Islamic Retail Banking:
The foundation of the Islamic Finance Industry
Sultan Choudhury
Managing Director
Islamic Bank of Britain
24th June 2011
The 4th Biennial International – Business, Banking and Finance Conference
Trinidad and Tobago
Agenda
• Why Islamic retail banking is important?
• International experience
• Factors for growth
• SME product solutions
• Future developments
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Why Islamic retail banking is important?
Retail banking
SME / business banking
Suppliers of capital
Balance sheet
Deposits
Debt financing
Liabilities
Assets
Investments
Ijara, Murabaha,
Salam
Equity financing
Mudaraba and
Musharaka
Profit & loss
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Productive
economic
factors:
• Labour
• Assets
• Capital
• Entrepreneur
Where do you want to be in a growing international market?
Mainstream
Niche
Engaging
with
regulators
Conceptual
• Critical mass
• Retail customers driving force
• Malaysia, GCC – Saudi Arabia, UAE, Bahrain
• Expanding market
• Industry, regulators and customers engaged
• UK, Turkey, Pakistan, Indonesia
• Working groups
• Reviewing framework
• France, India, West Indies
• Understanding concepts and impact
• China, Central Asia, Australia
Development
Bank:
largest pan-OIC
financial
institutionIndustry
The 4th Biennial
International
- Business,
Banking
and Finance
Conference
Trinidad and Tobago
UK is the most mature Western market
IBB
• 50,531
customers
• £188m
deposits
• £55m
financing
• Legislative and
regulatory
changes
• New entrants
5
standalone
Islamic
banks
22 banks
Islamic
financial
services
2011
2000s
1990s
Consultation
consumer,
industry and
government
£1.6bn
savings
market
£3.2bn
home
finance
market
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Converging factors for the growth of Islamic finance
Customer
demand
• 10% - 15%
growth p.a.
• $1.5 trillion
in assets in
all banks
• Growing
population
Economic
opportunities
• New
markets customers
& suppliers
• Expertise in
Law,
Finance,
Marketing
Legislation
Regulation
• Legislation
changes to
make a level
playing field
• Consumer
choice and
protection
Capital
Harmonisation
of standards
• High oil
prices
• Alternative
sources for
investments
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
• AOOIFI
• IFSB
• IAS
• IIFM
Solutions for SMEs
FIXED
ASSETS
SME Business
Requirements
IBB Solution
Islamic Principle
Property
Commercial Property
Finance
Diminishing Musharaka with Ijara
Equipment
Machinery financing
Ijara or Murabaha
Fleet financing
Murabaha or Ijara
Treasury
Wakala
Fund Management
Mudaraba
Cash
Cash secured on property
Tawarruq
Overdrafts
Part of fee paying bundle
Qard
Debtors
Receivables financing
Murabaha and reverse Murabaha
Stock
Trade finance
Murabaha and Kafala
Work in progress
Istisna'a
Commodities
Salam
Creditors
Letter of Guarantee
Kafala
Long term liabilities
Corporate Sukuk
Ijara, Mudaraba or Musharaka
Equities
Private Equity
Musharaka instruments
Investments
CURRENT
ASSETS
LIABILITIES
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Case study – Cab Safe Security
Scenario
Instrument
• Start up business
• Security screens
• £25K working capital
Murabaha
Customer’s
Agent
Broker
£
Sell commodity
Deferred payment
£
Sell commodity
£
IBB
Customer
Sell commodity
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Case study – Sparkbrook Pharmacy
Scenario
• Expansion
• £200K required for new property
Instrument
Stage 3
Diminishing Musharaka with Ijara
Bank grants the customer the right to occupy its share in the property
Identifies the property & agrees
the purchase price
Bank purchases 80% share in the
property
Stage 1
Stage 2
IBB
PROFITS
Generated through
rent payments
Stage 4
Customer purchases 20%
share in the property
Customer pays monthly payment over the term of the finance [consists of two parts:
Rent payments (variable) + Acquisition payment (fixed)]
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Customer
Huge potential for growth
• Funds
• Estate
planning
• Pensions
• Working
capital
• Leasing
• Equity based
• Long term
Wealth Management
SMEs
savings
• Packaged
accounts
• Investments
Retail
Islamic
Finance
• Sovereign
• Corporate
• Trading
Inter bank markets
Sukuk
• Liquidity
• Hedging
• FX
Education and awareness of consumers, regulators and industry
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago
Thank you
The 4th Biennial International - Business, Banking and Finance Conference
Trinidad and Tobago