Islamic Banks in the
System of National Accounts
Omar Hakouz
Regional Advisor on National Accounts
10th AEG meeting on national Accounts
13-15 April 2016, OECD, Paris
Islamic Banks VS Conventional Banks
Conventional Banks
Islamic Banks
Money as a commodity -it can be
sold at a price higher than its face
value and it can also be rented out.
Use money as a medium of exchangecannot be sold at a price higher than its face
value or rented out
Time value is the basis for charging
interest on capital
Profit on trade of goods or fees on providing
service is the basis for earning profit
No agreement for exchange of goods Execution of agreements for exchange of
& services is made
goods & services is a must,- disbursing
funds under Murabaha, Salam & Istisna
contracts
The investor is assured of a
predetermined rate of interest
Promotes risk sharing between provider of
capital (investor) and the user of funds
(entrepreneur)
Lending money and getting it back
with compounding interest is the
fundamental function
Participation in partnership business is the
fundamental function
It can charge additional money on
No allowed to charge any extra money
Islamic Banks VS Conventional Banks
Conventional Banks
Islamic Banks
Borrowing from the money market is Must be based on a Shariah approved
relatively easier
underlying transaction
Little expertise in project appraisal and Pay great attention to developing project
evaluations
appraisal and evaluations
give greater emphasis on creditworthiness of the clients
Give greater emphasis on the viability of the
projects.
Relation with Clients is Creditor and
debtors
Relations with clients as Partners, investors and
trader, buyer and seller
Has to guarantee all its deposits
only guarantee deposits for deposit account,
which is based on the principle of al-wadiah,
thus the depositors are guaranteed repayment
of their funds, however if the account is based
on the mudarabah concept, client have to share
in a loss position
How Islamic Banks Operates
Islamic Bank
Deposits
0% inerest
Wadia’a or Amana
Finance
Liability
0% interest Loans
Fees
Unrestricted Deposit
Modharaba
Purchases
Deposit Pool
Investment pool
Restricted Deposit
Musharakah
Specific
investments
Profits ??
Profits ??
Investments
Shares
Profits
Specific
investment
First group point of view
To
First group point of view
• Agreed with the recommendations included in the Monetary
and Financial Statistics Manual and Compilation Guide.
 Islamic banks services is FISIM.
 Deposits and loans are similar to conventional banks.
• They identified several issues that require further research
 The input cost of trade arrangments (Murabaha).
 How to interpret the management fees paid by depositors
(investors) to the bank
 Practical issues related to how to deal with this issue from
users side.
Second group point of view
• Disagree with some of the recommendations included in the
Monetary and Financial Statistics Manual and Compilation Guide
mainly.
Deposits
 Islamic banks don't really borrow funds from depositors, neither do
they lend funds to entrepreneurs. But obtain them in the capacity
of a fund manager under fund management contract
 I-Banks don't bear all the risk when they lends the funds to a third
party as it is the case in Con. Banks.
 I-Banks don't assume an ownership over the Funds.
 Islamic banks charge the depositors management fees to run and
invest their deposits
 classify them as shares or units is more appropriate than
classifying them as other deposits.
Second group point of view
Classification of Islamic Banks
 Islamic Banks are prohibited from accepting deposits except,
Amanah and Qard-hasan deposit
 Raise funds by accepting investment deposits according to
Modarabah/Mosharaka which is similar to share rather than deposit.
 The depositor will have a share or a unit similar to mutual fund or
non-money market fund.
 Modarbah contracts provided by Islamic banks are PLS agreement
and thus it is similar to stocks (units) and connote be classified as
deposits
 Islamic banks can be classified as managers of mutual funds or nonmoney market funds
Second group point of view
Classification of Musharakah
 Musharakah is a technique of financing used by Islamic banks that
could roughly be translated as partnership
 The I-bank and the investor are entitled to a share in the profits or
Loss resulting from the project in a ratio which is mutually agreed
upon.
 In many cases the fund is used to finance long term project.
 the Fund provided through Musharakah is not a loan but it is a share
in the equity
Second group point of view
Classification of Murabaha
 This classification imply that the all of the profit margin should be
classified as interest
 Neglect the existence of an economic activity (trade activity)
 Islamic banks take into consideration the cost of time (interbank
interest) and a markup profit margin
 Morabaha doesn’t create FISIM but produce trade margin and
generate pure interest (Property income) measured according to the
interbank interest.
Second group point of view
Practical problems related to MFSMCG recommendations
 The first practical problem will be with obtaining the data from the
users of the commodities bought by Marabaha contract
 The treatment of management fees obtained by the Islamic banks
 The experts believes that if the Morabahah is treated as loans then it
would be necessary to provide some instructions on how to deal with
practical implications resulted from this
THANK YOU