Islamic Retail Banking: The foundation of the Islamic Finance Industry

Sultan ChoudhuryManaging Director

Islamic Bank of Britain

24th June 2011

The 4th Biennial International – Business, Banking and Finance Conference

Trinidad and Tobago

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?S

uppl

iers

of

capi

tal

Balance sheet

Liabilities

Productive economic factors:• Labour• Assets

Mudaraba and Musharaka

Ijara, Murabaha, Salam

Equity financing

Deposits Debt financing

Assets

Investments

Profit & loss

Retail banking SME / business banking

• Capital• Entrepreneur

Development Bank: largest pan-OIC financial institutionIndustry The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

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

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

UK is the most mature Western market

• Legislative and regulatory changes• New entrants

2000s

2011

5 standalone

Islamic banks

22 banks Islamic

financial services

£3.2bnhome

financemarket

£1.6bnsavings market

IBB• 50,531 customers• £188m deposits• £55m financing

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

Converging factors for the growth of Islamic finance

Customer demand

Economic opportunities

LegislationRegulation

Capital Harmonisation of standards

Solutions for SMEs

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

 SME Business Requirements IBB Solution Islamic Principle

FIXED ASSETS Property

Commercial Property Finance Diminishing Musharaka with Ijara

  Equipment Machinery financing Ijara or Murabaha

  Fleet financing Murabaha or Ijara

  Investments Treasury Wakala

  Fund Management Mudaraba

CURRENT ASSETS 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

LIABILITIES Long term liabilities Corporate Sukuk Ijara, Mudaraba or Musharaka

  Equities Private Equity Musharaka instruments

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

Case study – Cab Safe Security

Broker

IBB

Customer’s Agent

Customer

Sell commodity £

Sell commodity

Sell commodity£

£

Deferred payment

Murabaha

• Start up business• Security screens• £25K working capital

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

Case study – Sparkbrook Pharmacy

Bank grants the customer the right to occupy its share in the property

IBB

Identifies the property & agrees the purchase price

PROFITSGenerated through

rent payments

Customer purchases 20% share in the property

Bank purchases 80% share in the property

Customer pays monthly payment over the term of the finance [consists of two parts:

Rent payments (variable) + Acquisition payment (fixed)]

Stage 3

Stage 2 Stage 1

Stage 4

Customer

Diminishing Musharaka with Ijara

Huge potential for growth

Islamic Finance

Retail

Inter bank marketsSukuk

SMEs

Wealth Management

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago

• Funds• Estate planning• Pensions• Working

capital• Leasing• Equity based

• Sovereign• Corporate• Trading

• Long term savings• Packaged accounts• Investments

• Liquidity • Hedging• FX

Education and awareness of consumers, regulators and industry

Thank you

The 4th Biennial International - Business, Banking and Finance Conference

Trinidad and Tobago