Category Archives: Islamic Banks

Islamic banking boost: Central Bank of Bahrain (CBB) to launch key Islamic Financial Instrument


Islamic banking boost: Central Bank of Bahrain (CBB) to launch key Islamic Financial Instrument


The Central Bank of Bahrain (CBB) is set to launch a key Islamic financial instrument aimed at providing a liquidity management tool to Islamic financial institutions.

The Islamic Sukuk Liquidity Instrument (ISLI) has been jointly developed by the CBB and the Bahrain-based Liquidity Management Center (LMC), an organization which provides asset sourcing, structuring and market making capabilities.

ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against Government of Bahrain Islamic leasing Ijara bonds, issued by the CBB.

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Faysal Bank of Pakistan to launch Islamic Banking Window

Faysal Bank of Pakistan to launch Islamic Banking Window


Faysal Bank Ltd. plans to expand its domestic branch network in Pakistan and start a new Islamic division to take advantage of rising demand for Shariah-compliant products and farm loans. Shares rose.

The bank will increase its number of outlets to 150 by December 2009, and will start the Islamic banking unit next week, Chief Executive Officer Naved A. Khan said in Karachi yesterday, in his first interview since taking the helm in March. Faysal Bank, Pakistan’s ninth-biggest, has 107 branches across the nation and plans to add 23 this year.

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Three Indonesian banks to open Shariah-compliant units

Three Indonesian banks to open Shariah-compliant units

Three Indonesian banks plan to open sharia-compliant units this year to tap the potential of Islamic finance in the world’s most populous Muslim country, a central bank deputy governor said on Wednesday.

Analysts say Indonesia has the potential to become a major player in global Islamic finance because around 85 percent of its around 226 million people are Muslim.

It lags neighbouring countries like Malaysia and Singapore because of tax and accounting framework issues, but analysts expect sharia financing to take off after parliament passed the long-awaited sharia finance law last months.

Siti Fadjrijah told Reuters state-owned PT Bank Rakyat Indonesia BBRI.JK, the country’s third largest lender, and PT Bank Bukopin BBKP.JK, will convert their conventional units to sharia-compliant banks.

She said another state bank, PT Bank Negara Indonesia Tbk BBNI.JK, will also set up a new Islamic bank together with Islamic Corporation for the Development of the Private Sector (ICD), a unit of Islamic Development Bank.

“This year three new sharia banks will be established in Indonesia,” Fadjrijah said on the sidelines of an Islamic finance conference in Jakarta.

When asked if Bank Indonesia will give more licences for foreign banks, she said:

“It depends. When investors establish a new bank I will ask what are their expectations, how they will increase their business. We must know their target.”

Global Islamic assets are growing at an annual pace of 20 percent and are set to hit $2 trillion in 2010 from the current $900 billion, thanks to a flood of petrodollars, Ernst & Young said in February.

Sharia, or Islamic law, bans payment of interest, allowing money to be earned only from physical assets. It also bars investment in alcohol, tobacco or gambling.

HSBC is the only foreign bank which has sharia operations in Indonesia, but there are several domestic banks with sharia-compliant operations.Indonesia’s central bank said in July it expects total assets of Islamic banks to rise to 91.57 trillion rupiah by the end of 2008.

Fadjrijah said the country’s Islamic banking industry is set to meet its target of a 10-15 percent share of national banking assets by 2015 from less than 5 percent currently.

Dubai Islamic Bank launches new virtual training centre

Dubai Islamic Bank launches new virtual training centre

Dubai Islamic Bank (DIB) announced today the launch of the DIB Retail Banking Services Virtual Training Centre in Dubai.

The initiative will provide bank staff with advance training, experience, skills and insights to better meet the needs of the bank’s clients in retail banking services. The DIB Retail Banking Services Virtual Training Centre is located at the DIB branch on Al Ittihad Road in Dubai.

The opening ceremony for the centre was attended by Khaled Kamda, DIB Group Managing Director and Chief Executive Officer, and several other senior executives from the bank. The training centre is based on a partnership with SnapShot, a leading human resources consultancy and training firm.

The training centre is one of the most sophisticated centres in the country. The centre is seen as a means for DIB to develop and improve the level of service for the banking sector throughout the region. “This initiative is a reflection of our commitment to being a financial services institution that delivers the highest level of service to its customers,” said Kamda.

“The emphasis we place on training has benefited not only our customers and employees, it has also benefited the emirate’s economy. In line with our efforts to lead the banking industry in the area of Emiratisation, we have produced a National workforce that is highly educated, motivated and well trained.”

Kamda added: “We have received many accolades due to our position as the pre-eminent Islamic financial institution in the country and the region. This has been achieved by our steadfast dedication to providing employees with the expertise necessary to work across the entire spectrum of the banking industry. On behalf of everyone at Dubai Islamic Bank, I am extremely pleased to announce the launch of this new training centre.”

Along with theory, DIB employees attending the training centre can acquire hands-on experience, through such techniques as role playing. “We have created a facility that duplicates a bank branch,” said Mohammed Amiri, Retail and Business Banking chief of DIB.

“The centre gives employees the chance to hone their skills by placing them in a variety of banking scenarios. The courses we have created are 70 per cent practical and 30 per cent theoretical. The goal is to equip employees with the abilities required to take on nearly any issue that may confront a bank branch.”

SnapShot helps to empower the institutions it works with by providing key information that will enable them to conduct and pursue solutions comprised of three elements: reliability, effectiveness and measurability. “Our partnership with DIB is a long-term partnership that is based on a clear understanding of requirements and mutual cooperation,” said Dr. Fuad Jassim, Executive director of SnapShot.

The training centre is just one of several facilities DIB has created in recent years for its employees. In 2007, DIB created the DIB Training Academy for both management and staff. Like this training centre, the academy’s purpose is to increase the skill sets of its employees, and maintain the highest quality of service possible for the bank’s customer base.

Islamic banks ‘facing major financial risks’

Islamic banks ‘facing major financial risks’

Islamic banks face specific categories of financial risks compared to conventional banks, says an industry report.

According to research by Moody’s Investors Services the most critical risks are entanglement and displaced commercial risks.

“The first one reflects the fact that each Sharia-compliant transaction tends to include credit, market and operational risks, all of which we need to understand to better fine-tune our analysis,” the report by the financial research and analysis group said.

“Islamic banks are improving the way they identify, measure, control and mitigate those risks, as balance-sheet and capital management is becoming a critical field where investments in technology and human talent are increasing”

“Beyond financial risks, Islamic banks are also subject to other forms of risks, specific to their business models.”

It argues these are reputation risks and the risks of being perceived as not sufficiently Sharia-compliant.

“This has a powerful disciplinary effect, but could become harmful should the market perceive any form of incompliance,” it adds.

The report identifies five possible weaknesses in these institutions.

These include the range of asset classes found in Islamic banks and the relatively weak position of investment account holders.

“The importance of the Sharia supervisory board and the bank’s ability to provide the board with adequate information as well as abide by its rulings, is also an issue as is rate-of-return risk and new operational risks.

“Notwithstanding that the Islamic Financial Services Board’s endeavour to provide the Islamic banking industry with a set of guidelines towards best-practice risk management, we believe that a number of additional risk issues deserve further examination,” the report adds.

“This view stems from Islamic financial institution’s relatively short track record – modern Islamic banking has been in existence for only three decades and many sukuk products are less than a decade old – and the fact that most Islamic banks are active in the developing world where transparency, corporate governance and risk management at large are still works in progress.

“The other problem it identifies is the shortage of skilled risk management professionals familiar enough with the Sharia-compliant banking universe.”