Iqbal and Mirakhor (1999) report that Islamic banks grew from an asset
base of $5 billion in 1985 to a level of over $100 billion in the late nineties. The
chairman of Dubai Islamic Bank and Emirati Minister for Financial Affairs,
Mohammad Khalfan bin Kharbash, recently noted that the number of Islamic
banks has grown from 34 institutions in 1983 to 250 today, operating and
managing assets of $200 billion (Phillips, 2001). The annual growth rate for
Islamic financial institutions varies from 15 to 40 percent annually (Hamwi and
Aylward, 1999). Yet, a comparison of the assets of all Islamic banks to HSBC,
just one of the world¶s largest banks with assets of $569 billion in 1999
(Azzam, 2000), demonstrates how small the Islamic sector remains on the world
banking stage.

Nevertheless, Islamic banking is spreading and gaining acceptance in both

Muslim and non-Muslim countries. In 1999, the Middle East alone had 12 top-
tiered Islamic banks with total capital of about $1.8 billion and assets of
approximately $18 billion. Bosnia Bank International became operational in
March 2001, positioned as a regional Islamic bank for the Balkan area, with
wholesale and retail services in Bosnia (Carvalho, 2001). Many of the Islamic
banks are gaining strength and achieving profits. For example, Al Rajhi
Banking and Investment Corporation posted a net profit in 1997 of $347 million
and return on capital of 25% (Hamwi and Aylward, 1999). Bank Al-Jazira, by
far the smallest bank in the Saudi Islamic banking sector, grew profits by forty -
one percent in 2000 (MEED, 2001).

Why is Islamic Banking and Finance (IBF) creating ripples?

Looking at the growth rates of IBF in comparison to the conventional banking,

the reason may be obvious (Figure -4).

Malaysia being a pioneer in expansion of IFB products, our calculations for the
CAGR for its leading bank BIMB (Bank Islamic Malaysia Berhard) between
1998 and 2002 yield the fol lowing results: Deposits grew at 32.4%, Investments
at 39.3% and Total assets at 28.3%. It will be an impossible task for any
conventional bank to match these figures during the period. For the sake of
diversity in outlook, we compared the figures for two banks in UAE under the
same ownership ± National Bank of Abu Dhabi, a Conventional Bank and Abu
Dhabi Islamic Bank, an Islamic bank. The results are even more astounding, as
depicted in Figure-5.

None of the Islamic banks yielded any negative growth rates during the period
under study while thirteen conventional banks in terms of Loans, seven in terms
of Assets and eight in terms of Deposits reported negative CAGR. The data for
all these banks are provided in Appendices -E1 and E2.

Table-1: Comparison of CAGR for 53 conventional and 8 Islamic banks in

GCC

Average CAGR (1999-2001) Financing (Loans) Deposits Assets

Local Conventional Banks 7.3% 7.6% 9.5%

Local Islamic Banks 19.2% 21.4% 18.6%

Western banks and financial institutions, like Chase Manhattan, J.P. Morgan,
Goldman Sachs, Commerzbank AG, Deutsche Bank AG, HSBC, Citicorp and
Bankers Trust, have joined the race for providing Islamic products, but they
currently exist in trade and other forms of short-term finance, mostly.
Independent financial institutions based on Shari¶ah are also becoming common
for the Western banks and financial institutions. Citicorp¶s Islamic banking unit
in Bahrain established in 1996 is an example. Standard Chartered Bank
Malaysia Bhd. is planning to extend its Islamic banking services to become a
total money management and financial provider within two to three years (The
Star, May 17, 2001). From less than 10 Islamic mutual funds a decade ago to
over 90, now, according to a report by Wall (2001), is no mean achievement.
High-tech fever has not caused Islamic financial Web sites to crop up and grow
along with Islamic Finance.

Literature Review: The information on Islamic Banking & Finance is available

in many forms, e.g., PhD dissertations (El -Bdour, 1984; Khan, 1983), books
written by leading academics and practitioners (e.g. Homoud, 1985; Shirazi,
1990), published research in the form of reports (Ahmad, 1987; Iqbal and
Mirakor, 1987) and journal articles (e.g. Erol and El-Bdour, 1989; Erol et al.,
1990; Shook and Hassan, 1988; and Sudin et al., 1994). Because of Riba,
Islamic banks have had to develop financial products which are not in conflict
with the Sharia¶h. The task has been achieved by creating a number of special
financial products (Ali and Ali, 1994).

The main thrust of Islamic financial contracts is on profit and loss sharing,
which can be deemed as equity (Musharakah) and hybrid (modified
Mudharabah and Ijara) facilities (Ahmad, 1994). However, the risks of these
vehicles are inherently higher than conventional ones as espoused by Ebrahim
(1999). One definition of an Islamic Bank is a bank that, by its own choice, opts
to comply with two sets of law: the law of the Land (Jurisdiction); and the
Islamic Law (Shari¶ah). This is why Islamic bankers have two types of legal
counsel: traditional ³lawyers´ and ³Shari¶ah Councils´ (Al -Bahar, 1996).

³Islam is deeply concerned with the problem of economic development, but

treats this as an important part of a wider problem, that of total human
development. The primary function o f Islam is to guide human development on
correct lines and in the right direction. It deals with all aspects of economic
development but always in the framework of total human development and
never in a form divorced from this perspective´ (Al-Harran, 1993). The
Shari¶ah specifies, inter alia, rules that relate to the allocation of resources,
property rights, production and consumption, and the distribution of income and
wealth (Iqbal and Mirakhor, 1987).

Islamic banking advances the following set of belief s: interest as a reward for
saving does not have any basis as a moral foundation; abstinence from spending
of present income does not deserve a financial reward; and to benefit from
money is to transform the money into investments, conditioned to accept ri sks
and bringing the knowledge of other factors of production together (Presley,
1988).

Rayner (1991) lays down four elements of a contract on a property (mal): they
are lawfulness, existence, deliverability and precise determination. Ebrahim
(1999) explains that profits on Murabahah facilities are generally higher than
conventional loans because Islamic instruments are structured to share the risk
of the asset or venture. Hence, the ³profits´ and ³interest-charge´ implied are
similar in outcome, although not by design (Iqbal and Mirakhor, 1999; Rosly,
1999). Thomas (1995) is of the view that Riba, Gharar and Maysir manifested
in the conventional system can wreak havoc in an economy as advanced as the
USA, as depicted by the massive failures of US savings an d loans institutions of
the 1980s. Islamic banking aims to promote economic growth through risk -
sharing instruments whose payoffs fluctuate with economic output and do not
structurally impair the economy in the manner of excessive fixed -interest debt
does in a poor economic environment such as a recession (Asquith et al., 1994;
Andrade and Kaplan, 1998).

The potential of Islamic fixed income securities backed by an Ijara facility is

discussed by Kahf (1997).

Islamic Derivatives: These comprise both Islamic Futures and Embedded

Options in a contract. However, the development of it is largely unrealized
(Khan, 1995). Ebrahim (2001) recommends to design, develop and implement
Islamic hedging and risk minimizing facilities such as Islamic futures (Bai Al -
Salam/Istisna), Islamic swaps, etc. (Iqbal, 1999). (Ebrahim, 2000) further
recommends to design, develop and implement Islamic facilities that enhance
the competitive ability of Islamic banks and reduce their risk exposure.

The excessive use of credit facilities by Islamic banks globally has drawn the ire
of scholars such as Ahmad (1989) and El-Naggar (1994). Conventional futures
are very controversial with the Ulema ± religious scholars (Kamali, 1999). It
should be noted that certain Ulema such as Justice Taqi Usamani have given
their verdict allowing contracts with embedded options (Kahn, 1999).

Part of the study of Erol and El-Bdour (1989), conducted in Jordan, aimed at
establishing the attitude of local people towards Islamic banking. The results
suggest that religious motivation did not appear to play a primary role in bank
selection; the opening of new branches was not an important factor in increasing
the utilization of financial services provided by Islamic banks; while 39.4 per
cent of respondents would withdraw their deposits if an Islamic bank did not
generate sufficient profit to make a distribution in any one year, 30.4 per cent
would retain their deposits because the Islamic bank could distribute a higher
dividend the following year.

Gerrard & Cunningham¶s (1997) study establishes that, in Singapore, which has
a minority of Muslims in its population, both Muslims and non-Muslims are
generally unaware of the culture of Islamic banking. Also the two separate
groups have different attitudes towards the Isla mic banking movement, with the
degree of difference depending on the nature of the respective matter put to
them. For example, when asked what they would do if an Islamic bank did not
make sufficient profits to make a distribution in any one year, 62.1 per cent of
Muslims said they would keep their deposits within the Islamic banking
movement, while 66.5 per cent of non -Muslims said they would withdraw their
deposits.

Much has been written since the early 1960s on the theme of the bank selection
process (see, for example, the published articles of Anderson et al. (1976);
Holstius and Kaynak (1995); Kaynak (1986); Kaynak et al. (1991); Laroche et
al. (1986), and the working paper of Chan (1989)). Erol & El -Bdour (1989) and
Erol et al. (1990) compared the bank selection process in relation to
³conventional´ and Islamic banks. Sudin et al. (1994) compared responses
about the bank selection criteria of both Muslims and non -Muslims.

In addition to establishing attitudes towards Islamic banking, Erol and his co-
researchers (1989 and 1990) sought to establish, then compare, the bank
selection criteria of customers of conventional and Islamic banks in Jordan.
Sudin et al. (1994), among other things, sought to establish the relative
importance of certain bank selection criteria using a sample of Muslims and
non-Muslims, none of whom had to be patronizing an Islamic bank at the time
of the study. The three most important criteria in the bank selection process for
Muslims were: first, ³the provision of a fast and efficient service´; second, ³the
speed of transaction´; and third, ³friendliness of bank personnel´. As regards
the non-Muslims, the three most important bank selection criteria were: first,
³friendliness of bank personnel´; second, ³the provision of a fast and ef ficient
service´; and third, ³the reputation and image of the bank´.
ISLAMIC BANKS: An Islamic bank is an intermediary and trustee of other
people¶s money like any conventional bank with the possible difference that the
payoff to all its depositors is a share in profit and loss in one form or the other.
This difference introduces an element of mutuality in Islamic banking, making
its depositors as customers with some ownership rights inherent within it.
However, in practice, Islamic banks hardly look diffe rent from its conventional
counterpart in terms of organisational set -up (Dar and Presley, 2000).

Islamic banking has been defined in a number of ways. General Secretariat of

the OIC¶s definition goes like this: ³An Islamic bank is a financial institution
whose status, rules and procedures expressly state its commitment to the
principle of Islamic Shariah and to the banning of the receipt and payment of
interest on any of its operations´ (Ali & Sarkar -1995)

Unlike conventional banks, however, Islamic banks offer PLS accounts, among
others, which do not guarantee a fixed certain return on investment deposits.
This leads to a reluctance of deposit holders, who have no representation in the
organisation, to use PLS accounts. The bank faces a similar problem on the
assets side when it comes to investing on PLS.

The essential feature of Islamic banking is that it is interest -free. Although it is

often claimed that there is more to Islamic banking, such as contributions
towards a more equitable distribution of inco me and wealth, and increased
equity participation in the economy (Chapra l982), it nevertheless derives its
specific rationale from the fact that there is no place for the institution of
interest in the Islamic order.

It is simply an accepted fact that the re are sufficient Muslim investors and
borrowers in both Islamic and non-Islamic countries to warrant the attention of
traditional banks who seek to serve such clients and capture a potentially
profitable slice of a still relatively untapped market. Just a s interesting and
useful for non-Islamic bankers are the lessons learned from the innovation and
creativity applied in meeting Islamic criteria.

Some products are more Islamic and than others. The basic principle is that
interest ± usury or Riba used interchangeably ± is prohibited on the principle of
no pain no gain. What a ³pure´ Islamic banking seems to be structurally very
similar to venture capital finance, non -recourse project finance or ordinary
equity investment. The investor takes a share in the pr ofits, if any, of the
venture and is liable to lose his capital. It involves investing but not lending and
therefore on a systemic basis is similar to the German, Japanese and Spanish
banking systems rather than the British or American systems.

Just as in the process of converting interest into capital gains for tax purposes,
early Islamic investors were content to enter into zero-coupon bonds or
discounted Treasury bills and receive the interest foregone in the form of capital
gains.

Beyond the question of interest or Riba lies an ethical issue. Islamic investments
exclude tobacco, alcohol, gaming and other ³undesirable´ sectors. Islamic
investors, by and large, are motivated in their choice of investments by much
the same criteria as their Western ethical counterparts. The search for acceptable
investments is balanced by natural risk -aversion. Islamic borrowers, on the
other hand, also demonstrate a reluctance to give away a share in the profits of
their enterprise. It is not therefore surprising that most of Islamic banking takes
the form of one type of mark-up or other rather than profit-sharing.

An analysis of the products suggests that Islamic banking has six key features:

‡ free of interest,

‡ trade-related and there is a perceived ³genuine´ need for the funds,

‡ In its purest form, it is equity related,

‡ meant to avoid exploitation ± no usury,

‡ invests ethically,

‡ there are retail and wholesale applications.

Under the current interpretation of the rules governing Islamic banking, Usury
and Riba are regarded as synonymous. The prohibition is on interest and not just
on usurious interest. In practice, there appears to be more emphasis on the
prohibition and restructuring of interest than on the potentially exploitative
aspect of financing.

Brief History: It is worth noting that there is nothing new or particularly Islamic
or Christian about Usury or interest controls. In 24th century B. C. Manu
established a rate ceiling of 24% in India. Later, Hammurabi, Ki ng of Babylon,
authored laws around 19th B. C. established a cap on lending rates. On loans of
grain, which were repayable in kind, the maximum rate of interest was limited
to 33 1/3% per annum. On loans of silver, the maximum legal rate was 20%
although it appears that in some cases rates of 25 per cent per annum were
charged. The law remained for most of the next 12 centuries but as with any law
³regulatory arbitrage´ took place and was subsequently eliminated. Unfair
practices also existed. For example, creditors were forbidden from calling a loan
made to a farmer prior to harvest. If the crop failed due to weather conditions,
all interest on the loan would be cancelled for that year. In the case of houses,
due to the scarcity of wood, a door could be use d as collateral and was
considered to be separate from a house. The 6th century Greeks, through the
laws of Solon, lifted all maximum limitations on the legal rate of interest a
moneylender might charge. The temple at Delphi was the ³City´ or ³Wall
Street´ of the Greek Empire lending money for interest regularly. Credit
regulation was once again part of the legal code at the start of the Roman
Empire. The legal limitation on interest was established at 8 1/3% per in the 5th
century B.C. Julius Caesar¶s attempts to control interest rates could well have
been the real reason for his assassination since many the Roman senators were
the main moneylenders. (This section is drawn from Edwardes -2000. The reader
is also referred to Armstrong-1987, for more details).

Back to the present day, quite a few Western countries have Usury laws that
prohibit excessive interest rates. The UK¶s usury laws which prevented
³excessive´ interest were abolished in 1854. South Africa and the US still have
usury laws. Usury results when a lender charges more than the legal amount of
interest permitted in that geographical area. Usury percentage limits vary by
state, in USA, and at least one state, Virginia, has no usury limit. Today most of
the states have had their ability to limit in terest rates curtailed by over-riding US
Federal law. Higher than permissible rates have been regarded by US Federal
banking authorities as penalty fees and insurance premiums. And the federal
rate limits are high. (Refer to Edwardes-2000).

In some states there is no restriction on the rates used for lending to

incorporated entities. The controls are often on lending to persons. The usury
rate usually is variable depending on market rates. In September 1998 in North
Dakota it was 10.556%. California has recently imposed strict consumer lending
limits. But these only apply to state banks and not to national banks. The
California Constitution allows parties to contract for interest on a loan primarily
for personal, family or household purposes at a rate not ex ceeding 10% per
annum (compound annual percentage rate). The allowable rate in California is
5% over the amount charged by the Federal Reserve Bank of San Francisco on
advances to member banks on the 25th day of the month before the loan. The
usury laws do not apply to any real estate broker if the loan is secured by real
estate. This applies whether or not he or she is acting as a real estate broker. The
limitations also do not apply to most lending institutions such as banks, credit
unions, finance companies, pawn brokers, etc. State laws place limitations on
some of these loans, but at a higher percentage rate than the usury laws listed
above. (Refer to Edwardes-2000).

In the Old Testament (King James Version), Exodus, Chapter 22, verse 25:

If you lend money to any of my people that is poor by thee, thou shalt not be to
him as an usurer, neither shalt thou lay upon him usury.

Leciticus, Chapter 25, verses 34-36:

And if thy brother be waxen poor, and fallen in decay by thee; then thou shalt
relieve him: yea though he be a stranger, or a sojourner, that he may live with
thee.

Take thou no usury of him, or increase: but fear thy God; that thy brother may
live with thee.

THE New Testament also contains edicts on the same line. Thus we can see that
Judaism and Christianity are no different in terms of prohibition of usury.

Chronology of recent historical events in the industry:

1963: Egypt interest free savings banks, not overtly Islamic ± invested in trade
and industry on the basis of share in profits.

1971: Egypt Nasr Social bank, still no overt reference to Islam.

1973: Conference of Islamic finance ministers.

1975: Islamic Development Bank, Jeddah, fee based and PLS, revolving capital.

1975: Dubai Islamic Bank, UAE, first Islamic Commercial Bank in the world .

1970¶s: Faisal Islamic Bank of Sudan / Egypt; Bahrain Islamic Bank; Malaysia,
Philippines, Nigeria, Indonesia; Islamic Finance House, Luxembourg; DMI
Geneva; Al Rajhi London, Denmark, Australia, South Africa; HSBC Amanah
Fund; ANZ First ANZ International Murabah Ltd., IBU of United Bank of
Kuwait.

Time payment contracts such as retail installment contracts are not generally
treated as loans and the usury laws normally do not apply to them. There are no
limits on finance charges for the purchase of personal, family and household
goods or services at this time. The maximum interest rate for car loans is almost
22%. Banks also treat interest charges for third party credit cards such as Visa,
MasterCard and American Express as not being subject to Usury law
limitations. (Refer to Edwardes-2000).

In transactions for the purchase of goods or services which are not for personal,
family or household purposes, there are normally no limits to finance charges
except those set by the parties. Limited liability companie s and limited liability
partnerships can no longer assert usury as a defence in civil recovery actions.
The usury interest limit that applies to limited liability companies and limited
partnerships has been raised from 30% per annum to 50% per annum to equ ate
to the level that applies to corporations. (Refer to Edwardes -2000).

But there is a problem with usury laws as can be seen in South Africa. If there is
a particularly risky investment and an interest rate limit, then banks will simply
not lend. The poorest will find themselves deprived of financing, and under a
free market there will be a shift to quality or to those that do not really need
financing. Unless there is government imposed mandatory or tax driven lending
to certain sectors or public opinion pressure, certain sectors or individuals
deemed risky by the banks will simply not get the funding required. (Refer to
Edwardes-2000).

The Concepts behind Islamic Banking and Finance:

Distinguishing Features: The economic doctrine of Islam is based on

encouraging free markets, discouraging price controls and forbidding financial
contracts based on riba, gharar and maysir.

Riba (Charging of Interest): Taking or paying of interest (riba) is prohibited by

Shariah (Islamic law). The concept of riba extends beyond interest and usury,
and volumes have been written by scholars to explain the concept. In simple
terms, riba can be considered as exploitation of one party who owns a product
(that includes money and capital) and which another party wishes to acquire .
Although interest comes very close to this concept, it is still better to consider
riba as ³unfair exploitation´.

Ebrahim (1998) explains that ³Riba is expounded by Ibn Qayyim & Al -

Jawziyya (n.d.), another prominent Islamic scholar, to imply (i) any form of
unfair trade, market manipulation or engaging a market participant to trade
under duress (riba-al-fadl) and (ii) risk-free debt contracts (riba-al-nasi¶ah).
From a financial economist¶s perspective, riba-al-nasi¶ah can be defined as a
risk-free return from an investment vehicle or strategy.´ (see also Chapra -1986,
Rahman-1969, Saeed-1995, Thomas-1995).

Gharar (Uncertainty): The existence of uncertainty in a contract is prohibited

because it requires the occurrence of an event which may not ultimately oc cur.
³Full disclosure´ by both parties is the norm in contractual relationships. Any
type of transaction where the (i) subject matter, (ii) the price, or both are not
determined and fixed in advance amounts to ³uncertainty´. Thus hedging and
dealing in derivatives is not allowed.

Maisir or Speculation: Speculation is equivalent to gambling, and therefore is

prohibited. Derivative transactions like Options, Futures, Swaps and forward
contracts (that insure profit) are considered un -Islamic. They are also
considered un-Islamic because for most of them, rates are determined by
interest differentials.

Zaka¶h: A taxation system inherent in the Islamic system based on the

principles of social justice and equity.

Implying social justice and general welfare: The basic principle is that
everybody should be able to fulfill at least the basic needs.

Conforming to Shariah: The Quran and Hadith clearly specify the guidelines for
individual, social, organizational, governmental behaviour, and thus become the
basic pillar for any Islamic system, with the banking and financial system being
no exception.

Qard-e-hasna (benevolent loan), or Qard Hassan: Qard-e-Hasna means an

interest free loan and is the only type of loan permitted by the Shariah. The
loans are made from the pooled donations of the members and are generally
granted to those who are facing emergency personal crisis. This form of finance
is very important part of Islamic financial system and all members are
encouraged to become regular donors so that the fund may b e strengthened for
the benefit of all Muslim The guiding principle again is the social justice and
general welfare. Some Islamic banks provide the privilege of interest free loans
only to the holders of investment account with them. Some extend to all bank
clients. Some restrict it to needy students and other economically weaker
sections of the society. Yet some other Islamic banks provide interest free loans
to small producers, farmers and entrepreneurs who are not qualified to get
finance from other sources. The purpose of these loans is to help start them their
independent economic life and thus to raise their incomes and standard of
living. Banks usually charge a small fee (say, 1.5%) annually to cover their
administrative costs, etc.

Profit and loss sharing (PLS): It is an alternative to interest-based transactions.

Risk sharing: No risk, no gain is the basis.

Prohibited Investments and Permissibility of Activities: Investments should

only support Halal (permitted) activities. So, investments involving p roducts
like pork, alcohol, pornography, arms & ammunitions, Cinema, Tobacco,
Conventional Financial Services and activities like gambling are prohibited.

Hoarding: Hoarding money is considered improper in Islam; money is merely a

means of exchange and should not be treated as a commodity. Islam encourages
Trade and Enterprise, which can generate wealth for the benefits of the
community as a whole with PLS as its core.

Role of Islamic Banks: The role of Islamic banks becomes difficult compared to
their conventional counterparts because of the basic principle that money is not
supposed to earn interest. This eliminates a major role of the financial
institution. So, what do they do? They invest in viable projects, with reliable
borrowers. If the project succeeds, the banker shares in the profit, if it fails, he
suffers the losses.

Prohibition of Interest: Prohibiting the receipt and payment of interest is the

nucleus of the system, supported by other principles of Islamic doctrine
advocating risk sharing, individuals¶ rights and duties, property rights, and the
sanctity of contracts. Similarly, the Islamic financial system is not limited to
banking, but covers capital formation, capital markets, and all types of financial
intermediation. Since prohibition on tra nsactions based on interest payments is
the most important factor and is at the heart of the Islamic financial system, it
will be unjust not to provide some light on it.
The basic philosophy underlying transaction of money is that the one who is
offering his money to another person has to decide whether:

(a) He is lending money to him as a sympathetic act or,

(b) He is lending money to the borrower, so that his principal may be saved or,

(c) He is advancing his money to share the profits of the borrower.

Table-2: Comparison between Riba and Profit

Riba Profit

1. When money is ³charged´, its imposed positive and definite result is Riba 1.
When money is used in productive activity (e.g., in trading), its uncertain result
is profit.

2. By definition, Riba is the premium paid by the borrower to the lender along
with principal amount as a condition for the loan. 2. By definition, profit is the
difference between the revenue from production and the cost of production.

3. Riba is prefixed, and hence there is no unce rtainty on the part of either the
givers or the takers of loans. 3. Even if a sharing ratio is agreed in advance,
profit is still uncertain, as its amount is not known until the activity is
completed.

4. Riba con not be negative, it can at best be very low or zero. 4. Profit can be
positive, zero or even negative.

5. From Islamic Shariah point of view, it is Haram (prohibited). 5. From Islamic

Shariah point of view, it is Halal (allowed).

Making Money from Money is not permissible ± the basic points of difference
between money and commodity are highlighted to justify this. Money (of the
same denomination) is not held to be the subject matter of trade, like other
commodities. Its use is restricted to its basic purpose i.e. to act as a medium of
exchange and a measure of value.

If money is to be exchanged for money or it is borrowed, the payment on both

sides must be equal, so that it is not used for trade in money itself. In short,
money is treated as ³potential´ capital. It becomes actual capital only when it
joins hands with other resources to undertake a productive activity. Islam
recognizes the time value of money, but only when it acts as capital, not when it
is ³potential´ capital.

Muslim scholars term interest as Riba. Under Shariah, Riba technically refers to
the premium that must be paid by the borrower to the lender along with the
principal amount as a condition for the loan or for an extension in its maturity
(Chapra 1985, p.64). In other words, Riba is the predetermined return on the use
of money. In the past there has been dispute about whether Riba refers to
interest or usury, but there is now consensus among Muslim scholars that the
term covers all forms of interest and not only ³excessive´ interest (Khan 1985,
p.52).

The most important characteristic of Riba is that it is the positive and definite
result of money when changed. In other words, when money begets money,
without being exchanged for goods or services, or without indulging in any
productive activity, it is called Riba. The basic chara cteristics of Riba are:

‡ It must be related to loan;

‡ A prefixed amount of money to be paid when due;

‡ A time is fixed for the repayment; and

‡ All these elements for repayment are taken as conditions for loan.

Since Interest or Riba has emerged as the basic alternative for Profit, a
comparison is justified between the two (Table -2).

Table-3: Differences between Islamic & Conventional Banking:

Characteristics

Islamic Banking System

Conventional Banking System

Guiding principle

Guided by Quranic edicts, Hadeeth, Islamic ethics and Islamic laws.

Guided by profit motive alone, with no religious or ethical considerations.

Ethics of financing
Financing being asset-backed, and meant for productive use helps reduce the
overall debt burden.

Debt burden arising out of excessive use of credit leads to bankruptcies, and
waste of financial resources.

Liquidation Assets An Investment Account Holder will have similar rights as

shareholders. Depositors are paid before the shareholders.

Involvement of risk & Equity financing

Equity financing is available to a project or venture that involves profit -and-loss

sharing. Risk-sharing and profit sharing go together.

Commercial banks do not usually indulge in equity financing, only venture

capital companies and investment banks do. Conventional banks carry much
less risk, major part of the risks being transferred to the borrowers.

Return on Capital Depends on productivity, idle money cannot earn any return.
Money is not capital per se, only potential capital . Even idle money i n bank
deposits earns returns.

Prohibition of Gharar (uncertainty)

The existence of uncertainty in a contract is prohibited because it requires the

occurrence of an event which may not ultimately occur. ³Full disclosure´ by
both parties is the norm in contracts. Derivatives trading e.g. options are
considered as having elements of Gharar. Trading and dealing in derivatives are
widely considered as the main source of liquidity in the conventional financial,
commodity and capital markets.

Profit and Loss Sharing

Most transactions are based on this variable returns, dependent on lenders¶

performance. Greater share of risks forces them to manage risks more
professionally, to ensure better returns than conventional accounts. Depositors
& investors have opportunity to earn higher returns than in conventional
systems.

There is no relationship between bank performance and returns to the depositors

or investors, who mostly enjoy a risk-free return. Conventional institutions
mostly act as intermediaries between len ders & borrowers enjoying almost a
risk-free spread.

Zakat It has become one of the functions of the Islamic banks to collect and
distribute Zakat. Government Taxes perhaps serve the same purpose ± mode
and rate of charging are different, though.

Compounding or Interest on interest The Islamic banks have no provision to

charge any extra money from the defaulters. It can charge additional money
(compound rate of interest) in case of defaulters.

Money-Market Borrowing For the Islamic banks, it is comparative ly difficult to

borrow money from the money market. For commercial banks, borrowing from
the money market is the main source of liquidity.

Developing expertise Since it shares profit and loss, the Islamic banks pay
greater attention to developing project a ppraisal and evaluation systems. Since
income from the advances is fixed, it gives little importance to developing
expertise in project appraisal and evaluations.

Viability v/s credit-worthiness The Islamic banks, on the other hand, give
greater emphasis on the viability of the projects. The conventional banks give
greater emphasis on credit-worthiness of the clients.

Relationship with Clients The status of Islamic bank in relation to its clients is
that of partners, investors and trader. The status of a co nventional bank, in
relation to its clients, is that of creditor and debtors.

Capital Guarantee No guarantee. Built into the system.

Deposit insurance None An integral component

Key Islamic Financial techniques: Islamic banking and financial institutions

have developed a wide rage of techniques which allow them to uphold the
religious and legal principles while enabling them, at the same time, to offer
viable financial products. The search is actually still going on to find newer
techniques, and for variations based upon the existing ones to offer more
attractive and useful instruments for the investors. The following list covers
many of them, but must not be considered as exhaustive:

Mudaraba (Participation or trust financing): It involves two parties, the

managing trustee (Mudarib) and the beneficial owner (Rub-ul-Maal). Usually
the investment account holders are the provider of funds, and the Islamic Banks
are the managing partner (mudarib). The Islamic Financial Institution may
either put up all the funds itself and undertake responsibility for investing in
them, or alternately it can provide funds to a customer who then acts as
Mudarib. The borrower retains a fixed percentage of profits, the Islamic
Financial Institution¶s reward is a fixed percentage in the balance of the revenue
generated by the investments and the remainder goes to the investors.
Underlying principle is µno-pain-no-gain¶, i.e., no one is entitled to any addition
to the principal sum if he does not share in the risks involved. Although p rofits
are shared on a pre-agreed basis, losses are wholly suffered by the Rub-ul-Maal.

Musharaka (Equity Financing): It is quite similar to the Mudarabah contract. It

involves financing through equity. Here the partners or shareholders for a
Project use their capital through a Joint Venture, Limited Partnership to
generate a profit. Profits or losses will be split between the shareholders
according to some agreed pre -formula depending on the investment ratio.

Difference between Mudaraba and Musharaka Contr acts: In a Mudaraba

contract, the managing agent (beneficiary or the borrower, called the Mudarib)
does not have any financial participation. In a Musharaka contract, the agent is a
financial partner along with the provider of fund (Rubb-ul-Maal of Mudaraba
contract) sharing the gain or loss at the pre -designated ratio which is likely to be
higher than what he is likely to get in a Mudaraba contract. Thus, in Mudaraba,
the agent acts as a working partner who does not bear any losses and simply
manages the fund (the project in which the fund is invested), whereas in
Musharaka, all the parties are shareholders in the venture.

Murabaha (Cost-plus financing): This technique is extensively used to facilitate

trade financing activities of Islamic Financial Institutions. The Mudaraba and
Musharaka transactions are often seen on the retail liability side of Islamic
banks. The asset side whether retail or wholesale is quite risky. The most
common such financial instrument is the µmark-up¶ structure called Murabaha.
It sounds quite similar to a ³repo´ agreement commonly used in the West.

In a Murabaha transaction, the bank finances the purchase of an asset by buying

it on behalf of its client. The bank then adds a ³mark -up´ in its sale price to its
client who pays for it on a deferred basis. The µcost-plus¶ nature of Murabaha
sounds very much like the interest into capital gains manipulations of tax -
avoiders. Islamic banks are supposed to take a genuine commercial risk between
the purchase of the asset from the seller and the sale of the asset to the person
requiring the goods. The bank stands in between the buyer and the supplier and
is liable if anything goes wrong. There is thus some form of guarantee with
respect to the quality of the goods provided by the bank to the end user in the
strict form of Murabaha. Title to the goods financed may pass to the bank¶s
client at the outset or on deferred payment. From the perspective of modern
finance, a Murabaha facility is equivalent to an asset -backed risky loan. If the
capital markets are perfect and all agents in the economy have equal access to
information, then competition between Islamic banks and conventional banks
would result in Murabahah having the same expected return as that of
conventional loans.

Baimuajjal (Deferred Payment Sales): The payments for this sale could be
either in installments or a one-off deferred payment as per agreement between
the parties at the time of the sale, and cannot include any charges for deferment.
This is like as a Murabaha mode of investment with an exception that the sale
under this cost-plus sale mode of investment is made on a credit basis rather
than cash. It is deemed acceptable to charge higher prices for deferred
payments. Such transactions are regarded as trades and not loans.

Ijara (Operating Lease): It involves leasing of machinery, equipment, buildings

and other capital assets. The financier purchases the asset and leases it to the
end-user for an agreed rental which may be fixed in advance or subject to
occasional review by a mutually acceptable third party, e.g. an international
firm of accountants. Insuring of the asset remains a contentious issue.

Ijara wa iqtina (Financial Lease): This is a leasing structure coupled with a right
available to the lessee to purchase the asset at the end of the lease period (Bay¶
al Wafa). The lessee agrees to make payments into an Islamic investment
account (with right to all profits) to be used in or towards financing the ultimate
purchase of the asset. The instrument has been used increasingl y in a range of
asset classes including ships, aircrafts, telecom equipment and power station
turbines, etc.

Baisalam or Bai¶ Salaf (Purchase with deferred delivery): It is a short -term

commodity finance contract in which the buyer (usually of agricultural or
manufactured products) pays the seller full negotiated price of a product that is
promised for delivery at a later date. It has similarities with the forward
contracts of conventional financial systems except that in Islamic instruments
the rate of return is tied to each transaction rather than to a time dimension.
Another difference lies in the fact that in Salam, the buyer pays the entire
amount in cash, at the time of contract. Both the quality and quantity of the sold
products are definitely specified in the contract. The counter-party risk in Al
Salam is one-sided as it lies with the buyer alone (the IBF) unlike the forward
contracts in which it affects both parties. Hence, it is expected that this risk will
be priced one way unless a security is provided by the seller. This involves the
bank paying for the producer¶s goods at a discount before they have been
delivered or even made. Difference of opinion exists on whether the subject of
Bai Salam transaction should be available in the market at the t ime of the
contract or whether it is enough that the asset will be available at the date set in
the contract for delivery. Difference of opinion also can be seen on the
minimum time period between the date of contract and delivery of assets.

The party on the purchase side of the contract may sell the asset back to the
party on the sale side of the contract or to a third party for a profit. The
purchaser/ financier may also sell the assets by way of a parallel Bai Salam
contract (a salam contract with a thir d party) to hedge the asset-risk or for profit.

The stipulation of full cash prepayment in Al Salam contracts is meant to

facilitate working capital finance wherein the party on the buyer side is the IBF
institution. Since full prepayment is involved, the price paid is lower than the
future spot price of the goods in question unlike the futures or forward price
which is always higher than the spot price. An important feature of Al salam
contract is the underlying asset which must be standardizable, of deter minate
quality and easy to be quantified.

Istisna and Parallel Istisna: It involves a deferred delivery sale contract similar
to salam. It is also similar to conventional work-in-progress financing of capital
projects like construction. It is also used for trade finance such as pre-shipment
export finance. In this contract, the seller ( Al Sani¶), based upon an order from
purchaser (Al Mustasni¶), undertakes to manufacture or have manufactured/
acquired the subject item (Al Masnoo¶) as per purchaser¶s specifications. The
price, payment structure and the date of delivery are fixed in advance. In
parallel Istisna, the Al-Sani¶ may enter into a second Istisna¶ contract
(subcontract) with a third party to manufacture the subject item unless Al
Mustasni¶ (ultimate purchaser) has stipulated in the contarct specifically for Al
Sani¶ to manufacture himself.

Similarity with Bai Salam contract: Sale of a product not available at the time of
the deal.

Difference with Bai Salam contract: In Bai Salam, full price for the asset must
be paid at the outset, whereas in Istisna, payment in full or in installments may
be made at any agreed upon time (even beyond delivery date).

Similarity with Ijarah: In Istisna, al-sani¶ may either provide the raw material or
labour. The labour part is the similarity with Ijarah.

Arbun or Urboun (Pre-purchase of right to acquire asset): The purchaser makes

a deposit (a down-payment, which may be a fraction of the price) for the
purchase of an asset at a later date on the understanding that, should the sale of
the assets not proceed (say, if the purchaser chooses not to proceed), the seller
will be permitted to retain the deposit. Because of its similarity to an option, it
has met with varying levels of approval from the schools of Islamic
jurisprudence. A lot of work will be required to mould the instrument so as to
remove any possibility of speculation ensuring total acceptability.

Khiyar al-shart: This is a sale contract concluded at the time of signing the
agreement, but where one of the two parties to the contract has a right to cancel
the sale within a stipulated time. Cancellation is not contingent upon any
uncertain future event. For example, party A enters into a contract with party B
to sell a given quantity of equity stock on an agree d price, today. Party A has
the right to either confirm or rescind the contract by a certain time in the future
(let¶s term it as ³maturity´). If Pmaturity > Pcontract, A may choose to rescind
the contract and instead sell the stock in the market. The simi larity of the
exercise features of this contract with the conventional Put Option invites some
controversy.

Al Bay Bithaman Ajil: BBA, popular in Malaysia, is a mark-up sale in which

payments are delayed and made in equal installments. Theoretically, in th e
contract of BBA the bank sells the product (a house, equipment or machinery,
etc.) to the customer at a mark -up price, whose content consists of the cost price
plus a profit margin. The client may be allowed to settle payment by
installments within a pre-agreed period, or as a lump sum. It is similar to a
Murabaha contract, but with payment on a deferred basis. The BBA facility can
also be utilised for refinancing of assets owned by the Customer, and the
proceeds to be utilised for the Customer¶s working capital.

Syndication: Islamic Financial Institutions are increasingly prepared to

participate in large project financing, and are getting ready to compete with
their conventional counterparts. The syndication works on the techniques
discussed above, most popular being the Mudarabah contract modified to suit
the technicalities.

Jo¶alah: A party undertakes to pay another party a specified amount of money

as a fee for rendering a specified service in accordance with the terms of the
contract stipulated between the two parties. This mode usually applies to
transactions such as consultations and professional services, fund placements,
and trust services.

Certificates of sale: It has been suggested that consumers buying consumables

on credit would issue µcertifica tes of sale¶ similar to letters of credit. These
could be encashed by the seller at the bank at a discount. This seems very
similar in structure to Baisalam.

Prizes and bonuses: Iran and Pakistan have both attempted to fully Islamise the
entire banking. Iran converted to Islamic banking in August l983 with a three -
year transition period. In Iran banks accept current and savings deposits without
paying any return. The banks are permitted to offer bonuses and prizes on these
deposits very similar to the UK¶s premium bonds. This is apparently not
regarded as gambling by the Iranian Islamic banking units.

No fee accounts: There is a substantial Muslim population in South Africa and

they are serviced by two small Islamic banks. The main product being offered is
the ³no fee´ current account which is also provided by the conventional banks
by arrangement. Transaction charges are waived and interest is not paid on
current accounts.
Gifts: Gifts to depositors are given entirely at the discretion of the Islamic banks
on the basis of the minimum balance. These gifts may be monetary or non -
monetary are based on the banks¶ returns.

Non PLS Modes: Non-Profit-and-Loss Sharing Modes. They are used in cases
where PLS modes cannot be implemented, e.g., in cases of small -scale
borrowers or for consumption loans.

Qard Al Hasnah (Beneficence Loans): Zero return loans that Islam edicts for
Muslims to make to the needy. Banks can only charge the borrowers a one -off
service fee to cover the administrative expenses, but this fee cannot be related,
by any means, to the loan amount or its maturity.

Islamic Derivative Products: Salam (Bai Al Salam), Urboun (Arbun) and

Khiyar al-shart are the existing derivative products approved by some schools
of Islamic jurisprudence. Dr. Kenneth Baldwin has suggested some Profit Rate
Swaps that replicate the risk management capability of conventional interest
rate swaps, using Sharia-compatible building blocks (existing and extensively
used instruments).

It is generally assumed that the term ³Islamic Derivatives´ is a contradiction.

The requirements of derivatives and rules of Shariah at first sight are
diametrically opposed and all derivatives are therefore Haram. But it is
important to recall the generalised definition we use of a financial derivative. It
is simply a financial instrument that is derived from another financial
instrument or a combination of such instruments. It is argued that as derivatives
³unquestionably´ involve interest or interest -based products they are
contaminated and should be pr ohibited. Well, derivatives only involve interest if
one or both parties using the derivative seek to hedge the derivative. It could be
argued that Murabaha could involve interest if the parties seek to match the
interest free but guaranteed return product with an interest-bearing equivalent.
Islamic banking derivatives should be perfectly acceptable so long as they do
not involve interest.

The literature contains hardly any serious criticism of the interest -free character
of the operation, since this is taken for granted, although concerns have been
expressed about the lack of adequate interest -free instruments. There is a near-
consensus that Islamic banks can function well without interest. An
International Monetary Fund (IMF) study by Iqbal and Mirakhor ( l987) found
Islamic banking to be a viable proposition that can result in efficient resource
allocation.

Advantages of Islamic Finance:

Efficient allocation of funds: Since allocation of funds by banks will be

dependent upon the soundness of projects und er the PLS arrangements, the
allocation is more efficient.

Productive use of capital: Banks are likely to know their fund users better in
order to ensure that the funds are used for productive purposes. In this way, both
the fund providers and the financ ial intermediary contribute to promoting
productive economic activities and greater financial responsibility. Thus, IBFs
would promote economic growth [Chapra (1998), Siddiqui (1983)]

Similarly, since banks have no pressure of fixed regular payments on

deposits, the efficiency of allocating resources to profitable and more
productive use is further boosted.

Equitable distribution of wealth: The efficiency in allocation leads to this,

and creates additional wealth as well. Interest distribution is considered unjust
and inequitable because it is not based on any productive use of capital, and it
exploits the misfortune of the borrower (who has run out of money).

Generation of employment: Productive use of capital implies investments and

creation of jobs. The investment is not dependent upon the cost of capital (and
positive NPVs) or time value of money, hence number of investible projects is
likely to be much higher resulting in larger capital formation.

Saving in information costs: Being a partner of the entrepreneur (or a firm),

the financial institution has easier and cheaper access to information on matters
relating to the firm. This may make credit rating agencies redundant, and
lending more efficient.

Saving in deposit insurance costs: Risk-sharing concept built into the IBF
system, there will be no need for deposits to be insured.

Reduction of debt burden: The IBF system of equity financing encourages

debt to be swapped with equity which can help many developing countries get
rid of the immense debt-burden. Instead of rescheduling of existing loans or
selling Brady bonds at heavy discounts, which does not help relieve the pressure
much, converting debt to equity promises a much more fruitful alternative.

Promoting Ethical behaviour: Because of its strong emphasis on the ethical

and moral dimensions of doing the business and selecting the activities/
commodities to be financed, the Islamic financing institutions could play an
important role in promoting socially desirable investment and corporat e
behavior. In this context, it is worth mentioning that Islamic financing
institutions are subject to Shariah (Islamic Law) regulations in addition to
conforming to the conventional regulatory standards. This is further expected to
ensure greater prudence and responsibility.

Higher profits: Account holders under Islamic finance could expect higher
profit from their investment as Islamic banks are required to share the entire net
profit according to the agreed formula rather than just a portion of the pro fit, as
is the conventional practice.

Reduction in run-on-deposits: Banks using profit and loss sharing (PLS) to

mobilize resources are less likely to face a sudden run on their deposits.

More stable economic environment: The perspective of investments is long-

term in comparison to short-term expectations of returns in conventional
financial system ± this may result in a more stable economic environment less
dependent on business cycles.

Less likelihood of flight of capital: Under Islamic finance, de bt instruments

that may be created through selling goods and services on credit are not readily
tradable. This greatly eliminates the possibility of sudden mass movement of
funds from one country to another.

Reduction in speculative transactions: Examination of daily records of

trading in financial markets vividly shows that institutional participants carry
out huge speculative transactions. More often than not, such transactions are
sources of instabilities. In contrast, Islamic banks and financia l institutions are
inherently prevented from carrying out such activities. As a result destabilizing
speculations would be significantly curtailed in financial markets, although
liquidity will remain with secondary market trading allowed in stocks or
investment certificates.
 Reduction of inflationary pressures: Under Islamic economics the
inflationary pressures would be reduced to a great extent, as over or under -
supply of money with respect of supply of goods is not allowed (money directly
linked to supply of goods in the economy).

Reduction in unproductive use of borrowings: By eliminating unnecessary

and excessive borrowing (borrowing beyond productive use), risk to lenders is
reduced under PLS, as lending is directly related to project appraisals and
feasibility.

Automatic Shock-absorption: For banks involved in the equity-based system,

Khan (1986) argues that the shocks to asset positions are immediately absorbed
by changes in the values of shares held by depositors in the bank. This makes
the real values of assets and liabilities of banks equal at all times, preventing
banking crises. Nienhaus (1986) agrees with the argument.

Guaranteed market of practicing Muslims. Islam being the fastest growing

religion in the world further enhances the potent ial marketability of IBF
instruments.

Perceived Disadvantages of IBFs:

With PLS, the role of the bank undergoes a change from being an
intermediary trader of money, earning profits from the margin between lending
and borrowing, to being an investing part ner. The role of an investment bank
brings in added costs:

o Search cost resulting from the need to decide on the most profitable ventures.
With an Islamic bank required to finance so many different kinds of businesses,
acquiring skills in all of them may be immensely costly.

o Monitoring costs resulting from the need to prevent mishandling of the

venture and fraudulent means (including creative accounting) adopted by
borrowers/ partners are in addition to those involved in conventional financial
system.

o Managing costs incurred because of its obligation as a partner in the PLS

deals.

Determination of mechanism for profit sharing in the short -term is difficult in

a PLS system based on returns only from productive deployment of funds. In
the absence of a standard mechanism for profit/ loss sharing (both for short-term
as well as long-term), the possibility of exploitative contracts cannot be
eliminated.

Eliminating interest may reduce the propensity to save (with banks) or invest
(considering the risk associated with returns), thus curtailing economic growth
affecting employment (Pryor -1985), generation of wealth and its distribution.
Of course, IBF proponents do not agree, as an opportunity for equitable sharing
of wealth earned from productive activities could be enough stimulant for
investors.

Dispute settlement mechanism adds to the cost further, as the account put
forward by the borrower (entrepreneur) may not be convincing enough for the
banks or other investor partners. Fixed return of the conventi onal system has no
such costs.

A risk sharing proposition of IFBs and resulting absence of deposit insurance

system leaves small investors in the risky avenues, particularly when the Islamic
financial institution carries fraudulent intentions.

Curtailing speculative activities in the secondary market would be extremely

difficult resulting in the same risks and costs that the conventional financial
systems carry.

The mark-up system of most of the non-PLS schemes resembles the interest-
based system to the extent of becoming indistinguishable, sometimes, and
provides unscrupulous financiers opportunity to replicate the conventional
system.

Additional cost of supervision by the Sharia Board: Product development, its

offering, agreements between counterpa rties, functioning of the IBF system,
accounting, etc need to be Sharia compliant which needs certification by the
Sharia Boards resulting in additional cost burden over the IBF Operators.

Account holders under Islamic finance could expect higher profit from their
investment as Islamic banks are required to share the entire net profit according
to the agreed formula rather than just a portion of the profit, as is the
conventional practice.

Impediments to the growth of IBF: The impediments are being discus sed in this
paper after grouping them in seven broad categories: (1) Social Impediments,
(2) Economic Impediments, (3) Financial Impediments, (4) Structural
Impediments, (5) Institutional Impediments, (6) Political Impediments,
Technological Impediments, a nd (7) Religious Impediments.

1. Social Impediments: Humans are undoubtedly the most important resource

endowment for any country. Their development is the key to the
competitiveness of any nation in any sphere. Even in the field of IBF, it is the
level of human development in the promoter nations that will ultimately steer
the IBF into a competitive arena. The Human Developed Index (HDI) available
with the Human Development Report brought out by United Nations
Development Programme (UNDP) is a composite in dex that measures
achievements of a country in three basic parameters of human development
(HDR 2003). These are: (i) longevity measured by life expectancy at birth, (ii)
knowledge, measured by a combination of the adult literacy rate and the
combined primary, secondary, and tertiary gross enrolment ratio, and (iii)
standard of living, measured by GDP per capita.

It is worthwhile, then, having a look (Figure -7) at the HDI of member nations of
Organization of Islamic Countries (OIC), having some kind of IBF (as they are
the promoters of IBF), in comparison with some of the world leaders (promoters
of Conventional banking & financial system).

Accumulation of human capital is an indicator of endogenous growth and is

often used in empirical growth models. In most regressions, this variable turns
out with a positive coefficient (Barro, 1991). The highest ranked country among
the Islamic countries, in terms of HDI, is Brunei with a rank of 31, the second
highest being Bahrain at 37, both of them with so small a population that their
impact on the development of as important a system as IBF is not expected to
be large. However, in terms of developing a financial market (and related
systems, also in terms of IBF) the maximum effort has been made by Bahrain
after Malaysia (Countries with 100% Islamic Financial system in place, i.e.,
Iran was placed at 106, Sudan at 138 and Pakistan had a rank of 144 in HDR of
2003). The development in the area is not likely to bear much fruit unless the
promoter countries of IBF take giant steps towards developing their most
important infrastructure element, i.e. the Human Resources. The initial
successes may remain at superficial levels, and sustainability of growth and the
challenges posed to the conventional financial system may remai n feeble
otherwise. At the moment, it poses a significant impediment to the growth of
IBF.
(a) Societal Impediments: The basic societal fabric builds the psyche of the
masses. Coming out of this box, then, is not easy. After initial leadership over a
long period, when the Islamic society ultimately lost its primacy to the Western
world because of their consistent multi-dimensional development activities, it
seems the members of the Islamic society also lost the motivation to win back.
This has had a lasting impact on the society in all spheres that are cited next.
Islamic Financial Institutions as part of this society have a strong barrier to
scale, and along with its parent society has a backlog of many generations to
clear.

Social alienation, particularly in the wake of 11th September, may detract non -
Muslims even further away from anything Islamic, and act as a major source of
impediment.

(b) Educational Impediments: Education is the backbone of any development,

and is one of the most important reasons behind the lost glory of the Islamic
society. The absence of Islamic Banking and Finance from the horizon, for
centuries, is pointer enough towards lack of education and research. However,
figure-8 provides the status of education in the Islamic World represe nted here
by countries of the Organization of Islamic Countries (OIC) Countries that have
IBFs in comparison with some of the world leaders.

In terms of Adult literacy and Education Index (a measure that provides a

composite indicator of the level of educa tion), all the countries in the OIC
sample lag behind the world leaders. In terms of Public Expenditure on
education reported as percentage of respective GDPs, Saudi Arabia¶s figure is
encouraging as it leads the sample in this respect (except Yemen, whose ratio
could be misleading as the GDP figure is too small) but also increased from
6.5% in 1990 to 9.5% during 1998 -2000 (data refers to the year during this
period for which it was available) which shows its recent commitment towards
educating its citizen. But the scenario in all other countries even in this respect
is no different from what is projected by the Adult literacy or the Education
Index.

The enrolment into educational institutions provides indication towards the

future of education in a country. From the data available in the Human
Development Report 2003 (HDR 2003) for 175 countries, we find that, among
the OIC countries, only Guyana with 91% enrolment (although its overall HDI
rank is a poor 92) was part of the top quartile of Combined primary , secondary
and tertiary gross enrolment ratio, during the year 2000 -01 compared with thirty
(30) non-OIC members. The second quartile of ranks had twenty (20) OIC
members while the third quartile had seventeen (17) and the last one had sixteen
(16) of them. More than sixty-one percent (61%) OIC members fell in the lower
half, compared with thirty-three percent (33%) of non-OIC members. The full
list of 174 countries had 31% OIC members (54 numbers), whereas the lower
half of the ranks, based on combined en rollment, had 45% of them. This
presents a gloomy picture not only for the present but has repercussions for the
foreseeable future. Only exponential growth in enrollments, now, can provide
some hope of catching up with rest of the world.

(c) Psychological Impediments: Psychological mindset needs to change for

those who have been using the conventional banks and FIs as well as those for
those who have been abstaining from them due to their anti -usurious beliefs.
This tantamounts to a paradigm shift that is not easy to happen in a short period
and it requires a lot of concerted effort on all fronts. On the other hand,
psychological pressure on the Islamic institutions, in general, from
fundamentalist organizations is keeping a check on declaring innovations t hat
they could launch otherwise.

2. Economic Impediments: Size of the economy is an important indicator of the

kind of flow passing through the banking and financial channels that the IBF
have to chase. Considering that home banking and financial institutions have a
clear advantage over foreign institutions, GDP should be a good indicator for
development of these institutions. Looking at the GDP of the IBF promoter
countries (our sample of OIC having some type of IBF) vis-à-vis rest of the
world provides some clue as to why it may be difficult to promote the IBF in the
era of opening economy where they have to compete with the world players too.
The GDP of all the sample Islamic countries put together was less than 17% of
the GDP of USA. When we add Japanese GDP to the GDP of USA, the sample
Islamic countries do not reach even 12%. What influence an economy like USA
or Japan can have on the prosperity of a financial system can be seen from this
fact. The chart (Figure-9) therefore excludes USA, Japan, Germany, UK,
France, China and Italy the top seven nations (constituting of 68.75% of World
GDP, the world being represented, here, by 170 nations included in the HDR
2003) so that the remaining figures could be comparable.

3. Financial Impediments:
a. Lack of active capital market: Equity is an excellent source of capital and
organizations are likely to exhaust this source before exploring other means
when planning to acquire, upgrade or produce technology to sell as a product.
An absence of active capital market hinders technology intensive, high capital
endeavors as well as any expansion of such projects. Since acquisition of
technology is capital-intensive, the payback period for which is usually long,
whereas bank borrowings seldom indulge in 100% fin ancing or long-term
financing, it is almost an impossible source for the start-ups, capital markets
have proven to be the most successful and feasible means of financing.

b. Lack of active debt market: The absence of secondary debt market in UAE is
also a serious handicap for the investing community. As a result, debt issues
become illiquid and costly. There is no scope of long term debt financing and
with bank financing catering to short term or medium term finance, it acts as a
deterrence to technology intensive ventures. At the same time, bank finance is
mostly suitable for Working Capital financing rather than Capital Expenditure
funding that is required for Technology-intensive ventures.

c. Lack of Money Market: It is another major impediment leaving th e market

not just illiquid and costlier, but also leaves the government devoid of financing
its expenses through a cheaper and liquid medium.

d. Supportive Institutions for Venture Capital Financing: The strongest form of

Islamic financing being the PLS forms of Mudarabah and Musharakah, Venture
Capital financing (VCF) should have been the strongest in the countries that
promote the IBFs, but the reality is surprisingly different. VCF needs
institutional support in terms of an active network of financiers, entrepreneurs,
technology promoting institutions like Private and Government R&D
laboratories, Universities, Stock Exchanges and regulatory framework, etc. A
Silicon Valley type network of alliances is required which is largely absent in
the OIC. Some efforts in the direction of establishing technology parks and
business incubators have started in some countries, but they have a long way to
go. For individual small economies it may take a lot of time to achieve the
critical mass, a strong need therefore is for the association of countries like the
GCC or ASEAN to pool their resources.

e. Lack of an active secondary market: Secondary markets are in the process of

evolving and it will take time before they could really provide this market with
the required liquidity. Secondary markets do not just become meeting points
between the investors and the corporates, they become a benchmark for the
health of the whole financial system.

f. Lack of Business incubators: Incubators connect talent, technology, capital

and know-how to leverage entrepreneurial talent, accelerate the development of
new knowledge-based businesses and thus speed up the commercialization of
new knowledge and technology. Although the system has started in some
countries like UAE, it will take time in shaping up to a stage where it could be
of real use. There is a strong relationship between the financial institutions and
the business incubators. Business incubators cannot grow without financial
support and growth in the sector means a growth in demand for the financial
sector. Hence a lack of this system, in the Islamic countries, is an impediment to
the growth of IBF system.

4. Structural Impediments:

‡ Financial Engineering: The structuring of any new system that can pose real
competition to an exi sting well-established system requires not just a robust
structure to start with but a structure that supports innovation and continual
improvement. Financial Engineering is an integral part of the financial service
provider so that innovative products can be offered regularly to keep the
depositors/ investors interest in the system alive. For a relative newcomer, with
variants far less in number and the scope limited by restrictions by Sharia,
Financial Engineering acquires all the more importance, more so because of the
need to differentiate itself from the conventional products.

‡ Lack of Islamic credentials of the product: The products based on Sharia

Committee of banks do not necessarily satisfy the psyche of the masses unless
backed by religious edicts and logical reasoning. Currently, all products except
those based on Mudaraba and Musharaka principles leave doubts in the minds
of people who want Sharia-compliant products. The penetration would have
been much faster had these doubts been cleared.

‡ The mark-up system of most of the non-PLS schemes resembles the interest-
based system. As discussed above, if the stronger Islamic instruments based on
PLS principles were dominant, the IBF system could attract more investors to
its fold. The current scenario can be judged from the proportion of funds based
on the two types of systems, namely PLS (stronger Islamic system) and the
mark-up type systems (weaker Islamic system).
It is obvious from Fig-10a that the depositors¶ preference is for PLS type
deposits (ready to take larger risk, and choose stronger Islamic products)
whereas the banks are more risk averse and prefer to indulge in Mark -up type
financing, as can be seen from Fig-10b. The Bahrain market¶s position is even
more tilted towards the non-PLS schemes for deposits.

‡ Maturity mismatch: It can be seen from the maturity structure for the Bank
Islam Malaysia Berhard (BIMB) that the maturities on the deposit side (Figure -
11a) are totally different from the maturities of the financing side (Figure -11b).
The situation of other IBFs in the world is not much different in terms of
maturity-mismatch. This creates problems in the cash-flow matching, too.
Deposits with maturity of more than one year being less than 1% is a clear sign
of lack of investors¶ confidence in the system. This may be as a result of other
impediments under discussion.

‡ Unclear product proposition or processes: Competing with the conventional

counterpart in marketing abilities is not easy for a relatively new entrant like
IBF. Lack of skills that help in the matter is currently an impediment that can be
removed only through learning which is path-dependent and will take time to
set in.

‡ Additional risks: The PLS mode has its inherent risks similar to those of
Venture Capital Financing or those faced by Equity financiers rather than the
Debt financiers. In fact, PLS modes have in-built risk component wherein the
financier has to share the risk of failure (loss) along with the entrepreneur (the
borrower). Even the operational mode is more complex than the Conventional
Debt financing, e.g., calculation of the share in profit and loss, feasibility and
profitability studies of ventures being financed and their continuous monitoring
and audit. Further, PLS modes of financing are not ted to collate rals, as do the
conventional loans.

Even no-PLS modes have unique risks, e.g., the Salam or Bai Salaf contracts
expose them to commodity risk in addition to the credit risk. Similarly, the Ijara
contracts differ from conventional lease contracts in that th e leased assets have
to be carried on the Balance Sheet of the Bank which limits the transferability of
substantial risks and rewards to the lessee. The Finance by IBFs are mostly
backed by tangible assets whose market value may not be constant over time.
This volatility is in addition to the normal depreciation of assets. Basel
Committee¶s recommendation for Capital Adequacy does not incorporate this
volatility. Another example is that of the Displaced Commercial Risk which
endangers the competitiveness of IBFs in the long run. It is the pressure on the
IBFs to pay higher returns than that it is obliged to (as per agreed terms) in
order to make its returns more lucrative than the market returns, this involves
paying the investors from its own share of profits which actually belonged to
the IBFs¶ sharehlders.

Conventional financiers as well as the investors can use derivative instruments

to hedge various types of risks to a great extent which is largely absent in IBF
System, and this poses a major impediment to the growth of this system unless
alternative comparable or better mechanisms are evolved. Lack of liquidity
itself poses a major risk, both for the borrower as well as for the lender. For
detailed insight into unique risks involved in Islamic Banking, t he reader may
refer Chapra & Khan (2000) and Hassan (2000).

‡ Financially weak institution offering the product: In a market with very high
prospects for growth there is always a rush for every Tom, Dick and Harry to
adopt a me-too strategy and entering without having a look at their own
credentials. Islamic Financial Institutions are weaker, in general, compared to
the Conventional ones, and the rush to launch a new institution to grab the fast
buck exposes the weakness further. For weaker institutions, it becomes much
more difficult to convince customers on the viability of their products and
services. The need for Sharia Compliance makes the task even more difficult.

‡ Size of the IBFs: Most of the IBFs are extremely small in size compared with
the multinational banks operating in their markets. All the IBF fund put together
does not match the funds with Multinational banks like HSBC or Citibank. Size
carries the power in the market, and smaller size of IBFs, at present, does prove
to be a source of impedi ment in that respect.

5. Institutional Impediments:

(a) Absence of a uniform regulatory framework: It is still evolving in some

areas whereas in some other areas it is entirely absent. For example, the oldest
of such institutions, AAOIFI had come out with only 16 financial accounting
standards in the ten years since its inception in 1991 [October issue of the
quarterly ³Islamic Banking Hub´ of Bahrain reports µ43 standards and
statements¶ having been issued]. Formation of such organizations is taking time
mainly because of difficulty in developing consensus among Islamic nations,
and also because of difficulty in making the regulations compatible with the
conventional regulations.

(b) Lack of acceptance of existing Regulatory bodies: For example, even after
twelve years of existence, the AAOIFI¶s standards are mandatory only in
Sudan, Bahrain and Jordan. Saudi Monetary Agency just µrequests¶ Saudi banks
to seek guidance from the AAOIFI standards. Zaher and Hassan (2001) provide
a comparative study on the sali ent features of Islamic Banking Supervisory
Systems in 15 countries.

(c) Absence of an Islamic Financial Network free from ribawee dealings:

Networks play a major role in encouraging a system to grow and sustain the
growth over longer terms, in the absence of which the growth may be lumpy in
nature. Mutual cooperation in the networks helps pooling of resources and
optimizing their exploitation to gain competitive advantage. What is seen today
in the IBF world is some pockets of excellence in countries like Malaysia and
Bahrain with a few institutions like Islamic Development Bank (IDB) playing
some inspiring roles, but to bridge the huge gap with respect to the competitors
in the conventional sector, a lot more is required a lot more quickly.

(d) Absence of Islamic Central banks except in three countries (Pakistan, Sudan
and Iran) that have converted their banking system to 100% Islamic. In other
countries, even after twenty eight years of the modern Islamic Banking and
Finance experience, dependence on the c onventional systems of the Central
banks is a good explanation why the growth in this sector with immense
potential is not happening at the desired pace.

(e) Clash with the mainstream regulations, particularly in the non -Islamic
nations. Some examples: (i) the treatment of Ijara as Lease instead of mortgage,
(ii) imposition of taxes despite the zakat, as an integral part of Islamic system,
having the same functionality ± amounting to double taxation effectively, (iii)
regulatory fees ± double payment due to the requirement to meet dual
regulations.

(f) Limited availability of risk management and analysis tools to hedge against
volatility poses an additional burden for IBFs and results in maintaining higher
levels of liquidity.

(g) Lack of trained personnel: With the number of educational institutions and
training centres catering to the need of this rapidly growing segment being
limited, non-availability of qualified personnel who can analyse and manage
portfolios is a major impediment.

6. Political Impediments:

‡ Political pressure, in general, on Islamic institutions from the Western World,

particularly in the wake of 11th September not only affects the system
physically but it has an impact on the psyche. For, example, almost every
financial transaction (particularly relating to an Islamic Institution) is being
monitored. From UAE, no amount in excess of AED 2,500 can be repatriated
without leaving a copy of identity which then goes into the system under
scrutiny.

‡ Lack of economic, military and political prowess of countries sponsoring the

Islamic Financial system, only adds to the other weaknesses of the system.
Freezing of accounts by the super -powers at short notices, and arbitrarily, is
only a symbolic threat to this institution.

A country¶s environment conducive to investments boosts the growth of

financial systems. An environment fraught with risks, on the contrary, impedes
it. Many organizations try to capture countries¶ environment to reflect this
aspect. Freedom indices like ³Index of Econo mic Freedom´ developed by
Heritage Foundation of USA, ³Freedom in the World´ by Freedom House
(emphasis on Political and civil rights) of USA and ³Economic Freedom of the
World´ by Frazer Institute of Canada capture the economic environment of
countries. All of them point towards an overall lack of freedom in most of the
OIC countries. Erb et. al. (1996) report country risk analysis being carried out
by organizations like (a) Bank of America World Information Services, (b)
Business Environment Risk Intelligence (BERI) S.A., (c) Control Risks
Information Services (CRIS), (d) Economist Intelligence Unit (EIU), (e)
Euromoney, (f) Institutional Investor, (g) Standard and Poor¶s Rating Group, (h)
Political Risk Services: International Country Risk Guide (ICRG), (i) Political
Risk Services: Coplin-O¶Leary Rating System, (j) Moody¶s Investor Services.
They provide ratings that try to capture ratings based on qualitative and
quantitative information into a single index.

In the ICRG composite risk ratings for March 2003, the least risky OIC country
(Brunei) was ranked six (6). The top twenty (20) least risky countries included
only three OIC countries (Brunei, UAE and Kuwait) out of the forty-four (44)
OIC countries for which ICRG provides country risk ratings. Top half had just
fourteen (14) countries (32%) whereas the bottom half had thirty (30) countries
(68%) of them.

Table-5: ICRG composite risk ratings for 44 OIC member countries (March
2003)

Top quartile 2nd quartile 3rd quartile Bottom quartile Total OIC countri es

Numbers 6 8 15 15 44

Percentage 14% 18% 34% 34% 100%

The trend indicates that OIC member countries are considered as riskier than
non-OIC countries for financial investments. This is also reflected in the
incoming Foreign Direct Investment (FDI) in thes e countries, and suggests that
the Governments and Institutions in these countries need to do a lot.

7. Technological Impediments: The Islamic world has not kept pace with the
developments in rest of the world. Technology being the backbone of banking
and financial system and the main driver of market power today, lagging behind
in technology means backwardness in every sector of the economy. Various
measures of Technological strength like Technological Achievement Index
developed by UNDP is a composite index providing enough indication of the
level of Technology in a country. The promoters of IBFs, Islamic countries, fall
far behind the promoters of conventional financial system. Other indicators
have developed by many other agencies and independent researc hers point
towards the same backwardness of the group.

Indicator of new technology diffusion has been considered as ICT (Information

and Communications Technology) by many agencies including UNDP, as this
is what has revolutionized the integration of the w orld into a global village
speeding up innovations by pooling talents together. Figure -13 represents a
comparison between the Islamic world with a few of the world leaders. The
picture is not much different from what is seen with other indicators. Except f or
United Arab Emirates (UAE), we hardly see any potential competitors to the
countries promoting conventional systems of banking and finance. The best
performer in Telephone Mainlines per thousand people from the Islamic world
is placed at 31st position with a value of 259. Similarly, in terms of Internet
Users per thousand people, the highest place for an Islamic Country goes to
UAE at the 19th position (315 users), next best is Malaysia at the 26th place
(273 users); in terms of Cellular penetration per thousand people, the highest
ranked Islamic country is UAE at the 24th place with 616 users, but the next
best falls at 32nd position with 460 users. From the chart in Figure -13, we can
see that almost half of the Islamic countries have no significant plac e. This,
then, poses a significant impediment to the developments in the area of IBF in
the modern world driven by ICT.

Technology Achievement Index (TAI), developed by United Nations

Development Programme (UNDP), focuses on achievements of a country as a
whole in the technological arena. The Index has been found to be relevant for
the least developed countries to the same extent as for the most highly
developed countries. The index is based upon the four elements: Technology
creation: number of patents per capita and royalty/ license receipts per capita,
Diffusion of recent innovation: internet users as percentage of population,
Diffusion of old innovation: electricity and telephone consumption per capita
(logged), Human skills: Mean years of schooling and gross enrolment in tertiary
science and mathematics education (Desai -2001). Figure-14 compares OIC
member countries for which the Index value is available (and UAE as per
authors¶ own calculations presented in the Appendix A0) with others.

Archibugi and Coco (2004) have developed a New Indicator of Technological

Capabilities for Developed and Developing Countries (ArCo). This index is an
improvement upon the TAI and UNIDO¶s Industrial Performance Scoreboard.
This index takes into account more variables asso ciated with technological
change. Similar to TAI, three main components considered are: (a) the creation
of technology, (b) the technological infrastructures and (c) the development of
human skills. Eight sub-categories have also been included. ArCo also allows
for comparisons between countries over time. Figure-14 provides a comparison
in this respect.

8. Religious Impediments: For a detailed treatise on the effect of religion on

economic or development activities, the reader is referred to Noland (2003)

‡ Lack of consensus on issues: Developing a consensus on any religious matter

has always been a difficult task. It becomes even more difficult when a matter
as complex as the financial system comes up for discussion. Despite Quran
being the most lucid religious book, creative minds tend to interpret the verses
to their own benefit. Thus, just on the matter of interest there are many schools
of thought, e.g., although the vast majority accepts that all forms of interest are
un-Islamic and therefore prohibited, one group believes that only exploitative
interest rates fall under the category of Riba, and prohibited (and what is the
dividing line between the exploitative and the non -exploitative?), yet another
group believes that despite the interest declared as un-Islamic, there is no need
for a regulatory system to control dealings in interest and people should be free
to follow whichever system suited them best, postponing God¶s judgment for
the Last Day (Khan-2000).

‡ Absence of a central religious body with u niversal appeal or control only

exacerbates the matter. Some even argue that religion must not be mixed with
the daily lives of people. But Islam does not distinguish between the two.
Although religious faith cannot be forced upon people, clear guidelines and
regulatory mechanisms would help those who wish to become a part of Islamic
way of life.

‡ Divided House: Despite being the most promising religion capable of

maintaining its structure through guaranteeing a non-modifiable holy book in
the form of the Quran, the world of Islam is divided among sects some of which
would like to oppose a proposal just for the sake of it. The flexibility in
religious practices and the heterogeneity in the thought -patterns of groups could
actually act as facilitator of innovation as can be witnessed in developments in
Malaysia, Bahrain and UAE, but the same to diffuse to the rest of the Islamic
world needs a change in paradigm that will need institutional support in limiting
other impediments.

‡ Rise of fundamentalism: Despite the tenets of Islam being strongly based upon
³tolerance´, and ³peace´, the shift from a tolerant society to an intolerant one
(whatever be the reasons) is diverting the attention of Muslim youth away from
acquiring knowledge and making best use of it t o prosper in all aspects of
human life.

Recommendations to counter the impediments to the growth of IBFs: The

recommendations obviously emerge from the above discussion on impediments.
For the Islamic Financial System to exploit its competitive advantages for
maximum benefits, it has to remove the impediments in its way. It must control
the impact of those factors that are not directly under its control.

Educational: The foremost and urgent requirement is the advancement in the

educational arena supported a bly by research work in all areas that can enrich
the level of education. It is important to understand that the people of the OIC
region have different socio-cultural and religious orientations from those in the
Western world. Therefore, simply adopting the Western system may not be so
useful. In fact, there is a real threat of an increase in the level of confusion in the
minds of the students if the available systems are not adjusted to suit their
special needs.

The Western educational system has advanced so well that it cannot be dumped
without jeopardizing the educational development of the young generation.
Further, it is no use re-inventing the wheel all over again. Therefore, a
framework that can properly adapt the Western system of education to the l ocal
needs of the region in every respect (language, socio -cultural and religious
requirements, educational level of parents, pace of learning, etc.) is preferable.
Development of a workable and sustainable infrastructure requires a lot of time,
effort, investment and will power. Coordination between countries with similar
cultural background, in this respect, and pooling of their resources will help
speed up the process of building the required infrastructure related to research &
development of educationa l media as well as related to actual imparting of
education to the needy. These efforts have to consider education at all levels.
The system has to be attractive enough for the students to reduce their dropout
ratio at all levels. Since dropout ratio is al so tied up with the state of economy,
efforts towards making the region¶s economy stronger are required. Thus, we
can visualize the strong inter -relationship between various aspects that need
attention, all at the same time, in order to provide a recipe fo r success. Figure-
15 tries to capture this inter-relationship.

Societal and Psychological: The social fabric needs to undergo deep

introspection to trace the reasons behind the declining value systems followed
by concerted efforts to build them back to the ir original levels where they were
so attractive to the outside world that societies as a whole adopted them
voluntarily. This requires a deep-rooted support from institutions and
government agencies. At the psychological level, the confusion in the minds of
the modern youth craving for modern ways of life and at the same time seeking
solace in the roots have to be cleared. Islam is the only religion that clears the
air of confusion through an authentic institution in the form of Quran by clearly
recommending Muslims to pursue the worldly pleasures without compromising
with the religious value system. Guidelines cannot be any clear, which means
that there is something wrong with the educational, political, and socio -cultural
systems prevalent today. Thus, there is a need for thorough overhaul.
Economy: Economy is the backbone without which no system can stand on its
own, and if it does seem to do so for a while, it cannot sustain for long.
Therefore, there is a need for accelerating the growth in all spheres of economic
activity, at a much faster pace than others, in order to overtake them soon. This
needs efforts to come out of isolation, develop common markets among member
countries, and make a combined effort towards capturing the global markets
backed by competitive products manufactured indigenously. The countries will
have to graduate from their trading paradigm to an all -encompassing capability-
building paradigm. This needs cooperation at all levels for pooling of resources,
but demands a lot of sacrifice from individual nations. Alternative options
hardly exist.

Financial: There is an urgent need for an active capital market, an active debt
market, an Islamic money market, Supportive Institutions for Venture Capital
Financing and business incubators, an active secondary market for Islamic debt
instruments and Sharia-compliant equities, etc. to bring dynamism into the
Islamic Financial Sector. Dynamic Financial Engineering is the need of the hour
for a nascent financial sector with great potentials. It nee ds a lot of effort
towards the development of a research base supported by an innovative
educational and training system. Islamic credentials of financial products must
be established in order to gain acceptability and remove any confusion from the
minds of those craving for ethical or Islamic products. Clarity in product
propositioning and processes is vital in this respect. Survival of a banking or
financial system is contingent upon controlling the maturity mismatch in
Islamic debt portfolio. Mechanisms need to be devised to contain additional
risks inherent in the Islamic Financial systems. This needs additional efforts
from Financial Engineers to develop Sharia-compliant hedging instruments. It
also requires much better coordination between Sharia Board s and Financial
Engineers across borders.

Institutional: A uniform regulatory framework is an ideal proposition, but if

complete uniformity is difficult to achieve in the short run, the existing
regulatory frameworks must attempt to limit the mismatch to t he minimum, and
continue with their goal of having one such framework in the long run. This
requires the coming together of not only the regulatory authorities but also the
religious scholars on a common platform to sort out any differences that are
natural to exist. These differences can be positively utilized to boost creativity
and innovativeness. Lot of examples exist to take inspirations from. To start
with, acceptance of existing Regulatory bodies is vital, and must be encouraged
at all costs. A head-on clash with the mainstream regulations must be avoided,
at least in the beginning, so that the Islamic financial instruments can be
marketed in countries where there is little possibility of establishing an Islamic
regulatory system in the near future.

The wings of institutions must spread to reach every nook and corner of the
world which requires an Islamic Financial Network to be established. Pooling of
resources together, and establishment of an Islamic Central bank with its
branches in every country will enhance the pace of development in the Islamic
financial arena, provide strength to match (and later, supersede) the
conventional counterparts, and encourage others to join the bandwagon.
Religious: The whole basis of this sector of financial system is based on
religious edicts. Therefore, it is essential that consensus on issues related to
Sharia is established. Since it is not an easy task for intellectuals to reach an
absolute consensus on all issues, a working mechanism needs to be established
to limit misunderstandings to the minimum and exploit the differences to
generate creativity and innovativeness. A central religious body may sound like
a distant dream today, but a Central Sharia Board to deliberate on matters
related only to Islamic Finance should not be so difficult after all, particularly
when the ultimate goal is the same, and the means to reach those goals (Quran
and Hadeeth) are the same.

Finally, fundamentalism is the biggest enemy of anything Islamic. Although

there is nothing wrong with the Islamic fundamentals, which are stronger than
any other fundamentals, a lot of misunderstanding exists in the minds of not just
the non-Muslims but also in the minds of Muslims. Lack of education is to
blame. Islamic educational system is way behind other educational systems, and
thus is unable to control the damage done to it by unscrupulous agents from
within the community and beyond. It is not difficult for a religion whose
fundamentals are built upon µpeace¶ and µpatience¶ to remove the tag of
fundamentalism.

Political: All the recommendations are dependent upon governmental and

institutional support, which makes it extremely important to have a political
system that is conducive to development of Islamic Financial system.

Technological: There is no doubt in any mind that technology is an essential

tool to gain competitive advantage in the modern world. It is an excellent
medium to build capabilities and core competencies. Hence efforts are required
not just towards use of latest technologies but also towards developing, on its
own, compatible technologies and continuously upgrading them to keep ahead
of the conventional counterparts. This needs emphasis on research &
development activities and establishment of an infrastruct ure (soft as well as
hard) base. Technology parks and establishment of a NASDAQ type stock
exchange may not seem to be direct enablers for this purpose, but they would
act as catalysts, and provide ingredients for long -term competitiveness.

Latest Developments: Bahrain Monetary Authority (BMA)¶s efforts in

establishing Bahrain as a hub of Islamic Banking, the future support from the
planned Bahrain Financial Harbour and the launch of Dubai International
Financial Centre ± launched to coincide with Dubai 2003 (IMF/ World Bank
Board of Governors Meet ± September 2003), the improved regulatory controls
promised by IIFM, IIRA and IFSB are certainly important developments in the
recent past. Challenges of developing and sustaining the market for Islamic
finance is no easy task, and concerted efforts from many sides are required.

The success of Dubai 2003 and the concurrent International Islamic Finance
Forum, have been an exceptionally large morale booster for the Islamic
Financial Community. The Forum marked comi ng together of the Institute for
International Research (IIR), Dow Jones Indexes, the Saudi Economic &
Development Company (SEDCO), iHilal Financial Services, Dubai Islamic
Bank, Shariah Funds Inc. ± a division of US-based Meyer Capital Partners,
Oasis Global Management Company of Guernsey and South Africa and
International Brunei Exchange, etc. Networks and alliances will decide the
future of IBFs in a world where the conventional financial system is quite well
entrenched.

Some of the latest developments a re briefly discussed hereunder:

(i) Commodity Murabaha (Short-term Inter-bank deposit or placement):

³Islamic Banking & Finance in the Kingdom of Bahrain´, a publication of the
Bahrain Monetary Agency (BMA) provides the structure of Commodity
Murababha contract in the Figure-16:

The process of Commodity Murabaha involves a Conventioanal Bank as a

commission agent whose payment to Broker A on the Value Date includes
interest for the period between the buying of Commodity and the deferred
paymnet date (Value Date). The commodity provides the asset backing for the
short-term inter-bank deal between the Islamic Bank and the Conventional
Bank. The deal between the two banks involves the Murabaha mark -up only,
and therefore accepted as Islamic. But, the deal does promote payment of
interest between the commodity broker and the conventional bank which raises
questions about the validity of Islamic spirit in the contract. But, Bahraini banks
have utilised this innovation extensively µto bridge the liquidity gap¶.

(ii) Islamic Credit Cards: Dubai Islamic Bank Visa card provides credit
facilities and all the benefits of a normal credit card without any interest
charges. So do other Islamic banks. This is one sector where it was difficult to
imagine how the concept of interest-free credit could succeed. But, it gives us a
picture of the level of convergence that is taking place. For a detailed discussion
on these credit cards, the reader is referred to Darwish (2003).

(iii) Islamic Interbank Money Market (IIMM): Islamic Interbank Money Market
(IIMM) has been operative in Malaysia since October 1998. Liquid money
market is an important issue in the Islamic Financial system. The main concern
of financial experts is how to improve liquidity in the Islamic financial markets
with the Islamic concept of money as not being able to generate any income on
its own. Money has to be associated with goods or service to generate income.
Making Money from Money is not permissible ± that is the basic difference
between money and commodity. Money (of the same denomination) is not held
to be the subject matter of trade, like other commodities. It can only be used as a
medium of exchange and a measure of value.

If money is to be exchanged for money or it is borrowed, the payment on both

sides must be equal, so that it is not used for trade in money itself. Money is just
³potential capital´; to become real capital it must associate with other resources
and undertake a productive activity. Islam recognizes the time value of money,
but only when it acts as capital, not when it is ³potential capital´.

For the conventional banking system, the inter -bank money market serves as an
efficient means to transform excess money into income by short -term
placements or overnight lending. With modern technology assisting such
activities almost eliminating geographical barriers, transaction time and costs,
this trade has been on the rise helping achieve great deal of liquidity in the
money market. Interest-based system through inter-bank deals not only helps
tackle the asset-liability mismatch but also allows generation of income out of
it.
The Islamic banking system needs to tag some productive activity to every
transaction which becomes an impossible task particularly for overnight trades.
This means that Islamic banks have no motivation to deal in such trades making
the money market highly illiquid. Although regulations can force a bank to part
with its excess money to help another bank in need of cash without charging
any interest on it. The Central banks can p lay an important role in this respect.

Bank Negara Malaysia allows Malaysian Islamic banks to participate in the

interbank money market in order to prevent illiquidity. It also participates in
open market operations to stabilize the market. A recent mechan ism introduced
for accepting ³Islamic interbank deposits under the liquidity management
operations based on the Islamic concept´ is termed as ³Wadiah Yad Dhamanah
(Guaranteed custody). Under this concept, the Islamic banking institutions will
offer to deposit their excess funds with the Central Bank over a period of time,
as agreed between both parties. As a custodian to the deposits, the Bank is not
under obligation to promise any return to the depositors. However, based on the
Central Bank¶s discretion, a sum amount of money may be paid as hibah (gift)
to the depositors on the maturity date.´ The total volume of Islamic money
market instruments traded in the IIMM reached RM32.7 billion in the year
2002.

(iv) Islamic Bonds (Sukuk) Funds: The Islamic Bond ma rket is becoming
vibrant with successful large issues at international levels by Malaysia, UAE,
Bahrain and IDB. Fig-4, showing growth of Malaysian Islamic Bond Market,
provides us with a glimpse of growing Islamic bonds market. Recently, there
has been a flurry of Bond issues by Islamic Financial Institutions, led by
Bahrain and Malaysia. The news clip in Box -8 gives us an idea about the
sincerity of the Bahraini Institutions in developing the primary as well as
secondary Bond market. The biggest challenge for the bond market, of course,
is acceptability of the fixed nature of return on these bonds by the Islamic
scholars. The rental return on the Islamic leasing bonds (Ijara sukuk) is 60 basis
points over the LIBOR for six months. Finding it difficult to understand how
this bond was any different from a conventional bond, and whether this could be
called an Islamic Bond at all, I posed the question to Islamic Financial Scholars
on ibfnet@yahoogroups.com. [the most successful virtual discussion forum
related to Islamic principles and the IBFs, launched by Dr. Obaidullah of XIM,
Bhubneshawar]. Numerous responses came to the author including one from Dr.
M Shahid Ebrahim (four of his papers are cited in this dissertation). They tried
to convince us that the bond does not lose its Islamic character just because it is
pegged to the LIBOR. But why LIBOR? Simply because, they do not have an
alternative. It will take time, but the growth rate of innovations is encouraging.
The only fear is whether we are proceeding on the right path, or are we straying
towards the path followed by our cousins, and falling into a trap?

A general belief among the Islamic financiers is that any benchmark can be
used, in calculating profit or rent, so that compliance with Shari¶a principl es is
indicated. They think that as long as the document does not explicitly indicate
that the profit or rent is LIBOR but only the benchmark for calculations is
LIBOR, nobody would object. But, it will be too naïve a belief, as for many of
us it is difficult to see a real financial difference between the conventional and
Islamic financing when the actual amount paid by a customer under an Islamic
financing has a link to LIBOR.

Structure of Sukooks in Bahrain:

(a) Al Salam Sukook (Figure-17): These Government securities are equivalent

to Treasury bills, and the margin to the buyers (syndicate of Islamic Banks) is
competitive with respect to returns from other conventional short -term money
market instruments. The counterparty and the market risks involved are the
sovereign risks, with Government acting as the seller and buyer of goods
(Aluminium, in the case of Bahrain).

(b) BMA Ijara Certificates: BMA issued these 5 year 5.25% rental return
Islamic Leasing Certificates worth $100 million, on the 3rd September 2001,
another first by an Islamic Central bank. The second sukook (Issue size of $ 70
million) with a maturity of 3 years, annual lease rental return of 4.52% (paid
semiannually) was issued on 27th February 2002.

Steps in an Islamic Leasing (Ijara) Sukook deal:

(i) Central bank, as Mudarib, issues Participation Certificates (backed by

Special Purpose Mudarabah) to the market and collect subscription money.

(ii) The Mudarabah purchases specified tangible assets and Central Bank as
Mudarib executes the deed. Property rights of the assets is transferred to the
certificate holders with the possibility of further transferability of ownership and
inherent benefits built-in.
(iii) Purchased tangible assets are then leased out on the basis of Ijara -wa-iqtina
to earn rental income. Mudarib executes the Ijara contract against collaterals &
security from the lessee, and collects rentals. The certificate holders having the
property rights on the assets are the lessors and thus entitled to the rental
proceeds.

(iv) Mudarib executes a contract for sale of the leased assets on maturity.
Mudarabah is then liquidated and Sukook redeemed. The leased assets in this
Sale deed may be purchased by the lessee or his agent, or any third party at a
fixed price on maturity of Ijara. The property right to the asset is represented by
the Ijara certificate.

(v) The Participation Certificates can be traded in the secondary market during
the validity of Mudarabah.

So, how Islamic are these bonds? The debate on how far the fixed rentals/
guaranteed margins, or a fixed spread over LIBOR in the Islamic sukooks differ
from the interest rates of the conventional bonds will continue. One simple test
that can be applied to ascertain whether or not these returns are same as the
interest rates is whether or not the asset or commodity backing is genuine. Asset
or commodity backing can be considered as genuine if it satisfies the basic tenet
of the Sharia, i.e., the transactions actually result in producing the asset or
commodity at some level. The wh ole cycle of activity does result in some
productive economic activity unless it is purely speculative, in any system
whether conventional or Islamic. But, the test for Islamic sukook deal is
whether the economic activity is related to the asset or commodi ty that is used
as backing for the deals. A cursory look at the whole cycle leaves an impression
that in the whole process, the asset or commodity acts like the hypothetical
Eurodollar deposit used for the Eurodollar interest -rate futures traded on the
Chicago Mercantile Exchange (CME) and the Singapore International Monetary
Exchange (SIMEX). As in the case of the futures, the underlying asset may
never actually change hands in the sukook deals. But jumping to conclusions so
easily would be negating all th e efforts put into these excellent innovations
accepted by the Sharia Supervisory Boards.

The question whether or not the asset or commodity backing is genuine may not
be answered easily, but what about the fixedness of returns guaranteed by these
bonds? The price of an asset or commodity widely fluctuates in the market due
to supply and demand factors in case perfect competition exists. In such a
scenario, the prices can be predicted in the short run based upon the factors that
govern the demand and supply. In case speculative players dominate the market
or in case where cartels exist, which is the case in many product/ commodity
markets (particularly in Aluminium) of the contemporary world, how can the
prices be guaranteed? If the future prices cannot be g uaranteed, how can a
return from a deal in such products/ projects/ commodities be guaranteed? Is it
not speculation? This is one of the arguments that form the basis for prohibiting
a guaranteed return to investors.

The discussion on the BMA¶s Al Salam Sukooks (described above) may yield
interesting insights. It provides us with some explanation why the Ijara based
bonds are replacing the Salam based bonds. Under Ijara concept, fixing a rent in
advance may not be considered un -Islamic whereas in Al Salam concept, a
fixed rate of return may be termed speculative and thus may not be allowed.
Considering the fact that BMA¶s Al Salam Sukooks are based on Aluminium as
the underlying commodity, let us examine the fluctuation in the price of
Aluminium during last five years. With Aluminium prices being so volatile, and
guided by large international players, can the sovereign guarantee be
sustainable? It is not difficult to conclude from the guaranteed rate offerings
tagged to the recent bond issues that the necessi ty to provide the fixed returns as
competitive as the returns from conventional securities of similar maturity may
actually be guiding them instead of any forecasting methodologies.

This may be the main reason why some scholars have termed only two modes
of transactions, Mudarabah and Musharakah as strongly Islamic (Siddiqui -1982,
Mohsin-1982, Qureshi-1984, Qureshi-1985, Chapra-1982). Khan and Mirakhor
(1987) argue on the same line and suggest ³all other modes of operations « are
recommended only in cases where risk-return sharing (i.e., Mudarabah and
Musharakah) cannot be implemented.´

The size of the disposable funds owned by high networth Arabs is estimated to
exceed $11 trillion. After 11th September 2001, in particular, there has been a
rush to tap this fund which used to be mostly invested in the US markets. In this
mad rush, is it a possibility that Islamic Shariah principles are being kept aside
or backdoors are being invented in the name of innovation? A more transparent
system will provide better explanation apart from being helpful in clearing
doubts from investor¶s minds.
(v) Global Bond Market Growth: As reported by failaka.com, USD180bn worth
of funds were available for investment in Islamic -approved holdings worldwide
as of mid-2002, an amount anticipated to grow by 15% YoY. Some indications
of things to come are provided by the news item in Box -8. Some more
developments are described below.

(vi) When Issue (WI): Players in the Islamic money market of Malaysia are
allowed to perform WI transactions prior to the issuance date of the Islamic
securities. WI is a pre-issuance transaction of debt securities that will be issued
in the Islamic debt market to facilitate players in estimating the appropriate
price to bid on the issuance date. The Council viewed that the WI transaction is
allowed based on the permissibility to promise for sale and purchase
transactions «« Bank Negara.

(vii) Sell and Buy Back Agreement (SBBA): The SBBA transaction is
permissible, in Malaysia, as long as it is an outright sal e and purchase and
enforced by two different contracts for each transaction. In addition,
compensation can only be effected on the party who defaulted on his promise
«« Bank Negara.

(viii) Collateralised Borrowing: The National Shariah Advisory Council of

Malaysia approved the proposal to introduce the collateral borrowing
transaction in the Islamic money market based on the principle of Rahnu. The
transaction is an alternative to the SBBA and the loan extended is based on the
concept of Qardh. Although there is no profit element being introduced in the
transaction, the banks are expected to prefer this transaction due to its simplicity
and its mutual-help feature «« Bank Negara.

(ix) Islamic Securitization: Islamic Securitization in a wider sense is defined as

the process of pooling assets, packaging them into securities, and making them
marketable to investors. In Islamic finance, the concept of securitization is in
consonance with what is known as Taskeek in Arabic, which is a process of
dividing ownership of tangible assets, usufructs, or both, into units of equal
value and issuing securities as per their value. The underlying assets, contracts,
and payment mechanism, while being commercially viable must be aligned with
the requirements of Sharia. By and l arge, the Sharia treatment of sukuk is
similar to an equity security where shares are evidence of ownership in a going
concern.
Islamic Development Bank¶s recent debut issue of US$400 million Islamic
sukuks received overwhelming response from both conventi onal and Islamic
investors around the world. The issue size originally targeted at US$300 million
was increased based on strong demand for the high quality instrument. The
issue is unique in almost all its aspects ranging from the issuer, the guarantor,
the arranger and more importantly the innovative structure of the deal, which is
a combination of securitization of Ijarah, Mudaraba and Istisna contracts with a
minimum of 51% on the Ijarah assets.

It should be noted that although some of these securitized financial instruments

have been generally accepted as being in compliance with Islamic principles so
that they can be traded in the secondary market, the negotiability of certain
others still remain controversial due to their legal acceptability or complia nce
with Sharia. For instance, Murabaha is a transaction, which cannot be
securitized independently to create a negotiable instrument to be traded in the
secondary market. The certificate representing a monetary obligation from a
third party or dayn arising out of a Murabaha transaction can be traded at face
value and any difference in value will be tantamount to riba. However, if the
security represents a mixed portfolio consisting of a number of transactions like
Musharaka, leasing and Murabaha, then this portfolio may issue negotiable
certificates, subject to certain conditions.

(a) Securitization of Mudaraba Bonds: AAOIFI¶s Sharia standard No -18 defines

the arrangement of Mudaraba bonds as below:

³The issuer of the certificates is the Mudarib, the subscr ibers are the capital
owners and the realized funds are the Mudaraba capital. The certificate holders
own the assets of Mudaraba operation and profit share as per agreement. The
certificate holders, being the capital providers, bear the loss, if any.´

Mudaraba means an agreement between two parties where one partner gives
money to another for investing in a commercial enterprise. The investment
comes from the first partner who is called ³Rab -ul-Maal´ while the
management and work is the exclusive responsibi lity of the other, who is called
³Mudarib´ and the profits generated are shared in a predetermined ratio.

The objects of a Mudaraba are restricted to only such businesses as are

permitted under the Sharia. The concept of mudaraba is akin to revenue bond
financing in the conventional system. Revenue bonds are generally backed by
revenue generated mainly for public sector projects funded by the bond issue.
The bondholders are solely dependent on the revenue generated by the project
being financed and in the event of non-performance of the project, there is no
recourse to the local government¶s general treasury fund.

Likewise, the Mudaraba bonds give its owner the right to receive capital at the
time the bonds are liquidated, and an annual proportion of the rea lized profits in
accordance with the predetermined profit sharing ratio. The Mudaraba bonds
can be instrumental in the process of development financing because it is related
to the profitability of the projects.

(b) Securitization of Musharaka: AAOIFI¶s Sharia standard No 18 defines the

arrangement of Musharaka bonds as follows:

³The issuer of the certificates is the inviter to a partnership in a specific project

or activity. The subscribers are the partners in the Musharka contract. The
realized funds are the share contribution of the subscribers in the Musharaka
capital. The certificate holders own the assets of partnership and are entitled to
profit, if any´.

Musharaka bonds are relatively similar to Mudaraba bonds. The only major
difference is that the intermediary-party will be a partner of the group of
subscribers represented by a body of Musharaka bondholders in a way similar to
a joint stock company while the Mudaraba capital is only from one party. In
securitizing a Musharaka arrangement, every subsc riber can be given a
participation certificate, which represents his proportionate ownership in the
assets of the venture or project for which financing is being raised.

Subsequent to the acquisition of substantial non-liquid assets, these Musharaka

certificates can be treated as negotiable instruments and can be bought and sold
in the secondary market.

There is a strong Sharia opinion against the trading of these certificates if the
underlying assets of the Musharaka are in liquid form (i.e. in the shape o f cash
or receivables or advances due from others).

(c) Securitization of Ijarah: Ijarah sukuks have aspects in common with

conventional asset-backed securities and are of particular interest to a broad
range of investors representing both the conventional and Islamic financial
communities. Benchmark for lease rentals can be based on a conventional index
such as US$ LIBOR which can be either fixed or floating. Since Ijarah sukuks
evidence the undivided pro -rata ownership of the underlying leased asset, it
could be freely tradable at par, premium or discount. Such flexibilities can allow
Ijarah sukuks to be priced at par with their conventional counterparts. A case in
point is the issue of US$ 600 million 5-year floating rate trust Ijarah certificates
by the Malaysian government in 2002. The issue was priced flat to the country¶s
conventional credit curve and attracted no premium despite being a new deal
structure.

Ijarah is a contract, according to which a party purchases and leases out

equipment required by the client for a rental fee. The duration of the rental and
the fee are agreed in advance and ownership of the asset remains with the
lessor. The lessor in Ijarah owns the leased assets, he can sell the asset, in whole
or in part, to a third party who may purchase it and may replace the seller in the
rights and obligations of the lessor, with regard to the purchased part of the
asset. Typically, the issuer of the Ijarah certificates acquire assets, transfer its
ownership to a special purpose vehicle (SPV, then sell investors shares in the
SPV. The returns on the shares, which come from leasing out the assets owned
by the SPV, could be either fixed or a floater. Thus, the expected returns are
fixed and can be treated as predictable as the coupon on a conventi onal bond. A
third party can also guarantee rental payments and since the yield is
predetermined, the underlying assets are tangible and secured, the Ijarah
certificates can then be traded in the secondary market.

The securitisation of leasing transactions and the creation of tradable, liquid

investment funds have facilitated Islamic secondary market, which is
instrumental in alleviating the liquidity constraints of Islamic financial
institutions.

(x) Islamic hedge fund: At the outset of September 2003, the Saudi Economic
and Development Company (SEDCO) launched the world¶s first -ever hedge
fund compliant with Islamic Sharia¶h law, in conjunction with Saudi Arabian
financial services group Permal. Fund managers Fostman -Leff of New York
were responsible for managing the fund which were expected to start doing
business by early October 2003 (as per their press release).

SEDCO has been examining possible alternatives to prohibited derivates. One

such alternative is based on an innovative concept like ³stipulated options´ ± a
buyer makes an advanced partial payment for deferred delivery of a product,
and if he decides not to buy this later, the seller keeps the advance ± closest
analogy to an option in IBF system. Another such alternative likely to be used
by them is the old concept of Al Salam, where one sells a commodity to a buyer
against full up-front payment for delivery at a future date. An investor can
hedge his downside risk by selling stocks to be delivered later, receive payment
in advance for productive use without bearing the price risk.

SEDCO claims that the fund is fully transparent to investors. An existing

Sharia¶h compliant offer from this group is a 5 -year medium-term note with
100% principal protection provided by Societe Generale.

Rating Agencies: Do we need separate rating agencies for the IBFs? Perhaps,
yes. We have seen that the system in its purest form is entirely different from its
conventional counterpart, hence the rating methodology has to be uniquely
suited to the IFBs. This will be important for inter-bank dealings. Credit ratings
for customers may not be different simply because the target customers are
mostly the same for both. However, project evaluation becomes an important
and integral role for pure IBFs based mainly on the PLS principles. This may
require specialized technical skills largely absent in the present lot of banks the
world over. Apart from the evaluation of projects, its monitoring during
execution and participation in managing the project may be important to avoid
false reporting by the other party. In an age where creative accounting is
considered as creativity rather than sin, costs to the IBFs may escalate beyond
expectations. On the other hand, the benefits resulting from IBFs are likely to
far exceed the costs.

IDB initiated a scheme to establish an Islamic Rating Agency recently called the
³International Islamic Rating Agency´(IIRA) to be incorporated as a profit -
making independent company. IBFs will hold a total of 35% of the capital, the
IDB 15%, and 50% will be held by rating agencies. A working group
comprising of representatives from IDB, AAOIFI, selected Islamic banks and
Malaysian Rating Corporation (MARC) has been formed.

Basel II Implications: The Basel Committee guidelines do not specifically focus

on the Islamic Banking and Financial System, but still the adequacy norms and
risk management are areas that affect them as much as they affect the
conventional banks. The BMA has developed a framework, known as
Prudential Information and Regulations for Islamic Banks (PIRI) which takes
into consideration standards developed by AOOFIFI and the Basel Committee¶s
various guidelines. When the International Islamic Financial Market, being
developed in cooperation with the Islamic Development Bank and other central
banks, will be operational the need to comply with the Basel II regulations
would be felt even more.

The main problem for the IBF, today, even after more than twenty eight years in
operation is in defining what they are all about, i.e., the confusion as to whether
they are banks, mutual funds, asset managers, or investment funds. Although
some of the regimes regulating Islamic financial institutions are already very
stringent, and some like Bahrain which may claim to be over -regulated as they
have started applying Basel II in terms of liquidity risk issues.

Some implications that can be more easily visualized are as follows:

- Cost implications (mainly for estimation of new risk components like

operational risks). Majority of Islamic banks have no such liberty in investing a
large amount for that purpose. Speculations are rife that banks will need to
invest additional amounts (in millions) to comply with Basel II.

- CAR implications: There is much debate at present amongst western banks if

Basel II will be implemented or not. This is because of the cost implication to
implement operational risk monitoring which may cost billions.

There are views that in western countries it may likely improve the capital risk
weighting for Islamic products. Products like mortgages already benefit from
Murabaha structure in terms of capital risk weighting (50%) but Murabaha is
not considered efficient in terms of early repayment, or determining a profit
amount etc. Ijara is the preferred mode at present for developing mortgage
products, but it attracts 100% capital risk weighting. One could argue that if
Islamic mortgages based on Ijara are more efficient, they should attract less
capital risk weighting. The Basel committee is unlikely to allow lesser risk
weighting for lease across the board, as all banks will rush to reap benefits from
Islamic leases. Modaraba and Musharika will continue to still attract 100%
capital risk weighting.

Important Institutions supporting the development of IBF:

Institute of Islamic Banking and Insurance:

Dar Al-Maal Al-Islami (DMI): HQ in Geneva

Al-Baraka: HQ in Jeddah.

IIBI Established in 1991

Publications: (a) International Directory of Islamic Banks and Institutions 2000,
(b) International Directory of Islamic Insurance 2000

AAOIFI: The Accounting and Auditing Organization for Islamic Financial

Institutions is an Islamic international autonomous non-profit making corporate
body that prepares accounting, auditing, gov ernance, ethics and Shari¶a
standards for Islamic financial institutions.

Managed funds: over $200 billion

Agreement of Association signed by Islamic financial institutions on 26

February, 1990 in Algiers. AAOIFI was registered on 11 Ramadan 1411
corresponding to 27 March, 1991 in the State of Bahrain.

The International Islamic Rating Agency

The Islamic Financial Services Board

The International Islamic Financial Market, and

The Liquidity Management Center

The Dow Jones Islamic Market Indexes:

Dow Jones Islamic Market World Index

Dow Jones Islamic Market Titans 100 Index

Dow Jones Islamic Market Asia/Pacific Index

Dow Jones Islamic Market Europe Index

Dow Jones Islamic Market Canada Index

Dow Jones Islamic Market Japan Index

Dow Jones Islamic Market U.K. Index

Dow Jones Islamic Market U.S. Index

Dow Jones Islamic Market Technology Index

Some statistics related to the above indices are presented in Appendix -D

FTSE Global Islamic Index Series:

The FTSE Global Islamic Index Series (GIIS) are equity benchmark indices
targeted at those who wish to invest according to Islamic investment guidelines.
Islamic investing is growing by 12-15% per annum, as more and more
international investment bodies stake an interest in this specialist service. The
FTSE Global Islamic Index Series addresses this demand by creating a standard
for applicable Islamic equity investing.

Initially pioneered in January 1999 by The International Investor (TII) and

calculated by FTSE, the series was the first truly global Islamic Index series. It
was designed to track the performance of leading publicly traded companies
whose activities are consistent with Islamic Sharia principles.

Due to its success over the past months, the Global Islamic Index Series will
now be incorporated into the FTSE family of indices. Using the FTSE World
Index as the universe, TII applies Sharia principles, following guidelines
provided by its Fatwa and Sharia Supervisory Committee to rule out those
companies whose business activities are incompatible with the Islamic law.

After removing companies with unacceptable core business activities, the

remaining list is tested by a financial-ratio ³filter´, the purpose of which is to
remove companies with an unacceptable debt ratio. Finally, any ³tainted
percentage´ of any cas h dividend received by a company which is not in
accordance with Sharia law is computed, and should be donated to a proper
charity.

Sub-component Indices:

FTSE Americas Islamic Index

FTSE Europe Islamic Index

FTSE Pacific Basin Islamic Index

FTSE South Africa Islamic Index

Sector Screens:

By way of guidance, stocks whose core activities are or are related to the
following are excluded:

a) banking or any other interest related activity

b) alcohol
c) tobacco

d) gaming

e) insurance

f) pork production, packaging and processing or any other activity related to

pork

g) activities deemed offensive to the principles of Islam

h) sectors / companies significantly affected by the above

The companies that have incompatible lines of business are removed from the
³universe´ of stocks included in the FTSE World Index. Companies classified
in other industry groups may also be excluded if deemed to have a material
ownership in, or revenues from, prohibited business activities.

Financial Screen:

Debt ratio: (exclude companies) if Interest-Bearing Debt divided by Assets is

equal to or greater than 1/3 or 33.33%. Companies that pass these screens are
generally eligible for inclusion in the FTSE Global Islamic indices¶ investable
universe.

Dividend Cleansing: ³Tainted dividend´ re ceipts relate to the portion, if any, of

a dividend paid by a constituent company that has been determined to be
attributable to activities that are not in accordance with Islamic Sharia principles
and therefore should be donated to a proper charity or cha rities.

Sharia Scholars: The screening criteria of the FTSE Global Islamic range of
indices is supported by the credibility of TII¶s Fatwa and Sharia Supervisory
Committee (Sharia Board).

Conclusion: Dr. Ebrahim (1999) argues that the modes of financing se lected
should not only avoid riba, gharar and maysir but also be economically
efficient. In search of this economic efficiency, Islamic Banks now participate
in a wide financing domain stretching from simple Sharia -compliant retail
products to highly complex structured finance and large-scale project lending.
Muslims (and non-Muslims) can now obtain Islamic credit cards, can insure
themselves and their property Islamically, can invest on line in Islamic funds
can track their investments Islamically and can even get a Sharia-compliant
mortgage from a US firm. Islamic banks are now better positioned than ever to
participate not only in large scale corporate financing but also more complex
wholesale transactions such as syndications and securitization. Bahrain¶ s recent
$255mn al-Hidd power financing is a case in point. Lead arranged by BNP
Paribas, HSBC Amanah, Bank of Bahrain and Kuwait and Bank of Tokyo
Mitsubishi, the $55mn Islamic tranche arranged by the Saudi -based Islamic
Development Bank and Kuwait Financ e House was hailed as a landmark in
regional power finance. KFH had earlier helped set an inter -creditor agreement
precedent when it secured in 1995 a $200mn Islamic tranche for Kuwait¶s
$1.2bn Equate petrochemical project.

This convergence is evidence of how the Islamic financial sector is part of the
globalizing trend and not rejectionist. In essence, Islamic finance offers another
set of well-understood tools within the understood frameworks of modern
banking and finance. ± Abdulkader Thomas

At first glance, it looks like many techniques that the interest -free banks are
practising are neither in full conformity with the spirit of Shari¶ah nor
practicable in the case of large banks (or the entire banking system). Moreover,
they seem to have failed to do away with undesirable aspects of interest, and
thus, they seem to have retained what an Islamic bank should eliminate. This is
because these institutions have attempted to start from where the conventional
banking system has left. The innovations, however g enuine and worthy, seem to
be swamped within the muddle of well -developed and widely accepted financial
system of conventional banking and finance. For a commoner, it becomes very
difficult to distinguish the Islamic instruments from the conventional ones. The
solution lies not in changing the look or personality (face value) of the
conventional instruments ± which is the primary reason for all the confusion ±
but in evolving afresh. We feel that the basic infrastructure necessary for
building an entirely new structure for the Islamic Financial System is not just
available but is quite strong already. What is needed at this moment is an out -
of-the-box thinking even if sounds like reinventing the wheel. This will require
a bold initiative towards a total unwinding of the current system and a lot of
unlearning before we could even conceive of a reasonable amount of success in
clearing the clouds of ambiguity. Even if one concludes that the resource
available with Islamic Financial System is peanuts compared to its conventional
counterpart, there is no need to despair. The ultimate winner is the one who
dares to dream. What is required at the moment is the ³strategy as stretch and
leverage´ that Hamel and Prahlad (1993) advises.

Haron et al (1994) who pioneered the research on bank patronage in Malaysia

found that almost 100 percent of Muslims and 75% non -Muslims were aware of
the existence of Islamic banks. While applying Haron et al¶s study, Gerrard and
Cunningham (1997) found that just like their Malaysian coun terparts,
Singaporean Muslims were more aware of the existence of Islamic banking than
the non-Muslims. Similarly, this study found no evidence of Muslims and non-
Muslims differing in their bank¶s selection criteria. In another study wherein the
respondents were individuals who had financial decision -making authority in
the Malaysian corporate sectors, and 80% of which were non -muslims, Ahmad
& Sudin Haron found that more than 55 per cent perceived that both religion
and economics were the patronage factors in this system. About 50 percent of
the respondents believed that Islamic banking products and services had a good
potential to be accepted by customers. About 75 per cent indicated that Islamic
banks in Malaysia however had not done enough marketing in p romoting their
products and services to corporate customers. Almost half of the individuals
surveyed believed that the Islamic banking system had a good potential as an
alternative to the conventional system.

The future is definitely bright for the Islamic banking and finance. They have
already established a niche by roping in the Muslim community. And their
appeal is expanding, particularly with the number of proponents of Ethical
Banking and Finance on the rise in other communities. In order to give the
conventional system any semblance of competition, it has to grow out of the
niche, and convince everybody not just about the ethical aspects but also the
economic benefits that it carries ± in fact it will have to prove that it is more
profitable than its conventional counterpart.

References:

1. Ahmad, A., 1987, ³Development and problems of Islamic banks´, Islamic

Research and Training Institute, Islamic Development Bank, Jeddah, Saudi
Arabia.

2. Ahmad, Norafifah and Sudin, Haron, 2002, PERCEPTIONS OF

MALAYSIAN CORPORATE CUSTOMERS TOWARDS ISLAMIC
BANKING PRODUCTS & SERVICES, International Journal of Islamic
Financial Services, Volume 3, Number 4

3. Ahmad, S.M, 1989Towards Interest-Free Banking, Institute of Islamic

Culture, Lahore, Pakistan.

4. Ahmad, Z, 1994, ³Islamic banking: state-of-the-art´, Islamic Economic

Studies, 2, 1, 1-34.

5. Al-Amine, Muhammad al-Bashir Muhammad, The Islamic Bonds Market:

possibilities, and challenges, International Journal of Islamic Financial Services
Vol.3 No.1

6. Al-Bahar, A, 1996, ³An overview of developments and potential in Islamic

banking and finance´, International Investor -Islamic Banking & Finance, 1996
Conference, 1.

7. Al-Harran, S.A.S, 1993, Islamic Finance: Partnership Financing, Pelanduk

Publications, Malaysia, 15-157.

8. Ali, M and Sarkar, A. A. (1995). ³Islamic Banking: Principles and

Operational Methodology´. Thoughts on Economics, Vol. 5 No. 3 & 4, pp. 20 -
25; July-December 1995. Dhaka: Islamic Economics Research Bureau.

9. Ali, S.N., Ali, N.N., 1994, Information Sources on Islamic Banking and
Economics: 1980-1990, Kegan Paul International, London.

10. Al-¶Iraqi, 1992, Takhrij Ahadith Al-Ihya with Ihya¶ µUlum al-Din of Al-
Ghazali, Kitab Adab Al-Kasb, (Dar Qutaybah, Beirut, Lebanon), 2, 95.

11. Al-Omar, F., Abdel-Haq M.K., 1996, Islamic Banking: Theory, Practice and
Challenges, Oxford University Press, Karachi and Zed Books, London, pp. 11-
19, as in Ebrahim (1999).

12. Al-Suyuti, 1990, Al-Albani, N, Al-Islami, A.-M, Da¶if Al-Jami¶ Al-Saghir,

Beirut, LebanonHadith, 2434.

13. Anderson, W.T., Cox, E.P., Fulcher, D.G., 1976, ³Bank selection decisions
and market segmentation´, Journal of Marketing, 40.

14. Andrade, G. and Kaplan, S., (1998), How Costly is Financial (Not
Economic) Distress? Evidence from Highly Leveraged Tr ansactions that
Became Distressed, Journal of Finance 53, 1443 ±1493
15. Armstrong, Martin A., A Brief History of World Credit & Interest Rates,
3000 B.C. to the Present, Princeton Economic Institute, 1987

16. Asquith, P., Gertner, R, Scharfstein, D, 1994, ³`Anatomy of financial

distress: an examination of junk-bond issuers´, Quarterly Journal of Economics,
109, 3, 625-58.

17. Baldwin, Dr. Kenneth: Risk management in Islamic Banks, as in Islamic

Finance: Innovation and Growth, Euromoney Books,
www.euromoneybooks.com, ISBN: 1 85564 921 7

18. Baron, S., 1952. A social and religious history of the jews, New York:
Columbia University Press.

19. Barro, Robert, 1991, ³Economic Growth in a Cross Section of Countries,´

Quarterly Journal of Economics, Vol. 106 (May), pp. 407±43.

20. Barro Robert J., Determinants of Economic Growth: A Cross-Country

Empirical Study (Cambridge, MIT Press, 1997)

21. Barro, Robert J., and Jong-Wha Lee. 2000. ³International Data on
Educational Attainment: Updates and Implications.´ NBER Work ing Paper
7911. National Bureau of Economic Research, Cambridge, Mass.

22. Central Bank of UAE http://www.cbuae.gov.ae

23. Chan, A.K.K., 1989, ³On consumer bank choice behaviour: a literature
review´, Hong Kong Baptist College, Working Paper MS 89004.

24. Chapra, M. U., (1986), Towards a just monetary system, Islamic

Foundation, 55-79, 247-260.

25. Chapra, M. U., 1998: ³Islam and the Economic Challenge´, Islamic
Foundation, The Leicester.

26. Chapra, M. (2000), The Future of Economics: An Islamic Perspe ctive, The
Islamic Foundation, Leicester, UK, pp.193 -252.

27. Chapra, M. U. and Khan, Tariqullah, (2000), Regulation and Supervision of

Islamic Banks, Occasional Paper No-3, Islamic Research and Training Institute,
Islamic Development Bank, Jeddah, Saudi A rabia.
28. Dar, Humayon A. and Presley, John R., Lack of Profit Loss Sharing in
Islamic Banking: Management and Control Imbalances, International Journal of
Islamic Financial Services Vol. 2 No.2, Economic Research Paper No. 00/24,
Loughborough University.

29. Darwish, Dr Ahmed Fouad, 2003, Head of Research, Planning and

Development for Shamil Bank in Bahrain, Banker Middle East, March/2003

30. DeLorenzo, Yusuf Talal, 1997, Compendium of Legal Opinions on the

Operations of Islamic Banks, Institute of Islamic Banking and Insurance, ISBN
1-898420-35-1.

31. Dixon, R, 1992, ³Islamic banking´, International Journal of Bank

Marketing, 10, 6.

32. Ebrahim M. Shahid, (1999), Integrating Islamic and Conventional Project

Finance, Thunderbird International Business Revi ew, 41(4/5), 583-609

33. Ebrahim, M. Shahid, (2000), Pricing Asset Backed Islamic Financial

Instruments, International Journal of Theoretical and Applied Finance Vol. 3,
No.1, 59-83

34. Ebrahim, Muhammed Shahid and Khan, Tariqullah, (2002), On the pricing
of an Islamic Convertible Mortgage for infrastructure project financing,
International Journal of Theoretical and Applied Finance Vol -5, No-7, pp. 701-
728, World Scientific Publishing Company

35. Ebrahim, M. Shahid and Joo, Tan Kai, 2001, Islamic banking i n Brunei
Darussalam, International Journal of Social Economics, Volume 28 Number 4,
pp. 314-337

36. Edwardes, Warren, 2000, Key Financial Instruments: Understanding and

Innovating in the World of Derivatives, Hardcover, Financial Times Prentice
Hall ISBN 0273 63300 7

37. El-Bdour, R., 1984, ³The Islamic economic system: a theoretical and
empirical analysis of money and banking in the Islamic economic framework´,
unpublished PhD dissertation, Utah State University.

38. El-Gamal, Mahmoud A, 2000, A Basic Guide to Contemporary Islamic

Banking and Finance, Rice University, Houston,
http://www.ruf.rice.edu/~elgamal.
39. El-Gamal, Mahmoud A, Can Islamic Banking Survive? A Micro -
evolutionary Perspective, Department of Economics, University of Winconsin,
Social Systems Research Institute (S.S.R.I.), Working Paper no-9705, Madison
Wisconsin 53706, U.S.A., http://www.ssc.wisc.edu/econ/archive/wp9705.pdf

40. El-Naggar, A., 1994, Interview, American Journal of Islamic Finance, IV, 4,
12-13, as in Ebrahim (2001).

41. Erb, Claude B., Harvey, Campbell R. and Viskanta, Tadas E., 1996,
Political Risk, Economic Risk and Financial Risk, Financial Analysts Journal,
November/December 1996.

42. Erol, C., El-Bdour, R., 1989, ³Attitudes, behaviour and patronage factors of
bank customers towards Islamic banks´, International Journal of Bank
Marketing, 7, 6.

43. Erol, C., Kaynak, E., El-Bdour, R., 1990, ³Conventional and Islamic banks:
patronage behaviour of Jordanian customers´, International Journal of Bank
Marketing, 8, 4.

44. Gerrard, P., and Cunningham, J.B. (1997), ³Islamic banking: a study in
Singapore´, International Journal of Bank Marketing, Vol. 15, N0 6, pp. 204 -
216.

45. Gwartney, James and Robert Lawson with Neil Emerick. Economic
Freedom of the World: 2003 Annual Report. Vancouver: The Fraser Institute,
2003. Data retrieved from www.freetheworld.com

46. Hamel, Gary and C.K. Prahalad, ³Strategy as Stretch and Leverage´,
Harvard Business Review, March-April 1993, p.75.

47. Haque, Nadeem Ul and Mirakhor, Abbas, 1998, The Design of Instruments
for Government Finance in an Islamic Economy, IMF Working Paper by
WP98/54

48. Haron, S., Ahmad, N., and Planisek, S. (1994), ³Bank patronage factors of
Muslim and non-Muslim customers´, International Journal of Bank Marketing,
Vol. 12, No. 1, pp. 32-40.

49. Hassan, Sabir Mohammad, (2000), Capital Adequacy and Basel Guidelines:
On Risk Weights of Assets for Islamic Banks, paper presented at the
Conference on the Regulation of Islamic Banks in Bahrain, February 2000
50. Holstius, K., Kaynak, E., 1995, ³Retail banking in Nordic countries: the
case of Finland´, International Journal of Bank Marketing, 13, 8, 10 -20.

51. Homoud, S.H., 1985, Islamic Banking, Arabian Information Ltd, London.

52. Human Development Report 2003, United Nations Development

Programme, pp. 60 and 341, Geneva, United Nations.

53. Ibn Qayyim and Al-Jawziyya, (n.d.), I¶l_am Al-Muwaqqa¶_in µal_a Rabb
al-¶_alam¶_in, II, pp. 153-164, as in Ebrahim ³Pricing Asset Backed Islamic
Financial Instruments´

54. Ibn Taymiya, Al-Qawid id Al-Nu ra niya Al-Fiqhiya (The Second General
Rule: Prohibited and Permitted Contracts), 112 -33.

55. Ibn Taymiya, Nazariyya Al -¶Aqd (On the Sale of Something for its Value or
at the Established Price or by its Number), 220-29.

56. Iqbal, Z, Mirakhor, A, 1999, ³Progress and challenges of islamic banking´,

Thunderbird International Business Review, 41, 4/5, 381 -405.

57. Iqbal, Zamir, 1999, ³Financial engineering in Islam´, Thunderbird

International Business Review, 41, 4/5, 541-60.

58. Iqbal, Z., Mirakhor, A., 1987, ³Islamic banking´, International Monetary
Fund, Occasional Paper, No. 49, Washington DC.

59. ITU (International Telecommunication Union), 2003, Geneva, Switzerland,

http://www.itu.int/ITU-D/ict/statistics/, accessed Sep 2003.

60. Kahf, M, Khan, T, 1992, Principles of Islamic Financing (A Survey),

Islamic Development Bank, Jeddah, Saudi Arabia, 9.

61. Kahf, Monzer, (1992), Instruments and Alternatives of Public Debts in

Islamic Economy, Research paper presented at IRTI (Islamic Research and
Training Institute, Jeddah), 1412

62. Kahf, M, 1997, ³The use of asset Ijara bonds of bridging the budget gap´,
Islamic Economic Studies, 4, 2, 75-90.

63. Kamali, M.H, 1999, ³Prospects for an Islamic derivatives market in

Malaysia´, Thunderbird International Busines s Review, 41, 4/5, 523-40.
64. Karsten, I, 1982, ³Efforts to develop Islamic financial systems: focus on the
abolition of the fixed interest rate´, IMF Survey, 56.

65. Kaynak, E., 1986, ³How to measure your bank¶s personality: some insights
from Canada´, International Journal of Bank Marketing, 4, 3.

66. Kaynak, E., Kucukemiroglu, O., Odabasi, Y., 1991, ³Commercial bank
selection in Turkey´, International Journal of Bank Marketing, 9, 4, 30 -9.

67. Khan, M., 2000, µRents, Efficiency, and Growth¶, in Mushtaq H. Khan and
Jomo K.S., eds., Rents, Rent-seeing and Economic Development: Theory and
Evidence in Asia, Cambridge: Cambridge University Press, pp. 21 -69

68. Khan, M.F, 1995, Islamic Futures and their Markets, Islamic Development
Bank, Jeddah, Saudi Arabia.

69. Khan, M.F., 1983, ³Profit and loss sharing: an economic analysis of an
Islamic financial system´, unpublished PhD dissertation, University of
Michigan.

70. Khan, S. Mohsin, (1986), ³Islamic Interest free Banking: A Theoretical

Analysis´; IMF Staff Papers Vol. 33, No 1 pp 1-27.

71. Khan, M.S., Mirakhor, A., 1987, ³The framework and practice of Islamic
banking´, Khan, M.S., Mirakhor, A., Theoretical Studies in Islamic Banking
and Finance, The Institute for Research and Islamic Studies, Houston, TX.

72. Khan, M.Y., 2001, Banking Regulations and Islamic Banks in India: Status
and Issues, International Journal of Islamic Financial Services Vol.2 No.4

73. Khan, T, 1999, ³Discussion forum: Islamic financial derivatives´,

International Journal of Islamic Financi al Services, 1, 1.

74. Khoja, E.M, 1995, Instruments of Islamic Investment, Dallah Al -baraka

Group, Jeddah, Saudi Arabia, 25-36, 57-82.

75. Laroche, M., Rosenblatt, J.A., Manning, T., 1986, ³Services used and
factors considered important in selecting a ban k: an investigation across diverse
demographic segments´, International Journal of Bank Marketing, 4, 1, 35 -55.

76. Mirakhor, Dr. Abbas, Hopes for the Future of Islamic Finance, International
Monetary Fund (IMF), http://www.islamic-
banking.com/aom/ibanking/a_mirakhor.php
77. Nienhaus, V., 1986, ³Islamic economics, finance and banking ± theory and
practice´, Butterworths Editorial Staff, Islamic Banking and Finance,
Butterworths, London.

78. Noland, Marcus, 2003, ³Religion, Culture, and Economic Performance´

Institute for International Economics (www.iie.com/publications/wp/2003/03 -
8.pdf)

79. Presley, J.R, 1988, Directory of Islamic Financial Institutions, Croom Helm,
Beckenham, London, 68-9.

80. Pryor, D.H.,1985: ³The Islamic Economic System´, Journal of Com parative
Economics 9:197-223

81. Rahman, F., (1969), Riba and interest, Islamic Studies, Karachi 3, 1 -43.

82. Rayner, S.E, 1991, The Theory of Contracts in Islamic Law, Graham and
Trotman, London, 266-304.

83. Rice, Gillian, and Essam Mahmoud, Integrating Quality Management,

Creativity and Innovation in Islamic Banks, Paper prepared for presentation at
the American Finance House ± Lariba 8th Annual International Conference,
Pasadena, CA, June 16, 2001

84. Rosly, S.A, 1999, ³Al-Bay¶ Bithaman Ajil financing: impacts on Islamic
banking performance´, Thunderbird International Business Review, 41, 4/5,
461-80.

85. Sachs, Jerey D. and Larrain, Felipe B.; ³The evolution of the debt/GNP ratio
in selected countries, 1980-1985´, Macroeconomics in the Global Economy,
Prentice Hall, Englewood Clis, New Jersey, 1993, Table 22-9

86. Saeed, A., (1995), The moral context of the prohibition of rib¶a in Islam
revisited, American Journal of Islamic Social Sciences 12(4) 496 -517.

87. Shirazi, M., 1990, Islamic Banking, Butterwor ths, London.

88. Shook, D.N., Hassan, S.S., 1988, ³Marketing management in an Islamic

banking environment: in search of an innovative marketing concept´,
International Journal of Bank Marketing, 6, 1.

89. Siddiqui Muhammad N., 1983: ³Issues in Islamic Banking´, Islamic

Foundation, The Leicester
90. Siddiqi, M.N., 1988, ³Islamic banking: theory and practice´, Ariff, M.,
Islamic Banking in Southeast Asia, Institute of Southeast Asian Studies,
Singapore.

91. Sudin, H., 1995, ³The framework and concept of Islam ic interest-free
banking´, Journal of Asian Business, 11, 1.

92. Sudin, H., Norafifah, A., Planisek, L., 1994, ³Bank patronage factors of
Muslim and non-Muslim customers´, International Journal of Bank Marketing,
12, 1.

93. Sundarajan, V., and Erico, Luca, Islamic Financial Institutions and Products
in the global Financial System: Key Issues in Risk Management and challenges
ahead, IMF Working Paper WP/02/192

94. Tahir, Sayyid, STRATEGY FOR THE ELIMINATION OF RIBA WITH

SPECIAL REFERENCE TO EXISTING DEBTS, The Qur¶anic Horizons,
http://www.tanzeem.org/resources/articles/article.asp?id=145.

95. Taylor, T.W., Evans, J.W., 1987, ³Islamic banking and the prohibition of
usury in Western economic thought´, National Westminster Bank Quarterly
Review, November.

96. Thomas, A.S, 1995, What Is Permissible Now?, First Printers, Singapore, 1-
26.

97. Thomas, Abdulkader, 2001, Methods of Islamic Home Finance in the

United States ± beneficial breakthroughs, The American Journal of Islamic
Finance

98. Thomas, Abdulkader, 2002, The State of the Art: Converging Trends,
ABANA REVIEW, VOL. XIX, NO. 2, A journal of Arab Bankers Association
of North America

99. Wilson, R, 1994, ³Development of financial instruments in an Islamic

framework´, Islamic Economic Studies, 2, 1, 103 -18.

100. Wilson, Professor Rodney, 2001, Islamic Investment Products Available In

The United Kingdom, Lectures and Seminars, Islamic Investment Products:
Development, Structuring and Availability in the UK (January -2001), The
Institute of Islamic Banking and Insurance, http://www.islamic-
banking.com/ibanking/ibanking_aom/rj_wilson.php
101. Zaher, Tarek S. and Hassan, M. Kabir, (2001), ³A Comparative Literature
Survey of Islamic Finance and Banking´, Financial Markets, Institutions &
Instruments, Vol 10 No-4, Blackwell Publishers pp 185-187

102. Magazine: The Qur¶anic Horizons

103. Book: The Essential Guide to Islamically Acceptable Investment

Decisions, www.lightbulbpress.com, 112, Madison Avenue, New York-10016

104. Web Sites: www.ajif.org , American Journal of Islamic Finance

www.hifip.harvard.edu, Harvard Islamic Finance Information Program

www.aaoifi.com, The Accounting and Auditing Organization for Islamic

Financial Institutions

www.ihilal.com: online distributor of Islamic financial products and services

www.islamic-banking.com, The Institute of Islamic Banking and Insurance

www.islamic-finance.net/, Islamic Business and Finance Network

www.failaka.com

http://www.fcsdubai.com/principles.htm

http://www.cbuae.gov.ae, Central Bank of UAE

http://www.alrajhibank.com.sa/historyandgrowth.htm

http://www.khaleejtimes.com

http://www.gulfnews.com

http://www.islamic-banking.com/ibanking/ifi.php
The Dow Jones Islamic Market Indexes
(http://www.djindexes.com/jsp/islamicMarketOverView.jsp)

AAOIFI (http://www.aaoifi.com/)

www.failaka.com

http://www.fcsdubai.com/principles.htm

FTSE Global Islamic Index Series, http://www.ftse.com/ebox/TII.html

APENDIX A0: Estimation of TAI for UAE

Estimation of TAI for UAE to compare with TAI values of other countries in
HDR (2001) is shown as below:

(A) Calculation of the Technology Creation Index:

Patent Index = (0.990 ± 0)/ (994 ± 0) ««««««. (1999 figure taken from
USPO for number of Patents) = 0.001

Royalty and Licence fee Index = 0 (assumed to be zero)

Technology Creation Index = (0.000 + 0.001)/ 2 = 0.0005

(B) Calculation of Diffusion of Recent Innovations Index:

Internet Host Index = (20.9 ± 0.0)/ (232.4 ± 0.0) = 0.090

High and Medium Technology Export Index (ERF -2002) = (16.0 ± 0.0)/ (80.8 ±
0.0) = 0.198

Diffusion of Recent Innovations Index =( 0.090 + 0.198)/ 2 = 0.288

(C) Calculation of Diffusion of old innovations Index:

Telephony Index = [log {407 (Tel mainlines per 1000 people) + 347 (Cellular
mobiles per 1000 people)} ± log(1)]/ [log(901)-log(1)] = 0.974
Electricity Index = 1, because its consumption of 9,892 KWH per capita is
above the goalpost (6,969)

Diffusion of old innovations Index = (0.974 + 1.000)/ 2 = 0.987

(D) Calculation of the Human Skills Index:

Mean Years of Schooling Index = (10.5 ± 0.8)/ (12.0 ± 0.8) years: Expected
Years of schooling from ERF (2002)

= 0.866
Gross Tertiary Science Enrolment Index = (3.2 ± 0.1)/ (27.4 ± 0.1) = 0.114

Human Skills Index = 0.980/ 2 = 0.490

Technology Achievement Index (TAI ) = (0.0005 + 0.288 + 0.987 + 0.490) / 4

= 0.441

APPENDIX-A: Competitiveness of Banking Sector In Case of Opening Local

Markets to GCC Banks

(Kuwait Foundation For Advancement of Sciences)

Ghanem, AlMahmeed, AlMejren, ElSakka, Paul, Al MASARAF, (the official

journal of the Union of Kuwaiti Banks, Issue no. 2, 2002).

1. Mudaraba and Murabaha services came at the forefront of Islamic banking

services.

2. The Islamic financial institutions are seen as a strong competitor for the
banks in Kuwait, now and in the future. Other banks in the GCC countries share
the same view with the Kuwaiti banks.

Recommendations of the Study

By reviewing the weaknesses of the Kuwaiti banks compared to other GCC

banks, we find that the Kuwaiti banks need to take the following actions:

- Explore methods to increase the return on th eir assets up to the levels

prevailing at non- Kuwaiti banks.

- Increase the level of expenditure on training and human resources

development.
- Increase the size of investment in information technology and communications
up to the levels prevailing at non-Kuwaiti banks. ± Increase the level of
experience for national manpower.

- Increase the awareness as to the international financial developments and their

local implications.

- Enhance their confidence in the ability to face foreign competition, and

upgrade their readiness to meet the challenges of GCC banks or international
banks.

- Exploit the opportunities offered by the GCC agreement on the liberalization

of banking services.

- Increase the attention given to the evaluation and review of training ac tivities,
and ensure the good quality of the training provided to their staff , so as to more
positively reflect on their performance.

- Create more stability for staff in order to avoid the adverse implications of the
high turnover. ± Improve staff productivity.

- Study the problem of staff absence and its reasons and treat it more seriously.

- Allocate more financial resources to enhance staff flexibility and reinforce

their ability to work as a team.

- Periodic review of benefits and incentives, so as to ensure staff satisfaction

and consistency of those systems with the standards prevailing in the industry.

- Improve annual planning and control systems.

- Improve FX and foreign operations risks management.

- Develop an IT strategy.

- Upgrade capital adequacy ratio to be in line with the levels prevailing at other
GCC banks.

- Consider the opportunities of merging with other banks, whether local, Gulf or
international.

- Study the opportunities of forming unions with other banks, whether local,
Gulf or international.
- Adopt plans for diversifying products and markets in line with other GCC
banks, and enhance the readiness for expansion in new markets.

- Adopt more intensive plans for automating banking operations in line with
other GCC banks.

- Reinforce relationships with the segments of the general public and multi -
national companies, likewise Qatari and Omani banks.

- Strengthen their presence in the areas of advisory and investment services,

such as money markets, capital markets, futures, options, inv estment portfolios
management, private funds management and investment advisory services.

- Reinforce their Islamic banking services in the areas of Murabaha, Mudaraba,

Musharaka and Istisna.

- Start to use the Smart Cards, and expand in the areas of issui ng certificates of
deposits and rendering brokerage services, because their share of these services
is the least among GCC banks.

- Activate the role of foreign exchange services and certificates of deposits in

revenues generation, as these services rank t he first at Omani banks and the
second at Saudi and UAE banks.

- Expand services delivery through the internet, likewise the banks in UAE.

- Enhance the role of Musharaka and Istisna services as sources of income.

- Expand in advisory and investment services in the manner mentioned above,

as such services represent an important source of income, particularly
investment advisory services and investment portfolios management. There is
also a need for expansion in futures and options.

- Expansion in insurance services to strengthen the role of these services as a

source of income.

- Establish and enhance the presence in GCC and Arab markets in general,
because the results of the study indicated that the strength of Kuwaiti banks
association with their customers in GCC markets is the weakest, with the
exception of Omani banks, and their association with their customers in Arab
markets is also the weakest, with the exception of Omani and UAE banks.
APPENDIX-B: Islamic Financial Institutions in the World (Source: I slamic
Institute of Banking and Insurance; http://www.islamic -
banking.com/ibanking/ifi_list.php#albania)

1. Albania

a. Arab Albanian Islamic Bank, Tirana

2. Algeria

a. Banque Albaraka D¶Algerie, Algiers

3. Australia

a. MCCA (Muslim Community Co-operative, Australia)

b. MCCU (Muslim Community Credit Union)

4. Bahamas

a. Akida Islamic Bank International Ltd

b. Bank Al Taqwa Ltd

c. Dar al Mal al Islami Trust, Nassau

d. Islamic Investment Company of the Gulf Ltd, Nassau.

e. Istishara Consulting Trust, Bahamas

f. Massraf Faysal Islamic Bank & Trust, Bahamas Ltd.

5. Bahrain

a. ABC Investment & Services Co EC

b. Al Amin Co. for Securities and Investment Funds

c. Albaraka Islamic Investment Bank

d. Arab Islamic Bank E.C

e. Bahrain Islamic Bank Bsc.

f. Bahrain Islamic Investment Co. Bsc. Closed

g. Bahrain Institute of Banking & Finance

h. Bank Melli Iran

i. Chase Manhattan Bank N.A.

j. Citi Islamic Investment Bank (Citicorp)

k. Dallah Albaraka (Europe) Ltd

l. Dallah Albarakah (Ireland) Ltd

m. Faysal Investment Bank of Bahrain

n. Faysal Islamic Bank of Bahrain (Massraf Faisal Al Islami)

o. Gulf International Bank BSC

p. Islamic Investment Company of the Gulf

q. Islamic Trading Company

r. ABC Islamic Bank

s. ABN Amro Bank

t. Deutsche Bank Rep office

u. Investors Bank

v. TAIB Bank of Bahrain

w. Turk Gulf Merchant Bank

x. Bahrain Monetary Agency

y. Shamil Bank

z. Khaleej Investment Company

aa. First Islamic Investment Bank

6. Bangladesh

a. Albaraka Bangladesh Ltd (Dallah Al Baraka Group), Dhaka

b. Islami Bank Bangladesh Ltd, Dhaka

c. Faisal Islamic Bank

7. British Virgin Islands

a. Ibn Khaldoun International Equity Fund Ltd

8. Brunei

a. Islamic Bank of Brunei Berhad

b. Islamic Development Bank of Brunei Berhad

c. Tabung Amanah Islam Brunei

9. Canada

a. Islamic Co-operative Housing Corporation Ltd, Toronto

10. Cayman Islands

a. Ibn Majid Emerging Marketing Fund (International Investor Group)

b. Al Tawfeek Co. for Investment Funds Ltd. Subsidiary of Albarka Group

³DBG´

11. Denmark

a. Faisal Finance (Denmark) A/S

12. Djibouti

a. Banque Albaraka Djibouti

13. Egypt

a. Alwatany Bank of Egypt, Cairo

b. Egyptian Company for Business and Trade S.A.E

c. Egyptian Saudi Finance Bank (Dallah Al Baraka), Cairo

d. Gulf Company for Financial Investment

e. Faisal Islamic Bank of Egypt, Cairo

f. Islamic Bank International for Investment and Development, Cairo

g. Islamic Investment and Development Co., Cairo

h. National Bank for Development, Cairo

14. France

a. Algerian Saudi Leasing Holding Co. (Dallah Al Baraka Group)

b. Societe General

c. Capital Guidance

d. BNP Paribas

15. Gambia

a. Arab Gambian Islamic Bank

16. Germany

a. Bank Sepah, Iran

b. Commerz Bank

c. Deutsche Bank

17. Guinea

a. Massraf Faisal al Islami of Guinea, Conakry

b. Banque Islamique de Guinee

18. India

a. Al Ameen Islamic Financial & Investment Corp. (India) Ltd., Karnatka

b. Bank Muscat International (SOAG)

c. Al-Falah Investment Ltd

19. Indonesia

a. Al Barakah Islamic Investment Bank

b. Bank Muamalat Indonesia, Jakarta

c. Dar Al-Maal Al-Islami Trust

d. PT Danareksa Fund Management, Jakarta

20. Iran
a. Bank Keshavarzi (Agricultural Bank), Tehran

b. Bank Maskan Iran (Housing Bank), Tehran

c. Bank Mellat, Tehran

d. Bank Melli Iran, Tehran

e. Bank Saderat Iran, Tehran

f. Bank Sanat Va Maadan (Bank of Industry and Mines), Tehra n

g. Bank Sepah, Tehran

h. Bank Tejarat, Tehran

21. Iraq

a. Iraqi Islamic bank for Investment and Development

22. Italy

a. Bank Sepah, Iran

b. International Trading Co. of Africa

23. Jordan

a. Jordan Islamic Bank (Subsidiary of Dallah Al Barka Group)

b. Jordan Islamic Bank for Finance and Investment, Amman

24. Kuwait

a. Gulf Investment Corporation

b. The International Investment Group

c. The International Investor, Safat

d. Kuwait Finance House, Safat

e. Kuwait Investment Co ± Dar Al-IsethmarSecurities House

25. Lebanon

a. Gulf International Bank, Bahrain

b. Al Barakah Bank

c. Bank of Beirut

26. Luxembourg

a. Faisal Finance (Luxembourg) S.A

b. Faisal Holding, Luxembourg

c. Takafol S.A

d. Islamic Finance House Universal Holding S.A

27. Malaysia

a. Adil Islamic Growth Fund (Innosabah Securities Sdn Bhd), Labuan

b. Arab Malaysian Merchant Bank Berhad, Kuala Lumpur

c. Bank Bumiputra Malaysia Berhad, Kuala Lumpur

d. Bank Islam Malaysia Berhad, Kuala Lumpur

e. Bank Kerjasama Rakyat Malaysia Berhad, Kuala Lumpur

f. Dallah Al Baraka (Malaysia) Holding Sdn Bhd

g. Lembaga Urusan Dan Tabung Haji (Fund), Kuala Lumpur

h. Malayan Banking Berhad (Maybank), Kuala Lumpur

i. Multi-Purpose Bank Berhad, Kuala Lumpur

j. United Malayan Banking Corp. Berhad, Kuala Lumpur

k. Bank Muamalat Berhad, Malaysia

l. Securities Commission

m. Labuan Offshore Financial Services Authority (LOFSA)

n. Islamic banking & Takaful Dept, Bank Negara Malaysia

28. Malaysian banks with Islamic windows

a. Commercial Banks:
i. Affin Bank Berhad

ii. Alliance Bank Berhad

iii. Arab-Malaysian Bank Berhad

iv. Bank Utama (Malaysia) Berhad

v. Citibank Berhad

vi. EON Bank Berhad

vii. Hong Leong Bank Berhad

viii. HSBC Bank (M) Berhad

ix. Malayan Banking Berhad

x. OCBC Bank (Malaysia) Berhad

xi. Public Bank Berhad

xii. RHB Bank Berhad

xiii. Southern Bank Berhad

xiv. Standard Chartered Bank Malaysia Berhad

b. Finance Companies:

i. Alliance Finance Berhad

ii. Arab-Malaysian Finance Berhad

iii. Asia Commercial Finance Berhad

iv. EON Finance Berhad

v. Hong Leong Finance Berhad

vi. Kewangan Bersatu Berhad

vii. Mayban Finance Berhad

viii. MBf Finance Berhad

ix. Public Finance Berhad

x. United Merchant Finance Berhad

c. Merchant Banks:

i. Alliance Merchant Finance Berhad

ii. Arab-Malaysian Merchant Bank Berhad

iii. Aseambankers Malaysia Berhad

iv. Malaysian International Merchant Bank Berhad

v. Affin Merchant Bank Berhad

d. Discount Houses:

i. Abrar Discounts Berhad

ii. Affin Discount Berhad

iii. Amanah Short Deposits Berhad

iv. BBMB Discount House Berhad

v. KAF Discounts Berhad

vi. Malaysia Discount Berhad

vii. Mayban Discount Berhad

29. Mauritania

a. Banque Alabaraka Mauritaninne Islamique (Dallah Al Baraka Group),

Mauritania

30. Morocco

a. Faisal Finance Maroc S.A

b. The Netherlands

c. Faisal Finance (Netherlands ) B.V

d. Faisal Finance (Netherlands Antilles) N.V

31. Niger

a. Banque Islamique Du Niger, Niamey

32. Nigeria

a. Habib Nigeria Bank Ltd

b. Ahmed Zakari & Co

33. Oman

a. Bank Muscat International

b. Bank Saderat Iran, Muscat

c. Oman Arab Bank

34. Pakistan

a. Al Faysal Investment Bank Ltd, Islamabad

b. Al Towfeek Investment Bank Ltd (Dallah Al Baraka Group), Lahore

c. Faysal Bank Ltd, Pakistan

d. National Investment Trust Ltd., Karachi

e. Shamil Bank

f. Meezan Bank Limited

35. Palestine

a. Arab Islamic Bank

b. Arab Islamic International Bank (AIIB) Plc

c. Cairo Amman Bank

d. Palestine International Bank

e. The Palestine Islamic Bank

36. Qatar

a. Islamic Investment Company of the Gulf Ltd, Sharjah

b. Qatar International Islamic Bank, Doha

c. Qatar Islamic Bank SAQ, Doha

37. Russia

a. BADR Bank

38. Saudi Arabia

a. Albaraka Investment and Development Co., Jeddah

b. Al Rajhi Banking and Investment Corp., Riyadh

c. Arab Leasing International Finance (ALIF) Ltd

d. Faysal Islamic Bank of Bahrain E.C., Dammam

e. Islamic Development Bank, Jeddah.

f. National Commercial Bank Ltd, Jeddah

g. Riyad Bank

h. Saudi American Bank, Jeddah

i. Saudi Holland Bank

j. Bank Al Jazira

39. Senegal

a. Banque Islamique Du Senegal

40. South Africa

a. Albaraka Bank Ltd, Durban (Dallah Al Baraka Group)

41. Srilanka

a. Amana Islamic Bank

b. Amana Takaful Limited

42. Sudan

a. Al Baraka Al Sudani, Khartoum. (Dallah Al Baraka Group)

b. Al Shamal Islamic Bank

c. Al Tadamon Islamic Bank, Khartoum

d. Animal Resources Bank

e. El Gharb Islamic Bank (Islamic Bank for Western Sudan)

f. Faisal Islamic Bank of Sudan, Khartoum

g. Islamic Bank of Western Sudan, Khartoum

h. Islamic Co-operative Development Bank, Khartoum

i. Sudanese Islamic Bank

43. Switzerland

a. Cupola Asset Management SA, Geneva

b. Dar Al Maal Al Islami Trust, Geneva

c. Faisal Finance (Switzerland) SA, Geneva

d. Pan Islamic Consultancy Services Istishara SA, Geneva

e. United Bank of Switzerland (UBS)

f. Pictet & Cie

44. Tunisia

a. Beit Ettamwil al Tunisi al Saudi, Tunis (Dallah Al Baraka Group)

b. B.E.S.T. Re-Insurance (Dallah Al Baraka Group)

45. Turkey

a. Albarakah Turkish Finance House Istanbul

b. Emin Sigorts A.S

c. Faisal Finance Institution, Istanbul.

d. Faisal Islamic Bank of Kibris Ltd, Turkey

e. Ihlas Finance House

f. Kuwait-Turket Evkaf Finance House

g. Asya Finans Kurumu A.S

46. United Arab Emirates

a. Abu Dhabi Islamic Bank

b. Bank Muscat International (SOAG)

c. Dubai Islamic Bank, Dubai

d. Gulf International Bank, Bahrain

e. Islamic Investment Company of the Gulf Ltd, Abu Dhabi .

f. Islamic Investment Company of the Gulf Ltd, Sharjah Subsidiary of Dar Al

Maal Islami Trust

g. National Bank of Sharjah

h. HSBC, Dubai

i. National Bank of Dubai

47. United Kingdom

a. Albaraka International Ltd, London

b. Albaraka Investment Co. Ltd, London

c. Al Rajhi Investment Corporation, London

d. Al Safa Investment Fund

e. Bank Sepah, Iran

f. Dallah Al Baraka (UK) Ltd., London

g. Takafol (UK) Ltd, London

h. Barclays Capital

i. HSBC Amanah Finance

j. ABCIB Islamic Asset Management, Arab Banking Corp

48. United Kingdom banks with Islamic windows

a. ABC International Bank, London

b. ANZ International Merchant Banking, London

c. Arab Bank Plc, London

d. Riyadh Bank , London

e. Citibank International Plc, London

f. Cedel International, London

g. Dawnay Day Global Investment Ltd

h. Global Islamic Finance, HSBC Investment Bank Plc

i. Gulf International Bank Bsc, Bahrain

j. The Halal Mutual Investment Company Plc

k. IBJ International, London (Subsidiary of Industrial Bank of Japan)

l. J. Aron & Co. (Goldman Sachs International Finance) Ltd., London

m. Islamic Investment Banking Unit (IIBU), United Bank of Kuwait, London

49. Ireland

a. Al Meezan Commodity Fund Plc, Dublin

b. Jersey, UK (+534)

c. The Islamic Investment Company, St Helier.

d. MFAI (Jersey) Limited (formerly ± Massraf Faysal Al-Islami Ltd, Jersey)

50. United States of America

a. Abrar Investments, Inc., Stamford CT

b. Al-Baraka Bancorp Inc. Chicago

c. Al-Madina Realty, Inc., Englewood NJ

d. Al-Manzil Islamic Financial Services

e. Amana Mutual Funds Trust, State St. Bellingham WA

f. Ameen Housing Co-operative, San Francisco

g. American Finance House

h. Bank Sepah, Iran

i. BMI Finance & Investment Group, New Jersey

j. Dow Jones Islamic Index Fund of the Allied Asset Advisors Funds

k. Failaka Investments, Inc., Chicago IL

l. Fuloos Incorporated, Toledo OH

m. Hudson Investors Fund, Inc., Clifton NJ

n. MSI Finance Corporation, Inc., Houston TX

o. Samad Group, Inc., Dayton OH

p. Shared Equities Homes, Indianapolis IN

q. HSBC, USA

r. MEF Money, USA

s. Islamic Credit Union of Minnesota, (ICUM)

t. United Mortgage

51. Yemen

a. Islamic Bank of Yemen for Finance and Investment, Sana

b. Saba Islamic Bank, Sana

c. Faisal Islamic Bank

d. Yemen Islamic Bank, Sana

e. Yemen National Investment Co., Sana

APPENDIX-C: Islamic Equity Funds in the World

List of Islamic Equity Funds (www.failaka.com)

Fund Name Fund Manager(s) Fund Promoter(s) Inception Min. Invest

Date

Global Equity Funds

1 Al Baraka Global Equity Mercury Asset Management Al Baraka Investment

Bank Dec-97 $25,000

2 Al Rajhi Global Equity UBS Asset Management Al Rajhi Banking &

Investment Jul-96 50 Shares

3 Al-Ahli Global Trading Equity Wellington Management Co. LLP National

Commercial Bank (NCB) Jan-95 $2,000

4 Al-Bait Global Equity Fremont Investment Advisors Inc. Securities House

Apr-00 $50,000

5 Al-Bukhari Global Equity Wafra Investment Advisory Group Wafra

Investment Advisory Group Aug-98 $100,000

6 Al-Dar World Equities Pictet & Cie The International Investor/Pictet & Cie
Feb-98 $100,000

7 Alfanar Investment Holdings Worms & Cie/SEDCO Permal Asset

Management Dec-97 $5,000

8 Al-Firas Global Equity Arab Bank Plc Arab Bank Plc Oct-00 $10,000

9 Al-Kawthar Fund Wellington/Al-Ahli Global Trading Eq. National Bank of

Kuwait Jan-95 $10,000

10 Al-Khair Global Equity Fund Pictet & Cie Bank Al-Jazira Sep-98 $5,000

11 Al-Safwa International Equity Roll & Ross Asset Management Al-Tawfeek

Co. for Investment Funds May-96 $10,000

12 Arab Investor Crescent Fund Schroder Investment Mgmt Int¶l Arab National
Bank Apr-99 $5,000

13 Arzaq Investment Fund Global Alliance/Securities House Securities House

Mar-98 $50,000

14 Bank Kanz Global Islamic Equity Bank Kanz Bank Kanz N/A $100,000

15 Barclays Global Equity Wellington Management Co. LLP Barclays Private

Bank Feb-00 $1,000,000
16 Caravan Fund Wellington Management Co. LLP Commerical Bank of
Qatar/BNP Dec-99 $10,000

17 Citi Global Portfolios SSB Citi Asset Management Citi Islamic Investment
Bank Oct-97 $10,000

18 Dow Jones Islamic Index Fund Brown Brothers Harriman & Co. Wafra
Invest. Advisory / AlTawfeeq Jul-99 $10,000

19 Global Equity 2000 Sub-Fund Alliance Capital Management LP First

Investment Co Mar-00 $10,000

20 Hegira Global Equity Wellington Management Co. LLP Wellington

Management Co. LLP Sep-96 $5,000,000

21 HSBC Amanah Global Equity HSBC Investment Funds (Lux.) SA HSBC

Amanah Finance May-00 $5,000

22 Islamic Global Equity * N/A HSBC Bank USA Late 2001 $2,500

23 Miraj Global Equity Royal Bank of Canada Miraj International Investment

Ltd. Aug-98 $10,000

24 Musharaka Equity Fund N/A Riyad Bank Jun-97 $10,000

25 Parsoli Global Equity Parosoli Capital & Finance Ltd. Parosoli Capital &
Finance Ltd. Jun-01 £1,000

26 QIB Global Equities Global Asset Management (GAM) Qatar Islamic Bank
N/A

27 SAMBA Global Equity SAMBA Capital Management SAMBA Capital

Management Dec-99 $2,000

28 SUT Ethical Growth Fund Singapore Unit Trust Ltd. Malayan Banking &
Daiwa Securities Aug-01 S$1,000

29 SUT Ethical Value Fund Singapore Unit Trust Ltd. Malayan Banking &
Daiwa Securities Aug-01 S$1,000

30 TAIB Crescent Global Fund Wright Investors¶ Service TAIB Bank of

Bahrain Mar-00 $100,00
31 UBS Islamic Fund Global Equities UBS, AG & UBS Brinson UBS Islamic
Fund Mgmt Co May-00 $100,000

North American Equity Funds

32 Al-Ahli US Trading Equity INVESCO Capital Mgmt Inc. National

Commercial Bank (NCB) Dec-92 $2,000

33 Alfanar US Capital Growth Worms & Cie/SEDCO Permal Asset

Management Jun-99 $5,000

34 Alfanar US Capital Value Worms & Cie/SEDCO Permal Asset Management

May-99 $5,000

35 Amana Growth * Saturna Capital Saturna Capital Feb-94 $100

36 Amana Income * Saturna Capital Saturna Capital Jun -86 $100

37 Azzad DJIM Index Fund * Azzad Asset Management Azzad Asset

Management Dec-00 1,000

38 Azzad Growth Fund LP Azzad Asset Management Azzad Asset

Management Feb-98 $50,000

39 Azzad Income Fund Azzad Asset Management Azzad Asset Management

Sep-01 $1,000

41 Dow Jones Islamic Index (US) Fund * Allied Asset Advisors Funds Allied
Asset Advisors Funds Jun-00 $500

42 SAMI Navigator Nova Bancorp Group Nova Banc orp Group Jul-99 C$500

European Equity Funds

43 Al-Ahli Europe Trading Equity Gulf Int¶l Bank (UK) Ltd. National
Commercial Bank (NCB) Nov-94 $2,000

44 Al-Dar Europe Equities Pictet & Cie The International Investor/Pictet & Cie
Feb-98 $100,000

45 Alfanar Europe Worms & Cie/SEDCO Permal Asset Management Jan-99

$5,000

46 Al-Sukoor European Equity Commerz Int¶l Cap Mgmt/Al -Tawfeeq Co.

Commerz Bank/Burgan Bank Mar-00 1 Share
47 Al-Thoraiya European Equity Lomard Odier & Cie Bank Al-Jazira Sep-99
$5,000

Small Cap & Technology Equity Funds

48 Al Rajhi Small Companies Franklin Mgmt & Lord Abbott Al Rajhi Banking
& Investment Jun-99 200 Shares

49 Al-Ahli Small-Cap Trading Equity Wellington Management Co. LLP

National Commercial Bank (NCB) Aug-98 $2,000

50 Alfanar Essex Technology Worms & Cie/SEDCO Permal Asset

Management Jun-99 $5,000

51 Orbitex Islamic Comm. & IT Fund Orbitex Management Ltd. Orbitex

Management Ltd. Dec-99 $50,000

52 TII Small Cap Equity (European) Pictet & Cie The International Investor
Dec-96 $100,000

Balanced, Secured & Other Equity Funds

53 Al Hilal Fund Mercury Asset Management Abu Dhabi Islamic Bank (ADIB)
Apr-00 $10,000

54 Al Kawthar Global Equity Secured National Commercial Bank (NCB)

National Bank of Kuwait Sep-99 $10,000

55 Al Rajhi Balanced Fund I Al Rajhi Banking & Investment Al Rajhi Banking

& Investment Nov-98 $5,000

56 Al Rajhi Balanced Fund II Al Rajhi Banking & Investment Al Rajhi Banking

& Investment Dec-98 $5,000

57 Al-Ahli Global Equity Secured (Series B) Wellington Management Co. L LP

National Commercial Bank (NCB) Nov-99 $25,000

58 Al-Ahli International Equity Secured Deutche Bank National Commercial

Bank (NCB) Feb-00 $25,000

59 Al-Ahli US Equity Secured Deutche Bank National Commercial Bank

(NCB) Oct-99 $25,000
60 Alkhawarizmi Fund AXA Rosenberg The International Investor Jul-97
$100,000

61 BHLB Pacific Dana Al Mizan (Balanced) BHLB Pacific Trust BHLB

Pacific Trust Mar-01 RM 1,000

62 Faysal Shield Fund Banque National de Paris Faysal Islamic Bank of

Bahrain Nov-99 $100,000

63 Mutajarah Fund (Balanced) Swiss Alternative Investment Strategies Group

(SAIS) Towry Law International Oct-01 $100,000

64 Profit Sharing Fund (Aman-1) (secured) Al Rajhi Banking & Investment Al

Rajhi Banking & Investment N/A $2,000

Emerging Market & Country Equity Funds

65 Al Arabi Saudi Co. Shares Arab National Bank Arab National Bank May -93
SR 10,000

66 Al Rajhi Egypt Equity EFG Hermes Al Rajhi Banking & Investment Jun-97
200 Shares

67 Al Rajhi Local Share Fund Al Rajhi Banking & Investment Al Rajhi

Banking & Investment Jul-92 1 Share

68 Al Rajhi Middle East Equity Bakheet Financial Advisors Al Rajhi Banking

& Investment May-98 200 Shares

69 Al-Ahli Saudi Trading Equity Bakheet Financial Advisors National

Commercial Bank (NCB) Jun-98 SR 5,000

70 Al-Dar Eastern Europe Equities Pictet & Cie The International

Investor/Pictet & Cie Feb-98 $100,000

71 Al-Taiyibat Fund (local share) Bank Al-Jazira Invesmtent Services Bank Al-
Jazira Sep-98 SR 10,000

72 First Arabian Equity 2000 N/A First Investment Company N/A

73 Ibn Majid Emerging Markets UBS Brinson The International Investor Nov-
95 $100,000
74 Khaled Ibn el-Waleed Fund PrimeCorp. Investment Management Al -Mal
Islamic Company N/A

75 Oasis Crescent Fund Oasis Asset Management Ltd. Oasis Asset

Management Ltd. Jan-99

76 Parsoli Islamic Equity Parosoli Capital & Finance Ltd. Parosoli Capital &
Finance Ltd. 1996

77 Pure Specialist Fund Futuregrowth Unit Trust Management Futuregrowth

Unit Trust Management Jun-92 R 200

78 Riyad Equity Fund 2 (Saudi Shares) Riyad Bank Riyad Bank Nov-96 SR
10,000

Asian Equity Funds

79 Al-Ahli Asia Pacific Trading Equity Gulf Int¶l Bank (UK) Ltd. National
Commercial Bank (NCB) May-00 $2,000

80 Al-Mashariq Japanese Equity Julius Baer Asset Management Bank Al -Jazira

Apr-00 $5,000

81 Al-Nukhba Asian Equity Nomura Investment Bank Al-Tawfeek Co. for

Investment Funds Jul-98 $10,000

82 Mendaki Global Fund DBS Asset Mgmt Mendaki Holding Pte. Ltd Sep -97
S$1,000

83 Mendaki Global Fund DBS Asset Mgmt Mendaki Holding Pte. Ltd May -91
S$500

Malaysian Equity Funds

84 Abrar Investment Fund Abrar Unit Trust Managers Abrar Unit Trust
Managers 1996

85 Amanah Saham Bank Islam BIMB Unit Trust Mgmt Bhd. Bank Islam
Malaysia Bhd Jun-94 500 Shares

86 Amanah Saham Darul Iman PTB Amanah Saham Darul Iman PTB Amanah
Saham Darul Iman Oct-94
87 Amanah Saham Wanita Hijrah Unit Trust Management Bhd Hijrah
Managers Bhd May-98 RM 100

88 BBMB Dana Putra BBMB Unit Trust Management BBMB Unit Trust
Management Jun-96

89 BHLB Dana Al-Ihsan BHLB Pacific Trust BHLB Pacific Trust May-98 RM
500

90 Dana Al-Aiman Mara Unit Trust Mara Unit Trust May-68 RM 100

91 Kuala Lumpur Ittikal Fund Kuala Lumpur Mutual Funds Kuala Lumpur
Mutual Funds May-97 RM 1,000

92 Mayban Dana Yakin Mayban Mgt Berhad Mayban Mgt Berhad Nov RM
1,000

93 Pacific Dana Amana Pacific Mutual Fund Trust Pacific Mutual Fund Trust
Apr-98 RM 1,000

94 RHB Mudarabah Fund RHB Unit Trust Management RHB Unit Trust
Management May-96 500 Shares

95 Tabung Amanah Bakti Asia Unit Trust Berhad Tabung Amanah Bakti May -
71 RM 500

96 Tabung Ittikal Arab-Malaysian Arab-Malaysian Unit Trusts Bhd Arab-

Malaysian Unit Trusts Bhd Jan-93 500 Shares
Islamic Bonds (Sukuk) Funds

97 RHB Islamic Bond RHB Unit Trust Mgt RHB Unit Trust Mgt Jun-00 RM
1,000

98 Kuala Lumper Islamic Bond Fund Kuala Lumper Mutual Funds Kuala
Lumper Mutual Funds Aug-01 RM 1,000

99 Dahlia Syariah Income Fund Mayban Life Assurance Bhd. Mayban Life
Assurance Bhd. Aug-01 RM 1,000

APPENDIX-D: The Dow Jones Islamic Market Indexes

Descriptive Statistics Market Capitalization Data (USD Billion) Component
Weight (%)

Index Name Component Number Full Float -adjusted Mean Median Largest
Smallest Largest Smallest

Dow Jones Islamic Market Index 1,422 7,603.2 6,591.6 4.6 0.8 234.2 0.0 3.55
0.00

Dow Jones Islamic Market Titans 100 Index 100 4,806.6 4,391 .8 43.9 27.5
234.2 4.2 5.33 0.10

Dow Jones Islamic Market Europe Index 271 2,004.2 1,634.2 6.0 0.9 142.1 0.0
8.70 0.00

Dow Jones Islamic Market Asia/ Pacific Index 479 980.2 631.3 1.3 0.4 30.9 0.0
4.89 0.00

Dow Jones Islamic Market Technology Index 292 1,504.5 1,336.5 4.6 0.6 223.4
0.0 16.71 0.00

Dow Jones Islamic Market Canada Index 65 111.0 83.1 1.3 0.7 8.5 0.1 10.28
0.06

Dow Jones Islamic Market Japan Index 192 574.7 401.4 2.1 0.7 30.9 0.0 7.69
0.00

Dow Jones Islamic Market U.K. Index 101 723.7 710.3 7.0 0.9 142.1 0.1 20.01
0.01

Dow Jones Islamic Market U.S. Index 572 4,456.5 4,209.5 7.4 1.4 234.2 0.1
5.56 0.00

Performance Price Return (%) Annualized Price Return (%)

Index Name 1-Month YTD 2002 1-Year 3-Year 5-Year

Dow Jones Islamic Market U.S. Index 0.50 -3.78 -22.59 -24.93 -23.32 -4.34

Dow Jones Islamic Market U.S. Index 0.85 -4.15 -23.31 -25.18 -21.86 -4.26
Dow Jones Islamic Market U.S. Index -0.57 -8.18 -18.27 -24.44 -22.09 -6.77
Dow Jones Islamic Market U.S. Index -3.31 -6.90 -13.95 -22.90 -27.26 0.01

Dow Jones Islamic Market U.S. Index -1.71 -2.48 -39.18 -36.71 -39.45 -6.83

Dow Jones Islamic Market U.S. Index -2.11 2.49 -22.75 -17.92 -30.87 -6.92

Dow Jones Islamic Market U.S. Index -3.63 -7.61 -9.25 -19.35 -28.80 0.69

Dow Jones Islamic Market U.S. Index 0.55 -7.84 -9.25 -19.35 -28.80 0.69

Dow Jones Islamic Market U.S. Index 1.69 -1.47 -25.71 -25.61 -22.64 -4.01

Fundamentals P/E (including negative) P/E (excluding negative)

Index Name Trailing Projected Trailing Projected P/B Dividend Yield (%) P/
Sales P/ Cash Flow

Dow Jones Islamic Market U.S. Index 18.42 16.60 19.59 16.91 3.08 1.80 1.42
11.95

Dow Jones Islamic Market U.S. Index 22.24 18.36 19.40 16.91 3.04 1.98 1.75
12.34

Dow Jones Islamic Market U.S. Index 15.43 14.13 16.10 14.45 2.46 2.88 1.14
9.56

Dow Jones Islamic Market U.S. Index 17.29 16.66 19.76 17.18 2.11 1.88 1.24
10.28

Dow Jones Islamic Market U.S. Index 22.88 19.31 22.87 19.55 3.12 0.61 1.73
14.35

Dow Jones Islamic Market U.S. Index 21.79 14.32 19.14 14.32 2.06 0.66 1.52
9.07

Dow Jones Islamic Market U.S. Index 32.03 18.84 24.58 18.84 1.69 0.94 1.06
10.62

Dow Jones Islamic Market U.S. Index 54.03 26.97 14.96 13.77 1.49 3.09 1.08
9.32

Dow Jones Islamic Market U.S. Index 21.16 18.33 21.56 18.33 3.96 1.36 1.70
13.78
Appendix-E1: Assets, Deposits and Loans of 53 Conventional local Banks in
GCC (US$ Millions)

Source: Research Unit of the Institute of Banking Studies, Kuwait

Assets Deposits Loans

Bank/ Year 2001 2000 1999 2001 2000 1999 2001 2000 1999

Abu Dhabi Commercial Bank 7,241.24 6,889 .63 6,280.50 5,679.71 5,426.96
4,945.30 4453.6 4703.2 4050

AlAhli Bank of Kuwait 3,859.42 3,772.11 3,818.22 3,254.46 3,163.51 3,210.13

1769.6 1625.1 1679.1

Al-Ahli Bank of Qatar 581.10 720.41 732.53 512.78 654.00 644.62 291.88
333.93 364.73

Al-Ahli United Bank 4,102.72 3,512.35 865.97 3,145.19 2,740.21 713.02

1882.7 1766.3 526.82

Al-Bank Al-Saudi Al-Fransi 10,681.64 10,146.85 8,668.23 9,101.41 8,767.28

7,438.68 4479.7 4304.2 3853.5

Arab Bank for Inv. & Foreign Trade 1,572.79 1,509.88 1,435.01 1,215.31
1,130.05 1,060.83 348.92 336.1 336.83

Arab Banking Corporation 26,586.00 26,676.00 24,358.00 21,544.00 21,758.00

20,158.00 14225 14039 12903

Arab National Bank 10,784.30 10,052.71 9,466.77 9,196.05 8,714.86 8,360.40

3948.5 3715.3 3445.9

Bahrain International Bank 887.52 1,039.53 966.81 365.95 339.63 353.76 12.36
16.85 17.56

Bahrain Middle East Bank 512.83 620.85 655.58 189.53 271.86 267.56 14.53
12.53 13.12

Bahraini Saudi Bank 595.40 529.86 424.86 482.11 424.52 327.14 329.15
323.31 266.64
Bank Al-Jazira 1,364.41 1,383.23 1,322.26 1,154.20 1,178.03 1,133.66 568.59
556.85 460.65

Bank Dhofar Al-Omani Al-Fransi 876.61 708.80 680.34 737.09 581.51 556.10
705.96 553.35 513.15

Bank Muscat 3,501.86 3,477.18 1,942.10 2,901.22 2,927.21 1,661.78 2855.9

2592.1 1514.1

Bank of Bahrain & Kuwait 2,928.57 2,815.42 2,734.25 2,322.70 2,190.26

2,094.25 1278.7 1328.3 1344.8

Bank of Kuwait & Middle East 3,519.18 3,379.74 2,949.60 2,941.91 2,800.08
2,434.47 1383.7 1209.4 1095.4

Bank of Sharjah 524.82 514.15 465.52 409.31 404.25 363.43 28 0.43 298.04
266.81

Burgan Bank 4,839.90 3,721.98 3,777.05 3,994.08 3,141.46 3,195.10 1861.2

1644.5 1545.4

Commercial Bank International 651.76 542.28 469.55 548.74 450.96 390.47

469.47 400.4 357.94

Commercial Bank of Dubai 2,002.46 1,945.28 1,697.09 1,609. 16 1,566.68

1,355.11 1237.2 1276.9 1239.7

Commercial Bank of Kuwait 5,504.05 5,056.48 4,530.84 4,278.49 3,822.62

3,646.12 2856 2377.4 1946.3

Commercial Bank of Qatar 1,430.77 1,391.51 1,274.92 1,102.22 1,064.76

1,026.26 749.87 667.37 627.37

Doha Bank 1,786.99 1,514.04 1,391.18 1,562.85 1,325.92 1,227.07 907.97

772.01 746.96

Emirates Bank International 6,405.88 5,335.05 5,605.89 4,622.91 3,671.30

4,554.79 4669.5 3062.9 4049.4

First Gulf Bank 937.99 652.11 556.94 762.82 489.69 408.61 466.91 382.45
356.51

Gulf Bank 6,114.70 5,413.48 5,840.87 5,246.43 4,626.97 5,069.92 3213.5

3067.3 2259.4
Gulf International Bank 15,232.00 15,119.50 15,679.40 10,949.70 11,414.50
11,462.40 3309.4 3923.1 4038

Industrial Bank of Kuwait 1,338.88 1,153.60 1,149.35 160.83 427.13 334.69

334.81 279.53 242.26

Investment Bank 700.28 676.03 607.64 549.59 534.58 478.41 465.6 434.71
399.66

Kuwait Real Estate Bank 2,151.98 2,117.96 1,788.29 1,403.49 1,342.08

1,092.75 1316.9 1192.9 1385.6

Mashreq Bank 6,181.22 6,014.33 5,442.62 5,113.20 5, 049.63 4,524.65 2849

2941.5 3039.8

Middle East Bank 673.25 659.81 592.90 467.88 470.06 421.34 324.95 332.13
355.45

National Bank of Abu Dhabi 8,782.33 9,921.12 8,526.32 7,550.78 8,758.01

7,520.84 5538.4 5259.4 4559.7

National Bank of Bahrain 2,867.93 2,753.40 2,628.11 2,426.49 2,280.39

2,078.90 1200.3 1150.2 1068.2

National Bank of Dubai 8,893.32 7,664.57 6,784.70 7,514.11 6,329.01 5,480.48

1957.3 1902.2 1869.6

National Bank of Fujairah 717.79 752.42 667.25 554.03 594.20 522.26 412.89
436.3 386.13

National Bank of Kuwait 14,553.07 13,401.85 12,482.31 12,484.89 11,461.41

10,579.95 5089.3 4580.3 4245.7

National Bank of Oman 2,471.76 2,120.60 2,163.62 2,082.72 1,667.79 1,696.13

1871.3 1670.8 1599

National Bank of Ras Al-Khaimah 659.93 508.06 492.12 504.75 358.9 1 346.02
480.34 371.84 358.38

National Bank of Sharjah 557.38 505.20 423.17 355.05 346.67 289.76 355.44
362.01 332.03

National Bank of Umm Al-Qaiwain 466.00 461.81 478.03 327.56 328.07

346.73 315.35 317.33 329.05
Oman Arab Bank 832.49 718.40 685.22 705.77 594.36 571.16 600.01 591.42
550.62

Oman Housing Bank 429.18 429.15 444.56 16.36 23.08 80.86 412.99 421.62
435.05

Oman International Bank 1,748.80 1,921.68 2,172.34 1,295.70 1,423.04

1,656.34 1187.6 1332 1456.9

Qatar National Bank 7,795.86 6,763.51 6,141.24 6,416.61 5,444.03 4,934.41

5234.8 3744.3 3982.1

Riyad Bank 17,931.71 17,494.69 17,188.55 14,728.05 14,572.26 14,298.21

5657.3 5473.5 5165.6

Saudi American Bank 20,621.20 21,543.73 20,546.25 17,618.37 18,051.68

17,404.47 8984.2 8418 8452.9

Saudi British Bank 11,192.84 11,521.39 9,939.69 9,700.65 10,153.44 8,622.26

4277.5 4620.6 4338

Saudi Hollandi Bank 6,720.04 5,713.56 5,054.27 5,878.18 5,004.67 4,455.20

3067.3 2676.4 2454.2

Saudi Investment Bank 4,072.27 3,634.40 3,525.94 3,340.74 2,973.05 2,944.47

2009.7 2000.6 1885.8

Union National Bank 3,612.72 3,300.15 2,682.51 3,169.94 2,879.03 2,324.94

2155.7 2029.5 1788

United Arab Bank 484.50 464.59 411.46 358.74 350.17 310.47 364.86 341.22
321.91

United Gulf Bank 931.15 712.32 733.01 443.27 385.48 448.08 78.85 93. 45
99.73

Appendix-E2: Assets, Deposits and Loans of 8 Islamic local Banks in GCC (All
figures are in US$ Millions)

Source: Research Unit of the Institute of Banking Studies, Kuwait

Assets Deposits Loans

Bank/ Year 2001 2000 1999 2001 2000 1999 2001 2000 1999

Al-Rajhi Banking & Investment Corp. 13,815.03 12,997.68 11,448.90

10,542.35 9,785.78 8,661.74 11,275.91 10,520.67 9,243.73

Kuwait Finance House 7,733.64 6,632.26 5,817.23 5,779.20 5,065.40 4,388.63

5,875.00 4,937.21 4,092.62

Dubai Islamic Bank 4,175.44 3,205.90 2,543.70 3,573.03 2,661.05 2,077.63

3,399.98 2,595.28 2,096.63

Abu Dhabi Islamic Bank 1,664.61 1,188.18 725.72 1,167.26 804.43 408.24
1,460.42 1,038.86 648.05

Shamil Bank of Bahrain 1,241.90 1,316.34 1,092.05 58.19 64.73 44.3 677.92
580.08 555.91

Qatar Islamic Bank 1,212.82 1,115.02 1,094.23 1,003.48 910.66 902.34 974.20
940.30 860.66

Qatar International Islamic Bank 741.67 576.29 505.45 613.95 467.64 419.24
654.38 507.29 439.33

Bahrain Islamic Bank 508.47 516.85 414.86 401.54 408.57 366.26 406.3 0
417.60 354.87

Categories: Finance and Moneter, Islamic Banking, Islamic Economy,

Uncategorized

Like

Be the first to like this post.

Comments (0) Trackbacks (0) Leave a comment Trackback

No comments yet.

No trackbacks yet.

Leave a Reply

Your email address will not be published. Required fields are marked *
Name *

Email *

Website

Comment

You may use these HTML tags and attributes: <a href="" title=""> <abbr
title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <pre>
<del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Notify me of follow-up comments via email.

Subscribe to this site by email

SAUDI ARABIA ANALISIS SEGMEN PASAR DAN PERILAKU

NASABAH TERHADAP BANK SYARIAH DI WILAYAH DKI JAKARTA

RSS feed

Google

Youdao

Xian Guo

Zhua Xia
My Yahoo!

newsgator

Bloglines

iNezha

Twitter

Islamic Economy Search

Search for:

Mutiara Ramadhan

Tawakal jalan terbaik hadapi dugaan hidup December 28, 2010

Amalan kebaikan walaupun remeh tetap dinilai December 27, 2010

Munajat Ikhlas December 18, 2010

Solat sempurna terpancar dalam peribadi Muslim unggul December 11, 2010

Hayati kalimah tauhid perjuangan sebenar hijrah December 6, 2010

Salam Maal Hijrah 1432H December 6, 2010

The Essence of Islam: Are We Missing the Point? December 6, 2010

Kenapa Lelaki, Bukan Ilahi? December 3, 2010

Turning Towards God in the Worst Moments of Our Lives November 26, 2010

Zikir terapi ajaib ubat kegersangan hati, roh insan November 24, 2010

Ikhlas mesti dijadikan cara hidup capai kesempurnaan iman Novemb er 23, 2010

Salam Aidiladha 1431H November 16, 2010

Amalan utama Zulhijjah November 14, 2010

Tangisan untuk Allah November 12, 2010

Hidayah milik Allah November 12, 2010

Mutiara Hati ± Facebook November 9, 2010

Lafazkanlah Sejujur Hati« November 7, 2010

Ocean of Tears October 26, 2010

The Ummah¶s Victory Starts with YOU October 15, 2010

Kebahagiaan tidak hadir bagi individu utama keseronokan, hidup bebas October
14, 2010

Categories

Akuntansi Islam (42)

Asuransi Syariah (4)

Ekonometrik (10)

Finance and Moneter (39)

Islamic Banking (38)

Islamic Business (9)

Islamic Economy (69)

Islamic Management (55)

Murabahah (3)

Statistik (4)

Uncategorized (68)

Free download File PDF and IE links

RINGKASAN EKONOMI 007.doc

Moneter dan Fiskal.doc

Makalah Hadis.doc

Sistem keuangan Islam_2.doc

Sistem keuangan Islam.doc

SOAL LATIHAN EKONOMI MAKRO .doc

Sistem keuangan Islam .doc

Summary, Analisa dan Komentar IV_PERBANKAN SYARIAH BERBASIS
FLOATING MARKET.doc

MANAJEMEN MONETER ALTERNATIF DAN PENERAPANNYA DI

INDONESIA.doc

FAKTOR - FAKTOR PENDUKUNG INSTITUSI LEMBAGA KEUANGAN

SYARIAH.doc

Human Resource dalam Perspektif Akuntansi Islam.doc

Sistem keuangan Islam.doc

KEPERILAKUAN TERHADAP PENGEMBANGAN AKUNTANSI

MANAJEMEN.doc

Analisa dan Komentar II_Bank dan Lembaga Keuangan_KESE HATAN

BANK.doc

Analisa dan Tanggapan_ASIMETRI INFORMASI DAN MANAJEMEN

LABA.doc

Electronic Supplementary Material.doc

Effective Internal Control_Concept and Implementation.pdf

Employment Application.doc

DAN PENGEMBANGAN KEILMUAN DI PERGURUAN TINGGI AGAMA

ISLAM.pdf

ECDC_CA_III_2010_ADM_HRA.doc

Efektif Tingkatkan Kualitas SDM.pdf

DP_corporatedata.pdf

Download Gratis Kumpulan Makalah KONGRES ABKINXI2009.pdf

DJM Personnel Adm_Database asst.pdf

Dept MgrHRXF120-04_DEPARTMENT MANAGER_HUMAN

RESOURCES.doc

source Professionals_Developing Human Resource Leaders.doc

DEVELOPING HUMAN RESOURCES.doc

Data Kegiatan Pengabdian Masyarakat.doc

data-industri.pdf

CV Imz_R08_CHAUDHRY IMTIAZ HUSSAIN.doc

COUNTY OF LOS ANGELES-DEPARTMENT OF HEALTH

SERVICES.DOC

CSR Sebuah Pandangan dari Sudut Akuntansi.doc

CHALLENGES OF GLOBALIZATION AND THE ROLE OF HUMAN

RESOURCES..doc

CollaborativeD esign and Development.doc

CIVIL SERVICE_OFFICE BEAU FOR TSC.doc

CCNA_Security_Ch02.doc

city-manager_hr_Human Resources.pdf

Buku.pdf

buku visi misi BABEL.doc

3938_1267_PERSYARATAN PENYEDIA BARANG.doc

200305 strat plan mccrtc_Strategic Plan.doc

1253798292 Global_Corruption_Report_2009.pdf

20070223_2018_ORC_Worldwide_Comments.doc

iBMT di Yogyakarta Terhadap Pernyataan Standar Akuntansi.pdf

y3_HUMAN RESOURCES GROUP_SOME VERY ROUGH NOTES FROM

NIKKI.doc

brosur_chrp3 CERTIFIED.doc

brosur2008EditedbyBhermana_Adang.doc

blue-book.pdf
BAHAN KERJA.doc

Bidang Riset.doc

bab_1_konsep_tantangan_MSDM.pdf

BabVI SUMBER DAYA DAN PENDANAAN.doc

Bab_6__Keb_Publik.doc

bab-IV_VISI MISI TUJUAN STRATEGI DAN.pdf

BADAN PEMERIKSA KEUANGAN.pdf

AUDIT LANJUT_KONSEP DASARA UDIT MANAJEMEN.doc

Auntansi Sumber Daya Manusia.doc

AUDIT OPERASIONAL ATAS FUNGSI SDM.pdf

tambahan_3a_Akuntansi dikenal sebagai sistem pembukuan.doc

Axapta_Human Resources III.doc

akuntansi_syariah.doc

akad_syrkah.pdf

akhwat5.doc

Aktivitas_Manajemen_Sumber_Daya_Manusia.doc

AkhmadSyakhroza.pdf

ai_edisi_02.pdf

AFR-RC56-INF-DOC3 Human Resources in Who_Final.pdf

A Study ofHuman Resources in novative practices.DOC

adaccommodation.doc

DMIV sudarto265_275_ANALISISK UANTITATIF PENGEMBANGAN.pdf

201_IDP_Individual Training Development Planfor.doc

3938_1267_PERSYARATAN PENYEDIA BARANG.doc

201_interview_National Institutes of Health.doc

2005-05. beasiswa PPSDMS.pdf

11.SUMBER DAYA MANUSIA.pdf

14 zakat.ppt

11293045/07-21-08_HR.pdf

12. BII_Corporate_Information.pdf

10_Sistem Informasi Sumber Daya Manusia.pdf

1. Ekonomi.doc

4.baru PENDIDIKAN EKONOMI ISLAM.doc

6. Manajemen sumber daya manusia1.doc

Dr Iwan Thammasat Uni ISLAMIC ECONOMY.ppt

Human Resources Assistant Job Description Template Short.doc

PENYELESAIAN SENGKETA EKONOMI SYARIAH DI INDONESIA.pdf

PENGEMBANGAN LEMBAGA KEUANGAN SYARIAH.pdf

kualitas nasabah pada baitulmaal wattamwil bmt anda semarang.pdf

pembiayaan musyarakah dan mudharabah.pdf

objek dan metodologi penelitian.pdf

m syafii antonio islam memiliki sistem nilai yang sempurna.pdf

Momentum Ekonomi Syariah.pdf

nyamanan di indonesia laporan akhir konferensi interenet.pdf

MEMBANGUN SISTEM EKONOMI ISLAM yang aplikatif.pdf

Materi Kuliah Perbankan Syariah.pdf

Manajemen Moneter Alternatif dan Penerapannya di Indonesia.pdf

EVALUASIPENERAPANPENYAJIANLAPORAN.pdf
PENGEMBANGAN KEILMUAN DI PERGURUAN TINGGI AGAMA
ISLAM.pdf

Ekonomi Rakyat_PEMBIAYAAN.pdf

EVALUASI PENERAPAN PENYAJIAN LAPORAN.pdf

MI ISLAM Strengthening Institutions on Islamic Economic.pdf

Free Download All MP3

Indonesian Songs (362)

Random MP3 (387)

Malaysian Songs (33)

Gudang MP3

Free Download Indonesian Bands Songs

Band TheRock Indonesia Songs (2)

Band Ungu Songs (4)

Band Padi Songs (9)

Band AdaBand Songs (7)

Band FiveMinutes Songs (6)

Band Element Songs (1)

Band Queen Songs (1)

Band Bening Songs (1)

Band Anim Songs (1)

Band Vierra Songs (3)

Band Nidji Songs (2)

Band Lyla Songs (4)

Band Geisha Songs (12)

Band DMasiv Songs (8)

Band Dewa19 Songs (1)

Band Boomerang Songs (2)

Band Angkasa Songs (3)

Band ST12 Songs (10)

Band Arwana Songs (6)

Band Armada Songs (9)

Band Wali Songs (12)

Band Kangen Songs (8)

Band Potret Songs (3)

Band Kotak Songs (10)

Band Pribumi Songs (1)

Band Cokelat Songs (2)

Band BIP Songs (3)

Band Kerispatih Songs (4)

Band GreenDay Songs (10)

Band Steven Coconutreez (8)

Band Seventeen Songs (2)

Band ThePotters Songs (1)

Band GD Songs (2)

Band ShaggyDog Songs (4)

Band Gigi Songs (1)

Band WavinFlag Songs (2)

Band SecondHand Songs (2)

Band Jamrud Songs (1)

Band MahaDewi Songs (2)

Band Mahkota Songs (2)

Band Justin Bieber Songs (6)

Band Goliath Songs (8)

Band SembilanBand Songs (3)

Band DBagindas Songs (7)

Band Hijau Daun Songs (9)

Band Souljah Songs (6)

Band Hello Songs (4)

Band Peterpan Songs (6)

Free Download Indonesian Singers Songs

Lagu Ashanty (3)

Lagu Cinta Laura (4)

Lagu Ari Lasso (1)

Lagu BCL (3)

Lagu Alda (1)

Lagu Agnes Monica (3)

Lagu Achmad Albar (1)

Lagu Anang Hermansyah (3)

Lagu Rossa (1)

Lagu Afghansyah (5)

Lagu Adrian MArtadinata (2)

Band Broery Marantika Songs (16)

Free Download Malaysian Songs

Lagu SheilaOn7 (1)

Lagu Siti Nurhaliza (30)

Lagu BaseJam (1)

Lagu Aishah (1)

Free Download Western Band Songs

Band Eagles Songs (1)

Band Nazaret Songs (1)

Band LinkinPark Song (2)

Band BlackOut Songs (2)

Band Avenged7Fold Songs (2)

Lagu Michael Jackson (2)

Free Download Koleksi Lagu

Koleksi Lagu Dangdut (16)

Koleksi Lagu Pop Indonesia (346)

Koleksi Lagu Barat (8)

Koleksi Lagu Malaysia (33)

IE Twitte

Breaking News: Mom makes $379/day Working at Home! See how she did it! -
Limited positions available. spon -http://tinyurl.com/2feh932 3 months ago

ViaVuelos - Comparador Vuelos Low Cost spon -http://tinyurl.com/2d96ult 4

months ago

Asiarooms.com is offering amazing specials on Hotels in Thailand, Indonesia,

Malaysia, Japan and China. spon -http://tinyurl.com/28njfte 4 months ago

Nice inexpensive dedicated servers from @versaweb spon

http://tinyurl.com/32gk6la 4 months ago
Nice inexpensive dedicated servers from @versaweb promo
http://tinyurl.com/2v6d6mu 4 months ago

Dan went from 1000 Gold to 20'000 Gold in 7 simple steps ! Get this course
now ad http://tinyurl.com/2e53mwx 4 months ago

Got a new Macbook for $17.23 from - promo http://tinyurl.com/25s4g2l 4

months ago

Just got a new Macbook for $17.23 from - promo http://tinyurl.com/277bzv2 4

months ago

Breaking News: Mom makes $379/day Working at Home! See how she did it! -
Limited positions available. promo http://tinyurl.com/2u8dbkq 4 months ago

I like a 4shared audio Iwan Fals - Maaf cintaku.mp3 -

http://www.4shared.com/audio/1h5TP4Xe/Iwan_Fals_ -_Maaf_cintaku.html 4
months ago

I like a 4shared audio Iwan_Fals_-_Ibu.mp3 -

http://www.4shared.com/audio/KO0mPO5e/Iwan_Fals_ -_Ibu.html 4 months
ago

I like a 4shared audio Titi DJ - Matamu.mp3 -

http://www.4shared.com/audio/vuGI_hF6/Titi_DJ_ -_Matamu.html 4 months
ago

I like a 4shared audio Sweet Martabak - Tididit.mp3 -

http://www.4shared.com/audio/1H56skfF/Sweet_Martabak_ -_Tididit.html 4
months ago

I like a 4shared audio Iwan Fals - Sarjana muda.mp3 -

http://www.4shared.com/audio/podSyFHW/Iwan_Fals_ -_Sarjana_muda.html 4
months ago

I like a 4shared audio Doel Sumbang - Ceu Romlah.mp3 -

http://www.4shared.com/audio/oHj6t-uF/Doel_Sumbang_-_Ceu_Romlah.html
4 months ago

I like a 4shared audio Iwan Fals - Pesawat Tempurku.mp3 -

http://www.4shared.com/audio/CqkSEEbI/Iwan_Fals_ -
_Pesawat_Tempurku.html 4 months ago
I like a 4shared audio Iwan Fals - Belum Ada Judul.mp3 -
http://www.4shared.com/audio/bbZkOlP0/Iwan_Fals_-_Belum_Ada_Judul.html
4 months ago

I like a 4shared audio jingle-idhul fitri.mp3 -

http://www.4shared.com/audio/xG2PI5at/jingle -idhul_fitri.html 4 months ago

I like a 4shared audio Krisdayanti_ -_Terserah.mp3 -

http://www.4shared.com/audio/Xza -a8L6/Krisdayanti_-_Terserah.html 4
months ago

I like a 4shared audio Iwan Fals - Aku bukan Pilihan.mp3 -

http://www.4shared.com/audio/1StMOdG0/Iwan_Fals_ -
_Aku_bukan_Pilihan.html 4 months ago

Blog Stats

25,978 hits

Top Posts

PENGERTIAN BMT

ANALISIS PENGARUH KESEJAHTERAN KARYAWAN TERHADAP

KINERJA KARYAWAN

Analisis Hubungan Perataan Laba (Income Smoothing) dengan Ekspektasi Laba

Masa Depan Perusahaan Manufaktur yang Terdaftar di Bursa Efek Jakarta.

ANALISIS DAMPAK DEPRESIASI NILAI RUPIAH TERHADAP NILAI

TUKAR DAGANG (TERM OF TRADE) DAN PERTUMBUHAN EKONOMI
INDONESIA

ANALISA DAN TANGGAPAN AKUNTANSI ISLAM: ASIMETRI

INFORMASI DAN MANAJEMEN LABA: SUATU TINJAUAN DALAM
HUBUNGAN KEAGENAN

EVALUASI ATAS PENGGUNAAN METODE PENGAKUAN

PENDAPATAN DAN PENGARUHNYA TERHADAP LABA PADA
PERSERO PT INDRA KARYA CABANG I MALANG

VARIABEL-VARIABEL YANG MEMPENGARUHI LUAS

PENGUNGKAPAN DALAM LAPORAN TAHUNAN PERUSAHAAN
PENAWARAN EKSPOR KAKAO INDONESIA

THE IMPACT OF GLOBALIZATION ON WORLD BUSINESS IN THE

NEW MILLENNIUM: COMPETITION, COOPERATION, ENVIRONMENT,
AND DEVELOPMENT

Manajemen Lingkungan: Dulu, Sekarang, dan Masa Depan

Sejarah Basyarnas

Permasalahan Pajak Ganda Murabahah

Top Rated

Top Clicks

neoease.com

en.wordpress.com/tag/peng«

en.wordpress.com/tag/tinj«

boutiquesoftware.wordpres«

bankislam-ghazali76.blogs«

en.wordpress.com/tag/pera«

RSS - Posts

RSS - Comments

Internasional Islamic Economy

EKONOMI ISLAM

My Islamic Economy

Hadis Sunnah

MAQASID SYARIAH

Koleksi Album MP3

USHUL FIQH

TEOLOGI ISLAM

Gudang MP3

BANK ISLAM

ZAKAT

WAQAF

PENDIDIKAN

Email Subscription

Enter your email address to subscribe to this blog and receive notifications of
new posts by email.

Pages

About

Akuntansi Syariah Info

Ekonomi Syariah Dibalik Perang Dollar dan Yuan December 16, 2010

Sofyan S Harahap Ekonomi syariah yan g selama ini kita lihat di Tanah Air
hanya berkutat pada Bank Syariah, Asuransi dan sukuk. Padahal bank syariah,
asuransi, dan sukuk hanya sebagian kecil k0mponen dari suatu sistem ekonomi,
bahkan dalam sistem keuangan atau system moneter. Ada sistem lain yang
sangat berpengaruh dalam ekonomi itu yaitu sistem moneter yang [«]

admin

Selamat Datang Presiden Barack Hussein Obama Apa yang bisa di ajukan
SBY? December 1, 2010
Sofyan S Harahap FE Universitas Trisakti Dalam majalah Forbes terbitan
terakhir yang memuat daftar orang kuat di dunia Presiden Barack Hussein
Obama menempati posisi kedua setelah Presiden Hu Jianto dari China di posisi
orang terkuat pertama di dunia. Kendatipun ini hanya persepsi pembaca tetapi
memang posisi ekonomi kedua negara USA dan Ch ina, diatas kertas [«]

admin

Relevansi figur kepemimpinan Obama November 22, 2010

Oleh: Sofyan S. Harahap Partai Republik menang telak atas Partai Demokrat
dengan menyapu kursi Kongres dan memenangi 10 kursi gubernur di beberapa
negara bagian. Hasil pemilu ini melambangkan suara rakyat AS yang kecewa
atas kebijakan-kebijakan yang diambil Demokrat selama Presiden Barack
Obama berkuasa. Memang Senat masih dipegang Demokrat, dengan 52 kursi,
[«]

admin

Catatan kecil Dalam rangka Professor Moenaf Hamid Regar 80 tahun

November 10, 2010

Sofyan S Harahap Beberapa hari menjelang perayaan Hari Ulang Tahun ke 80

beliau saya di telepon dari Bandung. Beliau terakhir ini menghabiskan hari
harinya di Bandung karena keluarga dan handai banyak disana. Banyak
mahasiswanya selalu bertanya bagaimana Pak Moenaf? Anggapan itu wajar
karena banyak sekali dosen dosen kita khususnya di FE yang masih muda tid
[«]

admin

Suara Pembaca October 29, 2010

Pak Sofyan dan Tumor Rektum Oleh : Khairunnisa Musari di dikutip dari
Kompasiana.com Perempuan biasa. Bukan siapa -siapa. Hanya ingin menjadi
sesuatu dan berbuat sesuatu. Untuk bisa berkata dan berkarya« Silahkan
kunjungi blog saya yang memuat tulisan2 yang ³serius´ di berbagai media
lokal, regional, dan nasional di www.khairunnisamusari. blogspot.com«
Mewaspa [«]

admin
Call for Papers XVITH CONFERENCE OF ACCOUNTING AND
MANAGEMENT HISTORY October 20, 2010

Call for Papers XVITH CONFERENCE OF ACCOUNTING AND

MANAGEMENT HISTORY XVIe JOURNEES D¶HISTOIRE DE LA
COMPTABILITE ET DU MANAGEMENT Nantes (France), Maison des
Sciences de l¶Homme Ange-Guépin 23 - 25 March 2011 PERCEPTIONS,
REPRESENTATIONS AND MEASURES OF PROFIT The purpose of this
conference will be to examine profit ± whatever the origin, nature, explanatio
[«]

admin

Robert J Barbera: Perlunya Paradigma Baru dalam mengelola ekonomi October

20, 2010

Sofyan S Harahap FE Universitas Trisakti Sebenarnya sudah banyak ahli yang

menyampaikan pesan revolusioner ini termasuk George Soros, tapi mainstream
dan pejabat ekonomi belum menyadarinya. Dr Barbera adalah nama baru lain
yang menggaungkannya dalam buku barunya. Dr Barbera adalah Executive
Vice Presiden dan Chief Economist di Investment Technology Group, Do [«]

admin

Idul Fithri, Tercapainya Mega Victory October 14, 2010

Dalam berbagai pendapat kita mengetahui bahwa kemenangan besar dalam

hidup ini ditandai oleh sifat sifat dimana seseorang mampu menjadi pelayan
publik, memberikan manfaat kepada pihak lain atau sifat altruisme bukan
egoisme dan indivisualisme. Mario Teguh seorang motivator terkenal saat ini
selalu menekankan apa makna kebhagiaan dan kesuksesan. Beliau selalu [«]

admin

Surat Pembaca Majalah Ekonomi Syariah September 22, 2010

Prof saya amel mahasiswi tazkia bogor. Begini prof saya sedang melakukan
penelitian untuk skripsi judul nya itu tentang faktor-faktor yang mempengaruhi
opini kewajaran laporan keuangan (untuk dana zakat) organisasi pengelola
zakat. Saya sudah melakukan interview dengan dua auditor dari dua kantor
akuntan publik yang sudah pernah mengaudit lembaga zakat, berd [«]
admin

Kita Butuh Presiden Yang Tidak Takut Mati August 31, 2010

Sofyan S Harahap FE Universitas Trisakti Dalam alam demokrasi kita

melakukan proses pemilihan Pemimpin bangsa untuk membawa kita menuju
tujuan bangsa yang dalam konte ks Indonesia tujuan bangsa kita sebagaimana
tercantum dalam pembukaan UUD 1945 yaitu untuk melindungai segenap
bangsa Indonesia dan seluruh tumpah darah Indonesia, memajukan
kesejahteraan umum, [«]

admin

Apakah Demokrasi kita sudah Ideal? August 21, 2010

Sofyan S Harahap Pada hakikatnya demokrasi ideal adalah jika pemerintahan

dipilih oleh rakyat, pemerintahan dijalankan sesuai dengan aspirasi dan
kepentingan rakyat, dan hasil kerja pemerintahan itu dinikmati oleh rakyat.
Semua proses itu berjalan secara jujur, bersih dan transparan. Namun untuk
menjalankan dan mencapainya memang tidak gampang. Ada beberapa [«]

admin

Tokoh Akademisi ³Life Achievment Award´ 2010 Masyarakat Ekonomi

Syariah August 6, 2010

Testimoni : Missed it so much, for the inherent reput ation of ief in

particular.selamat ya pak. Hendy (Program Doktor IEF Trisakti) Alhamdulillah,
selamat ya pak. Dedikasinya pada Ekonomi Syariah menghasilkan buah yg
sangat membanggakan. Semoga prestasi - prestasi lainnya menyusul. Kami
seluruh sivitas akademi FE mengucapkan Selamat atas prestasi ini. Semoga [«]

admin

Babak Baru Drama Pemberantasan Korupsi di Indonesia August 5, 2010

Akhir akhir ini kita menyaksikan babak baru drama pemberantasan korupsi di
Indonesia. Babak baru ini sangat menarik karena sang at tidak jelas arah dan
tujuannya. Para pemain juga beragam dan pemainnya sangat lihai melakonkan
seolah-olah tokoh nya menjadi pendekar anti korupsi. Walau secara rasional
analisa publik menunjukkan hal yang sebaliknhya. Yang lebih [«]

admin
Biaya Regulasi July 26, 2010

Sofyan S Harahap Walaupun belum konklusif dan belum bisa ditetapkan atau
dihitung secara pasti namun diduga kuat bahwa Regulasi yang baru baru ini
dikeluarkan Kongres Amerika setelah kasus Enron berupa Undang undang
pertanggungjawaban Perusahaan Publik yang lebih dikenal dengan Sarbanes
Oxley Act (SOX) menimbulkan korban. Statistik menunjukkan ada 135 perusa
[«]

admin

IBFI Trisakti Training Program July 13, 2010

Program Training of Trainer (ToT) AKUNTANSI SYARIAH Training untuk

menghasilkan Dosen, Guru, dan Instruktur yang siap mengajarkan ilmu
Akuntansi Syariah di perguruan tinggi, SLTA, dan di perusahaan. Pelaksanaan
Program: Senin-Selasa, 26-27 Juli 2010, pukul 08.00 s.d 17.00 WIB di Islamic
Banking & Finance Institute (IBFI) Universitas Trisakti Menara Anugr [«]

admin

Hadirilah!!!! Call for Papers BANK INDONESIA Forum Riset Perbankan

Syariah (Free). July 12, 2010

Hadirilah!!!! Call for Papers BANK INDONESIA Forum Riset Perbankan

Syariah (Free). Forum Riset Perbankan Syariah ³Menuju Terwujudnya Sistem
Perbankan Syariah yang Sehat, Kuat dan Konsisten dengan Prinsip Syariah´
Universitas Sriwijaya, Palembang ± 22 Juli 2010 Forum Riset Perbankan
Syariah merupakan inisiatif bersama Bank Indonesia dengan Masyarakat
Ekonomi [«]

admin

Mengurangi Manisnya Kekuasaan Menteri Keuangan June 30, 2010

Prof. Dr. Sofyan Syafri Harahap Menteri Keuangan memang merupakan salan
satu Menteri dengan portofolio kekuasaan yang beragam dan menggiurkan.
Bayangkan seorang Menteri Keuangan kadang bisa melebihi ke kuasaan
Presiden. Dalam beberapa UU atau Perpu kekuasaanya sangat luar biasa bisa
menyelamatkan bank yang dinilai merupakan bank yang memiliki risiko
sistemik [«]
admin

KONGRES XI IKATAN AKUNTAN INDONESIA June 7, 2010

KONGRES XI IKATAN AKUNTAN INDONESIA 8-10 Desember 2010,

Hotel Indonesia Kempinski Jakarta INTROSPEKSI DAN TRANSFORMASI
PROFESI AKUNTANSI MENUJU IAI 2020: PERAN AKUNTAN DALAM
MENINGKATKAN NILAI TAMBAH BAGI PEREKONOMIAN NASIONAL
DAN GLOBAL Kongres adalah mekanisme tertinggi organisasi sebagaima na
diamanatkan dalam AD/ART organisasi IAI. Kongres IAI merupakan m [«]

admin

Gunjang Ganjing Sistem Keuangan Amerika dan Keuangan Syariah June 2,

2010

Sofyan S Harahap FE Universitas Trisakti Sistem Keuangan di Amerika saat ini

berada dipersimpangann jal an. Keadaan ini tidak lepas dari krisis keuangan
2008 yang dipicu oleh sistem perbankan terutama akibhat supprime mortgage,
yang menimbulkan berbagai intervensi pemerintah melalui bail out, suntikan
modal, swap, penutupan, akuisisi, dan memberikan stimulus [«]

admin

Pengawasan Bank: Selamat datang OJK May 19, 2010

Sofyan S Harahap Guru Besar FE Universitas Trisakti Pengawasan Bank di

Indoensia di laksanakan oleh Pemberi Izin dan Pembuat regulasi Bank yaitu
Bank Indonesia. Ada sikap pemerintah dan masyaraka t bahwa pengawasan bank
oleh BI dapat dikatakan gagal akibat krisis perbankan pada tahun 1997/1998
yang menelan uang rakyat lebih Rp. 800 trilyun, kasus Bank Century [«]

admin

Meta

Register

Log in

Entries RSS

Comments RSS
WordPress.com

Category Cloud

Akuntansi Islam Asuransi Syariah Ekonometrik Finance and Moneter Islamic

Banking Islamic Business Islamic Economy Islamic Management Murabahah
Statistik Uncategorized

Recent Comments ayu ayra on Ekonomi Islam: Sebuah Mutiara «

tim brookes on SAUDI ARABIA

bang ngangan on URGENSI PENGUATAN BANK SYARIAH«

santi on Teori Akuntansi

Mike Swift on The Influence of Intellectual «

alcohol gifts on Corporate Social Responsibilit«

kellyclarkson on WHAT FACTORS AFFECT HONG KONG «

scarlettjohansson222 on WHAT FACTORS AFFECT HONG KONG «

IKLAN ONLINE - Mobil« on Analisis Hubungan Perataan Lab«

Drake on 3RD WORLD ISLAMIC ECONOMI«

New Mp3 | Mp3 Downlo« on A Short Dictionary of Islamic «

Original Return of t« on WHAT FACTORS AFFECT HONG KONG

«

msupxm on KEBIJAKAN MONETER KONVENSIONAL«

bambang on AUDIT OPERASIONAL ATAS FUNGSI «

emusicorg on Corporate Social Responsibilit«

Tags

ADVANCE PRICING AGREEMENT DALAM KAITANNYA DENGAN

UPAYA MEMINIMALISASI POTENTIAL TAX RISK ANALISA DAN
KOMENTAR SISTEM KEUANGAN: BANK DAN LEMBAGA
KEUANGAN; KESEHATAN BANK ANALISIS PERILAKU PENAWARAN
KREDIT PERBANKAN KEPADA SEKTOR UMKM DI INDONESIA (2002±
2006) AUDIT OPERASIONAL ATAS FUNGSI SDM (STUDI KASUS: PT
TOYOTA ASTRA FINANCIAL SERVICES) PERIODE MEI 2006-MARET
2007 DIFC Forum: Islamic Finance Can be a Role Model for the Global
Economy DURHAM ISLAMIC FINANCE PROGRAMME (DIFP) ekonomi
Ethics-based Financial Transactions: An Assessment of Islamic Finance
Exchange rate issues for Muslim economies FENOMENA EKONOMI
MONETER DALAM KONTEKS PEMBANGUNAN EKONOMI
INDONESIA FTSE Group and Bursa Malaysia launch tradable Shariah
compliant index for Malaysian market GFH ANNOUNCES FIRST QUARTER
RESULTS Hubungan Manusia SDM International Islamic Financial Market
INTERNET LAW ± ISLAMIC BANKING Introductory Remarks at The
Islamic Finance 101 Seminar islam Islamic Banking ISLAMIC BANKING
MEETS ³CONVENTIONAL´ BANKING: A SURVEY OF RECENT
DEVELOPMENTS IN BANKING IN PAKISTAN ISLAMIC
DEVELOPMENT BANK islamic economy Islamic Finance Islamic finance
moves to centre-stage Islamic Finance to Reduce Fiscal Deficit in India
ISLAMIC FINANCIAL PLANNING islamic moneter it¶s a Whole New World
KONDISI KESEJAHTERAAN SOSIAL KONSEP DAN TANTANGAN
MANAJEMEN SUMBER DAYA MANUSIA konvensional Lingkup Bahasan
dan Urgensi Sejarah Pemikiran Ekonomi Islam moneter OLOGIT PENGARUH
RISIKO LITIGASI DAN TIPE STRATEGI TERHADAP HUBUNGAN
ANTARA KONFLIK KEPENTINGAN DAN KONSERVATISMA
AKUNTANSI Perspektif Masa Depan Perekonomian Indonesia Prospek Rupiah
dari Sudut Pandang BOP Semarak Pasar Mod al Syariah SEMINAR TENTANG
KOMPILASI NASH DAN HUJJAH SYAR¶IYYAH BIDANG EKONOMI
SYARIAH Sharia-compliant investing: concepts and opportunities Shariah
Boards and Modern Islamic Finance: From the Jurisprudence of Revival and
Recovery to the Jurisprudence of Transformation and Adaptation Over solusi
STATISTICS FOR BUSINESS SUMBER DAYA MANUSIA SUMMARY
syariah

Top WordPress

Copyright © 2009-2010 Islamic Economy

Blog at WordPress.com. Theme: INove by NeoEase.