20080318 IRAS Presentation
Transcript of 20080318 IRAS Presentation
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Disclaimer: The information contained in this document is intended only for use during the presentation and should not bedisseminated or distributed to parties outside the presentation. The Islamic Bank of Asia Limited accepts no liabilitywhatsoever with respect to the use of this document or its contents.
IRAS Seminar
18 Mar 2008
ISLAMIC FINANCEBy Kareem Hussaini
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Agenda
1. Growth of Islamic Finance Industry
2. Singapore in the Big Picture
3. Islamic Finance versus Conventional Finance
a. Structure Comparisonb. Tax Implications
4. Current Tax Incentives Strengthen Singapores Role in the IslamicFinance Market
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Global View
Islamic Banking no longer a niche market ?
Over 300 institutions in 75 countries.
11%
0
11%
19%
35%
24%
Source: IIBI
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Principal Markets
Source : Qatar Financial Centre Authority, Apr 2007
2002 2003 2004 2005 2006
Source : Standard & Poors
6.1%
0
10
5
25
15
20
30
GCC6.5%
World5.6%
Source : EIU
GDP Growth Forecast 2006 -2010 (%)
5.8%
7.3%
6.0%
8.3%
6.8%
Kuwait Malaysia Qatar SaudiArabia
UnitedArabEmirates
Bahrain
6.1%
Islamic Banking Market Share
Oman
Bahrain
Malaysia
UAE
Qatar
Total GCC
Kuwait
Saudi Arabia
(%)
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Principal Products Commercial Banking
Continues to grow at 10-15% p.a. in the principal marketsand since 2001 has consistently outpaced growth in theconventional banks within these markets. Global assetsnow estimated to exceed $500bn.
SukukIslamic bond issuance now exceeds $70bn, althoughgrowth is still patchy. Traditionally, Malaysia accounted
for the majority of issues, but Moodys recently reported
the Gulf had raised $13.2bn to Malaysias $9.7bn in 2007.
ISLAMIC BONDS JAN - SEPT 2007
Managers US$ mMarketShare
HSBC 3,642 14.6%
CIMB 3,603 14.5%
Malaysian Govt. Bond 2,863 11.5%
Citigroup 1,668 6.7%
Barclays Capital 1,593 6.4%
Deutsche Bank 1,393 5.6%
Riyad Bank 1,066 4.3%
BNP Paribas 845 3.4%
Abu Dhabi Investment 843 3.4%
Credit Suisse 843 3.4%
Top 10 total 18,359
Top 20 total 24,884
Source: Dealogic
Takaful
Significant growth seen since 2000, with over $2.5 bn inannual premiums and the arrival of AIG, Prudential, Allianz,Aviva etc. and for retakaful: Hanover Re. Muchich Re..
Asset ManagementApprox. 400 sharia compliant funds now exist with over$200bn in AUM. To date, these are principally equity linkedwith some notable exceptions including a small number ofhedge funds.
JAN - SEPT 2007ISLAMIC BONDS
24,884Top 10 total0.8%210Pakistan1.2%300Qatar3.1%775Kuwait
23.0%5,716Saudi Arabia
25.7%6,384UAE44.9%11,184Malaysia
MarketShare
US$ mCountry
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Reasons for Recent Growth Macro Issues
Oil prices.
Geo-political factors (?).
De-regulation in regional market.
Greater effort towards standardisation and improved standards of governance.
New markets beginning to open.
Growing understanding of the principles and that the industry is open to everyonenot just Muslims.
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Source of Islamic Jurisprudence
Islam is a complete way of life and provides guidance in the conduct of onesprivate, social, political, moral and economic affairs (including banking affairs).
The law and jurisprudence that governs the complete way of life is known as
Sharia.
Shari'a is derived from two primary sources of knowledge, the Quran and theProphet Muhammads (PBUH) Sunnah.
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Principles of Islamic Banking and Finance
One of the bedrock requirements of Islamic Banking and Finance is the prohibitionof Riba and Gharar.
Riba means usurious practice; the modern financial process is considered Riba.
Gharar is defined as uncertainty and ambiguity that will lead to deceitful actions.
Islamic banking is not about lender-borrower relationship.
Islamic banking gets into 3 types of contracts
-
Trade based (Buyer-Seller relationship)- Rental based (Lessor- Lessee relationship)
- Equity based (Partnership relationship)
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Singapore in the Big Picture
What are the intentions and aspirations of Singapore ?
Ability
Prowess
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Products
Murabaha
Ijara
Istisna
Salam
Musharaka
Mudaraba
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Murabaha
Sale between two parties
Cost plus disclosed profit
Payment can be immediate or deferred
Constituents of Murabaha
Seller
Buyer
Original Price
Sale Price
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Murabaha Contd.
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Murabaha Contd.
Stage IIIDisposal of Asset
Stage IAcqusition of Asset
Stage IISale of Asset
Bank
OriginalVendor of
Assets
AssetSale of Asset at
Cost + Profit
Bank
Customer
Asset
Customer
Trader ofAsset
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Istisna
Istisna means contract for works.
Simply said, one party buys goods that the other party undertakes tomanufacture according to specifications.
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Istisna Contd.
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Istisna Contd.
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Some Differentiating Factors
Main factors:
Structure
Fatwa from a Sharia Board/Scholars
Documentation
Maintaining memo records of various assets
Physical delivery of asset manifested through transfer of ownershipdocuments
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Latest Tax Incentives
Enhancement of Financial Sector Incentive (FSI) Schemes
To give a 5% concessionary tax rate on income derived fromperforming Sharia compliant activities relating to lending, fundmanagement and other investment advisory.
The incentive is for 5 years.
Qualifying debt securities (QDS) scheme.
Islamic bonds or sukuks, subject to the condition that any amount
payable by the issuer to the investors of sukuks is not deductibleagainst any income of the issuer accruing in or derived fromSingapore, and the proceeds from the issuance are used outsideSingapore.
5 years.
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Day to Day Challenges
Sharia Scholars
Regulatory
Operations
Risk Management
Documentation
IT
Accounting
Compliance
New Customers
The Monetization Process
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Thank You