the principles, aims and evolution of islamic finance iqbal khan 5 march 2013
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The Principles, Aims and Evolution of Islamic Finance Iqbal Khan 5 March 2013 Twitter: @IqbalKhanCEO. The importance of ethical finance is underpinned in the monotheistic scriptures . CHRISTIANITY. - PowerPoint PPT PresentationTRANSCRIPT
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The Principles, Aims and Evolution of Islamic Finance
Iqbal Khan5 March 2013Twitter: @IqbalKhanCEO
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The importance of ethical finance is underpinned in the monotheistic scriptures
CHRISTIANITY• Being in debt is equivalent to servitude because of the immense burden
to repay. Hence, “The rich rule over the poor and the borrower is slave of the lender” (Proverbs 22:7).
Islamic Finance is a continuation of the principles of CSR, ethics and fairness in the Abrahamic faith
JUDAISM• "The first question an individual is asked in the afterlife at the final
judgment is: “Did you conduct your business affairs honestly?” (Babylonian Talmud, Shabbos 31a)
ISLAM • “However plentiful usury may look from the outside, its end is want and ignominy” (Hadith)
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Islamic Finance principles consist of core basic tenants
If something is immoral, one cannot profit from it
To share reward, one must also share risk
One cannot sell what one does not own
In any transaction, one must clearly stipulate what he or she is buying or selling and what price is being paid
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Removing speculation and creating value-enhancing and sustainable activity
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Islamic Finance is the outcome of CSR derived from religion and applied to banking
Islamic Finance is capitalism with a moral compass
Corporate
gove
rnance
Corporate Social
Responsibility
Business ethics
Ethical profits
(rather than “profits-at-any-costs”)
Accountability to God“More-than-profit”
mentality
Shari`a “code of ethics”
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1970s insurance
The industry has developed a comprehensive product offering over its young history
1950s
60s
70s
80s
90s
00s
− Egypt and Malaysia pioneering institutions− Establishment of OIC (1969)
− Development of theoretical framework− Muslim-majority nation independence
− Islamic Development Bank (1974) and DIB− One country-one bank setup
− Advancement of Islamic products− Full “Islamization” of Iran, Pakistan and Sudan
− Entry of global institutions e.g. HSBC Amanah
− Tipping point reached in some markets− Development of industry-building institutions
1980s syndications
structuredand trade finance
1990s
equity
private equity
projectfinance
2000s
structured products
1970s
1980s1990s
2000s
Evolving richness in productsDevelopment of industry
Debt issues
Industry has near like-for-like parity with conventional offering
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Growth Engine
Awakening
Ripe for Growth
Future Markets
In all, the Islamic finance industry is developing a global reach…
Source: Standard and Poor’s “The Globalization of Islamic Finance”
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The development of the Islamic finance industry has been fuelled by pioneering institutions and industry building organisations
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Islamic Finance was not established by a royal decree or a presidential announcement, but it was the will of the people which created the industry.
Growth in the GCC Islamic banking markets are primarily driven by customer demand
Malaysia presents a near ideal regulatory and market-driven model for Islamic business
Government driven
Growth and drive is being led by customer demand
Market drivenSource: Central Bank, Reports, industry estimates
Key: Bubbles indicate illustrative size of Islamic banking assets
Malaysia
UAE
Qatar
Saudi Arabia
TurkeyEgypt
IndonesiaChinaJapan
USA
UKSingapore
Sri Lanka
Bangladesh
Sudan
Iran
Pakistan Bahrain
Kuwait
Brunei
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The Islamic finance ecosystem is growing: Total Islamic finance assets may surpass $1.8 trillion in 2013
Islamic finance continues to grow at an exponential pace. Higher growth in personal financing assets is made up from a number of factors: pricing differential has been reduced or eliminated, customers are more accepting of Islamic finance, and the industry’s distribution capability has improved immensely.
Top 20 Islamic banks make up 55% of the total Islamic banking assets and are concentrated in 7 countries, including GCC, Malaysia and Turkey. 13 Islamic banks have an equity base of more than $1 billion. Building regional institutions and participating in larger transactions requires the industry to scale up.
Source: Ernst and Young – The World Islamic Banking Competitiveness Report
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Some of the pioneers of the Islamic finance industry
Sheikh Ibn Baaz(1910 – 1999)
SHARI’A SCHOLAR
Sheikh Saleh Kamel(1941 – )
ENTREPRENEUR
Royal Professor Ungku Abdul Aziz
(1922 – )
ACADEMIC
Lord Eddie George(1938 – 2009 )
REGULATOR
Sir John Bond(1941 – )
PRACTITIONER
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Mountaineering Analogy: The Islamic Finance industry has come a long way since the days of its pioneers, but it still has a long way to go…
The evolving political and economic paradigm will drive our industry forward
A globally recognised one trillion dollar + industry.
150% increase over the last five years.
Exponential growth in core markets i.e. Middle East and Malaysia.
Creating role model institutions which facilitate the demonstration effect.
Democratizing wealth and ensuring stability.
Fortifying and strengthening the industry’s foundations.
Laying the Foundations
Beacon House
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Today’s interconnected and dynamic world is presenting a unique opportunity for Islamic finance to prosper
The Arab Awakening was driven by the young people facing dire socio-economic conditions, with access to social media and a hunger for change. The uprisings led to regime changes in Tunisia, Egypt, Libya – and protests in Bahrain and Syria, amongst others.
ARAB AWAKENING
The global economic crisis – sparked by the bursting of the U.S. housing bubble and fuelled by various systemic imbalances. The effects of the crisis is now being felt by those at the grassroots, and is leading to a political and economic paradigm shift.
THE GREAT RECESSION
The “Occupy Movements” have highlighted grassroots support for concrete reforms in the financial services sector. The movement led to protests and occupations in over 80 countries and across every continent except Antractica.
OCCUPY MOVEMENTS
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The current global economic crises highlight the need for a value-based approach to financial services
Material crisis requires moral solutions
Financial Institutions
Impact points
Global Markets
Real Economy
Policy Implications
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Need for savings and investment orientation to replace consumption and credit culture
Dangers of opaque sale of debt now shown to be evident
Differentiation between deposit-taking institutions and investment managers
Stronger links needed between banking and real economy investment
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How Scotland can capture the Islamic finance opportunity
POLITICAL ENABLEMENT1 • Regulatory and public sector support to make Scotland a ‘hub’ for the Islamic finance industry.
ATTRACTING ISLAMIC FUNDS2• Trade and Investment engagement with high-growth OIC
markets to attract funding for projects i.e. Sukuk model.
RESEARCH AND INNOVATION3 • Creation of a Centre of Excellence to provide much-needed research and analysis to support the industry’s growth.
THE PEOPLE PARADIGM4 • Islamic finance academic programmes at Scottish universities to attract domestic and international students.
CREATING SUSTAINABLE GROWTH5 • Boosting job creation and economic prosperity by enabling Scottish companies to expand in Muslim-majority markets.
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Martin Luther King, Jr. (1929-1968)
“Through our scientific genius we have made of the world a neighborhood; now through our moral and spiritual genius we must make of it a
brotherhood.”
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