PROCESS AND PROCEDURES AMIR ALFATAKH YUSOF ISLAMIC BANKING FROM - PowerPoint PPT Presentation

PROCESS AND PROCEDURES AMIR ALFATAKH YUSOF ISLAMIC BANKING FROM CONVENTIONAL TO ISLAMIC BANKING

SPEAKER PROFILE 1. Started in Conventional Banking Sales for OCBC Bank Retail, Business Banking and Corporate Banking, Kuala Lumpur Main Branch (1997-2003) 2. Grabbed opportunity to become OCBC Bank Islamic Banking Windows (IBW) Product Developer (2003-2005) 3. Led the Islamic Banking Personal Financial Services to build business (2005-2006) 4. Jumped : Kuwait Finance House (2007), ABN AMRO for IBW (2007-2008), Al-Khaliji Commercial Bank Qatar (2009-2011), AmIslamic Bank (2011-2012), Standard Chartered Saadiq (2012-2015) 5. Now Acting Country Head for IBW UOB Bank (2016-Present), recently launched IBW AMIR ALFATAKH business (July 2016) UITM, HULL (UK), IIUM 6. Committee Member of AIBIM’s Qard WG, Investment Account WG, Tawarruq WG. Industry awareness task-force for BNM. IBFIM trainer (Deposits & Financing products). 7. Maintains a free-to-use website Islamic Bankers Resource Centre (http://islamicbankers.me)

INTRODUCTION TO ISLAMIC OUTLOOK BEYOND 2017 BANKING INDUSTRY

INTRODUCTION On Par Islamic Banking to the Forefront Recent developments on For some time now, Islamic Banking has been the focus of the Shariah views or Banking world, arising from greater acceptance and faster Business Practices = on growth in the industry than the conventional space. There is par with conventional also greater awareness on the structures being offered features & global standards Ethical Banking Segment Banking, Not Religion Desire to include Islamic Banking as “Ethical Banking” Better understanding that Islamic Banking is NOT religion banking, in practice puts responsibility to especially for non-Muslim customers. It is an alternative model or Shariah Committee to re-look at infrastructure, that follows certain rules which complies with the banking rules more carefully requirements of the Shariah

THE GLOBAL ARENA The Global Profit of Islamic Banks set to TRIPLE and is in line to reach USD$1.6 trillion in Assets by 2020. Islamic Assets in 6 core markets (Qatar, Indonesia, Saudi Arabia, Malaysia, UAE, Turkey) set to show double digit growth in 2016. The YOY growth is expected to sustain at 16%-17% growth until 2020. Malaysia is expected to sustain the 2015 growth of 11% for 2016- 2017 Source: World Islamic Banking Competitiveness Report (EY2016)

OPPORTUNITIES ABOUND • Middle East Highest • North Africa Growth • South East Asia (+Malaysia) § Overseas work opportunities for Islamic Banking Specialists (4-6 years background) § Active hiring of experienced individuals esp for • Eastern Europe / Turkey Emerging short-term contracts in Middle East • Hong Kong / Singapore Markets § Consultancy work / start-ups • United Kingdom § Support Areas – Legal / Advisory / Shariah Consultancy / Operations / IT § Growth in Islamic Financial Institutions: • China Untapped § Local Islamic Banks • Western Europe § Locally Incorporated Foreign Islamic Banks Potential § Islamic Subsidiaries of Local / Foreign Banks • Russia § Development Financial Institutions (DFI) § Islamic Banking Windows of Conventional Banks § Islamic Investment Banks § Takaful Companies

GROWTH OF ISLAMIC BANKING ISLAMIC BANKING FINANCIAL BECOMING AN ISLAMIC INSTITUTIONS (MALAYSIA) BANKING HUB excluding DFI & IBW 1. Affin Islamic Bank There is an on-going push by BNM to 2. Al Rajhi Banking & Investment Corp position Malaysia as the foremost leader 3. Alliance Islamic Bank in Islamic Banking products and services: 4. AmIslamic Bank 5. Asian Finance Bank ü Clear Guidelines 6. Bank Islam ü Business-Friendly 7. Bank Muamalat 8. CIMB Islamic ü Close Supervision 9. HSBC Amanah 10. Hong Leong Islamic Bank ü SAC Oversight 11. Kuwait Finance House 12. Maybank Islamic BNM target for the industry : 40% of all 13. OCBC Al Amin Banking Assets to be booked under 14. Public Islamic Bank Islamic Banking by 2020 15. RHB Islamic Bank 16. Standard Chartered Saadiq

BUT WHY IS ISLAMIC BANKING GROWING? § Asset Backed transactions – Not overly-geared as deals are based Strong support and on real assets BNM incentives given by government to support the Push BNM vision and desired § Prudent products – the limited infrastructure range of “sophisticated” products limits the risks There is a sizeable § Financing of stable activities – real demand for Islamic Market products, based on a more economies Demand ethical & fair adoption of banking practice § Growing Confidence – removal of many contentious conventional and “old skool” Islamic Banking Shariah requirements allow practices Shariah for “compliant” activites Compliance which allows for a bigger access to investors. § Demand by Customers

11% Non-Muslims DEMAND BY THE CUSTOMERS 35% MUSLIM CUSTOMERS NON-MUSLIM CUSTOMERS 54% i. Attractive features of Islamic i. Greater awareness of Shariah Products (at par) requirements in Banking ii. Reasonable treatment for penalties ii. Comfort of being involved in on their financing Shariah-compliant businesses only iii. Fair terms and conditions = maximise iii. Good measure of fairness financial benefits iv. Prefers “simple to use” products iv. No inclination to religion, just on features and benefits FUN FACT : ON AVERAGE, NON-MUSLIMS MAKES UP TO 80% OF CUSTOMERS-BASE FOR ISLAMIC BANKING

BANK NEGARA MALAYSIA AS THE DRIVER ISLAMIC FINANCIAL SERVICES ACT BNM POLICY DOCUMENTS & 2013 (IFSA) GUIDELINES i. The Islamic Financial Services Act 2013 (IFSA) i. Since 2013 when IFSA was introduced, BNM was introduced to re-align all the existing Acts had released multiple Guidelines and governing Islamic Banking into a single Act. Concept Papers to be discussed with the industry players ii. The scope of business has been re-defined to encompass all entities offering Islamic product ii. Comments and feedback on the intended and services guidelines were received from the various industry players iii. Some contracts nature were also re-defined iii. Shariah Advisory Council (SAC) of BNM is iv. The responsibilities of all the stakeholders in also consulted before the paper is finalised. an Islamic Banking business is emphasized, especially Shariah Committee iv. The final version : Policy Documents are introduced to Banks to comply

BRIDGING THE GAP ROAD TO COMPLIANCE CONVERSION TO ISLAMIC BANKS

A conventional bank is designed to have 2 main functions i.e. CONVENTIONAL BANKING 1) Collect Deposits and 2) Give Loans. As such, income and pricing becomes important when introducing their products. STRUCTURE Under the Conventional Banking, the modus Customer Invest / Interest operandi is: Deposits Utilise Income 1. Shareholders gives capital 2. Bank receives customer deposits & invest 3. interest received are distributed TREASURY FUNCTION 4. Customer request for loans Interest Customer Interbank 5. Bank borrows interbank funds Income Lending Borrowing 6. Bank lends the funds at an interest rate 7. Customer pays interest + principal

Sources of Funds ISLAMIC BANKING Distribution of STRUCTURE Income (less Pool of Funds Expenses) In Islamic Banks, while income and pricing remains important, there is also consideration on why a product is launched and the impact it has on customers. Not all fees can be charged, and not all features can be used in Islamic Banking. The Islamic Banking Model itself is not a standalone Income from Application of Activities Funds arrangement. Islamic Banking Contracts THE MOST SUITABLE APPLICATION IS THE MUDHARABAH There is linkage between Sources and Application of Funds SHARIAH REVIEW & TREASURY OPERATIONS LEGAL SHARIAH COMMITTEE AUDIT • Manage liquidity end to • Detailed workstream • Contractual Relationships • Execution of documents • Deliberation of New end Products & Issues • Commodity Desk • Aqad & Transactional • Completion of Aqad • Invest in compliant Documents • Decisions on SNC Events • Sequencing & Aqad • Shariah Non-Compliant instruments Completion • Islamic Terms & Events • Approval of Products, • Manage cost of funds Conditions Processes, Structures

CONVERSION TYPES Windows Subsidiary Full Fledged Inf Infrastr structur ucture : Conventional Infrastr Inf structur ucture : Islamic Infrastr Inf structur ucture : Islamic Bank Bank Subsidiary leveraged on De Descr scrip iptio tion : Islamic Banking Conventional Bank (parent) Descr De scrip iptio tion : Islamic Banking products offered via Islamic products offered via De Descr scrip iptio tion : Islamic Banking Banking channels Conventional Banking channels products offered via Advanta Ad ntage : Standalone Conventional Banking channels Ad Advanta ntage : Low cost, existing Management & Banking & Standalone Branches infrastructure Infrastructure. Ad Advanta ntage : Medium cost, Disa Disadvanta ntage : Dependent on Disadvanta Disa ntage : High Operating existing infrastructure. Conventional Bank costs Independent Management Con Conver version on Compl Complexity : Low. Conver Con version on Compl Complexity : Medium Disa Disadvanta ntage : High cost to set up Islamic Branches Con Conver version on Compl Complexity : High