ifp apr 2013
TRANSCRIPT
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Islamic Finance
PakistanIslamic Finance Industry Newsletter
Volume 4, Issue 3, April 2013
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EditorialIslamic finance not only remained stable, but also witnessed tremendous
growth, in spite of the adverse impacts of political instability and global
recession prevailing in the country, especially in the latter part of thepreceding decade.
Attracting depositors and potential clients for financings, through
enhancing the current and developing new products has been the main
area of focus for most of the bankers in Islamic financial industry, proving
to be important attributes to the conquest and triumph of the industry.
With the industry strengthening its foothold for growth, a key implication
in technology has been the automation of Islamic Banking processes and
functions in Core Banking Systems (CBS).
This fact is also realized by AAOIFI and as an answer, AAOIFI has certified
certain Islamic CBS (ETHIX by ITS and iMAL by Path Solutions). Other
Islamic CBS claim AAOIFI compliance and are considering AAOIFI
certification in their product upgrade roadmap.
Where adopting Islamic CBS entail certain benefits, for most of the Banks
its adoption is less significant due to the costs that the Islamic CBS lead to.
As such, adopting the Islamic CBS has not been embraced enthusiastically.
Additionally, the key challenge for the Islamic CBS as compared to
conventional CBS is to incorporate the Shariah principles and tenets over
and above the usual banking business process and regulatory
requirements.
In order to ensure that the Islamic banking is managed in a formal way and
to ensure compliance with the precepts and tenets of Shariah, the State
Bank of Pakistan (SBP) has also, via its recent instructions on profit and loss
distribution and pool management, emphasized on maintaining IT based
system catering the need of the Islamic banking for pool management.
Happy Reading!
Advisory Board
Mufti Irshad Ahmed Aijaz
Mufti Najeeb Khan
Anwar Ahmed Meenai
Mohammad Aslam
Mujeeb Baig
Faizan Memon
Syed Abdul Rafay Ather
Associate Editors
Shakil Khan
Muhammad Shahzad Hussain
Arshad Hussain Zubairi
Rima Farooq
Editor-in-Chief
Nusrat Ullah Khan
Ayat of Month:
No calamity befalls (one), but with theleave of Allah. And whoever believes in
Allah, He guides his heart. Allah is All-
Knowing about everything. Obey Allah,
and obey the Messenger. But if you turn
away, then Our Messenger has only to
convey the message clearly.
*AlJuma’a: 11 and 12+
Hadith of Month:Ibn Abbas reported: The Messenger of
Allah, Salallahu alayhi wasallam, said,“Whoever continuously seeks Allah’s
forgiveness, then Allah will make a way
out for him from every hardship, from
every anxiety, and will provide him with
sustenance from where he does not
expect.”’
[Sunan Abu Dawud]
IFP is an initiative of IFP Forum and Hidaya Islamic Business Support Services (IBSS)
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News Story
The Islamic Banking Industry (IBI) continued to post a healthy growth, touching for the first time a share of 10 percent in
the banking industry at the end of the Calendar Year 2012 (CY12). With a substantial growth of 35.5 percent or Rs 185
billion, IBI deposits surged to Rs 706 billion by the end of CY12 against Rs 521 billion at the end of CY11.
According to the State Bank of Pakistan, IBI posted a healthy growth as far as deposit base was concerned during the
period under review. IBI's share in the entire banking industry increased from 8.4 percent in CY11 to 9.7 percent by the
end of CY12. IBI's asset base also continued to expend, touching Rs. 837 billion by the end of CY12, up from Rs. 641
billion in CY11, depicting an increase of 30 percent or Rs. 196 billion in a single year. Consequently, the market share of
Islamic banking assets in the overall banking industry also increased to 8.6 percent by the end of December last year.
Previously, it stood at 7.8 percent in December 2011.
During CY12, one new Islamic Banking Institution was added to the Islamic Banking Industry, bringing the total tally to18 such institutions working across the country. SBP's Islamic Banking Bulletin said that IBI barely managed to maintain
the Rs 10 billion profit (pre-tax) level achieved in last year because of the significantly squeezed margins. The reduction
of 2.5 percentage points in the policy rate translated into a significant decline in yields on financing and investments.
While financing and investment yields were under stress, depositors' return remained relatively stable because of
market competitiveness and regulatory directives to all banks, including IBI, to pay enhanced returns to smaller
depositors (PLS). The squeezed margins translated into marginal reduction in profit before tax to Rs 10 billion in CY12
from Rs 10.6 billion in CY 2011 and significant reduction in ROA and ROE to 1.2 percent and 14.1 percent from 1.6
percent and 17.3 percent respectively in CY 2011. The ROA and ROE of Islamic banking also became lower than the
overall banking system averages of 1.4 percent and 14.7 percent respectively.
The IBI network also continued to swell and the network (including sub-branches) crossed 1,000-branch mark by the
end of CY12. With an increase of 211, the total number of IBI branches surged to 1,097 by the end of December last year
against 886 branches in December 2011.
The number of new branches opened in CY 2012 was also higher than branches opened in CY 2011, in which 135
branches had been established by IBI. Out of new branches, as many as 120 additional branches were added to Islamic
banking network during the last quarter (October-December) of last year. These additional branches were established
across all provinces and three new districts Ghotki, Layyah and Shangla were added in the list of districts having Islamic
banking branches. New branches were also set up in Balochistan and Azad Kashmir in the quarter under review.
On Quarter-on-Quarter (QoQ) basis, Islamic banking industry assets grew by 12.8 percent, touching Rs 837 billion by the
end of December last year, up from Rs 742 billion in September last year. The current growth in the assets of Islamicbanking industry was higher than the overall banking industry. The two major components of assets - investments and
financing - registered positive growth during CY2012 and net financing and investment also registered a growth of 32
percent or Rs 151 billion to Rs 626 billion end of CY12 from Rs 475 billion in CY11.
Investments of Islamic banking industry grew by 43.8 percent during the previous calendar year, touching Rs 394.4
billion, up from Rs 274.2 billion in CY11. During the period under review, financing to private sector by Islamic banks
registered a handsome increase of 14 percent or Rs 30.3 billion to Rs 242.1 billion by the end of December last year. All
modes of financing except Musharaka witnessed an increase during the period under review. In terms of financing mix,
Murabaha continued to have the highest share in overall financing followed by Diminishing Musharaka.
Source: Business Recorder, 2013
IBI share in banking industry surges to 10 percent
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Islamic Finance and its Progress Over the YearsCompiled by Muhammad Usman Uppal
Islamic finance has its own structure where all its regulations are being deduced by the Quran and Hadith. In 1950, it
was introduced in Pakistan as a small-scale interest free bank perhaps the results were not positive at all.
Moreover, probably the first Islamic financial institution was created in Malaysia known as the Muslim Pilgrims Savings
Corporation (MPSC), which was founded in 1963 to help Muslims to save money so that they would be able to make
the once in a life time pilgrimage to the holy cities of Mecca and Medina in Saudi Arabia.
Basic principles of Islamic finance can be seen in the figure below...
Basic Principles of
Islamic Finance
No gain without the risk of
loss
Prohibition of financing
unethical activities
Prohibition of Riba Prohibition of Gharar and
gambling
Asset backed
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Islamic Finance and its Progress Over the Years
Over the past years Islamic finance has seen its growth. This has been elaborated by many organizations considering
the fact that Ernst & Young’s “World Islamic Banking Competitiveness Report 2013” elaborates that Islamic banking
total assets grew by more than $ 1.3 trillion in 2011 with an average annual growth of 19% over the past four years.
Moreover, reports further concluded that Islamic banking total resources are forecasted to grow beyond the goal of $2
trillion by 2014. Similarly we can further convolute that the reports of a leading management consulting firm known as
AT Kearney which has made up a conclusion in its report that Islamic finance has a very promising future but it further
needs to cater the problems it has been facing. Since one of the quandary it is facing now is that this industry has a
very few professionals who knows about Shariah compliance. Moreover, it further needs to expand its presence
outside GCC and Middle East reaching to European markets as well.
So from some stances we can simply elaborate and deduce that Islamic finance has somehow made an efficient growth
in its productive structure. Looking at the European structure what we can analyze is that usually many of the nations
are being under the influence of conventional banking structure. Western markets were unaware of the Islamic
finance, it developed interest only after the world economic crisis occurred where many banks were bankrupt andother organizations faced Mergers and Acquisitions etc.
The popularity of Islamic finance has a major and positive impact on western nations like for example Luxembourg
found first Islamic finance banking system back in 1978 known as Islamic finance house. Soon after Denmark was the
second nation to step up Islamic bank known as an Islamic bank international. Since Islamic finance banking sector is
still not on par with the conventional banking sector but at the same time senior analyst has concluded that Islamic
finance has a very positive promising future.
From the below table we can elaborate that conventional banks in Middle East are still on the higher side as compared
with Islamic banks. We can simply construe that Islamic banks needs to further mobilize their assets in such a way that
they meet the standards of conventional banks.
From below table we can examine the strength of Islamic finance sector and conventional banking
sector: ( Number of banks with branches working)
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Senegal seeks to become West
African hub for Islamic finance
U.K. Islamic Bond back on agenda
as London seeks Shariah market
The U.K. government is considering
reviving plans to sell Islamic bonds
as part of an initiative to boost
Britain’s role as a center for Shariah
compliant financing.
Treasury Minister Greg Clark and
Sayeeda Warsi, a minister in the
foreign office, are leading a working
group to raise the profile of the
Islamic finance industry.
Investing in Malaysia, Trade,
Finance and Islamic Banking
Shayne Heffernan has been bullish
on Malaysia for several years and
the run is not over yet according to
HeffCap one of Asia’s leading
financial advisors.
HeffCap sees Malaysia as a
developing hub for trade and
banking, especially Islamic banking.
Shayne Heffernan said that Kuala
Lumpur has been quick to developIslamic banking and has already
built strong ties to the financial
centers' of the Middle East.
Bahrain Islamic banking assets up
by 13 percent
The total assets of Islamic banks inBahrain have increased 13 per cent
at the end of last year – up from 4
per cent in 2003, said Islamic Banks
and Financial Institutions general
council secretary general Dr. Omar
Al Hafiz. The figures were released
by the Central Bank of Bahrain.
Norton Rose advises managers
on DEWA’s $1 billion Sukuk
issuance
The managers comprised Abu DhabiIslamic Bank, Citigroup Global
Markets, DIB, Emirates NBDCL, SCB
and RBS as Joint Lead Managers
and Commercial Bank International,
Sharjah Islamic Bank (SIB) and UNB
as Co-Managers.
The Islamic debt capital markets
have become very buoyant in the
Middle East over the past few
months with clients expecting their
advisors to navigate seamlesslythrough legal and Shariah issue.
Dubai Islamic said to set profit
rate at 6.25% on Dollar Sukuk
Dubai Islamic Bank the United ArabEmirates’ biggest Shariah-compliant
lender, will pay a profit rate of 6.25
percent on a $1 billion Islamic bond
it plans to sell, said a banker
familiar with the matter.
Banks in the six-nation Gulf
Cooperation Council are seeking to
build their Tier-1 capital ratios as
they attract deposits and extend
loans to support state investment
programs and retail demand.
Disclaimer:The news included here is on the basis of information obtained from local and international print and
electronic media sources. IFP and Hidaya IBSS team does not accept any responsibility about their bona-fide.
Senegal is trying to position itself as
a center for Islamic finance in West
Africa, where about 52 percent of
the population is Muslim, as the
government pursues changes that
will enable the first sales of Sukuk.
Senegal still needs to adjust its
policies to be able to sell debt that
complies with Islam’s ban on
interest after postponing a plan lastyear to sell such bonds, said MD of
the African Institute of Islamic
Finance.
G lobal News
ECB, IFSB conducting study on Islamic finance
The European Central Bank and the Malaysia-based Islamic Financial Services Board (IFSB) are conducting a joint
study on policies affecting Islamic finance in Europe, the IFSB's top official told Reuters.
"We are doing a joint study with Europe's central bank which brings together European scholars and regulators to
examine a broad set of policy and regulatory issues in relation to Islamic finance in Europe," said IFSB secretary
general Jaseem Ahmed.
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New Sukuk issuances to exceed
$100bn
Qatar says Islamic bank to be set
up with IDB "soon"
Qatar expects to go ahead soon
with its plan to establish a big,
international Islamic bank, said
Finance Minister Youssef Kamal.
Last April the Qatari government
signed a memorandum of
understanding with the Jeddah
based Islamic Development Bank, a
multilateral lender, and Saudi
Arabia's Dallah Albaraka Group toestablish a bank with initial capital
of $1 billion.
GCC, Asia still key engines for
growth of Sukuk market
The new issuance of Sukuk
worldwide could top well above
$100 billion again this year,
Standard & Poor’s said its recent
report “Investor Appetite Is Pushing
Sukuk Into The Mainstream”, amid
current investment spending and
economic growth, along with its
forecast of continued high oil prices
and low bond yields.
In addition, jumbo issuance may
pick up further, mainly on the back
of huge infrastructure projects from
sovereign nations.
Affin Eyes China For Islamic
Banking Ops
Affin Holdings Bhd is eyeing Chinafor its Islamic banking operations in
view of the tremendous potential in
the region, deputy chairman Tan Sri
Lodin Wok Kamaruddin, said.
"The structure has not been
finalized yet. It is still preliminary
but we are trying to put it in place
to be submitted for approval,
including by Bank Negara Malaysia,"
he told reporters after the group's
annual general meeting.
Dubai Maritime City Authority
encourages Shariah compliant
shipping finance
Just as the Dubai Maritime CityAuthority (DMCA); a branch of the
Dubai government which regulates,
coordinates and supervises all
aspects of the maritime sector in
Dubai, announced its support for its
ruler's initiative to turn Dubai into a
Islamic hub, news has broken on
the National Shipping Company of
Saudi Arabia (Bahri)'s intentions to
issue its debut Sukuk.
Islamic finance body says first
Sukuk to debut within months
International Islamic LiquidityManagement Corp., backed by a
group of central banks located
mainly in Asia and the Middle East,
will launch its first Sukuk of $300
million to $500 million "in a matter
of months", its chief executive said.
Kuala Lumpur-headquartered IILM,
established last year, aims to issue
short term Sukuk, or Islamic bonds,
to help Shariah compliant banks
manage liquidity and create a liquid
cross-border market for Islamicinstruments.
Disclaimer:The news included here is on the basis of information obtained from local and international print and
electronic media sources. IFP and Hidaya IBSS team does not accept any responsibility about their bona-fide.
There is little to hinder another
strong performance by the Sukuk
market in the next few years,
Standard & Poor's said in a report
published that, “Investors Are
Snapping Up Sukuk, Despite
Questions About Creditworthiness."
Despite increased growth, the
market for Sukuk, is still a small
segment of the global fixed-incomeworld. Sukuk comply with Shariah
law, meaning they do not
technically pay interest; rather,
they provide Sukuk holders a profit
in.
G lobal News
BIBD, Big Winner At Islamic Finance News Awards 2013
Bank Islam Brunei Darussalam Berhad (BIBD) emerged as big winners at the Islamic Finance News (IFN) Awards 2013
held on March 5 at the Grand Hyatt Hotel in Kuala Lumpur. According to a press release from the bank, BIBD was
presented with four awards, the "Structured Finance Deal of the Year 2012" for the Brunei Gas Carriers (BGC) Sdn
Bhd US$170 million Islamic Financing Facility.
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BoP 1st Islamic Banking branch
The Bank of Punjab (BOP) has
launched Islamic Banking to provide
its customers with Shariah
compliant services under license
issued by the State Bank of
Pakistan.
The start of Islamic Banking at BOP
comes in the wake of four years of
committed hard work by the
management to turn the Bankaround. It has been a tough
assignment to rebuild the Bank and
win the confidence of clients and
institutions alike but the hard work
is paying off and the Bank is
progressing.
Bank Alfalah, PAF sign MoU to
launch Car Ijarah Scheme
Bank Alfalah Limited’s Islamic
Banking Group, which has recently
achieved the centennial branch
milestone for its Islamic banking
branches, has signed a
memorandum of understanding
(MoU) with the Pakistan Air Force
(PAF) for the launch of the Car
Ijarah Product Scheme in order to
better serve the PAF personnel.
This unique offer by the bank
provides highly attractive terms to
the PAF personnel in accordance
with the Shariah guidelines, it said.
The State Bank of Pakistan (SBP) announced that the proceeds of the
government of Pakistan Ijarah Sukuk will be used by Pakistan Domestic
Sukuk Company Limited (PDSCL) to purchase the assets as an agent for and
on behalf of the investors.
SBP will conduct an auction through which Sukuk investors will be
identified.
A circular issued by SBP said that the investors will execute the Sukuk
subscription undertaking in favor of PDSCL and the National Highway
Authority (NHA), which will record the commitments of the investors to
subscribe the Sukuk to be issued by PDSCL.
Under the Sukuk subscription undertaking, the investors will also appoint
PDSCL as their agent. Each such Sukuk will represent an undivided
ownership in the assets, it said. A Sukuk issuance undertaking will be
executed by PDSCL and NHA in favor of the investors, whereby, PDSCL will
undertake to issue the Sukuk to the investors.
Islamic finance market likely to
grow
Pakistan’s Islamic finance market may
continue to mature and expand in the
years ahead given growing
investment by the Islamic banking
industry in federal government
securities through Ijarah Sukuk
(Islamic bonds), said bankers.
Recent statistics issued by the State
Bank of Pakistan (SBP) suggest Islamic
banking institutions (IBIs) invested Rs.
266 billion in government securities
during the third quarter of 2012against Rs. 154 billion over the same
period in the last fiscal year, showing
a year-on-year growth of 73.2
percent.
Of a total of Rs. 266 billion
investments, more than Rs. 47 billion
were provided by the Islamic banks
via Ijarah Sukuk to the government
for project financing.
Local News
Proceeds of the GoP Ijarah Sukuk to be used by Pakistan Domestic
Sukuk Company Limited
Disclaimer:The news included here is on the basis of information obtained from local and international print and electronic
media sources. IFP and Hidaya IBSS team does not accept any responsibility about their bona-fide.
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Book in t he S potlight
These are the two last volumes of the eight volume set of ‘Islam aur jaded maashi masail’, they are titled ‘Islam ka
maashi nizaam’ and ‘Araazi ka islami nizaam’ respectively.
The seventh volume is a comprehensive discussion about an ideal Islamic economic system. It starts with
characteristics of any economic system which may differentiate one from another. On an exemplary basis author
describes the two major economic systems i.e. capitalism and socialism, with their basis and features distinguishing
them from each other. It not only converse about the economy but also regarding the impact of these systems on the
political sphere and government’s structure. The author also identifies prominent pros and cons of each system and
assesses them in the light of Shariah, about their acceptance and impermissibility under Shariah principles. This is
followed by a comparison of each system with a Shariah based economic system. As a way forward author suggests
the changes that are needed to reform the ill features of the above mentioned system into an Islamic economic
system.
Eighth volume depicts a case proceedings in reference to a case filed against a court’s verdict regarding land
properties waqfed. The said verdict was under the martial law regulation 115 vide 1972, and several other land reform
acts. The plaintiffs followed the proceedings with comprehensive and detailed laws of the land and the Shariah. Forthe proceeding purposes ‘Shufaa’ (right to acquire accompanied land) rules and agricultural land rules of Shariah are
also described and discussed in accordance with the laws of the land of Pakistan.
About the Author
Mufti Muhammad Taqi Usmani is one of the leading Islamic
scholars living today. He is an expert in the fields of Islamic
Jurisprudence, Economics, Hadith and Tasawwuf. Born in
Deoband in 1362H (1943 CE), he graduated par excellence from
Dars-e-Nizami at Darul Uloom, Karachi, Pakistan. Then he
specialized in Islamic Jurisprudence under the guidance of his
eminent father, Mufti Muhammad Shafi, the late Grand Mufti of
Pakistan. Since then, he has been teaching hadith and Fiqh at the
Darul-Uloom, Karachi.
He also holds a degree in law and was a Judge at the Shariah
Appellate Bench of the Supreme Court of Pakistan. He has been
writing on various Islamic topics and is author of more than 60
books and numerous articles. Presently he is the Vice-president
of Darul-Uloom, Karachi, Pakistan, where he teaches SahihBukhari, Fiqh and Islamic economics.
Islam Aur Jadeed Ma’ashi Masa’il
(Seventh and Eight Volume)By Mufti Muhammad Taqi Usmani
Publisher:
Idara-e-Islamiat, Lahore
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Ask Us
Question
Is it permissible in Shariah to cover the loss in one Mudaraba operation from the profit of other Mudaraba operation?
What are the Shariah injunctions for this case?
Answer
When loss is incurred in one Mudaraba operation it can be covered from the profits of other Mudaraba operations, and
if it exceeds the profits it should be covered from capital. What should really matter is the final result of liquidation at
the end of the financial period specified by the institution. The loss of a certain financial period should not be covered
from the profits of another period which also includes the situation of constructive liquidation, except in the case of
covering losses from reserves.
Question
What are the Shariah directives regarding the possession of subject matter in online sale contracts?
Answer
Regarding online contracts, possession in the strict Shariah sense takes place through all accepted methods of actual
and legal possession. If the sold commodity is computer software or the like, possession in the strict Shariah sense takes
place when the purchaser, after signing the contract, downloads the software or the data or any good of this type from
the website to his personal computer. When the sold commodity is a currency, gold, silver or any other commodity in
which instant exchange is required, instant exchange of the two objects of the contract should be ascertained during the
contract's signing session.
Questions / Answers
Feed Back Corner
Please provide us with your feedback on the following
email addresses
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Upcoming EventsIFN – EVENTS DAIRY (IFN ROAD SHOWS)
Islamic Finance News Road show continue to educate and update the developing Islamic financial markets by organizing
key Islamic finance events with the focus heavily on education and development.
Australia
7th May 2013
Japan
12th June 2013
Pakistan
27th August 2013
Hong Kong
25th June 2013
Turkey
3rd September 2013
Sri Lanka
29th August 2013
Egypt
5th September 2013
International Islamic Finance Conference 2013—Abu Dhabi, April 14-16, 2013
The aim of the conference is to investigate current political and socio-economic developments through leading thinkers
in their field, the likely effects of those developments on the performance and future position of Islamic financial
institutions, the regulatory set-ups, and popularity of Islamic products offered to the public, governments and
businesses.
In association with Emerald Group Publishing, the organizers will now work with all those involved in the programme to
build on this platform for the exchange of invaluable research and ideas.
Morocco
28th April 2013
World Islamic Finance Conferences / Workshops and seminars
Key Islamic finance events with the focus on education and development.
Islamic Banking and Finance, Challenges of Survival and Development
3rd May 2013 Oxford, United Kingdom
The first International Conference on Islamic Wealth Management and Call for Paper Islamic Finance of
Business and Journal (IFBJ) Best Paper Award
11th May 2013 Sentul City, Indonesia
4th Global Islamic Marketing Conference
30th May 2013 Istanbul, Turkey
Bangladesh
5th February 2013
Singapore
22nd March 2013
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Article:
Usman Uppal
Ask Us:
Mufti Ibrahim Essa and
Mufti Javed AhmedBook in the Spotlight:
Islam Aur Jadeed Ma’ashi
Masa’il (Edition 7 & 8)
News:
Local and Global news
Let us know, if you know friends or colleagues who, in your
view, may benefit from this newsletter. Send us their emailaddresses at