Islamic Banks Could Be The Answer To America’s Over-reliance On Credit And Risk

source : international business times
By Christopher Harress

If second quarter results are anything to go by, America’s banks are recovering nicely. Most made respectable gains and have improved investor and public confidence in America. However, many people who advocate for changes in the banking system feel that just recovering from the financial crisis is simply not enough, and that serious changes must be made to avoid future banking meltdowns.

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Islamic finance: paying for piety?

UM Financial’s troubles were a rocky start for sharia banking
by Erica Alini

For Canada’s 1.3 million Muslims, UM Financial arrived on the financial scene with a valuable service: mortgages that, in compliance with sharia principles, don’t charge interest. But its failure last year has sparked a fierce debate about whether Islamic banking should be banned, or whether it’s still a potentially lucrative industry in need of better regulation.

Mortgages with UM Financial were set up so that lender and borrower purchased the house together. The homebuyer pays rent to the mortgage issuer (rather than interest), while gradually buying off the outstanding share of the property. Ownership is transferred to the borrower only when the principal is paid in full. But when UM Financial failed, receivers were left with a legal can of worms. Who ultimately owns the houses—the bank or the borrower? And will 170 Muslim borrowers be forced to start paying interest in order to keep possession of their homes? Long-time critics of Islamic finance say these problems are inherent in the system and that it should be outlawed. Tarek Fatah, founder of the liberal-minded Muslim Canadian Congress, argues sharia-based banking amounts to calling interest by another name, and charging gullible, if devout, borrowers a premium for their piety.

Proponents of sharia-based finance maintain that the failure of UM Financial proves that Canada needs more, not less, Islamic finance. Had the country’s big banks opened up to the practice, borrowers would not have turned to a small, poorly regulated player such as UM Financial, says Walid Hejazi, a business professor at the University of Toronto’s Rotman School of Management. In retail banking, sharia-sanctioned models are examples of low-risk, back-to-basics finance, notes Hejazi. On the commercial side, a well-developed Canadian regulatory system for Islamic finance would make it easier for wealthy Gulf countries to invest in capital-intensive projects that need funding, such as the development of Alberta’s oil sands.

UM’s troubles were a rocky start for Islamic finance. But they likely won’t be the last word on a system that will remain in demand with a growing part of the population.

source :

Sri Lanka Amana Takaful steers home insurance

Our homes house our joys, hopes and dreams and the place where we find comfort and rest. However, we seldom view our homes as something worth safeguarding. However, a question that exists is whether we secure our homes or insure them.

Believing that the latter is a better solution Amana Takaful recently gave fresh impetus to its home insurance product, ‘My Home,’ with an additional enhanced accident cover in a bid to promote the importance of home insurance in Sri Lanka.

“The market for home security is growing tremendously in Sri Lanka and mainly centred in urban areas. The main drive for home security comes not only form the need to secure the safety of our loved ones but also to safeguard our belongings, that mean so much to us. Having said this, insurance comes as an obvious need as it not only gives you peace of mind but it also provides the financial support you need to get things back in order,” said Kester Amarasinghe, Head of Technical, Amana Takaful PLC.

“Insurance is almost the last concern on anyone’s shopping list and home insurance is mostly off many people’s radar. However, little do we realise that risks at home have the greatest effect on our lives and feelings,” said Amarasinghe.

“Therefore, we intend taking this message to our customers and potentials through a campaign of education that we believe will surely help increase the importance we place on our homes.”

From a practical sense, the impact of lightning strikes on homes and home appliances is little known, although an impending danger for all of us.

“We don’t think of harm happening to our homes because that is the one place we consider safe in our hearts. However, we have helped many of our customers who have seen their belongings damaged due to lightening strikes and sudden explosions which encourages us to cover people as much as possible,” said Nazeem Ghafoor, Manager Sales and Distribution, General Takaful, Amana Takaful PLC.

“Security systems are really meant for warning purposes but the true need is to recover what is lost and that is a loss that is worth safeguarding against,” he added.   

Amana Takaful ‘My Home’ is loaded with covers that safeguard against more than 10 natural disasters, fire and damages caused by it and due to it, burglary, alternative accommodation, loss of rent, architect’s, surveyor’s and engineer’s fees and many more.

Policies are also provided for additional reasons other than safety. Home insurance is required to obtain housing loans from financial institutions and with confidence building in the country there is a growing need for loans. 

Amana Takaful insurance is the Sri Lankan pioneer and flag bearer of the Takaful way of insurance that redefines how insurance is carried out. Amana Takaful has been operating for more than 10 years and has a full-fledged operation in the Maldives.

source : dailymirror

Canada: Clarifying The Status Of Islamic Home Finance In Canada

Article by Gar Knutson  and Jeffrey S. Graham 

This week the Canada Mortgage and Housing Corporation released a research report entitled “Islamic Housing Finance in Canada”. The report analyses Islamic housing finance in a sampling of countries throughout the world, including common law and civil law jurisdictions, in order to draw parallels with the Canadian legal system. The report then examines the development of Islamic finance in Canada and the potential legal and regulatory obstacles that arise.

The report first surveys the principles of Islamic finance and compares how Islamic finance compares with conventional finance. Next, the report considers the application of Shariah to mortgage lending internationally, noting that it is more state centric and less internationalized than other forms of Islamic finance and investment. It is noted that in recent years a number of companies have begun offering Shariah compliant home financing options in Canada and that the Canadian experience is not unique and that the experience of other countries applying Shariah principles to mortgage lending are illustrative of how the product develops. The report finds that in certain jurisdictions such as the UK and New Zealand governments have passed laws to facilitate Islamic housing financing while in others, notably the US, Australia and France, these finance instruments are being offered without significant legislative changes. Further it is noted that there are no significant differences among states with English common law systems, including the UK, the US and Australia, and states with civil law based legal systems, including France, Turkey and Lebanon.

The state of Islamic housing finance in Canada is surveyed. It is noted that the Shariah complaint mortgages were first offered in Canada by housing cooperative organizations. More recently, the market has been serviced by specialized lending institutions that have obtained funding from third parties such as conventional financial institutions and on-lent those funds by way of Islamic mortgages. It is noted that the interface of Shariah law with the Canadian legal system does not, in and of itself, create any particular issues and that Canadian real property law would continue to apply to the property that was the object of the transaction. Further, it is noted that there are no contract or other requirements that cannot be met using conventionally drafted legal instruments that are fully enforceable under the laws governing the contract, if such law is the law of a Canadian province. Depending on the structure, landlord-tenant laws may be implicated and certain of the rights of the parties determined in accordance with the requirements of that legal regime. In addition, the report discusses briefly the application of land transfer, commodity and capital gains taxation in the context of Islamic mortgages.

The report also considers the ability of banking organizations in Canada to provide Islamic housing finance. It concludes that most product offerings in the realm of housing finance would not be prohibited within the existing regulatory regime for Canadian chartered banks and other federally regulated financial institutions.

It is fair to say that there is growing interest in the topic of Islamic finance in Canada. With a prominent and growing Canadian Muslim community and strong and innovative financial sector, there is every reason to believe that Islamic finance will continue to grow in relative terms in Canada. Among the developments that can be anticipated, it should be noted that an Islamic Finance Working Group (IFWG) has been established by the Toronto Financial Services Alliance, a unique public-private partnership with a mandate to enhance and promote the competitiveness of Toronto as a premier international financial centre. The IFWG is considering the opportunities and challenges in helping to promote the development of Islamic finance in Canada. The report of the IFWG is expected to be released in the coming weeks.

Source : mondaq

Al Yusr Islamic Banking Service strengthens offering with Ijara home finance

In line its commitment to develop innovative and modern banking solutions that fully serve the needs of its customers, Al Yusr Islamic Banking Service of IBQ , announced the launch of its Al Yusr Ijara home finance solutions. Developed under the Ijara “Muntahia Bittamleek” structure, Al Yusr Ijara home finance provides customers with highly rewarding benefits and features, including competitive profit rates, simple and easy approval process, and a high level of personalised service from the bank’s specialised team of professionals.

The launch of Al Yusr Ijara home finance marks the fourth new product offering from the banking service within four months, following the recent successful launch of its Car Murabaha, personal Finance solution and Super Savings Account. Al Yusr Ijara home finance also marks the first of a wide range of innovative Islamic finance solutions planned for launch in 2010. The financing solution is available to all nationals looking to purchase property throughout Qatar.

“As the latest addition to our line of innovative banking solutions, the Al Yusr Ijara home finance product completes our Islamic banking suite, which now includes savings, investment and financing products,” said Hassan Al Mullah, Head of Islamic banking. “We committed ourselves to consolidating our Islamic product offering last year, and I am glad to note that all our products have met with an exceptionally encouraging response. That the bank’s customer base grew by nearly 45 per cent in the last quarter of 2009 is a testament to our continued success in developing the right solutions that truly meet the needs of our current and prospective customers.

“Our range of Islamic solutions is not only dynamic in structure, but also offers maximum security in that it is monitored by a Sharia board at every stage. In 2010, we plan to continue this momentum by developing more innovative and contemporary banking solutions that deliver optimal value, while maintaining the highest standards of Sharia compliance,” said Al Mullah.

Al Yusr Islamic Banking Service’s first retail panch was launched in May 2009 and offers a comprehensive range of banking and finance products to suit all needs.

Source : Kuwaitobserver

Mortgage and loan alternative for British Muslims under the Islmaic Financial System

Two million Muslims in Britain face a moral dilemma if they want one or a mortgage loan. In traditional mortgage loans and all payments of interest and “interest as riba” required under Islamic law is called, the Quran is forbidden. British financial institutions rapidly “Muslims are masters of a number of alternative arrangements for financial needs through the teachings of the Koran that respect. There are only two of them:

Musharaka and Ijara. Musharaka and lease Ijara – mortgage alternative.

Musharaka and Ijara Leass one traditional British mortgage Musharaka an Islamic Ijara is optional and is adopted by several British banks and building societies.


In essence, Musharaka means partnership.The Islamic financial concept under the bank buys the house and legally becomes its owner. The period agreed, says 25 years, is a monthly payment. Payment is charged a monthly rent and buys the house for only a small proportion includes fees. Buyer owns the house with the ratio of variable form of shared equity scheme, is being paid is rapidly growing as is.Once final payment has been made, the house is owned outright.


Here you say you want a bank or financial institution, for example a car, and they buy it. A monthly payment to cover the cost of capital of the bank in return, the bank, you use the property for an agreed period allows. In fact, it is a form of leasing

Islamic finance is not widely available in Britain – where it can get. Here are three suggestions:

The last few years Loyds TSB has introduced Islamic products through f their branches 33. Its spokesman said, it is necessary for our customers that we are following the right process”. We have a panel of four Islamic scholars who want to see more products. They give guidance to Islamic law and audit the products”.

Another high street bank, HSBC Amanah – Islamic products under the brand name is developing a special series. The Division home finance plan, home insurance, commercial finance, and includes various current accounts and pensions. , Amanah, Amanah product manager says Hussam Sultan, as a bank, “We’re not here to tell our customers that Amanah Finance moralise or our way, please. We are just here to provide them with an option are have. ”

Islamic Bank of Britain, three branches in London, Birmingham and Leicester and Manchester, each of the two is. They only exclusively British Muslim bank claims are provided to customers and their mission is complete Halal. All financial products approved by their Sharia’a Supervisory Committee – all Muslim scholars are experts in all aspects of Islamic finance.

Dubai completes Ijara syndication of $635 m

imagesThe Government of Dubai today announced the successful completion of the syndication of a $600 million Ijara financing facility.

This facility will be used to partly refinance an existing Dubai Civil Aviation Ijara facility of $1 billion due for maturity in April 2009. The Government of Dubai will repay the remainder of the facility using its existing resources.
The response to the offer was particularly strong among international institutions; The Government has also exercised a “green shoe” option for a further $35 million in recognition of this demand.

The successful syndication together with the re-payment of the balance of $365 million to investors demonstrates the confidence of the Dubai Government’s outlook and its continuing ability to manage re-financing requirements as they fall due.

Nasser Al-Shaikh, Director General of the Dubai Department of Finance, said: “The encouraging response received for this syndication illustrates the strong confidence of investors in Dubai’s economy. The Government of Dubai will continue to finance infrastructure projects with long-term borrowing as part of it’s ongoing long-term debt management strategy”.


The multicurrency Ijara facility consisted of a floating rate tranche of Dh1.7 billion, $100million and euro 52million. The profit rate on the facility would be three-month USD LIBOR / EIBOR/ EURIBOR plus three per cent, payable on a quarterly basis. The facility would be paid back in 3 equal semi-annual installments beginning in April 2010.

Dubai Islamic Bank acted as the coordinator for the facility. Dubai Islamic Bank, Emirates NBD, Noor Islamic Bank and Industrial & Commercial Bank of China (ICBC) and West LB acted as Mandated Lead Arrangers and Bookrunners for the transaction. Mashreq Bank, Union National Bank and Commercial Bank of Dubai were the other participating banks. The notes are a senior obligation of the Government of Dubai.

source xpressme



Islamic Home Finance Methods

IJARA / IJARAH – Lease To Own
The term Ijara literally means rent, the Sharia process is known as Ijara-wa-Iqtina, rent with an acquisition or rent to own. The process of Ijara can be used for equipment as well as property. The process is very simple, a single asset Trust is created, the Trust purchases the property, and then leases the property to the customer. With each monthly payment, a portion of that payment goes towards ownership, until the customer owns 100%.

The basic difference between a Sharia Ijarah-wa-iqtinah process and a conventional lease is that, the Ijara process obligates the Trust (seller) to sell the property to you under a Promise to Purchase, and while the same contract entitles the customer to purchase the property, the customer is not enforceably obligated to do so.


The purchase price that is agreed to in the Promise to Purchase is equal to the original purchase price less the down payment made by the customer plus $1.00. For example, if the value of the property is $200,000 and the customer makes a $40,000 down payment, then the initial amount the customer has to pay the investor for 100% ownership is $160,001. As the customers ownership increases, this amount reduces, until the final ownership payment of $1.00

The initial Ijara amount that is financed by the customer, earns profit for the investor through monthly rental payments. Traditional amortization calculations are utilized to determine the exact monthly payment. The mathematical formulas are acceptable as there are no Sharia issues with mathematical calculations. The major difference between a traditional mortgage amortization and an Ijara transaction is that the Ijarah transaction is based upon a reverse amortization calculation.

While it may appear contrary to the Sharia, it is in fact acceptable to describe the profit on an Islamic transaction as a percentage. The following example should clear up any confusion regarding the acceptability of quoting the profit as a percentage in an Ijara transaction:

Suppose you have a $100,000 in cash.
You purchase a home and pay cash for the home.
You rent the home to a tenant for $500 per month
At the end of the year you have collected $500 x 12 or $6,000 in rent
That $6,000 in rent is a 6% return on your $100,000 investment
Is that 6% Rent or Riba? well it is clearly it is Rent, as it is based upon a business transaction. Now let’s look at a traditional mortgage interest transaction:

Starting with the same $100,000 cash.
You give someone the money.
They proceed to purchase the same home with those funds.
They pay you the same $500 per month, or 6% a year for use of the money.
This is basically rent on money
In this case is the 6% Riba? yes, it is rent on money. The first example was rent on property. So it should be clear that from a Sharia perspective it is acceptable to describe the profit on an Islamic Ijara transaction as a percentage. Furthermore, it is also a requirement under the Truth in Lending Act/Consumer Protection Act, that any profit earned on a residential real estate finance transaction should be described as a percentage so that a customer can clearly understand what the overall cost of the finance transaction is.

In an Ijara transaction, you are technically a tenant. You sign a lease that obligates you to a rent payment over a period of time. However, unlike a typical rental property lease, you are responsible for all the maintenance of the property, and you have all the rights and duties of a Homeowner. You can sell the property anytime you wish, you can remodel, decorate, landscape, sublet, or basically utilize the property for any legal purpose that it is zoned for. The only exception may be if you engage in an activity that may adversely affect the value of the property, like demolishing a garage without rebuilding it. For all practical purposes your role is the same as a homeowner, because once your have fulfilled your obligations under the lease or promise to purchase, you become the owner of the property.

One of the basic Sharia compliance principles is that there should be a sharing of either a gain or loss in a finance transaction. The Ijara transaction is structured in such a way that 100% of the gain is rightfully the customers. Under the Shariah, the gain or loss is shared by the parties in a transaction according to their percentages of ownership. The Ijara transaction abides by this principle, in that at the time of realization of the gain or loss, there is only one owner of the property, and that is the customer. From a procedural perspective, at the time of sale:

the Trust will transfer the title of the property to the customer,
the customer will then transfer the title to the new buyer,
the new buyer will then settle the transaction according to the agreement with the customer,
and then the customer will settle with the trust according to the agreement between the customer and the trust (the Ijara documents)
the procedural steps above creates a situation where the customer holds 100% title, albeit for a short period of time, but by doing so entitles the customer to be the beneficiary of the difference between the two agreements; that is the sale to the new buyer, and the original promise to purchase agreement with the trust.

MUSHARAKA – Declining Balance Co-ownership
The term Musharaka, Musharakah, means sharing. In the context of Islamic Finance, Musharak is a declining balance co-partnership, and is also a Shariah-compliant method of Islamic Home Finance.

You enter a partnership arrangement with a co-owner and sign a contract that specifies the terms of your agreement. After you find the home you want, you get approval to move ahead, and make an offer. Your partner or co-owner, usually a professional investment company rather than an individual, provides the lion’s share of the purchase price.

As part of the partnership agreement, you agree to make monthly payments to the partnership for your use of the home as either explicit or implicit rent.. At the same time, you make regularly scheduled investments in the partnership to increase your equity, or ownership share, of the home. With each payment, the balance you owe the partnership declines and your equity increases.

The amount of your monthly payment is determined at the time of purchase, based on several factors including the price of the home, your credit rating, the amount of your initial payment, the term of the contract, and the current and projected fair market value of similar homes in the community where you buy.

Shariah scholars are working with Islamic financial institutions to make the monthly payment schedules more like conventional mortgage amortization, indicating how each payment is divided. The goal is to make the contracts easier to understand and ultimately more available at competitive prices.