Islamic finance...

[Black]

Today I read news that Kyrgyz government issued a decree that allows (encourages) Islamic financing. I was a long time thinking of implemantation (opening) Islamic financial system (Islamic banking, Islamic Investment funds and etc.) in Uzbekistan. I think Islamic financing has a good future in Uzbekistan. Today Islamic banks or their branches are operating even in non muslim countries like UK, US, Germany and etc.
I would love to work in such financial institutions. My university degree is related to financial institutions, but currently I can not work in those places, rather I do not want to work there.
So dear forumers, may be you have ideas regarding this issue, how it can be implemented in Uzbekistan (I know that there is no even juridical base (yuridicheskie osnovi) for such cases)? May be someone can talk to muftiys or someone else, who can put the issue before the government? Any ideas?

Also, you can post articles and your experiences/knowledge regarding Islamic finance, so that we could have more detailed idea of what is it.

[Sagittarius]

islamic financing is not developed, it does not have strict model. Many contradictions, each country has own view on islamic banking.

what annoying me is that, why risk management is haram?
consider you buy a good for 100$ and can sell it for 150$ (50% markup)
the same happens you are buying debt/risk and resell it (you can even sell it third party).

sudho'rlik umuman boshqa narsa ku?

[Sagittarius]

ok let's say we have ready model of banking, how profitable will it be? how can it survive in a competition with other banks?

are there any studies regarding islamic finance strategic models?

[Vector]

manam shunmiman islamic bankingni? Angliyadagiga tel qiludim, nifiga shunmadim bula qanaqa qib finance qilishini, chalkash bop yotibti...

[SAMARKANDI!]

Unless you have a massive back up (in Uzb environment) that can secure your way in Uzb for finance/business plans, it is, in my opinion, unrealistic to ponder about Islamic Banks there at present. We have extremally corrupt institutions both in Governmental and Financial areas. It is unstable and it is not safe. You will be trying to do smth halal through haram ways or in haram environment which inevitably effects your work.

Perhaps if you somehow use the funds of some big Islamic financial intitutions abroad or be employed with them and try to open small businesses in Uzb that doesn't attract unneeded/negative attention from local/gov authoreties, then you may be able to implement some of your ideas.

[Gateway]

Today I read news that Kyrgyz government issued a decree that allows (encourages) Islamic financing. I was a long time thinking of implemantation (opening) Islamic financial system (Islamic banking, Islamic Investment funds and etc.) in Uzbekistan. I think Islamic financing has a good future in Uzbekistan. Today Islamic banks or their branches are operating even in non muslim countries like UK, US, Germany and etc.
I would love to work in such financial institutions. My university degree is related to financial institutions, but currently I can not work in those places, rather I do not want to work there.
So dear forumers, may be you have ideas regarding this issue, how it can be implemented in Uzbekistan (I know that there is no even juridical base (yuridicheskie osnovi) for such cases)? May be someone can talk to muftiys or someone else, who can put the issue before the government? Any ideas?

Also, you can post articles and your experiences/knowledge regarding Islamic finance, so that we could have more detailed idea of what is it.

First of all you have to know the distinct differences between conventional banking and islamic banking systems. Personnaly, I do not have a comprehensive knowledge about it. In other words, what makes you different from others? Second, in order to establish such kind of system in UZB, you have to have market for Islamic banking service (assuming that we have appropriate legislative basis, and no backup is needed). Do the customers really want your services? Why I should open a bank account or borrow from you? Our population doesn't trust to banks, and you know that, why they should trust to the Islamic bank?

[Hamid]

manam shunmiman islamic bankingni? Angliyadagiga tel qiludim, nifiga shunmadim bula qanaqa qib finance qilishini, chalkash bop yotibti...

Vector, it is better to go somewhere like Lloyds or HSBC, they offer halal ways of banking (they do not invest your money in haram investmests, but still the bank is involvent in otehr activities). If you called the Islamic Bank of England, I have doubts about them, they started to charge interest on loans, the charges are the same with other banks. Try to avoid them, I wrote them a letter asking them to change my address to the new one, they want me to send a confirmation of my new address, otherwise threatining to close the account.
On topic, I think it is difficult at the moment to implement pure Islamic banking anywhere in the world. Has to have a lot of back up, strategy, knowledge, marketing, etc to invest the money in halal way and making money out of it.

hh

[melo]

Unless you have a massive back up (in Uzb environment) that can secure your way in Uzb for finance/business plans, it is, in my opinion, unrealistic to ponder about Islamic Banks there at present. We have extremally corrupt institutions both in Governmental and Financial areas. It is unstable and it is not safe. You will be trying to do smth halal through haram ways or in haram environment which inevitably effects your work.

Perhaps if you somehow use the funds of some big Islamic financial intitutions abroad or be employed with them and try to open small businesses in Uzb that doesn't attract unneeded/negative attention from local/gov authoreties, then you may be able to implement some of your ideas.

I don't think you are allowed to say anything about Uzbekistan is corrupt. I learned my lesson. :rolleyes:

Can anyone explain how an islamic bank can give me a home loan? For exampleif I have a $150,000 loan right now I will pay over $200,000 in interest over the life of the loan. Unfortunately I know from experience. How can an islamic financial institution compete with that?

[Ulug'bek]

An article related to the topic:

The West should promote Islamic Banking

by Professor Rodney Wilson

It ends by saying:
Ultimately Islamic banking and finance is about the emergence of a distinctively Islamic form of capitalism that may co-exist and interact with Western, Chinese, Russian or any other capitalism. Such a development should be welcomed and facilitated, and not be hindered or suppressed.
http://www.islamicamagazine.com/online-analysis/the-west-should-promote-islamic-banking-2.html

[Hopeful]

You can find answers to some of the questions raised above in the following paper:
http://www.isdb.org/english_docs/idb_home/Occasional%20Papers/OP_IRTI_Islamic%20Banking.pdf

There are more papers on islamic banking in this website:
http://www.isdb.org/english_docs/idb_home/Occa_Papers.htm

[Black]

Thank you everybody for your comments.

Samarqandi brother you are right, it is extremely difficult to make a halal business in a haram enviorement. You have to bribe someone even to open halal Islamic bank.
But, I think that, if the legislative bases are set up properly, then Islamic banks future is not so bad in Uzbekistan. AFAIK, while 50% of the income of commercial banks comes from the loan interests, other 50% comes from other activities (many of which are accpetable by Islamic standards), such as duties for keeping account, money transfer charges, and etc. If all mosques and (muslim) religious organisations and funds keep their money in the accounts of Islamic bank, that will be enough to open a small bank.

The services of the Islamic bank are not limited only to muslims, non-muslims also can use their services.

I hope someday in the future we will have a possibility to use the services of the Islamic banks in our country.

[Sagittarius]

do the islamic bank have a future? if YES then is that possible uzbekistan can become Switzeland of Islamic Banking?

[Ulug'bek]

do the islamic bank have a future? if YES then is that possible uzbekistan can become Switzeland of Islamic Banking?

1. Yes, because there are a lot of people who look for their service and their number is in increase.

2. No, for the reasons every body know and because our population is quite small and definetly not in the near future.

[shaddow]

Good topic.
I did my degree in Islamic Banking. I think this type of banking on its current way is realistic in Uzbekistan. Islamic Development Bank as far as I know had few projects in Uzbekistan. I am not sure now, but I personally was involved in one. There are loads of modes of financing in Islamic banking, but unfortunately due to internal and external factors nowadays, espacially in retail banking, Islamic banks use mode so-called "murabbaha", i.e. cost plus sale, which is not ideal. But Islamic Banking is doing extremely well in terms of investment banking. Asset-backed securitization- or Sukooks - recently have rapid growth.
In terms of Uzbek market, I think there is demand, there is interest and there are lots of enterpreneurs who would switch to it. There are modes of financing which Uzbek Islamic bank could use for working capital loans, mortgages. Problems - regulation, as it requires lightly different treatment; source of funds - as as last resort Islamic bank will call for Central Bank resources; well and other factors which are Uzb is suffering from now.
best regards

[jonybur]

islamic financing is not developed, it does not have strict model. Many contradictions, each country has own view on islamic banking.

what annoying me is that, why risk management is haram?
consider you buy a good for 100$ and can sell it for 150$ (50% markup)
the same happens you are buying debt/risk and resell it (you can even sell it third party).

sudho'rlik umuman boshqa narsa ku?


Assalamu Alaykum Brother,

In what follows I will humbly try to respond to some of the points you've raised.

Introductory quote: Islamic financing is not developed, it does not have strict model. Many contradictions, each country has own view on islamic banking.

Islamic banking and financing is considered to be the most fastest growing area of the contemporary financial services. Nowadays, there are more than 250 Islamic financial institutions around the globe with estimated total asset size close to $ 400 billion for the year of 2006 (from $ 140 bln. in 1998) and with consistent high growth of 10-15 per cent annum (Source: Council for Islamic Banks) working under different economic and social milieu. A large number of Islamic financial institutions are working in the informal financial markets of several countries, particularly in the Muslim minority countries such as India, Australia, Canada, US, UK and other countries of Europe. Wilson (1999) reviews some similar institutions working in both Muslim and Western countries using nonbank provisions of the laws there. Furthermore, if we include the Islamic financial institutions operating in the informal sector in some Muslim and non-Muslim countries, the total number of institutions which adhere to Islamic principles, and could be described as Islamic, may well be close to 1000.

Recently, several Western multinational financial institutions, including ABN AMRO, American Express, ANZ, Bank of America, Barclays, BNP Paribas, Chase Manhattan, Citibank, Citi Islamic – Citicorp’s subsidiary, Commerzbank, Deutsche Bank, Flemings, Goldman Sachs, Grindlays, Hong Kong and Shanghai Banking Corporation (HSBC), JP Morgan, Kleinwort Benson, Lloyds TSB, Merrill Lynch, Morgan Stanley, Nat West, Pictet & Cie, Royal Bank of Canada, Society General, Standard Chartered, and UBS among others, have also started offering Islamic financial products (Kazarian [1993], Ray [1995] and Siddiqi[1999]). A growing number of western investment companies are now offering Islamic investment products to interested Islamic investors worldwide. (T.S. Zaher and M.K. Hassan, 2001).


1. Why risk management is haram?

Risk management in its purpose is definetely not haram as any financial institution's survival depends on how well it can manage risks such as but not limited to: Credit Risk / Market Risk / Liquidity Risk / Interest Rate Risk / Earning Risk / Solvency and/or Default Risk and others. But what can be pointed out as haram is what kind of mechanisms are being applied in order to achieve that very risk management objective. As its known, conventional financial system mainly utilizes interest based shemes and tools (and to the lesser extent equity ones) which are not allowed and hence not applicable to the Islamic financial system. Now, what then can be said for Islamic one. The
essence of the Islamic financial system is based on the prohibition of 'riba' - [interest, usury, and/or any increase on the principal lent] and thus on the encouragement of profit-and-loss-sharing principle. And by implementing the following financial contracts (and many others available) the same results achieved by conventional system can very well be attained by the interest-free way too.

(a) Trustee finance: Mudaraba/Muqarada (Trustee finance contract);
(b) Equity Participation: Musharakah (Equity participation);
(c) Asset Based Securities: Collateralized Securities: Ijarah (Leasing); Ijarah wa iqtina’ or Ijarah Thumma Bai (Lease purchase); Istisna’ (Deferred payment, deferred delivery)
(d) Asset Based Securities: Trade Financing: Murabaha (Cost plus; Mark–up financing); Bay salam (Prepayment, deferred delivery); Bay mu’ajal
or Bai’ Bithaman Ajil (BBA) (Pre-delivery, deferred payment)


2. Consider you buy a good for 100$ and can sell it for 150$ (50% markup)

In the brief example you have provided there is no reason to rule it as haram per se. As the same phrase can also be extracted from the valid contract of murabaha. Hence, I can very well assume it to be murabaha (cost plus; mark-up) contract within the context of its permissibility. The thing which makes any particular contract invalid is its contradiction of 'fiqh' of the valid contract. Perhaps, the following quote may shed some light on it:

When the Arabs argued that “trade is but like riba” [2:275], Allah (swt) did not deny that apparent similarity, but decisively informed that “but Allah has permitted trade and forbidden riba” [2:275]. (Source: M. Amin El-Gamal, 2000, A Basic Guide to Contemporary Islamic Banking and Finance).


3. The same happens you are buying debt/risk and resell it (you can even sell it third party).

In this particular case, point to be noted is the difference of Shariah rulings on the permissibility of buying/selling of debt. According to a large majority of fuqaha’ (Islamic jurists), debt cannot be sold except at its face value. Ex: The contract currently being used particularly in Malaysia (Shafi school) is Bai’ al Dayn - A sale and purchase transaction of a quality debt i.e. the default risk of the debtor is low, and the debt must be created from the business transaction that conforms to Shari’ah.

Hope this brief note gave some thoughts on the feasibility of Islamic financial contracts.

May Allah guide us and make us firm in His Deen.

[Black]

Good topic.
I did my degree in Islamic Banking. I think this type of banking on its current way is realistic in Uzbekistan. Islamic Development Bank as far as I know had few projects in Uzbekistan. I am not sure now, but I personally was involved in one. There are loads of modes of financing in Islamic banking, but unfortunately due to internal and external factors nowadays, espacially in retail banking, Islamic banks use mode so-called "murabbaha", i.e. cost plus sale, which is not ideal. But Islamic Banking is doing extremely well in terms of investment banking. Asset-backed securitization- or Sukooks - recently have rapid growth.
In terms of Uzbek market, I think there is demand, there is interest and there are lots of enterpreneurs who would switch to it. There are modes of financing which Uzbek Islamic bank could use for working capital loans, mortgages. Problems - regulation, as it requires lightly different treatment; source of funds - as as last resort Islamic bank will call for Central Bank resources; well and other factors which are Uzb is suffering from now.
best regards


Where did your degree? Are you working at Islamic financial institution now?
Pls share with us your experiences.

[Sagittarius]

one thing, moslims are good in networking. Can islamic transaction banking compete with European ones?

[shaddow]

one thing, moslims are good in networking. Can islamic transaction banking compete with European ones?

There is no definite answer for your question, as motivation for using Islamic products is sometimes different for those in conventional banking. In terms of cost of the banking, it depends on external factors, i.e. regulation.

[shaddow]

Where did your degree? Are you working at Islamic financial institution now?
Pls share with us your experiences.

I did my degree in the UK. Unfortunately (or may be fortunately :-)) I am working for conventional investment bank, which I hope have tiny interest to diversify into this market. For those who really interested in Islamic banking I would recommend to subscribe to IBF Net forum. Quite interesting stuff is discussing there. :-) (I was bad student so there is no much you get from me :-))) Regards

[Oyaji]

I did my degree in the UK. Unfortunately (or may be fortunately :-)) I am working for conventional investment bank, which I hope have tiny interest to diversify into this market. For those who really interested in Islamic banking I would recommend to subscribe to IBF Net forum. Quite interesting stuff is discussing there. :-) (I was bad student so there is no much you get from me :-))) Regards

what made you study islamic banking for your degree.

and what made you start working for conventional bank after that :D

[shaddow]

what made you study islamic banking for your degree.

and what made you start working for conventional bank after that :D

is it interview or interrogation :-)))

[Oyaji]

is it interview or interrogation :-)))

neither. it's just interesting to see how you explain studying what conventional banks do is haram, and actually working for such bank :D

[shaddow]

neither. it's just interesting to see how you explain studying what conventional banks do is haram, and actually working for such bank :D

it is personal, which is not the topic of this thread and i dont really want to discuss. Any topic related questions, i am happy to help, baholi qudrat.
;)

[Oyaji]

it is personal, which is not the topic of this thread and i dont really want to discuss. Any topic related questions, i am happy to help, baholi qudrat.
;)

Thank you, this answers all questions ;)

[Пушкарева]

the last semester I did presentation on Islamic Banking for one of the classes. my opinion is positive.

[Hamid]

I think we should not forget the main factor in teh form of customer.
Customers should obey islamic laws too, if not, then this will not work.
e.g. HSBC gives you a mortgage, but you pay it as a rent, till you have paid all of your mortgage, the property is not yours, and you can not sell it.

hh