Overview

""The Islamic finance industry is worth about $800bn globally and is growing at an annual rate of 10 to 15 per cent. The sector's dramatic growth since 2000, when it was worth $150bn, and profusion of investment products has been fuelled by an increasing desire by Muslims for investments that comply with Islamic law. Demand has also been triggered by the big increase in wealth in the Gulf, where growth has doubled since 2002 on the back of the soaring oil price."" ~ Financial Times, May 30, 2008 - Islamic banking has grown rapidly over the past decade and continues to grow, while many conventional banks and financial institutions write off billions of bad debt. In 30 years, Islamic banking has developed from local provision to providers of established international financial products. This book explains the principles of Islamic banking and finance. It also provides a guide to Islamic finance products - such as istisna'a, murabaha, musharaka, mudaraba, ijara, sukuk, and salam - so that t

Full Product Details

Author:   Natalie Schoon
Publisher:   Spiramus Press
Imprint:   Spiramus Press
Dimensions:   Width: 15.60cm , Height: 1.30cm , Length: 23.40cm
Weight:   0.440kg
ISBN:  

9781904905837

ISBN 10:   1904905838
Pages:   218
Publication Date:   25 January 2010
Audience:   General/trade ,  General
Format:   Paperback
Publisher's Status:   Out of Print
Availability:   In Print  
Limited stock is available. It will be ordered for you and shipped pending supplier's limited stock.

Table of Contents

Figures. x Tables. xi Foreword. xiii 1 Introduction. 1 2 Historic Developments. 3 2.1 The History of Finance. 3 2.2 The History of Islamic Finance. 8 3 Economic Principles. 11 3.1 Early Economic Thought. 11 3.2 Modern Economics and Banking. 14 3.3 Contracts and Prohibitions. 15 3.3.1 Law of contract. 16 3.3.2 Contract validity. 18 3.3.3 Principles of Contract Applied to Financial Instruments. 19 3.4 Sharia’a and Prohibitions. 19 3.4.1 Usury. 20 3.4.2 Uncertainty and Gambling. 22 3.4.3 Impact of Prohibitions on Islamic Finance. 23 4 Islamic Finance Products Explained. 25 4.1 Definitions. 25 4.2 The Asset. 27 4.3 Transaction Types. 28 4.3.1 Partnership Contracts. 29 4.3.1.1 Joint Venture. 29 4.3.1.2 Passive Partnership. 30 4.3.2 Instruments with Predictable Returns. 32 4.3.2.1 Deferred Payment Sale. 32 4.3.2.2 Leasing. 33 4.3.2.3 Short Term Production Finance. 35 4.3.2.4 Long Term Production Finance. 36 4.3.3 Other Instruments. 37 4.3.3.1 Contract of Exchange. 37 4.3.3.2 Letters of Credit. 38 4.3.3.3 Guarantee. 39 4.3.3.4 Unilateral Promise. 40 4.3.3.5 Down Payment. 40 4.3.3.6 Agency Agreement. 41 4.4 Bond-Like Instruments. 41 4.4.1 Bonds. 41 4.4.2 Sukuk. 42 4.4.2.1 Generic Structure. 43 4.4.2.2 New AAOIFI Sukuk rules. 45 4.4.2.3 Sukuk Based on Partnership Transactions. 46 4.4.2.4 Sukuk Based on Predictable Return Transactions. 47 5 Distribution of Islamic Products. 53 5.1 Distribution Channels and Sharia’a Compliance. 53 5.2 Sharia’a Compliant versus Sharia’a Based. 54 5.3 Competition or Opportunity. 55 6 Application of Islamic Products in Retail Finance. 57 6.1 Current Accounts. 57 6.1.1 Qard Al Hassan. 57 6.1.2 Amanah or Wadia. 58 6.2 Credit card. 58 6.3 Deposit Accounts. 60 6.3.1 Restricted and Unrestricted Investment Accounts. 61 6.3.2 Capital Certainty and Capital Adequacy. 62 6.3.3 Accounting Treatment. 62 6.3.4 Reserves. 63 6.4 Funds. 64 6.5 Mortgage Products. 65 6.6 Personal Loans. 67 6.6.1 Secured Personal Loans. 67 6.6.2 Unsecured Personal Loans. 69 6.7 Transfers. 70 7 Application of Islamic Products in Treasury. 73 7.1 Interbank Liquidity. 73 7.1.1 Deposit Given. 74 7.1.2 Deposit Taken. 76 7.1.3 Variation on Commodity Murabaha. 77 7.1.4 Agency Contract. 79 7.2 Hedging. 80 7.2.1 Derivatives. 80 7.2.2 Option to Buy or Sell 81 7.2.3 Foreign Exchange Requirements. 81 7.2.3.1 Currency Swaps. 82 7.2.4 Profit Rate Swap. 83 7.2.5 Selling an Asset Forward. 84 7.3 Combination of Transaction Types. 84 7.4 Asset-Based Securities. 85 7.5 Syndication. 85 8 Application of Islamic Products in Corporate Finance. 89 8.1 Trade Finance. 89 8.2 Project Finance. 91 8.2.1 What is Project Finance?. 92 8.2.2 Appropriate Islamic products. 95 8.2.3 The Project Finance Market. 97 8.3 Property Finance. 98 8.3.1 Property Finance – A Practitioners View.. 98 8.3.2 Suitable Transaction Types. 101 8.4 Leasing. 107 8.4.1 Determination of Rental Payments. 108 9 The Application of Islamic Products to Private Equity. 109 10 The Role of the London Metal Exchange. 111 10.1.1 The London Metal Exchange. 111 10.1.2 Warrants. 111 10.2 LME Base Metals. 113 11 Asset Management. 115 11.1 Selection of Sharia’a compliant investments. 115 11.1.1 Industry Screen. 116 11.1.2 Financial Screen. 116 11.1.3 Application of the Industry and Financial Screen. 117 11.1.4 Non-Compliance. 118 11.2 Types of Funds. 118 11.3 Asset Management – A Practitioners View.. 119 11.3.1 Core and Satellite Asset Allocations. 120 11.3.2 Secret 1: Index Trackers Consistently Outperform Active Funds. 122 11.3.3 Secret 2: Sharia’a Compliant Indices Outperform Conventional Indices 126 11.3.4 Secret 3: Sharia’a Indices are Liquid. 127 11.3.5 Secret 4 - How Islamic Money Market Assets Can Avoid Interest. 129 11.3.6 Our Recommendations. 130 12 Risks in Islamic Banks. 131 13 Sharia’a Supervisory Board. 135 13.1 Roles. 135 13.1.1 The Advisory Role. 136 13.1.2 The Approval Role. 136 13.1.3 The Audit Role. 137 13.2 Social Responsibilities. 137 13.3 Corporate Governance. 138 13.4 Structures and variations of Sharia’a Supervisory Boards. 140 13.5 Challenges facing Sharia’a Supervisory Boards. 141 14 The Islamic Financial Infrastructure. 143 14.1 Regulatory Institutions. 143 14.1.1 Financial Regulators. 143 14.1.2 The Fiqh Academy. 144 14.1.3 Islamic Development Bank. 144 14.1.4 Islamic Financial Services Board. 144 14.1.5 Accounting and Auditing Organisation for Islamic Financial Institutions 144 14.1.6 International Islamic Financial Markets. 145 14.2 Socially Responsible Investments and Micro Finance. 145 14.2.1 Socially Responsible Investments. 145 14.2.2 Micro Finance. 146 14.3 The Case for LIBOR. 147 15 Tax in the United Kingdom.. 149 15.1 Tax Issues for Islamic Banking in the United Kingdom.. 150 15.1.1 VAT and Islamic finance. 151 15.1.1.1 Partnership contracts. 151 15.1.1.2 Home Purchase Plans. 151 15.1.1.3 Cost plus financing. 152 15.1.2 VAT compliance. 154 15.1.2.1 Commodities. 154 15.1.2.2 Interest. 154 15.1.3 The VAT issue going forward. 154 15.2 Stamp Duty Land Tax. 155 15.3 Background to the UK Government Policies. 155 15.3.1 Changes to Taxation and Regulatory Policy since 2003. 156 15.3.1.1 Changes in 2003. 156 15.3.1.2 Changes in 2005. 156 15.3.1.3 Changes in 2006. 156 15.3.1.4 Changes in 2007. 157 15.3.2 Announcements in 2008. 157 15.3.2.1 Commercial Sukuk: current SDLT treatment. 158 15.3.2.2 Proposed Legislative Framework. 160 15.3.2.3 Tax treatment of alternative finance investment bonds. 162 16 Capital Adequacy under Basel II 163 16.1 Introduction. 163 16.2 Capital Adequacy and Minimum Capital Requirements. 163 16.3 Challenges in Islamic Finance. 169 16.3.1 Balance Sheet Size and Loss Data History. 170 16.3.2 Equity Treatment. 170 16.4 IFSB Capital Adequacy Standards. 171 16.4.1 The Definition of Capital 171 16.4.2 Credit Risk Mitigation. 172 16.4.3 Market Risk. 173 16.4.4 Operational Risk. 174 16.4.5 Capital Adequacy for Different Transaction Types. 174 16.4.6 Capital Adequacy for Sukuk. 176 16.4.6.1 Sukuk held as investment in the banking book. 176 16.4.6.2 Sukuk in the trading book. 178 16.4.6.3 Sukuk origination. 178 16.5 Capital Adequacy for Islamic Banks around the World. 179 16.6 Expected Future Developments in Capital Adequacy. 179 17 How to Value a Bank. 181 17.1 The Components. 182 17.1.1 Growth. 182 17.1.2 Risk. 182 17.1.3 Returns. 183 17.1.4 Capital and its Cost. 183 17.2 The Models. 183 17.3 The Special Case of Banks. 184 17.4 The Special Case of Islamic Banks. 185 17.5 Can a Bank be Valued?. 185 18 The Future. 187 Appendix A – Definitions. 191 Selected Bibliography. 195 Index 197

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Author Information

Dr. Natalie Schoon, CFA is a principal consultant with Formabb Ltd and specialises in Risk Management, Capital Adequacy, and Islamic Finance. During her career she has worked with a number of financial institutions in a variety of locations globally.

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