Nadaleen Singh

Is­lam­ic bank­ing, if in­tro­duced, threat­ens to cre­ate waves in the bank­ing sec­tor. How many peo­ple re­al­ly know what Is­lam­ic bank­ing is and its ben­e­fits? Al­ready, in Au­gust 2012, the Agri­cul­tur­al De­vel­op­ment Bank (ADB) took the bold step by sign­ing a mem­o­ran­dum of un­der­stand­ing with mem­bers of the Mus­lim com­mu­ni­ty for the es­tab­lish­ment of a fi­nanc­ing sys­tem ac­cord­ing to Sharia (Is­lam­ic) law.

For 17 years, mem­bers of the Mus­lim com­mu­ni­ty had been clam­our­ing for an Is­lam­ic fi­nanc­ing fa­cil­i­ty.

On Feb­ru­ary 7, the ADB took one step clos­er to in­tro­duc­ing the fa­cil­i­ty in T&T as of­fi­cials from De­loitte, lo­cat­ed in the King­dom of Bahrain, vis­it­ed T&T to get an in­depth look at the fi­nan­cial sys­tem and its op­er­a­tion. De­loitte, King­dom of Bahrain, is known as a glob­al leader in Is­lam­ic fi­nance.

Giv­en the rules and reg­u­la­tions of Is­lam­ic bank­ing com­pared to con­ven­tion­al bank­ing, T&T would have to change some of its fi­nan­cial laws to ac­com­mo­date the work­ings of Is­lam­ic bank­ing, but no gov­ern­ment of­fi­cial has yet de­clared this. How­ev­er, Jaishi­ma Lelad­hars­ingh, cor­po­rate man­ag­er busi­ness de­vel­op­ment, ADB, said the ADB is ex­plor­ing the op­tion of Is­lam­ic bank­ing main­ly as a fa­cil­i­ty for the stake­hold­ers in the agri­cul­tur­al sec­tor, but not lim­it­ed to that sec­tor.

He de­scribed how loans will work un­der Is­lam­ic bank­ing.

"We can struc­ture it dif­fer­ent­ly so it won't be very stren­u­ous on the farmer or the en­tre­pre­neur, so they are able to grow their en­ter­prise and not face all these pres­sures of pay­ments, but work some­thing out that is both ben­e­fi­cial to the bank and to the cus­tomer, which we call eth­i­cal bank­ing," he said.

Is­lam­ic bank­ing first start­ed in­ter­na­tion­al­ly with its best prac­tice struc­tured over its cen­tu­ry-long ex­is­tence.

This means should Is­lam­ic bank­ing be in­tro­duced, some of the stan­dards for cor­po­rate gov­er­nance and risk man­age­ment, cou­pled with the fi­nan­cial re­port­ing and dis­clo­sure re­quire­ments, may be adopt­ed.

Ac­cord­ing to Dr Ha­tim El-Tahir, di­rec­tor Is­lam­ic Fi­nance Knowl­edge Cen­tre, De­loitte, King­dom of Bahrain, one of the rec­om­men­da­tions in his re­port to the ADB is the adop­tion of these best prac­tices, which are in tan­dem with the In­ter­na­tion­al Fi­nan­cial Re­port­ing Stan­dards (IFRS).

He sug­gest­ed there is need to change the fi­nan­cial leg­is­la­tion in T&T.

"There are some rel­e­vant acts that need to be looked at, like the De­posit In­sur­ance Scheme and the In­sur­ance Act, which al­so reg­u­late the in­sur­ance ac­tiv­i­ties (in­dus­try) as well as the Fi­nan­cial In­sti­tu­tions Act. We don't see any prob­lem of ac­com­mo­dat­ing Is­lam­ic bank­ing with­in this reg­u­la­tive frame­work. In fact, we have helped oth­er sim­i­lar coun­tries where there are sim­i­lar in­sti­tu­tions."

De­scrib­ing Is­lam­ic bank­ing, he said it is an al­ter­na­tive means of do­ing busi­ness and is based on three kinds of arrange­ments. The first kind of arrange­ment is a part­ner­ship. The sec­ond is based on a sys­tem of the bank own­ing the as­sets and leas­ing it back to the cus­tomer. And the third is the bank buy­ing the as­set and sell­ing it to the farmer or cus­tomer on in­stal­ments.

Back­ground

With more than 1,000 in­sti­tu­tions in 75 coun­tries, Is­lam­ic bank­ing is a tril­lion-dol­lar in­dus­try span­ning decades of ex­is­tence. This type of bank­ing is tai­lored to suit the needs of the cus­tomer.

Malaysia, Pak­istan, In­done­sia and the Mid­dle East are ex­am­ples of coun­tries which op­er­ate a sys­tem of Is­lam­ic bank­ing, in­clud­ing the con­ven­tion­al type of bank­ing. Dubai's mar­ket is the sec­ond largest in the world with more than US$45 bil­lion in as­sets.

Giv­en that in­ter­est is not charged in Is­lam­ic bank­ing, El-Tahir ex­plained how it works: "Is­lam­ic bank­ing is based on the trade the­o­ry rather than the mon­ey the­o­ry. It is a re­la­tion­ship be­tween the cus­tomer and the bank. The bank shares the risk and prof­it with the cus­tomers and get more in­volved as an eq­ui­ty part­ner, where­as the con­ven­tion­al bank­ing in­volves lend­ing mon­ey and cost­ing the trans­ac­tions on the in­ter­est rates."

He said if the cus­tomer is un­able to pay for the item in full, they can pay in­stal­ments.

"If a farmer want­ed to pur­chase a trac­tor, we own the trac­tor first, we take the risk with the farmer. This is a fun­da­men­tal in Is­lam; we have to sell some­thing that we own; we can­not sell some­thing that we don't own. It is con­sid­ered to be high­ly spec­u­la­tive and un­cer­tain. I, as a prof­it or­gan­i­sa­tion, base my cost­ing of the whole trans­ac­tion ac­cord­ing to the mar­ket."

The trac­tor is used as col­lat­er­al.

Re­gion­al spread

The Is­lam­ic bank­ing mod­el be­ing ex­plored is one which starts ini­tial­ly in T&T and, if suc­cess­ful, would spread through­out the Cari­com mem­ber states.

Bas­sel Nadim, a se­nior man­ag­er, fi­nan­cial in­sti­tu­tions and con­sul­tant at­tached to De­loitte, said Is­lam­ic bank­ing may in­crease com­pe­ti­tion in the bank­ing sec­tor in T&T.

"The new ini­tia­tive (the bank) would have the re­spon­si­bil­i­ty to of­fer at­trac­tive good deals to peo­ple. They would come in with good prod­ucts and it is now the headache of the man­age­ment of this new bank to fig­ure out where are some busi­ness op­por­tu­ni­ties in the mar­ket.

"The way we would of­fer our prod­ucts will def­i­nite­ly, sure­ly, ul­ti­mate­ly, com­ply with the reg­u­la­tions of the coun­try. In ad­di­tion to some Sharia prin­ci­ples guid­ing the Is­lam­ic bank­ing pro­vi­sion of ser­vices. How­ev­er, the Sharia rules have al­ready been writ­ten, we need on­ly to com­ply to the glob­al­ly-recog­nised stan­dards," he said.

If a farmer want­ed a sav­ings ac­count in the is­lam­ic bank­ing sys­tem, he has to sign up to be a part­ner in the busi­ness and would ben­e­fit from prof­it shar­ing com­pared to con­ven­tion­al bank­ing where the in­vestor would ben­e­fit through col­lect­ing in­ter­est on the col­lat­er­al in the ac­count.

Dr Ha­tim El-Tahir

He leads the knowl­edge cen­tre in the Mid­dle East and co-or­di­nates with any fi­nan­cial in­sti­tu­tions glob­al­ly through the De­loitte net­work. He has worked with the as­so­ci­a­tion of fi­nance in the Mid­dle East. El-Tahir is a grad­u­ate of the Lon­don School of Eco­nom­ics. His ar­eas of spe­cial­i­sa­tion in­clude Is­lam­ic fi­nan­cial reg­u­la­tion, busi­ness and mar­ket strat­e­gy, risk man­age­ment, and Is­lam­ic fi­nance re­search and ed­u­ca­tion.

El-Tahir's key as­sign­ments:

�2 De­vel­op­ment of a Taka­ful Act for a Gulf In­sur­ance Au­thor­i­ty

�2 Ca­pac­i­ty build­ing de­vel­op­ment pro­gramme for Gulf Cen­tral Bank

�2 Dubai Fi­nan­cial Ser­vices Au­thor­i­ty

�2 Emi­rates Se­cu­ri­ties & Com­modi­ties Au­thor­i­ty

�2 Al Ra­jhi Bank, KSA

�2 Roy­al Bank of Scot­land (UAE)

�2 Abu Dhabi Com­mer­cial Bank

�2 Noor Is­lam­ic Bank

�2 Com­mer­cial Bank of Dubai

Bassil Nadim

Bas­sel is a se­nior man­ag­er in Is­lam­ic fi­nan­cial ser­vices con­sult­ing with 12 years of ex­pe­ri­ence in es­tab­lish­ing fi­nan­cial in­sti­tu­tions, cor­po­rate and mar­ket strat­e­gy, busi­ness plan­ning, in­vest­ment ad­vi­so­ry and or­gan­i­sa­tion­al de­vel­op­ment across the GCC, Mid­dle East, CIS and Eu­rope.

He holds an MPhil in mon­e­tary pol­i­cy and fi­nan­cial pol­i­cy from the Unit­ed King­dom. He is al­so a cer­ti­fied fi­nan­cial con­sul­tant from the Unit­ed States, an Is­lam­ic pub­lic ac­coun­tant (CIPA) from AAOIFI, cer­ti­fied in the DIFC's rules and reg­u­la­tions and risk in fi­nan­cial ser­vices.

He was re­cent­ly as­signed as project leader to set up an Is­lam­ic win­dow in Oman. He was in­volved in de­vel­op­ing the strat­e­gy, iden­ti­fy­ing the prod­ucts, de­ploy­ing the sys­tems and pro­vid­ing on go­ing sup­port and lead­er­ship for the teams al­lo­cat­ed

Nadim's ex­pe­ri­ence:

�2 Project leader to es­tab­lish an Is­lam­ic win­dow in Oman

�2 De­vel­oped the strat­e­gy to es­tab­lish Bank of Aj­man (UAE) and Salam Bank in Bahrain, Su­dan and Al­ge­ria

�2 Con­ceived busi­ness plan and fea­si­bil­i­ty study to es­tab­lish eight Is­lam­ic fi­nance com­pa­nies in UAE, KSA, Qatar and CIS

�2 De­vel­oped cor­po­rate strat­e­gy for KFH, the fourth biggest bank in Mid­dle East to ob­tain Cat­e­go­ry 1 li­cense from the DIFC

�2 De­vised the in­vest­ment strat­e­gy of an Is­lam­ic RE­IT un­der­lined by six ho­tel as­sets

�2 He has pub­lished an e-book on fi­nan­cial lib­er­al­i­sa­tion in de­vel­op­ing coun­tries