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Role of Islamic Finance in Supporting the Halal Industry and
its Services
Dr. Asyraf Wajdi DusukiHead of Research Affairs, International ShariahResearch Academy for Islamic Finance (ISRA)
Malaysia
The First Gulf Conference on Halal Industry and its Services24-26 January 2011
Salmiyah, State of Kuwait-Holiday Inn Hotel, Al
.
2011 24-26
Is lamic Asset Classes6
Various Forms of Islamic Contracts5
Global Outlook of Islamic Finance
Shariah Compliant Framework3
Salient Features of Islamic Finance4
Role of Islamic Finance in Halal
Industry7
Why Islamic Finance?2
The First Gulf
ConferenceOn Halal Industry and its
Services Conclusion8
Pakistan
Hong Kong
Aims to become Islamic
finance gateway to China
Plans to issue sovereign sukuk
Hang Seng Islamic China Index
Fund in 2007
UK
Govt sets an objective to entrench
London as a global gateway for Islamic
finance
5 FSA-approved Islamic banks and
Takaful operators
Plans to issue sovereign sukuk, amend
tax law on IF
UAE
Japan
Law passed allowing
banks to do Islamic
financeFrance
Passed rules/regulations to
support Islamic finance
activities
In process of licensing
Islamic banks
Made fiscal & legal
adjustment for IF
transaction i.e. taxation
guidelines on sukuk &
murabaha
Singapore
Established first Islamic bank
Introduced tax neutrality for Islamic finance
Aspiring to be centre for Islamic finance
Launched Islamic ETF
South Korea
Parliament expected to
pass the law related to
offering of tax waiver on
foreign investors interest
income from sukuk issued
Thailand
Qatar
Sudan
Indonesia
Kuwait
Germany
Saxony-Anhalt state issued
government sukuk
First Islamic bank to operate
in 2010
Emerging interest on Islamic finance as viable alternative to the global financial system
Saudi Arabia
Bahrain
Malta
Plans to position
as Islamic finance
hub for the
Mediterranean
Jordan
Plans to tap sukuk market to
finance its deficit
Turkey
Announced IFC Istanbul in Sep 09
with focus includes interest-free
financial business
Brunei
Aim to become
Islamic financial
services hub for
Asia
Muslim-majority countries offering Islamic finance (IF)
Non-muslim countries starting to offer IFCourtesy of Bank Negara Malaysia
Malaysia
Iran
Islamic finance fastest growing segment in global financial systemIslamic Assets under Management USD750 billion & expected to
hit USD1 trillion by 2010
Average growth rate of 15-20% p.a.
Islamic Mutual Funds USD300 billion
Average growth rate of 23% p.a.
Takaful Contributions USD7.2 billion
Growth rate of 13% p.a.
Global Market Capitalization of Dow Jones Islamic Index
USD10 trillion
Shariah Compliant Global Funds 680 funds
Global Outstanding Sukuk USD107 billion
Average growth rate of 22% p.a.
Number of Islamic Financial Institutions (IFIs) > 600 IFIs in the world
Sources: McKinsey, The World Islamic Banking Competitiveness Report 2007-08, Capturing the Trillion Dollar Opportunity;PriceWaterHouseCoopers, Islamic Finance News, IFSB & National Authorities; Islamic Banker Research Group; Islamic Finance & Insurance& Investor Offshore Review
Enormous potential in Islamic Finance
Demographically, Muslims population are huge.. research shows there are ample opportunities in Islamic finance remain untapped
Adapted from: PWC, Wikipedia
Untapped Potential
Potential customer base: worlds 1.5 billion Muslims
Bulk of worlds Muslim population is young: 60% of global Muslim population is under 25 years
Muslim high net worth individuals: USD1.5 1.8 trillion
Takaful penetration rate: Below 2% in Middle East Region
New petrodollar wealth USD500 billion p.a.Adapted from: OliverWyman report
Rank Country Exports1 Saudi Arabia 8,4852 Russia 6,8903 United Arab Emirates 2,5834 Iran 2,4195 Kuwait 2,4166 Norway 2,2467 Angola 1,9508 Venezuela 1,8839 Nigeria 1,883
Top World Oil Net Exporters, 2008(thousand barrels per day)
Source: www.wtrg.com
As the petrodollar money surge, GCC countries are looking for shariah compliant investments.
The Recent Financial Crisis presents opportunity to Islamic Finance
'There has been much questioning of the values
underpinning the conventional financial system &
the search for alternatives means that Islamic
banks are likely to receive more attention,
especially as their raison d'tre is morality in
financial transactions, based on religious
teachings Professor Rodney Wilson
Shariahvalues
consistent with
universal values
KEY ELEMENTS OF ISLAMIC FINANCE (IF)
Sources: Bloomberg, London School of Economics (LSE)
Source: Bank Negara Malaysia
Source: LSE website
Islamic Contract
GhararGharar
RibaRibaAl-Zulm
(Qimar)
Al-Zulm
(Qimar)
Shariah-Compliant
Operation
1st Level of
Compliant
2nd Level
of
Compliant
Uqud Musamma
(Nominate Contracts)
Uqud Ghair Musamma
(Non-Nominate Contracts)
Investment Activities
Rectifying & Purifying
Conversion Process
Hedging Instruments
Monitoring & Supervision
Social Responsibility
Maqasid al-Shariah(The Objectives of Shariah)
The
Framework
of Islamic
Finance
EN
DS
/
ME
AN
S/
RIBA PROFITS
Whats The
Difference?
NO COUNTER-VALUE
WITHCOUNTER-VALUE
(`IWAD)
Effort (Al-Kasb)
Risk (Al-Ghurm)
Liability (Al-Dhaman)
Whats The Difference Between Riba & Ribh
! # & #Allah permits trading but
prohibits Riba (2:275)
! #They said that indeed trading
is just like riba (2:275)
9
Qaidah Fiqhiyyah: # . !
(Jamharatul al-Qawaid al-
Fiqhiyyah Vol.1 P.332)
General Classification of Contract in Islam
Charitable Contracts()
Exchange Contracts()
10
Cooperation Contracts()
Profit-making Contracts
Various forms of Islamic Contracts used in Banking Sales-based Contracts
Lease-based Contracts
Equity-based Contracts
Fee-based Contracts
Hybrid Contracts
BBA deferred sale; Murabahah cost-plus sale; Bai al-Inah, Bai al-Tawarruq
Ijarah Wa Iqtina; Ijarah Thumma Al-Bai, Ijarah Muntahia Bitamleek
Mudarabah, Musyarakah
Kafalah/Dhaman (Guarantee); Wakalah (agency)
Musyarakah Mutanaqisah (Dimishing Partnership), AITAB etc.
Deposit-taking ContractsWadiah Yad Amanah; WadiahYad Dhamanah, Mudarabah; al-Qard
Promise/UndertakingWa`ad
11
Major Components of Islamic Financial Services
ISLAMIC
BANKING
ISLAMIC
CAPITAL
MARKET
TAKAFUL/
ISLAMIC
INSURANCE
Equity
Islamic Securities
Funds & Unit Trust
I-REITs
Venture Capital/
Private Equity
Derivatives
Takaful
Retakaful
Financing
Deposit
Investment
Islamic Asset
Classes
Sukuk
Real Estates (I-
REITs)
Islamic Financing Facilities
Islamic Private Equity
Islamic Hedge Funds
FOREX
Islamic Stock
broking
Commodities
Islamic Structured Instrument
Potential areas in each value chain (e.g.)
Secure deal to purchase stocks from Suppliers
Provide financing facilityto Companies during growing & expansion stage
Provide financing facility to ready end-customers
Enter into equity partnership with Halal-based Companies
Joint venture may yield potential attractiveReturn
Financial musclemay enable IFI to enjoy economies of scale& bulk buying
Various financingTools in form of Equity/Debtmay yield potentialhandsome return
Financing via Shariah contracts eg sales-, lease-,Equity-, hybrid-Based Shariah Ct.
Value Chain
Value Proposition
Islamic finance offers value proposition that enable Halal industry to grow and
escalate to another stage for the benefit the Ummah as a whole......
Islamic-based Instruments financing :
Unique Features of each Islamic Financing and Investment tools offer various opportunities for innovation in business.
Ensuring Halal processes from A-Z
Provides opportunities for different business segments to grow and prosper
Unveil the potential of Islamic finance to Support Halal Industry
! # & #
Allah has permitted trade & has prohibited riba -Al Baqarah 275-
Assoc. Prof .Dr Asyraf Wajdi DusukiHead of Research AffairsISRA @ INCEIF2nd Floor, Annexe BlockMenara Tun RazakJalan Raja Laut50350 Kuala LumpurMALAYSIAGeneral Line : +603-2781 4000Fax : +603-2691 1940
Email : [email protected] : www.isra.my