Welcome to class of

Islamic Banking
in Emerging Markets
Dr. Satyendra Singh
Professor, Marketing and International Business
University of Winnipeg
Canada
s.singh@uwinnipeg.ca
http://abem.uwinnipeg.ca
www.abem.ca/conference
 Why Study This Topic?
Market size demand for the product 2nd largest
religion ~2 billion cannot ignore this market segment

Source: worldometers.info
 Islamic Banking The Concept
Concept principles no deception and no riba (interest)
It is not new 7th Century
Money is a medium of exchange
Interest can lead to injustice/exploitation in society Zulm
No real 'lending' as all 'lenders' obtain interests
To earn $ for banks, they must obtain an equity / ownership
Requires banks to participate, share risk profit varies
Profit share is distributed instead of interest earned
Leads to more ethical society (Unlike West you must pay interest)
This concept encourages better resource management
 Terms
Shariah Islamic law

Riba Interest

Hiba profit

Ta'widh Compensation

Ujrah Payment in exchange for services, benefits

and privileges offered to the customers
 Islamic Modes of Finances
Rental-based
Ijara Lease
Trade-based
Murabaha buy , sell
Partnership-based
Musharaka Partnership time,$ share profit
Risk is shared b/w 2 person loss or profit is shared
Mudharabah Partnership one $, other effort
If profit, it is shared with the customer; bank takes its fee
If loss, customer loses; bank does not take its fee
Ijara Mortgages Lease to Own Very Popular
Find a house to purchase and agree a sale price
Bank will then purchase the property outright
You then enter into 2 agreements with the bank
Pay back the purchase price fixed monthly
instalments over 25 years
Pay agreed $ as rent each month banks profit
Rent is set annually, yearly in % of payment
When fully paid ownership is transferred to you
Borrow up to 90% of the purchase price
Legitimate under Sharia law
 Murabaha Mortgages Bank Resells House to You
Find a house and agree a purchase price with the seller
You then agree the loan required with your bank
Typically, you will need to deposit 20% now
Bank will then buy the house and immediately resell it to
you for a higher price
You pay back the bank the resale price in fixed instalments
until you own the house < 15 years
The difference between the original purchase price and the
higher price at which the house is resold to you provides
the bank with a profit Sharia compliant
 The Mortgages
Slightly more expensive than interest mortgages
Banks have to pay slightly rates for halal (permitted)
funding
Few Islamic mortgages providers, so competition is not
as intense as for interest mortgages
Arrangements are complex and banks take risk
Ijara bank owns house for 25 yrs before transferring
ownership to you
Sharia Advisory Board consists of experts on Sharia
 Islamic Credit Cards
Ujrah Concept Payment in exchange for services,
benefits and privileges offered to the cardholders
Mudharabah Partnership bank $, customer benefit

Minimum age 21, With parents 18

Yearly Facility Charges RM 2400/7200/48000
Payable Facility Charges varies monthly; 0 if full
payment paid on or < due date
Ta'widh (compensation) 1% of outstanding RM
 Banks with Islamic Portfolios
England
HSBC, Lloyds TSB
Malaysia, Cambodia, Singapore
CIMB
Canada
Royal Bank of Canada!?
Surya University
Jakarta, INDONESIA
2015