What is Islamic Finance?

Islamic Finance and Banking 101

First Published Date : November 24, 2010 ADawnJournal.com

When we think of banking, we think of the United States, Europe and Japan, along with China, as examples of what banking is. However, in the Islamic world, there is a term called Islamic finance, or Islamic banking, which is very important to understand, especially to anyone doing banking work with the Middle East.

Islamic banking, or finance, refers to banking that works on the principles of Islamic law, while developing Islamic economies. Under the Sharia, which is Islamic law, the payment or even the acceptance of interest fees for loans is completely forbidden. In the 20th century, several Islamic banks have applied the principles to private and semi-private institutions within the Muslim world.

The concept of Islamic finance came about during the Islamic Golden Age, when early forms of free markets were present and a market economy was just beginning during the 8th to 12th centuries. A monetary economy was created on the expanding levels of the currency, which was very stable and highly valued.

Several concepts and techniques were applied to Islamic finance, including partnerships, limited partnerships, capital, cheques, promissory notes and bills of exchange, all of which would become commonplace in future centuries.

One concept created in Islamic finance was Riba, which means excess. This was applied to prevent excess compensation without due consideration, which we would know as high interest rates. Therefore, applying interest under Islamic finance law was not something commonly done, but there were cases where it was.

Currencies that were based on guarantees by government, or based on materials such as base metals, were allowed to have interest applied ot them.

Interest-free banking, the most common trait of Islamic finance, continued into the 20th century, however several Islamic banks saw interest as a necessary evil that could be used in a banking system based on profit and loss sharing. In the early 1970s, several Islamic institutions got involved in the concept of Islamic finance. The Conference of the Finance Ministers of Islamic Countries in 1970, a study done in Egypt in 1972, the First International Conference on Islamic Economics in 1976, the International Economic Conference in London in 1977 and more helped to determine if Islamic finance could work in the 20th century. Through all of this, the Islamic Development Bank, which is a bank that covers many Islamic governments, was created in 1975.

In the past 20 years, interest free banking has gained a lot of praise and attention, especially in Pakistan where several young Muslim economists praised it.

Egypt attempted to use Islamic banking, beginning in 1963 by forming a savings bank that was based on profit-sharing. This experiment lasted until 1967, at which point nine banks were created within Egypt.

Over the years, more and more banks opened up that worked on the concept of Islamic finance. One such bank was the Dubai Islamic Bank, which opened in 1975.

Currently, Islamic banking, or Islamic finance, is growing at roughly 10 to 15 per cent per year, and there is no sign that it is going to be slowing down. Currently, Islamic banks have more than 300 banks spread across 51 countries, including the United States. They also have an addition 250 mutual funds that work on Islamic finance concepts. Roughly $822 billion in assets are managed by Islamic finance concepts. This is about .5 per cent of the world’s total assets. Islamic finance is also the fastest growing segment of global finance in the world, and sales of Islamic bonds have risen by 24 per cent, to $25 billion, by this year alone.

According to Standard & Poor’s Rating Services, the potential market of $4 trillion existed for Islamic financing and banking.

The countries of Iran, Saudi Arabia and Malaysia are the biggest Islamic bank compliant countries on Earth, with Iranian banks accounting for 40 per cent of the total assets of the world’s top 100 Islamic banks. The Bank Melli Iran had the most assets with $45.5 billion, followed by Al Rajhi in Saudi Arabia with $39.7 billion. Iran also has the most Islamic finance assets valued at roughy $235.3 billion.

So, how does Islamic banking work if there is no interest? Since that is where many banks make most of their money. In an Islamic mortgage, instead of loaning money to the homebuyer to buy the house, a bank will buy the item itself from the home seller, and then re-sell it to the buyer at a profit. The buyer can pay in installments, however the bank cannot make profit explicitly, otherwise it will face fines, so it cannot have penalties for late payment. In order to make sure that the buyer does not default on the transaction, a Murabaha arrangement is made, which is similar to real estate leasing.

Some banks will use a Musharaka al-Mutanaqisa approach, which involves a floating rate which works like a rental. The bank and individual borrowing will form a partnership, with both putting in capital and agreeing on a percentage for buying the property. The partnership rents out the property to the borrower, and the borrower is charged rent. While this is happening, the borrower slowly buys the bank’s portion of the property from them over agreed payments over a set period of time until the partnership ends.

As would be expected, Islamic banking does not just forbid the use of interest, but also works on other principles of Islam. Islamic banking restricts transactions that involve pork, gambling and alcohol as well. This makes it a form of ethical investing, which makes it very popular with some Western World investors. Islamic finance and banking is sometimes called a full-reserve banking method, where banks have a 100 per cent reserve ratio, at least in theory.

Islamic finance is a unique concept that is very popular in the Muslim world, and could become popular here as more banks use the methods of Islamic banking to help people get loans that are easier to repay, meaning the risk of default is less.

Singapore Airlines Business Class Lounge Review

SilverKris Lounge | Singapore Changi Airport Terminal 3

I was worried about the short layover time at Singapore, but security and other formalities went through so fast that I still had a little bit of time to check out SilverKris Lounge.

SilverKris Business Class Lounge is also used by Star Alliance partners and located one floor above the departure hall. This was a huge lounge and in addition I found there were sofas or chairs everywhere.

Also, I saw lots of high chairs at the buffet counters and there were also dining tables and chairs in the dining area. I saw some long sofas as well that possibly could be used to lie down and take a mini nap.

The food section had an extensive selection of foods and desserts. If I had time, I would go nuts trying all these foods.

I will name a few of the items: Snapper with honey ginger, pasta, sweet curried potato, braised noodles, braised beef, a variety of curry, a variety of pre-made sandwiches, Mee siam, Dau suan, Siu mai, lots of seafoods, a variety of salads, fruits, cakes, yogurts, and much more.

However, my short time there made it impossible to try anything. I only had time to walk around and look at everything there.

The best part was the shower facility. I went into one just to see how it looked. Each shower room was like a private bathroom with a standing shower on one side and a basin on the other side. It looked like a small Hilton hotel bathroom, but without the toilet.

They even had mini soap, shampoo, a disposable razor, a comb, and lotion like you find at hotels. The SilverKris Business Class Lounge had one of the best shower facilities I have seen at airport lounges.

Although quite big, I found the SilverKris Business Class Lounge crowded. But it would definitely be a good choice if you want to sample lots of food and take a nice shower.

What is Islamic Finance?

Islamic Finance and Banking 101

First Published Date : November 24, 2010 ADawnJournal.com

When we think of banking, we think of the United States, Europe and Japan, along with China, as examples of what banking is. However, in the Islamic world, there is a term called Islamic finance, or Islamic banking, which is very important to understand, especially to anyone doing banking work with the Middle East.

Islamic banking, or finance, refers to banking that works on the principles of Islamic law, while developing Islamic economies. Under the Sharia, which is Islamic law, the payment or even the acceptance of interest fees for loans is completely forbidden. In the 20th century, several Islamic banks have applied the principles to private and semi-private institutions within the Muslim world.

The concept of Islamic finance came about during the Islamic Golden Age, when early forms of free markets were present and a market economy was just beginning during the 8th to 12th centuries. A monetary economy was created on the expanding levels of the currency, which was very stable and highly valued.

Several concepts and techniques were applied to Islamic finance, including partnerships, limited partnerships, capital, cheques, promissory notes and bills of exchange, all of which would become commonplace in future centuries.

One concept created in Islamic finance was Riba, which means excess. This was applied to prevent excess compensation without due consideration, which we would know as high interest rates. Therefore, applying interest under Islamic finance law was not something commonly done, but there were cases where it was.

Currencies that were based on guarantees by government, or based on materials such as base metals, were allowed to have interest applied ot them.

Interest-free banking, the most common trait of Islamic finance, continued into the 20th century, however several Islamic banks saw interest as a necessary evil that could be used in a banking system based on profit and loss sharing. In the early 1970s, several Islamic institutions got involved in the concept of Islamic finance. The Conference of the Finance Ministers of Islamic Countries in 1970, a study done in Egypt in 1972, the First International Conference on Islamic Economics in 1976, the International Economic Conference in London in 1977 and more helped to determine if Islamic finance could work in the 20th century. Through all of this, the Islamic Development Bank, which is a bank that covers many Islamic governments, was created in 1975.

In the past 20 years, interest free banking has gained a lot of praise and attention, especially in Pakistan where several young Muslim economists praised it.

Egypt attempted to use Islamic banking, beginning in 1963 by forming a savings bank that was based on profit-sharing. This experiment lasted until 1967, at which point nine banks were created within Egypt.

Over the years, more and more banks opened up that worked on the concept of Islamic finance. One such bank was the Dubai Islamic Bank, which opened in 1975.

Currently, Islamic banking, or Islamic finance, is growing at roughly 10 to 15 per cent per year, and there is no sign that it is going to be slowing down. Currently, Islamic banks have more than 300 banks spread across 51 countries, including the United States. They also have an addition 250 mutual funds that work on Islamic finance concepts. Roughly $822 billion in assets are managed by Islamic finance concepts. This is about .5 per cent of the world’s total assets. Islamic finance is also the fastest growing segment of global finance in the world, and sales of Islamic bonds have risen by 24 per cent, to $25 billion, by this year alone.

According to Standard & Poor’s Rating Services, the potential market of $4 trillion existed for Islamic financing and banking.

The countries of Iran, Saudi Arabia and Malaysia are the biggest Islamic bank compliant countries on Earth, with Iranian banks accounting for 40 per cent of the total assets of the world’s top 100 Islamic banks. The Bank Melli Iran had the most assets with $45.5 billion, followed by Al Rajhi in Saudi Arabia with $39.7 billion. Iran also has the most Islamic finance assets valued at roughy $235.3 billion.

So, how does Islamic banking work if there is no interest? Since that is where many banks make most of their money. In an Islamic mortgage, instead of loaning money to the homebuyer to buy the house, a bank will buy the item itself from the home seller, and then re-sell it to the buyer at a profit. The buyer can pay in installments, however the bank cannot make profit explicitly, otherwise it will face fines, so it cannot have penalties for late payment. In order to make sure that the buyer does not default on the transaction, a Murabaha arrangement is made, which is similar to real estate leasing.

Some banks will use a Musharaka al-Mutanaqisa approach, which involves a floating rate which works like a rental. The bank and individual borrowing will form a partnership, with both putting in capital and agreeing on a percentage for buying the property. The partnership rents out the property to the borrower, and the borrower is charged rent. While this is happening, the borrower slowly buys the bank’s portion of the property from them over agreed payments over a set period of time until the partnership ends.

As would be expected, Islamic banking does not just forbid the use of interest, but also works on other principles of Islam. Islamic banking restricts transactions that involve pork, gambling and alcohol as well. This makes it a form of ethical investing, which makes it very popular with some Western World investors. Islamic finance and banking is sometimes called a full-reserve banking method, where banks have a 100 per cent reserve ratio, at least in theory.

Islamic finance is a unique concept that is very popular in the Muslim world, and could become popular here as more banks use the methods of Islamic banking to help people get loans that are easier to repay, meaning the risk of default is less.

The Improving Highway Infrastructure of India

India’s New Highways

First Published Date : November 29, 2010 ADawnJournal.com

India is a nation that is growing quickly, but one of the main problems with it is the fact that it has some very poor highways. These highways have been made haphazardly for many years and that has led to very unsafe roads. That leads to many companies to worry about investing in India because if they do not have a proper infrastructure, then they may not be able to handle the immense traffic going in and out of the country. As a result, the country has implemented the National Highways Development Project as a way to upgrade, improve and widen the major highways in India to meet the standards of the developed world.

The project began in 1998 when the national highways of the country accounted for only two per cent of the roads but carried 40 per cent of the traffic. Currently, the project is managed by the national Highways Authority and as of 2010, the department has put $100 billion into the project.

The overall project to improve the road of India, making it easy to trade with other countries and improve its standing with investors in developed countries, has several phases.

The first phase is connecting the Golden Quadrilateral, running 5,796 km, with the four major cities of Delhi, Chennai, Kolkata and Mumbai. The total cost of the project is $6.8 billion, funded mostly by the government and their oil production tax. Currently, the phase is near completion.

The second phase is to connect the four points of the country, the east, west, north and south. This project will run 7,300 kilometers, effectively connecting the outreaches of the country. Currently, roughly 50 per cent of the project is complete, costing $10 billion so far.

The third phase is to upgrade the 12,000 kilometers of the national highways in the country, connecting all the major cities. Currently, only 2,000 kilometers have been completed.

The fourth phase is to widen roughly 20,000 kilometers of road that are not part of the first three phases. This phase has not been started yet.

The fifth phase is to upgrade four lane highways to six lane highways, comprising about 5,000 kilometers of roads. This phase has not been started yet.

The sixth phase is to connect commercial and industrial towns with expressways, This comprises several hundreds of kilometres.

The seventh phase will add ring roads to help improve connectivity of national highways to major cities in the country. There are several projects being proposed in this regard.

These projects are going to help India reach a new level of development. For the country, having a great infrastructure is important because investors will look at that and decide to invest in the country. In addition, these massive building projects will help give hundreds of thousands, if not millions of people work, raising the standard of living for them and bringing many out of poverty. It is good for the country, the people and the world, as India becomes a more developed country.

The Economy of Russia

Economy of Russia 101

First Published Date : December 3, 2010

Russia is a unique country that was a superpower for one time, and may become one again depending on how things go for it in the 21st century. Currently, the economy of Russia ranks as the 12th largest economy on the planet in terms of its nominal value. When purchasing power parity is looked at, the country ranks seventh in the world in terms of economic size.

Russia has many things going for it that other countries do not, allowing it to have immense wealth. These include its abundant natural resources such as precious metals, oil, gas and coal. In addition, Russia has a rich amount of agriculture, allowing it to supply the world with vast amounts of grain.

Russia went through several tough periods during the close of the Cold War and the early 1990s. During the early 1990s, when economic reforms were put in place and privatization occurred, the country went through vast changes, not all for the good. Currently, the private sector does not have as much freedom as in other countries and the protection of property rights is quite low.

The country has about $300 billion in exports, with its exported items including petroleum, natural gas, wood, metals, chemicals and civilian and military items. Its main exporting partners are the Netherlands, accounting for 11 per cent of exports, while Italy, Germany, Turkey and Ukraine account for eight, six and five per cent respectively. China accounts for four per cent of exports, as does Poland. Russia imports $200 billion in goods, with its biggest imports being vehicles, machinery, plastics, medicine, iron, steel, consumer goods, meat, fruits, nuts and semi-finished metal products. Its biggest trading partners in terms of importing are Germany and China at 13 per cent, Japan and Ukraine at six per cent and the United States and Italy at four percent.

Currently, the gross domestic product of Russia is $1.229 trillion, ranking it 12th in the world, as I have stated. As of right now, the GDP growth of the country is growing by 5.2 per cent per year, putting it ahead of many industrial countries. The per capita GDP (Nominal) is $8,693, ranking the country 52nd in the world. Its PPP per capita GDP is $14,919, also ranking 52nd in the world.

Following the turmoil that came about at the end of the Cold War, the country began to stabilize under the leadership of Vladimir Putin, whose administration did a great deal to increase the economic power of the country. Under Putin’s administration, the nominal GDP of the country doubled, and the country saw immense gains in GDP growth through the 2000s, averaging six to seven per cent growth every year from 2000 onwards. By 2007 the GDP of the country exceeded that of 1990, which showed the country had finally recovered from the deep recession it went through in the 1990s following the end of the Cold War.

Industry in Russia grew by 75 per cent while Putin was in power, with investments also increasing by 125 per cent. Other areas such as agriculture and construction also jumped up greatly during those eight years. The average salary increased by eight-fold, and real incomes doubled. Consumer credit between 2000 and 2006 jumped 45 times, with the middle class of the country going from eight million to 55 million, which is an increase of seven times. On the same note, the number of people living in poverty in Russia went from 30 percent in 2000 to 14 per cent in 2008.

The economy of Russia is heavily dependent on commodities. Roughly half of all the budget revenues of the government came from custom duties and taxes put in place in the fuel and energy sector. While the level of poverty has fallen, the gap between rich and poor has increased greatly between 2000 and 2007. The income of the rich grew 14 to 17 times larger than the incomes of the poor during that period. One of the biggest revenue makers for Russia is arm sales, which have gone up to the point where Russia is now the second largest seller of weapons on the planet, with the United States ranking first.

Another area where there has been increased growth includes the IT industry, with the country ranking third behind India and China in terms of outsourcing software destinations. The space industry is also ahead of the United States, ranking second behind the European space industry.

The economy of Russia has taken a major hit during the major economic crisis felt around the world. The country has seen its revenues fall sharply during 2008 to 2010 as a result. Oil prices dropped from $140 to $40 per barrel, which the budget reserves of the country falling greatly as a result. In 2009, industrial production fell by 16 per cent, while fixed capital investment was down by 15.5 per cent. The GDP shrunk by nine per cent, but that is beginning to recover as of 2010.

Russia, which is the largest country on the planet at 17 million square kilometres, covering one-ninth of the world’s surface, also has 142 million people in it. This gives the country an immense amount of power and ability to help influence the world in an economic sense. While the country suffered during the collapse of the Soviet Union, it has risen out of that turmoil to become a world power once again.

As time goes on in the 21st century, there is a good chance we may see Russia once again become a super power, as it was in the 20th century. The country has a lot going for it with hard working people, immense natural wealth and a bevy of trading partners all along its borders. How it manages that wealth and the economic troubles it may face in the future are not certain, but that does not mean Russia will not be an economic force to be reckoned with as China and India below it all rise up as super powers, shifting the balance of power in the world from the East to the West.