Mr Faraaz First Global Investment Presentation
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Transcript of Mr Faraaz First Global Investment Presentation
![Page 1: Mr Faraaz First Global Investment Presentation](https://reader035.fdocuments.in/reader035/viewer/2022070304/54c9528e4a7959127b8b456d/html5/thumbnails/1.jpg)
How Islamic Banking Becomes Safe in International Financial Crises
Presented By: Faraaz Shaul Hameed
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Thrust of the Presentation
• First Global at a glance
• Sri Lanka as business center
• Introduction
• Issues & Challenges in the Islamic Finance World?
• Basics of islamic finance (IF)
• The financial crisis – what caused it?
• Why did the financial systems crumble?
• Islamic finance – An alternative
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First Global at a glance
Recognized contributor to Islamic finance locally and globally
• First Global incorporated as public limited liability company in November 2007 in Colombo, Sri Lanka
• Received Aspiring Leader award in the global Islamic finance industry
• Instrumental in Abu Dhabi Commercial Bank’s venture into Islamic Banking, branded “Meethaq”
• Silver Award for Financial Related Services at Sri Lanka Malaysia Business Awards 2008,
• First Global with Investec Capital were joint lead arrangers for the first-ever Sri Lankan Sukuk
• In the Islamic Business & Finance Awards 2008 conducted by CPI Financial, First Global was a finalist in the categories Best Advisory Services and Best Investment House along with prominent players like Ernst & Young, McKenzie, and Unicorn Investment Bank
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Our business lines
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Sri Lanka as business center
Size 65,610 sq. km
Population 20.2 million
Per Capita GNP USD 1,969
Languages Sinhala, Tamil, English
Ethnic Groups Buddhists 77%Hindus 8% Muslims 9%
Christians 6%
Strategically located at crossroads of East and West
Business-friendly open economy with attractive and transparent investment laws offering the most business-friendly climate in South Asia
Highly literate labour force with high quality of life
“Peace dividend” as end of almost three decades of ethnic war enables public spending on infrastructure projects
Reawakening Programme aims to restore livelihoods through agriculture and irrigation projects
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19752010
2025
Last 35 YearsAchievements
50 Years of Excellence –
Moving ahead..
The birth of modern experiment with Islamic
Banking
20% tapped
80% untapped
2015
2020
Moving Islamic finance to new horizons…
10-Year Master PlanTo tackle issues & challenges
Active Infrastructure Institutions – IFSB, GCIBIF, AAOIFI, IIFM, IIRA..
Sukuk Issues, Fund of Funds, Market Makers, Secondary Market
Market shift … Windows, Independent branches, Subsidiaries
Conversions + Mergers Islamic & Conventional banks
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Issues & Challenges in the Islamic Finance World?
No International Islamic Money Market
Absence of/Underdeveloped Islamic Capital Market?
No Common Agreement on Shari'ah Issues?
No Lender of Last Resort?
No Harmonization of Islamic products or instruments?
Non-acceptance of standards, accounting practices by the industry players?
No secondary market for global Issues?
Integration of Islamic and International financial markets.
Emerging Stock Markets not fully compatible with Shari'ah
Innovation on Islamic Funds, still very slowNo uniform regulatory and legal framework
Educating the masses – lack of awareness
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Islamic Banking & Finance is safe, given the global crisis- beyond economic and financial benefits…
Law & Justice
Ethics & Etiquettes Commerce & Economy
Politics & Governance
Social, moral & ethical life
Knowledge & learning
Hygiene
Human Rights & Relations
Moral Ethical Social Religious
and more….
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Basics of islamic finance (IF)• The following is the Fundamental Difference between Islamic Finance and its
conventional counterparts
No Interest
Asset Based
Profit/ Loss
Sharing
No Speculation/Uncertainty
Shariah Law- Quran- Sunnah- Fiqh
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The financial crisis – what caused it?• Reckless lending fuelled by greed and irresponsible and excessive risk taking to
achieve higher profits
• Banks losing their vocation – traders rather than lenders
• Very fancy instruments developed with no substance other than a lot of hype and lack of transparency of its underlying value
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The financial crisis – what caused it?• Rising defaults among mortgage borrowers
• Low interest rates causing a housing bubble that was bound to eventually burst
• Insufficient regulations of sub prime mortgage lending practices
• Insufficient monitoring of complex financial products and services, – Rating agencies and derivatives markets
• ‘Short selling’ – Selling assets that one does not own
• Rating Agencies giving very liberal ratings to instruments
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Why did the financial systems crumble?• Over supply of houses in US housing market
• Speculative purchases of real estate
• Indiscriminate mortgage lending
• Rising Interest rates leading to resetting of mortgage loans together with oil price hikes in turn high default rates
• Unprecedented financial leverage which gave high profits during the good times now led to very large losses
• Banks holding such paper had to raise additional capital
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Islamic finance – An alternative• Basic principles
• Prohibitions
• How could Islamic finance have prevented the crisis
• Can Islamic finance come out of the mess?
• Islamic Finance Infrastructure Institutions (IFII’s)
• Successes of Islamic finance
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Basic principles• Islamic economics and financial system is based on values, ideals and morals
• Ethical practices and fairness in all endeavors
• Prohibits economic and financial transactions that engage lying, gambling, cheating, monopoly, exploitation, greed, unfairness and unjustly taking people’s money
• Promotes participation in profit, loss and actual exchanges of money and assets
• No constant winner or loser; yet profit and loss is mutually shared
In a nutshell- Islamic Finance centers around Justice!!
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Prohibitions – Riba/Usury (Interest)• Money is only a means of exchange – no intrinsic value
• Trading of debts/receivables prohibited
• Payment and receipt of interest is totally prohibited
• Interest bearing investments are prohibited
• Earnings must be by ‘profit sharing investments’ or ‘fee based’ returns
• Risk sharing - the risk taker is justly rewarded
Interest rate may be used as a means of calculating profit element or quantum of rent
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Prohibitions – Maisir (Speculation)• Gambling or any form of speculation akin to gambling
– Swaps, futures, options and other derivatives
– Contracts that insure for a profit
• Speculation is taboo under Islamic law
• Money proffered must be backed by collateral
• Islamic Financial instruments must always carry a face value
• Prohibition of selling that which you don’t own
– Selling anothers debt and engaging in high risk investments
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Prohibitions – Gharar (Uncertainty)• Uncertainty as to fundamental terms in a contract
• Subject matter, price or time of delivery must be fixed in advance
• Conventional insurance prohibited
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How could Islamic finance have prevented the crisis
• No lending on interest
• No selling on of mortgages or debts such as discounting promissory notes and cheques with postponed payments
• Financial derivatives are not permitted in Islamic finance
• Prohibits short selling - identified as a significant contributor to the global crisis
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Can Islamic finance come out of the mess?It is believed that Islamic finance could emerge as a strong contender provided it overcomes the following challenges:
•Work towards eliminating the perception that Islamic finance is merely a interest bearing debt in disguise
•Aim for commonality in the application of Shari’ah to all Islamic finance products offered
– Currently many differences in the application of Shari’ah in different parts of the world
•Standardize Islamic finance products such that they look and feel the same wherever offered
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Islamic Finance Infrastructure Institutions (IFII’s)
General Council for Islamic Banks and Financial Institutions
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Islamic Finance Infrastructure Institutions (IFII’s)
• Must have ‘common thread’ to work together, whilst having ‘diversity’ in their mandates.
• Some of the areas looked into by these IFII’s are:
– Regulations…– Corporate Governance…– Capital Adequacy…– Risk & Liquidity Management…– Islamic Capital Market…– Accounting & Auditing Standards…– Rating…– Guidelines & Recommendations…– Awareness Programs…
• Otherwise:
– Loss of talents, skills, resources, etc.– Overlapping goals and objectives– Duplications and Repetitions– Deviation from the ‘common goal’
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Successes of Islamic finance• Rapid growth of 15% - 20% annually
• US$ 4 Trillion worth market sector
• Crossed boundaries of Islamic world and spreading in non-Islamic countries
– UK, Germany, USA, France, Japan, Hong Kong, Thailand, etc.
• Dow Jones Islamic Market Indexes – Benchmarks for Islamic investment related categories have outperformed their non-Shari’ah compliant counterparts by 3 to 4 % in key indexes
• Osservatore Romano, Vatican’s official newspaper – ‘The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service’
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Thank You&
Jazaka Allah Khair
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Mohamed Faraaz Shaul Hameed MBA(USA) BBA,PGDIBM-UK,AMABE-UK,DIBF-SL,DHRM-UK,DIBM-UK,DIM-UK
Mr. Faraaz is a Professional Banker for more than 20 years locally and internationally and embarked into Islamic Banking in 2007, and to date, he has gained a wealth of knowledge and experience, through his diverse positions held in various organizations* in Banking Operations, Management Consultancy, Business Management, Strategic Planning & Budgeting, Islamic Banking & Finance, Retail, Commercial and Investment Banking, Business Development, Compliance, Treasury training and career development etc.
Deputy CEO/Acting CEO
First Global Investments (Holdings)Sri Lanka
* Organizations• Commercial Bank Ltd, Sri Lanka (Best bank for last 11yeras-in Sri Lanka)
• Al - Rajhi Bank, Saudi Arabia• Seylan Bank, Sri lanka• Thomas Cook Ltd, India • Standard Chartered Bank , Sri Lanka•Habib Bank Ltd- Pakistan• Amana Bank , Sri Lanka• First Global Investments Holdings Limited, Sri Lanka