A Detailed Look at the Fast-Growing Islamic Banking and Finance Sector

Press release
September 26, 2012
Hoboken, NJ
A Detailed Look at the Fast-Growing Islamic Banking and Finance Sector

The severity of the global financial crisis that followed the years 2008 and 2009 has been described as second only to the Great Depression. Yet, during those two years, the assets of the 500 top Islamic financial institutions grew — from $639 billion to $820 billion.

What sets apart the Islamic finance industry from the rest of the financial world? And how have its differences helped this sector thrive when the rest of the global financial market struggles to regain its balance?

Faleel Jamaldeen, author of Islamic Finance For Dummies, says: “I’m bullish on Islamic finance: I’m a firm believer in the market potential of this industry. I’m also a firm believer in the benefits of Westerners understanding the concepts that lie behind the Islamic financial products — knowing why a separate industry exists and why many conventional products don’t work for Muslims.”

“In the West, the general public and even many financial professionals know absolutely nothing about Islamic finance. Those who’ve at least heard of it may assume that they can’t understand or participate in it because they aren’t Muslim and don’t speak Arabic.) Western women may assume that they aren’t allowed to participate in the Islamic finance industry because of misconceptions about Islamic law. (Women can and do fully participate in Islamic finance — as professionals and as investors.)”

“Islamophobia is a prejudice against Islam or Muslims that has unfortunately become more commonplace and more intense in the West since the attacks on the United States on September 11, 2001. Some people simply don’t want anything to do with an industry that’s affiliated with Islam. Until now, searching for a book to help you navigate the subject of Islamic finance wasn’t very rewarding. That’s because Islamic finance has been the topic of textbooks but not many nonacademic titles.”

Jamaldeen goes on to say, “I wrote this book to bridge the gap between people who need and want to know about Islamic finance and an industry that needs and wants their participation. You’ll find that you don’t need to learn a new language, change your personal religious views, and that job prospects are strong for both men and women with conventional banking and finance skills who are open to learning about new products and a new way of conducting business.”

“I wrote this book assuming that you have a strong interest in the financial industry already. Maybe you’re a banker, a mutual fund manager, an investment consultant, or an insurance agent. Perhaps you have Muslim clients asking you to consider adding sharia-compliant products to your roster of offerings, or your boss mentioned in passing that Islamic finance has been growing like crazy and your company should find out how to tap into the market. Maybe you’re a college student focusing your studies in finance, and you’ve read that job prospects are good for people with specific knowledge about Islamic finance.”

Whatever the scenario, you’ll find clear and easy-to-understand information on how the Islamic finance industry works.

source : wiley.com

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Russia to enter world of Islamic finance

KAZAN (Russia): Hoping to attract Arab capital, Russia will take its first step into the world of Islamic finance in June by issuing sukuk, bonds which comply with the syariah.

The bonds are to be issued by the majority Muslim Russian republic of Tatarstan in the Volga region, which has embarked on an ambitious drive to attract foreign investment.

“Russia will show that it can be interesting for Muslim countries,” one of the project’s backers, Linar Yakupov said.

“Right now Islamic banks cannot work in Russia, because our legislation does not take into account the Koran’s restrictions.”

Islam forbids borrowing or paying with interest, and sukuk (the plural of the Arabic word for a financial deed) are not based on debt like traditional bonds.

Instead, buying the bonds secures partial ownership in a concrete asset like land or a building, and investors are guaranteed a part of the profits generated by this asset.

The first sukuk to be issued in Tatarstan’s capital Kazan on June 20 will be going toward financing a major business centre in the city whose construction will cost US$200 million (RM600 million).

“Sukuk are guaranteed by the Tatarstan government, the operator will be based in Luxembourg, and we know that the international market is ready to buy,” Yakupov said.

Among the interested investors are the Jeddah-based Islamic Development Bank, and various banks in the Middle East, Malaysia, and Russia, he said.

Russia’s finance ministry said that it “supports Russia’s first emission of Islamic bonds in Tatarstan” but pointed out that “Arab capital is already present in Russia.”

Elnour Gurbanov, an analyst at Deloitte, said the initiative “can contribute to attracting Arab capital in Russia, but only in the long-term” since incorporating Islamic finance into Russia’s legislation will take time.

Tatarstan has maintained privileged relations with countries in the Middle East and Southeast Asia. It prides itself on maintaining a distinct identity within Russia although talk of secession that followed the collapse of the USSR has now died down.

For years it has urged Russia to adopt a legal framework to permit the work of Islamic banks in the manner of Britain, France, or Luxembourg.

Bringing Islamic banks to Russia is “possible and even necessary”, Tatarstan’s leader Rustam Minnikhanov told investors in Dubai in early May, according to the RIA Novosti agency.

In Moscow, however, federal authorities are showing greater caution.

“There is no existing law nor a draft law regulating Islamic finance. Given the lack of eagerness from the federal authorities to study this issue, we should not expect it for another two or three years,” said Oleg Ivanov, vice-president of the Regional Banks Association of Russia.

Ivanov’s association has tried without success to include Islamic finance into Russia’s strategy for developing its banking system to 2015, which was adopted by the government two months ago.

“The government and the Central Bank did not support us,” Ivanov told AFP.

Ivanov added, however, that the emergence of Islamic finance in the country “will definitely be positive for the development of the financial sector in Russia”, noting that the assets of Islamic banks are estimated at a trillion dollars. – AFP

source : bttimes.my

Islamic Finance in Russia: New Scope for Thinking

Islamic finance seems to be starting to be implemented in Russia, although by very careful steps. The potential size of the market has received various estimates, from a modest 10 percent of the practicing Muslims to the whole ethnic Muslim population of more than 30 million, or even more.

There is no doubt that the near future will witness rapid development of the industry. Already a number of Russian companies like Linova, Safinat and Islamic Finance House are half way through starting new Islamic finance projects.

At the same time, the Russian Islamic finance professional business community is being formed. One of the examples of this is the working group on alternative (Islamic) financial institutions and products that grew into the Russian Association on Islamic Finance Experts in 2010. A number of business and trade unions have been formed in the Tatarstan republic.

In May this year, two sharia standards were translated and published in the Russian language. These are sukuk and murabaha, the most-used Islamic finance transactions by the Islamic finance institutions around the world. The other standards on takaful (Islamic insurance), ijara and mudaraba are to be published in the near future.

It is to be expected that Russia, although having a centuries-old history of Islam, will hardly follow the way of its neighbor Kazakhstan, whose President Nursultan Nazarbayev made a decisive political contribution to the development of the Islamic finance industry.

However, at the same time, strengthening economic ties with Middle Eastern countries is another important incentive for the industry. The Islamic bankers from the Gulf and other Arab and Muslim countries find Russia an attractive and promising market given the guarantees for investors and partners. Islamic finance at the moment is seen as one of the most reliable ways of cooperation and hence is becoming one of the bridges uniting Russia to the rest of the Muslim world.

During the last 12 months Russia has been visited by many international experts specializing in Islamic finance or representing Islamic finance institutions, including Islamic banks from Malaysia, Indonesia, Bahrain, Kuwait, Turkey, France, the United Kingdom and others.

The foreign experts point out that the main requirements for the development of Islamic finance in Russia are: speeding up the process of document registration; improving the understanding of Islamic finance on the part of the authorities responsible for policy on taxation and financial regulation; formulating a special law to attract Islamic investors to the country; and overcoming the legacy of the Soviet mindset as a whole, where the culture of business and service is new and needs to be cultivated further.

It should be noted that Islamic finance should not be regarded as separate from the real sector of the economy, that is why what is on the agenda is the halal industry representing all spheres where Islamic investment can be made.

source : the moscownews

Finance Academy discussed the theory and practice of Islamic financial model in Moscow

The international conference “Problems and prospects of Islamic finance and international monetary and financial relations” was hel  at the Finance Academy under the Government of the Russian Federation in Moscow.

Within the framework of the presentations and discussions a wide range of issues was talked over, from the history of modern Islamic banking, experience of implementation of Islamic financial institutions in various countries (including the post-soviet Kazakhstan and Kyrgyzstan) to the prospects of their development in Russia.

It was mentioned that Islamic banking in its modern interpretation initiated in 1963 with the opening of the Mit Ghamr Local Savings Bank in Egypt, 30 years later – in 1993 – there were already more than 100 banks of that kind, and nowadays there are more that 300 Islamic banks or Islamic windows in conventional banks in the world.

Nowadays within the bounds of the Islamic financial model are used Islamic analogues of insurance, bonds, investment funds, project financing. The growth of Islamic analogues of traditional financial transactions occurs rapidly. As F.Gadzhiev, the representative of the department of project and structural financing of PC “Gazprombank” said, the total project financing that was carried out on the principles of Shariah in 2005 made up 15 billion dollars, and in 2008 – more than 70 billion dollars, while this was implemented only in 1994.

In 2008 the International Monetary Fund held a study of activity of 397 conventional banks and 77 of their Islamic analogues. The study revealed that Islamic banks with a capitalization of less than 1 billion dollars are one-third more effective than their traditional counterparts, and banks with a capitalization of more than 1 billion dollars are 25% more effective.

That’s why, as well as because of the greater stability of Islamic financial institutions during the global economic crisis, a lot of people pay attention to the Islamic financial instruments. As A.Mukaman, the representative of the National Bank of the Republic of Kazakhstan, said, amendments to the existing legislation, including the Civil Code, that allow the functioning of Islamic financial institutions, were introduced in his country, and in early 2009 a special law was passed. Nowadays the bank “Al-Hilal”, the insurance company “Takaful” and the investment fund “Fattah Finance” are open in this country.

M.Kalimullina, the representative of the Russia Muftis Council, talked about what steps had been made in Russia in order to develop alternative financial institutions in our country. Among these activities is a public inquiry for the purpose of ascertaining the need for Islamic financial products, educational programs. In June 2010 the exhibitions “Moscow Halal Expo 2010” and “Arabia-EXPO 2010” will be held in Moscow. In the near future standards for various types of Islamic financial products, prepared by the Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI) will be published in Russia. While the economic suitability and the demand for these products on the territory of Russia are obvious, the problems of legal regulation and compliance with the Russian legislation require further study and discussion. N. Tkachyov, the company lawyer of the LLC “Transtelekombiznes” spoke on this subject at the conference. According to him, for the implementation of the operation mudaraba can be used the organizational form of unit investment trusts, fur musharaka – society in participation, for murabakha – consumer crediting.

On the results of the conference participants adopted a resolution.

source : muslimco.ru

The development of Islamic microfinancing in Russia

Linar Yakupov 
Dmitry Shlyakhtin
In the course of the International Summit of Islamic Business and Finance, which was held in 25-26 of June,2009 in Kazan, LLC “IFC Linova” represented the model of russian islamic finance system consisting of financial institutions for big, mid-sized and small business.

Among the base element of mentioned system focused on the extension of the deposit-credit services to the populace and the financing of the small business, the institution of credit cooperation in its different aspects such as credit, consumer’s, agricultural, housing saving, was defined by the participants of the Summit.

The main idea of the credit cooperation is the pooling of populace’s cash assets with the purpose of their maximum effective management for the acquisition of gain and the satisfying the requirements in the obtaining of credit, services and in the receipt of goods.

The history of credit cooperation’s development traces its roots in 1849 when Frederick Raiffeisen, the mayor of bavarian city, established the first credit cooperation. Nowadays Raiffeisen movement comprises 900.000 cooperations, about 500 million of shareholders operating almost in 100 countries of the world, the aggregate capital of which overbalances $4.3 billion.

Nowadays the world movement of the credit cooperations looks like this: in France about 90% of populace use the services of the credit cooperation, in USA 30% of adult population are members of the credit cooperatives (9.935 cooperatives with $650 billion of assets), in Ireland 534 cooperatives join together 70% of commonwealth, in Poland the credit cooperation takes 4.5% of populace (96 cooperations and more than 1.400 of their branches with assets more than $80 million), in Lithuania 53 credit cooperations take 1.2% of commonwealth (with about EUR 53 million of assets).

Before the revolution of 1917 Russia took the key place in the world on number and diversity of credit cooperation’s establishing’s types. In Russia 981 establishments of small loan were counted in 1883,
13 thousand of cooperatives with about 8 million of shareholders were counted in 1914. Currently 750 credit consumer’s cooperatives, more than 450.000 of shareholders exist in Russia.

On the whole the development of microfinance organizations is supported by the goverment of Russian Federation, international public organizations. So, in 19 of December, 2008 the Resolution № 63/229 about the role of the microlending and the microfinancing in the poverty eradication was adopted in the course of the 72th plenary sitting of the UN General assembly. According to it the UN member governments, Bretton Woods institutions (the World Bank and the International Monetary Fund) were suggested in coordinated terms to lend financial and technical support to the efforts of the underdeveloped countries for the capacity development of the microfinancing establishments.

The Islamic economic model, as so as traditional, contains in its armoury the mechanisms of microfinancing: the credit cooperatives occur in abundance in such countries as Egypt, Morocco, Indonesia and Malaysia. It is due to the dispositive regulation of the activity of the credit cooperatives, which in distinction from the banking institutions, have a right to take a deposit and to accommodate with a loan without interest in the presence of appropriate regulation in rules.

In Russian Federation the activity of the credit cooperation is regulated by the Civil Code, the federal laws of credit consumer’s cooperatives of the citizenry, agricultural consumer’s cooperatives, housing saving co-operatives, consumer’s cooperations. The law of the credit cooperation is also prepared for adopting .

The economic activity of the credit cooperatives as well as other finance institutes consists of two directions:
the attraction of money (the contributions, the foreign loans, the sponsorship etc) and its ensuing placement (the lending for members, the foreign investment).

Whatever the credit cooperation is the entity of microfinancing activity, the internal procedure of its economic function must be strictly ordered as in the banking institution. Accordingly, the management of the credit cooperative in its function must be ruled not only by firsthand experience and by the regulations, but also by the domestic rules identifying shared, borrowed, investment, dividend, accounting and fiscal policy of the cooperative.

The disregard of this demand inevitably leads to the bankruptcy of the cooperative and to the prosecution of its directors, as evidenced by the analysis of pyramid investment scheme’s activity, concerning only with the attraction of money with no intent to place it then for profit-making.

According to prohibition prescribed by Shari’ah the contributor – shareholder and the cotributor – borrower are in practice the parties of the investment activity sharing both the profits and the material losses in collaboration with the cooperative, what for the avoidance of possible pretensions must be brought to their notice before their enlistment to the cooperative. Directly in the cooperative the principles of the islamic financing are realized in this way.

Considering current restriction by types of cooperative activity, that is forbidden to loan to the nonmember of the cooperative, to have a share in the nominal capital of the business entity and the partnership association, to issue issuance securities and go long, to trade and to produce. The main instruments of the Islamic financing in the cooperative are such transactions as mudaraba, salam, bai dayn, wadiah,Ijarah,card al hasan, sukuk.

Relying on the objectives of the cooperative activity the member’s subscription may set as the attraction of money to the business accounts in the cooperative (wadiah) and the ensuing trust management (mudaraba) by the cooperative. The foreign loans are also effected as mudaraba.

The cash assets, placing virtually in management, are used by the cooperative for lending on the social terms of no interest to its members (card al hasan), the investment and the financing of contributor’s (legal persons) activity (murabaha, salam, Ijara). The participation of the cooperative in the economically attractive projects of the outside agencies may be implemented through the government, regional bonds (sukuk) floating for the specific projects of the issuer, for instance, the federal programmes, Olympiad, Universiade.

Recognising the need for the Islamic principles’ abidance the Fund of zakat is initiated in the cooperative. Allowances for this Fund are derived by common approbation of cooperative’s members fixed by the special resolution of the general meeting and also being fixed in the regulations.

The implementation of the concerned operations needs the detailed elaboration of all procedures and the use of banking technology, because the cooperative, with the exception of the accounting functions becomes for its members small retail one and at the same time it becomes some investment type of bank.

Certainly, it’s very complicated for cooperative’s initiators and for small business’ representatives to formulate this documentation and to give a good discharge in view of restriction of finance,knowledge and experience. The recruitment of highly qualified bank personnel is also inaccessible, that increases the risk of the activity of concerned microfinancing establishment.

The way out is the handover of a great number of outsourcing’s functions,to which the current legal system contributes serving the functions of the final control device, the credit organ, investment and regulatory authorities which are the nonmembers of the cooperative.

In this case the most optimal scheme of the interplay is the commercial concession where franchisor is the association, the union or second-tier cooperative, which forms and conveys to its franchisee (the cooperative) the right to use the tradename, the documentation, the technology on a non-repayable basis, also trains specialists and renders managerial, auditing and other services.

Consequently, the bimodal federal system of the credit cooperatives can be formed. There the cooperatives of first level function as operating office, and the second-tier cooperative discharge the main financial functions allowing appreciably cut administration costs.

Back on track of russian Islamic financial system sounded by LLC “IFC Linova” on the International Summit of Islamic Business and Finance, notice that the Islamic credit cooperative can’t work itself. Sharia committee, which is capable to issue the appropriate decision, is necessary for the confirmation of its activity’s correspondence to the Islamic principles, the Sharia arbitration is necessary for settlement of disputes, the bank or non-bank credit organization – for the processing operations, special education establishment – for personnel training, mutual insurance company – for the risk reduction.

source : ibf.ru english

The initiative of the use of Islamic finance in Ingushetia

In the course of the works of strategic vision’s group “Russia-Islamic World”, which was held in Kuwait in 21-24 of December, Unus Bek Evkurov, the president of Ingushetia, informed that the asset complex is planned to be built in Magas. The territory is given for project, the architectural design of which is framing. Special fund and guardian council were established for financing of islamic complex’s construction. “It’s very important project for us”, – Unus Bek Evkurov emphasized.Previously Evkurov mentioned that Ingushetia was ready to offer Saudi Arabia and Kuwait the capital spending project for investment. “Particularly, it would be good for Kuwait to invest in construction business. We build on our capital, I would give the whole complex, the whole mikrorayon in order to build high-rise apartment buildings for subsequent sale of residential space”, – Evkurov said.

According to his words, in the process of agreement the additional insurance of the government may be given in order the residential space will be bought out if it couldn’t be sold.

Ingushetia also wants to secure assistance from these countries in the form of participation in mosques’ construction. “The second moment is construction of mosques and assistance not only with money, but also with participation in projects, as “North Caucasus” quotes the president of the republic.

 source : ibf.ru