clarifying concepts and principles of islamic banking

CLARIFYING CONCEPTS AND PRINCIPLES

OF ISLAMIC BANKING

VERSUS TRADITIONAL ONES

Valeriya Stefanenko,

HSE Doctoral student

Moscow, April 23, 2021

Section E-23-4. Regulation

XXII April International Academic Conference

on Economic and Social Development

Clarifying concepts and principles of Islamic banking versus traditional ones

Outline

1. Islamic Finance in Russia

2. Motivation in Research

3. Сhart of accounts in comparison

4. Resume


Islamic Finance in Russia

EXPORT: For more than 10 years, Russia has been one of the largest exporters of food to the

Organization of Islamic Cooperation countries among Eurasian countries (81.24% of the total

food exports from Eurasia to the OIC countries)

INVESTMENTS: The investments of $ 60 million has been attracted on Islamic financial

principles by Tatarstan for the 27th Summer Universiade - Kazan 2013

Source: Без процентов, алкоголя и свинины: исламский банкинг в России, Daily Moscow, 2020

Source: Исламская экономика – самая быстрорастущая крупная экономика. Евразийский фокус, IEMS 2018

Motivation in Research

Islamic banking

Fee for services

Investment incomeInterest on money


Income

Traditional banking

Source

of FundsDeposits

Profit sharing investment

accounts (PSIA) on balance


IFSB-2 Standard, December 2005 (Appendix A)

Motivation in Research

Displaced commercial risk (DCR)

Basel Standards for Equity Instruments

Basel II: a 300% risk weight for publicly traded equity holdings and a 400% risk weight for all

other equity holdings (BCBS (2006a))

Basel III: risk-weight depending on the risk of the final asset (BCBS (2013е))

&SF UPSIA UPSIA

KCAR

RWA RWA PER IRR


Source: Bahrain Islamic Bank (BisB), Composition of Capital and Liquidity Disclosures - 31 December 2020

https://www.bisb.com/en/our-financials

№ Description BD’000

1 Total Self Financed Assets 717,320

2 Total URIA Financed Assets 494,260

3 Less: PER of URIAs (1,310)

4 Less: IRR of URIAs -

5 Off Balance Sheet Items – with relevant Credit Conversion

Factors

58,702

6 Leverage ratio exposure [(1)+{(2)+(3)+(4)}*30%+(5)] 932,906

7 Tier 1 Capital 111,019

8 Leverage Ratio [(7)/(6)] 12,0%

Leverage Ratio [(7)/(6)] if a=1 9,0%

Motivation in Research: Example


Source: CIMB ISLAMIC BANK BERHAD, Unaudited statements of financial position as at 30 september 2019 (Malaysia)

Motivation in Research: Example

Literature


Suandi, 2017 - Classification of profit-sharing investment accounts

What’s about other Assets & Liabilities of Islamic banks?


Source: Islamic Finance and Global Financial Stability Report, 2010


Assets/

Liabilities/

Equity

Islamic accounts & contracts Comments Accounts,

Russian NAS

A

L

L, E

Asset-backed transactions –

Murabaha

Deposits –

Qard, Wadiah (+hibah)

Reserve funds –

Mudharabah

cost plus

IRR – Liabilities

PER – Liabilities & Equity

А – балансовые счета/ balance accounts

A

L

Profit-sharing transactions –

Mudharabah, Musharakah

Profit-sharing investment accounts –

Mudharabah

UPSIA on balance

RPSIA off balance

Б – счета доверительного управления/

trust or fund management

A Asset-backed transactions –

Ijarah

Leasing on balanceВ – внебалансовые счета/ off-balance accounts

А Salam

Istisna’

forward delivery

manufacture

Г - Производные финансовые инструменты и срочные сделки/

Derivative financial instruments and forward transactions

Сhart of accounts in comparison


Resume

1. Peculiarities of Islamic Banking exist. Some of them are described

in Russian literature (Zhuravlev, 2017; Bekkin, 2010; Trunin,

2008)

2. Structure of balance sheet differs that leads to variety of reflection

in accounting systems.

3. Regulation of Islamic Banking differs.

clarifying concepts and principles of islamic banking

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