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Sunday, 29 November 2009

Dubai Debts Test Islamic Finance


CAIRO - As the world is still recovering from an economic meltdown, an unfolding debt crisis in the flashy lifestyle-Gulf state of Dubai is sending shockwaves around the world, putting the booming Islamic finance to a test.


“A Default by Dubai will put the world of Islamic finance to the test at a time when hard questions are being asked by bankers and lawyers about the protection afforded by financial instruments based on Shari`ah law,” commented The Australian on Saturday, November 28.


Dubai announced Wednesday that its state flagship conglomerate, Dubai World, wanted a six-month standstill on 59 billion dollars in debt.


The move has sent shockwaves across the world economic markets over fears of a debt default.


“The bond that is at the heart of the threat of default and financial ignominy for Dubai is the sukuk,” said The Australian.


There are concerns that Sukuk creditors may not be protected.


UK Islamic Banks Brave Economic Crisis


Islamic Banks Weather Global Crisis


It is not clear how creditors will rank in an insolvency, said Neale Downes, a Bahrain-resident partner at law firm Trowers & Hamlins.


He said investors sometimes have found themselves competing against other creditors rather than being able to enforce their claim on the underlying asset supporting the Sukuk.


Sukuks, which conform to Islam's prohibition of receiving or paying interest, typically work as profit-sharing vehicles.


Companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.


But money can not be invested in alcohol, gambling, pornography, tobacco, weapons or pork.


The Sukuk market has reached $111.9 billion in the eight years to 2008 and a further $69 billion is expected to be issued in 2008/2009, according to the International Islamic Financial Market.


Islamic finance is one of the fastest growing sectors in the global financial industry.


Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.


A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.


Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.


Bailout


Dubai debt problems have triggered fears of a new world economic crisis.


“If you look to government balance sheets around the world you’ll find plenty of potential banana skins,” Jim Reid, strategist at Deutsche Bank, told The Times.


“Given the nature of this crisis the probability of further sovereign events remains elevated.”


A financial firestorm swept the US and the world in September 2008, after the demise of Lehman Brothers, one of the Wall Street giants.


It has knocked down many major companies worldwide, causing mounting job losses, falling household wealth and forcing consumers to hold back on spending.


"Dubai is very much a reminder that the lingering effects of the credit bubble are still with us," Barry Knapp, of US equity investments at Barclays Capital, told The Washington Post.


"While there no real direct linkages to U.S. markets and our direct exposure is small, we have plenty of our own bad debts in the US"


Dubai is estimated to have total debts of $88 billion.


Investors have downplayed the gravity of Dubai problems, saying if worst came to worst, the emirate could be bailed out by Abu Dhabi, its oil-rich neighbour.


Abu Dhabi, the capital of the United Arab Emirates, has already said that it will “pick and choose” how to assist its debt-laden neighbour.


"We will look at Dubai's commitments and approach them on a case-by-case basis,” a government official told Reuters by phone.


“It does not mean that Abu Dhabi will underwrite all of their debts."


Abu Dhabi, which pumps 90 percent of the oil that make the UAE the world's third-largest oil exporter, has already provided $15 billion in indirect support for Dubai through the UAE central bank and two private Abu Dhabi banks.


"Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist."


(IslamOnline.net & Newspapers)
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Islamic finance consultant: www.ahmad-sanusi-husain.com 
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Wednesday, 25 November 2009

IFSB Approves Three Documents To Enhance Islamic Financial Services Industry


KUALA LUMPUR, Nov 23 (Bernama) -- The Council of the Islamic Financial Services Board (IFSB) has resolved to approve three documents aimed at further facilitating efforts towards enhancing the soundness and stability of the Islamic financial services industry.

The IFSB made the decision at its 15th Council meeting in Kuala Lumpur Monday.

The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry.

In a statement Monday, the IFSB said the three documents are, Guiding Principles on Governance for Islamic Insurance (Takaful) operations, conduct of business for institutions offering Islamic Financial Services (IIFS) and Guiding principles on Shari'ah governance system.

Bank Negara Malaysia hosted both the council meeting and the subsequent IFSB public lecture on financial policy and stability today.

Bank Negara Governor, Tan Sri Dr Zeti Akhtar Aziz officiated the public lecture.

The Guiding Principles on Governance for Islamic Insurance (Takaful) undertakings (IFSB-8), seeks to provide the principles on governance for all Takaful undertakings, under each respective jurisdiction's purview.

The document has three main objectives of reinforcing relevant good governance practices based on those prescribed by other internationally recognised governance standards, striking a balance between the interest and fair treatment of stakeholders while providing a solid foundation for all the IFSB's future standards that relate to good governance of Takaful undertakings.

The conduct of business for institutions offering Islamic Financial Services (IFSB-9) aims to promote a climate of confidence and a supportive environment in the business of the Islamic financial services industry by upholding and strengthening the relevant moral, social and religious values in business practices.

As for the Guiding principles on Shari'ah governance system (IFSB-10), it aims to highlight to supervisory authorities in particular, and the industry's other stakeholders in general, the components of a sound Shari'ah governance system, especially with regards to the competence, independence, confidentiality and consistency of Shari'ah boards.

The IFSB Council at its meeting this morning also admitted eight new organisations into membership.

The members of the IFSB comprise regulators and supervisors of the banking, capital markets and Islamic insurance (Takaful) sectors, as well as international inter-governmental organisations and market players (financial institutions, professional firms and industry associations).

The newly admitted regulatory and supervisory authority members today were the Insurance Authority of the United Arab Emirates, Banque Centrale du Luxembourg and the Central Bank of Turkey.

The industry association member admitted was the Arab Chamber of Commerce and Industry, Hong Kong.

The financial institutions and professional firms accepted as members were Al-Aqeelah Takaful (Syria), Amsar Partner LLP (Singapore), IFC Linova LLC (Republic of Tartarstan, Russia) and West Services Inc ( United States).

At its meeting, the IFSB council also resolved to appoint Dr Sabir Mohamed Hassan, Governor of the Central Bank of Sudan as its chairman for the term, Jan 1-Dec 31, 2010.

The Governor of the Central Bank of Jordan, Dr Umayya Toukan was appointed deputy chairman for the same period.

Sabir will be the 8th chairman of the IFSB council and replaces Dr Muhammad Sulaiman Al-Jasser, the governor of the Saudi Arabian Monetary Agency. His term in the current council ends on Dec 31.

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Strong liquidity management is vital for the development of Islamic finance

KUALA LUMPUR: Enhancing the ability of Islamic financial institutions to manage liquidity is important for the development of a stronger and more resilient Islamic financial industry, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

“The recent financial turmoil in advanced economies has clearly demonstrated the consequences of liquidity constraints and underscored the importance of a strong and well-developed liquidity management infrastructure,” she said yesterday at the Bank Negara High Level Conference on Financial Stability.

She said facilitating effective cross-border management of liquidity required the development of syariah-compliant financial instruments and a well-developed international market infrastructure so that liquidity risks were effectively managed.

“For that, the Islamic Financial Services Board (IFSB) and the Islamic Development Bank (IDB) established a liquidity management task force early this year to develop a liquidity management framework,” she said, adding that they hoped to have the framework in place next year

She added that IFSB, which was established in 2002, had been instrumental in developing and issuing global prudential standards and guiding principles for the industry.

“Apart from the implementation of these prudential standards, there is also a need to ensure the supervisory and legal infrastructure remains relevant to the rapidly changing Islamic finance landscape,” she said.

Zeti said in Malaysia, these efforts were also supported by a comprehensive financial safety net that included a deposit insurance scheme and a resolution mechanism, so that not only were the depositors protected, but also allowed for prompt, effective and least-cost resolution of the financial system.

The system she said, could facilitate recapitalisation of Islamic financial institutions as well as institute programme to remove troubled assets from the books of financial institutions.

“The development of Islamic finance in Malaysia that operates in parallel with conventional finance for almost three decades now has demonstrated its sustainability as a form of financial intermediation,” she said.

Today, she said the Islamic banking system had emerged as a vibrant financial system with Islamic banking assets currently accounting for 18.8% of the total banking assets of the Malaysian financial system.

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Tuesday, 24 November 2009

Islamic banking thrive in Lebanon




24 November 2009


BEIRUT -- Islamic banks are thriving in Lebanon after proving efficiency in facing the ramifications of the global financial crisis.


Banks that are based on Islamic teachings of Shareia, though newly established, they covered a wide-range of customers and were licensed by the Central Bank of Lebanon (BDL), Director General of the Islamic bank Al-Baraka Mutasim Mihmisani told KUNA.


The law concerned with Islamic banking was issued in 2004, he said, adding that BDL and Lebanese Ministry of Finance are "seriously" looking into amending some laws and regulations affiliated.


Islamic banks in Lebanon run about USD 200 million assets, with a growing customer base of 6,000, he noted.


Most of the investments adopted by these banks fell in real estate, he said, and added that these banks work with liquid money.


Up until now, five Islamic banks were licensed in Lebanon after meeting asset and administrative requirements, BDL's Governor, and noted that the bank supported issuing Islamic bank certificates along the Islamic banking movement.


BDL is also cooperating with time-honored international banking institutions to develop Islamic banking so to meet banking requirements, he said, adding that this step gained the blessing of the World Bank.
By Omar Al-Halabi


© KUNA (Kuwait News Agency) 2009



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Saturday, 21 November 2009

Russia: A Promising Market for Islamic Finance





















(Riyadh, Asharq Al-Awsat) - There are around 47 million Muslims in Russia, which means that Muslims make up around one third of Russia's overall population. This figure is expected to rise to 50 percent by 2050 due to the high birth rate among the Muslim community, the decrease in the non-Muslim Russian population which is decreasing at a rate of 1 million people per year, as well as the immigrations of Muslims from central Asia into the Russian Federation. The Islamic presence in Russia is centered in the Caucasus, Siberia, and Moscow. Russian Muslims heaved a sigh of relief at the collapse of the Soviet Union; they reaffirmed their identity and began to practice their religion openly once more without fear or shame. In 1990 there were as few as 98 mosques in Russia, however today there are more than 7200 mosques throughout Russia. This is something that characterizes the Muslim zeal for their religion, and the [Russian] Muslims desire to follow the tenets and teachings of their religion, something which they were prevented from doing under the former Soviet regime.

This is something that makes the Muslims in Russia eager to apply Islam to all aspects of their life, including Islamic Shariaa Law. Therefore the [Russian] Muslims are in dire need of all types of Islamic financial institutes, such as Islamic banking, investment, and insurance institutions that meet with their [religious] requirements. Only one bank offering Islamic financial services is operating in Russia, and this is the "Badr Forte Bank." This bank was instituted in 1997 by the Forte Bank to offer Shariaa-compliant financial services to Muslims [in Russia]. As for Shariaa-compliant insurance services, a Russian – Tatarstani insurance company sought to establish an Islamic Takaful Insurance company, and in 2004 an agreement was concluded with the Dubai Islamic Insurance and Reinsurance Company [AMAN] to study the possibility of establishing a Takaful Insurance company in Russia. However this agreement was terminated in 2005 and no Takaful insurance company has yet to come into existence in Russia.

There can be no doubt that Russia represents one of the major markets for Islamic finance due to the existence of a large Muslim population that – as I mentioned above – is eager to follow the tenets of Islam. In addition to this, the Russian Muslim community enjoys an annual growth rate of more than 6 percent, and Russia has enormous oil and natural gas resources.

Following the outbreak of the global financial crisis, the Russian market – in the same manner as other international markets – opened up to Islamic finance, and Vice-Speaker of the upper chamber of the [Russian] Federal Assembly called for effective ties to be established with the Islamic Banking system in order to allow Russia long-term access to Islamic financial resources. Torshen also did not rule out the Central Bank of Russia amending its rules to allow Islamic banks to open in Russia, despite admitting the disparity between the operational mechanism of Islamic finance and the Russian banking system. Russia's largest financial companies are seeking to take advantage of the [financial] liquidity of Islamic banking at a time when there is a lack of financial liquidity in the global financial system.

This is why FDP Capital, one of the leading financial companies in Russia, is seeking to introduce Islamic financial services in its operations in collaboration with the Liquidity Management House which is affiliated to the Kuwait Finance House, with memorandums of understanding being signed by the two parties to this effect. I therefore call on the Islamic Development Bank, the Islamic Chamber of Commerce and Industry, and the General Council for Islamic Banks and Financial Institutes to take advantage of this opportunity [in Russia] by inviting the heads of major Islamic financial institutes to meet and draw up a unified strategy to seize this opportunity, as it is one that will not recur.

The Islamic financial industry has a great opportunity to serve itself [in a unified manner], rather than waiting for individual institutes to take the initiative separately. The financial crisis proved that many major Islamic financial institutes lack the human and financial potential to develop long-term strategies, alternate plans, and ambitious visions, from in-depth study of market research. Initiating this [unified] strategy will allow the Islamic financial industry to seize opportunities as they arise, rather than wasting time considering opportunities and drawing up plans, as ultimately this may result in the opportunity going to waste.

source: Asharq Al-Awsat
photo: a mosque in Russia

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Islamic finance consultant: www.ahmad-sanusi-husain.com 
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Islamic banking coming to U.S.?


Faithful Muslims don't eat pork. But that doesn't mean they can't enjoy bacon, because they can eat beef or turkey bacon.

The same logic can be applied to the Islamic banking system, said Islamic finance scholar Siddhartha Herdegen.

"They like the products" of conventional finance, he said. "They want it to fit into their religion."

Herdegen, who splits his time between Bahrain and Salt Lake City and received an undergraduate degree at the University of Utah, spoke Friday about Islamic finance at his alma mater to about 40 students and professors.

After the financial meltdown that resulted in the U.S. government bailing out banks last year, some people are questioning traditional capitalism. Some Islamic financing principals have been adopted by large Western corporations. For instance, General Electric Capital Corp. announced earlier this week they are going to issue $500 million sukuk, which is bond debt in a manner that is compliant with Islamic law called Shariah.

At the heart of Islamic finance is the question about whether money lent to a person or business would be used in a productive manner for society. Conventional finance tends to look more at outcomes.

"There are over 600 Islamic financial institutions throughout the world and about $1 trillion in assets," Herdegen said.

Islamic banks in theory have a 100 percent reserve ratio. "Under the Islamic finance, the bank has to use that money to buy physical things," he said. "It can't loan out more than its supply. It is, in essence, full-reserve banking."

Banks buy machinery, equipment and inventory, and sell them for a profit. Profits are given to depositors, who share the risk. In conventional banking, depositors are guaranteed to earn a percentage of interest on their money held in banks, Herdegen said.

Islamic financial products include murabaha, which is comparable to consumer loans in conventional finance, except getting money from an Islamic bank means paying more than the item is worth, which is similar to interest tacked on to a conventional loan. But paying back an Islamic bank loan ahead of time doesn't save money because many Muslims believe interest is detrimental to society, Herdegen said.

When Islamic bankers consider business lending, they look at the financial viability of a particular business in society. In conventional banking, a business owner's creditworthiness is considered important. Bankers don't care if a business fails as long as the loan is repaid. In Islamic finance, business loans are considered partnerships.

Bankers are silent partners in mudarabah loans. Musharakah loans are more like joint ventures, with the bank providing the business advisers.

With large Muslim populations in the West, Islam financiers have their eyes on North America. A handful of banks have been established in the Toronto area. Herdegen said that the United States is among the next growth region, especially since financial regulators have made recent rule changes to banking that permit Islamic financial practices.

Source: Deseret News
Picture: Mosque in Washington DC, USA

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Saturday, 14 November 2009

Switzerland Joins Islamic Banking World


CAIRO – Switzerland became the latest Western country to join the booming Islamic finance system, offering a full range of Shari`ah-compliant banking products and services, reported Qatari daily The Peninsula on Friday, November 13.
“We are proud to be the first Swiss private bank to offer such a holistic range of opportunities in Islamic finance to the (Middle East) region and on a global scale,” Fidelis M Goetz, Head of Banking Division at Bank Sarasin, told a press conference in the Museum of Islamic Art in Doha.

The bank would offer a full spectrum of Shari`ah-compliant banking products and services for clients.

This includes Murabaha “sale on profit”, Wakala “fiduciary agreement between two parties” and Maraya “an Islamic structured product that is based on Murabaha or a series of Murabaha transactions”.

“The launch of our Islamic wealth management offering reflects our commitment to serving the diverse needs of our clients,” said Goetz.

Islam forbids Muslims from usury, receiving or paying interest on loans.


Islamic Banks Weather Global Crisis

Transactions by Islamic banks must be backed by real assets -- not shady repackaged subprime mortgages.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

Booming Market

The Swiss bank, a leading private bank with a broad international footprint, hopes to get a share of the booming Islamic finance market.

“We have perceived in the past couple of years that we have been in the region real interest for these services,” Goetz said.

Islamic finance is one of the fastest growing sectors in the global financial industry.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

"We are extremely delighted that the global launch of our Islamic products is taking place in the Middle East,” said Rohit Walia, Executive Vice Chairman & CEO, Bank Sarasin-Alpen Group, Middle East and South Asia.

Nearly 50 percent of the Islamic finance market is situated in the Gulf region.

“Islamic Finance is a fast growing concept in the region,” said Walia.

“Many of our clients have expressed interest in Islamic Wealth Management and we are very happy to offer the suite of Islamic products to meet their requirements.

“I am sure this will also add to our already strengthened position in the region."

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

“Ultimately our aim is to operate on a global basis,” said Fares Mourad, Managing Director, Head of Islamic Finance at Bank Sarasin.

“But what we are doing is a step by step approach.”

(IslamOnline)

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Islamic finance consultant:www.ahmad-sanusi-husain.com 
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Monday, 9 November 2009

Malaysia: Two Banks Shortlisted For Mega Islamic Bank Licences

KUALA LUMPUR, Nov 9 (Bernama) -- Two foreign banks have been shortlisted by Bank Negara Malaysia in their applications for new Islamic banking licenses, Deputy Finance Minister Datuk Dr Awang Adek Hussin said Monday.

"I was told a few had submitted," he told reporters after officiating the Islamic Financial Planning and Wealth Management Conference here.

He, however, declined to give further details.

As part of the financial sector liberalisation in April this year, the government announced that up to two new Islamic banking licences would be offered this year to foreign players to establish new Islamic banks with a paid-up capital of at least US$1 billion.

The aim is to enhance global interlinkages, leverage on global developments in Islamic finance and reinforce Malaysia's position as an international Islamic financial hub.

Asked whether there will be further liberalisation in the sector after the April announcement, Awang Adek said: "It is not the end of the liberalisation. It will come as we go along."

In his keynote address at the conference, Awang Adek said the high number of Malaysians' high net worth individuals could be a potential growth driver for the financial planning industry.

He noted that about 61 per cent of Malaysian population came under that group, with gross domestic product per capita income of over US$6,000 (US$1.00=RM3.386).

"The investing behaviour of high net worth individuals has become more global, driven by an increasing awareness of international developments and sophisticated investment products, better portfolio performance and risk mitigation techniques," he said.

He also said that the financial wealth of high net worth individuals had been projected to grow at an annual rate of 8.1 per cent by 2013 worldwide.

Within the Asia Pacific region, the wealthy held a combined US$9.5 trillion in financial assets, making up 23.3 per cent of the total global high net worth individuals' wealth.

"These investors are presented with greater opportunities to allocate capital across asset classes and diversify risks beyond geographic boundaries," Awang Adek said.

"Therefore, the demand for financial planning services will become even more significant as individuals seek professional expertise to assist them in framing asset accumulation strategies and selecting appropriate investments from the myriad of products from financial services providers," he said.

Awang Adek said with the Malaysian economy expected to continue its growth, the number of consumers in the middle-income group is likewise expected to increase.

"The emerging demographic structure is also favourable with the proportion of Malaysians above the age of 60 projected to grow to almost a quarter of the population by 2030," he said.

The wealth of individuals is also expected to rise at a rapid pace, particularly given Malaysia's aspirations to achieve developed nation status and become a high-income society by 2020, he added.

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Saturday, 7 November 2009

Waqf Can Be Another Source Of Financing, Says Raja Nazrin

LABUAN, Nov 6 (Bernama) -- The use of Waqf, more commonly known as Islamic endowment, can be another source of financing and also a mechanism for wealth distribution in Islamic Finance, the Raja Muda of Perak, Raja Dr Nazrin Shah said on Friday.

He said from an economic point of view, waqf could be looked upon as a savings-investment mechanism where funds are diverted from consumption and invested in productive assets that provide revenue for future consumption.

"The proceeds can be used for building hospitals, universities, commercial complexes and even facilitate micro-financing.

"Such innovative uses have assisted in unlocking its economic potential, as well as its philantrophic objectives. Nonetheless, waqf has not been given due recognition," said Raja Nazrin, who is also the financial ambassador of the Malaysian International Islamic Financial Centre (MIIFC).

He said this in his keynote address at the Labuan International Islamic Finance Series VI here.

Raja Nazrin noted that contemporary Islamic finance has been largely disengaged from its socio-economic aspects and waqf was one instrument that tied the two together.

He added that the principle of perpetuity embedded in the waqf structure creates a distinction from other foundations and charity funds as widely practiced in western countries.

In further propogating Islamic Finance, Raja Nazrin said there was a need for continual product innovation if there was to be a different model of financial intermediation.

"It has to stand out especially at a time when even the strongest conventional banks have suffered a great loss of reputation," he explained.

He said product innovation was the first challenge, as the country takes a step into the third stage of developing Islamic Finance, which is deepening its acceptibility not only to the Muslim community but also to the non-Muslim world.

However, he cautioned that the innovation of Islamic finance products, in reflecting its uniqueness, should trump any imitation of conventional products, and must not replicate conventional structures which could be destabilising in the long run.

"As new Islamic financial instruments continue to pervade the global financial markets, it is important that innovation in turn does not dilute the authenticity of Syariah," he said.

The second challenge, he said, was to harmonise Syariah standards and regulatory practices, or there would be an absence of consistency and predictability needed to ensure deep and liquid international financial markets.

According to Raja Nazrin, with an increased integration of Islamic markets into the global financial system, comes the added possibility of contagion effects.

"This poses a new set of challenges for Islamic financal regulators and industry to rethink stability as well as governance policies," he noted.

The third challenge he stated is to fortify the institutional foundations that will sustain the Islamic financial sector.

"As Islamic finance becomes more integrated into the international financial system, it will not escape the effects of impeded growth and diminished liquidity that comes with recession.

"Therefore, a sound liquidity management infrastructure is also required to effectively manage our risks.This is another area of potential collaboration among the Islamic financial community," he said.

Raja Nazrin also noted that Islamic Finance has not only gained a strong foothold in western economies, but was also assuming growing importance within mainstream international finance.

"Financial centres such as London, Hong Kong and Singapore have already made the raising of Islamic Finance a part of their activities and were aspiring to join the ranks of more established financial centres like Kuala Lumpur, Dubai and Bahrain," he highlighted.

He added that the assets of Islamic financial instituions worldwide are currently valued at between US$700 billion and US$1 trillion, with the Syariah-Fortune database listing 810 firms, operating in 50 countries globally.


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Islamic Banks Weather Global Crisis

LONDON — Thanks to its ethical low-risk approach, Islamic banks have managed to weather the global financial crisis, achieving high growth rates in 2009, a new study has found.
"A conservative approach to risk and close links between the financial sector and real assets has helped shield the sector from the worst of the credit crisis," Brian Caplen, editor of the Banker Magazine, said in the study cited by Agence France-Presse (AFP).

The study, commissioned by the London-based magazine and a unit of HSBC Bank, said Islamic finance institutions have overcome the crisis that harshly hit conventional banks.

A financial firestorm swept the US and the world in September 2008, after the demise of Lehman Brothers, one of the Wall Street giants.

It has knocked down many major companies worldwide, causing mounting job losses, falling household wealth and forcing consumers to hold back on spending.

The study attributes success of the Islamic banks to rules that forbid investing in collateralized debt obligations and other toxic assets that caused the financial crisis.

The rules of Islamic banking and finance read like a how-to guide on avoiding the kind of disaster that is currently gripping world markets.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets -- not shady repackaged subprime mortgages.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

Booming

Due to its safety, the Islamic finance industry is building a “solid track record," on the global market, the study says.

“At the moment there is a great demand for capital guaranteed or capital secured products," David Dew, Deputy CEO of HSBC Amanah, told Reuters.

The study notes that assets held by Shari`ah-compliant banks or the Islamic units of conventional banks rose by 28.6 percent to 822 billion dollars in 2009, up from 639 billion dollars in 2008.

This contrasts sharply with the stagnation in the conventional banking sector.

A Banker's survey of the top 1,000 world banks published in July showed annual asset growth of just 6.8 percent.

Islamic finance is one of the fastest growing sectors in the global financial industry.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.


(IslamOnline)

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Alfalah Consulting:  www.alfalahconsulting.com  
Consultant/Trainer: www.ahmad-sanusi-husain.com  
Islamic Investment: www.islamic-invest-malaysia.com

Friday, 6 November 2009

Seminar on Islamic Wealth Management and Financial Planning - Kuala Lumpur (Dec '09)


Alfalah Consulting is organising the Seminar on Islamic Wealth Management and Financial Planning as follows:

Date: 15-16 December 2009
Venue: Ballroom, Legend Hotel Kuala Lumpur

Coverage:
- wealth creation and accumulation
- wealth protection
- wealth distribution
- wealth purification
- Shariah principles

For further information, please visit www.alfalahconsulting.com

Thursday, 5 November 2009

Top 500 Islamic Financial Institutions ranking shows Islamic finance continues double digit growth despite global crisis

Islamic banking assets continued double-digit growth this year, even as conventional bank growth stagnated, according to The Banker's "Top 500 Islamic Financial Institutions" survey, published in association with HSBC Amanah.

Now in its third year, the report is the only annual benchmark of its kind, which ranks over 600 retail, commercial and investment banks, insurance companies and asset managers according to their Shariah-compliant assets.

Assets held by fully Shariah-compliant banks or Islamic banking windows of conventional banks, rose by 28.6%, to $822bn from $639bn in 2008. This is in striking contrast to The Banker's 2009 "Top 1000 World Bank Rankings" released in July, which showed annual asset growth of just 6.8% at conventional banks.

The Islamic finance industry continues to build a solid track record: the compound annual growth rate for 2006-2009 is 27.86%, with assets forecast to hit $1033bn in 2010.

Mr Brian Caplen, Editor of The Banker Magazine, said, "A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis. But finding improved ways to manage liquidity at Islamic banks, as well as harmonising Shariah and prudential compliance between institutions and markets, remain significant hurdles."

David Dew, Deputy CEO of HSBC Amanah, said:

"It is important that the Islamic Finance industry continues to analyse its growth critically if it is to become a truly credible alternative to conventional banking in a significant number of markets."


Dew added, "Our support for this global benchmark reflects HSBC Amanah's status as the premier cross-border provider of Shariah compliant financial services to retail, corporate and institutional clients. It also illustrates our commitment to continue to meet customer needs, which we believe will enable the industry to achieve meaningful scale and mainstream relevance in a growing number of international markets."

The Gulf Cooperation Council (GCC) states remained the dominant segment of Islamic finance, with $353.2bn or 42.9% of the total global aggregate. Iran remains the largest single market for Shariah-compliant assets, accounting for 35.6% of the global aggregate.

Outside the Middle East, Malaysia remains by far the largest player, accounting for 10.5% of the global aggregate, but other markets are expanding rapidly. The UK now accounts for just under 2.5% of global Shariah-compliant assets, and the Syrian Islamic finance market expanded an eye-catching 500%.

Mr Caplen added, "An extra 30 or so banks reported up-to-date data for this year, but transparency and financial reporting remain challenges for the Islamic banking industry if it is to continue its impressive growth rate."

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Jordan: Government eyes Islamic sukuks

AMMAN –– The Ministry of Finance (MoF) is planning to tap Islamic sukuks (bonds) in a bid to attract more capital to finance government projects.


Essa Saleh, the assistant secretary general and spokesperson of the MoF, told The Jordan Times on Monday that the plan seeks to encourage Islamic banks and financial institutions in Jordan to invest in sukuks as interest-bearing bonds are not permissible under Islamic investment principles.


Declining to set a specific date for starting such financing instruments, Saleh said the ministry is reviewing financial legislations, in cooperation with the International Monetary Fund, to issue sukuks, saying that once the project is ready, it will be presented to the iftaa department.


“Issuing a fatwa [religious edict] in this regard will attract companies dealing in Islamic finance to invest in such instruments,” the official noted.


Views of experts differed on the government plan as some said it will increase the government debt while others considered it as an important tool to raise money.


Banker Mefleh Aqel, ex-chairman of the former Industrial Development Bank which is now Jordan Dubai Islamic Bank, described the plan as a step in the right direction, saying Islamic finance has been untapped by the government due to legislative issues.


“It is important to open the market to Islamic bonds as Islamic banks in Jordan enjoy high liquidity,” he said, adding that large numbers of investors also seek Islamic finance for their projects.


However, Aqel warned of negative consequences if the government exaggerates issuance of Sukuks, stating that the volume of such bonds should be reasonable in terms of maturity and pricing.


“The most important feature for the government is to use the benchmark rate to encourage other borrowers to the market,” he remarked.


According to economist Yusuf Mansur, sukuk is another way of borrowing after the government exceeded its limit of loans from conventional banks.


“The government is going in the wrong direction as this step will only increase the internal debt,” he indicated.


Hani Khalili agreed, noting that internal debt, which is over JD5.5 billion, is increasing because government expenditure is also increasing on projects that do not generate revenues to pay back such debts.


The government should encourage banks to lend to the industrial sector instead of it (the government) borrowing from banks to finance unfeasible projects, he explained.


“It seems that the government has used all options with banks and now is going to resort to financial institutions that refuse to deal with traditional bonds,” he stated.


Aqel rejected Khalili’s point of view, saying the government has not used all lending outlets and that sukuks offer the diversification needed in the stock market.


Financial analyst Ali Tabbalat predicted the sukuk plan to be successful, saying Islamic bonds will stimulate the government fiscal plan by raising money to finance infrastructure projects.


Stating that the new financing instrument will increase the internal debt, Tabbalat said the government is going to borrow money and it is essential to open the Islamic bonds market at this time.


The analyst said Jordan can benefit from other countries’ experiences in this regard, particularly Dubai and Malaysia, saying that even some European countries are examining Islamic investment to tackle credit crunch.

By Omar Obeidat/Jordan Times

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Double digit growth for Islamic banking assets in 2009

Assets held by fully Shariah-compliant banks or Islamic banking windows of conventional banks rose by 28.6 percent to $822bn from $639bn in 2008, according to The Banker’s “Top 500 Islamic Financial Institutions” survey.

The London-based magazine found in a July survey that the world’s conventional banks posted annual asset growth of just 6.8 percent.

“A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis,” said editor Brian Caplen.

“But finding improved ways to manage liquidity at Islamic banks, as well as harmonising Shariah and prudential compliance between institutions and markets, remain significant hurdles.”

GCC states accounted for $353.2bn or 42.9 percent of the global aggregate, while Iran remained the largest single market for Shariah-compliant assets, accounting for 35.6 percent of the total.

(Arabian Business)

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Ireland: Islamic banking system provides unique opportunity in tough times


IN the gloomy 1980s, Irish companies such as Avonmore and Dawn Meats created hundreds of jobs by operating a successful but unusual business in the Mayo town of Ballyhaunis: the slaughter of cattle according to the rules of Sharia law. Imams said their prayers as the cows were killed according to the rules laid down by the Koran.

Today, in the middle of another recession, the differences between Islamic and Christian beliefs offer another chance to a new generation of Irish people to create jobs, this time in Dublin's financial services sector.

The Department of Finance, the Revenue Commissioners and some of the country's leading accountants are already looking at ways to tap into the trillion dollar Islamic banking industry, which caters to a fifth of the world's population, according to a position paper drawn up by the department last month.

Islamic beliefs create two different opportunities for businesses in Ireland: the opportunity presented by the often well-off Muslim business people and doctors who live here and the opportunity presented to the Irish Financial Services Centre (IFSC) to become the European home to Islamic banks and investment funds.

The IFSC is already home to a few Sharia funds and the Financial Regulator set up an ad hoc team to specialise in the authorisation of Sharia funds and to foster familiarity between the regulatory system here and in Arab countries, Financial Regulator spokeswoman Jill Forde said this week. The Irish Stock Exchange also recently listed its first Islamic investment product -- a sort of Islamic bond -- but the market remains largely untapped despite Dublin's potential to become the European base for Islamic banks who want to offer funds, bonds, general banking and treasury services to Islamic companies.

"Starting from scratch is not a problem," says Jim McDonnell, a tax partner at PriceWaterhouseCoopers. For Ireland to succeed, we will need to make minor adjustments to the tax code and extend the network of double taxation agreements to countries in the Middle East, he adds. Ireland signed such an agreement with Bahrain recently and is in talks with Egypt, Saudi Arabia and Kuwait.

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We must also be nimble. The biggest Islamic banks are in the Persian Gulf -- Dubai Islamic Bank, Kuwait Finance House and Saudi Arabia's al-Rajhi Bank -- but several other countries, notably Britain and Malaysia, are gearing up to be take a slice of the same cake. British Prime Minister Gordon Brown called two years ago for London to become the global centre for international Islamic banking and the country's Islamic banking sector is already bigger than Pakistan's and likely to expand further. Britain has six fully Sharia-compliant banks and 17 financial institutions such as the Qatar Islamic Bank have set up special branches or firms.

Some of these banks cater for Britain's large Muslim community, while others look after the sort of investment funds that the Government and Revenue Commissioners would like to see coming to Ireland.

While the Muslim community here is much smaller than Britain's (32,500 according to the 2006 census) it is expanding rapidly; jumping 70pc between 2002 and 2006 to become Ireland's third largest faith group after Catholics and Protestants. That community requires tailor-made banking that will either be provided by existing banks or by new institutions.

Non-Muslims in other countries have also been attracted by Islam's take on banking after the existing Western model was so discredited in the past two years. But despite the rising popularity of retail Islamic banks elsewhere, it remains difficult for Ireland's burgeoning Muslim population to access financial services here. Not one the 10 financial institutions listed on the Muslim Survival Guide for Northern Ireland and the Republic of Ireland website is based in the island of Ireland.

A seminar at the Islamic Cultural Centre of Ireland in the Dublin suburb of Clonskeagh last year urged local financial institutions to start offering mortgages and other financial services. Representatives from British-based Islamic banks gave presentations, but Dublin-based theologian Ali Selim emphasised the need for local institutions. It's an offer than has not yet been taken up, although Permanent TSB did consider such a move in the past.

To allow personal finance products for Muslims, we probably need changes in the rules governing lending here. The Sharia system for home buyers differs from the usual way of doing things here; rather than lend money to a home buyer and collect interest on it, an Islamic bank buys the property and then leases it to the buyer for the duration of the loan. The client pays a set amount each month to the bank, then at the end obtains full ownership. The payments are structured to include the cost of the house, plus a predetermined profit margin for the bank. Another popular financial services product is the credit card and here too the industry is coming up with solutions for Muslims living outside Ireland, but not inside the country. Muslim credit cards differ because the full balance must be paid off at month's end. The banks have devised a kind of commercial paper known as sukuk, which generates a predetermined return that is called a profit, not interest. It is tied to a specific asset such as a building and conveys ownership.

In Britain, Steven Amos, the Islamic Bank of Britain's head of marketing, recently told the London-based 'Times' newspaper that his bank is prospering as High Street banks alienate existing customers. "Our core business will always be Muslims, but the numbers of non-Muslims are really picking up. We've had massive interest -- and that's down to a number of reasons, all of which have kept us insulated from the credit crunch," he told the paper.

Those who have been working in Islamic banking for a long time feel vindicated. "The current financial collapse is an opportunity. The ugly side of Wall Street is exposed; it's always been there but covered by a layer of glamour that is now stripped away," according to Amr al-Faisal, a board member of Dar al-Mal al-Islami.

"We are more conservative and sober in our investments. That used to be considered a handicap. Now it's considered the height of wisdom."

Achampion of Islamic banking was the late Eddie George, who was governor of the Bank of England from 1993 and 2003. Nicknamed 'Steady Eddie' for the way he dealt with the aftermath of Black Wednesday in 1997, Lord Eddie George, as he became, is also remembered fondly by many in the Islamic finance industry in Britain for his determination over many years in pushing Sharia-compliant finance. In 2007, George recounted how he had been touched by the plight of one Muslim couple in Britain who had not been able to find a mortgage because of their religious beliefs, saying: "I couldn't think of any rational reason for this." It was under his promptings that the Bank of England began to consider how Islamic principles could fit with British law.

George was also instrumental in setting up a working committee, the Islamic Finance Advisory Group, to examine the challenges surrounding the introduction and expansion of Sharia-compliant finance in Britain in conjunction with a charity and the Union of Muslim Organisations in the UK and Ireland which helped to set the scene for Britain's rapidly expanding Islamic banking sector.

A pleasing example of how altruistic attempts to help ordinary Muslims get mortgages have repaid rich dividends for those who took the trouble to help their fellow citizens cope in a largely Christian society. It is also perhaps a lesson for George's newly appointed counterpart in Ireland, Professor Patrick Honohan, as he looks at ways of helping the struggling financial services industry.

(Thomas Molloy /Irish Independent)
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World halal standard plausible, Malaysia says


KUALA LUMPUR, Oct 29 (Reuters) - Malaysia hopes that Muslim countries can agree on which goods and products are halal, or acceptable to Muslims, a move that would boost the $2 trillion industry, although politics and interpretation of islamic law may complicate the task.


The Organisation of the Islamic Conference (OIC) is working on a single standard to be applied in its 57 member countries.


Agreement to regulate the halal industry, which ranges from financial institutions to cosmetics and meat, would help trade and speed up the certification for makers of halal products.


"Malaysia's halal certification is recognised worldwide so perhaps we can play an important role in creating a global standard," Malaysia's religious affairs minister Jamil Khir Baharom said in an interview on Thursday. "We need a halal certification that everyone can use easily."


The halal industry is based on a belief that Muslims should eat food and use goods such as cosmetics that are 'halalan toyibban', which means permissible and wholesome.


But Muslim jurists do not always agree on what is halal. Islam prohibits the consumption of pork and prescribes how animals must be slaughtered, but there has been debate on the acceptability of non-alcoholic beer, collagen and vinegar.


Rules are interpreted and enforced more strictly in some countries. Sudanese authorities have hauled up women for wearing trousers and a Malaysian woman has been sentenced to a beating for drinking beer, practices which are acceptable in some Muslim countries.


Jamil said Muslims generally agree on what is halal although some issues should be left to countries to decide. "In general, we don't have many differences in terms of products and food."




Some see politics as an obstacle as OIC members range from wealthy Saudi Arabia to poor countries like Somalia.


"Disagreement within the OIC is due to certain interests of certain countries," said Mohamad Akram Laldin, a religious scholar and legal expert. "Some people might have their own agenda and that might be the hindrance. They might want to push certain things from their view and not agree with others' views."
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Islamic finance and banking: Some basic principles and concepts

Islamic finance is a form of ethical investment and ethical lending. Under this system loans and investments are made Islamic finance is a form of ethical investment and ethical lending. Under this system loans and investments are made without interest. Ethical restrictions include prohibition on alcohol and gambling and the consumption of pork. Islamic funds never knowingly invest in companies involved in gambling, alcoholic beverages, or porcine food products. Elimination of "Riba" or interest is basic in all forms of Islamic financial system. Islamic banking follows the same principles. At the heart of Islam is a sense of cooperation -- to help one another according to principles of goodness and piety (but not to cooperate in evil or malice).

In essence, Islamic finance and banking aim to eliminate exploitation and to establish a just society by the application of the Shari'ah or Islamic law to the operations of banks and other financial institutions. To ensure compliance to the Shari'ah, Islamic banks use the services of religious boards comprised of Shari'ah scholars. Its practitioners and clients need not be Muslim, but they must accept the ethical restrictions underscored by Islamic values.

Islamic banking operates with the same purpose as conventional banking except that it operates in accordance with the rules of Shari'ah, known as Fiqh al-Muamalat (Islamic rules on transactions). Islamic banking activities must be consistent with the Shari'ah. Many of the principles on which Islamic banking is based are commonly accepted all over the world, for centuries rather than decades.

The principal source of the Shari'ah is The Qur'an followed by the recorded sayings and actions of Prophet Muhammad (pbuh) - the Hadith. Where solutions to problems cannot be found in these two sources, rulings are made based on the consensus of a community of learned scholars, independent reasoning of an Islamic scholar and customs. Such rulings must not deviate from the fundamental teachings in the Qur'an.

Islamic finance and banking were practised predominantly in the Muslim world throughout the Middle Ages, fostering trade and business activities. In Spain and the Mediterranean and Baltic countries, Muslim merchants became indispensable middlemen for trading activities. It is claimed that many concepts, techniques, and instruments of Islamic finance were later adopted by European financiers and businessmen.

Islamic banking operates on some basic principles which include:

l The Sharia'h prohibits the payment of charges for the renting of money (riba, which in the definition of Islamic scholars, covers any excess in financial dealings, usury or interest) for specific terms and also investment in businesses that provide goods or services which are forbidden in Islam (Haram, forbidden).

l The majority of the principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

l The universal nature of these principles is immediately apparent even at a cursory glance of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of the Bible, while Shakespeare and many other writers, particularly those writing in the 19th century, have attacked the barbarity of the practice. Much of the morality championed by Victorian writers such as Dickens -- ranging from the equitable distribution of wealth through to man's fundamental right to work -- is clearly present in modern Islamic society.

l Although the western media frequently suggest that Islamic banking in its present form is a recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century.

l The main principle of Islamic Banking is "prohibition of riba" in all transactions and all types of investment and deposit.

Islam not only prohibits dealing in interest and investment in unlawful activities that Islam deems harmful to society, but also transactions involving excessive uncertainty (gharar) and all forms of gambling (maysir). Islamic banking is an instrument for the development of an Islamic economic order. Some of the salient features of this order may be summed up as:· Islam makes a clear distinction between what is halal (lawful) and what is haram (forbidden or unlawful) in pursuit of such economic activity. In broad terms, Islam forbids all forms of economic activities which are morally or socially injurious.· While acknowledging the individual's right to ownership of wealth legitimately acquired, Islam makes it obligatory on the individual to spend his wealth judiciously and not to hoard it, keep it idle or to squander it.

l While allowing an individual to retain any surplus wealth, Islam seeks to reduce the margin of the surplus for the well-being of the community as a whole, in particular the destitute and deprived sections of society by participation in the process of Zakat (a tax on wealth that is distributed to the needy).· Islam, through its laws of inheritance, seeks to prevent the accumulation of wealth in a few hands to the detriment of society as a whole.· Viewed as a whole, the economic system envisaged by Islam aims at social justice without inhibiting individual enterprise beyond the point where it becomes not only collectively injurious but also individually self-destructive.Islam has a unique theory on the theme of wealth, its ownership, distribution and social relationship. Islam enjoins that wealth must not be created for its own sake.

The theme of Islamic dispensation of wealth is treated as a deeply moral study of self and society. Islam gives precise moral injunctions as to what are, and are not acceptable kinds of wealth. These injunctions point out how individual preferences on wealth formation ought to be utilised within the social meaning. Profits are important as ends, but the means by which those profits are earned are even more important. Indeed, the reason for the emphasis in the Shari'ah on proper transaction is that Islam accords great importance to the economic welfare of society.Profit-and-loss sharing is the main concept of Islamic banking under Musharakah & Mudarabah mode of financing.

While Islam employs various practices that do not involve charging or paying interest, the Islamic financial system promotes the concept of participation in a transaction backed by real assets, utilising the funds at risk on a profit-and-loss-sharing basis. Such participatory modes used by Islamic banks are known as Musharakah and Mudarabah. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic financial institutions.The concept of profit-and-loss sharing in an enterprise, as a basis of financial transactions, is a progressive one as it distinguishes good performance from the bad and the mediocre.

This concept therefore encourages better resource management. The Islamic 'sukuk' system is similar to bonds in capitalist system, but in sukuk, money is invested in concrete projects and profit share is distributed to clients instead of interest earned.The investment must be ethical under Islamic banking financing method. The important principles for Islamic financial instruments for participation and investments that require strict adherence, while providing good returns, are:· Investments must be free of interest, speculation and gambling, all of which are considered as forms of exploitation;· Investments are made in permissible activities.Investments must be separately approved by an independent Shari'ah supervisory board to ensure Sharia'h principles are strictly adhered to and deviations and wayward business practices penalised, for example, Islamic finance requires penalties should be paid to charity. "The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service," the Vatican's official newspaper, Osservatore Romano, said in an article in its March 2009 issue. All products of Islamic banking must comply with Shari'ah, as determined by a competent Shari'ah supervisory board.

If a product's authenticity becomes doubtful, it will be the responsibility of the individual investor or consumer to determine on his or her own that the product complies with the principles and precepts of the Sharia'h.Islamic banking is growing at a rate of 10-15% per year all over the world. Islamic banks have more than 300 institutions spread over 51 countries, plus an additional 250 mutual funds that comply with Islamic principles. The relative stability of Islamic Banking institutions in current recession has received attention. Even the Vatican said banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis.

by Md. Touhidul Alam Khan (The Financial Express)

Md. Touhidul Alam Khan is the Executive Vice President, Corporate Banking Division of Prime Bank Limited and Associate Fellow Member of Institute of Islamic Banking and Insurance (IIBI),

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