Thursday, August 18, 2005

Islamic mortgages moving into mainstream lending

2 August 2005

The UK Islamic mortgage market will grow by an average of 47% per year for the next four years, new research claims.

Datamonitor says as more lenders are realising the untapped potential of the Islamic market gross advances for house purchase could rise to £1.4bn by 2009.

It says the removal of double Stamp Duty on Shariah mortgages which had previously made them too expensive, has been partly responsible for mainstream lenders, such as HSBC and Lloyds TSB, coming into the market.

The report also claims this demonstrates belief in its growth potential and while still in its infancy Datamonitor predicts the market will continue to expand rapidly claiming it has seen growth of 68% every year since 2000. The current value of the Islamic mortgage market in terms of gross advances stands currently at £164m, says the research firm.

Until 2003 Ahli United Bank was the only player in the Islamic mortgage market. But since then there have been four more lenders enter the market. HSBC Amanah Finance and United National Bank both entered the market in 2003 while in 2004 Lloyds TSB and Aburaq Home Finance began offering Shariah mortgages.

But, the report warns, growth in the market is dependant on overcoming several regulatory obstacles as only one type of Shariah mortgage falls within the jurisdiction of the Financial Services Authority (FSA) This is known as an Ijara mortgage which sees the customer spread the payments for the property over a period of years while also paying the bank rent, and it is the lender that maintains legal ownership of the property until the loan is repaid, at which point the property passes ownership to the customer.

But another type of loan called a Murabaha plan sees the lender buy the property on behalf of the customer who then pays back the loan. Legal ownership is then transferred to the borrower once the loan in paid but it is transferred to the customer at its current, not original as under
the Ijara plan, value, which leaves the customer to repay the difference between the current value of the property and its original value.

Datamonitor claims the government intends to bring Murabaha plans into the regulated environment adding: "The next big hurdle is capital weighting. As financiers are required to provide a sufficient risk weighting or all lending products, it is important for Islamic mortgages to be on the same risk level as conventional mortgages. While conventional mortgages have a risk weighting of 50%, Ijara plans are still risk weighted at 100% therefore making Islamic mortgages more expensive to customers. Yet lenders are optimistic that this will change over the next few years. Once the risk weighting is lowered, lenders will be able to lower the pricing on Islamic mortgages."

Monday, August 15, 2005


Partnership is considered to be the appropriate mode for collective investment in modern economic life. The Islamic banks use partnership by contributing capital to new or established projects. They also bear part of the cost of the project equal to the ratios of their shares in capital.

The Islamic banks by using partnership as a mode of investment make sufficient liquidity available to the customer in the long run. The Islamic banks are usually active partners, they participate in determining the methods of production and the objectives of the establishment. They also supervise and follow up the performance of the establishment. The Islamic banks share profit or loss with the (partners) customer without burdening the customer with debt and financial liabilities which it has to pay in all circumstances.

The decreasing partnership is suitable for the finance of industrial establishments, farms, hospitals and every project capable of producing regular income.

Nowadays it is considered to be the appropriate mode to finance collective investment.

As regards the bank it earns periodical profit all the year round.

As regards the partner, it encourages the partner to participate in Halal investment. It realizes the customer's ambition to individually own the project in the short run when the bank withdraws gradually.

As regards the society, it corrects the course of the economy by developing the mode of positive partnership instead of the negative relationship of indebtedness, by doing so it achieves equity in distributing the results.


....Truly many are the partners (in business) who wrong each other: Not so do those who believe And work deeds of righteousness.

Saae 24
The Holy Hadith:

I am the third partner to the two partners unless either of them betrays his friend. If either betrays his friend, I quit from betwixt them.

Related by Abu Daoud.

The Characteristic Traits of Modes of Partnership

The partnership operation means two or more parties draw a contract to work together by the capital they contribute in condition of dividing the accruing profit between them.

The most important traits of these operations are:

* The participation in capital whether it is an asset, labour or liability.
* The partnership in work, management and disposal where the right of ownership and disposal remains to each partners.
* The partnership in the results of the operations whether profit or loss.
* The continuity in the partnership, usually to long terms.

Divisions of the Modes of Partnership
Partnership operations embrace all kinds of contract companies which the Islamic Figh divides into three kinds:

Labour Company
it is a contract in accordance to which two or more parties agree on accepting to do a job (such as trade, construction, etc.) together and to divide the accruing profit among themselves in specific percentage.

Character Company
It is a contract in accordance to which two or more parties agree on purchasing with their characters and reputation goods and commodities on credit for trading in condition of distributing the accruing profit, or loss among themselves in ratios proportionate to what each one of them bears of the debt guarantee or security.

Asset Company
It is a contract in accordance to which two or more parties agree on participating in the contribution of capital for investment and the accruing profit shall be divided among themselves in specific percentages agreed upon and they bear losses in ratio proportionate to their (contributions) shares in capital. But, profit may be distributed separate from the debt guarantee borne by each, whereas loss shall be proportional to debt guarantee.

In Asset Companies
The two partners may be equal in capital and power of disposal, this sort of asset companies is called "Mufawada Company"

The two partners may neither be equal in capital nor in power of disposal. In other words, one of the partners has more capital than the other or one partner is responsible for the company and the other is not. This kind is called "Ainan company".

It is notable that the rein companies are the most appropriate companies for the business of the Islamic banks. The other kinds of companies rarely suite the nature of business in the Islamic banks. That is because the rein company enables the Islamic bank to contribute in established or proposed projects and to authorize the other partners in all the concerns of investment and the bank contents with the role of general supervision and follow up and the right to intrude when necessary.

The two modes of partnerships which are applied by the Islamic banks. They are:

* Permanent Partnership

* Decreasing Partnership



Mudaraba is considered to be the essential mode accredited by the Islamic banks in their relationship with the depositors who tender their moneys to the bank as capital owners to be invested by the bank as Mudarib on the basis of profit sharing according to specific ratios agreed upon.

The Islamic banks use the same mode with the investors who are capable to work whether they are physicians or engineers or they are traders or craftsmen. The bank provides the adequate finance as a capital owner in exchange of a share in the profit to be agreed upon.

It is worth noting that this mode is a high risk for the bank because the bank delivers capital to the Mudarib who undertakes the work and management and the Mudarib shall only be a guarantor in case of negligence and trespass.
The Islamic banks usually take the necessary precautions to decrease the risk and to guarantee a better execution for the Mudaraba and pursues this objective with seriousness.


Mudaraba in essence is based on the concurrence of those who have capital with those who expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal profit (lawful) which will be divided between them in ratios agreed upon.

This mode achieves the interest of both parties, the capital owner and the Mudarib (agent).

* The capital owner may not have the time or the experience to turn over capital and trade with.
* The agent (the Mudarib) may not have the adequate capital to put to use his experience.

The following is an illustration of the steps of the Mudaraba contract.

The Practical Steps of Mudaraba

1. Establishing a Mudaraba project:
The Bank: provides the capital as a capital owner.
The Mudarib: provides the effort and expertise for the investment of capital in exchange for a share in profit agreed upon.

2. The results of Mudaraba:
The two parties calculate the earnings and divide the profits at the end of Mudaraba, this can be done periodically in accordance with the agreement along with observance to legal rules.

3. The participation in capital:
The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because profit is protection of capital. In case of agreement to distribute profits periodically before the final settlement it must be on account until the security of capital is assured.

The participation in capital:
* In case of loss, the capital owner (the bank) bears the loss.
* In the event of profits, they are divided between the parties in accordance with the agreement between them with observance to the principle "profit is protection to capital".

Evidence of Legality

1. Others traveling through the land Seeking of Allah's bounty; Al-Muzzammil 20
It is no crime in you If ye seek of the bounty of your Lord.

Al-Baqara 198

2. It was proved in the "Sira" biography of the Prophet (PBUH), that before prophethood, he traveled to Syria as a Mudarib with the capital of Khadeeja (may Allah be pleased of her) and the Messenger of Allah related that after the Message approving it.

3. The companions (may Allah be pleased with them) transacted in Mudaraba and none of them was reported to have adverse opinion. There is also a consensus among the Ummah for generations on the permissibility of Mudaraba.


Murabaha is one of the most widely used modes of finance by the Islamic banks. It is suitable for partial financing to the investment activities of the customers, in industry, trade or others. It enables the customer/investor to obtain finished goods, raw material, machines or equipment from the local market or through import.


Murabaha sale is one kind of absolute sale (asset for price), which is divided into four kinds in respect to price:

* Bargain Sale:
It is selling the commodity for agreed upon price irrespective of its purchase price.

* Tawlia Sale (Respective sale):
It is selling the commodity for its purchase price without addition or discount.

* Discount Sale:
It is selling the commodity for its purchase price with a certain discount.

Murabaha Sale:
It is selling the commodity for the purchase price plus a certain profit margin agreed upon. This margin can be a percentage of the purchase price or a lump sum.

These last three are called "Amana (honesty) Sales".

Murabaha Sale is divided into two types:

Ordinary Murabaha Sale:
There are two parties to it, the seller and the buyer. The seller is an ordinary trader who buys a commodity without depending on a prior promise of purchase, then he displays it for Murabaha sale for a price and a profit to be agreed upon.

Murabaha Sale connected with a promise:
There are three parties to it. The seller, the buyer and the bank as an intermediary trader between the buyer and the seller. The bank here does not purchase unless the buyer specifies its desire and a prior outstanding promise to purchase.

The mode of Murabaha sale connected to a promise is used by the Islamic banks which undertake the purchase of commodities according to the specifications requested by the customer and then resell them on Murabaha to the one who promised to buy for its cost price plus a margin of profit agreed upon previously by the two parties.

There are different forms to the application of Murabaha sale connected to a promise of purchase. Some of these forms are determined by whether the promise is binding or not. Other forms are determined by how the bank receives the commodity in the case of the first sale. Should the bank receive the commodity directly or through one of its agents or should it authorize the buyer to receive the commodity.

The Practical Steps of the Murabaha Sale

1. The purchaser determines its needs The purchaser: determines the specifications of the commodity he wants and requests the seller to determine the price.

The seller: sends a quotation valid for a certain period.

2. Signing a promise to purchase agreement The purchaser: promises to buy the commodity from the bank on Murabaha sale for the cost of the commodity plus the agreed upon profit.

The bank: studies the request and determines the conditions and securities for approval.

3. The first sale contract
The bank: notifies the purchaser of its approval of purchasing the commodity. The bank may pay the price immediately or as per the agreement.

The seller: expresses its approval to the sale and sends the invoice.

4. Delivery and receipt of the commodity
The bank: authorizes the beneficiary to receive the commodity.

The seller: sends the commodity to the place of delivery agreed upon.

The Purchaser: undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

The Evidence of Legality

1. The legality of Murabaha sale is (obtained) obvious from:
It is no crime in you
If you seek of the bounty
of your Lord

Al-Baqara 198

That is because Murabaha represents looking for more. It is also subsumed under the general rule that legalizes sale Allah sayeth "Allah hath permitted trade".

2. The Prophet (PBUH) permitted the sale of the commodity for more than its purchase price. He said: "if the two commodities are different, buy and sell as you wish.

3. The consensus of the Ummah on the permissibility of the Murabaha sale. The Kassani has pointed out that the people inherited these kinds of sales (Murabaha and other sales) throughout the generations and ages without any protests of non acceptance.

4. The Fatwa of the second conference of the Islamic bank: "The promise in the Murabaha sale to he who orders the purchase " is legally permissible after owning and possessing the commodity, only then it is permissible to sell it to the purchaser who requested it for the price specified and mentioned in the previous mutual promise agreement as long as the liability of damage before delivery and the consequences of a return for unseen defect is on the bank.

As to whether the promise is binding to the buyer, the bank or both, it better secures the interests of all parties, the bank and the customer, to have the promise as binding. It is legally acceptable and it is up to each Islamic bank to take either opinion according to what its committee of legal observers decide."

Saudi Businessman Fights to Remove Misconceptions about Islam

Saudi Businessman Fights to Remove Misconceptions about Islam

--- Polishing the image of Islam in general and Islamic banking in particular has become the obsession of Saudi businessman Sheikh Saleh Abdullah Kamel. The September 11, 2001, terrorist attacks in the United States and the unabated acts of terrorism in many capitals of the world have all smeared the image of Islam - especially among Western countries.

'Regrettably, many Western and even Arab media have done further damage to Islam by labeling groups that perpetrated terrorist acts as Muslim fundamentalists or Muslim extremists while in reality these groups are nothing more than khawarej (deviants),' Sheikh Kamel explained.

He added that those who committed these 'heinous' crimes against innocent people in the West and the Middle East have nothing to do with Islamic teaching because this religion calls for tolerance and respect of all human beings.

'Egypt and Saudi Arabia have been fighting terrorism since long before September 11 and the Egyptian government warned the U.S. that some Arab political groups that operated in the West were nothing but terrorist groups.'

After attacks around the world, Islamic groups that sought shelter in the West because of their political views have come under tight scrutiny from governments and security agencies.

To make matters worse, some Islamic banks and financial institutions were prosecuted by the United States and Europe on the grounds that they have been funding terrorist activities.

A number of Islamic banks were banned from operating in the West and instructions were given to close the accounts of any person or group dealing with these suspicious banks.

Against this backdrop, Sheikh Kamel decided to organize two important meetings this month in Sharm al-Sheikh, the scene of the latest terrorist bombing that killed dozens of people, to try to dissipate the stereotypes about Islam and show its true"

Tuesday, August 09, 2005

Sukuk-net the 6th International Conference on Islamic Economics and Finance on November 21 - 24, 2005 at Hilton International Hotel, Jakarta

Sukuk-net the 6th International Conference on Islamic Economics and Finance on November 21 - 24, 2005 at Hilton International Hotel, Jakarta - Indonesia

The Central Bank of Indonesia in a cooperation with the Islamic Development Bank (IDB), the International Association of Islamic Economists; and the University of Indonesia will jointly organize:

the 6th International Conference on Islamic Economics and Finance

on November 21 - 24, 2005 at Hilton International Hotel, Jakarta - Indonesia,

The objectives of the seminar include: taking stock of the implications of Islamic banking for financial and banking stability, studying the unique risks of Islamic banking and facilitating the development of Islamic economic thought. The conference is also held in conjunction with the 30th Anniversary of the IDB and insha Allah will be inaugurated by the President of the Republic of Indonesia, H.E Dr. Susilo Bambang Yudhoyono.

The conference will be organized into two parallel sessions where speakers will highlight the concerned issues from differing perspective; a chairman will summarize the issues presented; while a panel of prominent discussants will review the issues. More than 60 regulators, industry players and prominent scholars will join the conference, some to mentioned are:

* Dr. Ahmad Mohamed Ali, President, Islamic Development Bank.

* Dr. Sultan Abou Ali, Former Federal Minister, Egypt.

* Dr. Mabid Ali Al-Jarhi, President, International Association of Islamic Economics, and former Director IRTI.

* Dr. M. Umer Chapra, Adviser, Islamic Research & Training Institute; Former Senior Advisor, Saudi Arabian Monetary Agency.

* Dr. Hussain Hamid Hassan, President, Shariah Supervisory Board, Dubai Islamic Bank, UAE.

* Dr. Anas Zarqa, Advisor International Investor, Kuwait.

* Dr. Mohammad Ariff, Executive Director, Malaysian Institute of Economic Research, Kuala Lumpur.

* Prof. Masudul Alam Choudhury, University of Cape Town, Nova Scotia Canada.

* Dr. V. Sundararajan, Former Deputy Director, International Monetary Fund.

* Prof. Volker Nienhaus, President, Philipps-Universitat Marburg, Germany.

* Dr. Muhamed Ali Elgari, Shariah Adviser for several Islamic Banks.

* Dr. Humayon Dar, Vice President, Darul Isthismar; UK.

* Dr. Zamir Iqbal, Principal Financial Officer, World Bank.

* Mr. Burhanuddin Abdullah, Governor, Central Bank of Indonesia.

* Prof. Dr. Ing. B.J. Habibie, Former President of Indonesia.

* Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia.

* Prof. Khurshid Ahmad, Chairman Islamic Foundation UK; Former Federal Minister, Pakistan.

* Dr. Mohammad Sakr, President, Islamic University, Gaza.

* Dr. Munawar Iqbal, Chief, Islamic Banking & Finance, Islamic Research & Training Institute, Islamic Development Bank.

* Prof. Dr. A.H.M. Sadeq, Vice Chancellor, Asian University of Bangladesh.

* Dr. Habib Ahmed, Islamic Research & Training Institute, Islamic Development Bank.

* Dr. Monzer Kahf, Independent Consultant.

* Prof. Dr. Syed Nawab Haider Naqvi, Former Director, Pakistan Institute of Development Economics.

* Prof. Saiful Azhar Rosly, International Islamic University Malaysia.

* Dr. Seif el Din Tag el Din, Markfield Institute of Higher Eduction, UK.

* Dr. Usamah Uthman, King Fahd University of Petroleum and Minerals, Dammam, Saudi Arabia.

We invite your participation and hope the program will be of interest and benefit to you and your esteemed organization.

For further information and registration please contact the secretariat and visit the website: (now under construction)

Yours sincerely,

The Secretariat

Directorate of Islamic Banking,

Bank Indonesia, Jakarta Indonesia

Fax : +62-21-350 1989 / 350 1990

Phone: +62-21-381 8778 / 381 8916

Email :

Sunday, August 07, 2005

Canadian Forum on Islamic Economics and Finance 2005 / Welcome

Canadian Forum on Islamic Economics and Finance 2005 / Welcome: "Canadian Forum on Islamic Economics and Finance 2005

McGill University - September 23-24, 2005

The Canadian Forum on Islamic Economics and Finance will take place Friday, September 23rd and Saturday, September 24th, at McGill University. Expert individuals from all over the world are anticipated to speak at this event, the very first of its kind in Canada.
The forum aims to introduce both students and professionals, of all academic backgrounds, to the rapidly emerging fields of Islamic economics and Islamic finance. The forum will focus on three major topics:

* Islamic Economics
* Islamic Finance
* Applied Islamic Finance

Through a series of lectures, panel discussions and specialized workshops, the forum will present an array of different views and insights from individuals specialized in the different fields. Participants will be encouraged to initiate academic discourse through active involvement at the conference.

Mission Statement

* Introduce the public to the growing fields of Islamic economics and finance at an introductory level in an academic setting, sharing various perspectives and engaging in scholarly discourse;
* Introduce concepts at a theoretical level, while also exploring real-life, practical applications;
* Encouraging the integration of Islamic business organizations’ knowledge and practitioners’ experience into teaching and research programs in Canadian Universities;
* Fostering discourse of Shariah (Islamic Law) compliant financial products and their specific applications in Canada, in order to help the growing Muslim Canadian population of workers, families, and students become financially independent through education and financial solutions.

Students of both McGill University and Concordia University are working together to organize the Forum. The forum is being co-hosted jointly by the Muslim Students’ Association of McGill University and the United Muslim Students Association of MontrĂ©al (UMSA).

If you have any questions or concerns, please do not hesitate to contact us.

Thank you,

Muslim Students’ Association of McGill University

& United Muslim Students Association of Montreal

Outsourcing in China

China is still booming but the opportunity are decreasing?
Lately, I have read an article in Business 2 about this land of opportunities. Some people make millions out of nothing and others lost millions as well.

The most striking fact is that:

. You can change the world but not China
. You do not have to learn a chinese language but you should negotiate in Mandarin :)