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This is the last in this series. I hope you have found it useful and informative.
Since the late 1990s the Islamic banking world has stepped up efforts to standardize regulation and supervision. The Islamic Development Bank is playing a role in developing internationally acceptable standards and procedures and strengthening the sector’s architecture in different countries. Several other international institutions are working to set Shari’a-compliant standards and harmonize them across countries. These include the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Finance Service Board (IFSB), the International Islamic Financial Market, the Liquidity Management Center and the International Islamic Rating Agency. Read the rest of this entry »
Short piece today on Islamic Equity funds. The series will complete tomorrow with a wrap up.
Islamic investment equity funds market is one of the fastest growing
sectors within the Islamic financial system. Currently there are
approximately 100 Islamic equity funds worldwide. The total assets
managed through these funds currently exceed US$5 billion and is growing
by 12-15% per annum. With the continuous interest in the Islamic
financial system, there are positive signs that more funds will be
launched. Some western majors have just joined the fray or are thinking
of launching similar Islamic equity products.
Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down for various reasons.
Most of the funds tend to target high net worth individuals and corporate institutions, minimum investments ranging from US$50,000 to as high as US$1,000,000.
Target markets for Islamic funds vary, some cater for their local markets for example Malaysia or Gulf based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities.
Since the launch of Islamic equity funds in the early 90’s, we have seen the establishment of credible equity benchmarks by Dow Jones (the Islamic market indices) and the FTSE (the Global Islamic Index Series). The website failaka.com monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide.
This post covers the Islamic rules on trading, with a focus on what deals are permissible (“Halal“) or forbidden (“Haram“). These rules apply to any market or other types of trading and, I feel, are general enough that trading in shares, derivatives, insurance and other forms of risk are covered.
The major difference between a normal, Western, financial market and that of a Halal market is the prohibition on trading in risk, so a discussion of the detail of this, and the disagreements between the various schools of Islamic jurisprudence is the first subject to be covered.
This is the third in a series on Islamic banking. There is some overlap between this and other parts of the series, but as each is designed to stand alone I hope you do not mind the repetition. Read the rest of this entry »
One of the best ways to understand Islamic banking is to gain an understanding of the products that are considered acceptable. Several of these are covered below. The important thing to remember, however, is that, as with the Christian Bible, there are several differing interpretations of what the Holy Quran and the Hadith actually intend. As a result, not all of these products are universally acceptable (particularly those where the return is determinable in advance), but they are a useful guide. A subsequent piece in the series will cover some of the debate in this area.
This is the second in this series. Read the rest of this entry »
This is to be the first in a series of posts over the next few days outlining the basics of Islamic finance. This one provides the basic framework and rules. We hope you find them interesting.
In the 1970s changes took place in the political climate of many Muslim countries which led to a number of Islamic banks, both in letter and spirit, being established in the Middle East, e.g., the Dubai Islamic Bank (1975), the Faisal Islamic Bank of Sudan (1977), the Faisal Islamic Bank of Egypt (1977), and the Bahrain Islamic Bank (1979).
Islamic banking is now one of the world’s fastest-growing economic sectors, comprising over 300 institutions in over 75 countries. They are concentrated in the Middle East and Southeast Asia (with Bahrain and Malaysia being the largest hubs), but are also appearing in Europe and the United States. Total assets worldwide are estimated to exceed $250 billion, and are growing at an estimated 15 percent a year. Read the rest of this entry »
The underlying premise of enterprise risk management is that every entity exists to provide value to its stakeholders. All entities face uncertainty, and the challenge is to determine how much uncertainty to accept as it strives to grow stakeholder value. Uncertainty presents both a risk and an opportunity with the potential to enhance or erode value. Enterprise risk management enables Management to deal effectively with uncertainty and associated risk and opportunity, thus enhancing the capacity to build value. Initiatives to build value with integrity should be aligned with an entity’s strategic high level goals and ethics, ensure the effective and efficient use of operational resources, provide for reliable reporting, and assure compliance with applicable laws, regulations and governance requirements.
Enterprise risk management is defined as a:
“process effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across an enterprise, designed to identify potential events that may affect the entity, and manage risk within its risk appetite, to provide reasonable assurance regarding the achievement of the entity’s objectives”.
This definition reflects certain fundamental concepts that enterprise risk:
- is an on-going process applied across an entity
- provides the opportunity to align the management of corporate strategic objectives and risk to deliver value with integrity
- provides an entity level view of risk
- is effected by people at every level of the organisation
- is designed to identify failure points that affect the entity.
Shareholder value may be maximised when management sets strategy to strike an optimal balance between growth, financial goals and related risks, and efficiently and effectively deploys resources to achieve the entity’s objectives. The objectives of Enterprise Risk Management include the:
- alignment of risk appetite and strategy
- ability to enhance key decisions made to respond to threats and risks
- reduction of operational surprises
- compliance with key regulatory & legal requirements enterprise-wide.
The primary drivers of operational risk are People, Relationships, Technology, Processing, Physical, and other External risks. Entities that implement a coordinated enterprise-wide program of operational risk optimisation, and that link risk, control and performance measurement metrics, will be better equipped to avoid pitfalls and surprises on the way towards creating value with integrity.