Islamic insurance out of reach of Indian Muslims


MuSaumya Roy and Gargi Banerjee

Mumbai: Sayeda Ansari wants to buy a life-insurance policy for her daughter. But she cannot do so unless her stock broker gives the nod. The daughter, the single-mother of a six-year-old boy, lives with Ansari. “Insurance will give her and her son some support,” says Ansari, a Mumbai-based sales tax officer.

But insurance, particularly life insurance, is prohibited by many Islamic scholars because insurance firms may invest the money in shares of firms that are in the business of alcohol, gambling or entertainment— this is not allowed by shariah or Islamic law. Besides, the insurance firm may also lend money and earn interest income, which is also not approved by shariah, a legal framework that regulates public and some private aspects of life based on Muslim principles of jurisprudence. Shariah deals with many aspects of day-to-day life including politics, economics, business and social issues.

Praying and worrying do not go together. If you believe in the power of prayer, you would not need insurance, says Zafar Sareshwala who runs Islamic brokerage Parsoli Corp.Shariah does not allow Muslims to buy insurance. Life insurance, in particular, is frowned upon because life is given or taken away by God and anyone taking out a policy is, in effect, hedging against God’s will. There are Islamic insurance products available—this market is valued at a few billion dollars—including policies for marine and airline insurance, but this phenomenon is restricted to countries such as Malaysia, Indonesia and those in West Asia. Although India is home to more than 150 million Muslims, insurance companies have largely stayed away from Islamic products here. Bajaj Allianz’s Star Select is currently the only Islamic, or ethical insurance product in India.

When Ansari approached Ashraf Mohamedy, who runs an Islamic stock brokerage calledIdafa Investments Pvt. Ltd, he advised her against getting her daughter insured because it is haram or forbidden in Islam. She is still waiting for an insurance product that will get Mohamedy’s nod. Ansari, now 56, hopes it will be soon.

There is no data indicating what percent of Muslims are insured but anecdotal evidence suggests it is less than the national average because of religious reasons.

The Rajinder Sachar Committee, a panel appointed by Prime Minister Manmohan Singh to prepare a report on the social, economic and educational status of the Muslim community, has found that since most Muslims are self-employed, their need to access bank credit is high. Despite this, “Muslims constitute about 12% of all account holders in banks,” according to the committee; this is well below the share of other minorities. And on average, the amount outstanding (an indicator of loans sanctioned) per account for Muslims is about half that for other minorities and only one-third of other communities. The committee presented its report in November 2006.

Rakesh Basant, one of the six members in the Sachar committee, says that the idea that Muslims are generally averse to participating in the formal financial system is a myth. The committee did establish that there is a need for savings accounts among Muslims but sometimes “Muslims themselves assume they will not qualify for credit, and do not approach banks,” Basant says. The committee did not touch upon the insurance sector. Muslim stockbrokers in India say that with the cost of health care rising, there is a growing need for insurance coverage among Muslims. The community’s informal safety net called zakat where wealthy Muslims are obliged to pay 2.5% of their wealth to underserved categories of the society when their annual wealth exceeds a minimum level, is increasingly proving inadequate.

After riot-related damages hit businesses run by Muslims, religious consensus in the community veered towards allowing general insurance. However, even as the cost of health care increases, health and life insurance products remain largely out of bounds.

Bajaj Allianz’s Star Select is currently the only Islamic, or ethical insurance product in India. When people of his community come to Mufti Abdul Qayoom, an Ahmedabad-based cleric, seeking his advise on insurance-related queries, he tells them to invest in a systematic investment plan (SIP) of a mutual fund. SIP is a method of investing a fixed sum, on a regular basis, in a mutual fund scheme. It is similar to regular saving schemes like a recurring deposit and it allows one to buy units on a given date each month.

Mohamed Irfan Dadani, an agent of Life Insurance Corp. of India (LIC) who operates in central Mumbai’s Muslim-dominated Mohamed Ali Road, says 90% of his 800 clients are Muslims but admits that at least 30% of them stay away from life insurance. Dadani and Mahesh Mangaonkar, another LIC agent in Mumbai’s Santa Cruz suburb, keep an assortment of religious opinions, articles and fatwas that say Muslims can buy insurance products and produce these when they meet prospective Muslim clients. The clients usually do not commit to buying any policy without taking religious opinion.

Even those who have bought policies are not particularly happy. “I took life insurance for myself and my family many years ago because I did not have the money to invest in property or gold then,” says Abdul Ral, a Mumbai-based timber trader. “Now I pay more than Rs1.20 lakh in insurance premiums a year. But I know this is haram and I will be thrashed by the powers above,” the 56-year-old said.

Haroon Efroze, a financial advisor with Metlife India Insurance Co. Pvt. Ltd, a private sector insurance firm, says that despite being a devout Muslim he sometimes feels the ire of his community members because he sells a forbidden product. He recalls having worked out a model portfolio for a high net worth Muslim individual who was ready to pay a premium of Rs1,000 daily to cover himself and his family, but backed out at the last moment, because his local cleric did not approve of the plan. Efroze, however, points out that instances of Muslims opting for unit linked insurance plans (Ulips) and general insurance products have been growing.

Zafar Sareshwala, who runs an Islamic brokerage called Parsoli Corp. Ltd, is in the process of creating an Islamic insurance product and he does advise clients to be insured. But personally, he and his family do not want life or health insurance. “Praying and worrying do not go together. If you believe in the power of prayer, you would not need insurance,” he says. “But when the choice is between getting insurance and staying sick because of the lack of insurance, I feel taking insurance is the lesser evil.”

source : livemint

Islamic banks demand Baitul Maal certificates

* Experts say non-availability of such instruments creates liquidity management issue for Islamic banksFinancial sector stakeholders have urged the ministry of finance to expedite efforts towards issuance of Islamic treasury bills in the shape of Baitul Maal certificates to provide the Islamic banks an opportunity to invest.


Speaking at the second day of 3rd World Asia Islamic Capital Conference here on Thursday, the stakeholders of Islamic banking sector said non-availability of instruments like Baitul Maal certificates has been creating a liquidity management issue for Islamic banks.

As a result of the unavailability of these investment opportunities, Islamic banks are at a disadvantage against conventional banks in terms of optimising returns on excess liquidity.

Pervez Said, Head of Islamic Banking, State bank of Pakistan said that Islamic banks must jointly work out a future plan of action with the regulators for issuance of Baitul Maal certificates.

The success factor behind Islamic banking growth is supportive regulatory framework of the central bank, he said adding that there is enormous potential in Pakistani market for Sukuk issues. A number of Sukuk issues are in the pipeline. He said Islamic banks need to have standardization of guideline documents so that the industry could work in harmony.

He said that in order to facilitate the operations of Islamic banking industry, State Bank has allowed the Islamic banks to execute any transaction only after the approval of their Shariah Boards without getting prior approval from SBP. “The regulators can review and approve the transactions later on,” he said.

Ashar Nazim, Managing Director, Islamic Capital Partners announced that his company would organize an Investors Forum in Dubai in May 2008. This forum would help bring gulf region’s investors and Pakistani corporate together to explore the investment opportunities in Pakistan. “We would organise this conference again in November 2008 in Karachi and we hope that it would also serve as a good platform for Pakistani financial sector,” he said.

Financial experts said that current 3 percent share of Islamic banking industry needs to grow to 25 percent in the next decade. Experts said that trained human resource is the biggest challenge being faced by Pakistani Islamic banking industry. They said Islamic banks need qualified human resource to keep the current pace of growth intact.

Speaking at a session on emergence of Takaful in Pakistan, experts said that they needed to move out of niche market syndrome and grab the maximum potential available in the market. They said that 63 percent Islamic banking and Takaful consumers in Malaysia are non-Muslims, which shows the benefits for consumers available in Islamic mode of finance.

Pervaiz Ahmad, CEO, Pak-Qatar Family Takaful, emphasised the need of synergy in Islamic banks and Takaful companies. “The Takaful products should be competitively priced and available with best services and being Halal should be an additional benefit,” he said.

Takaful operators needed to bring innovation in business process and product distribution. “We also need to focus on development of human resource for the Islamic financial sector,” he added.

Faizan Mitha, Senior Executive Vice President of Habib Bank; Anwer Sheikh, Chief Executive Access Finance; Irtiza Kazmi, Head of Capital Markets & Syndication, Dubai Islamic Bank Pakistan; Anthony Dutton of Norton Rose; Capt. Jamil Akhtar, Chief Executive, Takaful Pakistan; Abdul Rahim Abdul Wahab, Executive Director, Sidat Hyder Morshed Associates; Asif Kamal, Chairman, Trust Investment Bank; Zaigham Mahmood Rizvi, Chairman and Managing Director, HBFC; Akmal Jamil, CEO, Arif Habib Private Equity Fund also spoke on the occasion.

source dailytimes

Islamic Banking

Author : Mervyn K. Lewis
Mervyn K. Lewis, Professor of Banking and Finance, University of South Australia and Fellow, Academy of the Social Sciences, Australia and Latifa M. Algaoud, formerly Chief of Training and Development, Ministry of Finance and National Economy, Bahrain

About the book
This pathbreaking volume – the first to consider Islamic banking and finance from a global perspective – will be of great interest to scholars of money and banking, international finance and Middle Eastern studies.

Financial Transactions in Islamic Jurisprudence: v. 1 & 2

ISBN-10: 1592390722
Author : Dr. Wahbah Al-Zuhayli
Translation By Mahmoud A. El-Gamal (Rice University, Houston)

Revised by: Muhammad S Eissa Ph.D
Published by Dar al-Fikr Damascus, Syria, Dar al-Fikr al-Mouaser

Provides comprehensive Fiqh coverage including the views of all major schools of Thought (madhhab) in an easy to understand language. The thorough indexes make it easy to locate any topic within the set.

The goal in providing this translation was to give non-Arabic readers access to the rich Islamic juristic literature on financial transactions. A Translation of Volume 6 is forthcoming shortly, Allah willing.

Volume 1 Contents
Translator’s Preface
Abbreviations and Transliteration
I The Sales Contract (Aqd Al-Bay’)
1 Constituents ofSale
2 Conditions of Sale
3 Status, Object, and Price
4 Invalid and Defective Sales
5 Options
II Types of Sale (anwa’u al-buyu’)
6 The Forward Contract (salam)
7 Commission to Manufacture (istisna’)
8 Currency Exchange (sarf)
9 Gross-Sales (bay’ al-jizaf) 293
10 Riba
11 Trust Sales (murabaha, tawliya, wadi’a)
III The loan contract (aqd al-qard)
12 The loan contract (aqd al-qard)
IV The Lease Contract (aqd al-i?jar)
13 Legality, Cornerstones, and Essence
14 Lease Conditions
15 Characteristics and Legal Status
16 Two Types of Leasing 413
17 Guarantees In Leasing
18 Resolving Disagreements
19 Lease Termination
V Promise of reward (jialah)
20 Promise of Reward (jialah)
VI Partnerships (al-sharikat)
21 Introduction to Partnerships
22 Origination of Partnerships
23 Partnership Conditions
24 Partnership Status
25 Contract Characteristics
26 Invalid Partnerships
27 Defective Partnerships
VII Silent Partnership (mudarabah)
28 Definition and Legality
29 Silent Partnership Conditions
30 Legal Status
31 Capitalist-Entrepreneur Disagreements
32 Invalid Silent Partnerships
VIII Contemporary Partnerships
33 Juristic Analysis
IX The Gift Contract (al-hibah)
34 Definition and Legality
35 Cornerstones
36 Contract Conditions
37 Legal Status of Gifts
38 Prevention of Gift Rescinding
39 Gifts to Immediate Family
X The deposit contract (aqd al-ida’)
40 Definition and Legality
41 Deposit Cornerstones and Conditions
42 Status, and Methods of Safekeeping
43 Status of Deposit Possession
44 Deposit Guarantee
45 Termination of a deposit
XI Simple Loans (aqd al-I’arah)
46 Definition and Legality
47 Cornerstones and Conditions
48 Legal Status
49 Guarantees of Simple Loans
50 Lender-Borrower Disagreements
51 Termination of the contract
XII The Agency Contract (aqd al-wakalah)
52 Definition, Cornerstones, and Legality
53 Contract Conditions
54 Legal Status
55 Multiple agents
56 Agency termination
Volume 2 Contents
VIII Guaranty Al-Kafalah
57 Legality and Cornerstones
58 Guaranty Conditions
59 Contract Status
60 Guaranty Termination
61 Seeking compensation from the principal
62 Contemporary Guaranty for a Fee
63 Applications to Modern Guaranties
IX Transfer of debt (Al-Hawalah)
64 Definition, legality, and cornerstone
65 Transfer of debt Conditions
66 Legal Status
67 Contract Termination
68 Compensation of the Transferee
X Pawning/Mortgage (Al-Rahn)
69 Definition, Legality & Cornerstones
70 Pawning Conditions
71 Legal Status and Consequences
72 Growth of pawned property
73 Pawning Contract Termination
74 Debtor-Creditor Disputes
XI Settlement (Al-Sulh)
75 Definition, Legality, and Cornerstones
76 Settlement Conditions
77 Legal Status
78 Invalid Settlements
XII Absolution (Al-Ibra?)
79 Definition and Legality of Absolution
80 Absolution Cornerstones
81 Absolution Conditions
82 Objects of Absolution
83 Absolution Types
84 Legal Status
XIII Entitlement (Al-Istihqaq)
85 Definition and Consequences
86 Rulings for Specific Contracts
87 Entitlement to Sacrificial Animals
XIV Debt-Clearance (Al-Muq?as. s.ah)
88 Definition and Legality
89 The Object of Debt-Clearance
90 Types of Debt-Clearance
91 Consequences of Debt-Clearance
XV Coercion (Al-Ikrah)
92 Nature and types
93 Coercion Conditions
94 Coerced Physical Actions
95 Legal Actions
XVI Interdiction
96 Definition and Legality
97 Reasons for Interdiction
98 Ending Interdiction
99 Indebted Estates
XVII Ownership and its characteristics
100 Definition of Ownership
101 Eligibility for Ownership
102 Types of Ownership
103 Partial Ownership
104 Establishment of Total Ownership
105 Is Private Ownership Absolute?
XVIII Ownership-Related Topics
106 Land-Related Rulings
107 Land Reclamation
108 Inaccessible Land & Land Distribution
109 Easement Rights (Huquq Al-?Irtifaq)
XIX Share-cropping Arrangements
110 Muzara?a or Mukhabara
111 Musaqah or Mu?amalah
112 Legal Status
113 Mugharasa or Munasaba
XX Division Agreements (Al-Qisma)
114 Division of Physical Properties
115 Dividing Usufruct
XXI Usurpation and Destruction of Property
116 Usurpation and Its Status Rulings
117 Destruction of Property (Al-Itlaf)
XXII Fighting an Assailant
118 Legality, stages and legal status
119 Conditions for Fighting an Assailant
120 Is Fighting the Assailant Required?
121 Compensation for Fighting an Assailant
XXIII Lost and Found (Al-Luqat.ah & Al-Laqit.)
122 Nature and Rulings for Al-Laqit
123 Found Property (Luqatah)
XXIV Missing Persons
124 Missing Persons
XXV Racing and Athletic Competition
125 Racing & Competition (Al-Sabq)
126 Al-munadala
XXVI Preemption (Al-Shuf?a)
127 Basics of Preemption (al-shuf?a)
128 Object of Preemption
129 The Preemptor
130 Legal Status Rulings
131 Preemption Conditions
132 Preemption procedures
133 Changes in the Object of Preemption
134 Dropping Preemption Rights

Islamic Finance in Europe

New Book released

Authors: WILSON, Rodney
ISSN: 1830-1541
Abstract: Islam all too often resonates negatively in Europe, with a great part of non-Muslim public opinion uncomfortable with Islamic culture and values. Secular and Christian opinion is at best suspicious of shariah, Islamic law, and indeed often antagonistic. The notion of wanting to apply shariah principles to banking and finance is treated with scepticism if not outright hostility, especially as there is no concept of Christian or Jewish banking, even if there are some parallels between shariah financial principles and the teaching of the Old Testament. Yet Islamic finance is thriving in Europe, and many major European banks perceive it as a profitable opportunity to generate new business rather than as a threat to existing business. Although Islam is sometimes viewed as prescriptive and concerned with restricting choice, Islamic finance is about widening choice, and in particular about providing alternatives to interest based finance. The aim is to develop financial products that are seen as ethical and within the realm of socially responsible investment. The approach in this research is largely thematic and institutional rather than geographical, with the subject viewed from a European rather than an Islamic world perspective. It is perhaps appropriate to start by examining the role of Islamic finance in Euro-Arab banking relations. Much of the focus is on shariah compliant asset management, with a section on liquidity management without the use of conventional instruments such as treasury bills, and an extensive discussion of the structuring of Islamic sukuk securities. In the banking field the development of Islamic retail banking in Europe is reviewed, with a further section devoted to shariah compliant wealth management and private banking. Prospects for Islamic investment banking are also considered as well as the European experience of shariah compliant fund management. Finally future prospects for Islamic banking and finance in Europe are assessed, notably the provision of shariah compliant services for continental European Muslims, and the possible implications of Turkey’s accession to the European Union will be examined, although there the fortunes of Islamic finance have been rather mixed.

Tehran hosts Int’l Conference on Islamic Finance

TEHRAN — Sharif University of Technology, west of Tehran, played host to the International Conference on Islamic Finance Proceeding Monday.

Attended by a host of domestic and foreign officials and experts, the get-together aimed to explore avenues to use huge financial resources of Muslim states, to introduce policies on Islamic finance, to hold training courses for managers, and to share achievements and experiences of industrial organizations.

The conference kicked off with the welcome speech of Sharif University of Technology Chancellor Saeid Sohrabpur.

Ayatollah Mohammad-Ali Taskhiri, secretary general of World Assembly for Proximity of Islamic Schools of Thought (WAPIST), boasted that Islamic banking was initiated by Iran and Shia, however regretting that the plan sank into oblivion and Iran should have been the torchbearer.

The cleric named the Islamic Development Bank (IDB) as the first finance institute that was set up within the Islamic principles in Saudi Arabia in 1975, adding some 290 Islamic banks and finance institutes are now working at four corners of the world.

“Jurisprudents and economists play key roles in promotion of Islamic economics,” underlined the WAPIST head, adding theologians need to explore Islamic tenets and dictums, with experts putting the religious scholars’ research into practice.

Seyyed Hamid Purmohammadi, deputy minister of economic affairs and finance for banking and insurance affairs, for his part, said Iran was the first country that passed riba-free (usury-free) banking law in 1983 and established Islamic banking system.

He, however, cast a doubt on the law-abiding, ruing if the Islamic banking law had been enforced desirably, Iran would have overtaken other states like Bahrain.

“Hong Kong has voiced its determination to turn into an Islamic finance hub,” recalled the official.

Hong Kong’s chief executive said on Oct. 10 the city would look to emulate Malaysia and Singapore as a center for Islamic finance, in an effort to grab a slice of the thriving market.

Bank of Industry and Mine governor said the roots of Islamic financing should be traced at the advent of Islam.

Mehdi Razavi termed modern methods as necessary for financing, assuring that efforts without modern management will be futile.

Hossein Purzandi, Tehran Municipality’s financial and administrative affairs head, elaborated on ways to attract foreign funds for development projects.

Sami Ibrahim Al-Swailem, the senior research advisor in IRTI, IDB, Monzer Kahf, a professor of Islamic banking and finance in the U.S., Shamim Ahmad Siddiqui, a professor of University of Brunei, Darussalam, and Zohra Jabeen, an advisor of Institute of Management Sciences of Peshawar, Pakistan, delivered speech and offered articles.

The conference will be followed by two workshops entitled “Hedging in Islamic Finance” and “Sukuk: Principles, Structure & Performance” today and tomorrow

source : Tehran T

Dubai Islamic Bank & History Islamic Banking in Dubai


First, I will give a general introduction about Islamic banking and its history, then I will analyze the history of Dubai Islamic Bank and its branches, also I will talk about the products of DIB in specific. I will analyze the rules in DIB which, of course, under the Fatwa and Sharia’ah supervision Board, also I will explain the differences between Islamic banks and conventional banks. The future of DIB is shiny and I will end this project with a conclusion.

Introduction of Islamic Banking:

Before the emergence of Islamic banking, at the days of Prophet Muhammad, people were deposits their money with him or with Abu Baker Sedique, the first Khalif of Islam. The activity of Islamic Banking is like refusing the interests and accepting the deposits. At the end of 1960s, Islamic banking began to grow when several Muslim countries started to create this system. In 1973, there was the first meeting of the Islamic Organization Conference (IOC) in Jeddah. The meeting discussed the will of abolishing (canceling) the interests and creating financial system based on Islamic beliefs. Islamic Banking has many phases of revolution, the Expansion (1976 to the early 1980s), and there were 20 Islamic banks established from the Gulf eastward to Malaysia, and westward to the UK. The second phase of revolution is the Maturity (1983 to date), Arab banks opened Islamic branches in the USA and there were Islamic banking practices in both Pakistan and Iran. Several Islamic banks have been founded under the Islamic system, for example, Dubai Islamic Bank.

Introduction of Dubai Islamic Bank:

Dubai Islamic Bank was formed in 1975 and has 17 branches across the UAE. Dubai Islamic Bank issues are based on Sharia’ah compliant. DIB was opened Johara branch in Jumeirah, Dubai, in 2003, also offered other Johara branches in Abu Dhabi in year 2004 and Sharjah in year 2005, and now its available for 10 Johara branches across the UAE. The bank presents a number of Islamic social events such as the Dubai International Holy Quran Award. products:

Dubai Islamic Bank offers a special service for women which is the Johara. This service provide shopping discounts in some shops for perfumes, clothing, accessories, also Johara provides health educational benefits. DIB offers the customers ATM service across the UAE. DIB cares about the relationship with customers and provide them the advice that the customers may need in the financial part of life such as buying a car or starting up a business. The savings account in DIB authorizes the bank to invest the funds deposited by the customers. Profits are shared between the investor and the bank. The customers may deposit money at any time, but withdrawals are limited to one per month. Current Account has no interests, and cash deposits can be made by Cheques, Cash Deposits Machines, and ATM. Al Islami Investment Account offer the customers to make deposits and to make easy investing both in UAE Dirhams or US Dollars. The investment account at DIB is halal, and with an easy way of managing your disposable income that comes with the added plus of earning profits in an Islamic way. DIB’s credit cards designed for the present time. These credit cards have no “Riba” or interest. Al Islami VISA Charge Cards are available in Classic, Gold, and Platinum.

DIB Islamic laws:

The rules in DIB are all under the Fatwa & Sharia’ah supervision Board. The Board obeys the Fatwa & Sharia’ah rules. Board meetings arise periodically or whenever the need and the decisions must be agreed by all members. One law says the main source for the bank is Sharia’ah Fatwas. Another rule says to try to make more Sharia’ah compliant deals, events, and enhance bank’s products. There is a rule says analyzing new situations in the Bank’s deals that are not with any fatwa, so that Sharia’ah compliance make sure that the Bank won’t achieve any product before ensuring the new situation. Another rule for DIB is that analyzing contracts that about the Bank’s deals. Make Examinations and gives an opinion about Sharia’ah reports. There is rule says examining the Bank’s contracts, and all issues influencing the Board’s related to Sharia’ah compliance. When the Chairman of the Board of Directors submits a rule, then it would be analyzing by the Sharia’ah Board. Studying and analyzing the new issues received from any of the different departments and branches. A rule says initiating Sharia’ah training programmers for the staff in the bank. The achievements of the bank must be ensuring by the Sharia’ah rules and correcting the mistakes of the bank that may occur. A rule says doing an annual report on the Bank’s balance sheet of its Sharia’ah compliance. between Islamic banks and a conventional bank:

Business framework in an Islamic bank based on Sharia’ah laws, but the conventional banking is not based on religions laws only secular (worldly) banking laws. Balance between moral and material requirement in an Islamic bank resale the assets in order to reduce the added amount of credit but the conventional bank may make problems because of the too much use of credit. Equity financing with risk to capital is available in the Islamic bank and losses and profits are shared on the Sharia’ah participation but in conventional bank equity financing with risk is not available. In Dubai Islamic Bank, transactions (contracts) considered Gharar are forbidden but in conventional bank trading and dealing in derivatives of different forms is allowed. The dealings in the Islamic bank are based on the profit and loss sharing principle and the returns depended on bank performance and not guaranteed but in conventional bank profit and loss sharing is not available and the returns are depended on the bank performance and profitability. future of DIB:

With its top services, improvement products and the good electronics in the bank, DIB can lead the banking industry. The bank aspires to expand its business in other countries such as KSA, Iran, Turkey, Sudan, and Pakistan.


I prefer to invest my money in an Islamic bank because it is halal in the first place and in Dubai Islamic Bank (DIB), in particular, because it has many qualities. The last event that occurred to DIB is that the bank wins two Sheikh Mohammed Bin Rashid Al Maktoum Islamic Finance Awards and that was in March 21, 2006.






1. Dubai Islamic Bank Dubai Islamic Bank

3. Abu Dhabi Islamic Bank


Source : aacadaweb

Islamic Finance Industry On Major Globalisation Drive

images39Representative of the expanding UK Islamic Finance industry, UK Trade & Investment (UKTI) has announced the launch of the UK Pavilion at the 14th Annual World Islamic Banking Conference (WIBC). The WIBC, scheduled to be held at the Gulf International Convention Centre, Kingdom of Bahrain on 8th to 10th December 2007, is the largest and most significant gathering of Islamic banking & finance industry leaders in the world.

As part of its World Comes to WIBC banner, the conference has also announced the inaugural Country Focus Roundtable, a panel discussion building and analyzing the burgeoning international footprint of Islamic Finance and featuring experts from UK, Europe, South Africa, Asia and North America. While growth continues to surge for Islamic Finance in the traditional geographic markets; countries in Europe, North America and Asia have also created enabling regulatory environments that have set the industry on a major globalization drive. Chief among these is the UK, which has 5 GCC-sponsored Sharia’ah compliant banking authorizations in the pipeline.

The UK Pavilion at WIBC, officially sponsored by UKTI along with the London Stock Exchange (LSE) and a range of established major institutional supporters, will feature a high-powered delegation of decision-makers representing key banks and institutions based in the UK, including the LSE. Nearly 40 companies based in the Middle East have raised capital on the LSE, which is also home to a number of Sukuk, collectively valued at £3.5bn. The LSE has played a major role in the development of Islamic Finance in the UK and aims to attract more Sharia’ah compliant finance to the UK markets.

Along with the UKTI, LSE and the other UK-based financial institutions, the Kuwait-based real estate investment advisory house, Global Securities House (GSH UK) will also be showcasing their services during the conference. With major initiatives already underway to establish London as a key European centre for Islamic finance, the UK Pavilion at WIBC 2007 has been planned as a dynamic and interactive space to meet with those leaders who are currently forging the UK’s role in Islamic banking

As Richard Thomas, Managing Director of GSH highlights:

“GSH (UK) is one of a number of GCC-sponsored Shari’ah-compliant financial services companies expanding in the City of London, following recent regulatory and legislative developments in the UK. The UK Pavilion at WIBC is a great opportunity for leading UK based companies to showcase the opportunities for collaboration and explain the implications of the development of Islamic finance in the world’s No 1 financial centre. Groups like GSH (UK)’s parent, GSH and the Securities House of Kuwait, have had the vision to capitalise on the UK’s enthusiasm to provide a level playing field for Shari’ah-compliant inward investment into UK’s regulated financial services. The UK already has 5 GCC sponsored Shari’ah-compliant banking authorisations either granted or in process. We are proud of the opportunity to showcase the developments in London that benefit the Islamic Financial Services industry worldwide.”

In addition, WIBC 2007 will also highlight key developments in other dynamic markets for Islamic finance, including South Africa, Malaysia and North America. Now in its 14th year, the WIBC is attracting 1,000 delegates representing over 35 countries each year.

Source ; prolog

Islamic Finance And Beyond

Islamic Finance And Beyond:
Premises and Promises of Islamic Economics

Presented at
Harvard University Forum on Islamic Finance
Cambridge, Mass. USA
October 1 & 2, 1999

Mr. Chairman, Ladies and Gentlemen

I am thankful to Harvard Islamic Finance Information Program for inviting me to be with you this morning. I also appreciate the special interest Directors Thomas Mullins and S. Nazim Ali took in this regard.

Time is precious and holding the attention of this gathering of luminaries and eminent scholars for long would be difficult, so I wish to share with you some thoughts on two issues before concluding with some observations relating to Islamic Economics. Firstly, a reaffirmation of some distinctive features of Islamic banking and finance which can contribute to human felicity. And secondly, there are some worrisome aspects of modern finance, especially global finance, which call for attention.

Distinctive Features of Islamic Finance

Islamic finance ensures a closer linkage between real economy and finance, the former dictating and the latter following. The linkage is obvious in sharing based modes of investment and financial services. When two parties, the financier and the entrepreneur,agree that an opportunity for creating additional value exists, they come together to realize the gain and share it. Since economic activities are, by definition, value creating activities, sharing as a basis of finance is inconceivable without economic activity. In the uncertain world in which these activities have to be conducted, they do sometimes fail to create additional value. There is nothing to share. Sometimes part of the existing wealth may be destroyed Ð the losses borne by capital, the entrepreneurial efforts gone unrewarded.

This linkage between real economic activity directed towards creation of additional wealth and financial transactions continues in case of non-sharing Islamic modes of finance such as murabaha (cost-plus), salam and istisna (prepaid orders) and ijara (leasing). These deals, which are being used by contemporary Islamic banks to secure predetermined returns on their investments are possible only when some real economic activity is involved. There have to be some goods and services to be objects of murabaha, salam, istisna and ijara. The demand and supply of these goods and services whose exchange is ÔfinancedÕ through the above mentioned contracts ensures that financial activity is the servant not the master of real economic activity.

Prohibition of ÔinterestÕ has closed the door on exchange of more money for less money, even when a period of time intervenes. Stratagems (Hiyal) securing the same goal by bringing in a commodity in a nominal way e.g. ina, tawarruq or baiÕal wafa are rejected as impermissible.

There remains the gray area of exchange between different moneys, i.e. selling one currency for another. Islamic economic research in this area has yet to catch up with the times. I do not have any opinions to pronounce save noting that it is a necessary economic activity facilitating exchange of goods and services across borders. Fear of making financial transactions “profitable” without there being any link whatsoever with exchange of real goods and services makes many Muslim scholars opt for the strictest interpretation of the relevant rules. But that carries the danger of restricting what may be really necessary. The challenge of finding the golden mean remains.

Viability of Islamic Finance

It has been demonstrated that all market activities can be financed by using the various Islamic modes, e.g., musharaka, mudaraba, murabaha, salam, istisna and ijara. No stratagems are needed. Financing consumption needs which fall outside the market (there being no prospective income to pay from out of) requires humanitarian solutions in the voluntary Ð cooperative sector or under a state sponsored safety net. Financing government deficits has also been shown to be quite feasible[1]. How far it is desirable to run deficits, how long and what for, are however issues far beyond the scope of “finance”.

We have been arguing that interest free Islamic modes of finance can replace the conventional interest based finance with certain added advantages. By synchronizing entrepreneurial payment obligations and accrual of revenues, sharing based modes of finance remove a major source of instability from freely functioning markets[2]. Also by linking financial intermediariesÕ returns to the actual revenue of the fund users, allocation of investable funds is redirected to projects expected to produce more value than their alternatives.

Even though the predominance of non-sharing modes of finance in the current practice of Islamic banking dilutes these advantages, the Islamic system would score far better than any system that permits exchange of more money for less money. Part of the reason is the vast opportunities of exchange that this permission opens bypassing the real economy which is focussed on exchange of goods and services with one another, money serving as a means of such exchange. Exchange of money for money degenerates into a game of chance in which people indulge to try their luck, little benefit flowing to the production of goods and services which exchange is supposed to promote. Prohibition of interest is directed at restoring money to its essential functions which certainly do not include a means for gambling.

Beyond Interest Free Economy

We now turn to the worrisome aspects of contemporary financial markets. As already noted, prohibition of interest would go a long way in improving the situation. You exchange money either for goods and services, or for money or for debt. In the Islamic framework we have no problems with the first, the second, exchange of money for money is severely constrained, and the third is almost eliminated. Islamic law allows cash for debt only at par[3], which leaves no room for a ÔmarketÕ in which debt could be sold for cash. It also allows exchange of debt for debt at par and with further restrictions. Again the possibility of a ÔmarketÕ for debt is slender. There would, of course, be a market for common stock, ijara (lease) certificate[4], and financial papers based on salam or istisna[5]. But, despite their presence, the scope for speculation in an Islamic framework would be far less than witnessed at the present.

The disturbing features of contemporary finance which would remain unaffected by the prohibition of interest, restrains on the money market and the demise of the market for debt, are the following.

1. The possibility of massive capital movements into and out of a country which has destabilizing effects, especially for small economies.

2. Wide exchange rate fluctuation, to the great disadvantage of small developing countries dependent on foreign trade.

3. Social, cultural and political aspects of financial globalization and multinational corporations dominating the market. This is especially worrisome to developing countries in Africa and Asia which do not share the socio-cultural background of the regions where the MNCs are based. These countries also lack sophisticated bureaucracies, mature politicians and efficient media, which could be a guard against the possible undesirable role of MNCs.

We now take up these issues one by one. In an Islamic framework the influx of foreign capital in a country would hardly be in the form of loans as they would earn no returns. Foreign capital would come either in partnership with local capital and / or enterprise, in which case it would commit itself for medium or long run, or as price paid for common stock, in which case it would be short term. It could also come through a murabaha contract in which case the date for its possible exit with returns is determined from now. Capital invested in financial papers based on ijara, salam or istisna can, however, make an exit at will. In sum, we have two kinds of foreign capital, the long term partnership and murabaha based capital which is subject to a predetermined schedule so far as its withdrawal is concerned, and the short term capital invested in the market for common stock and other financial papers. It is the second kind which calls for attention as it can leave the country at will. The usual solution is to impose some kind of discipline so that the destabilizing effects of withdrawals of foreign capital are minimized.

Some kind of regulation is necessary. Several ideas, including those of James Tobin[6] are relevant The crucial thing, however, is to shift the focus from ad hoc individual initiatives and policies to some kind of international understanding. There is a need for an international agency, may be part of the UN system, to be set up to engineer the needed regulation and protect the small and the weak from actions emanating from profit-driven investment decisions (and speculation) oblivious of the social political and ethical dimensions of such decisions. The conscience of the world community must take charge where the market fails to give due weight to mankind’s larger interests (i.e. interest other than enrichment of capital owners).

The post World War II fixed exchange rate regime collapsed in 1971 because of the inability of the United States of America to continue honoring its commitment to a certain gold value of the dollar. A return to gold standard now seems neither feasible nor desirable. But the type of exchange rate fluctuations experienced by South East Asian economies in 1997-98 is simply a killer. It demonstrated for all, not only the dangers of freely floating exchange rates, but much more that needs correction, so succinctly indicated in the following quote from the Human Development Report 1999.

“When the market goes too far in dominating social and political outcomes, the opportunities and rewards of globalization spread unequally and inequitably Ð concentrating power and wealth in a select group of people, nations and corporations, marginalizing the others. When the market gets out of hand, the instabilities show up in boom and bust economies as in the financial crisis in East Asia and its worldwide repercussions, cutting global output by an estimated $ 2 trillion in 1998 Ð 2000. When the profit motives of market players get out of hand, they challenge peoples ethics Ð and sacrifice respect for justice and human rights”[7].

Some degree of exchange rate stability must be ensured if the small and the weak have to coexist on planet earth with the big and the strong Ð as they must. It is generally recognized that this necessitates some regulation of capital flows, but the timing and modalities of such regulation are not clear. In the absence of an agency especially designed for this purposed, most favour IMF Ð World Bank to take up this role.

If taken up in earnest there is a need to set limits within which only supply and demand are allowed to determine exchange rates. That in its turn calls for manipulating supply or demand, as the case may be, when needed. Only an agency with almost unlimited resources (in respective currencies) can play this role (of the ÔlenderÕ of last resort). Does this mean the power to create money? May be yes.

It can now be seen how difficult it would be for the IMF Ð World bank under their current constitutions to take up this task. A new international understanding is necessary.

The clock of global finance can not be turned back. It need not be. It is good even for small developing countries that international financial giants Ð banks, mutual funds, investment companies Ð can find it profitable to pour in resources to exploit the vast opportunities for wealth creation these countries in Africa and Asia offer. But there are some problems, psychological, cultural and political.

Smart briefcase holding (mostly Western) representatives of the MNCs, stepping out of five star hotels remind onlookers of the colonial days. How to change that perception? Employing local boys helps. Broadening the vision of MNCs to include the social dimension in their profit making activities will help more[8].

This goes hand in hand with encouraging tourism and helping local entrepreneurs to invest in developing resorts which could attract foreign tourists and earn hard currencies. Add dish antennas, casinos and night clubs and you have a scenario ripe for breeding misgivings leading to anger among the ÔnativesÕ. They visualize a cultural onslaught and feel being targeted with hegemonistic designs of the western culture and fear losing their age old traditions.

Sovereign states are supposed to take care of themselves. Those who feel the need enter into alliances for defending their boundaries, even enlist foreign cooperation in maintaining internal security. Vulnerability to the manipulations of MNCs and financial giants is however a new kind of danger, which the traditional modes of ÔdefenseÕ fail to handle. Primitive administrative structures, inexperienced political elite, largely illiterate electorate Ð that is not a position very helpful in dealing with the new danger. Protection is needed which can come only in the form of counseling and, if needed, intervention, by some international agency, preferably working under the UN system.

I offer these observations with two ends in view.

Firstly, to reassure all concerned that the Islamic economists share the anxiety justifiably caused by the current happenings in the financial markets in particular and in the economic aspect of living in general. We are with you in search of a better way for managing our affairs.

Secondly, to shake out of their naivety those sympathizers of Islamic economics who might presume that abolition of interest takes care of all the current problems in financeand economics. There is a need to go beyond that necessary but not sufficient step in an Islamic reconstruction of man’s economy.

Premises and Promises of Islamic Economics

More than any thing else, Islamic banking and finance, a sub-culture of Islamic economics, has been a quest for justice and morality into Ôthe ordinary business of lifeÕ. Justice and Morality cannot, however, be all encapsulated into laws and regulations, especially when it comes to protecting the small and weak form the big and strong. Some behavioral changes are called for. Justice and morality have to penetrate the behaviour of all economic agents, including the decision makers at the national and international level, so that all can live together in peace and harmony. Has Islamic Economics something to offer in making this possible?

At the heart of the Islamic economic culture lies care for others as a force tempering man’s innate selfishness. In sharp contrast to neoclassical economics, which dominated the scene during the twentieth century, Islamic economics brings the social dimension of living into focus, thus downsizing individualism. It also recognizes morality as a potential motor of action and overseer of self interest. The former, the social dimension, is compulsory, economic analysis can ignore it only to its peril. The latter, ethical action, is a potentiality in the realization of which civilizations have had different records. But no human society has been devoid of the moral dimension. So ignoring it can never be justified.

As regards Islamic economics the moral dimension is its raison dÕetre. As the literature shows, the last fifty years have shown several attempts to analyze morally informed human behaviour in production, consumption and exchange[9].

Nothing captures the distinguishing features of Islamic economics noted above i.e. a care for others, as does the institution of waqf (charitable endowments). Unlike the Zakat levy and the prohibition of interest, there is no legal force behind waqf. No Muslim is under compulsion to create a waqf under any circumstances whatsoever. And yet this institution emerged right during the days of the Prophet, peace be unto him, and continued to grow through out Islamic History. This giving away of private property for social purposes must have had ripple effects on the economies in which it took place, but the phenomenon has yet to attract the attention of analysts as distinguished from historians.

The other pillar of capitalism, along with private property, is free enterprise. Here social and moral dimension shows up into priorities in production and consumption and self imposed limits on profit making. The literature of hisba[10] (accountability) partly captures this. As do the economic writing of Ibn Taimiya, al Ghazali, Muhammad Ibn al Hasan al Shayhani and Abu Yusuf Ð in the reverse chronological order[11]. Recent attempts to study Muslim economic agents under influence of Islamic norms and values have been very few[12], reflecting the continued domination of neoclassical economics. But we do have enough evidence on the reality of ethical economic behavior in the contemporary societies in East and West to justify attempts to broaden its scope and capture new areas. That is the need of the hour.

© 2000 Muhammad Nejatullah Siddiqi

End Notes:____________________

[1] Monzer Kahf, Instruments of Meeting Budget Deficit in Islamic Economy, Jeddah, Islamic Development Bank, Islamic Research and Training Institute, Research Paper No. 42, 1997.

[2] Salim U. Chishti, ÔRelative Stability of Interest Free EconomyÕ Journal of Research in Islamic Economcis (Jeddah), Vol. 3, No. 1, pp. 3-12 (1985) and M.A. Zarqa, ÔStability in an Interest-Free Islamic EconomyÕ in Pakistan Journal of Applied Economics (Karachi) Winter, 1983, pp. 181-88. Also Mohsin S. Khan, “Islamic Interest-Free Banking: A Theoretical Analysis”, IMF Staff Papers, March 1986, Vol. 33, No. 1.

[3] Muhammad Taqi Usmani, An Introduction to Islamic Finance, Karachi, Idaratul MaÕarif, 1998, pp. 216-18.

[4] Ausaf Ahmad and Tariqullah Khan (editors), Islamic Financial Instruments for Public Sector Resource Mobilization, Jeddah, Islamic Development Bank, Islamic Research and Training Institute, Seminar Papers No. 39, 1997, See Chapters 5 to 10.

[5] Ibid, Chapters 6 and 7.

[6] James Tobin, “Financial Globalization: Can National Currencies Survive?” in Annual World Bank Conference On Development Economics, 1998, Washington DC., The World Bank, 1999, pp. 63-75.

[7] The United Nation Development Program, Human Development Report 1999, Oxford University Press, New Delhi, 1999, p. 2.

[8] “Multinational corporations influence the lives and welfare of billions of people, yet their accountability is limited to their share holders, with their influence on national and international policy kept behind the scenes. If they were brought into the structure of global governance their position would become more transparent and their social responsibility subject to greater public accountability”. Human Development Report 1999, Oxford University Press, New Delhi, 1999, p. 12.

[9] See for example. M. Fahim Khan, Essays in Islamic Economics, Leicester, The Islamic Foundation, 1995; Ausaf Ahmad and Kazim Raza Awan (Eds.) Lectures on Islamic Economics, Jeddah, Islamic Development Bank, Islamic Research and Training Institute, 1992; Tahir, Ghazali and Agil, Readings in Micro-economics: An Islamic Perspective, Kuala Lumpur, Longman, Malaysia, 1992; and S.N.H. Naqvi, “The Dimensions of an Islamic Model” in Islamic Economic Studies (Jeddah), Vol. 4, No. 2, May 1997, pp. 1-24.

[10] Nicloa Ziadeh, al Hisbah and al Muhtasib in Islam. Old texts Collected and Edited with an Introduction. Beriut, Catholic Press, 1962.

[11] M.N. Siddiqi, Recent Works on the History of Economic Thought in Islam, Jeddah, International Centre for Research in Islamic Economics, 1982. Also M.N. Siddiqi and S.M. Ghazanfar, “Early Medieval Arab-Islamic Economic Thought. Abu YusufÕs Economics” in a forthcoming issue of History of Political Economy. Also S.M. Ghazanfar and A.A. Islahi, Economic Thought of al Ghazali, Jeddah, Centre for Research in Islamic Economics, 1998; and A.A. Islahi, Economic Concepts of Ibn Taimiya, Leicester, The Islamic Foundation, 1988.

[12] Ahmad A. El Ashkar, On the Islamic Theory of Economic Behaviour. An Empirical Study in a Non Muslim Country, Durham, Centre for Middle Eastern and Islamic Studies, University of Durham, 1986.

Also by the same author, Islamic Business Enterprise, London, Croom Helm, 1987.

4. Alan Lewis and Karl Erik Warneryd (eds.), Ethics and Economic Affairs, London & New York, Routledge, 1994.

Zester M. Salmon, Helmut K. Anheir and Associates ÔThe Emerging Sector RevisitedÕ Johns Hopkins University Institute for Policy Studies, 1998 (Reported in the Economist, 14 November, 1998).

Stefano Zamagani (ed.), The Economics of Altruism, An Elgar Reference Collection, 1995.

Oded Stark, Allruism and Beyond, An Economic Analysis of Transfers and Exchange within Families and Groups, Cambridge University Press, 1995.

Jane Mansbridge (ed.), Beyond Self Interest, Chicago, The University of Chicago Press, 1990.

On the theoretical side, see John P. Powelson, The Moral Economy, The University of Michigan Press, 1998.

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