#Sharia compliant lending plus

The purchaser occupies the whole property, and pays rent to the bank on the bankвЂ™s share of the property. It involves the purchaser and the bank buying the property jointly. The most common structure used by Islamic banks in the UK is known in tax law (ITA 2007 s 564D and CTA 2009В s 504) as diminishing shared ownership. Shariah scholars allow transactions to have similar economics to debt, provided they do not involve borrowing money or paying interest. Accordingly, alternative acquisition structures have been developed which comply with the rules of Islam as interpreted by Shariah scholars, but which do not involve the payment of interest to the finance provider. However, many Muslims consider that Islam prohibits receiving or paying interest. His work has been featured in The Times, the Guardian, Prospect Magazine, the Financial Times and Quartz.The purchase of real estate, whether a principal private residence or an investment property, is normally funded in part by equity provided by the purchaser, and in part by interest bearing debt provided by a bank or other financial institution. ДЄuthor: Tomas Hirst is editorial director and co-founder of Pieria magazineВ and was previously commissioning editor, digital content at the World Economic Forum. To keep up with the Agenda subscribeвЂ‚toвЂ‚ourвЂ‚weeklyвЂ‚newsletter. How blended finance can help sustainable developmentДЇorum report: Future of Financial Services There is good news, however: if these are achieved, Islamic finance should continue its strong growth of recent years and the profit gapВ with conventional banking should narrow, if not disappear altogether.ДҐ ways technology is transforming finance These include managing liquidity risk and dealing with the complexity of transactions and corporate structures required for Sukuk issuance. The IMF also warns of the need to ensure an appropriateВ regulatory regime surrounding these nascent institutions due to the risks related toВ the business model. The bad news is that these will be difficult barriers to overcome, that will require вЂњdepoliticizing вЂ¦ Islamic financeвЂќ and overcoming the вЂњdeep distrust of the banking sectorвЂќ. Average return on equity in leading Islamic finance banks between 20 was 11.9%, against a 14.5% return from traditional banks.Д®&Y puts the gap down to legacy cost structures within participating banks, rather than the inherent lower profitability of these types of businesses. Unfortunately, while the industry is gaining ground, its profitability has so far lagged behind that of comparable conventional banking institutions. However, its double-digit growth is comfortably outpacing that of conventional banking and it is increasing its reach with Sukuk issuance having taken place in Africa, South Asia and Europe. Of that, Gulf Cooperation Council (GCC) countriesВ account for around $517 billion, ASEAN countries for $160 billion and South Asia for $23 billion with the rest of the world (especiallyВ Turkey) making up the remaining $78 billion.ДЄlthough the pace of growth has been impressive, the share of Islamic financial assets remains only a small fraction of global financial assets (less than 1%). Below are the year-on-year growth rates of assets (in local currency terms) of conventional banking v Islamic finance between 2009-2013 (via E&Y):ДЄccording to Ernst & Young, total Islamic finance assets of commercial banks rose 17% between 20, hitting $778 billion. Indeed, some of the countries outside the GCC are experiencing the fastest growth. That said, the model is also making headway in countries such as Malaysia, Indonesia, Turkey and Pakistan. The most significant players remainВ the GCC countries, which account for the vast majority of assets.

#Sharia compliant lending plus

Equally, while conventional bonds reflect a commitment by the borrower to repay the principle amount plus an agreed interest rate, Sukuk are structured so that the returns are linked to the underlying asset, with the lender receiving a claim on the asset in return (rather like asset-backed securities). Unlike traditional banks, Islamic banksвЂ™ funding comes from deposits (on which they pay no interest) and profit-sharing investment accounts with a return decided by the bankвЂ™s profit. Between them they account for around 95% of the $1.8 trillion worth of Islamic finance assets (end 2013). The two most important parts of the Islamic finance world are banking services and the Sukuk market вЂ“В the Islamic equivalent of the bond market. In practice, this means that common investing techniques such as short selling (betting against a security) are banned and all transactions must demonstrate a real economic purpose. According to the IMFвЂ™s definition, Sharia does not allow the payment or receipt of interest ( riba), gambling ( maysir) or excessive uncertainty ( gharar). Islamic finance is the provision of financial services that are compliant with Sharia law.