Islamic Banks in the System of National Accounts Omar Hakouz

1. Islamic Banks in the System of National Accounts Omar Hakouz Regional Advisor on National Accounts 10th AEG meeting on national Accounts 13-15 April 2016, OECD, Paris

2. Islamic Banks VS Conventional Banks

3. Islamic Banks VS Conventional Banks

4. How Islamic Banks Operates Islamic Bank Deposits Finance Management fees Liability 0% inerest 0% interest Loans Wadia’a or Amana Own fund Fees Profits ?? Own fund Modharaba Deposit Pool Unrestricted Deposit Purchases Morabaha Mark up Investments Investment pool M and M Profits ?? Profits share Shares Musharakah Profits ?? Specific investments Specific investment Restricted Deposit Profits Profits ??

5. First group point of view To

6. First group point of view • Agreed with the recommendations included in the Monetary and Financial Statistics Manual and Compilation Guide. • Islamic banks services is FISIM. • Deposits and loans are similar to conventional banks. • They identified several issues that require further research • The input cost of trade arrangments (Murabaha). • How to interpret the management fees paid by depositors (investors) to the bank • Practical issues related to how to deal with this issue from users side.

7. Second group point of view • Disagree with some of the recommendations included in the Monetary and Financial Statistics Manual and Compilation Guide mainly. Deposits • Islamic banks don't really borrow funds from depositors, neither do they lend funds to entrepreneurs. But obtain them in the capacity of a fund manager under fund management contract • I-Banks don't bear all the risk when they lends the funds to a third party as it is the case in Con. Banks. • I-Banks don't assume an ownership over the Funds. • Islamic banks charge the depositors management fees to run and invest their deposits • classify them as shares or units is more appropriate than classifying them as other deposits.

8. Second group point of view Classification of Islamic Banks • Islamic Banks are prohibited from accepting deposits except, Amanah and Qard-hasan deposit • Raise funds by accepting investment deposits according to Modarabah/Mosharaka which is similar to share rather than deposit. • The depositor will have a share or a unit similar to mutual fund or non-money market fund. • Modarbah contracts provided by Islamic banks are PLS agreement and thus it is similar to stocks (units) and connote be classified as deposits • Islamic banks can be classified as managers of mutual funds or non-money market funds

9. Second group point of view Classification of Musharakah • Musharakah is a technique of financing used by Islamic banks that could roughly be translated as partnership • The I-bank and the investor are entitled to a share in the profits or Loss resulting from the project in a ratio which is mutually agreed upon. • In many cases the fund is used to finance long term project. • the Fund provided through Musharakah is not a loan but it is a share in the equity

10. Second group point of view Classification of Murabaha • This classification imply that the all of the profit margin should be classified as interest • Neglect the existence of an economic activity (trade activity) • Islamic banks take into consideration the cost of time (interbank interest) and a markup profit margin • Morabaha doesn’t create FISIM but produce trade margin and generate pure interest (Property income) measured according to the interbank interest.

11. Second group point of view Practical problems related to MFSMCG recommendations • The first practical problem will be with obtaining the data from the users of the commodities bought by Marabaha contract • The treatment of management fees obtained by the Islamic banks • The experts believes that if the Morabahah is treated as loans then it would be necessary to provide some instructions on how to deal with practical implications resulted from this

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