Islamic Retail Banking and Finance: Global Challenges and Opportunities

With conventional banks in the west opening Islamic windows to service their Islamic customers, the establishment of the first discrete Islamic retail bank in Europe, and the conversion of entire banking functions to Islamic alternatives, Islamic retail products are increasingly moving to the mainstream. Offerings of Islamic mortgages, savings, insurance and retail investment products are part of a global expansion of the financial industry which are increasingly competitive with conventional financial products.

Islamic Retail Banking and Finance is the first book of its kind bringing together the leading banks, lawyers, accountants and retail product providers who have been involved in the rapid expansion of the Islamic retail industry throughout the globe.

Our contributors provide the reader with discussions of :

• the market for Islamic retail products
• the products available, how they differ from conventional alternatives, and their basis in Islamic law
• the development of mortgage and home finance schemes, takaful, savings plans, auto finance products and equity investment products
• how banks, insurance providers and asset managers can manage consumer education, what are the cultural and ethical constraints
• the experience of training Islamic bankers
• how to manage liquidity and credit issues
• what are the regulatory constraints and challenges faced by Islamic retail product providers, and the experience of those who have successfully launched their products
• the experience of those involved in conversion of Islamic retail banking functions
• legal and taxation issues
• the views from regulatory authorities themselves

If you are involved in the launch of Islamic retail products, work in an Islamic bank, or are a finance professional interested in how Islamic products are structured you must read this book.

With contributions from institutions and individuals including Clifford Chance, Deutsche Bank, Ernst and Young, Failaka, Financial Services Authority, FWU Group, London Special Risks, Meezan Bank, Shape, Sharjah Islamic Bank, State Bank of Pakistan, Vinson and Elkins, Volaw Trust, Shaykh Yusuf deLorenzo and Prof. Rodney Wilson.

Table of Contents

Table of Contents
 
            Author biographies         
            The editor          
            The contributors             
 
Part I   An introduction to Islamic retail banking and finance          


 1         Editor’s introduction
            Sohail Jaffer, Managing Director, FWU Group, Luxembourg
 
 2         The Shari’a scholar’s view of Islamic consumer finance and retail products            
            Yusuf Talal DeLorenzo, Shari’a Supervisor and Director, Yasaar Limited United States
            Introduction        
            Origins of modern retail Islamic finance  
            Retail markets    
            Shari’a-compliant products and services  
            Conclusion          
 
3          The growth of Islamic banking and product development among
            Islamic retail banks      
            Professor Rodney Wilson, University of Durham, Institute for Middle Eastern and Islamic Studies,                        
            United Kingdom
            Introduction         
            Jordan Islamic Bank        
            Dubai Islamic Bank        
            Bank Islam Malaysia    
            Islamic Bank of Britain
            Lessons from Islamic retail banking experience    
 
Part II Islamic retail banking: Growth opportunities and
            market developments           
 
 4         Establishing Islamic banks in the West:
            The case of the Islamic Bank of Britain  
            Tim Plews, Joint Managing Partner, London Finance and Capital Markets Practices,
            Clifford Chance LLP, United Kingdom
            Introduction        
            Islamic financial institutions in the United Kingdom         
            The FSA’s approach to new proposals   
            Making an Islamic bank proposition to the FSA  
            Five key factors for a successful licence application       
            What does IBB offer Muslim believers?            
            Product puzzles            
            The role of the Shari’a committee of scholars       
            Taxation of Shari’a-compliant financial products
            Developments elsewhere?          
 
 5         Converting a conventional retail bank to Islamic banking     
            Nathif Adam, Head of Investment and International Banking, Sharjah Islamic Bank, UAE
            Introduction        
            UAE institutions ring in a new era           
            Conversions in Saudi Arabia: A springboard for growth     
            Varying approaches to conversions        
            Planning the conversion            
            The conversion process            
            Conclusion         
 
6          Survival of the fittest: The future of Shari’a-compliant retail banking
            in the GCC 
            Sameer Abdi, Senior Manager, Islamic Financial Services Group, Ernst & Young, Bahrain
            Introduction        
            Market realities drive the retail banking industry  
            Is retail expansion sustainable in the long run?       
            How can regional retail banks sustain future growth and performance?      
            Competitive pressures in Islamic retail banking     
            The way forward for retail Islamic banks              
 
7          Global challenges for Islamic retail banking: Developments in Pakistan      
            Zafar Ali Khan, Vice President and Head of Marketing,
            Liability Products and Housing Finance, Meezan Bank Limited, Pakistan
            Introduction        
            Historical overview of Islamic banking     
            Islamic retail finance in Pakistan               
            Conclusion          
 
Part III            The development of Islamic finance products          


8          Structuring Islamic mortgage and home finance products      
            Abdulkader Thomas, CEO, SHAPETM Financial Corporation, United States, with
            Waheed Qaiser, Assistant General Manager, Islamic Bank of Britain, United Kingdom;
            Bader Al-Bahar, Deputy General Manager, Al Dar Finance, Kuwait; and
            Professor Sudin Haron, Universiti Utara Malaysia, Malaysia
            Introduction         
            The history of Islamic home finance         
            Capital adequacy concerns           
            Home financing developments among Muslim majority populations             
            Home financing instruments, and the concerns of Islamic scholars              
            Successful minority experimentation in the United States   
            Methods and structures for home financing           
            Securitising home finance            
            Who leads the market?   
            Future challenges            
 
9          Home finance schemes in the UAE: A case study      
            Sohail Zubairi, Vice President and Head of Shari’a Structuring, Documentation and
            Product Development, Dubai Islamic Bank, Dubai
            Introduction         
            Background        
            Birth of an idea               
            Issues remaining to be resolved   
            Shari’a parameters for home financing      
            Conclusion          
 
10        Islamic investment opportunities in the OIC:
            Alternative investments to reverse capital flight     
            Rushdi Siddiqui, Head of Business Development, Dubai Bank, Dubai
            Introduction         
            Islamic alternative asset classes               
            Reversing Shari’a-compliant capital flight?             
            Conclusion           
 
11        Recent developments in Islamic auto finance products           
            Ibrahim A. Mardam-Bey, Executive Vice President, BSEC, Bemo Securitisation SAL, Beirut
            Introduction          
            Market profile      
            Recent market drivers      
            Islamic auto finance products        
            Islamic versus conventional auto finance                
            Market evolution              
 
Part IV            Islamic wealth management products             


12        Wealth building blocks: The growth of takaful savings,
            Islamic life insurance and bancassurance         
            Omar Fisher, Deputy General Manager, Takaful Business Development,
            Unicorn Investment Bank, Bahrain
            Introduction          
            Highlights of Islamic life insurance             
            Insurance in the Arab world          
            Realignment of Islamic banking and life insurance to promote savings          
            Customising products and delivery of advice         
            Conclusion          
 
  13      Takaful: Islamic insurance in Malaysia           
            Zainal Abidin Mohd. Kassim, FIA, ASA, Principal and Actuary,
            Mercer Zainal Consulting Sdn. Bhd., Kuala Lumpur, Malaysia
            Introduction        
            Islamic religious law (Shari’a)     
            Investments and interest             
            Commercial contracts     
            Underwriting risk            
            Takaful in Malaysia        
            Issues arising in implementing takaful in Malaysia             
            The future of takaful        
 
14        Takaful: Models and markets in the United Kingdom and Europe   
            Bilal Aquil, Solicitor, Clyde & Co., Middle East Regional Office, Dubai
            Introduction         
            Overview of takaful         
            The established takaful market    
            The UK and European insurance market             
            Legal and regulatory issues         
            Financial services regulation        
            Practical challenges        
            Conclusion         
 
 15       Islamic wealth management: Innovative product designs       
            Sohail Jaffer, Managing Director, FWU Group, Luxembourg
            Introduction         
            Strategic product partner selection            
            Product innovation           
            Global opportunities        
 
 16       Islamic EquityBuilder CertificatesTM:
            Islamic innovation in quantitative modelling           
            Markus E. Barth, CFA, Global Equity Quantitative Strategist & Investment Products Group,
            Deutsche Bank AG, United Kingdom
            Introduction        
            Determining the criteria               
            Analysing the benchmarks           
            Determining the stock selection model      
            Performance assessment: Testing the model          
            Creating the wrapper and securing approvals        
            Summary            
 
 17       Trends and performance monitoring of Islamic equity funds               
            Tariq Al-Rifai, Director, Failaka International, United States
            Introduction          
            Diversification and growth            
            Understanding the market             
            Monitoring funds              
            Current market trends       
 
Part V  Legal and regulatory issues    


18        Expanding the scope of retail investment products: Key legal issues,
            conflict of laws considerations and success stories      
            Ayman H. Abdel-Khaleq, Associate, Vinson & Elkins LLP, Dubai
            Introduction          
            Legal considerations affecting the structuring of Shari’a-compliant
            retail investment products              
            Examples of Shari’a-compliant retail investment products                
            Conclusion          
 
  19      Trusts and Shari’a law               
            Trevor Norman, Director, Volaw Trust and Corporate Services Limited, Jersey
            Introduction          
            What is a trust?                
            The main components of a trust    
            Practical uses of trusts      
            Shari’a compliance           
            The main types of trust   
            Trusts and companies       
            The duties and powers of trustees             
            Influencing the actions of the trustee          
            Conclusion           
 
20        The view from the regulators in the United Kingdom             
            Toby Fiennes, Manager, Wholesale Banks, Financial Services Authority, United Kingdom
            Introduction          
            The FSA’s approach to regulation             
            Authorisation of the Islamic Bank of Britain           
            Conclusion          
 
21        The view from the regulators in Pakistan         
            Pervez Said, Director/Adviser to the Governor, State Bank of Pakistan, Pakistan
            Introduction          
            Past issues           
            Key stakeholder needs analysis    
            The strategy         
            Supporting systems for the Islamic banking model               
            Outstanding issues           
            Market response and current status         
 
Appendices    
            Training Islamic bankers: Back to basics on Islamic finance
            for the uninitiated            
            Atif Raza Khan, Program Director, Islamic Banking,
            Bank Training & Development Limited, United Kingdom
            Introduction         
            General principles            
            Applying general principles          
            Conclusion         
 
            Basel II – Capital adequacy for Islamic retail products    
            Bilal Aquil, Solicitor, Clyde & Co., Middle East Regional Office, Dubai
            International regulation  

Glossary         
 

Review

Banker Middle East:

In spite of all the media coverage that Islamic finance gets across the globe, there are very few book publishers who take the subject seriously and much of what is produced is substandard and badly written.  The exception is Euromoney Books who have published a small collection of very worthwhile volumes.

This latest book covers five main areas of Islamic retail banking and finance beginning with an introduction to Islamic retail banking, a look at growth opportuntities, the development of Islamic finance products, Islamic wealth management products and concludes with a look at legal and regulatory issues surrounding the introduction of new products.

The individual contributions are generally of a high quality and come from some of the industry leading practitioners like Yusuf DeLorenzo, Rodney Wilson, Nathif Adam, Abdulkader Thomas and Ayman Khaleq as well as from contributors to Banker Middle East like Rushdi Siddiqui, Bilal Aquil, Sohail Jaffer, Tariq Al-Rifai, Trevor Norman and Toby Fiennes.

While it is hard to publish a comprehensive book on such a fast-moving industry, this volume manages to cover a lot of ground both in terms of geographic spread and product range and is all the more valuable for that.

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