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05-19-2008, 01:11 AM
Non-Muslims Favor Islamic Finance

IslamOnline.net & Newspapers

CAIRO — Islamic finance, an industry picking up steam worldwide, is increasingly appealing to non-Muslims who find the Shari`ah -compliant service much fairer than traditional banking.

"The terms are better than on conventional loans," David Ong-Yeoh, a Malaysian public relations executive, told the New York Times on Thursday, November 22.

Islam forbids Muslims from receiving or paying interest on loans.
Shari`ah-compliant Islamic banking operates by sharing profit or loss between the bank and its clients.

Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Ong-Yeoh, 41, is one of many non-Muslims opting for a growing range of Islamic products offering competitive returns.

He first sought a 30-year fixed loan from an Islamic financial institution for his home. He later took another Islamic loan for his car.

"It’s just taking advantage of the system."

Ong-Yeoh is not alone.

E-lene Kee, a Buddhist corporate lawyer, advises clients to use Islamic loans to finance construction projects.

"We look at these things just like Apple or Berkshire Hathaway."

At Kuwait Finance House’s Malaysian unit 40 percent of the depositors and 60 percent of its borrowers are non-Muslims.

"It’s about respecting the interests of the different parties, avoiding taking advantage of any situation of any counterparty and putting in place fair treatment," explains Rasheed Mohammed al-Maraj, governor of the central bank of Bahrain.

In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and Islamic derivatives.

Islamic bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.


Islamic finance is already one of the fastest growing sectors in the global financial industry.

Hang Seng Bank, the second largest bank in Hong Kong and a subsidiary of global banking giant HSBC, launched on Thursday the Hang Seng Islamic China Index Fund, Hong Kong's first Islamic fund.

"The Fund will help investors capture the potential investment returns generated by growing international interest in these markets," said William Leung, general manager of the bank's personal financial services and wealth management.

Hang Seng is only the latest in a long list of international institutions, including Citigroup, HSBC and Deutsche Bank, going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.
In Asia, Islamic finance is growing in double digits, with predominantly-Muslim Malaysia effectively establishing itself as a regional, if not global, hub.

Indonesia, Thailand and Singapore are also among the countries promoting Islamic finance.

In the Middle East, Saudi Arabia’s largest lender, National Commercial Bank, overhauled its entire retail business to make it Shari`ah-compliant.
Tunisia and Morocco have also authorized their first Islamic banks this year.

Shari`ah -compliant loans and bonds are already available in the US and Britain has decided to do the same.

"This is an industry on its way from a niche industry to becoming a truly global industry," Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, told the Times.
"In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world."

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05-19-2008, 11:11 AM
When I went to Bank Islam or Bank Muamalat branches, whether in KUala Lumpur, Penang or Kulim.... half of the customers are non-Muslims, especially Chinese

05-19-2008, 11:22 AM
I would be also interested. I am soo dissapointed we don't have one in my country :unhappy:

Air Jordan
05-19-2008, 02:44 PM
Ethnic Chinese in Malaysia using an Islamic "bank" aren't likely doing that because they think it is Sharia-compliant, they think they are getting a better deal, which is fine because that is how capitalsim works.

No reason it couldn't work in the US as long as the organization complies with banking regulations (reserve requirements, audits, etc.)

They might be at something of a disadvantage in the US as they would be prohibited from borrowing from the Fed (in order to comply with Sharia).

They would also have to comply with civil rights laws in regard to employment and lending. The first time they turned down an unmarried woman with kids or a Jew, they would be in for some serious trouble.

BTW...it still seems to me that these types of financial arrangements seem to violate the spirit of proscriptions agaisnt usury (or whatever you guys call it). Surely it doesn't say in the Quran (or the Hadiths) that an 5/1 Adjustable Rate Mortgage with negative amoritization, stated income and 95% loan to value ratio is a sin that will land you in Hell but a leaseback arrangement secured by the property is not?

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05-19-2008, 02:46 PM
That's great.

How do they make a profit then?

05-21-2008, 05:01 AM
Islamic Banks: A Novelty No Longer
Lenders that avoid charging interest, in line with Koranic rules, are spreading -- even among Western institutions

When British banking giant HSBC Group (HBC ) began offering mortgages carefully formulated to meet Islamic banking practices last year in Malaysia, it was surprised that more than half of its customers were non-Muslim. What drew these customers to alternative financing that conforms to the strict dictates of Islam? Bank officials say that competitive pricing makes their Muslim-friendly mortgages -- which operate more like leases than loans -- competitive with traditional interest-based financing.

It's all part of a trend in which financial products that comply with the set of Koranic laws that govern a Muslim's daily life, or shariah, are evolving from a novelty into a normal part of doing business in much of the developing world. "Islamic banking isn't just for conservative or radical Muslims. It's mainstream business now," says Ross Mohamad Din, director of HSBC Amanah Malaysia, the bank's Islamic division. "That's why every bank wants a bigger piece of it."

From Jakarta to Jeddah, 265 Islamic banks and other financial institutions are now operating in some 40 countries, with total assets that top $262 billion, according to organizers of the International Islamic Finance Forum, a semi-annual industry conference. That pot of money, the investment of which adheres to the Koran's prohibition against receiving or paying interest, has been steadily building since 1994, when Malaysia created the world's first Islamic interbank money market. Now Islamic banking has broadened its appeal well beyond the confines of faithful Muslims. Indeed, nearly one-quarter of all Islamic banking business in Malaysia is being transacted by non-Muslims.

Islamic finance was long the preserve of specialty banks that handled shariah-compliant products exclusively, such as Malaysia's top-ranked Bank Islam and Saudi Arabia's Al Rajhi Banking & Investment Corp. But Western banks, no longer content to leave the market to Islamic lenders, are competing for a slice of the business. Two years ago, Citigroup (C ) began providing Islamic mortgages in Malaysia and has begun training staffers in Indonesia and Pakistan to offer them there. It also provides Islamic mortgages in Middle Eastern countries such as the United Arab Emirates. HSBC operates Islamic banking services all over the Arab world, and they now make up about 10% of its business in Malaysia. UBS, the world's top player in wealth management, set up a stand-alone Islamic private bank last year in Dubai to cater to its wealthiest Middle Eastern clients. And no wonder. Assets held by Muslims, led by Gulf Arabs, in all banks -- Islamic and otherwise -- are estimated at $1.5 trillion and are growing 15% a year, in large part because of high oil prices.


Behind the rapid growth in shariah-compliant investments are the development of new regulations and standards for Islamic financial services in the past few years. There's also much more awareness of Islamic financial alternatives in the Muslim world than ever before, thanks to stepped-up marketing by banks. Some Western lenders are even rolling out Islamic financial products in their home markets. Lloyds TSB Bank PLC (LYG ), Britain's fourth-largest, recently introduced Islamic mortgage products to cater to Britain's 2.5 million Muslims. "The biggest explosion [in growth] right now is in Islamic consumer banking and investment products," says Mohsin Nathani, Citigroup's Bahrain-based global head of Islamic banking.

What all Islamic financial products share is the absence of interest -- either assessed or paid. Instead, the investments are set up as leasing arrangements or investments in which money is turned over to third-party trustees who share profits with Islamic depositors.

While many countries boast a thriving market for Islamic banking products, Malaysia has positioned itself as the mecca of Muslim finance. That has given it bragging rights in a region where it has long been overshadowed by established financial hubs such as Hong Kong and Singapore. The Southeast Asian country is home to the Islamic Financial Services Board (IFSB), a global organization of Muslim bankers in charge of banking regulation and supervision that also works closely with the Bank for International Settlements. Islamic investments accounted for 11% of total banking assets in Malaysia last year. "By 2007 we expect that to grow to over 15% total banking assets, and we are targeting at least 20% by 2010," says Malaysian Finance Minister Nor Mohamed Yakcop.

There's more to Islamic finance than alternatives to simple savings accounts and home loans. Many banks offer Islamic charge and debit cards, although some Islamic scholars disapprove of them. Unlike standard cards, these are linked to personal lines of credit so users are only "borrowing" money from themselves -- not the issuing bank. The banks make money by charging service fees. What's more, the market for Islamic bonds hit $30 billon in 2004 and has topped $20 billion so far this year, the Monetary Authority of Singapore estimates. Recent issuers of ringgit-denominated Islamic notes include the Asian Development Bank, Swiss food giant Nestlé, and Saxony-Anhalt in Germany. That German state became the first European government body to issue an Islamic bond last year -- a $121 million five-year floating-rate note that provides "rent" in lieu of interest from a series of government properties that form the bond's collateral.

Some of the more sophisticated Islamic debt investments include asset-backed securities, in which Islamic assets such as property are bundled into bonds. A still newer product is a convertible bond that morphs into shares of shariah-compliant companies at a given strike price.

While bankers see Islamic finance as a growth area, they acknowledge that it's not for everyone. First, not all Muslims are as fastidious about how their cash is invested as others -- which limits the appeal of these carefully constructed investments. Some investments have no interest-free equivalent, which may also crimp the sector's growth. Plus, while profit margins on shariah-compliant products are comparable with interest rates on non-Islamic investments, they often cost more to set up. And Islamic scholars still differ on key aspects of shariah, making it difficult to standardize all products across the Islamic world.

At the same time, given a choice, many Muslims do opt for Islamic-approved banking. That may eventually eat into traditional financial services, which is one reason Western banks active in the Muslim world are so eager to bolster their shariah credentials. "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. Clearly, Islamic finance has moved into the mainstream.


05-21-2008, 05:02 AM
Islamic Banking: Opportunity or Threat?

If implemented correctly, Islamic banking and finance should be able to co-operate and co-exist with any kind of capitalism, while still adhering to ethical guidelines set by Islamic Sacred Law


Islamic banking, which implies the avoidance of interest, has become a substantial industry during the last four decades. One obvious question is whether its emergence further segregates Muslims from Western values and norms, creating a financial ghetto. An alternative view is that as increasing numbers of people in the West are dissatisfied or skeptical about the banking services they receive, and see them as exploitative or even unethical, the emergence of Islamic banking with its own distinctive morality results in Islam projecting a much more positive face.

Many Western bankers view Islamic finance as a curiosity, and perhaps even a business opportunity, but seldom as a threat comparable to that from Muslim extremism. Indeed, Islamic banking and finance can be regarded as a gentler aspect of Islam, and one that lends itself to dialogue between Westerners and Muslims.

Islamic retail financial institutions, including the Islamic Bank of Britain, the European Islamic Investment Bank, and Lariba Bank in California, are now well-established in a number of Western countries. Furthermore, the leading international banks, including Citibank, HSBC Amanah, Deutsche Bank and UBS of Switzerland, all offer Islamic deposits and Shari'a-compliant financing facilities.

There has been much dialogue between the Western bankers working in these institutions and the Shari'a scholars who advise what is, and what is not, permissible. This dialogue extends to insurance, where Islamic takaful companies have become increasingly active, their distinguishing feature being that they do not hold conventional interest-yielding bonds, and that shareholder funds and premiums paid by policy holders cannot be co-mingled, which could result in the former exploiting the latter's misfortune.

As Shari'a is about universal, divinely inspired principles rather than national laws, leading international law firms have also become involved in Islamic banking and finance, as contracts need to be drafted under English or American law in a way that is consistent with Shari'a. Indeed, the main job of the Shari'a committee members who serve on the boards of Islamic banks and conventional banks offering Islamic products is to ensure that new contracts are compatible with Shari'a principles and, if they are not, to pursue a dialogue with the lawyers concerning amendments and redrafting.

The aspiration of many Islamists is to have divinely inspired Shari'a replacing man-made laws, perhaps even the establishment of a universal caliphate under which everyone, Muslim and non-Muslim, should live. Not surprisingly, such an aspiration is unacceptable for most non-Muslims, and indeed for many Muslims, as it denies choice.

Islamic banking and finance can point to the way forward: it is about extending choice, not restricting options. As each institution has its own Shari'a board, Shari'a compliance is effectively privatized, rather than being a matter of national law. Indeed, each Shari'a board passes its own fatwas, or religious rulings, which further extends choice in the marketplace for religious ideas. Religion, of course, flourishes under competitive conditions and Islam is no exception, whereas when it is nationalized, its adherents soon become alienated.

The Islamic Republic of Iran can be regarded as an example of how not to encourage the development of Islamic banking and finance. There, all banking has been Shari'a - compliant since the Law on Interest Free Banking was passed in 1983. Bank clients have therefore no choice but to use the Shari'a system. The banks, however are state-owned and have little autonomy, even in determining what deposit and financing products to offer. They also do not have Shari'a committees, the argument being that this is unnecessary as the law ensures Shari'a compliance in any case.

The result has been that banking development has been slow, there is little financial innovation, and most Iranians do not have bank accounts. In contrast, on the Arab side of the Gulf and in Malaysia, where Islamic and conventional banks compete, Islamic banks have attractive products on offer and a growing client base. Al Rajhi Bank of Saudi Arabia has become the world's largest Islamic retail bank, and its range of services and delivery channels compares favorably with the best that Western banks can offer.

Islamic banking is here to stay, it is an opportunity rather than a threat, and it has an exciting future. Gaps remain-there is no Islamic bank in Israel, for example, to serve its Muslim population. But if the Central Bank of Israel licensed such an entity it could create much goodwill. It might also encourage the Jewish population living there to question whether the operations of their own banks are compatible with religious teaching in Leviticus and Deuteronomy.

Ultimately Islamic banking and finance is about the emergence of a distinctively Islamic form of capitalism that may co-exist and interact with Western, Chinese, Russian or any other capitalism. Such a development should be welcomed and facilitated, and not hindered or suppressed.

Rodney Wilson is director of postgraduate studies at Durham University's Institute for Middle Eastern and Islamic Studies. He is co-editor of The Politics of Islamic Finance and co-author of Islamic Economics: A Short History.


05-21-2008, 05:09 AM
Originally Posted by AvarAllahNoor
That's great.

How do they make a profit then?
Find out here

also, here's in dept article on the topic

05-21-2008, 08:07 AM
Originally Posted by islamirama
Malaysia has positioned itself as the mecca of Muslim finance.
Are you serious? I dont know that.

05-28-2008, 03:00 AM
Originally Posted by islamirama
Non-Muslims Favor Islamic Finance
There is a reason for this.

Every company must distribute its profits between shareholders, employees and customers.

It is normal in most companies that the shareholders receive the bulk of the income at the expense of the customers.

Under Islamic banking, the customers get a greater share of the income at the expense of the shareholders.

From this we learn:

If you are a customer use an Islamic Bank.
If you choose to buy shares in a bank, choose a Western bank.


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