Warren Edwardes Introduction to Islamic Banking & Finance Institute of Islamic Banking & Insurance London, 19 April 2004 1/27 An Introduction to Islamic Banking and Finance The history, role and future of Islamic Banking Warren Edwardes, ceo, Delphi Risk Management Ltd • Presentation to The Financial Services and Banking Department of the Dubai Men's College • at The Institute of Islamic Banking & Insurance • London, 19th April 2004 • Full article on: http://dc3.co.uk/islamicbanking.htm • Islamic banking news: http:// dc3.co.uk/ibnews
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An Introduction to Islamic Banking and Finance The history, role and future of Islamic Banking
An Introduction to Islamic Banking and Finance The history, role and future of Islamic Banking. Warren Edwardes, ceo, Delphi Risk Management Ltd Presentation to The Financial Services and Banking Department of the Dubai Men's College at The Institute of Islamic Banking & Insurance - PowerPoint PPT Presentation
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Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
1/27
An Introduction to Islamic Banking and Finance The history, role and future of Islamic Banking
Warren Edwardes, ceo, Delphi Risk Management Ltd• Presentation to The Financial Services and Banking
Department of the Dubai Men's College • at The Institute of Islamic Banking & Insurance• London, 19th April 2004• Full article on: http://dc3.co.uk/islamicbanking.htm• Islamic banking news: http:// dc3.co.uk/ibnews
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
2/27
QuotesHappy the man who far from schemes of
business, like the early generations of mankind, ploughs and ploughs again his ancestral land with oxen of his own breeding, with no yoke of usury on his neck.
Roman philosopher, Horace
Julius Caesar limited interest to 8 1/3 %
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
3/27
QuotesNeither a borrower nor a lender be; For loan oft
loses both itself and friend and borrowing dulls the edge of husbandry.
Shakespeare’s «hamlet», a Danish father advising his son
UK usury laws on excessive interest abolished in 1854
South Africa and US (except Virginia and Delaware) have usury laws
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
4/27
QuotesThose who devour usury will not stand except
as stands one whom the evil one by his touch hath driven to madness. That is because they say: "trade is like usury but Allah hath permitted trade and forbidden usury.”
The Koran: Surah 2, verse 275
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
5/27
Latin Jargon used by lawyers
• In haec verba
– Verbatim
• nunc pro tunc
– Retroactive
• Caveat emptor
– Let the buyer beware
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
6/27
Greek Jargon used by derivatives dealers
• Delta
– Sensitivity of an option price to changes in the price of the underlying equity
• Theta
– Sensitivity of an option price to changes in time
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
7/27
Arabic Jargon used by Islamic bankers
• Alwadiah
– Safe keeping
• Baimuajjal
– Deferred-payment sale
• Baisalam
– Pre-paid purchase
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
8/27
Jargon Arabic - used by Islamic bankers
• Ijara
– Leasing
• Muqarada
– Mudaraba
• Mudaraba
– Profit-sharing
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
9/27
Jargon Arabic - used by Islamic bankers
• Murabaha or Shirka
– Cost-plus or mark-up
• Musharaka
– Equity participation
• Qard Hasan
– Benevolent loan (interest free)
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
10/27
Overview
• Hallal vs. Haram
– Not just about Hallal mutton curry but also about a way of life
– This is including finance
• Interest, usury, riba used interchangeably
• Essentially three dimensions of Islamic products1. Riba free - Profits and loss sharing PLS
2. Riba free - Mark up
3. Ethical dimension
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
11/27
Overview – Profit & Loss Sharing• Profit & Loss Sharing
– basically, no pain no gain
• Venture capital, non-recourse project finance, equity investment vs lending
• US / UK banking vs German, Japanese, Spanish banking
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004
12/27
Overview - Markup
• Mark up - predetermined profit.– Predominates 87% Pakistan, 63% Iran– Investors’ risk aversion– Borrowers’ protection of equity interests
• Tax similarities - interest versus capital gains tax• Interpretations change
– Treasury bills, foreign exchange, zero coupons, circular transactions.
• Various jurisdictions / opinions– Gulf, Malaysia, London
Warren Edwardes
Introduction to Islamic Banking & Finance
Institute of Islamic Banking & Insurance London, 19 April 2004