Islamic banks never invest in pork, alcohol and tobacco

Russia’s Finance Ministry is working on legal acts to sign an unusual investment agreement with the United Arab Emirates. Mutual investments will avoid taxation, whereas the Arabs will not have their profit taxed. However, the documents encourage only state-run corporations and funds.

The agreement between the government of the Russian Federation and the UAE “About taxation of the income from the investments of the contracting states and their financial and investment institutions” was signed in Abu-Dhabi on December 7, 2011. However, the information about the document has become available only recently.

Chechen President Ramzan Kadyrov visited Abu Dhabi, the largest and the most financially powerful emirate of the country, in November 2011. In February, Kadyrov had a meeting with the sheikhs of the UAE to discuss opportunities of Arab investments in the development of Chechnya. In February 2011, Russian Prime Minister Vladimir Putin ordered the Finance Ministry to prepare such an agreement, The Kommersant reports.

In accordance with the document, tax privileges will be guaranteed only to state economic agents of the two countries. The agreement indicated central banks and state-run pension funds, as well as central and regional governments and the organizations that they control. As for the UAE, it goes about the Investment Administration of Abu Dhabi and the Emirate Investment Administration.

The agreement stipulates income tax privileges in Russia, zero tax rates for dividend, percentage and income from the sale of property (save for real estate) and derivative instruments. Russian state-run companies will have guarantees of special terms for taxes on corporations and income in the UAE.

The signed agreement takes account of the laws of both countries. In particular, the Russian Finance Ministry supposedly could not sign the standard agreement to avoid double taxation because of the actual presence of the UAE on the Russian lists of offshores. That’s why a special format for Arab partners was elaborated.

The agreement also takes account of the peculiarities of the so-called Islamic funding and Islamic bank system. The Islamic system does not practice the use of the borrowing rate of interest. Nevertheless, Islamic banks make money as they receive some sort of a bonus from borrowers. This bonus is not predetermined, whereas a client is not supposed to grant bail either. However, Islamic banks are very scrupulous when it comes to choosing borrowers. Unlike in the rest of the world, Shariah financiers will not work with speculative securities, such as futures and options – they do not buy and sell the rights for the parts of the future harvest and yet-unexctracted resources.

The norms of the Islamic banking do not allow any investments in the companies that deal with the production and sales of pork, alcohol and tobacco. Investments in the entertainment sector and financial structures that work on the basis of the borrowing rate of interest are banned too. Most investments are wired via the sovereign investment funds of the monarchies of the Persian Gulf.

The UAE delegation that visited Chechnya last year set the basic directions for Arab investments in the Russian region. The Arabs plan to invest in real estate and agriculture.

Vladimir Shabanov

Islamic priority banking launched in Pakistan

Dubai Islamic Bank Pakistan (DIBP) has launched the country’s first Islamic priority banking solution, offering customers ’a gateway to an exquisite banking experience’

A statement from the bank said DIBP’s specially designed priority lounges will provide its customers with a hassle-free banking experience with its dedicated relationship managers. Dubai Islamic Bank Pakistan is offering both a Priority and Platinum Banking solution.

Dubai Lounge Priority Banking caters to the affluent segment, offering a variety of privileges including fee based waivers, VISA Gold Card, access to VIP airport lounges in Pakistan and a higher cash withdrawal limit.

Dubai Lounge Platinum Banking aims to be a symbol of exclusivity and unmatched benefits, providing high net worth customers with a varity of premium services including Pakistan’s First Islamic Platinum Debit Card. A complimentary Priority Pass service for Platinum customers offers access to over 600 VIP airport lounges globally.

Islamic finance in the Middle East: Progress despite confusion and lack of information

Islamic finance in the Middle East: Progress despite confusion and lack of information

Estimates vary of the size and growth rates of assets held internationally under Islamic finance, but suggest that Islamic finance is a rapidly growing industry. While it represents a small proportion of the global finance market (estimated at 1%- 5% of global share), the Islamic finance industry has experienced double-digit rates of growth annually in recent years (estimated at 10%- 20% annual growth). Industry experts estimate that assets held under Islamic finance management doubled between 2007 and 2010 to reach around $1 trillion.

Islamic Banking: Developed by Indians, flourishing in other countries

A professional researcher on India-centric socio economic and political databases Shafeeq Rahman while stating that the core system of the interest-free banking, widely termed as the Islamic Banking System, is developed by economists of the Indian subcontinent expressed surprise over the fact that the region has gained nothing from it.

“The conceptual framework of Islamic banking is mainly developed by the Islamic economists of the Indian subcontinent; in particular, the complete non-interest banking module was developed for the first time in 1969 by Nejatullah Siddiqi though the business of Islamic banking flourished in West Asian countries, Iran, Malaysia and Indonesia”, Shafeeque Rahman wrote in a recent article published in Tehelka.

Mohammad Nejatullah Siddiqui is a leading Indian Islamic scholar, whose specialisation is Islamic Economics. Author of numerous books and a recipient of the King Faisal Award for Islamic Studies, he has taught at the Aligarh Muslim University (AMU) and the King Abdul Aziz University, Jeddah. He was a Fellow at the University of California, Los Angeles and Vesting Scholar at the Islamic Development Bank (IDB) Jeddah.

Stating that Islamic Banking is now fast spreading its wings to other parts of the world, Shafeeque Rahman wrote, “The client network is now expanding beyond the conventional Muslim countries to European and other non-Muslim territories. In UK, it is estimated that $18.4 billion business was done by the end of 2008. According to newest Global Islamic Finance Report 2011, the Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent. It was worth a mere $150 billion in the mid-1990s.”

“Apart from Islamic banks, mainstream banks and financial institutions are opening Islamic product windows to woo Muslim consumers. For instance, HSBC has HSBC Amanah for its Islamic financial services. The governments of Iran, Pakistan and Indonesia have officially adapted to Islamic policies to run their banking and finance structure. And due to its cosmopolitan society, Malaysia follows the parallel Islamic system alongside conventional banking”, he wrote.

Shafeeque Rahman further wrote, “Banking without interest is a long term demand from Indian Muslims that has not been fulfilled so far due to the existing statutory and regulatory framework of Indian banking, which does not allow such an alternate system. Besides interest, a key point of contradiction is that conventional banks in India facilitate only intermediary services while banks have to be involved in trading and business activities in the Islamic banking system. Indian Muslims have seen several unsuccessful experiments in the unorganised sector and through the registration of NBFCS and cooperatives but the lack of government regulatory supervision has led to the failure of major interest-free banking initiatives.”

“The non-availability of an interest-free banking option has distanced many Muslims from banking products and services. The Reserve Bank of India (RBI) data report for March 2010 indicates that banking participation in Muslim- concentrated districts is below the national average. They lack in banking access, infrastructure availability and low credit-deposit (CD) ratio”, he wrote.

Islamic Banking believed to be an interest-free, participatory and ethical banking system, has been an emerging global paradigm of the banking system since the last quarter of the twentieth century. The essential feature of Islamic banking is the prohibition of taking and giving of interest in all form of banking and financial transaction. In place of an assured return on loan amount by the interest rate in the conventional banking system, the Islamic form of financing advocates the profit-loss sharing module. Taking a risk is the only provision that entitles one to profit, if there is no risk of loss then there is no assurance of profit to the depositor or the financer.

Insurance and Shari’a – Pakistan

Insurance and Shari’a – Pakistan

By:Humayon Dar

With the widespread availability of financing after the liberalisation of financial sector, insurance is fast becoming a necessity in Pakistan. Car financing, for example, by banks and other forms of lending by banks and other financial institutions require the borrowers to buy insurance on the items purchased through financing. While shari’a compliant financing is now widely available from the fully-fledged Islamic banks like Meezan, Dubai Islamic, Bank Islami and others and from conventional banks like Muslim Commercial Bank, Bank Al Falah etc, the same cannot be said for shari’a compliant insurance, which is still at an initial stage of development. Although there are five takaful companies operating in Pakistan, their market share in the insurance market remains insignificant.