Table Of ContentISLAMIC FINANCE
INSTRUMENTS AND MARKETS
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ISLAMIC FINANCE
INSTRUMENTS AND MARKETS
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First published in 2010 by
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Standard edition Middle East edition
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Contents
Contributors vii
Best Practice—Instruments 1
Viewpoint: Shariah Law—Bringing a New Ethical Dimension to Banking
Amjid Ali 3
Islamic Modes of Finance and the Role of Sukuk Abdel-Rahman Yousri Ahmad 7
Introduction to Islamic Financial Risk Management Products
Qudeer Latif and Susi Crawford 11
Islamic Insurance Markets and the Structure of Takaful Suzanne White 17
Identifying the Main Regulatory Challenges for Islamic Finance Bilal Rasul 21
Islamic Microfnance: Fulflling Social and Developmental Expectations
Mehmet Asutay 25
Risk Management of Islamic Finance Instruments Andreas Jobst 31
Sukuk Issuance and Issues in Purchase Undertakings Barry Cosgrave 39
Auditing Islamic Financial Institutions Roszaini Haniffa 45
Islamic Finance Litigation Kilian Bälz 49
Best Practice—Markets 55
Islamic Capital Markets: The Role of Sukuk Rodney Wilson 57
Capital Adequacy Requirements for Islamic Financial Institutions: Key Issues
Edib Smolo and M. Kabir Hassan 61
The International Role of Islamic Finance Andreas Jobst 67
Investment Risk in Islamic Finance Kamal Abdelkarim Hassan and
Hassan Ahmed Yusuf 73
Middle East and North Africa Region: Financial Sector and Integration
Samy Ben Naceur and Chiraz Labidi 79
Managing Shariah-Compliant Portfolios: The Challenges, the Process, and
the Opportunities John A. Sandwick 85
Small and Medium-Sized Enterprises and Risk in the Gulf Cooperation Council
Countries: Managing Risk and Boosting Proft Omar Fisher 95
Bankruptcy Resolution and Investor Protection in Sukuk Markets
Kamal Abdelkarim Hassan and Muhamad Kholid 101
Procedures for Reporting Financial Risk in Islamic Finance
Daud Vicary Abdullah and Ramesh Pillai 109
The Emergence and Development of Islamic Banking Umar Oseni and
M. Kabir Hassan 113
Islamic Finance and the Global Financial Crisis Bilal Rasul 119
Checklists—Instruments 123
Alternatives to Riba in Islamic Finance 125
Key Islamic Banking Instruments and How They Work 127
Key Principles of Islamic Finance 129
Murabahah Sale Instruments and Their Applications 131
An Overview of Shariah-Compliant Funds 133
Possibilities for Shariah-Compliant Derivatives 135
The Role of the Shariah Advisory Board in Islamic Finance 137
Sukuk: Islamic Bonds 139
Takaful Insurance 141
Checklists—Markets 143
Business Ethics in Islamic Finance 145
Islamic Commercial Law 147
Islamic Equity Funds 149
Islamic Joint Ventures 151
v
Contents QFinance
Islamic Finance: Instruments and Markets
Islamic Law of Contracts 153
Islamic Microfnance 155
Managing Risk in Islamic Finance 157
Regulatory and Capital Issues under Shariah Law 159
Country Profles 161
Shariah Law: An International Perspective 163
Algeria 167
Bahrain 169
Bangladesh 171
Brunei 173
Egypt 175
Indonesia 177
Iran 179
Iraq 181
Israel and the Palestinian Territories 183
Jordan 185
Kuwait 187
Lebanon 189
Libya 191
Malaysia 193
Morocco 195
Pakistan 197
Qatar 199
Saudi Arabia 201
Syria 203
United Arab Emirates 205
Information Sources 207
Books 209
Magazines 216
Journals 218
Internet 219
Organizations 221
Index 225
vi
QFinance Contents
Contributors
Amjid Ali, senior manager at HSBC Amanah main areas of academic research cover account-
Global is recognized as one of the most infu- ing, fnancial structure, corporate valuation, and
ential Muslims in the United Kingdom by the economics, with particular emphasis on Middle
Muslim Power 100 awards, and has 22 years of Eastern and North African fnancial markets.
branch banking experience with Midland Bank
and HSBC in the United Kingdom. He joined Barry Cosgrave is an associate in the fnance
HSBC Amanah UK in 2003 as senior business practice of Vinson & Elkins LLP. His principal
development manager, and took over as UK head area of practice is Islamic fnance. He has expe-
in January 2005 with responsibility for strategy, rience of the structuring and documentation of
distribution, and sales. He was appointed as sen- sukuk offerings and Islamic bilateral facilities.
ior manager, HSBC Amanah Global, in August Cosgrave also has experience in the structur-
2008, where he works as part of the HSBC ing and documentation of shariah-compliant
Amanah central team headquartered in Dubai. derivatives products for clients in the Middle
East and South East Asia, and has spent time on
Mehmet Asutay is senior lecturer in Middle secondment assisting the Islamic fnance team
East and Islamic political economy and fnance at a large international fnancial institution that
at the School of Government and International has offces in the Middle East.
Affairs, Durham University. He teaches and
supervises masters and doctoral research on Susi Crawford is a senior associate in C lifford
various aspects of Islamic economics, banking, Chance’s fnance practice. She has worked on
and fnance; economies of the Middle East and a number of projects, project fnancings, and
Muslim countries; and political economy and fnancings in Europe and the Middle East and
economic development related subjects. He is specializes in Islamic fnance. She advised on
a co-director of the Durham Islamic Finance the frst ever shariah-compliant swap to use
P rogramme and course director of the MA/MSc the wa’ad structure and continues to advise a
in Islamic fnance at the Durham Islamic fnance number of fnancial institutions on this struc-
summer school. He is managing editor of the ture. In addition to her structured fnance prac-
Review of Islamic Economics, and a ssociate tice, she has been the lead associate on a number
e ditor of the American Journal of Islamic Social of signifcant Islamic fnance transactions and
Sciences. He has published articles and books continues to work on Islamic fnance transac-
on Islamic moral economy and fnance, and on tions that use new and innovative structures.
issues in Turkish and Middle Eastern political
economy. Omar Fisher is managing director of Khidr
Solutions, an advisory service concentrating on
Kilian Bälz is a partner of Amereller Legal takaful (Islamic insurance), Islamic fnance, and
Consultants, a specialist law frm focusing on the risk management. He was a founding member
MENA region, with offces in Cairo, D amascus, and managing director of Unicorn Investment
Dubai, Baghdad, and Erbil, in addition to Bank of Bahrain from 2004 until 2008 and pre-
Munich and Berlin. Based in the frm’s Cairo viously deputy head of Takaful Taawuni at Bank
offce, he advises international and regional Al Jazira, where he launched the frst family
fnancial institutions and corporations on M&A (life) takaful business in Saudi Arabia. He also
and fnancing transactions in the region, also established the frst commercial/general taka-
including shariah-compliant transactions. A ful business in the United States. He is author
former partner in Gleiss Lutz, he was involved of numerous books and articles on cross-border
in some of the frst Islamic transactions in con- fnancing, hedging political risks, Islamic leas-
tinental Europe. ing, and takaful. Dr Fisher was awarded a PhD
jointly by the International Islamic University
Samy Ben Naceur is associate professor of of Malaysia and Camden University of Delaware
fnance at ESSEC Tunis. He is a consultant (USA) for research on operational and fnancial
in fnance and economics and has previously performance characteristics of takaful compa-
worked with the Economic Research Forum, nies in the GCC states. He is an advisor to the
the European Union, and the World Bank. He International Council of Mutual/Cooperative
was previously associate professor of fnance at Insurers (UK) and a board member of Family
Bouabdelli University, Tunisia. Ben Naceur’s Bank, an Islamic microfnance bank licensed
vii
Contributors QFinance
Islamic Finance: Instruments and Markets
in Bahrain. The Hult International Business many private organizations and universities around
School’s Dubai campus awarded Dr Fisher the world. Dr Hassan received a BA in econom-
its frst Global Alumni Achievement award in ics and mathematics from G ustavus Adolphus
August 2010. College, Minnesota, US, and a MA in economics
and a PhD in fnance from the University of
Roszaini Haniffa is professor of accounting Nebraska-Lincoln, US. He is now a professor in
at the Bradford University School of Manage- the Department of Economics and Finance at
ment, where she is also head of the accounting the University of New Orleans, Louisiana, USA.
and fnance group. Prior to joining Bradford she He has more than 100 papers published in refe-
taught at Exeter University, where she received reed academic journals to his credit. He is editor
her PhD. She has also taught professional and of the Global Journal of Finance and Economics
academic courses in accounting and fnance at and the Journal of Islamic Economics, Banking
several higher education institutions in M alaysia. and Finance, and co-editor of the Journal of
Her research interests focus on corporate gov- Economic Cooperation and Development. Dr
ernance, voluntary disclosure, corporate social Hassan has edited and published many books
and environmental reporting, auditing, business along with articles in refereed academic journals.
ethics, international accounting, and the Islamic A frequent traveler, Dr Hassan gives lectures
perspective on accounting. Professor Haniffa and workshops in the United States and abroad,
is moderator and examiner for the Association and has presented more than 150 research
of International Accountants and the Bahrain papers at professional conferences.
Institute of Banking and Finance. She is also
the joint editor of a newly launched specialist Andreas Jobst is an economist at the M onetary
journal, the Journal of Islamic Accounting and and Capital Markets Department of the IMF in
Business Research (JIABR) and is a member of Washington, DC. His work focuses on s tructured
several other editorial boards. She was included fnance, risk management, sovereign debt
in the Muslim Women Power List 2009 of the m anagement, fnancial regulation, and Islamic
UK Equality and Human Rights Commission. fnance. As part of IMF missions, he has been
responsible for the fnancial sector coverage of
Kamal Abdelkarim Hassan is involved in Costa Rica, the Dominican Republic, G ermany,
structured products as part of the Treasury, Honduras, India, Panama, Switzerland, and
Financial Institutions and Debt Capital M arkets the United States. He previously worked at
at Kuwait Finance House (Bahrain). He is the the F ederal Deposit Insurance Corporation,
former director of technical development at D eutsche Bundesbank, the Center for Financial
the Accounting and Auditing Organization for Studies in Frankfurt am Main, the European
Islamic Financial Institutions (AAOIFI), the Central Bank, the Bank of England, the Comisión
international self-regulatory organization for Económica para América Latina y el Caribe of the
the Islamic fnance industry. Hassan has over 10 United Nations, Deutsche Bank, and the Boston
years’ experience working in the Islamic fnance Consulting Group. Jobst holds a PhD in fnance
industry. He holds a MBA in Islamic bank- from the London School of Economics. He has
ing and fnance from the International Islamic published more than 20 articles in peer-reviewed
University Malaysia and a BSc in economics journals and 10 book chapters. He is associate
from the London School of Economics. He is a editor of the International Journal of Emerging
sought-after speaker on Islamic fnance, having Markets and the Journal of Islamic and M iddle
delivered presentations and lectures at various Eastern Finance. He is also one of the main
international conferences. authors of the Global Financial Stability Report
published by the Monetary and Capital Markets
M. Kabir Hassan is a fnancial economist with Department of the IMF.
consulting, research, and teaching experience in
development fnance, money and capital mar- Muhamad Kholid is AVP product develop-
kets, Islamic fnance, corporate fnance, invest- ment at PermataBank Syariah, a leading Indo-
ment, monetary economics, macroeconomics, nesian Islamic banking arm of PT Permata Bank
and international trade and fnance. He has pro- Tbk and Standard Chartered Saadiq. Having
vided consulting services to the World Bank, graduated from the University of Indonesia,
the International Monetary Fund, the Islamic majoring in industrial engineering, he continued
Development Bank, the African Development his postgraduate study program at the Interna-
Bank, USAID, the Government of Bangladesh, tional Islamic University Malaysia with a MBA
the Organisation of the Islamic Conference, and specializing in Islamic banking and fnance.
viii
QFinance Contributors
Contributors
He also holds the professional qualifcation of He holds a bachelor degree in economics with
Chartered Islamic Finance Professional (CIFP) accountancy from Loughborough University. A
from INCEIF Malaysia. His past works, mainly member of the Institute of Chartered Account-
on waqf, capital markets, and risk manage- ants in England and Wales and the Malaysian
ment, have been presented at international con- Institute of Accountants, as well as a Certifed
ferences on Islamic fnance. His work on waqf Risk Professional, Pillai was also a regional
development and sukuk has been published in director for the Global Association of Risk Pro-
the Awqaf Journal. fessionals and is one of the founding members of
the Malaysian chapter of the P rofessional Risk
Chiraz Labidi is assistant professor of fnance Managers International Association.
at the College of Business and Economics,
United Arab Emirates University in Al Ain. She Bilal Rasul is the registrar of modaraba
was previously assistant professor of fnance at c ompanies and of the Modarabas, Securities
IHEC Carthage. Her areas of academic research and Exchange Commission of Pakistan (SECP).
cover international fnancial markets, emerging A British Council (Chevening) scholar, Rasul
markets, and dependence structures. gained his master’s degrees in public admin-
istration and in economics and fnance in the
Qudeer Latif is head of Islamic fnance at United Kingdom. He has 15 years of varied
C lifford Chance. He has worked with Chance experience in capital market regulation, includ-
in London, Dubai, and Riyadh, and his practice ing the securities market and nonbanking and
covers structuring and implementing Islamic fnance companies, as well as the nonfnancial
instruments across a number of asset classes sector. As registrar, he is responsible for head-
including those in the capital markets, project ing the Islamic fnance initiative for the capital
fnance, acquisition fnance, structured fnance, market in Pakistan. He is also the focal person
and asset fnance felds. of the Islamic Financial Services Board (IFSB) at
SECP, responsible for the implementation and
Umar Oseni is a solicitor and advocate of the adoption of IFSB standards and principles.
Supreme Court of Nigeria. He completed the
Bachelor of Laws program in 2005 and proceeded John A. Sandwick moved to Geneva in 1993,
to the Nigerian Law School. He successfully com- frst working at Deutsche Bank (Suisse), and
pleted the Bar Part II program in 2007 and was then at Banque Leu, a unit of Credit Suisse
called to the Nigerian Bar later that year. He is a P rivate Banking. In 1999 he started his own
member of the Peace and Collaborative Develop- conventional wealth management company,
ment Network, the Young International Arbitra- but in 2009 he converted his practice to entirely
tion Group, the London Court of International s hariah-compliant asset management. S andwick
Arbitration, the Nigerian Bar Association, and has been called a pioneer of Islamic banking by
the Association of Professional Negotiators and Schweizer Bank magazine and has appeared
Mediators. Oseni has written 15 academic papers, in numerous venues worldwide, including the
10 of which have been published in academic World Islamic Economic Forum and many
journals and books. He has also presented papers International Islamic Finance Forum events. He
at international conferences on Islamic banking has a master’s degree in development banking
and fnance. He won the Best Student Award for from the American University in Washington,
Masters of Comparative Laws during the 25th DC, and is author of numerous works on Islamic
Convocation Ceremony of the International Uni- banking in the Western and Arabic press.
versity Malaysia (IIUM) in 2009. He is currently
a PhD research scholar and part-time lecturer at Edib Smolo is a researcher and coordinator of
the Faculty of Law, IIUM. His areas of research the Islamic Banking Unit at the International
include Islamic banking and fnance, alternative Shari’ah Research Academy (ISRA) for Islamic
dispute resolution, contemporary application of Finance. He received a double bachelor’s degree
Islamic law, and international trade law. in economics and Islamic revealed knowledge
and heritage, as well as a master’s degree in eco-
Ramesh Pillai is CEO and group managing nomics, from the International Islamic U niversity
director of Friday Concepts (Asia). He is also the Malaysia. He also holds a C ertifcate for Profes-
risk management advisor to AmanahRaya/KWB sional Specialization in Political M anagement
and a nominee director for Bank Negara Malaysia from the Bulgarian School of Politics, jointly
(Central Bank of Malaysia). Previously he was organized by the New Bulgarian University and
the risk management advisor to Tabung Haji. the Council of Europe. Prior to joining ISRA,
ix
Contributors QFinance
