Case Studies in Islamic Banking and Finance: Case Questions & Answers

181 Pages·2011·1.25 MB·English

by  Brian Kettell(auth.)

Case Studies in Islamic
Banking and Finance
ForothertitlesintheWileyFinanceseries
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Case Studies in Islamic
Banking and Finance
Case Questions & Answers
Brian Kettell
A John Wiley and Sons, Ltd., Publication
Thiseditionfirstpublishedin2011
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Contents
Preface xiii
Introduction xvii
AbouttheAuthor xxiii
1 CaseStudy1:IjaraContract 1
1.1 LearningOutcomes 1
1.2 RoleofIjarainIslamicFinance 1
1.3 TheIjaraContractasaModeofIslamicFinance 2
1.3.1 WhatistheIjaraContract? 2
1.3.2 WhatisCarIjara? 2
1.3.3 InwhatSenseisCarIjaraInterestFree? 2
1.3.4 WhatistheDifferencebetweenaConventionalLeaseand
anIslamicLease? 3
1.3.5 TheMeezanBankCarIjaraScheme 6
1.4 Appendix: IjaraFatwa 9
1.5 CaseStudyQuestions 9
2 CaseStudy2:MusharakaContract 13
2.1 LearningOutcomes 13
2.2 RoleofMusharakainIslamicFinance 13
2.3 SummaryofMusharaka 14
2.4 Sharia’aRulesforProfitandLosswithMusharaka 14
2.4.1 DistributionofProfits 14
2.4.2 SharingofLosses 15
2.5 ManagementofMusharaka 15
2.6 Sharia’aRulesforMusharaka 15
2.7 Case1 16
2.7.1 Questions 17
2.8 Case2 17
2.8.1 Questions 17
viii Contents
3 CaseStudy3:DiminishingMusharakaContract 19
3.1 LearningOutcomes 19
3.2 DiminishingMusharakaasaModeofIslamicFinance 19
3.3 SummaryofDiminishingMusharaka 20
3.4 Sharia’aRulesforaDiminishingMusharakaContract 20
3.5 WhatistheDifferencebetweenIjaraWaIqtinaandDiminishing
Musharaka? 21
3.6 ApplicationsofDiminishingMusharaka 21
3.6.1 HousePurchase 21
3.6.2 ServiceSector 22
3.7 CaseAssumptions 22
3.8 Sharia’aConsiderationstobeNoted 22
3.9 PracticalShapeoftheTransaction 23
3.10 CaseStudyQuestions 23
4 CaseStudy4:MudarabaContract 25
4.1 LearningOutcomes 25
4.2 MudarabaasaModeofIslamicFinance 25
4.3 MudarabaandPLS–PureIslamicBanking 25
4.3.1 Mudaraba–ProfitSharingAgreement 26
4.3.2 Sharia’aRulesforMudaraba 27
4.4 Case1:Sharia’aIslamicBank 28
4.4.1 Case1Questions 28
4.5 MudarabaContractwithVariousPartners 30
4.5.1 Case2Questions 30
4.5.2 Case3Questions 30
4.5.3 Case4Questions 31
4.5.4 Case5Questions 31
4.5.5 Case6Questions 32
5 CaseStudy5:Murabaha,Musharaka,IjaraandIjarawaIqtinaContracts 33
5.1 LearningOutcomes 33
5.2 Case1:MurabahaContract 33
5.3 Case2:MusharakaContract 34
5.3.1 MusharakawithProfits 34
5.3.2 MusharakawithLosses 35
5.4 Case3:Ijara:OperatingLeaseContract 35
5.5 Case4:IjaraWaIqtina:FinanceLeaseContract 36
5.6 Case5:MudarabawithMurabahaContracts 36
5.6.1 CarMudarabawithMurabaha 36
6 CaseStudy6:IslamicHomeFinance 37
6.1 LearningOutcomes 37
6.2 Sharia’a-CompliantMortgages 37
6.3 Sharia’a-CompliantStructuresforIslamicHomeFinance 37
6.3.1 Murabaha 38
6.3.2 IjarawaIqtina 38
Contents ix
6.3.3 DiminishingMusharaka 39
6.3.4 WhatistheDifferencebetweenIjarawaIqtinaandDiminishing
Musharaka? 40
6.3.5 ApplicationsofDiminishingMusharaka 41
6.3.6 Istisna’aContract 41
6.4 Appendix1:ManzilHomePurchasePlans(Murabaha) 41
6.4.1 Murabaha(‘DeferredSaleFinance’) 41
6.4.2 HowdoestheManzilHomePurchasePlanWork? 41
6.5 Appendix2:DevonBank 42
6.5.1 ResidentialMurabahaPurchaseAgreement 42
6.6 Appendix3:ManzilHomePurchasePlans(Ijara) 43
6.6.1 Ijara(‘Lease-to-Own’) 43
6.6.2 HowdoesitWork? 43
6.7 Appendix4:DevonBank 44
6.7.1 ResidentialIjaraSaleandLeaseTransaction 44
6.8 Appendix5:Meezan‘EasyHome’DiminishingMusharakaAgreement 44
6.8.1 IslamicFinancingonaDiminishingMusharakaBasis 44
6.8.2 Whatmakes‘EasyHome’Sharia’aCompliantandhowdoes
itDifferfromaConventionalMortgage? 45
6.8.3 WhyistheProfitMarginChargedbyMeezanBankCorrelatedto
ConventionalMortgageMarketTrends? 45
6.8.4 IstheProfitRateVariableorFixed? 45
6.8.5 WhatifaCustomerFailstoPayMonthlyInstalments? 45
6.9 CaseStudyQuestions 46
7 CaseStudy7:SourcesofFinanceforIslamicBanks 49
7.1 LearningOutcomes 49
7.2 WheredoIslamicBanksgettheirMoneyfrom? 49
7.3 SourcesofFundsforIslamicBanks 49
7.3.1 CurrentAccounts 49
7.3.2 SavingsDeposits 50
7.3.3 InvestmentDeposits 51
7.4 CaseStudyQuestions 53
8 CaseStudy8:FinancialStatementAnalysisforIslamicBanks 55
8.1 LearningOutcomes 55
8.2 HowdotheFinancialStatementsofIslamicBanksDifferfromthose
ofConventionalBanks? 55
8.3 CaseStudyActivities 55
8.4 CaseStudyQuestions 77
9 CaseStudy9:IslamicInvestmentProhibitions 79
9.1 LearningOutcomes 79
9.2 MuslimshaveStrictRulesaboutwhattheyareAllowedtoInvestin 79
9.3 IslamicInvestmentProhibitions 80
9.4 TheProhibitionofInterest(Riba) 81
x Contents
9.5 ZakatandIslamicProhibitions 82
9.5.1 WhocanReceivethezakat? 82
9.5.2 HowiszakatConnectedwithIslamicProhibitions? 82
9.5.3 IssuesRegardingzakat,TamlikandSadaqah 82
9.6 CaseStudyQuestions 84
10 CaseStudy10:OpeninganIslamicBankwithinaWestern
RegulatoryFramework 91
10.1 LearningOutcomes 91
10.2 FirstIslamicBankintheEuropeanUnion 91
10.3 IssuesinCreatinganIslamicBankWithin
aWesternRegulatoryFramework 92
10.3.1 BackgroundtotheCreationoftheIslamicBankofBritain(IBB) 92
10.3.2 TheFSA’sApproachtoBankingAuthorisation 92
10.3.3 IBBandtheFSA 95
10.3.4 IslamicFinancialProductsOfferedbyIBB 101
10.3.5 HowdoesIBBEnsurethatitsProductsareSharia’aCompliant? 105
10.3.6 FinancialStatementsfor2005and2006 107
10.4 CaseStudyQuestions 108
11 CaseStudy11:LeverageandIslamicBanking 109
11.1 LearningOutcomes 109
11.2 LeverageandIslamicBanking 109
11.3 WhatisFinancialLeverage? 110
11.3.1 WhatistheDebttoEquityRatio? 110
11.4 FinancialTerminology:aGuide 110
11.4.1 EarningsBeforeInterestandTaxes(EBIT) 110
11.4.2 Earningsbeforetax(EBT) 111
11.4.3 Earningsaftertax(EAT) 111
11.4.4 Returnonequity(ROE) 111
11.4.5 Earningspershare(EPS) 112
11.5 CaseStudyAssumptions 112
11.6 CaseStudyQuestions 113
12 CaseStudy12:ImpactofNon-performingLoansonIslamicand
ConventionalBanks 115
12.1 LearningOutcomes 115
12.2 IslamicBankingPrinciplesInvolveRiskSharing,whichshouldmake
themLessVulnerablethantheirConventionalCounterparts 115
12.3 Equity-BasedVersusDebt-BasedBanking 116
12.4 CaseStudyAssumptions 116
12.5 CaseStudyQuestions 117
Contents xi
CaseStudyAnswers 119
Glossary 151
Bibliography 157
Index 165