Ghana Welcomes Islamic Bank

Ghana: An Islamic bank is set to take-off in Ghana by the end of the year.
The bank, which is to provide universal banking services to both Muslims and non-Muslims in the country, would offer an opportunity for its customers to access funding without having to provide landed property as collateral, and also without paying fixed interest on credits, but rather share profits on pre-arranged terms.

“The bank would be offering corporate banking, housing finance, car finance, retail banking products as well as other services that conform with the tenets of Islam, which are available to any individual or outfit seeking an alternative banking solution,” Professor Thomas Kubi, a promoter of the bank told CITY&BUSINESS GUIDE in an interview in Accra.

He said the Ministry of Finance and the Bank of Ghana, which is the regulator of the country’s banking industry, had agreed in principle for the setting up of the bank in the country.

He further disclosed that an international Shariah advisory firm, Dar Al Istithmar, in collaboration with his outfit, MCA International Consult, had already prepared a proposal outlining the strategy to introduce Islamic banking to the country. (…)
source : europenews

Robust Islamic finance opens new avenues

Islamic finance has evolved rapidly, and the major transformation it has undergone in the last five years has given rise to new opportunities, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

She said Islamic finance had witnessed “exceptional growth” not only in the Muslim world, but also across the Western world.

“Today, the total assets of the Islamic financial system have surpassed one trillion US dollars, about five-fold its magnitude five years ago,” she said in her keynote address at the Nikkei Islamic Finance Symposium 2008 in Tokyo over the weekend.

Zeti said Islamic finance was among the fastest growing financial segments in the world, with an estimated annual growth of 20%.

“To date, the number of Islamic financial institutions worldwide has increased to more than 300, spanning more than 75 countries both in the Muslim and non-Muslim countries.”

Tan Sri Dr Zeti Akhtar Aziz
On the local front, Zeti said initiatives were being implemented to capitalise on the global growth of Islamic financing.

“We are now entering a new phase in the development of an Islamic financial system in Malaysia, with initiatives to position Malaysia as international Islamic financial hub,” she said.

The initiatives, she said, would be aimed at strengthening international economic ties and promoting greater regional and international trade and investment activities.

“New licences have been issued and greater foreign interest within the domestic Islamic financial institutions have also been permitted,” Zeti said, adding that listing rules had also been liberalised to promote cross-border listings.

“New licenses are also being issued for international Islamic banks and international Takaful operators to conduct Islamic banking and Takaful and retakaful business in international currencies.”

According to Zeti, the most significant progress achieved was in the development of the Malaysian sukuk market, which charted an average annual growth of 17% between 2001 and 2006.

“The Malaysian sukuk market is now the largest Islamic bond market in the world with more than 62% (or US$60bil) of the global outstanding sukuks having originated from Malaysia.”

All in all, Zeti said, everybody stood to benefit from Islamic finance.

“Islamic finance has become a new area of growth that is very vibrant in generating income, wealth and employment,” she added.

Zeti was one of the three keynote speakers at the one-day conference organised by Nihon Keisai Shimbun.

source : biz.thestar

Global Strategies for Islamic Banking and Finance

American Finance House – LARIBA


10th Annual Symposium on Riba-Free Finance & Banking

22 March 2003

Pasadena, California


Professor Rifaat Ahmed Abdel Karim

Secretary General


Islamic Financial Services Board


Ladies and Gentlemen

Assalamu alaikum warahmatullah wabarakatu and good afternoon to all of you. I would like to thank the organisers for organising inviting me to speak in this conference which addresses an important and topical issue facing the Islamic banking and finance industryAmerican Finance House (LARIBA) for honouring me and for giving me this opportunity to address this prestigious gathering.

It is heartening to see the Islamic and finance bankingfinancial services industry anticipating and addressing the issues whichissues, which we need to tackle if we are to ensure that this industry is fully integrated into the international financial system.


As a person whose career for the last twelve years was involved with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and now with the Islamic Financial Services Board (IFSB), the two the Secretary General of the Islamic banking industry’s only transnational accounting, auditing and governance standard setting bodybodies of the Islamic financial services industry, I find that the case for global as opposed to national strategies is something which I end up arguing for over and over again. It is my conviction that our the industry can succeed only if we avoid following differing national strategies and work together to follow consistent and harmonised global strategies that attempt to enhance the soundness and stability of the global financial system..


I would like to focus on three issues during my presentation.: Tthe importance for the Islamic and finance banfinancial servicesking industry of developing –


· a global accounting and financial reporting framework;

· a global prudential and supervisory framework consistent with internationally recognized best practice in the overall global finance industry; and

· a global Shari’ah framework.


In my opinion, the importance of these three issues for building market or investor confidence in our this industry and in encouraging more stable, long-term international investment flows cannot by overestimated.


I believe that in order to sustain the impressive growth that our this industry has experienced, we must work together to ensure that we are, and are seen to bemoreover are widely recognized as being, transparent and accountable, and to be managing risks by ensuring that we follow appropriate internationally recogniszed standardsbest practices.


We can see from the work of trans-national bodies like the International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements (BIS) that the issues of developing global accounting and prudential and supervisory frameworks are being addressed globally, especially in the light of the recent events both here in the USA and in East Asian Economic Crises.


The need for developing global accounting, prudential and supervisory, and as well as Shari’a,h frameworks, for the Islamic banking and financefinancial services industry is more acute due owing to the industry’s relatively short history. Since the Islamic banking and finance are is newindustry has recently developed, , many people within the Islamic countries as well as those outside, view our this industry with suspicion since because they either do not understand how our itindustry works or have consciously or unconsciously built upbecome a biased against the industry. This Such suspicion has serious andhas real and serious consequences for our this industry. An obvious consequence is the fact that this leads to Islamic banks financial institutions being assessed viewed as having higher credit risk, and therebyrisk, thereby increasing their cost of capital, which is a serious competitive disadvantage in today’s global marketplace.


Let me first address the issue of developing a global accounting and financial reporting framework for the Islamic banking financial services industry. first.


The supply of relevant and reliable information regarding all material matters relating to Islamic financial institutions is indispensable for ensuring good corporate governance and for protecting investors. A strong disclosure regime which enforces certain minimum disclosure requirementsregime, which enforces certain minimum disclosure requirements, will also, I believe, lower the cost of capital of Islamic banks by improving the environment for domestic and international investment in the Islamic banking and financefinancial services industry and by increasing the credibility of, and confidence in, Islamic financial institutions.


Disclosures have to be made in such a way so that they are reliable, comparable and comprehensive,that they are reliable, comparable and comprehensive and in sufficient detail to enable users to assess the stewardship of the institution and make informed investment decisions.


The quality of the information that is provided to the markets is best ensured by the application of a high-quality set of standards whichstandards, which is applied consistently across national boundaries. In my view, implementing an internationally recognised set of financial reporting standards is an indispensibleindispensable means the best way to preservinge and enhancinge the quality and the credibility of the Islamic banking and financefinancial services industry.


In today’s global economy where institutions operate across national boundaries, the ability to use one set of accounting standards for all purposes has the potential to achieve economies of scale for the Islamic banking and financefinancial services industry and generate considerable cost savings. Not only will Tthis will reduce not only the cost of preparing financial statements but also the cost of auditing, and as well as the costs incurred by financial analysts and rating agencies in assessing Islamic financial institutions. This is particularly important for countries aspiring to become international Islamic financial centres.


However, the most important benefits will be in terms of improving the efficiency of the workings of capital markets. The provision to the market of high quality, transparent information on a comparable basis to the market will reduce uncertainties in the information available to the markets to be on a comparable basis to the situation in the conventional financial market. and cConsequently, it should lead to a reduction in the cost of capital of Islamic banks because investors, both shareholders and investment account holders, could not reasonably expect returns higher than those of conventional investments with similar classes of risk. Indeed, nNumerous empirical studies have concluded that the more information you provide on standardised basis, the lower your cost of capital will be. This also makes intuitive sense. More comparable information means less uncertainty and hence the less lower degree of risk that has to be factored in to the price of capital.


When I was aAt the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), AAOIFI, we have made a start by developing a core set of accounting, auditing and governance standards for Islamic financial institutions, by working together with relevant parties form from all over the world. We are workingworked in conjunction with central banksregulatory bodies and international standard setting bodies to have these such core standards adopted across the globe as the benchmarks standards for the Islamic banking and financefinancial services industry.


I am sure that many peoplepeople, who are not familiar with the work of AAOIFI, may be thinking that my our aspiration to have global strategies and standards is undermined by the the fact that AAOIFI has developed a separate set of standards from those issued by the International Accounting Standards CommitteeBoard, . are contradictoryThis is not the case.


Let me address tackle this issue briefly. Islamic banks do not accept or lend funds on an interest-bearing basis. Rather, for mobilizing and allocating funds, Islamic banks use different types of contracts that have specific provisions not usually catered for in similar contracts used by their conventional counterparts. , and therefore Hence, many of the items in their financial statements of these banks are different from those that appear in the financial statements of conventional banks, and vice versa. This has important consequences for accounting standards.


For example, the disclosure requirements of International Accounting Standard (IAS) No. 30, which deals with banks, are largely inapplicable to Islamic banks, and hence IAS 30 is not an effective disclosure standard for such institutions. There are also problems with the measurement aspects of certain accounting standards, where the IAS’s do not address issues that arise because of the specificities of the Islamic banking transactions. Consequently, when IAS’s are applied to the financial reporting of Islamic banks, they are only very partially effective in ensuring appropriate standardisation of disclosure and measurement practices..


The Islamic banking financial services industry recognised recognized this such problems and established AAOIFI to address these issues. We view AAOIFI’s accounting standards as are complementary to, rather than being in conflict with, IAS’s. We view ourWe viewed the role atof AAOIFI as filling gaps in IAS’s, which do not have specific provisions to standards to deal with the typical transactions of Islamic bankingfinancial services. transactions and hence allow Without AAOIFI filing the gaps, IAS’s would have allowed those preparingers and auditingors of the financial statements of Islamic banks to to have considerable scope for cherry-picking and making ad hoc interpretations of IAS’s,. a process that would result in rendering the financial statements prepared by these institutions less transparent than conventional financial statements, and non-comparable therewith, as well as spawning inconsistencies between the accounting and auditing of different Islamic financial institutions.


We are in discussions with the IASC, with the aim of establishing complementarity between AAOIFI and IASC with regards to setting the accounting standards to be followed by Islamic financial institutions. In addition, we areAAOIFI has been actively engaging banking supervisors around the worldin many countries, as well as other relevant international bodies like the International Accounting Standards Board, to convince them of the necessity of adopting the AAOIFI standards as the benchmarks standards for Islamic financial institutions in their jurisdictions, and thereby improving the transparency in and comparability of the financial reporting of Islamic financial institutions.


So far, the banking supervisors in a number of countries such as Bahrain, and Sudan and Jordan now require Islamic banks either to comply with AAOIFI’s standards, or, as in the case of Saudi Arabia, are specifying AAOIFI’s standards as guidelines. In Qatar, the central bank has developed standards based on AAOIFI standards, and I understand that Qatar will now converge fully to AAOIFI standards.





Let me now move on to the second issue of developing a global prudential and supervisory framework consistent with internationally recognized best practice in the overall global finance industry.


We must ensure that Islamic financial institutions are regulated and supervised to an internationally acceptable standards, in order to:


· maintain and enhance the confidence of the the industry’s participants; and

· ensure that these institutions are subject to the same prudential standards, regardless of their country of domicile, and thereby achieving a level playing field for all participants within the Islamic financial services industry; and

· win the respect of governments, regulators, investors and users of funds in non-Muslim countries, so as to enable Islamic banking and finance to be more integrated into the mainstream of global finance.


As many of the studies into the East Asian Crisis of 1997 and 1998 have found, although most of the financial institutions that experienced difficulties were complying with their national rules and regulations, many discrepancies were found between national practices and international rules. My proposition assertion is that, as the well well-being of a country’s banking financial services industry has implications for the whole economy and stability of the country, and hencethe experience of the East Asia Crisis shows that the regulation of the Islamic banking financial services industry is too important to be left to individual countries or regulatory authorities to deal withalone.


Like As with their situation as regardsthe the case in accounting and auditing situation, at present Islamic financial institutions are currently exposed to differing prudential and supervisory standards. These depend upon ing on the country in which they operate. This, it can be reasonably argued, is mainly dueowing to the lack of proper understanding of the work of Islamic financial institutions and also because of the implementation of different accounting standards. This was evident in the results of the study carried out by a committee – comprising, among others, a number of central banks in co-operation withand AAOIFI – that was formed to develop an appropriate capital adequacy guidelines for Islamic financial institutionsbanks. This committee promulgatedled to the issuance by AAOIFI of the Statement on the Purpose and Calculation of Capital Adequacy Ratio for Islamic Financial InstitutionsBanks, which takes in to account the differences between deposit accounts in conventional banking and investment accounts in Islamic banking. The statement has built up on the capital adequacy principles laid down by the Basle Basel Committee.


However, the lessons that we at AAOIFI have learned from the Capital Adequacy study have similaritieare consistent with the implications of ours with our work in preparing accounting standards. Our view wais that, in order to adequately and fairly to regulate Islamic financial institutions, we required a set of prudential and supervisory standards that would take into consideration the specificitiesspecificities y of Islamic banking and finance transactions.


To this end, AAOIFI, together organised with the International Monetary Fund and the Islamic Development Bank, organised, a conference on the regulation of Islamic banking last year. One of the major recommendations from that conference, which was endorsed by many central banks, was the establishment of the Financial Services Board within AAOIFI. Although the central banks later decided that the Financial Services Board be established as a separate entity from AAOIFI, we are satisfied that it was AAOIFI which has brought awareness of to the need for such a board to issue prudential and supervisory standards for Islamic financial institutions, so as to ensure a level playing field.


An important point which we need to be aware of, and one that became apparent from the work we did in developing the AAOIFI Capital Adequacy Statement, is that the success of the Financial Services Board will to a large extent depend on the adoption of a unified set of accounting standards by the Islamic banking and finance industry.


In today’s global economy, when Islamic financial institutions are appearing all over the world, it is simply not acceptable to have Islamic banks financial institutions in different jurisdictions complying with differing prudential and supervisory guidelines. We need to set our sights on having aim to have a level playing field, regardless of which the jurisdictions in which an an Islamic financial institution operates in. When two Islamic banks financial institutions in different countries say that they have a capital adequacy ratio of 2012%, these ratios have to be strictly comparable:, we need to compare apples with apples.


It is interesting satisfying to note that it is countries such as Malaysia, Bahrain and Sudan, which have led the drive towards developing specific regulatory guidelines for the Islamic banking industry. However, Iit is difficult for countries, which, which do not have an extensive Islamic banking experience to develop similar guidelines. It is more efficient and cheaper to develop uniform international regulatory guidelines, by leveraging the experience of those who have had the most experience with a greater exposure to the industry and the issues that it has raisedit throws up.


To this end, AAOIFI, together with the International Monetary Fund and the Islamic Development Bank, organised a conference on the regulation of Islamic banking in 2000. One of the major recommendations from that conference, which was endorsed by many central banks, was the establishment of the IFSB. At present, the Full Members of the IFSB Council comprise Bahrain, Indonesia, Iran, Kuwait, Malaysia, Pakistan, Qatar, Saudi Arabia, Sudan, and the Islamic Development Bank. Malaysia is the host country of the IFSB.


I am honoured to be appointed the first Secretary-General of the IFSB, which serves as an international standard-setting body of central banks and monetary agencies, and which is entrusted to ensure the stability of the global Islamic financial services industry by developing prudential standards and promoting international best practices in the regulation and supervision of this industry. In advancing this mission, the IFSB will promote the development of prudent and transparent financial services through introducing new, or adapting existing, international standards consistent with Islamic rules and principles; and will recommend these for adoption.


In addition, the IFSB will focus on the development of risk management instruments and the cultivation of sound risk management practices. It will facilitate the implementation of robust risk control mechanisms in Islamic financial institutions through research, training and technical assistance. Its focus will encompass the adoption of present international best practices on risk management standards, as well as the development of new risk management techniques in conformity with Islamic rules and principles.


In this respect, the IFSB combines aspects of the mission of the Basel Committee on prudential matters and aspects of that of the UK Financial Services Authority in relation to good practice for other financial services, namely insurance, capital markets and investor protection.



Let me now move on to the issue of developing a global Shari’a framework.


At present, in most countries, with the possible exception of Malaysia, Islamic financial institutions have attempted to self-regulate the process of complying with Shari’ahShari’a precepts by appointing their own Shari’a Boards consisting of part-time membersmembers to oversee the Shrai’a compliance function. Not surprisingly, the terms of reference of Shari’a Boards vary widely from institution to institution. Each Shari’a Board has complete discretion as to how it performperforms its work and expresses its opinion. This has resulted in a lack of standardisation of for Islamic banking and finance transactions, a situation which again makes the financial statements of Islamic financial institutions non-comparable.


I note from the program guide for this conference that there is a session devoted to dealing with harmonizing Shari’a issuesrulings, so I will not go into specific details during this session. However, what I would like to highlight is that MmMost of the accounting, prudential and supervisory issues that arise in the Islamic banking financial services industry results from Shari’a rulings, and hence its is imperative that we work towards developing a global Shari’a framework. If we do not make progress towards harmonising Shari’a rulings, our work relating to harmonising accounting, prudential and supervisory standards will be undermined.





At AAOIFI, we have taken an initiative to established a Shari’a Board in response to an initiationive ofby Islamic financial institutions. The Shari’ah Board withhas members from different Islamic countries, to develop and promulgate Shari’a standards with the aim of harmonising Shari’a rulings between Islamic financial institutions and across national boundaries though the Board’s own developments and promulgation of Shari’a standards.


It is our hope that theThe Shari’a Board’s irse Shari’ah pronouncements willare intended to to be used as a benchmark for the Shari’ah rulings of Shari’ah supervisory Bboards in Islamic Ffinancial Iinstitutions worldwide. This, we believe, will approach should support the development of the Islamic Bbanking and Ffinance industry and enhance both its transparency and its credibility.


However, there are those who believe that the AAOIFI Shari’a Board should have adequate representation of the various schools of Islamic jurisprudence, broaden the composition of its members to include representatives from relevant sectors of the industry to provide specialist knowledge (e.g. in banking, finance and accounting), and that its Shari’a scholars should have the required expertise in the various specialized areas of the Islamic financial services industry

. I believe that these are genuine concerns and that they should be addressed in the ongoing development of that important Board. In this regard, the IFSB could contribute, especially since it will be issuing codes of good practice, and Shari’a precepts are central to the business ethics of Islamic financial services.





Let me conclude by saying that,In my view in today’s world, any country that takes a purely national approach to regulation, especially in those aspects relating to Islamic banking and finance, is, is likely to be viewed with suspicion by the market,, and the Islamic financial institutions based in that country may pay a price in terms of having a higher cost of capitalbe disadvantaged. The challenge facing us the Islamic financial services industry is to ensure that we take an international approach to regulation since, whether we like it or not, we live in a world where national frontiers have become less relevant – especially in finance.

source :

UK-Lebanese IFQ seeks to standardise Islamic finance

Islamic finance has long been criticised for its lack of standardisation – from the disunity in the way scholars interpret Shariah law to the various qualifications available for professionals dealing in the rapidly-expanding industry.
But times are changing as a new qualification developed by both Muslim and non-Muslim industry experts from East and West is embraced across the Gulf region and beyond.
The Islamic Finance Qualification, or IFQ, was developed by Britain’s Securities & Investment Institute in partnership with the Central Bank of Lebanon and incorporated scholars from Saudi Arabia, Bahrain and the United Arab Emirates.
Interest in Islamic finance has been rising in line with the value of global Shariah-compliant assets amid growing demand for products such as Islamic bonds known as sukuk, Islamic insurance contracts known as takaful as well as Islamic mortgages.
In 2007, the value of Shariah-compliant assets worldwide surpassed $500bn for the first time, according to a recent report by Standard & Poor’s.
Accountants at Ernst & Young put the 2007 figure even higher at $900bn and expect Islamic assets to grow at a rate of 20% annually. The industry is set to hit $2tn by 2010.
Kuwait Finance House, or KFH, forecasts that Islamic assets in the six-member Gulf Co-operation Council (GCC), will grow to 18% of system assets by 2012 from its current 13%.
A total of $19bn new sukuk were issued in the Middle East alone in 2007, according to data.
Ruth Martin, head of the London-based Securities & Investment Institute, or SII, is one of the people who helped develop the new Islamic finance qualification from its infancy.
“GCC countries are reacting very warmly to the IFQ because when we were developing it we incorporated experts from around the Gulf, so it has a resonance in the region,” Martin told Zawya Dow Jones in an exclusive interview in Bahrain’s capital Manama.
Test centers in the United Arab Emirates, Bahrain, Qatar, Lebanon and Kuwait are now offering the qualification and SII is in talks to formally introduce the qualification in Saudi Arabia, Oman and Egypt.
The qualification, which was launched in March 2007, is studied through workbooks or training centers before the final examination is taken at a test center or online.
Nine months after its launch over 1000 workbooks were sold, Martin said.
“So far the exam has been taken in 37 different countries ranging from South Africa to New York to Dubai,” she said, adding another factor for the success of the IFQ is its basis on a stricter interpretation of Shariah Law.
Islamic law differs widely from country to country with Gulf countries such as Saudi Arabia preferring a stricter interpretation to Asian countries such as Malaysia.
Islamic law prohibits the charging of interest, so Islamic banking products are based on a tangible underlying assets while proceeds take the form of profits or rent from those assets, rather than interest on debts.
Islamic investments also prohibit support to businesses seen to negatively impact the welfare of their communities such as companies dealing in alcohol, pork products, arms and pornography.
“Our qualification follows the Gulf model of what is Shariah-compliant – the main issue with this model is debt cannot be treated as an asset unlike the Malaysian model – it is stricter but we deliberately took that approach,” Martin said.
Another advantage is that most high net worth individuals investing their money in Islamic Finance, whether in the a non-Muslim country such as Britain or a Muslim country such as Saudi Arabia, are from the Gulf.

“What we have been trying to achieve over the last year is organic growth with the local partners who work with us but we are keen to expand to other countries,” Ruth said.
For Muslim and non-Muslim banks looking to gain a foothold in this lucrative industry there are various qualifications but none as tailored as the IFQ, said one industry expert.
“The IFQ is popular because the industry is still an emerging market and there are not many comprehensive qualifications available at present,” said the expert, who declined to be named.
But competition is heating up. The Diploma in Islamic Accounting and Compliance by Bahrain Institute of Banking and Finance, or BIBF, in partnership with the Association of International Accountants, or AIA, is being pitted by industry experts as the new main competitor for the IFQ.
The diploma was launched in January and its course-structure and format is compiled by the BIBF while the AIA sets the exam syllabi and papers for the diploma.
Until professionals go through both the IFQ and BIBF training and test the skills they have learnt in the work environment it is still too early to tell whether or not the IFQ qualification will be a true global benchmark, the expert said.
Ruth is aware of the competition and plans to maintain an edge in the industry. “We need to review our syllabus every year to make sure we are up-to-date with what’s happening – it’s very important that we do things slowly, properly and safely,” she said

source : gulf news