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Islamic Finance in Western Markets

This document discusses opportunities for Islamic finance in Western financial markets. It begins by outlining the five pillars of Islamic finance: a prohibition on interest, speculation, and financing illicit sectors, as well as principles of profit/loss sharing and asset backing. It then notes encouraging demographics, economic momentum, and legal environments in Western markets. Specific examples of Islamic finance developments in several European countries are provided. Various Islamic finance models like Mudarabah and Wakalah takaful models are mentioned. Overall opportunities for institutions like the World Bank and prospects for further development through sovereign sukuk issuance are discussed.

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Amey Chavan
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426 views14 pages

Islamic Finance in Western Markets

This document discusses opportunities for Islamic finance in Western financial markets. It begins by outlining the five pillars of Islamic finance: a prohibition on interest, speculation, and financing illicit sectors, as well as principles of profit/loss sharing and asset backing. It then notes encouraging demographics, economic momentum, and legal environments in Western markets. Specific examples of Islamic finance developments in several European countries are provided. Various Islamic finance models like Mudarabah and Wakalah takaful models are mentioned. Overall opportunities for institutions like the World Bank and prospects for further development through sovereign sukuk issuance are discussed.

Uploaded by

Amey Chavan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Islamic Finance Opportunities in

Western
Financial
Market
AMEY DILIP CHAVAN
SAURABH MALLICK
OPERATION &
GOVERNANCE OF
FINANCIAL MARKETS

Introduction
What makes Islamic finance different?
The Five Pillars of Islamic Finance
1- Prohibition of interest
2- Prohibition of speculation
3- Prohibition of the financing of illicit sectors (pork,
weapons, alcohol,)
4- Profit & Loss sharing principle
5- Asset backing principle
Islamic finance is not restricted to Muslims (the natural
clients) as some of its principles may attract non-Muslim
clients.

Characteristics of Western Market

Encouraging demographics
Favorable economic momentum
Shari'ah-friendly legal environment
Little competition / Strong Demand

Islamic Finance in Glance


UK: Five Islamic banks, one Takaful company, more than 15 conventional financial institutions

offering Islamic financial products.


France: Discussion at the highest level of the state on the strategy and the necessary steps to

introduce Islamic finance. Talks about the licensing of an Islamic bank by the end of the year.
Italy: Conference organized by the Osservatorio Del Mediterraneo focusing on the opportunities

for Italy.
Germany: 100 million Sukuk issued by the State of Saxony-Anhalt rated AA- and matured

on Aug. 13, 2009.


Switzerland: several Swiss banks offering private banking and Sharia compliant wealth

management (local banks and affiliates of Gulf banks).


A significant number of European banks are active in the structuring of Sharia compliant

transactions In the Gulf Cooperation Council countries and Asia.

Islamic Finance Models


Mudarabah model of takaful

Islamic Finance Models


Wakalah model of takaful

Islamic Finance Models


Hybrid takaful model

Business Opportunity in Islamic Finance


The World Bank Group involvement in Islamic

finance is directly linked to the Banks work on


reducing poverty, expanding access to finance,
developing the financial sector, and building
financial sector stability and resilience in client
countries.
By helping expand the use of Sharia-compliant
modes of financing in World Bank Group operations,
we are helping deliver benefits to client countries

Business Opportunity in Islamic Finance

Scope of Development in Islamic Market


UK Treasury evaluated the possibility of issuing a

sovereign sukuk quite some timeago.This could have


greatly helped the liquidity management of Islamic
banks, providing themwith Sterling-denominated,
AAA-rated securities that qualify as domestic
government securitiesunder the Basel Capital
Accords with a nil capital requirement (BCBS, 2006
and 2011).

Scope of Development in Islamic Market


The sukukissuance would have been a valuable and

more flexible alternative to commodity murabahah


for domestic Islamic banks. Moreover, the issuance
program could have positively contributed to a wider
acceptance of sukuk as a separate asset class and
encouraged other western economies to enter the
Islamic securities market

SWOT Analysis

Conclusion
The prospects for Islamic banking and finance are

bright but the task ahead is challenging. Its practice


is not only sustainable but also profitable in taking
the form of a genuine business.
The use of Islamic finance principles for public
sector financing needs more attention, as it could be
helpful in ensuring fiscal discipline and thus giving a
just basis for monetary management.

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