The first difference which exists between ordinary banking and Islamic banking is that the object associated with the contract must actually exist, be specific and free from all ambiguities and it also must be permitted by the Sharia’h. This implies that the bank cannot lend money to anyone but may make an investment. All features of a Muslim’s life is embraced by the religion of Islam and this includes the way its business dealings and finance are carried out. This means, in effect, that mortgage products are not acceptable for Muslims. In Muslim countries, Islamic banks and religious scholars has thought of a number of ways by which to offer finance and banking which can be permitted by Islamic law. Ijara and Murabha are considered by religious scholars and Islamic banks to be the most suitable methods of finance for the purchase of property in the United Kingdom.

Ijara – In the Ijara method of finance, the financier purchases the property and sells it to the customer for the same amount of money, with the payment spread over a period of time agreed between them. The customer also has to pay rent to the financier over the repayment term. The installment of the purchase is somewhat like the capital payments under a conventional loan, while the interest in the conventional loan is like the rent in the Ijara.

Murabha – In the Murabha method of finance, the financier purchases the property and immediately sells it to the customer at a higher price. The higher price is settled based on the number of years allowed by the financer to the customer to pay the purchase price. The extra sum can be compared to the interest which is charged on a conventional loan at a certain rate over the whole payment term.

An ethical dilemma is faced by about two million Muslims in the UK when they want a loan or a mortgage as conventional loans and mortgages all need the payment of interest and ‘riba’ (interest in Islamic law) is not allowed by the Koran.

Under Ijara, the bank will buy the asset you want and you will be allowed to use the asset for an agreed period in return for a monthly payment which covers the bank’s capital. It is a kind of leasing.

In Musharaka (meaning partnership), the bank buys the asset and becomes the legal owner. You pay monthly installments, covering part of the rent and part of the cost of the asset, so that after a pre-determined period, you own the asset itself.

Source : Dubai Property & Real Estate Blog

National Properties, the wholly owned real estate subsidiary of National Bonds Corporation, has signed an agreement with Dubai Islamic Bank to offer Islamic home finance solutions for the purchase of units in its developments.

The agreement extends to all current and future developments of National Properties including Skycourts, the AED1.5 billion residential project under construction in Dubailand. Dubai Islamic Bank will offer its range of Islamic finance solutions to those wishing to own units in these developments.

National Properties focuses on offering distinctive lifestyle choices to the multinational UAE community by identifying gaps in the market and addressing them through unique developments that combine a great deal of passion in their location, design, architecture and pricing.

Skycourts, the maiden real estate initiative from National Properties, offers 2,300 elegant yet affordable apartments in six towers with access to all amenities for modern day city living. Following the successful launch of Skycourts, National Properties recently unveiled its second residential community, Flamingo Creek, in the Lagoons master development in Dubai.

Commenting on the agreement with Dubai Islamic BankDubai Islamic Bank, Adel Lootah, Chief Executive Officer of National Properties said that more than building homes National Properties believes in helping people realise their dream of owning a home.

“Our association with Dubai Islamic BankDubai Islamic Bank means buyers of our units can now avail of the best of financing solutions from the region’s leading Islamic bank,” he added. Mohammed Amiri, Senior Vice President, Retail and Business Banking, DIB added: “We are committed to meeting the diverse needs of our customers through partnering up with similar entities that trickle down benefits to the community.” He concluded: “This agreement will add value to Dubai Islamic BankDubai Islamic Bank

Dubai, December 31, 2007 - Press Release

A sharp 25 per cent drop in prices of commercial properties in the UK over the last one year offers GCC investors a rare opportunity to invest in the United Kingdom’s property sector, a Gulf Finance House (GFH) study revealed.

The report compiled by GFH’s real estate asset management team indicated that between 2005- 2007 a lot of European and GCC investors piled into UK property seeking high returns. “Often, the European investors used borrowed money to leverage their investments, being driven by a belief that there were only profits to be made. In hindsight, the bubble that developed was due to property fund managers being forced to buy buildings beyond their realistic fair value due to the pressure to deploy the cash that investors were throwing at them. “We know that many fund managers were uncomfortable with the prices they were paying but had no other option but to spend as investors were so desperate to get their money into the market.

As the first cracks appeared last summer, investors rushed for the door and fund managers found that they simply couldn’t find buyers for their properties quickly enough to release cash to pay out investors. As a result, funds were forced to suspend redemptions to give them time to find buyers. As a result, UK property fund managers have been facing intense pressure from regulators, trustees and investors to sell to meet redemptions. This resulted in a ‘fire sale’ of institutional quality property in late 2007 and early 2008. The resultant market reversal has been magnified by the “credit crunch” which has also drained liquidity from the market. As values have slipped, many levered property owners are now in technical breach of their lending covenants and their banks have started to apply pressure on them to sell.

According to report, the UK commercial property market has been caught in a perfect storm. Retail and institutional investors have been trying to liquidate. “Regulators and trustees have been ordering fund managers to sell into a market that is devoid of buyers. Potential purchasers have been starved of liquidity by the credit crunch. The result shows that many good quality commercial properties falling by 25 per cent or more in the last 12 months.” “Some good properties now have cash yields of 8 per cent or more. In many cases, these bargains aren’t publically offered as their owners are trying not to show just how desperate they are to sell. However, with GFH’s outstanding network of contacts in UK property, we have seen some offers with distinct upside potential.

It is our belief that this correction in UK commercial property provides a buying opportunity for long term investors. Historically, UK commercial property has typically provided good risk adjusted returns. This is the very reason that it provides the cornerstone of so many pension and institutional portfolios and is an essential investment for investors looking for long term wealth protection and diversification. Some commentators are saying that the UK property market will continue falling through the next six months before stabilising and then recovering sometime in 2009. They would argue that there is no hurry to buy now as the bottom of the market will not be until later 2008 at the earliest.”

“GFH was a pioneer of shar’ia compliant UK commercial real estate when we launched the Gulf Atlantic Real Estate Fund that was successfully raised, invested and exited with excellent profits for investors. The GFH Real Estate Asset Management Team has recently undertaken an exhaustive analysis of the UK commercial property market. Until recently, we hadn’t considered UK property as an attractive investment area as the prices being paid simply did not make sense to us.”

“Periods of negative returns are very rare in the UK and usually decades apart. Because of the enduring popularity of UK commercial property, international buyers have used these brief periods of weakness to snap up bargains as values have recovered into positive territory.” “There are high yields and recovery properties available but some properties still look expensive. Investors will have to choose carefully to reap the rewards that are undoubtedly available but there is no doubt that there good deals to be done.” If you miss this opportunity, the report added, you may be waiting 15 or 20 years for the next chance to buy UK property so cheaply.

Bahrain Tribune

The Hyderabad leisure and residential township will have a golf course, luxury residences, large format retail facility, luxury and boutique hotels and an IT park. The project will be constructed by Multiplex Construction India, a joint venture company between Emaar MGF and Multiplex.

The project, which will be developed in partnership with Andhra Pradesh Industrial and Infrastructure Corporation (APIIC), is located in 531 acres near Hyderabad’s IT and financial corridor district near Gachibowli.

Harradine Golf, a north India-based golf course development company, will develop a golf course in 192 acres in the project. Emaar MGF is a JV between the Dubai-based real estate company Emaar Properties and MGF, another real estate company based out of India.

India Times May 31, 2008

Italian journalist and economist, Loretta Napoleoni’s new book, “Rogue Economics”attempts to unravel what she describes as the rogue forces driving global capitalism. Her book describes, among other things, a massive explosion in slavery since the end of the Cold War and it shows how the subprime crisis is a product of this new world economy. Loretta Napoleoni talks to Eleanor Hall about global economics, the currently booming slave trade, and Shari’a vs Capitalist (Rogue) socio-economics

ELEANOR HALL: Now you coined the phrase “rogue economics”, what exactly does it mean?

LORETTA NAPOLEONI: Well, rogue economics is purposely ambiguous because it is a sort of umbrella under which you do find the terror economy, the criminal economy, the illegal economy but also the formation of grey areas. These are areas where there is no regulation. There is no law and inside this grey areas, the globalisation outlaws as I defined this new rogue entrepreneurs that reap the benefit of the great transformation of today which is globalisation.

ELEANOR HALL: A lot of these are sort of Mafioso type figures?

LORETTA NAPOLEONI: Yes, but also individuals who are not necessarily breaking any law. For example the subprime mortgage crisis. It is very much the product of rogue economics. Nobody really broke any law because there were not any laws to be broken.

ELEANOR HALL: The subprime crisis then is a direct consequence of rogue economics?

LORETTA NAPOLEONI: Yes it is. If you look at how the crisis came about, it came about through the transformation of a growing debt into an asset and that was made possible by the usage of derivatives. Basically applying this derivatives to mortgages was possible to transform this debt into an asset and sell the debt as an asset across the world. There was no regulation in place to prevent something like this to happen.

ELEANOR HALL: Now Islamic finance. Interestingly you say that it is the sole global economic force that can challenge rogue economics. Why?

LORETTA NAPOLEONI: Because it has a built-in code of ethics which we do not have anymore in western finance and this code of ethics comes from the Sharia law. Now when we say Sharia law people tend to associate it with something negative now we’ve got to explain that the Sharia law is nothing to do with the manipulation which has been done of this law by people like Osama bin Laden and the fundamentalists of Islamic.

Sharia law code of ethics which is very similar to the code of ethics of the classic British economist Adam Smith, David Ricardo. For example, money should not produce money. Money should be invested in the real economy and through the growth of the real economy, produce money.

So that is a fundamentally important concept which we have lost to a certain extent. The subprime crisis, it is created by an instrument which is based upon lending money that creates money.

ELEANOR HALL: So instead of a clash of civilisations, we essentially have a clash between rogue economics and Sharia economics?

LORETTA NAPOLEONI: Yes, that is a very good point. We do have a clash between rogue economics and Sharia economics whereby Sharia economics is the only force today that will be able to control rogue economics and bringing back within the rules.

ELEANOR HALL: Essentially, we will be seeing a massive shift in values away from the individual and of wealth, won’t we?

LORETTA NAPOLEONI: I don’t think that the shift in value will be away from the individual. No, I would say that the individual, especially when we talk about Islamic finance will be more involved in the every day decision in terms of how is this money invested but there will be a new system and the west, in particular the core of the western system which is the US and the UK today, will be at the periphery of the new world.

Reporter: Eleanor Hall, The World Today – 20 May, 2008

“Damac Capital ” company has expected the volume of investment at the real estate financing market in the UAE to double by 2011 , to reach 64 billion Dirham opposite to 32 billion Dirham by the end of 2007 , due to the continuous strong performance of the real estate sector in general , backed by sharp decline of the interest rate.

In a study published by the company in English, the company said that the market of bonds is witnessing a vigorous growth rate in parallel with the distinctive performance of the sector of real estate mortgage, in the sense that the volume of the bonds market between 2006- 2007 has increased by more than the double, reaching $ 62 billion, opposite to $ 27 billion.

“Damac” company thinks that there are a number of advantages which back the growth rate at the real estate mortgage market in the UAE in the coming period, among them owning real estates and paying a monthly installments which have started to win an importance as an alternative for houses rent, especially that there are long-term financing alternatives available .

Moreover, statistics issued by “Damac” have shown that that the volume of real estate mortgage market is estimated at 3,5% in the UEA opposite to an average of 16 % in Asia, 49% in the European Union, 76% in the USA, and 83% in Britain.

Source : Voltaire.org May 20,2008

The Dutch central bank (De Nederlandsche Bank) foresaw last year that the demand for Islamic products will increase in the Netherlands, due to an increase in population and a higher education and income level of Dutch Muslims. Anticipating possible developments in the Netherlands, the Dutch central bank and the AFM have carried out a joint study.

The strong rise of Islamic financial products and services in the UK

Within a few years a broad range of financial products and services has been introduced for the professional and private market. The UK has adapted legislation to create a level playing field with conventional financial products and services and from a consumer protection perspective.

Niche market

The offer of Islamic financial products and services has surged worldwide. In the UK the niche market for Islamic financial products and services is considered important for the position of London as a global financial centre.

In other European countries a centre of activities is yet to form and the range of products is largely limited to the professional market and wealthy individuals. In the Netherlands the market is also in development. The first retail investment products have been launched and various financial institutions have shown interest in the retail market.

The Dutch report aims to improve knowledge of the Islamic finance sector and investigates whether the existing regulatory framework is fit for purpose. With respect to improved knowledge, the study concludes that suppliers, consultants and consumers have only limited knowledge of Islamic finance at the moment. The report warns that this poses a potentially heightened risk of miss-selling of financial products and services, which in turn may lead to reputational damage and legal action.

Regulatory framework

Islamic financial products meet the same economic needs as conventional ones, but generally have a different format. There are many different Islamic types of contract for these products, which are moreover often of a complex legal nature. This brings with it specific risks, which require all parties to have ample understanding of the matters at hand.

With respect to the adequacy of the regulatory framework the study concludes that the most frequently used types of contract – for Islamic mortgages – are outside the regulator’s peripheral vision. This is caused by the limited scope of the definition of credit in the Dutch law on financial market regulation. The criteria for a duty of care, however, are open to a much wider definition in this legislation.

As a result, the report concludes that they can probably also be applied to Islamic financial products and services. A similar problem arises in respect of other regulatory aspects. Not every Islamic financing contract qualifies as a loan.

Little transparency

The report notes that there is at present little transparency in respect of the compulsory alms (“zakat”) and halal elements of Islamic finance products such as Takaful (Islamic insurance), muamalat (Islamic banking transactions) and Sukuk (Islamic securities).

The regulatory emphasis is on the co-mingling of funds, the checks and balances in the verification of financial products by Sharia (“Shari’ah”) scholars and compliance with Sharia law in general. There are also marked differences with conventional banks when it comes to the specific risk profile of Islamic banks. The credit, operational, liquidity and financial risk profile differ. In addition, displaced commercial risk is a typical element in Islamic banking. By contrast, Islamic banks do not carry interest liabilities, which limits the risk in comparison with conventional banks.

As a result, not every institution qualifies as a ‘ bank’ under the terms of the law and, therefore, does not qualify for a banking license. When an institution does fall under the legal definition of a ‘bank’, however, the report concludes that the existing regulatory framework of Basel II offers sufficient flexibility to address issues in respect of corporate governance and liquidity.

Definitions may need to be reconsidered

To what extent legislation may need to be adapted in future depends in part on the range of products and associated types of contract that may appear on the market, according to the report. In particular, the report notes that definitions of common terminology such as “interest” may need to be reconsidered.

The study suggests that financial service providers may need to be better educated on Islamic finance products and services in order to achieve the objective of a true level playing field with conventional financial products and services in respect of legal consumer protection.

The analysis is currently only available in Dutch, although an English translation will be made available by the Dutch central bank in due course.

Source : Written by Adrie van der Luijt, Director of Finance Online(UK) 22 May 2008
Syndication : RIBH

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The Aligarh Muslim University (AMU) / Dr Mohammad Nejatullah Siddiqi

The Aligarh Muslim University (AMU) has decided to begin a course on ‘Islamic Banking and Finance’, the first such course in India. The “interest free banking course” is to be based upon the norms of ‘Shariah’ (Islamic rules on transaction).

A three-member committee has been formed under Dr Mohammad Nejatullah Siddiqi, a retired AMU professor of Economics and Islamic Studies. Besides holding experience of teaching Islamic Finance in various countries including Saudi Arabia and Malaysia, he has been a consultant to a Los Angeles-based private firm, American Islamic Finance.

The Central Board of Secondary Education(CBSE) had recently asked the university to start an undergraduate programme in marketing and finance.

Vice-Chancellor of the university, Prof Abdul Aziz, told The Indian Express: “Indian banking system is gradually becoming aware of the Islamic banking. Indian students should be exposed to the topic that holds considerable potential. We hope to begin the course in the next academic session.”

Islamic law prohibits interest on both loans and deposits, as both profit and risk are shared together by the borrower and the lender. As a result, the depositor, who does not bear risk in other banking systems, has to equally share the risk with the bank in Islamic banking. Owner of the capital, however, is allowed to have a share in the surplus.

Though there isn’t any Islamic bank in India, there exist a few non-banking cooperatives like Al Ameen Islamic Financial & Investment Corporation Ltd in Karnataka and Mumbai-based Al-Barr Finance House Limited, which has branches in cities like Aligarh and Chennai. There are also some popular investment companies like Parsoli Corporation Ltd that claim to invest money as per the Islamic laws.

Experts feel that following a drift in US and European markets, India is seen as a potential place for the Islamic banking, which can also attract NRI investors. “Some of the top Indian companies are looking forward to launch Islamic financial products in the country,” said Dr Siddiqi.

He said: “There lies a huge job opportunity in Islamic financing in India. Some private institutions provide a few short-term courses, but the programme at the AMU will be totally different.”

Maulshree Seth, ExpressIndia.com May 22, 2008

Qatar Islamic Bank, the Arabian Gulf country’s biggest Shariah-compliant lender, plans to start an Islamic bank in Kazakhstan with the former Soviet republic’s government to tap its oil-fueled economic growth.

The plan is in its “very initial stages” and the venture may have start-up capital of $100mn, Ahmad Meshari Muhaidi, QIB assistant general manager and head of corporate banking, said on May 18,2008 in an interview at the World Economic Forum meetings in Sharm El-Sheikh, Egypt.

Kazakhstan’s $100bn economy has grown an average of 10% a year since 2000 as oil prices surged, triggering a construction boom and fuelling demand for goods and services. The economy will probably average growth of 6% annually through 2011, Finance Minister Bolat Zhamishev said.

Demand for banking services and investments that comply with Shariah’s ban on interest has increased as oil money floods into the Arabian Gulf. The global Islamic finance industry’s assets under management are expanding by 15% a year and may have topped $1tn, according to the Malaysia-based Islamic Financial Services Board. QIB on April 20 said first-quarter profit surged 69% to $125mn after it started an Islamic private equity fund and won a UK investment banking license for its European Finance House unit.

BTA Bank, Kazakhstan’s second-biggest bank by assets, last month said it may open an Islamic unit together with Dubai-based Emirates Islamic Bank as it seeks to attract new customers from among the country’s 7mn Muslims. It may sell as much as $150mn of Islamic bonds, chief executive officer Roman Solodchenko said.

Source: IslamicFinanceArabia.com May 19, 2008

Until a few years ago Islamic finance was considered to be relatively niche. Worth more than $500 billion today, Islamic finance is a significant financial market offering varied financial products that are attracting interest from Muslims and non-Muslim investors on a global scale.

Terrapinn’s Islamic Finance World North America 2008 is more than just a conference. It is a year long marketing campaign. It is a cost effective sales and marketing solution that works throughout the year, providing you with new contacts and great exposure, culminating in an event which will bring you face-to-face with your key customers and prospects. It is an integral part of a global brand that has a proven track record of excellence.

This event will be the most comprehensive and action-oriented conference on Islamic Finance in North America – offering tools, tips, techniques and key industry contacts. The focus will be on wholesale banking but the event will include two sessions on the fast growing area of Islamic retail banking.

Banks, law firms and service providers

• Identify retail banking opportunities in the North American market
• Generate ideas on how to create Shariah compliant products
• Showcase your innovation in serving Islamic investors to potential partners
• Gain insight on leading banks accessing the
  North American Islamic window
• Hear case studies from the pioneers of North American Islamic finance

Investors and issuers

• Compare Shariah compliant financing options for private equity and real estate
• Learn different viewpoints on the parameters of Shariah compliant fund
• Access fund managers, banks and advisors to create new investment products
• Hear how peers realize return potential from Shariah compliant investments
• Discuss how sukuk investments offer diversification in a fixed income portfolio

Programme

For more information, please visit www.terrapinn.com/2008/ifwna.