Challenges and Opportunities for Islamic Banking and Finance

Top 20 FREQUENT WORDS

islamic 238 banking 116 finance 68 fund 68 london 66 investment 54 muslim 51 united 49 banks 48 financial 40 services 39 financing 38 kingdom 36 clients 33 british 32 opportunities 29 baraka 28 based 28 business 27 challenges 27

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challenges and opportunities for islamic banking and finance in the west the united kingdom experience rodney wilson islamic finance has become increasingly significant in financial centres in the west notably london despite the regulatory hurdles presented by operating in a nonmuslim financial environment
regulatory issues are covered which present a particular challenge in an environment where hitherto little account has been taken of the needs and preferences of muslim clients especially with regard to those who wish to respect the shari ah which prohibits interest based transactions

at the retail level the banking sector has changed rapidly in recent years mainly due to the effect of the banking act of the demutualisation of the leading building socieites the entry of external players such as retailing organisations into financial services and the rapid pace of technological change
lloyds following its merger with the trustee savings bank tsb has taken over the market lead while the acquisition of the formerly troubled midland bank network by the hong kong bank has resulted in a significant rise in its market share in conjunction with first direct the hong kong bank owned telephone banking service

over the last decade many of these western institutions have gained a better knowledge of what customers from the gulf in particular want and the bank staff have some idea of the basic principles of islamic finance although in the end in a competitive business their attitude is that the client knows best
as a consequence those wanting to use chequing services in the united kingdom have to use conventional banking channels and there are no locally issued islamic debit cards although the visa cards issued by islamic banks such as the kuwait finance house can be used with retailers and hotels throughout the united kingdom as they are interchangeable with other visa cards

firstly only a very limited number of institutions are involved out of the hundreds of banks active in the city of london the nine major participants being listed in table of which five are western owned banks anz international citibank dresdner kleinwort benson hsbc and standard chartered although the united bank of kuwait is a london based bank deposit its kuwaiti ownership
rodney wilson challenges opportunities for islamic banking uk experience despite these encouraging developments and the increasing cooperation between conventional bankers and those seeking specialist financing consistent with the shari ah there are several shortcomings as far as what is on offer is concerned

citibank like other western banks was not seeking to establish itself as a provider of islamic financial services initially but was merely responding to the demands of many of its muslim clients which included islamic banks and major trading companies from the islamic world

rodney wilson challenges opportunities for islamic banking uk experience murabahah for the lahore islamabad highway in cooperation with the qatar islamic bank and the saudi pak industrial and agricultural investment company and a second murabahah for dawoo of korea for million for trade with the gulf
from trade finance al rajhi moved into leasing with accounted for an increasing part of its london business but it has not attempted to get involved in project finance itself on any significant scale although it has joined other in these ventures

the united bank of kuwait international and local involvement kuwait s financial links with the united kingdom date back over half a century and therefore it was a natural development during the s for the major kuwaiti banks to jointly establish a new bank in london the united bank of kuwait to serve the trading and financial interest of their clients in the west including the kuwaiti government
rodney wilson challenges opportunities for islamic banking uk experience al rajhi is designated as an islamic bank but its rival the national commercial bank is a conventional institution although it has a very active islamic banking division which has expanded significantly in saudi arabia in recent year

although some tax relief is still available on mortgages on residential property in the united kingdom purchased for owner occupation acquisition of residential and commercial property for rent is also an attractive area for islamic investors especially given the long term appreciation of property values despite some short term fluctuations

the former are open ended with prices reflecting the value of the underlying equities in which the funds are invested usually calculated on a daily basis whereas the latter are closed ended which means the price of the shares may be at a discount or a premium to the underlying equities depending on investor s perceptions of the fund manager s skills
the fund was not very successful initially however partly because information on the share prices was not widely published and as there was no shari ah advisor or shari ah committee monitoring the fund it was difficult to establish credibility with gulf investors although this deficiency was subsequently rectified

in some respects it has the characteristics of a corporate bond as the actual value of the units seldom deviates far from the initial price of but there is of course no interest the return coming from the profits from commodity trading

the screening means that companies involved in the production of alcohlic drinks gambling or pork products are excluded from the portfolio as are stocks of conventional banks which are much more important in financial ter miss as all quoted companies in international markets receive some interest income this is deducted from the fund and donated to charity a process referred to as purification
it has a shari ah board of three respected islamic legal scholars doctor abdul sattar abu ghuddah who also serves as a shari ah advisor to the dallah al baraka group justice taqi uthmani who is also an advisor with the bahrain islamic bank and the iibu of the united bank of kuwait and doctor nazih hammad

the future of islamic finance in europe what developments are likely to occur over the period to the millennium and beyond in europe first it is likely that london will maintain its place as the major centre for islamic financing in europe with the largest value of financing continuing to involve investors from the gulf
rodney wilson challenges opportunities for islamic banking uk experience unlike most unit and investment trusts the aim of the halal fund is not to make capital gains and therefore it is envisaged that the price will remain at the initial subscription level practically ruling out the possibility of losses although subscription protection cannot be guaranteed under the shari ah law

fifth alothough rapid development of islamic banking seems unlikely there would seem to be scope for a step by step approach this is illustrated by the success of the iibu of the united bank of kuwait in launching its mortgage scheme primarily aimed at british musli miss the iibu have staff who are develoed personal pension and savings products and once these are launched it will have a considerable range of financial services to offer

the most significant is the steep learning curve as it is not merely understanding the technicalities and legal concepts underlying the islamic financing instruments but having a real appreciation of the diverse muslim cultures and a respect for islam
rodney wilson challenges opportunities for islamic banking uk experience number of very large mutual insurance groups which are viewed potentially very foavourably by shari ah advisors

iib i encyclopedia of islamic banking and insurance london institute of islamic banking and insurance
omer hussein sharif hussein the implications of islamic beliefs and practice on the islamic financial institutions in the uk a case study of albaraka international bank loughborough university ph

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Main Category

AlHuda Material\islamic banking

KeyWords

islamic banks banking financial finance investment conventional institutions funds risk financing deposits assets services management international countries equity profit products

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Number of Pages

25

Published Date

2006-06-05 13:28:09

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Challenges and Opportunities for Islamic Banking and Finance

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