Prologue to Islamic Finance, Securitization and Sukuk Amer Khalil ur Rehman Islamic Corporate Head Askari Bank Limited 25 th August, 2008 Disclaimer: Views communicated here in an individual limitSlide 2
Global Islamic Banking Market Muslims make more than 20% i.e. 1/5 th of world populace Profits amid 80âs found the middle value of 15%-20% p.a. what\'s more, in 90âs onwards found the middle value of 10%-15% p.a. return Foreign Banks, ABN Amro Bank, Citibank, Deutsche Bank, Hong Kong & Shanghai Banking Corporation, Merrill Lynch, Standard Chartered, Union Bank of Switzerland and so on, doing Islamic Banking revenue driven, and business sector size potential, and (not so much) for religious reasons 4. Singapore Eateries & Fast Food ChainsSlide 3
Market Potential Current Types of Investments Held Over 62% had Halal Only speculations, or Both . Demonstrates that around 66% Muslims are worried with having Halal speculations , in accordance with their religious convictionsSlide 4
Prohibition of RibaSlide 5
Why Islamic Banking? Interest, Usury, or Riba is taboo in almost every significant religion of the world e.g. Judaism Christianity Islam Plus Strong Business Case and Market PotentialSlide 6
Judeo Christian Tradition â Thou shalt not loan upon usury to thy sibling, usury of cash, usury of anything that is loaned upon usury â (Deutronomy 23:19)Slide 7
Judeo Christian Tradition â He that hath not given forward upon usury , neither hath taken any increment , that hath pulled back his hand from evildoing, hath executed genuine judgment in the middle of man and man, hath strolled in my statutes, and hath kept my judgments, to bargain really; he is just He should without a doubt live, said the Lord GOD â (Ezekiel 18: 8,9)Slide 8
Judeo Christian Tradition âHe that by usury and crooked addition increaseth his substance, He might assemble it for him that will feel sorry for the poorâ (Proverbs 28:8)Slide 9
Judeo Christian Tradition âIn thee have they taken endowments to shed blood; thou hast taken usury and increment , and however hast greedily picked up of thy neighbors by blackmail , and hast overlooked me, said the Lord God.â [Ezekiel 22:12]Slide 10
Sources of Fiqâh in Islam (and Riba) Quran Sunnah Ijamaâe Ummah (Consensus of the Ulema) Ijtehad/QiyasSlide 11
Riba in the QuranSlide 12
Riba in Quran First Revelation: â That which you give as enthusiasm to expand the peopleâs riches increments not with God ; but rather that which you give in philanthropy , looking for the goodwill of God, products complex .â (The Rome â Sura al-Rum 30:39)Slide 13
Riba in Quran Second Revelation: â And for their taking premium despite the fact that it was prohibited for them and their wrongful apportionment of other peoplesâ property. We have arranged for those among them who reject confidence a terrible discipline â (Woman â Sura Al-Nisaâ 4:161)Slide 14
Third Revelation: â O Believer, take not multiplied and intensified interest [interest on interest] , and dread God so that you may thrive. Dread the flame which has been readied for the individuals who reject confidence , and obey God and the Prophet so that you may get mercyâ (The group of Imran â Sura Al-Imran) Riba in QuranSlide 15
Riba in Quran Fourth Revelation: âThose who advantage from interest might be raised like the individuals who have been headed to franticness by the touch of fallen angel ; this is [ just ] BECAUSE THEY SAY : âTrade is similar to interestâ while God has allowed exchange and illegal interest . Consequently, the individuals who have gotten the rebuke from their Lord and stop, may keep their past picks up, their case being endowed to Godâ yet the individuals who return should be tenants of flame and tolerate in that foreverâ (The Cow â Sura Al-Baqara 2:275)Slide 16
Fourth Revelation: â... God has allowed exchange and illegal hobby... â (The Cow â Sura Al-Baqara 2:275) Riba in QuranSlide 17
âGod denies enthusiasm of all gift , however favors philanthropy; He adores not the thankless sinnerâ (The Cow â Sura Al-Baqara 2:276) Riba in QuranSlide 18
Riba in Quran â O adherents , dread Allah, and surrender what is still because of your from the interest (usury), IF [indeed] you are genuine believers[!!!] . On the off chance that you don\'t do as such, then pay heed to War from Allah and his Messenger . Be that as it may, on the off chance that you apologize, you can have you\'re key. Neither if you submit shamefulness , nor if you be subjected to it .â (The Cow â Sura Al-Baqara 2:278-9)Slide 19
Riba in Quran (Related in connection to 2:278) â The main prize of the individuals Who make War upon Allah & his Messenger, and seek out defilement in the area, will be that they will be Killed Or, Crucified , Or, have their Hands and Feet on substitute sides Cutoff , Or, will be Expelled out of the area. Such will be their debasement on the planet , and in the great beyond , theirs will be a dreadful fate .â (Quran: The Table Spread - Al-Maida Chapter 5: Verse 33)Slide 20
Riba in HadithSlide 21
Riba in Hadith âThe Prophet reviled the beneficiary and the payer of interest, the person who records it and the two witnesses to the exchange and said: âThey are all indistinguishable (in guilt).â (Sources: Jabir ibn Abdullah, Muslim, Tirmidhi, Musnad Ahmed)Slide 22
âA dirham of riba which a man gets intentionally is more awful than submitting infidelity thirty six times.â (Sources: Abdallah ibn Hanzalah. Mishkat al-Masabih.Bayqahi) Riba in HadithSlide 23
The Prophet said: âRiba has seventy sections, the minimum genuine being proportionate to a man submitting infidelity with his own mom .â (Sources: Aby Hurayrah, Ibn Majah) The Holy Prophet said: âEven when hobby is much, it is sure to wind up in unimportance. â (Sources: Ibn Mas`ud, Ibn Majah, Musnad Ahmad) Riba in HadithSlide 24
Riba Al-Fadl in Hadith The Prophet said: âSell, Gold in return of comparable Gold, Silver in return of equal Silver Dates in return of identical Dates Wheat in return of proportional Wheat Salt in return of equal Salt Barley in return of equal Barley But in the event that a man executes in abundance it is usury (riba), However, offer gold for silver at any rate you please on the condition it is hand to hand (spot) and offer grain for dates at any rate you please on the condition it is hand âto-hand.âSlide 25
Introduction â Part IISlide 26
Islam and ShariahSlide 27
Muamalat (common exchanges) ought to be.. Free from Riba (an increment without âiwad or equivalent counter-esteem) In Compliance with (targets of) Shariah Devoid of Gharar (instability, indeterminacy) Free from Qimar (betting) and Maysir (recreations of chance) Free from Ghishsh (extortion) and Khilabah (deceiving) Entitlement to benefit relies on upon obligation for danger Contracts in view of free common assent âWhat is not expressly precluded is permissibleâSlide 28
Human Financial Needs Forms of Contracts Instruments Securities Forms of Contracts Instruments Securities Equity (Capital) Market Debt MarketSlide 29
External (Equity & Debt) FinancingSlide 30
âBanks Deal in DocumentsâSlide 31
Documents âConventional Banks bargain in Documentsâ Transaction Documents (âLoan Creationâ) Security Documents âIslamic Banks bargain in Goods and Documentsâ Transaction (Process) Documents (âDebt Creationâ) Security Documents (comparative)Slide 32
Main Financial Contracts Debt making Modes (Low Risk Category) 1. Qard Al-Hasan (without interest advance) 2. Bai Muajjal (Price conceded deal) 3. Murabaha and Musawama 4. Salam (Commodity deal) 5. Istisna (Order to produce) Semi-obligation Modes (Medium Risk Category) 1. Ijarah Sharing or Non-obligation Modes (Full Risk Category) 1. Musharakah (Close to funding) 2. Particular Purpose Mudarabah 3. Broadly useful MudarabahSlide 33
Loan versus Debt DilemmaSlide 34
Conventional Land Labor (incl. Business person) Capital Islamic Land Labor (incl. Business person) Conventional Vs Islamic Economics Difference in Factors of ProductionSlide 35
Conventional Land Labor (+Entrepreneur) Capital Islamic Land Labor (incl. Business visionary) Conventional Vs Islamic Economics Difference in Factors of Production Capital Conversion..Slide 36
Money Lending versus Trade and Asset Backed Transactions Money Goods Money Instead of Money Goods i.e. Advance versus Debt Islamic fund supplements the credit by getting the title of products financed notwithstanding the money streamsSlide 37
Major Islamic Modes and their nearby Conventional EquivalentsSlide 38
Some Common Misconceptionsâ¦ Form Vs Substance Issue Return can (not?) be altered in Islamic Banking Return can (not?) be same as Conventional Profit â Riba. Subsequently, Riba Free â Profit Free Benchmarking with Conventional premise to coordinate with Islamic Banking ReturnsSlide 39
Baiâtan fil Baiââ¦Slide 40
Innaâmal aâmal-o-bil-niaâat.. Aitkafâ¦ (Bonus Sawab) Ajar and Ujârat Sunnah, Sawab and Sadaqaâe Jaariaâ¦Slide 41
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