Moving Forward with Islamic Banking: Key Insights and Opportunities

1. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

2. Islamic Banking: How we can move on to next phase? Abdul JabbarKarimi Head- HMB IB Products, Research &Training HMB-Islamic Banking Division Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

3. Possible Outcomes.. • To know that who are stakeholders of this growing child understanding the basic science of Islamic Banking/Finance in order to enable the participants to appreciate the need of the subject and look into it to make the industry as mainstream banking sector • To understand the minimum responsibilities and consequently the roles being Muslim have to be played to move on…..to next phase… • The future....of Islamic Finance is in our hands at most.. • Mostly in your hands…. “the customer….” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

4. TABLE OF CONTENTS • What I mean by next phase? • How to move on? • Theory: one’s perception and position taking • Practice: what needs to be done? • Do we really want to move to next phase? • I am optimistic for the Isl. Banking Future… Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

5. TABLE OF CONTENTS • Let us look a glance on Islamic Banking Current Scenario…… Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

6. The Presence of Islamic Finance: About 1100 institutes offering Islamic Products around the world UAE: 9 - Dubai Islamic Bank - Abu Dhabi Islamic Bank - HSBC Amanah Germany: 3 - Bank Sepah - Commerz Bank - Deutsche Bank Switzerland: 6 United States: 20 - Al Manzil Financial Services - American Finance House - Failaka Investments - HSBC - Ameen Housing Cooperative Bahrain: 26 - Bahrain Islamic Bank - Al Baraka - ABC Islamic Bank - CitiIslamic Investment Bank Kuwait: 5 - Kuwait Finance House Qatar: 4 - Qatar Islamic Bank - Qatar International Islamic • UK: 26(primarily branches of Gulf and glo • bal banks) • - HSBC Amanah Finance • - Al Baraka International Ltd • - Takafol UK Ltd • - The Halal Mutual Investment Company • J Aron & Co Ltd (Goldman Sachs) • Britain Islamic Bank Iran: 8 Pakistan: 5 India: 3 Bangladesh: 3 Turkey: 7 - Faisal Finance Institution - Ihlas Finance House Sudan: 9 Egypt: 7 - Alwatany Bank of Egypt - Egyptian Saudi Finance Malaysia: 49 2 - Pure Islamic Banks (Bank Islam, Bank Muamalat) Rest - conventional banks Saudi Arabia: 10 - Al Rajhi - SAMBA - Saudi Hollandi - Riyadh Bank Yemen: 5 Planning to go for Islamic Banking Indonesia: 4 Note: Figure indicates number of Islamic FIs in the country. Only some of the key FIs are shown for each country Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

7. Global Scenario • 1100 institutions are offering Islamic Financial Products/Services • Growth Rate @ 28% since 2006 • According to ‘The Banker’s 2009 survey, the volume of the Shariah Compliant Assets of the top 500 Islamic Financial Institutions grew by 28.6% rising to US$822bn from $639 in 2008 at a time when the top 1000 World Banks’ assets slumped to 6.8% from 21.6% from the previous year. • The Shariah Compliant Assets are projected to grow to US$1.60 trillion by 2012. • Sukuk (Islamic Bond) Issuance expected to hit US$200 Billion by 2010 Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

8. Global Scenario……. • The United Kingdom has emerged as a leading centre for offering Islamic Financial Services (IFS) as at present there are 22 banks in UK offering Islamic Financial Services, out of which 05 are fully Shariah Compliant (4 wholesale & 1 retail bank). • Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recently introduced Islamic mortgage products to cater to Britain's 2.5 million Muslims. • France by indicating the adjustments in its legal and fiscal framework aims to the development of Islamic Finance to cater the faith-based clientele in the country in addition to gain attention of Middle Eastern Investors holding abundant liquidity. (report by Standard & Poor, 2009) • German state became the first European government body to issue an Islamic bond last year -- a $121 million. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

9. Global Scenario……. • The opportunities to tap the surplus funds of oil rich Muslim nations is strong as many non Muslim countries are trying to tap it including, Japan, UK, Singapore, France, Hong Kong US, Germany, Australia, Thailand, etc. • These institutions are playing a key role in setting up and standardizing Shariah , Financial and Accounting standards for Islamic Financial Institutions. • Major business schools such as Oxford, Harvard, Rice and Durham has started post graduate programs in Islamic Finance • Harvard University has developed a major database by the name of Harvard Islamic Financial Information Program HIFIP) for Islamic Banking. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

10. Islamic Banking In Pakistan: An Overview The Islamic banking market in Pakistan continued to expand during the last year as well and the assets growth has registered 59% p.a. growth since 2005 as stated by Deputy Governor SBP. • Assets = about PKR 411 bn + (Industry Share constitute 6.10%) • Deposits = about PKR 330bn + (Industry Share constitute 6.40%) • Financing and Investment = about PKR 230 bn +(Industry Share constitute 4.30%) • Projected growth for the next 5 years of Islamic Banking is 15% to 20% per annum. • The Islamic Banking Market share would reach 12% by 2012 as per strategy plan of SBP • In 2008 the assets of Islamic Banking increased by 34% as compared to the assets of overall industry by 8.8%. (SBP Bulletin) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

11. A FEW SAYINGS BY KEY PLAYERS FOR ISLAMIC BANKING……… • "There is a segment within the current market that would switch to Islamic if the quality and benefits offered were as good as conventional financial products," says Ray Ferguson, CEO of Standard Chartered Bank UAE in Dubai. • “A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis,” said.Brian Caplen, An editor of a London-based magazine • "Islamic banking isn't just for conservative or radical Muslims. It's mainstream business now, "That's why every bank wants a bigger piece of it."says Ross Mohamad Din, director of HSBC Amanah Malaysia Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

12. TABLE OF CONTENTS What I mean by next phase? Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

13. Next Phaseshall be starting….. • Islamic banking must be able to become domestic player with an international quality in services and performance, i.e. first best choice that caters equally the here (Dun’ya) on the same competitive conventional banking lines… • Positioning Islamic Banking as a beyond banking ,i.e. more than just a bank….. • 20% + Country Business /(deposits+ Assets) to be done through Islamic Banking … Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

14. TABLE OF CONTENTS • 2. How to move on? • Theory: • one’s perception and • position taking • Practice: • what needs to be done? Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

15. How to move on? Theory: Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

16. How to move on? Theory: Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

17. How to move on?Theory: “O you who believe, Fear Allah and give up what remains of your demand for Interest, if you are indeed a believer. If you do not, then you are warned of the declaration of war from Allah and His Messenger; But if you turn back you shall have your principal: Deal not unjustly and you shall not be dealt with unjustly.” Al Baqarah 278 - 279 (Fourth Revelation) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

18. How to move on? Theory: 1. From Hazrat Abu Hurayrah (RA), The Prophet, peace be on him, said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.” (Ref: Ibn-e-Majah) 2. From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet may peace be on him, cursed the receiver and the payerof interest, the one who records it and the witnesses to the transaction and said; “They are all alike (in guilt).” Ref: (Muslim, Tirmidhi and Musnad Ahmed) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

19. How to move on? Theory: • What is Islamic Banking? “Islamic Banking is interest free Asset Backed banking governed by the principles of Islamic Shariah” “The ends of the both banking systems are same but only the means to achieve these ends are different as one system is God given in contrast to its rival system which is ma made.” (Karimi, Abdul Jabbar- ‘Islamic Banking :A necessary system, published in the Finance & Business Review, The News, 18th Jun’ 2001) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

20. How to move on? Practice (Practical Steps): Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

21. How to move on? Practice (Practical Steps): Regulations/Policies guidelines Legal Framework Central Bank Government Public opinion/Religious Rulings Consumers Madrasas/ Religious Scholars Demand for Products & Services Islamic Banking Institution External Internal Shariah supervision Vision & Leadership Shariah Adviser/Shariah Board Management Productivity Capital Staff Sponsors Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

22. Next Phase?:The minimum steps to go into next phase … Perception Change: To build understanding in Islamic banking as Beyond Banking …various forums…more efficient socialization and educational program for public interest ….(all) Businessesto take it in their TOP priorities list (Customer) Feasible Regulatory Environment , addressing the IB challenges (Liquidity, Legal, Taxation, + ) on priority basis ..(Govt. /SBP) Big banks to play role/think seriously… ..(Govt. /SBP) Positioning, Differentiation and Branding, positioning the IB as the most attractive one in country and abroad(IIFS) + Shariah +Customer IB to be accessible for all kinds of people and all segments/PLS Based Products on assets side (IIFS +Customer) HR Service quality: Professional +Religious touch (Staff) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

23. Next Phase?... • And…. • 8.Unanimity of views of Religious Scholars (RS)….for • the “products and services offered by Islamic Banking”, • the prohibition of “Banking Interest” …Shariah Doctor • the differences, if any, in terms Shariah interpretation should remain within the circles of scholars…. • 9. CUSTOMERS’ total commitment for Islamic banking as the only choice to bank with.. “Haq-ul-Yaqeen” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

24. Unanimity of views… An example…. The Question about MURABAHA Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

25. Murabaha …. • The basic purpose of Murabahah Sale has been described in Fiqh books in these words: • والحاجة ماسة الى هذا النوع من البيع لان الغبي الذي لا يهتدي في التجارة يحتاج الى ان يعتمد فعل الذكي المهتدي وتطيب نفسه بمثل ما اشترى وزيادة ربح • " the main purpose of (Murabahah) sale is to protect the innocent general consumer lacking expertise in the various items of trade from the wiles and stratagems of sharp traders.” • Usually there are three parties to a Murabahah transaction where the bank is involved: • The one who promise to buy (Customer) • The Bank • The vendor (supplier to the Bank) Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

26. 3. Do we really want to move to next phase? The Trillion Dollar Cake End 2008 Amount in Billion of USD Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

27. 1 Year To Go Already LIVE And the long way… Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

28. I am optimistic for the Islamic Banking Future… Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

29. I m optimistic for IB …. Karimi says, “I am optimistic regarding the future /tomorrow of Islamic Banking that it is going to be the mainstream banking chosen as choice by almost all iff We successfully provided the products that cater the needs of the customers on equal grounds .….. “tomorrow is of Islamic Banking….. Why?? An illustration….with comparison….. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

30. Accessing New Market segments through Islamic products Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

31. Is our vision to create a Market Segment? The tale of Telecom. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

32. Telecom Revolution…Year 2000 Source: Pakistan Telecommunication Authority No of connections and market share “In the Year 2000, after 8 years mobile phone operator’s share was only 9%” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

33. Telecom Revolution…Year 2007 No of connections and market share “Now mobile phone operators share of the industry is 89%!!! Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products` Source: Pakistan Telecommunication Authority

34. Telecom Revolution…Year 2007 Mobile Phone Industry 55 Mn Connections “The market segment has become larger than the basic industry itself” Fixed Line Industry 5 Mn Lines Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products` Source: Pakistan Telecommunication Authority

35. What is the inspiration… Basic functionality with out the wire “ Vision is to create an industry itself and not a segment” Financial solutions with out Riba Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

36. Source: Oasis International research 2006 What does this Market Want? Research: I will only bank with an Islamic Bank I will Not bank with an Islamic Bank All things equal I Will prefer an Islamic Product “The winning formula” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

37. What does this Market Want? An Example… IBB Launched in an area already having Conv.banking branches Highest incremental growth in the entire banking industry “All things equal I will prefer an Islamic product” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

38. The road ahead… Whom to go Shariah Doctor? “..Pleasure of Allah SWT is only possible when we’ll adhere the minimum Shariah boundaries…. Having business within prescribes lines by Quran + Sunnah ” Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

39. Concluding Point The Main Motivating Factor and Driver of Islamic Banking ….. “ROI” (h+h) • In anticipation of ROI (H+H), i.e. the investment that brings return for here and herein after in an effort to abide by the prohibition of Riba, a surprisingly increasing number of Muslim deposit holders all across the world, have non-interest bearing accounts and they refrain from Interest Based Banking. Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`

40. Thanks FOR FURTHER INFORMATION: Abdul Jabbar Karimi Head-HMB Islamic Banking Products HBZ Plaza (Hirani Centre) Islamic Banking Division Cell: +92 300 824 5995 D/L: +9221 32639665 D/L: +9221 32644406 Email: ajk313@gmail.com Islamic Banking: How we can move on to next phase? by A.J. Karimi, Head HMB IB Products`