Category Archives: Growth

Reuters Factbox: How to take a bank Islamic

Conversion of a conventional bank into an Islamic (Sharia compliant) bank

Following are some factors investors need to consider.


Every Islamic financial institution has a board of Islamic scholars approving banking products and transactions based on their interpretation of Islamic law, or sharia.

The sharia board will guide the bank during its transition period to an Islamic bank.

Standards vary between regions and scholars and having a top scholar is seen as crucial for products’ acceptance in the market. The top six scholars hold 31.7 percent of all surveyed board positions in research by Funds@Work.


Scholars will grant the bank a transition period, during which it adapts its operations to be compliant with sharia. This period is usually between 24 and 36 months.


Islam bans investments in certain sectors such as alcohol, gambling and pork that need to be sold during the grace period. Scholars will decide whether these can be booked as revenues or need to be given away to charities.

Derivative and hedge funds portfolios are also likely to be sold as most scholars oppose these.


Most investments and conventional loan structures can be replaced with Islamic structures, provided the customer agrees.

But most banks prefer to let conventional loans expire to avoid the costly legal process of renegotiating the contracts.

For instance, most banks that converted have opted to sell the converted bank’s credit card portfolio due to the high conversion costs.


Islam calls for all transactions to be underpinned with physical assets to account for the ban of interest. In many transactions the bank buys a commodity on behalf of a loan customer and sells it onto him on a deferred basis.

In case of a car lease product, the bank actually owns the car, which needs to be reflected in the bank’s accounting.

The risk management of Islamic banks is also considerably different from conventional lenders as Islamic capital providers share in the business risk of loan-takers.

The core liquidity management instruments used by the industry are disputed by scholars who generally only accept them for lack of alternatives.


Many Islamic loan transactions and products resemble conventional ones, so experts have said little training would be needed to familiarize employees with the work-flows of a sharia-compliant bank.

However, the bank’s core banking IT systems might have to be replaced or at least over-hauled to reflect the changes in work-flows and accounting.

(Reporting by Frederik Richter, Shaheen Pasha and Liau Y-Sing; Editing by Dinesh Nair; Editing by Louise Heavens)

Islamic finance: Investment strategy about more than faith

Financial Times Report: Islamic finance: Investment strategy about more than faith

Despite, or maybe because of the world’s economic travails, Islamic finance has continued to stride ahead, as investors seek alternatives to products that have let them down in the recent past.

According to Maris Strategies, assets in Islamic finance rose to $822bn last year, an increase of 29 per cent compared with 2008.

Much of this can be attributed to a growing Muslim population wanting to invest according to the guiding principles of their faith.

But non-Muslims are also attracted to Islamic finance. Gulf African Bank, for example, reported last year that 20 per cent of its customer base was non-Muslim.

Jo Divanna, managing director of Maris Strategies and a leading commentator on the subject, partly attributes this to a conscious effort by companies to widen their appeal by changing terminology.

He says: “Islamic finance is undergoing a rebranding towards western markets by reducing the use of the term Islamic or sharia and focusing instead on the concepts of ethical and green.”

“This is not to say they are lowering their standards,” he adds, but “simply redefining their image”.

Another explanation for the surge of interest is dissatisfaction with conventional finance in the wake of the global financial crisis. So, might the inherently prudent principles of Islamic finance have prevented lending to people who were likely to default, for example?

According to sharia law, the selling of loans is not permitted, nor is interest-bearing debt more generally – all factors that contributed to the crisis.

However, Iqbal Asaria, who teaches an Islamic finance elective at Cass Business School in London, dismisses the argument that the financial crisis could somehow have been averted had Islamic principles been more prevalent.

“The [crisis] was caused by a number of factors, including minimal attention to prudential regulation. These lapses will affect any form of finance – Islamic or conventional.”

Read the rest …

Mufti Taqi Usmani presents paper at World Economic Forum Annual Meeting 2010

Mufti Taqi Usmani presents paper at World Economic Forum Annual Meeting 2010


Mufti Taqi Usmani presented a paper at this year’s World Economic Forum Annual Meeting at Davos, entitled, “Post-Crisis Reforms: Some Points to Ponder”.

The paper can be read here.



In modern economics, we are used to a purely materialistic and secular
approach that does not allow religious concepts to interfere with its theories and
concepts, on the premise that economy is outside the domain of religion. It is,
however, an interesting irony that every dollar note has the admission: “In God
we trust”, but when it comes to develop theories to earn dollars or to distribute
or spend them, trust is placed only on human ideas based on personal
assessments; God is held totally out of picture, as being irrelevant to economic

It is perhaps for the first time that, as an aftermath of the present financial crisis,
when different quarters are coming up with different suggestions to solve the
problem, the ‘World Economic Forum’ has invited representatives of religion to
give their input to the initiative of reshaping the economic set-up on the basis of
values, principles and fresh thoughts. This commendable initiative deserves full
support from religious circles. As a humble student of Islamic disciplines, and
particularly of Islamic economic principles, I would like to highlight some basic
points, derived from Islamic economic precepts, that I believe, are essential for
independent and fresh consideration while seeking solutions to our economic

Read the rest …

Pakistan Islamic banking industry registers 12% growth:SBP IB Bulletin for Q2 2009

Pakistan Islamic banking industry registers 12% growth:SBP IB Bulletin for Q2 2009


Despite slow economic activities and global financial crisis, growth rate of Islamic banking industry remained higher than the conventional banking industry, culminating in continuously rising share of Islamic finance in the local and global financial markets.

The State Bank of Pakistan on Tuesday revealed that the Islamic banking industry has posted a growth of 12.4 percent during the quarter ended June 2009 and total assets of Islamic banking in Pakistan reached Rs 313 billion in June 2009 compared with Rs 278 billion in March 2009.

The data for quarter ended June 2009, shows that asset financing activities of Islamic banks have revived besides substantially higher assets and deposits growth. The profitability indicators have also shown marked improvement as compared to the preceding quarter. The financing and investment portfolio of Islamic banks reached Rs 195.0 billion in June 2009 compared with Rs 185 billion in March 2009, depicting an increase of 5.1 percent during the last quarter.

In terms of market share, total assets, financing & investment and deposits reached 5.1 percent and 4.2 percent and 5.2 percent, respectively, at end June 2009. The branch network of 6 full-fledged Islamic banks and 12 conventional banks (with dedicated Islamic banking branches-IBBs) increased to 528 branches in June 2009.

The State Bank of Pakistan issuing "Islamic Banking Bulletin" for the second quarter ended on June 30, 3009 said that current growth rate of Islamic banking industry has envisioned to achieve a share of 12 percent by 2012 as per Islamic banking strategy plan.

The growing depositors’ confidence is well reflected in last quarter, which shows an increase of 15.5 percent in the deposits. The deposit base of Islamic banks stood at Rs 238 billion at end-June 2009 compared to Rs 206 billion in the previous quarter-end.

Total liabilities of Islamic banks have increased by 13.3 percent to Rs 274 billion from Rs 242 billion during the quarter. While the net assets and equity increased by around 7 percent each. There is an increase of 6 percent in the reserves to one billion rupees and then appropriated profits increased by 79 percent to Rs 900 million in last quarter.

The highlight of quarter June 2009 was that most of the indicators of the Islamic banking in Pakistan showed reversion towards the usual high growth trend. It may be recalled that the Islamic banks also witnessed some slowdown as a result of the financial stress of recent times.

The financing portfolio has increased by 3 percent quarter on quarter basis (QoQ). This is encouraging, as during the last quarter (January-March 2009) the financing had actually declined by Rs 10 billion. The resurgence in financing is accompanied by a QoQ 9.3 percent increase in investment. The increased financing may be reflecting the improving economic outlook of the country.

While, the investment has largely increased due to 3rd issuance of GoP Ijara Sukuk. Nonetheless, there is a welcome increase of Rs 2.4 billion in Musharika financing, though Modaraba financing declined by almost 50 percent. Nonetheless, the net mark-up income increased from Rs 7.8 billion to Rs 15.4 billion-a healthy 94.0 percent growth. Non-mark up income increased by a hefty 213.2 percent from Rs 0.5 billion in March 2009 to Rs 1.6 billion in June 2009.

The bulletin can be downloaded HERE


Islamic banks’ assets grow by 66% in 2008

Islamic banks’ assets grow by 66% in 2008


Despite the global financial crisis, assets held by the 100 largest Islamic banks in the world raised by 66 percent in 2008 compared with previous year.

A study published by Asian Banker Research magazine says the assets of the Islamic banks increased to a total of $580 billion in 2008 — up from $350 billion in 2007.

This is while, the assets held by Asia’s 300 largest banks lifted by just 13.4 percent, the report says.

“Islamic finance has seen an incredible surge in popularity, based on stronger regulatory regimens and a better international understanding of its dynamics,” said Emmanuel Daniel, the magazine’s chief.

Islamic banking refers to a system of banking that is consistent with the principles of Islamic law. Islamic law or Sharia prohibits the payment of fees for the renting of money (Riba) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam).
Islamic banks are not authorized to invest in companies associated with tobacco, alcohol or gambling.

The report concludes that despite the current economic meltdown in the world “Islamic banks have continued to grow in prominence and size”.

The report said Saudi Arabian lenders were more profitable among other banks with Al-Rajhi Bank netting the highest earnings of $1.74 billion, according to the report, and Iranian banks were the biggest players in the global Islamic banking system.

Iran holds seven out of the top 10 rankings and 12 out of the 100 top Islamic banks, the magazine said.

More than 40 percent of the total assets of the top 100 banks belong to Iranian banks, according to the report.