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Moody’s explains rating of takaful firms – Islamic insurance May 31, 2007

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Khaleej Times Online – Moody’s explains rating of takaful firms

Takaful, or Shariah-compliant insurance,
has shown impressive premium growth rates in recent years, says Timour
Boudkeev, Moody’s vice-president and author of the report, “Moody’s
Approach to Analysing Takaful Companies”.

He
says high premium growth reflects the difficulties that traditional
insurers are facing in complying with Shariah as a result of their
investment strategies.

“Under
Shariah, riba (interest) is forbidden. This disqualifies conventional
bonds — which usually comprise a substantial portion of an
insurer’s investment portfolio — as an acceptable asset class,”
says Boudkeev.

The
report gives an overview of how takaful differs from conventional
insurance, the benefits that a rating offers takaful companies and the
approach taken to analysing the financial strength of such companies.

Seven
key factors underlying an insurer’s business and financial profile are
reviewed in Moody’s rating process. The seven include the insurer’s
market position, brand and distribution, reserve adequacy/liquidity and
asset liability management, and asset risk.

However,
the credit strengths and weaknesses of a typical takaful company will
be influenced by a number of factors that do not typically apply to a
Western mutual insurer. For example, depending on the takaful
operational model used, the company’s capital management system and
access to capital will likely vary by company. Furthermore, the
profit-sharing mechanism of long-term takaful products may have certain
distinctive features such as the determination, crediting and payment
of profit participation on life policies, as well as the structure of
any implicit or explicit guarantees, Moody’s notes.

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Dr. Imran Usmani: Meezan Bank Guide to Islamic Banking & Finance [Online Book] May 30, 2007

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Dr. Imran Usmani: Meezan Bank Guide to Islamic Banking & Finance

   Preface
 SECTION
 I

 INTRODUCTION TO ISLAMIC
ECONOMIC SYSTEM
1
 Chapter
1
 The
Islamic Economic System
2
 Chapter
2
 Factors
of production in Islam
3
 Chapter
3
 The
objectives of the distribution of wealth in Islam
 
 SECTION
 II

 RIBA, ITS PROHIBITION
& CLASSIFICATIONS
4
 Chapter
4
 Riba
in the Qur’an
5
 Chapter
5

 Riba
in Hadith

6
 Chapter
6
 Riba
and its types
7
 Chapter
7
 Commercial
interest and usury
8
 Chapter
8
 Simple
and compound interest
 
 SECTION
III
 ISLAMIC CONTRACT
9
 Chapter
9
 Islamic
contract
10
 Chapter
10
 Sale
11
 Chapter
11
 Valid
Sale
12
 Chapter
12
 Five
khiyars
 
 SECTION
IV
 ISLAMIC MODES OF FINANCING
13
 Chapter
13
 Musharakah
14
 Chapter
14
 Mudarabah
15
 Chapter
15
 Diminishing
Musharakah
16
 Chapter
16
 Murabaha
17
 Chapter
17
 Salam
18
 Chapter
18
 Istisna’
19
 Chapter
19
 Istijrar
20
 Chapter
20
 Ijarah
(Leasing)
21
 Chapter
21
 Ijarah
Wa Iqtina
 
 SECTION
V
 BANKING IN ISLAM
22
 Chapter
22
 The
features of a conventional Bank
23
 Chapter
23
 Musharakah
in bank deposit
 
 SECTION
VI
 APPLICATIONS OF ISLAMIC
FINANCING
24
 Chapter
24
 Project
financing
25
 Chapter
25
 Working
capital financing
26
 Chapter
26
 Import
financing
27
 Chapter
27
 Export
financing
 
 SECTION
VII
 ISLAMIC INVESTMENTS
28
 Chapter
28
 Securitization
29
 Chapter
29
 Islamic
Investment Funds
30
 Chapter
30
 The
principle of limited liability

Major Canadian Banks Give Islamic Finance a Second Look May 29, 2007

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reportonbusiness.com: globeinvestor.com – Banks give sharia a second look

Bank of Nova Scotia and Toronto-Dominion Bank are quietly considering whether to start offering sharia-compliant products, as part of the big banks’ strategy to reach out to a growing immigrant population.

Representatives at Canada’s second- and third-largest banks by market capitalization were among the 200 delegates at the Islamic Finance World conference in Toronto this week.

Banker Middle East – The business of banking – Sukuk: Hot Topic in Islamic Finance & Banking May 28, 2007

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Banker Middle East – The business of banking

Sukuk is the hot topic in Islamic finance, and we will soon see the industry reach a value of some tens of billions, as Michael Saleh Gassner from IslamicFinance.de writes…


Islamic finance has for some time missed investment opportunities for
Muslims that offer a predictable return with low risk. The majority of
investment opportunities are based either on stock markets with high
volatility or on real estate transactions. The investment galaxy for
the Islamic investor is lacking the variety of instruments to create an
efficient portfolio in line with portfolio theory and financial
planning. Sukuk certificates meet the pressing need for a medium term
investment and reached, in 2004, a market volume of nearly US $7
billion. This volume will multiply in coming years to tens of billions
of dollars annual volume. Already a number of world-class borrowers
have used the new Islamic Sukuk market: Germany; the IMF Group; and
Sovereign states like Qatar and Malaysia.

Sukuk are securitised assets and therefore
belong to the category of Asset Backed Securities. Unlike conventional
ABS structures, Sukuk need to have an underlying tangible asset
transaction either in ownership or in a master lease. The
securitisation of pure cash flow streams from credit portfolios as
undertaken in the mortgage market, for instance, cannot be structured
in the same way. A properly made Sukuk limits the debt to the value of
the underlying assets. A solid investment policy of the borrower
results and the vicious circle of raising debts and running after them
in hard times is handled in an ethical and socially more convenient
way. This allows the borrowers time sort the situation out. This is
important for modern states as many of them borrow money to be repaid
by future generations without regard to whether any assets cover the
debt or not.

Working With Islamic Finance – Mark Ross, CFA, CFP May 28, 2007

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Working With Islamic Finance – Mark Ross, CFA, CFP

Islamic finance refers to the means by which corporations in the Muslim world, including banks and other lending institutions, raise capital in accordance with Shari’ah, or Islamic law. It also refers to the types of investments that are permissible under this form of law. A unique form of socially responsible investment, Islam makes no division between the spiritual and the secular, hence its reach into the domain of financial matters. Because this sub-branch of finance is a burgeoning field, in this article we will offer an overview to serve as the basis of knowledge or for further study.

The Big Picture
Although they have been mandated since the beginnings of Islam in the seventh century, Islamic banking and finance have been formalized gradually since the late 1960s, coincident with and in response to tremendous oil wealth which, fueled renewed interest in and demand for Shari’ah-compliant products and practice.

Central to Islamic banking and finance is an understanding of the importance of risk sharing as part of raising capital and the avoidance of riba (usury) and gharar (risk or uncertainty). (To see more on risk, read Determining Risk And The Risk Pyramid and Personalizing Risk Tolerance.)

Islamic law views lending with interest payments as a relationship that favors the lender, who charges interest at the expense of the borrower. Because Islamic law views money as a measuring tool for value and not an ‘asset’ in itself, it requires that one should not be able to receive income from money (for example, interest or anything that has the genus of money) alone. Deemed riba (literally an increase or growth), such practice is proscribed under Islamic law (haram, which means prohibited) as it is considered usurious and exploitative. By contrast, Islamic banking exists to further the socio-economic goals of Islam.

Accordingly, Shari’ah-compliant finance (halal, which means permitted) consists of profit banking in which the financial institution shares in the profit and loss of the enterprise that it underwrites. Of equal importance is the concept of gharar. Defined as risk or uncertainty, in a financial context it refers to the sale of items whose existence is not certain. Examples of gharar would be forms of insurance, such as the purchase of premiums to insure against something that may or may not occur or derivatives used to hedge against possible outcomes. (To read more about insurance or hedges, see A Beginner’s Guide To Hedging, Understand Your Insurance Contract and Exploring Advanced Insurance Contract Fundamentals.) 

The equity financing of companies is permissible, as long as those companies are not engaged in restricted types of business – such as the production of alcohol, pornography or weaponry – and only certain financial ratios meet specified guidelines. [read more]

FAQ on Islamic Banking & Finance – State Bank of Pakistan – The Central Bank May 27, 2007

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FAQ on Islamic Banking & Finance – State Bank of Pakistan – The Central Bank

Q1. What
is Islamic Banking?

Q2. What
is the philosophy of Islamic banking and finance?

Q3. What
is the history of Islamic Banking in Pakistan?

Q4. What
is the Islamic Banking Global Scenario?

Q5. What
are the Major modes of Islamic banking and finance?

Q6. Can
Islamic banks play any role in economic development of the Country?

Q7. What
are the features of State Bank’s Islamic Export Refinance Scheme?

Q8. Is it
permissible for an Islamic bank to impose penalty for late payment?

Q9. Can
Islamic banks claim solatium or liquidated damages on account of late
payment/default by the clients?

Q10.
There is a perception in the West and the USA that Islamic banks finance
terrorists. What is the true situation?

Setting Pay-by Dates on Loans? May 27, 2007

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Setting Pay-by Dates on Loans?
Answered by Faraz Rabbani

It is [1] permitted to set a repayment date in a loan contract, and [2] such a stipulation would be binding. This is the position of the leading Muslim jurists (fuqaha’) of our time, as affirmed in the AAOIFI Shariah Standard on Loans. (al-Ma`ayir al-Shar`iyya, 350) [Read more]

Be close, but transact as strangers – guidance about financial dealings with family members – Faraz Rabbani May 27, 2007

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Be close, but transact as strangers

Some guidance about financial dealings with family members?

FT REPORT – ISLAMIC FINANCE: Experts see need for a common approach May 27, 2007

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FT REPORT – ISLAMIC FINANCE: Experts see need for a common approach

Mohamed Nedal Alchaar has the challenging job of bringing clarity
and uniformity to a fragmented but rapidly growing Islamic finance
industry.

As head of the Bahrain-based AAOIFI – the Accounting
and Auditing Organisation for Islamic Financial Institutions – he is
part of a group of officials around the world working on the regulatory
front to catch up with the extraordinary expansion of the sector.

For,
despite an explosion of interest in Islamic finance and the
proliferation of new products, experts are warning of the need for
better regulation and more standardisation if the industry is to play a
larger role in the global economy.

As McKinsey, the consultancy,
says in a report: “The lack of standards inhibits the development of
the international Islamic banking markets and results in an industry
that is little more than a collection of national strongholds.”

Created
17 years ago but now expanding its operations, AAOIFI works on two
levels. First, it has an accounting board that issues rulings on how
transactions should be booked in banks’ financial statements. It has
also started giving crash courses and issuing professional
certifications for accountants working in the sector.

Second,
AAOIFI runs a Sharia board of 17 religious scholars whose role is to
try to unify the various opinions issued by religious scholars on
behalf of individual institutions.

AAOIFI’s Sharia board rules on
the Islamic credentials of financial products. Scholars on the board
then abide by the AAIOFI rulings in their daily bank jobs.

“We’re
always watching the developments taking place and when we feel there’s
a legitimate tool being offered in the market, we look at it from a
Sharia (or Islamic law) and accounting point of view and issue a
standard,” says Mr Alchaar. [Read more]

Islamic Investments: Shari’ah Principles Behind Them – Mufti Taqi Usmani May 27, 2007

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Islamic Investments: Shari’ah Principles Behind Them – Mufti Taqi Usmani

– Equity Fund
– Conditions for Investment in Shares
– Ijarah Fund
– Commodity Fund
– Murabahah Fund
– Bai’-al-dain
– Mixed Fund

Rea
d more… (from SunniPath Answers (http://qa.sunnipath.com))