Islamic Retail Banking

Global demand for an ethical form of banking has led to a boom in Islamic banking and it is estimated that some 350 financial institutions in more than 45 countries practice some kind of Islamic finance. The market has been growing at more that 15% per annum and financial assets within the sector are estimated at circa US$ 500bn with Liquid Funds in the Islamic marketplace looking for quality assets at circa US$ 50bn.

The huge growth in Islamic banking has placed considerable pressure on Shariah scholars who have found themselves having to both consider and rule on a complex mix of ancient and modern banking practices, all in the last 25 years. This incredible growth and the extreme pressure to provide as wide a range of banking products as possible whilst staying within the true principles of Islam has led to some pressures and this is likely to continue as an increasing number of conventional banks offer Islamic services through specialized or separate subsidiaries. This course considers these pressures and the often conflicting aims of providing ever more services whilst staying faithful to Islam.

This intermediate/advanced course is designed to help delegates consider in some detail the principles of Islamic Banking, the differences between Islamic and conventional retail banking and how modern day pressures can, might and are being reconciled within the Islamic code. It looks at much greater detail at the various Islamic products on offer and considers fully the key issues facing Islamic retail banks today. In this course we consider products and services in terms of their strategic and operational aspects rather that just defining what they are and do. On completion delegates will be able to debate these issues in some detail with clients and colleagues alike.

The course contains a substantial number of highly relevant case studies, exercises and also some role playing tasks. It is relevant for all banking and finance professionals working within an Islamic financial institution and any professionals working in the field who wish to develop their skills and understanding further. Classroom lectures and an interactive practical workshop format are intended to affirm the learning objectives. A basic knowledge of the banking and the financial services sector in both conventional and Islamic retail markets is required. This course is not suitable for complete beginners.

Course Content:

Principles & Development of Islamic Finance
 The Islamic World
 Islam & Economic development
 Development & growth of Islamic finance

The Credit/Banking Crisis
 What caused it
 How are the regulators dealing with it
 What is the likely way forward
 What are the implications for Islamic finance
 How vulnerable are Islamic banks to the same problems
 Basel 3 – the most likely way forward for conventional banks
 Islamic banks and Basel 2

The Islamic Business Environment
 The modern Islamic state
 Authority in an Islamic state
 The Islamic legal system
 Foreign Business & Islamic law
 Islamic business ethics
 The responsibility of the Muslim Executive

The Principles of Islamic finance
 The prohibition of Riba
 Real & notional interest
 Fixed & variable interest
 Interest as a return
 Methods of Islamic investment
 Trade credit & leasing
 Islamic deposits


Modern Islamic Retail Banking – Brief history
 History
 Pilot schemes for Islamic banking
 Success of the Nasser Social Bank
 The spread of Islamic banking in the GCC
 Islamic influences on Saudi Arabian domestic banking
 Moneychangers reorganise as Islamic banks
 The “Islamisation” of retail banking
 Problems for Islamic retail banks in Western markets
 Islamic retail banking in the developing world

Islamic Law of Contracts
 Wa’d - Promise.
 Muwaada or Mua’hida Agreement - Bilateral promise.
 Aqd’ -. Contract.
 Mudaraba Contract - Profit Sharing.
 Musharaka Contract - Profit & Loss Sharing contracts.
 Security Contracts:
• Hawala - Transfer.
• Kafala - Guarantee.
• Rahn - Mortgage.
 Wakala - Agency Contract.
 Foreign Exchange (SARF)

Islam & Takafal
 Islamic attitudes towards risk
 Muslim objections to insurance
 Insurance practice in Islamic states
 Insurance & Islamic law
 Permitted forms of insurance
 Forward cover & exchange risk

Other Areas
 Equity & Capital Markets.
 Islamic Financial services industry
 Waqf & Zakat….. Charitable giving and charitable tax.

Treasury, Liquidity and Asset Management
 Treasury management & liquidity
 The nature of deposit taking under Islam
 Liquidity management
 Profit or Loss.
 Shareholders funds.
 Trading & Investments.

Account and Deposit Gathering (“Investments” under Islam)
 Current Accounts
 Amanah
 Wadia
 Wakala
 Muduraba - restricted
 Muduraba – unrestricted
 Ideal mix

Application of Funds – Detailed examination
 Mudaraba
 Murabaha.
 Musharaka
 Ijara.
 Istisn’a
 Salam.

The Islamic Retail Bank Balance sheet
 Examples
 The ideal liquidity structure
 Gearing
 Regulatory Issues


Islamic Accounting Standards
 Equities & Investment
 Insurance
 Foreign exchange & currency
 Investment bond market
 Legal issues
 Others

Corporate Governance
 Jurisdiction
 Conflicts between Sharia law, local law, international law
 Differences between Islamic states
 Which law prevails
 Basel and world Trade Agreements.
 Regulatory framework
 Fairness & suitability.
 Islamic bank issues:
• Stakeholders.
• Systemic Risk.
• Regulations.
• Depositor protection.
• Internal control & risk management.
• Information asymmetry.
• Related party transactions.

Islamic Asset & Fund Management
 Investors’ Objectives:
 Capital preservation.
 Maximise yields.
 Balance between liquidity & profitability.
 Incorporation of Islamic doctrines.
 Link to Sharia’a precepts & ethics.
 Legitimate goods.
 Moral behaviour & social objectives.

Islamic Bond Market (Sukuk)
 Conventional debt securities:
• Rights not linked to assets of company.
• Holders do not incur damages & losses of company.
• Share in financing through usurious practices.
• Term not necessarily same as project.
• No Sharia’a constraints.
 Sukuk:
• Investment process.
• Share of assets not right to revenues.
• Profits & losses.
• Proof of ownership.
• Ownership costs.
• Term matches project.
• Lack of guarantee.
• subject to Sharia’a rules.

Macroeconomic Policy and the Islamic State
 Monetary policy constraints
 Permitted monetary instruments
 Credit for social purposes
 Development banks
 Fiscal policy objectives
 Conventional taxes
 Islamic taxation
 Import duties
 The extent of State intervention

Risk Management
 Types of risks
 Islamic risks
 Basic Principles of risk management

Course Conclusion
 Summary
 Revision
 Open discussion

Delivery:	In house
Category:	Islamic Banking & Finance