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Islamic Banking: How we can move on to next
phase?
by A.J. Karimi,
Head HMB IB Products`
Novemebr 02, 2010
Islamic Banking:
How we can move on to next phase?
Abdul Jabbar Karimi
Head- HMB IB Products, Research &Training
HMB-Islamic Banking Division
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Possible Outcomes..
To know that who are stakeholders of this growing child
understanding the basic science of Islamic Banking/Finance in
order to enable the participants to appreciate the need of the
subject and look into it to make the industry as mainstream
banking sector
To understand the minimum responsibilities and
consequently the roles being Muslim have to be played to
move on…..to next phase…
The future....of Islamic Finance is in our hands at most..
Mostly in your hands…. “the customer….”
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
TABLE OF CONTENTS
What I mean by next phase?
How to move on?
1.
2.
1.
2.
3.
4.
4
Theory: one’s perception and position
taking
Practice: what needs to be done?
Do we really want to move to next phase?
I am optimistic for the Isl. Banking Future…
Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
TABLE OF CONTENTS
Let us look a glance on Islamic
Banking Current Scenario……
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
The Presence of Islamic Finance:
About 1100 institutes offering Islamic Products around the
world
Germany: 3
United States: 20
- Al Manzil Financial Services
- American Finance House
- Failaka Investments
- HSBC
- Ameen Housing Cooperative
- Bank Sepah
- Commerz Bank
- Deutsche Bank
Switzerland: 6
UAE: 9
- Dubai Islamic Bank
- Abu Dhabi Islamic Bank
Bahrain: 26
- HSBC Amanah Kuwait: 5
- Bahrain Islamic Bank
- Kuwait Finance
- Al Baraka
House
Qatar: 4
- ABC Islamic Bank
- CitiIslamic Investment Bank - Qatar Islamic Bank
- Qatar International Islamic
UK: 26 (primarily branches of
Iran: 8 Pakistan: 5
Gulf and glo
bal banks)
India: 3
- HSBC Amanah Finance
Bangladesh: 3
- Al Baraka International Ltd
Turkey: 7
- Takafol UK Ltd
- Faisal Finance
- The Halal Mutual Investment
Sudan: 9
Institution
Malaysia: 49
Company
- Ihlas Finance
2 - Pure Islamic Banks
-J Aron & Co Ltd (Goldman
House 10
Saudi Arabia:
Egypt:
7
(Bank Islam, Bank
Sachs)
- Al Rajhi
Alwatany
Bank
of
Egypt
Muamalat)
-Britain Islamic Bank
- Egyptian Saudi Finance - SAMBA
Rest - conventional banks
- Saudi Hollandi
Indonesia: 4
- Riyadh Bank
Yemen: 5
Planning to go for Islamic
Banking
Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each
country
Islamic Banking: How we can move on to next phase?
Novemebr 02, 2010
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by A.J. Karimi, Head HMB IB Products`
Global Scenario


1100 institutions are offering Islamic Financial Products/Services
Growth Rate @ 28% since 2006

According to ‘The Banker’s 2009 survey, the volume of the
Shariah Compliant Assets of the top 500 Islamic Financial
Institutions grew by 28.6% rising to US$822bn from $639 in
2008 at a time when the top 1000 World Banks’ assets slumped to
6.8% from 21.6% from the previous year.

The Shariah Compliant Assets are projected to grow to US$1.60
trillion by 2012.

Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by
2010
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Global Scenario…….
 The United Kingdom has emerged as a leading centre for offering
Islamic Financial Services (IFS) as at present there are 22 banks in
UK offering Islamic Financial Services, out of which 05 are fully
Shariah Compliant (4 wholesale & 1 retail bank).

Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recently
introduced Islamic mortgage products to cater to Britain's 2.5
million Muslims.

France by indicating the adjustments in its legal and fiscal
framework aims to the development of Islamic Finance to cater the
faith-based clientele in the country in addition to gain attention of
Middle Eastern Investors holding abundant liquidity. (report by
Standard & Poor, 2009)

German state became the first European government body to issue
an Islamic bond last year -- a $121 million.
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Global Scenario…….
The opportunities to tap the surplus funds of oil rich Muslim nations
is strong as many non Muslim countries are trying to tap it
including, Japan, UK, Singapore, France, Hong Kong US,
Germany, Australia, Thailand, etc.

These institutions are playing a key role in setting up and

standardizing Shariah , Financial and Accounting standards for
Islamic Financial Institutions.
Major business schools such as Oxford, Harvard, Rice and Durham

has started post graduate programs in Islamic Finance
Harvard University has developed a major database by the name of

Harvard Islamic Financial Information Program HIFIP) for Islamic
Banking.
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Islamic Banking In Pakistan: An Overview
The Islamic banking market in Pakistan continued to expand during
the last year as well and the assets growth has registered 59% p.a.
growth since 2005 as stated by Deputy Governor SBP.
Assets
= about PKR 411 bn + (Industry Share constitute 6.10%)
Deposits
= about PKR 330bn + (Industry Share constitute 6.40%)
Financing and Investment = about PKR 230 bn +(Industry Share
constitute 4.30%)
Projected growth for the next 5 years of Islamic Banking is 15%
to 20% per annum.
The Islamic Banking Market share would reach 12% by 2012 as per
strategy plan of SBP
In 2008 the assets of Islamic Banking increased by 34% as
compared to the assets of overall industry by 8.8%. (SBP Bulletin)

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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
A FEW SAYINGS BY KEY PLAYERS FOR ISLAMIC
BANKING………

"There is a segment within the current market that would
switch to Islamic if the quality and benefits offered were as
good as conventional financial products," says Ray
Ferguson, CEO of Standard Chartered Bank UAE in
Dubai.

“A conservative approach to risk and a close link between
the financial sector and real assets has helped shield the
sector from the worst of the credit crisis,” said. Brian
Caplen, An editor of a London-based magazine

"Islamic banking isn't just for conservative or radical
Muslims. It's mainstream business now, "That's why every
bank wants a bigger piece of it."
says Ross Mohamad Din, director of HSBC Amanah
Malaysia
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
TABLE OF CONTENTS
1. What I mean by next phase?
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Next Phase shall be starting…..
o
Islamic banking must be able to become domestic
player with an international quality in services and
performance, i.e. first best choice that caters equally the
here (Dun’ya) on the same competitive conventional
banking lines…
o
Positioning Islamic Banking as a beyond banking ,i.e.
more than just a bank…..
o
20% + Country Business /(deposits+ Assets) to be done
through Islamic Banking …
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
TABLE OF CONTENTS
2. How to move on?
Theory:
one’s perception and
position taking
Practice:
what needs to be done?
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Theory:
The Position of Banking And Finance Within Islam
ISLAM
AQIDAH
SHARIA
AKHLAQ
faith & belief
practices & activities
morality & ethics
IBADAT
MUAMALAT
man-to-Allah worship
man-to-man activities
POLITICAL
ACTIVITIES
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OTHER ECONOMIC
ACTIVITIES
Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
ECONOMIC
ACTIVITIES
SOCIAL
ACTIVITIES
BANKING & FINANCIAL
ACTIVITIES
Novemebr 02, 2010
How
to move on?
Theory:
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Theory:
“O you who believe, Fear Allah and give up what remains of your
demand for Interest, if you are indeed a believer. If you do not, then you
are warned of the declaration of war from Allah and His Messenger; But
if you turn back you shall have your principal: Deal not unjustly and you
shall not be dealt with unjustly.”
Al Baqarah 278 - 279 (Fourth Revelation)
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Theory:
1. From Hazrat Abu Hurayrah (RA), The Prophet, peace be on
him, said:
"Riba has seventy segments, the least serious
being equivalent to a man committing adultery
with his own mother.”
(Ref: Ibn-e-Majah)
The Prophet may
peace be on him, cursed the receiver and the payer
of interest, the one who records it and the witnesses
to the transaction and said; “They are all alike (in
guilt).” Ref: (Muslim, Tirmidhi and Musnad Ahmed)
2. From Hazrat Jabir Ibn-e-Abdullah (RA):
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Theory:
What is Islamic Banking?
“Islamic Banking is interest free Asset
Backed banking governed by the
principles of Islamic Shariah”
“The ends of the both banking systems are same but only
the means to achieve these ends are different as one
system is God given in contrast to its rival system which
is ma made.”
(Karimi, Abdul Jabbar- ‘Islamic Banking :A necessary system, published in
the Finance & Business Review, The News, 18th Jun’ 2001)
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Practice (Practical Steps):
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
How to move on? Practice (Practical Steps):
Regulations/Policies guidelines
Central
Bank
Legal Framework
Government
Public opinion/Religious Rulings
Consumers
Madrasas/
Religious
Scholars
Demand for Products & Services
External
Internal
Islamic
Banking
Institution
Shariah supervision
Vision & Leadership
Management
Capital
Sponsors
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Productivity
Shariah
Adviser/
Shariah
Board
Staff
Novemebr 02, 2010
Next Phase?:The minimum steps to go into next phase …
1.
Perception Change: To build understanding in Islamic
banking as Beyond Banking …various forums…more
efficient socialization and educational program for public interest ….(all)
2.
3.
Businesses to take it in their TOP priorities list (Customer)
Feasible Regulatory Environment , addressing the IB challenges
(Liquidity, Legal, Taxation, + ) on priority basis ..(Govt. /SBP)
4.
5.
Big banks to play role/think seriously… ..(Govt. /SBP)
Positioning, Differentiation and Branding, positioning the IB as
the most attractive one in country and abroad (IIFS) + Shariah +Customer
6.
IB to be accessible for all kinds of people and all
segments /PLS Based Products on assets side (IIFS
+Customer)
7.
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HR
Service quality: Professional +Religious touch (Staff)
Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Next Phase?...
And….
8. Unanimity of views of Religious Scholars (RS)….for
o
the “products and services offered by Islamic Banking”,
o
the prohibition of “Banking Interest” …Shariah Doctor
o
the differences, if any, in terms Shariah interpretation
should remain within the circles of scholars….
9.
CUSTOMERS’ total commitment for Islamic banking as
the only choice to bank with.. “Haq-ul-Yaqeen”
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Unanimity of views…
An example….
The Question about
MURABAHA
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Murabaha ….
The basic purpose of Murabahah Sale has been described in Fiqh
books in these words:
‫والحاجة ماسة الى هذا النوع من البيع الن الغبي الذي ال يهتدي في التجارة يحتاج الى‬
‫ان يعتمد فعل الذكي المهتدي وتطيب نفسه بمثل ما اشترى وزيادة ربح‬
" the main purpose of (Murabahah) sale is to protect the innocent
general consumer lacking expertise in the various items of trade
from the wiles and stratagems of sharp traders.”
Usually there are three parties to a Murabahah transaction where
the bank is involved:
1. The one who promise to buy (Customer)
2. The Bank
3. The vendor (supplier to the Bank)
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
3.
Do we really want to move to next phase?
The Trillion Dollar Cake
Turkey, 9
UK, 10
Saudi Arabia,
100
UAE, 33
Iran, 320
Kuwait, 24
Bahrain, 12
Quatar, 8
End 2008
Amount in Billion of USD
Sudan, 4
Pakistan, 2
Brunei, 3
Indonesia, 3
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Malaysia, 38
Novemebr 02, 2010
And the long way…
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
I am optimistic for the
Islamic Banking Future…
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
I m optimistic for IB ….
Karimi says,
“I am optimistic regarding the future
/tomorrow of Islamic Banking that it is going
to be the mainstream banking chosen as choice
by almost all iff
We successfully provided the products that
cater the needs of the customers on equal
grounds .…..
“tomorrow is of Islamic Banking…..
Why??
An illustration….with comparison…..
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Is our vision to create a Market
Segment?
The tale of Telecom.
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Telecom Revolution…Year 2000
Source:
Pakistan Telecommunication Authority
No of connections
and market share
306,493 ,
9%
, 0%
3,056,460 ,
91%
“In theYear 2000, after 8 years
mobile phone operator’s share was only 9%”
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Telecom Revolution…Year 2007
4,884,607 ,
8%
No of connections
and market share
1,757,198 ,
3%
55,617,101 ,
89%
“Now mobile phone operators share of the industry is
89%!!!
Source:
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Pakistan Telecommunication Authority
Novemebr 02, 2010
Telecom Revolution…Year 2007
Mobile Phone
Industry
55 Mn Connections
Fixed Line
Industry
5 Mn Lines
“The market segment has become larger than the basic
industry itself”
Source:
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Pakistan Telecommunication Authority
Novemebr 02, 2010
What is the inspiration…
Basic functionality with
out the wire
Financial solutions with
out Riba
“Vision is to create an industry itself
and not a segment”
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Islamic Banking: How we can move on to next phase?
Karimi, Head HMB IB Products`
by A.J.
Novemebr 02, 2010
Source:
Oasis International research 2006
What does this Market Want?
Research:
10%
10%
I will Not bank
with an Islamic
Bank
I will only bank
with an Islamic
Bank
80%
“The winning formula”
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Islamic Banking: How we can move on to next phase?
A.J. Karimi, Head HMB IB Products`
All things equal I
Will prefer an
Islamic Product
by
Novemebr 02, 2010
What does this Market Want?
An Example…
IBB
Launched in
an area
already
having
Conv.banking
branches
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Highest incremental
growth in the entire
banking industry
“All things equal
I will prefer an Islamic product”
Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
The road ahead…
Whom to go Shariah Doctor?
“..Pleasure of Allah
SWT is only possible
when we’ll adhere the
minimum Shariah
boundaries…. Having
business within
prescribes lines by
Quran + Sunnah ”
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Concluding Point
The Main Motivating Factor and Driver of
Islamic Banking …..
“ROI” (h+h)
 In anticipation of ROI (H+H), i.e. the investment that brings return for
here and herein after in an effort to abide by the prohibition of Riba, a
surprisingly increasing number of Muslim deposit holders all across the
world, have non-interest bearing accounts and they refrain from
Interest Based Banking.
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010
Thanks
FOR FURTHER INFORMATION:
Abdul Jabbar Karimi
Head-HMB Islamic Banking Products
HBZ Plaza (Hirani Centre)
Islamic Banking Division
Cell: +92 300 824 5995
D/L: +9221 32639665
D/L: +9221 32644406
Email: ajk313@gmail.com
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Islamic Banking: How we can move on to next phase?
by A.J. Karimi, Head HMB IB Products`
Novemebr 02, 2010