ISLAMIC BANKING PRODUCTS & OPERATIONS Jeroen

Transcript:ISLAMIC BANKING PRODUCTS & OPERATIONS Jeroen:
ISLAMIC BANKING PRODUCTS & OPERATIONS Jeroen P.M.M. Thijs Chief Risk Officer, Bank Islam Malaysia Berhad Islamic Finance: Structure and Instruments 26 – 30 September 2011 Ankara, Turkey KEY OBJECTIVES/ DELIVERABLES Fiduciary duties in Islamic banking transaction Normal Corporate Governance Shariah Governance Governance - An illustration To safeguard interest of Investment Account Holders (IAH) – profit sharing contracts IBI’s fiduciary responsibilities in protecting depositors (profit sharing investment account) Sound investment & financing strategies – to align with IAH risk & return expectations Proper disclosure & transparency To manage risks associated with Mudarabah (profit-sharing) & Musharakah (partnership) contracts : equity-based transactions Board to ensure IBIs have sufficient expertise & capability Allow appointment of Board representatives on entities involved in such transactions as monitoring mechanism Establishment of dedicated oversight function e.g. in-house property development/ research department for property investment & development activities Assets Liabilities Ensures compliance with Shariah rules & principles Strict compliance with corporate & Shariah governance promotes financial stability… GOVERNANCE FUNDAMENTAL PRODUCT OFFERINGS : CONVENTIONAL VS ISLAMIC PRODUCT OFFERINGS : CONVENTIONAL VS ISLAMIC “… Islamic financial instruments may look like a mirror picture of conventional ones, however , its underlying features, contractual relationships, mechanisms and implications are not identical.” KEY DIFFERENCES – CONVENTIONAL VS ISLAMIC MAJOR SOURCES & APPLCATIONS OF FUNDS Shareholders’ Fund Other Assets “… An ideal Islamic financial institution is reflected through its balance sheet structure that is purely based on profit–and-loss sharing contracts (mudarabah and musharakah) on both assets and liabilities side.” ISLAMIC BANKING OPERATION IN A NUTSHELL Sources of funds Non-mudharabah deposits Mudarabah deposits Shareholders’ Fund Application of funds General Pool Specific account I Specific account II Profit    Distribution of profit Depositors Bank Depositors or Marketing & Promotion Infrastructure (Branch, IT, Risk, Staff, etc) TYPES OF ISLAMIC BANKING DEPOSITS ISLAMIC DEPOSIT VS CONVENTIONAL DEPOSIT Depositor 3a 3b Profit distributed based on PSR X:Y Doted line indicates flow of funds Invests the funds in specific asset Deposits RM XX Specified Asset Profit Generates profit/ incurs loss 1 2 Loss Loss solely borne by depositor/ IAH 3 PROFIT SHARING INVESTMENT ACCOUNT NATURE OF PROFIT SHARING INVESTMENT ACCOUNT (PSIA) Deposit accepted based on Mudarabah contract Two types of PSIA: GIA – the funds utilized in unspecific investment (unrestricted investment) SIA – the funds utilized in specific investment (restricted investment) Characteristic of PSIA: Capital amount of PSIA is not guaranteed Islamic bank as a fund manager while PSIA