IBFN (Islamic Banking & Finance Network) at Posterous

This blog explores the information about Islamic Banking and Financial Networks!

Islamic banks never invest in pork, alcohol and tobacco

Russia's Finance Ministry is working on legal acts to sign an unusual investment agreement with the United Arab Emirates. Mutual investments will avoid taxation, whereas the Arabs will not have their profit taxed. However, the documents encourage only state-run corporations and funds.

The agreement between the government of the Russian Federation and the UAE "About taxation of the income from the investments of the contracting states and their financial and investment institutions" was signed in Abu-Dhabi on December 7, 2011. However, the information about the document has become available only recently.

Chechen President Ramzan Kadyrov visited Abu Dhabi, the largest and the most financially powerful emirate of the country, in November 2011. In February, Kadyrov had a meeting with the sheikhs of the UAE to discuss opportunities of Arab investments in the development of Chechnya. In February 2011, Russian Prime Minister Vladimir Putin ordered the Finance Ministry to prepare such an agreement, The Kommersant reports.

In accordance with the document, tax privileges will be guaranteed only to state economic agents of the two countries. The agreement indicated central banks and state-run pension funds, as well as central and regional governments and the organizations that they control. As for the UAE, it goes about the Investment Administration of Abu Dhabi and the Emirate Investment Administration.

The agreement stipulates income tax privileges in Russia, zero tax rates for dividend, percentage and income from the sale of property (save for real estate) and derivative instruments. Russian state-run companies will have guarantees of special terms for taxes on corporations and income in the UAE.
The signed agreement takes account of the laws of both countries. In particular, the Russian Finance Ministry supposedly could not sign the standard agreement to avoid double taxation because of the actual presence of the UAE on the Russian lists of offshores. That's why a special format for Arab partners was elaborated.

The agreement also takes account of the peculiarities of the so-called Islamic funding and Islamic bank system. The Islamic system does not practice the use of the borrowing rate of interest. Nevertheless, Islamic banks make money as they receive some sort of a bonus from borrowers. This bonus is not predetermined, whereas a client is not supposed to grant bail either. However, Islamic banks are very scrupulous when it comes to choosing borrowers. Unlike in the rest of the world, Shariah financiers will not work with speculative securities, such as futures and options - they do not buy and sell the rights for the parts of the future harvest and yet-unexctracted resources.

The norms of the Islamic banking do not allow any investments in the companies that deal with the production and sales of pork, alcohol and tobacco. Investments in the entertainment sector and financial structures that work on the basis of the borrowing rate of interest are banned too. Most investments are wired via the sovereign investment funds of the monarchies of the Persian Gulf.

The UAE delegation that visited Chechnya last year set the basic directions for Arab investments in the Russian region. The Arabs plan to invest in real estate and agriculture.

Vladimir Shabanov

Islamic priority banking launched in Pakistan

Dubai Islamic Bank Pakistan (DIBP) has launched the country’s first Islamic priority banking solution, offering customers ’a gateway to an exquisite banking experience’
A statement from the bank said DIBP's specially designed priority lounges will provide its customers with a hassle-free banking experience with its dedicated relationship managers. Dubai Islamic Bank Pakistan is offering both a Priority and Platinum Banking solution.
Dubai Lounge Priority Banking caters to the affluent segment, offering a variety of privileges including fee based waivers, VISA Gold Card, access to VIP airport lounges in Pakistan and a higher cash withdrawal limit.
Dubai Lounge Platinum Banking aims to be a symbol of exclusivity and unmatched benefits, providing high net worth customers with a varity of premium services including Pakistan's First Islamic Platinum Debit Card. A complimentary Priority Pass service for Platinum customers offers access to over 600 VIP airport lounges globally.

Islamic finance in the Middle East: Progress despite confusion and lack of information

Islamic finance in the Middle East: Progress despite confusion and lack of information

Estimates vary of the size and growth rates of assets held internationally under Islamic finance, but suggest that Islamic finance is a rapidly growing industry. While it represents a small proportion of the global finance market (estimated at 1%- 5% of global share), the Islamic finance industry has experienced double-digit rates of growth annually in recent years (estimated at 10%- 20% annual growth). Industry experts estimate that assets held under Islamic finance management doubled between 2007 and 2010 to reach around $1 trillion.

A survey of the top 500 Islamic financial institutions shows that Shari'ah-compliant assets in these institutions rose from $822 billion in 2009 to $895 billion in 2010. In 2010, 18 new banks offering SCF entered the market and six conventional banks started providing SCF via "Islamic finance windows."

The Middle East is the origin of Islam. Islamic banking has also taken its practical birth with the foundation of first Islamic bank in Dubai (Dubai Islamic BankDubai Islamic Bank) in 1975. There are 21 countries in Middle East and most of them are Islamic and have Islamic banking system. Though Islamic banking has been around for quite some time, the first experiment in modern times began in 1963 in Egypt.

Now, local players led by Saudi Arabia's Al Rajhi Banking & Investment Corporation and Islamic Development Bank, Kuwait's Kuwait Finance House, Bahrain's First Islamic Investment Bank and Al- Baraka Islamic Investment Bank, and UAE's Dubai Islamic Bank
Dubai Islamic Bank
Al Islami
UAE | Financial Services
Quote | Chart | News | Profile
Last: 1.990 AED0.00 0%
» Disclosures
» Research
» Financials
» Chart Data
and Abu Dhabi Islamic Bank have been joined by global financial institutions across the Middle East.

Middle East Progress
"); document.getElementById("Contextual_Logo072800ZNK").src = "http://www.zawya.com/website/bannerLoader.cfm?pagename=Story%20Pages&banner=Contextual_Logo&storyid=ZAWYA20111211082051&CBKeywords=dubai islamic bank&LOKeywords=uae&SNKeywords=political%20and%20public%20affairs%2Cgovernment%2Corganisations%20and%20institutions&MSKeywords=corporate%20banking%2Cmerchant%20banks%2Cpolitical%20and%20public%20affairs%2Cfinancial%20institutions%20and%20services%2Cbanking%2Ccorporate%20finance%2Cinstitutions%2Cislamic%20finance%2Cretail%20banking&randomVar=072800ZNK"; jQuery("#div_Contextual_Logo072800ZNK").css("display","none"); } jQuery(document).ready(function() { func_Contextual_Logo072800ZNK(); }); Algeria has one Islamic bank and the country is doing its best to increase the number of banks which are working on Islamic principles. Bahrain, now established as a major regional hub, has eased entry barriers for new Islamic banks. Currently, there are 6 Islamic retail banks and 20 Islamic wholesale banks in the country, resulting in the highest concentration of Islamic financial institutions in the Middle East. The regulatory framework is well-developed and reasonably transparent. The Prudential Information and Regulatory Framework is the first framework especially designed for Islamic finance and provides a good platform for overall governance. In Egypt, out of 7 banks with Islamic operations, only one has been established since 2000, reflecting the reluctance of institutions to enter this market. While Islamic windows are operational in 5 banks, a lack of adequate regulations impede the overall growth of Shari'ah-compliant finance.

Iraq has one Islamic bank, but due to present unrest in the country the chances of more Islamic banks are low until the political situation in the country improves.
In Iran, after the revolution of 1979, the banking system was nationalized. Shortly thereafter, in 1983, the Law of Usury-Free Banking was passed, and on March 21, 1984, interest free banks started to implement Islamic banking based on the 1983 law. Presently there are many Islamic banks in the country.

In Jordan, demand for Islamic banking is estimated to be high; however, no new Islamic banks have been established in recent years. One of the reasons behind this is the lack of government support for Islamic financial institutions. Contrary to countries like Kuwait, where Shari'ah-compliant banks are surely supported by the authorities, there are no strong connections between Islamic organizations and the Jordanian government. Therefore, the status quo in the banking industry between conventional and Islamic banking is maintained. The situation is similar to the one in Egypt.

In Kuwait, the number of Islamic banks that can operate in the country is limited. Currently, there are four licensed institutions, all of which used to be public. Islamic windows run by conventional banks are not allowed. Thus, new entries into the market seem unlikely unless there is a change in regulations. In addition to that, Kuwait is not granting any new licenses; therefore, the conversion of the Commercial Bank of Kuwait into a fully Islamic bank, announced in early 2008, is still not completed.

In Lebanon, the minimum paidup capital required from Lebanese conventional banks to establish an Islamic institution is $20 million, whereas the minimum capital required from a foreign bank is $100 million. There are four full-fledged Islamic banks in the country. Oman does not have an Islamic banking sector as it does not allow Shari'ah-compliant financial institutions, and the situation doesn't appear to be changing in the near future. The governor of the Central Bank of Oman believes that all banks should be international.

Qatar opted for an initial period of license restriction to test the Islamic banking concept with only two banks allowed until 2006. Since then however, as restrictions have been eased, the market has developed manifold and today many banks offer Shari'ah-compliant products. In 2005, the government established the Qatar Financial Center (QFC) to attract financial institutions and capital into the country. QFC regulations are liberal and allow a relatively quick and easy establishment of Islamic wholesale financial institutions.

The development of Islamic banking in Saudi Arabia is hampered by the lack of clear laws, and technically Shari'ah-compliant finance is against the constitution. In practice however, Islamic finance institutions are present in the market, but they operate in a challenging environment with many licensing conditions being discretionary and subject to strong government influence. This directly reflects on the fact that only 4 out of 14 banks have been opened since 2000.

The UAE market is relatively competitive, with a large number of banks serving a limited population. Additionally, in 2004 the Dubai International Financial Center was established with the objective of making UAE one of the major global onshore financial hubs. To this end, a lot of incentives were introduced, most importantly a much more liberal business environment than in the rest of the country, especially in terms of foreign ownership. In spite of retail banking being excluded from DIFC regulations, a number of international institutions (such as HSBC Amanah or Citibank) have established operations there. At present there are 11 Islamic banks working in the country.

Conclusion
Progress has been made in the regulation of Islamic financial institutions in the Middle East in view of the increasing market share of these institutions. There is better understanding of Islamic finance by the monetary authorities and closer cooperation between them and these institutions, sometimes with the involvement of the Islamic Development Bank. Efforts to standardize Islamic financial products continue in all countries. The standards developed by the Accounting and Auditing Organization of Islamic Financial Institutions are being adopted. The need to standardize such basic elements of Islamic finance as mudaraba, murabaha and ijara is widely felt as the present lack of uniformity is baffling. There are moves to coordinate the activities of the various Shari'ah advisory boards of Islamic financial institutions as the way they function remains a source of confusion. Currently, different Islamic banks issue the same products but in different ways. Lack of information in the Islamic financial industry is hampering its further growth and development. The absence of rating agencies, especially agencies that would rate products as well as institutions on the ground of their Shari'ah compliance, is the biggest example of this deficit.

About the Author
Fayaz Ahmad Lone is a Research Scholar in Islamic Finance, Department of Commerce, Aligarh Muslim University, India. Website: www.wdibf.com E-mail: Fayaz_pulwamy@yahoo.com

Islamic Banking: Developed by Indians, flourishing in other countries

A professional researcher on India-centric socio economic and political databases Shafeeq Rahman while stating that the core system of the interest-free banking, widely termed as the Islamic Banking System, is developed by economists of the Indian subcontinent expressed surprise over the fact that the region has gained nothing from it.

"The conceptual framework of Islamic banking is mainly developed by the Islamic economists of the Indian subcontinent; in particular, the complete non-interest banking module was developed for the first time in 1969 by Nejatullah Siddiqi though the business of Islamic banking flourished in West Asian countries, Iran, Malaysia and Indonesia", Shafeeque Rahman wrote in a recent article published in Tehelka.

Mohammad Nejatullah Siddiqui is a leading Indian Islamic scholar, whose specialisation is Islamic Economics. Author of numerous books and a recipient of the King Faisal Award for Islamic Studies, he has taught at the Aligarh Muslim University (AMU) and the King Abdul Aziz University, Jeddah. He was a Fellow at the University of California, Los Angeles and Vesting Scholar at the Islamic Development Bank (IDB) Jeddah.

Stating that Islamic Banking is now fast spreading its wings to other parts of the world, Shafeeque Rahman wrote, "The client network is now expanding beyond the conventional Muslim countries to European and other non-Muslim territories. In UK, it is estimated that $18.4 billion business was done by the end of 2008. According to newest Global Islamic Finance Report 2011, the Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent. It was worth a mere $150 billion in the mid-1990s."


"Apart from Islamic banks, mainstream banks and financial institutions are opening Islamic product windows to woo Muslim consumers. For instance, HSBC has HSBC Amanah for its Islamic financial services. The governments of Iran, Pakistan and Indonesia have officially adapted to Islamic policies to run their banking and finance structure. And due to its cosmopolitan society, Malaysia follows the parallel Islamic system alongside conventional banking", he wrote.

Shafeeque Rahman further wrote, "Banking without interest is a long term demand from Indian Muslims that has not been fulfilled so far due to the existing statutory and regulatory framework of Indian banking, which does not allow such an alternate system. Besides interest, a key point of contradiction is that conventional banks in India facilitate only intermediary services while banks have to be involved in trading and business activities in the Islamic banking system. Indian Muslims have seen several unsuccessful experiments in the unorganised sector and through the registration of NBFCS and cooperatives but the lack of government regulatory supervision has led to the failure of major interest-free banking initiatives."


"The non-availability of an interest-free banking option has distanced many Muslims from banking products and services. The Reserve Bank of India (RBI) data report for March 2010 indicates that banking participation in Muslim- concentrated districts is below the national average. They lack in banking access, infrastructure availability and low credit-deposit (CD) ratio", he wrote.

Islamic Banking believed to be an interest-free, participatory and ethical banking system, has been an emerging global paradigm of the banking system since the last quarter of the twentieth century. The essential feature of Islamic banking is the prohibition of taking and giving of interest in all form of banking and financial transaction. In place of an assured return on loan amount by the interest rate in the conventional banking system, the Islamic form of financing advocates the profit-loss sharing module. Taking a risk is the only provision that entitles one to profit, if there is no risk of loss then there is no assurance of profit to the depositor or the financer.