Islamic banks in UK to double in five years

images43The number of Shariah-compliant investment banks in the UK is expected to more than double to 10 within five years, Islamic lender Gatehouse said yesterday.

The rise of banking that fulfill the requirements of Islamic law in the United Kingdom s being driven by government efforts to turn its capital into a global hub for the industry, said Samer Merhi, Gatehouse Bank executive director for institutional wealth management structuring and origination.

“It has the potential to grow because of the high demand and the interest to make the UK the international heart of Islamic finance business,” Merhi told Reuters on the sidelines of an Islamic finance forum in the Malaysian capital.

The UK has one full-fledged Islamic bank and four Islamic investment banks, he said.

Gatehouse, a subsidiary of the Securities House of Kuwait, started operating in April in the UK, which some industry observers say is the leading force in Europe in welcoming Islamic banking.

Britain intends to issue its own sovereign sukuk debt in a rolling programme worth around £2 billion (Dh14bn), although it has said legal barriers remain and it will make a final decision later in the year.

Islamic assets total around $1trn, the Asian Development Bank estimates, with annual growth of 10 to 15 per cent a year.

Driven largely by record amounts of oil money, Islamic banking is fast growing from a niche market into a mainstream business with centres such as Dubai, Hong Kong and Malaysia all coveting the title of global Islamic finance hub.

Gatehouse, with an authorised capital of £225m, currently focuses on Islamic capital markets, institutional wealth management, Islamic treasury business and advisory services.

“Asia is in our loop but we are now focusing on European and GCC markets,” Merhi said. The bank is studying $500m of Islamic banking deals including bonds, real estate as well as private equity and exchange traded funds, he said.

Muslims make up less than five per cent of the UK population and Merhi said there was limited consumer demand for Islamic banking products.

source : business24/7

Islamic bond scholars toughen rules on Sukuk sales

images37Religious scholars are imposing tougher rules on the sale of Islamic bonds to investors after stating that most of the securities may not fully conform to the teachings of the Muslim faith.

Investors bought $30 billion of so-called sukuk in the past year that avoid breaching Shariah law prohibitions on the payment or receipt of interest by using property or other assets to provide an income, according to data compiled by Bloomberg. New guidelines demand that investors become the legal owners of those assets rather than nominal holders, the Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions said on its Web site.

The rules from AAOIFI’s board of 18 religious advisers led by Chairman Sheikh Muhammad Taqi Usmani will make it harder for companies to issue Islamic debt at a time when borrowing is already shrinking because of the global credit crisis. Sales of sukuk dropped to $856 million so far this year from $4.7 billion in the first quarter of 2007, Bloomberg data show.

”This is a paradigm shift and will make life difficult for chief financial officers used to the existing structures,” Moody’s Investors Service analyst Khalid Howladar said in a phone interview from Dubai today.

Shariah restricts investors to transactions based on the exchange of assets rather than money alone, so interest payments are banned. Working with Islamic advisers, banks including Citigroup Inc. and HSBC Holdings Plc have built the market for sukuk to $60 billion from almost nothing in a decade, based on Bloomberg and Standard & Poor’s data.


Borrowers and their bankers until now created a fixed income for investors by promising to buy back the assets underlying sukuk at their face value on maturity, irrespective of whether the assets made or lost money, Moody’s Howladar said. These types of agreements are banned under the tougher rules because Shariah demands buyers and sellers share profits or losses from their transactions.

”Blemishes” have crept in that the industry must now ”rid” itself of, AAOIFI’s board of scholars said last month. As much as 85 percent of sukuk sold to date may not comply with all the precepts of Shariah, the board said.

The new rules force issuers of sukuk to legally transfer the ownership of assets to bondholders. The assets must be tangible rather than a cash flow.

”What the scholars are trying to do is make sukuk asset- backed rather than just asset-based,” said Arul Kandasamy, the Dubai-based head of Islamic finance for Barclays Capital.

Sukuk Sales

Borrowers won’t have to restructure bonds already sold to comply with the new guidelines, AAOIFI financial consultant Majd Bakir said in a phone interview from Bahrain.

Jebel Ali Free Zone FZE, Dubai’s state-run operator of a business park adjoining the Jebel Ali port, raised $2 billion in the biggest sale of sukuk from the Gulf in the past six months. Buyers of the bonds have no legal claim on the underlying assets and have an ”implicit guarantee” the issuer would cover any payment shortfalls, S&P said in a report in January.

Banks and borrowers rely on approval from recognized Shariah scholars to be able to sell their sukuk to devout Muslims. Sheikh Usmani advises the Islamic finance unit of HSBC, the No. 2 underwriter of sukuk last year, according to Bloomberg data. Usmani didn’t respond to two e-mails seeking comment on the rules.

Fellow AAOIFI board member Sheikh Mohammed Elgari advises Citigroup and Merrill Lynch & Co., and Sheikh Nizam Yaquby advises banks including BNP Paribas SA, Lloyds TSB Group Plc and Standard Chartered Plc, according to HSBC.

Higher Costs

AAOIFI accounting standards are binding in six Arab countries and the Dubai International Financial Centre, a base for banks including Goldman Sachs Group Inc. and UBS AG. Regulators in countries including Malaysia, Saudi Arabia, Australia and South Africa base their rules for sukuk on AAOIFI’s guidelines.

While the rules will mean ”slightly” higher costs on sukuk until the new structures become commonplace in about a year, clarity on the guidelines is positive for the market, said Haris Irfan, a Deutsche Bank AG director responsible for Islamic finance in Dubai.

It will ”give comfort to some investors who had shown concern” about the scholars’ comments on Shariah compliance, said Irfan. ”We’re already moving away from guaranteed returns to more risk-sharing structures” for planned sales, he said.

Companies planning sukuk sales include Bahrain Islamic Bank, which on March 11 said it plans to raise as much as $664 million from the securities to finance expansion. The U.K., Japan and Thailand are among governments that may sell sukuk, helping the market grow to $200 billion by 2010, Moody’s said in a report last month.

”The likely impact of this is that either the sukuk market becomes more based on Islamic securitizations or it bifurcates, with some sales becoming truly asset-backed and other issuers choosing to continue with existing structures,” Moody’s Howladar said.

 Source: Bloomberg

The Islamic Credit Card Controversy!

Riyadh, Asharq Al-Awsat – In recent years, the competition between Islamic banks has increased over offering Shariah-complaint credit cards – once a controversial subject among Islamic jurists. However, the prevalence and popularity of Islamic credit cards is also accompanied by customer complaints about the expensive costs charged by some Islamic banks that offer them. In fact; such credit cards have become even more expensive than the ones offered by conventional banks.

Customers have reported that they were surprised to learn about the charge fees required to obtain the credit cards offered by some banks as ‘Shariah-compliant’ and which have been approved by the Shariah committees of the banks in question. Many of the complaints revolve around the fact that despite the cards being Shariah-compliant, they end up deceiving and exploiting customers in Saudi Arabian banks and those who prefer to undertake usury-free transactions.

Some people reported falling victim to bank advertisements after being lured in by the promise of advertising campaigns and the fact that the credit cards were Shariah-compliant only to realize that they would continue to pay the accumulated monthly charges for a long time. Add to that the issuance fees which banks deduct upon issuing cards to customers.

An Islamic banking researcher who agreed to speak on condition of anonymity stated that the credit cards currently offered by banks entail usury and even resort to interest in some transactions. He added that this practice sometimes meant that charges exceed the interest rates employed by conventional banks for traditional credit cards.

The expert and researcher also added that banks practice a concept known as ‘Tawaruq’* and sell commodities in global markets on behalf of the customer, receive payment for them and pay the accrued interest on cards – provided that customers continue to pay the remaining installments on the card.* He also stressed that the Islamic Fiqh Academy (IFA) launched a sharp attack against the banks that had approved and endorsed these cards during its recent session held in Muscat.

The so-called interest received by Islamic banks or conventional banks that have Islamic banking divisions or branches comes through charging 60-100 Saudi Riyals (SAR) (US $16-26) or more according to the card type, aside from the annual fees – which means that the banks receive that ‘interest’ whether the customer uses the card or not.

According to the expert, the credit cards that are indeed Shariah-compliant are a limited. An example is the ‘charge card’ on which the issuing bank grants the cardholder a loan with within certain limits – depending on whether it’s a gold or silver card etc. – for a certain amount of time. However, the amount must be paid in full at the agreed upon time and in the case of overdue payments, no usury-related payments are charged. Usually the term of installment payments is between 45-54 days after which the payment is taken in full from the account.

Another expert in Islamic banking also agrees; he said that some Islamic banks offer credit card policies that are misleading and that resort to usury in their practices and that it causes great injustice to the customers and does not comply with Islamic religious provisions.

The expert, who specializes in Islamic law and transactional jurisprudence, believes that the burden of the responsibility belongs to the banks’ Shariah committees that encourage banks to offer such products which are unanimously prohibited by the majority of contemporary Muslim scholars. He added that most banks offering credit cards do so with the objective of acquiring interest – which is strictly and unequivocally prohibited by Islam.

The expert went on to warn people against falling into the trap of the so-called Shariah-compliant cards which launch effective advertising campaigns around this time of the year. Moreover, he stressed that the only Shariah-compliant credit cards are the charge cards which only a limited number of banks offer.

Meanwhile, the Shariah committees in banks have issued their defenses in the face of the accusations leveled against them and the debate is still ongoing. The expert also explained that credit cards represent a guarantee by the bank to the customer, particularly in places such as hotels which rely more on credit cards than they do on cash.

However, the Shariah committees believe that the administrative fees charged by banks are their right since they need to make a profit and thus do so without resorting to usury like conventional banks – but he agrees that most of the local banks [in Saudi Arabia] charge exorbitant fees.

Some believe that there is no such thing as non Shariah-compliant cards and uphold that customers have a choice to either accept the terms and authorize the bank to sell commodities through Tawaruk on their behalf, also paying the credit card’s interest through that, or not.

Today, the advertising campaigns of many banks can be seen throughout the cities with the advent of the summer holidays and they particularly target the women. These campaigns employ terminology and tactics and are devised in a manner that is both suggestive and convincing to lure potential customers into thinking that these credit cards are Shariah-compliant, and easy to possess and repay.

* Tawaruq: Shariah-compliant of finance through which loan finance is raised by buying installments in local commodities that are owned by the bank.

* Credit cards within the Islamic banking framework are linked to personal lines of credit to ensure that users only ‘borrow’ money from themselves and not the issuing bank. The banks, in turn, make money by charging fees.




HSBC sharpens Islamic banking focus in Turkey

Europe’s biggest bank HSBC is sharpening its focus on Islamic lending in Turkey and across the Middle East, the deputy general manager of its Turkish unit has told Reuters in an interview late on Tuesday.

HSBC’s Huseyin Ozkaya said the bank was also working seriously on issuing Islamic bonds in Turkey and was waiting for the Turkish Treasury to create regulations in this area.

Islamic banking, under which banks do not pay or charge interest in line with Islamic law, is fast expanding from a low base in predominantly Muslim Turkey.

“The government must carry out legislative changes in connection with Islamic bonds… We have carried out serious work on this for when these (legislative changes) are completed,” he said.

He said the bank played a leading role in international consortiums issuing Islamic loans.

“HSBC is increasing its focus in this area as a bank which has come out solidly from the international crisis, while our international rivals are not showing the same sort of interest as before,” he said.

He said the bank this year had issued some 6-7 Islamic murabaha facilities, under which a financier buys a commodity and sells it to the customer at a higher price, complying with Islam’s ban on interest.

But he said that the volume of such syndications was set to decline to $300-400mn this year from $500-600mn a year earlier due to global market conditions.

“There is a serious contraction in international lending markets and this has had an impact on Turkey. There is a change in the profile of investors and a decline in liquidity,” he said.

HSBC Turkey will be affected by a reduction in consumer spending and this will have an impact on its performance in private banking, he said.

“Generally speaking there is not a serious worsening in our results, but they will definitely reflect international markets,” he said.

He also said he did not expect significant public offerings in Turkey this year.istanbul010


images40Research Paper by Dr. Shahul Hameed bin Mohamed Ibrahim, PhD, M.A., CA (M), FCCA
Assistant Professor and Head, Department of Accounting, Kulliyah of Economics and Management Sciences, International Islamic University Malaysia

1. Introduction

To professional accountants who have been brought-up on the idea of accounting as an ‘objective’, technical and value-free discipline, the idea of attaching a religious adjective to accounting may seem to be embarrassing, unprofessional and even dangerous.

This is especially true when the adjective is Islam (Christian or Buddhist may at least sound more peaceful), which is media-hyped to be synonymous with terrorism.

On the other hand, the development of Islamic banking and finance now embraced even by ardent capitalist institutions such as Citibank, HSBC and ANZ banks may interest accountants to the possibility of new opportunities for the profession (especially in the wake of lay offs and downsizing by the big four firms).

Perhaps, the Enron affair has rekindled an interest in having a more honest profession who truly care about the public interest in addition to their pockets.

Whatever the interest or curiosity, we hope accountants will find this series of articles interesting, informative, and profitable and yes we hope it may even lead to a bit of soul searching.

In this month’s article, we try to explain what is Islamic accounting (although it will not be the final definition) together with a discussion of the main differences between Islamic and conventional accounting, provide some justifications for the addition of the world ‘Islamic’ to the word accounting, make a prima facie case for Islamic accounting and finally make the important distinction between accounting for Islamic banks and Islamic accounting, which is presently thought of by many people as synonymous.

2. Meaning of Islamic Accounting

Islamic accounting can be defined as the “accounting process” which provides appropriate information (not necessarily limited to financial data) to stakeholders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the Islamic Shari’ah and delivering on its socioeconomic objectives.

Islamic accounting is also a tool, which enables Muslims to evaluate their own accountabilities to God (in respect of inter-human/environmental transactions).

The meaning of Islamic accounting would be clearer if we compare this with the definition of “conventional” accounting. (Conventional) accounting as we know it is defined to be the identification, recording, classification, interpreting and communication economic events to permit users to make informed decisions (AAA, 1966).

From this, it can be seen that both Islamic and conventional accounting is in the business of providing information.

The differences lie in the following:

  • The objectives of providing the information
  • What type of information is identified, and how is it measured and valued, recorded and communicated, and
  • To whom is it communicated (the users)

    While conventional accounting aims to permit informed decisions whose ultimate purpose is to efficiently allocate scarce resources available to their most efficient (and profitable) uses by providing information efficiency in the market (FASB, 1978).

    Apparently this is achieved by the user making the appropriate, buy, sell or hold decisions on their investments.

    Islamic Accounting, on the other hand, hopes to enable users to ensure that Islamic organisations (whether business, government or NFP) abide by the principles of the Shari’ah or Islamic Law in its dealings and enables the assessment of whether the objectives of the organisation are being met.

    At the very basic level, it can be said that Islamic organisations (whether business or otherwise) differ from their conventional counterparts by having to adhere to certain Shari’ah principles and rules and also try to achieve certain socio-economic objectives encouraged by Islam.

    Following from the above, the type of information which Islamic accounting identifies, measures is different. Conventional accounting concentrates on identifying economic events and transactions, while Islamic accounting must identify socio-economic and religious events and transactions.

    A few of us, older ones, might still remember when we did our first accounting or book-keeping courses, we had to do final accounts (i.e. balance sheet and trading, profit and loss account.

    However, Americanization of the curriculum has popularised the term financial statements.

    Hence, the concentration of accounting has moved from stewards manorial accounts to accounting for money (accentuated by the monetary measurement concept).

    This is not to say that Islamic accounting is not concerned with money (especially when accounting for businesses).

    On the contrary due to prohibition of interest-based income or expense, profit determination is more important in Islamic accounting than conventional accounting.

    However, Islamic accounting must be holistic in its reporting Hence, both financial and non-financial measures regarding the economic, social, environmental and religious events and transactions are measured and reported.

    Conventional accounting mainly uses historic cost (or lower) to measure and values assets and liabilities.

    The profession is well aware of the limitations of the stable unit of measure assumption of the monetary unit and to its credit has tried in the past in its inflation accounting initiatives.

    However, despite recommendation from its own research efforts (True blood committee?), the idea of using current values was given up due to its complexity and presumed lack of objectivity.

    From an Islamic point of view, at least for the purpose of computation of Zakat, current valuation is obligatory (see for example, Clarke et al, 1996) prompting calls for a current value Balance Sheet (Baydoun and Willet, 2000).

    A further difference is, Islamic accounting may require a different statement altogether to deemphasize the focus on profits by the income statement provided by conventional accounting. Baydoun and Willlet (2000) have suggested a Value Added Statement to replace the Income Statement in Islamic Corporate Reports.

    They argue that this shows and encourages a cooperative environment in business as opposed to a destructive competitive environment.

    The third category of differences is in the users of the information.

    Although the profession has recognised various stakeholders as users of accounting information (see for example, the Corporate Report, 1975), the users which it focuses on are shareholders and creditors (i.e. Financiers – those who provide the funds).

    This is obvious from the fact the FASB’s SFAC 1 dismisses a whole range of stakeholders by the term “and others”.

    From recent developments in finance and financial markets, accounting seems to be serving an elite group of financiers – market players and banks and other financial institutions.

    It has been accused of helping a group of rich people get richer (Gray et al., 1996) – a grave charge since the profession always justifies its monopoly on audit services by virtue of the public interest.

    Islamic accounting serves the whole gamut of stakeholders recognised by the corporate report, not that each group can serve its own interest best, but society as a whole can make corporations accountable for their actions and ensure they comply with Shari’ah principles and do not harm others while making money ethically and achieve a equitable allocation and distribution of wealth among members of society especially the stakeholders of the concerned corporation.

    3. Religion and accounting- an explosive mix?

    Now we come to the question, is it wise to add the adjective “Islamic” to accounting?

    Why not accounting for Islamic organisations or accounting from the Islamic perspective? The worry is that the addition of any religious adjective may compromise the objectivity of the discipline as religion is mostly seen as an unchanging dogma and code not subject to pragmatic or logical considerations.

    We will take this matter in two stages:

    a) Is conventional accounting value free and objective as it portrayed to be or is there a hidden adjective attached to it?

    b) The problem of epistemology- the nature and sources of knowledge

    What are the implicit assumptions behind the theory and practice of conventional accounting, in other words – what is the worldview behind conventional accounting?

    Some years back, European and communist states adopted a different system of accounting. In a centrally planned or a socialist state, there is a lack of profit motive or not too much of it. Hence, the conventional accounting i.e. Profit and loss account, balance sheet did not make much sense in that economic system. This is why the accounting profession never developed in the communist countries.

    It is only after liberalisation i.e. conversion to capitalism that these states are trying to catch up with the West.

    A little more reflection and we come to the conclusion that the conventional accounting system in which we were educated and work in is in fact Capitalist Accounting.

    The adjective ‘capitalist’ is not used before the word accounting, because it would not then appear neutral as capitalism is a philosophy and many ways a religion. Its sacred symbols of private property, the hudud (literal meaning the definitive borders) of the market and its God- wealth for the creation of which, business and finance exists.

    Capitalism is not only the economic system which allows choices and opportunities but a philosophy and religion which forsakes equity for efficiency and the wants of a few for the needs of the many. It can be said to be the dominant ‘religion’ of the world (both in Muslim and Non-Muslim countries).

    Hence, to call a spade, a spade, accounting should be renamed capitalist accounting, economics as capitalist economics and so forth. Hence, faculty of economics in our universities should be renamed faculty of capitalist economics. However, we do not because it is not necessary, it is assumed and implicit. Due to the non-explicitness of this assumption, we sometime forget that accounting is not objective, neutral and value-free as it is portrayed to be.

    Secondly, we discuss the problem of epistemology- the nature and sources of knowledge.

    Ever since the so-called ‘enlightenment’, science has gained the upper hand and has replaced religion as the authority in defining what is knowledge.

    Modern research emphasises positivism i.e. what is. Knowledge is only what is perceptible through our senses through observation and experiment or what appears logical to our mind. Revelation is not considered a source of knowledge as religious truths cannot be verified by our senses.

    Accounting is considered a science (many US and UK universities use MS or MSc not MA for post graduate accounting programmes) and such mixing religion with accounting may be considered unprofessional.

    However, as Chapra (2000) argues science and religion deals with different levels of reality. While sciences deal with the physical universe perceptible by the senses, religion deals with a higher level of reality which is transcendental and beyond the sense of perception.

    The sources of scientific knowledge are reason and its method observation and experiment. It describes and analyse ‘what is’ and tries to predict what will happen in the future (e.g. Forecast earnings from models).

    When dealing with the physical universe, it is exact in its description and analysis and more accurate in its predictive power (e.g. in Physics or Chemistry). However, when it deals with human beings who do not behave in a consistent manner, unlike the revolution of the planets above, its analysis is less precise and its predictions less accurate. The recent move by the SC on insisting on 10% accuracy on profit forecasts reports by accountants has given a headache for accountants as forecasting is not an accurate science as it deals with behaviour of human beings in the marketplace.

    Unlike science, religion depends on Revelation as well as reason for its knowledge. Its objective is to help transform the human condition from ‘what is’ (e.g. Enron, WorldCom) to what should be (perhaps, Johnson & Johnson under Burke). It should bring about individual and social change to conform to its worldview and values and institutions that it provides.

    The ultimate objective of both science and religion is to bring about the well-being of human beings. One addresses the physical and material while the other addresses the social, mental, emotional and the spiritual. Chapra (2000) further argues that if both of these are important, then both science and religion can better serve mankind by greater cooperation and coordination between them.

    Religion can help science by reminding it of its ultimate objectives and limitations, to use the power and mastery over the universe for well-being rather than destruction. Science can help religion by helping it realise ‘what ought to be’ by providing a better description of ‘what is’ , facilitating prediction and providing better technology for a more efficient use of all available resources.

    It can thus be seen that rather then becoming an explosive mix, the mixing of science and religion can be fruitful and in fact serve to stabilise society from the instability of a world dominated either by science or religion alone.

    4. A Prima-facie case for Islamic Accounting

    Accounting is a tool to achieve certain objectives. In order to be useful, it must be relevant to its purpose. The purpose of accounting has been extended by the American Accounting Association in 1975 (presumably concerned to promote the public interest responsibility of the profession) which defined the purpose of accounting “to permit informed decisions which will enable scarce resources to be allocated efficiently thereby achieving social welfare”.

    Hence, like it or not, the accounting profession is entrusted with the responsibility of helping to achieve social welfare by providing its services. It is common sense, that one must use the right tool for the right job. If one were to use a sledgehammer to crack a nut, we would get paste instead of nuts! Hence, Islamic accounting may be more appropriate to achieve the socio-economic and religions objectives of Islamic institutions and Muslim users.

    The diagram below (Shahul, 2001) shows the situation of match and mismatch.


    Briefly, Islamic institutions such as Islamic banks, Tabung Haji in Malaysia etc. are established to meet the socio-economic objectives of the Shariah (Islamic Law) through the implementation of an Islamic economic system.

    Hence, these institutions should logically use Islamic accounting, especially for monitoring these institutions to achieve their objectives which are different from capitalist institutions.

    However, if conventional accounting which developed to meet the needs of a capitalist economy is used instead in these institutions, a mismatch is likely.

    This will lead to the institutions not meeting the Shari’ate socio-economic objectives and even worse may turn these Islamic institutions into capitalist institutions by providing materialist profit-focused information instead of the holistic information provided by Islamic accounting.

    It can thus be seen that it is not at all unscientific or objectionable, to use Islamic accounting and would in fact be more logical to use it as it would result in an ethical based accounting system which measures not only profits but social, environmental and religious performance.

    Finally, it must be borne in mind that accounting for Islamic banks and financial institutions is not Islamic Accounting but only a subset of it. Although the efforts of AAOFI must be appreciated for developing standards for Islamic Banks, the methodology and hence the outcome is questionable. This is discussed elsewhere (see Karim, 1995).

    Islamic accounting is not the just technicalities of accounting for Islamic financial instruments employed by Islamic banks but much more requiring whole new areas of performance measurement including the social, environmental, economic and the Shariate.

    We will explore the reasons why conventional accounting is unsuitable for Islamic institutions as well as more details of what is the content of Islamic articles in later articles.


    AAA(1966), A Statement of Basic Accounting Theory, US: American Accounting Association.

    Baydoun and Willet (2000), “The Islamic Corporate Report”, Abacus, Vol. 36, No. 1, 2000.

    Chapra, U (2000), The Future of Economics, An Islamic Perspective, Leicester, UK: The Islamic Foundation.

    Clarke F., R Craig and S. Hamid (1996), “Physical Asset Valuation and Zakat: Insights and Implications, Advances in International Accounting , vol. 9., 1996.

    Corporate Report (1975), The Corporate Report, London: Accounting Standards Sterring Committee.

    FASB (1978), Statement of Financial Accounting Concept 1:Objectives of Financial Reporting by Business Enterprises, Stamford, Connecticut: Financial Accounting Standards Board.

    Gray, RH, Owens K and Maunders K (1996), Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Accounting, London: Prentice Hall.

    Karim, RAA (1995), “The Nature and Rationale for a Conceptual Framework for Financial Reporting by Islamic Banks”, Accounting and Business Research, Vol 25, No. 100, pp285-300.

    Shahul Hameed (2001), “Islamic Accounting – Accounting for the New Millenium?”, Paper presented at the Asia Pacific Conference 1, Kota Bahru, Kelantan, October 10-12, 2001.

  • Promoting social solidarity through insurance – islamic insurance theory

    images35Dr Mahbub Alam

    Uncertainty is the only certainty in the world. In our everyday life, we are prone face accidents, which may lead to disability, even death and also loss or damage of properties. An accident is a mishap. It has been defined severally as an unplanned, undesigned, unexpected, un-devised, undesirable, unintended and or unfortunate occurrence.

    Insurance is one of the most significant and scientific methods of handling risks. In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets your protect yourself against everyday risks to you health, home and financial situation. In modern society, almost every type of risk could actually be mitigated. An insurance company is always prepared to take the risk for us. It is up to us to make the choice of which risks to mitigate in our daily lives.

    But the Islamic scholars have objection to the concept of conventional insurance. In their view, the elements of Gharar (Uncertainty), Maisir (Gambling) and Riba (Usury) are involved in insurance contracts, which make it un-Islamic. Therefore, as an alternative of conventional insurance the Islamic scholars have developed a new concept of insurance that complies with Islamic principles on basics and rules drawn from the Holy Quran and Sunnah., called Takaful insurance. As mentioned in the Qur’an: “And help one another in righteousness and piety and do not help one another in evil deeds and enmity” (AI Maidah verse 2)

    Takaful, the Islamic alternative to insurance is based on the concept of social solidarity, cooperation and mutual indemnification of losses of members. It is a promise among a group of persons who agree to jointly indemnify the loss or damage that may inflict upon any of them, out of the fund they donate collectively. The Takaful contract so agreed usually involves the concepts of Mudarabah, Tabarru’ (to donate for benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty.

    The concept of Takaful is not new in Islamic commercial law. The contemporary jurists acknowledge that the foundation of shared responsibility or Takaful was laid down in the system of ‘Aaqilah’ (Mutual Help), which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet (PBUH). In case of any natural calamity, everybody used to contribute something until the loss was indemnified. Similarly, the idea of Aaqilah in respect of blood money or any disaster was based on the concept of Takaful wherein payments by the whole tribe distributed the financial burden among the entire tribe. Islam accepted this principle of reciprocal compensation and joint responsibility.

    The contract of Takaful provides solidarity in respect of any tragedy in human life and loss to the business or property. The policyholders pay subscription to assist and indemnify each other and share the profits earned from business conducted by the Company with the subscribed funds. Takaful companies normally divide the contributions into two parts, i.e., donations for meeting mortality liability or losses of the fellow policyholders and the other part for investment. Accordingly, the clause of Tabarru’ is incorporated in the contract. How much of the contribution is meant for mortality liability and how much for investment account is based on a sound technical basis of mortality tables and other actuarial requirements. Both the accounts are invested and returns thereof distributed on Mudarabah principle between the participants and the Takaful operators. To describe from another angle, a Takaful contract may comprise clauses for either protection or savings/investments or both the benefits of protection as well as savings and investment. The protection part of Takaful works on the donation principle according to which individual rights are given up to indemnify the losses reciprocally. In the savings part, individual rights remain intact under Mudarabah principle and the contributions along with profit (net of expenses) are paid to the policyholders at the end of policy term or before, if required by him.

    The dissimilarity between the conventional insurance and Takaful business is more visible with respect to investment of funds. While insurance companies invest their funds in interest-based avenues and without any regard for the concept of Halal-o-Haram, Takaful companies undertake only Shariah compliant business and the profits are distributed in accordance with the pre-agreed ratios in the Takaful Agreements. Likewise they share in any surplus or loss from the pool collectively. Takaful system has a built-in mechanism to counter any over-pricing policies of the insurance companies because whatever may be the premium charged, the surplus would normally go back to the participants in proportion to their contributions.

    Takaful “co-operative or Islamic insurance” has steadily been growing as a legal financial tool to serve the peoples in Islamic countries as well as non-Muslim countries. Besides operating in Muslim countries, there are more than 108 Takaful (Islamic Insurance) companies operating successfully in the non-Muslim countries such as USA, England, Sri Lanka, Singapore and Japan,

    Bangladesh as a Muslim country has a very ample opportunity to flourish Takaful (Islamic Insurance) within a short span of time. But imprudently yet there is no policy framework undertaken by the proper authority of the government machinery. Though 85% of its population is Muslim they live their life based on Islamic valves which lies the enormous feasibility of Takaful. However, the government can take prompt initiative to formulate a new criteria about the rules and regulations of shariah-based insurance business in Bangladesh. To implement the ‘Takaful’ concept in the society, it will not only a praiseworthy task of the government, it will also uphold our Islamic values and heritage beyond the boundaries.

    source ; the new nation

    Bahrain Islamic Bank Launches New Visa Credit Card

    images44Bahrain Islamic Bank (BisB) today announced the launch of its new Islamic Visa credit card as part of its strategy to offer the best and most advanced credit card in the market. The ultimate objective of the Bank is to achieve the highest level of customer satisfaction.

    On this occasion, BisBBisB Chief Executive Mr. Mohammed Ebrahim Mohammed said: “We, at BisBBisB, are pleased to contribute to providing our customers with the best and most advanced banking options through our new Islamic Visa credit card, especially designed to meet customers’ requirements both inside and outside the Kingdom of Bahrain at a very competitive price.”

    The Chief Executive added: “The move to launch this credit card comes in the wake of strong demand from customers, who wish to have a credit card that is fully compliant with the rules of Islamic Sharia’a, and simultaneously, to be readily available to customers of different income groups while offering numerous benefits to the cardholders.”

    Speaking about the features of this new card, Mr. Mohammed Ebrahim said: “The Islamic Visa credit card is certainly the best credit card available in the market and the most secure as it contained an intelligent electronic chip that prevents unauthorized use whether in the case of theft or loss.”

    BisBBisB Visa credit card, which is Sharia’a compliant, comes in three different categories. Classic card offers its holder a credit limit from BD300 to BD5, 000. Gold credit card provides a credit limit of BD2, 000 to BD10,000. The Platinum Silver card provides a finance level of BD3,000 to BD20,000.

    Speaking about the features of the credit card, the Chief Executive said holders of BisBBisB Islamic credit card can use it at 24 million establishments, ATMs and shops inside and outside Bahrain.

    The Card also has the added benefits of offering its holder discounts on purchases at a number of merchants in Bahrain and will enable a one percent refund of purchases to the card account during the period up to 31st December, 2008. In addition, it will give its holder free miles from Gulf Air depending on the card type.

    Concluding, Mr. Mohammed Ebrahim Mohamed BisBBisB Chief Executive said: “The launch of this card takes place at a time when we look forward to achieving our vision to be the best Sharia’a compliant financial solutions provider. The issuance of this card demonstrates our loyalty to our customers.

    France to promote Islamic finance

    images14French economy minister wants to promote Islamic finance to attract Gulf-based investment which is currently flowing to London.

    The French government, anxious to attract some of the Gulf-based investment currently flowing to London, is promoting Islamic finance, offering it a more accommodating legal and fiscal framework in France.

    Economy Minister Christine Lagarde, recently addressing Gulf investors, pledged to take steps “to make (their) activities as welcome in Paris as they are in London and elsewhere.”

    Analyst Emmanuel Volland of the ratings agency Standard and Poor’s noted that this was “the first time that a representative of the state has said publicly that she is favourable to the development of Islamic finance.

    “It’s a strong signal and the players are listening.”

    But at another agency, Moody’s, Anwar Hassan, cautioned that government pronouncements “are not in themselves sufficient to ensure the blossoming of Islamic finance here”.

    He said the government should not be content simply to reduce “legal or fiscal irritants” but should – for example – issue Islamic bonds, known as “sukuks,” as Britain plans to do next year.

    The challenge is also not purely technical or limited to establishing an infrastructure receptive to Islamic finance, he said, adding that convincing the French public of the soundness of such investments would be the real test.

    The task, he argued, was to show that they are “an ethical, modern finance alternative.”

    Islamic law proscribes the paying of interest for a service as well as speculation, and prohibits investment in sectors such as pornography, gambling, weaponry, alcohol or pork products.

    Hassan warned too that investors in the Gulf or Malaysia might see France’s current interest as simply trying to “make sure that some of the oil wealth gets recycled in France.”

    Islamic finance, a market estimated to be worth USD 700 billion (EUR 441 billion), does exist to some extent in France already.

    The leading Gulf investment funds, Gulf Finance House, Qatar Islamic Bank, Barwa Real Estate or Quinvest, currently have offices in the Paris suburbs.

    Hassan noted that the establishment of an investment fund, compatible with Islamic law, in the French Indian Ocean island of Reunion by the bank Societe Generale “could attract savings from French Muslims.”

    Societe Generale has said it has no plans to set up a comparable operation in metropolitan France.

    Eventually the offer of Islamic bonds could provide an alterative to French companies currently penalised by increasingly costly bank credit.

    For the moment, however, France does not offer Islamic banking services, despite having the largest Muslim community in western Europe.

    In Britain, the Islamic Bank of Britain was launched in 2004, the first such institution in Europe. About 20 traditional banks in Britain also offer Islamic banking services.

    But Mohamed Damak of Standard and Poor’s cautioned that the profile of the Muslim community in France is different from that of Britain.

    “It seems to favour the transparency of conventional banking,” he said, adding that it was “simplistic to think that because there are twice as many Muslims in France as in Britain, that the demand is going to be the same.”

    British Islamic bank plans Swedish expansion

    Sweden’s Muslim population could soon have their very own bank. A British Lapporten_2bank is looking to expand its business and has been in contact with the Financial Supervisory Authority (FI), Sveriges Radio reports.

    The Islamic Bank of Britain (IBB), which pioneered Islamic banking in the UK when it first opened its doors in 2004, could soon open a branch with the aim of serving the Muslim population in Sweden.

    “We got in contact with the Swedish authorities a while ago. At the moment it is a question of preparing our next step,” said Shaher Abbas for IBB.

    The Islamic Bank of Britain was formed in 2002 with the aim of meeting the financial needs of the British Muslim population and is backed by investors in the Middle East.

    IBB now offers internet banking and savings products and has 60,000 customers at its eight branches across the UK.

    The company is now planning a European expansion with branches in Germany and Sweden, according to Sveriges Radio.

    IBB’s business is based on the principles of Islamic finance which stipulate that savings and loan products are offered without the use of interest.

    “We make every effort to ensure that we do not compromise the principles of the Islamic faith by mixing our funds with interest bearing funds. We fund all our operations on a Sharia’a compliant basis,” the company explains on its website.

    Despite its profile, the Islamic Bank of Britain welcomes both Muslim and non-Muslim customers.

    “We have Christian customers, Sikhs and many non-religious customers also,” Abbas told Sveriges Radio.

    The bank is regulated by the Financial Supervisory Authority (FSA) in the UK and is also subject to and approved by a Sharia’a Supervisory Committee – made up of three learned members of the British Muslim community.

    Although the IBB would be Sweden’s first bank based on the Islamic principles of Sharia’a, it would not be the first to seek to avoid the use of interest bearing funds.

    JAK members bank has been operating interest-free savings and loans under a banking licence since 1997. JAK is formally a cooperative bank with 35,000 members and a growth of around 5 percent per annum.

    JAK is not a religious bank but has a certain missionary zeal and declares on its website:

    “We at JAK work for a society with financial rules which do not create huge divisions between people and regions. For a just society without interest!”

    JAK, a bank borne of 1970s idealism and thriving in a decidedly different age some three decades later, could soon be joined by a bank with a code of principles as old as the religion of Islam itself, and great ambition to boot.

    “I think we can be much bigger, God willing,” said Saher Abbas to Sveriges Radio.

    source : the local

    BD26 Million Net Profits made by the Bank in First Half 2008

    abahrain_wtc_08-12-28_s_1Bahrain Islamic Bank (BisB) continues to achieve excellent and remarkable financial results reflecting the continuation of the positive and remarkable change in the Bank’s management and policy initiated following the restructuring of the Bank.

     Source :

    Today, the first half 2008 financial results were announced. During this period, the Bank made BD26 million in net profits an increase of 144 percent compared with BD10.6 million made during the same period of 2007.


    In a statement, Mr. Khalid Abdulla Albassam, BisBBisBBahrain Islamic Bank Board Chairman said, “This excellent performance is due to the remarkable growth in the entire Bank’s business activities, and in particular the carefully selected finance and investment transactions, in addition to launching new products. This contributed to a significant increase in the total income from the Bank’s business activities in addition to a huge increase in total assets and customers’ accounts.”


    Mr. Albassam also stressed the Bank keenness during the coming period on developing and improving the customer services and the continuation of launching new products.


    “The operating income rose to BD42 million, an increase of 90 percent compared with BD22 million during the same period of 2007. He attributed the increase to the continuous growth in Islamic finance transactions and realizing an attractive returns on the Bank’s various investment activities.” he noted.


    “The increase in total income contributed to an increase in return on investment accounts to BD7.5 million. Thus, the Bank’s management is still keen on distributing the best returns to its investors which attracted a bigger local market shares while market prices are continuously rising.” Mr. Albassam added. He highlighted the solid status of the Bank’s assets that have not been affected by the financial shocks that the world experienced last year and early this year.


    On the other hand, the Bank’s Chief Executive Mr. Mohammed Ebrahim Mohammed highly praised the excellent financial results achieved by the Bank stating “As for the Bank’s financial position, the total assets rose by 34 percent during the second quarter of 2008 at BD883 million.”


    “Such increased focused mainly on finance transactions and the steady increase in the Bank’s investments in general. These figures also reflect a remarkable increase in the total investments of all types of portfolios in order to mitigate risks as per the Bank’s general policy”, Mr. Mohammed continued.


    “in addition to launching its plan to develop all of its products in all branches, the Bank has launched its Internet Banking on line during June 2008. This service is designed to enable customers to complete their banking transactions more conveniently anytime and wherever they might be”, he added


    “The Bank has also launched new services in order to increase its shares of Islamic finances and deposits in the local market at the most affordable prices. The Bank will also introduce other new services after the summer vacation prior to the holy month of Ramadan. Additionally, it will launch investment products for the Bank’s customers with high return which will compete with all products available in the local marketplace”, he explained.


    He confirmed that the Bank has completed employment for executive and top management positions, which gives the Bank a bigger impetus to be a market leader. He said the bank would continue to attract and hire qualified and experienced calibers for all sorts of jobs to achieve the Bank’s long-term interests.


    “In a phenomenal step to diversify and expand its operations outside the Kingdom of Bahrain, BisBBisBBahrain Islamic Bank

    signed a strategic partnership agreement with the Yemen Islamic BankYemen Islamic Bank at the end of June. This agreement has entitled BisBBisBBahrain Islamic Bank to own an important quota share in the ownership of the Yemen Islamic BankYemen Islamic Bank”, concluded Mr. Mohammed Ebrahim Mohammed BisBBisBBahrain Islamic Bank