Welcome!
Islamic Banking
Dr. Satyendra Singh
Professor, Marketing & International Business
University of Winnipeg, CANADA
Why Study this Topic?
2nd largest & fastest growing religion (~2bn)
↑ demand for the services
Cannot ignore this market
Source: worldometers.info
2
Market Size & Rate of Growth
3
Islamic Banking – The Core Concept
Core concept: No deception & no riba (interest)
Practiced in 7th century
Interest ↑ injustice/exploitation in society 🡪 Zulm
Banks become partners: share risk & profit
Profit is distributed instead of interest earned
↑ ethical society (West 🡪 you must pay interest)
This concept encourages better resource management
4
The 4 Concepts and Applications
① Ijara: Lease-to-Own
② Murabaha: Cost-Plus
③ Ujrah: Fee structure
④ Mudharabah: Partnership
5
① Ijara Mortgages: Lease-to-Own Concept
Find a house
Bank buys it
10% payment now
Make 2 agreements with the bank
Pay the price monthly over 25 years
Pay monthly rent 🡪 bank’s profit
Rent ↓ annually
When fully paid, ownership is transferred to you
Sharia-compliant
6
② Murabaha Mortgages: Cost-Plus Concept
Find a house
20% payment now
Bank buys the house & resells it to you at a higher price
Pay in fixed instalments (rent) in < 15 years
When fully paid, ownership is transferred to you
The difference between the original and resold price provides the bank with a profit 🡪 Sharia compliant
7
Are Islamic Mortgages Expensive? Yes!
Few competitors
Halal (permitted) expenses
Advisory Board: Sharia Law experts
Banks take ↑ risk: it owns houses for 10-25 years before ownerships are transferred.
8
Islamic Credit Cards
③ Ujrah: Fee structure based
④ Mudharabah: Partnership based
🡪 bank (silent partner), customer (investor)
Yearly Facility Charges 🡪 RM 2400/7200/48000
Payable Facility Charges 🡪 0 if fully paid before due date
Compensation (Ta'widh) 🡪 1% of outstanding RM
9
10
Islamic Banks Performance, Excellent
Islamic banks: in +100 countries, $2 Trillion
Middle East: +20 Islamic banks
Faisal Islamic Bank (FIB): Largest, special status
Saudi Arabia, Kuwait and Malaysia very active
Malaysia: CIMB
UK (Major player in Islamic Banking in Europe)
Barclay, Citibank, Lloyds, TSB…
Canada: Assiniboine Credit Union
11
However, some failed to meet social obligations
Denmark: International Islamic Bank
Egypt: Islamic Money Management
South Africa: Islamic Bank of SA
Turkey: Ihlas Bank
UK: Faisal Islamic Bank
Pakistan...
India…
12
13
Surya University, Jakarta, Indonesia (2015)
Questions?�S.singh@uwinnipeg.ca