Imane Karich – Consultante BELSIF – Islamic Banking & Investing Seminar 29 October 2008
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Transcript of Imane Karich – Consultante BELSIF – Islamic Banking & Investing Seminar 29 October 2008
Imane Karich – Consultante
BELSIF – Islamic Banking & Investing Seminar29 October 2008
ISLAMIC VISION of BANKING & INVESTING
Table of Content
Islamic Finance – Theory & Concepts
Description of the main islamic financial instruments
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Islamic Finance – Myths & Realities
Islamic Finance IS NOT a RELIGIOUS system; a simple « Interest-Free » system; a discriminatory system restricted to Muslim People
Islamic Finance IS: a SYSTEM based on religious ETHICAL principles; an Open system and a real alternative to conventional
finance.
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BASIC PRINCIPLES
Islamic Finance is part of the Islamic Economic System, part of the Chari’a System
Islamic Economy is a Normative system supported by moral and ethical values and guidelines of the Islamic Law;
Islamic Finance tends to establish financial equity and preventing injustice in business deals
General Basis Rule of the Economic Islamic System:CORAN - Sourate Al Baqarah - Verse 275 – 1st part:
« God has allowed Trading…. »
Fundamental principle of trading system: exchange of real goods Incentive for Participation and Risk Taking:
Principle of Profit & Loss sharing No transfer of risk with the capital
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And the Exception…
In the light of the search of Equity and Justice
Verse 275 - 2nd Part:…and has forbidden interest »
Avoid Injustice and unjustified wealth creation;
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Roles of Money and Definition of Riba
Difference between Usury & Interest ? > Notion and role of Money:
Unity of Measure; Mean of exchange Reserve of Value
Conclusion: no difference between « reasonable » interest and usury
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Gharar
Fuzziness – Ignorance – Uncertainty in the contractual terms – ex:
Contingency of exchange results, Absence of the good during the exchange, …
≠ Risk taking inherent to trading; Less strict than the interdiction of Riba.
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Islamic Banking system
Same role as the conventional banking system: Financial intermediary between investors and
entreprenors To improve the efficiency and the liquidity of financial
resources exchange;
The main difference is situated in the risk taking owner : is not transfered with the capital but remains with the property right of the financial resources.
The Bank becomes a privileged partner in Business transactions.
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Islamic Bank – Basic functioning
Islamic Bank
Contract Mudharaba (or Wakalah)
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BANQUE
MUDHARIB
RABB
al
MAL
Clients Investissors/depositors
Clients Entrepreneurs/Debitors
Funds mobilisationFunds User
Islamic Vision on Investment
Investment in the sources of Islam: Thesaurisation Zakat Financial Risk Speculation
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Thesaurisation: Authorised sparing:
Balance and Equilibrium; With a clear objective;
= wealth accumumation without spending or investment objectives on a medium/long term
Zakat: Progressive seizure of the non used wealth;
Islamic Vision on Investment
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Notion of Financial Risk: Pure Risk vs Financial Risk; Commercial Risk vs Speculative Risk; Profit & Loss Risk; Objective Risk;
Speculation: Bet on a future event on an aleatory and
subjective way; Without rational fundements; Voluntary excessive risk;
Islamic Vision on Investment
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Investment Universe
Limited investment universe No Alcohol, entertainment, banking, gambling arms…
activities + other specific rules applied to mutual funds (see
later)
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Description of main Financial Instruments
Based on Islamic Commercial Law and on traditional commercial contracts;
Different categories of contracts:
Participation contracts (PLS based); Musharaka and Mudharab
Financing contracts (debt based) Murabaha and Ijara
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MUSHARAKA
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Project Financing
MUDHARABA
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Project Financing
Mortgage Financing
MURABAHA
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Property right
Property rights
Mortgage Financing
IJARA
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Titre de propriété
Contrat de vente
Titre de propriété
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Mortgage Financing
Musharaka Mutanaqissa
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Titre de propriété
Titre de propriété
Islamic Investment in Practice
When investing, two aspects are important: The Nature of the instrument/transaction The Nature of the Issuer
Nature of Instrument : islamic view on conventional financial products and derivatives
Bonds > Riba Derivatives > Gharar
Nature of the Issuer : investment universe > screening norms Innovation for developing own financial vehicles
Equity Mutual Funds Sukuk Arbun Wahd
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Islamic Investment in Practice
EQUITY Investment: Nature of the instrument : Equity investment
is fully acceptable (« Mudharaba ») Nature of the issuer : screening norms Mutual Funds – one of the most successful
investment vehicle Apparition of « Islamic Indexes » - DJIM
Definition of Screening Norms
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Islamic Investment in Practice
Screening Norms:1. Business of the Issuer Company (core and secondary activities):
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Islamic Investment in Practice
Screening Norms:2. Financial Structure of the Issuer Company:
a) Interest Earnings:
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Islamic Investment in Practice
Screening Norms:2. Financial Structure of the Issuer Company:
b) Debt Ratio:
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Islamic Investment in Practice Screening Norms:2. Financial Structure of the Issuer
Company:
C) Liquid Assets:
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Islamic Investment in Practice
Dow Jones Islamic Market Index – DJIM: Introduced in 1999 First benchmarks for sharia-compliant portfolio
management; Performance:
YTD : -27% Since 5 years : +44%
More info : www.djindexes.com
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Islamic Investment in Practice
Creative engineering – new products: Success of Sukuk investments; Alternative for derivatives products : ‘arbun contracts,
wahd contracts, …
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