Islamic Finance v1.1

8/2/2019 Islamic Finance v1.1

1/19

Islamic Finance


2/19

Agenda

1. Religious Foundations of Islamic Finance

2. The Islamic Finance industry

3. Underlying Principles of Islamic Finance

4. Sukuk


3/19

Agenda


a. Background: Facts on Islam

b. Doctrine of Islam

c. Fiqh: Shariah as Jurisprudenced. Sources of Shariah

e. Rulings of Shariah

2. The Islamic Finance industry

3. Underlying Principles of Islamic Finance4. Sukuk

5. Relevance to Equvo


4/19

Background: Facts on Islam

y makes no distinction between religious and secular

y Raison DEtere of Islamic Finance

y a set of religious beliefs and an all encompassing way of life

yRoot word of Islam is Salaam, which literally means peace

y Islam means

y acceptance of and submission to God

y Therefore a Muslim is

y one who submits to God


5/19

Doctrine ofIslam

y Known as Shariah Islamiah

y Shariah literally means

y Way/path

y

From which something is obtainedy Fountain of water or estuaries

y Technically means

y Way of life to be followed and accepted from God according to

the Quran and following the example of the Prophet from hiswords, actions and approvals


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Doctrine ofIslam

y Divisions of Shariah Islamiah

y Aqeedah (Beliefs) embodied in the 6 pillars of faith

y Akhlaq (Behavior/ Attitude/ Ethics/ Personal Conduct)

y

Shariah (Actions) e.g. the 5 pillars of Islamy Islam is materialized in Beliefs, Ethics, Actions


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Shariah as Islamic Jurisprudence (Fiqh)

y Comprises

y Muamalat Ammah (Man to Man Activities)

y Munakhat (Family/Marirage)

y Faraid (Inheritance)

y Jinayat (Human body and torts)

y Daulah (governance)

y Jihad (Wars)

y Muamalat (Business/Trade)

y

Ibadat (Worship)


8/19

Sources ofShariah

Primary:

y Al-Quran: Regarded as the verbatim of God

y Hadith: Actions & Sayings of the Prophet

y Thousands of hadith with varying degrees of reliabilityy Has been sorted out by a number of prominent scholars

Secondary:

y Ijma: Consensus Opinion of qualified scholars

y Qiyas: Analogy


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Rulings ofShariah

1. Wajib (Obligation)

2. Mandoob (Recommended)

3. Haram (Prohibition)4. Makrooh (Discouraged or Abominable)

5. Mubaah (Permissible)


10/19

Agenda


2. Introduction to the Islamic Finance industry

a. Muslim Population

b. Facts3. Underlying Principles of Islamic Finance

4. Sukuk



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Population

y 1.57/6.8 B (23%) of the world population are Muslims (Oct

2009)

y Muslim population Distribution

y

Asia: 61.9%y MENA: 20.1%

y Sub-Saharan Africa: 15.3%

y Europe: 2.4%

y

Americas: 0.3%y Fastest growing religion: 1.84% p.a. (2000-2005)


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Islamic Finance Facts

y Estimated liquidity of Islamic Investors is US$1.5 trillion

y more than 300 Islamic banks and 700 funds spread among

some 75 countries

yvalue of assets managed by Islamic banks expected to grow33 percent to $1 trillion by 2010

y In 2008, the total value of sukuk outstanding globally totaled

US$152.8 billion, 60% originated from Malaysia


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Agenda




4. Sukuk5. Relevance to Equvo


14/19

Islamic BankingPrinciplesy Prohibition of Riba

y Socio Economic Justice & Equitable Distributiony Equity Participationy Spirit of Co-operation

y

Money only as medium of exchangey No Gain without Effort or Liability

y Prohibition of Gharary Duality of risk

y Sanctity of Contracts

y Trusteeshipy Prohibition of Hoarding

y Shariah Approved Activities


15/19

Agenda




4. Sukuka. Overview

b. Structures & Concepts



16/19

Overview ofSukuk

y In 2008, the total value of sukuk outstanding globally totaled

US$152.8 billion, 60% originated from Malaysia

y Claim similar to a note or certificate, like a trust certificate

y

Sukuk is the plural for the word Sakk which is means legalinstrument, deed, check


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Difference Between Sukuk and Bond

y Sukuk must be an ownership claim to an asset or a pool of

asset

Whereas

y

Bonds can simply be a financial claim to a cash flow orreceivable

y In essence a Sukuk MUST be asset backed


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Types ofSukuky Partnership based Sukuk

y Sukuk Mudaraba

y Sukuk Musharaka

y Sale-based Sukuk

y Murabahay Istisna

y Salam

y Lease Based Sukuk

y Sukuk Ijarah

y Sukuk Intifaa (sub-lease)

y Hybrid Sukuk

y Sukuk Al Istithmar


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Sukuk CharacteristicsTYPE OF

SUKUK

TRADE

D

TYPICAL USAGE

MUDARABA YES Project Financing, Real Estate

MUSHARAKA YES Project Financing, Real Estate

MURABAHA NO Operating expenses, Cash line facility

ISTISNA NO Manufacturing, Construction, BOT, BLT

SALAM NO

IJARA YES Presence of Asset that generates stablecash flows

INTIFAA YES CapEx Financing

Islamic Finance v1.1

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