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Islamic finance

I am a regular writer and presenter on Islamic finance. This page starts with my short glossary. The other works are listed with the newest at the top.


Glossary of Islamic finance terms
There are many Islamic finance glossaries available on the internet. I have create another due to some specific objectives about spelling and to give more detailed explanations than the typical glossary. The glossary will grow slowly as I add words to it. If there is a word you would like me to include, please let me know.

Other works

The need for more life takaful (insurance) provision
Most people have too little life insurance. This applies even more strongly in the case of Muslims. Some Muslims have religious concerns about life insurance. However there is an Islamic finance version approved by Shariah scholars, known as life takaful. While life takaful is now widely available in Malaysia and the Gulf Cooperation Council countries, I am not aware of it being available in the UK.
The time value of money in Islamic finance
People prefer money now to money later. This is known as the time value of money. Some early writers on Islamic finance appeared to believe that it required there be no time value of money. More recent academic writers generally recognise the time value of money, but then struggle to distinguish its application in Islamic finance from that in conventional finance.
A simple introduction to murabaha (purchase and resale) transactions
I have added "murabaha" to my "Glossary of Islamic finance terms." A murabaha transaction enables a bank to finance the purchase of an asset by a customer without making an interest bearing loan. This page explains how it works.
Introducing external Shariah audit requires abolishing the Shariah Supervisory Board
Islamic financial institutions are required to comply with Shariah rules. Shariah governance presently rests with the institution's Shariah Supervisory Board (SSB), which is normally appointed by the directors. There are concerns about whether the SSB is sufficiently independent or has sufficient auditing skills to give an opinion on whether the institution has complied with Shariah. Accordingly there are calls for the introduction of external Shariah audit (ESA). However, those calling for ESA have not yet addressed the implications of ESA for the SSB.
Do Muslims behave like Homo Islamicus?
Does Islamic banking meet different needs from those met by conventional banking? Not in my view. However Islamic economists envisage Islamic finance as part of a completely different economic system. Underlying Islamic economics is "Homo Islamicus" who behaves quite differently from the classical "Homo economicus." In contradiction, I do not see the economic behaviour of real Muslims as being materially different from that of real non-Muslims.
Why fixed return contracts predominate in Islamic banking
I received an interesting enquiry from a PhD student in Germany. He expected Islamic banks to primarily use profit participating contracts. He found that, in practice, fixed return contracts overwhelmingly predominate in Islamic banking. I already knew this and explained to him that fixed return contracts are used for commercial reasons. Profit participating contracts are actually very unattractive to Islamic banks, and also to their customers.
The introduction of standardised Islamic foreign exchange forwards
International business almost always gives rise to foreign exchange risk. Derivative contracts assist conventional companies to manage foreign exchange risk, but are not considered Shariah compliant. A Shariah compliant foreign exchange forward contract has now been developed. There is standard documentation which should make the contract easy to use.
Achieving Shariah compliant student finance in the UK illustrates how avoiding apathy requires realism
Many people today are apathetic. Some people are apathetic because they wrongly believe the world cannot be changed. Others wrongly believe the world can be changed easily and quickly, and give up when success is not immediate. Both wrong perceptions lead to apathy. The antidote to apathy is belief in the possibility of change combined with realism about how long it will take and how hard it will be. My experience in dealing with the UK Government on Shariah compliant student finance illustrates this quite well. I started meeting the government in 2011, and others had been involved even before that. The Prime Minister promised in October 2013 that change would happen, but I do not expect it before September 2017 at the earliest.
How should VAT systems treat Islamic finance transactions?
My article originally published in the magazine "Tax Notes International" points out that VAT systems developed in an environment of conventional finance. Particularly where one of the parties is not in business, or is carrying on an exempt or partially exempt business, Islamic finance risks incurring higher VAT costs than conventional finance. The approaches taken by four countries, South Africa, Singapore, Malaysia and the UK have some aspects in common, while other parts of their approaches differ. The article also makes some general policy recommendations.
Are UK universities mis-selling Islamic finance masters' degrees?
The two main reasons for studying a subject at university are its intrinsic interest and its value for a career. The relative weights given to these two criteria vary from person to person. Growing numbers of UK universities are offering masters' degrees in Islamic finance. However, if UK students are taking them for career enhancement, mis-selling may be taking place.
The need for Shariah compliant annuities
A growing number of people are in defined contribution pension schemes. Many Muslims in such schemes want Shariah compliant pension arrangements. There is adequate Shariah compliant provision for the investment phase of pension schemes, but not for the retirement phase. In particular Shariah compliant annuities are needed to satisfy retirees' financial requirements. Developing a market for Shariah compliant annuities will also help sukuk issuers to access longer term funds than they can at present.
Bank of England consultation on establishing Shariah compliant central bank liquidity facilities
Conventional banks can hold liquidity deposits with the Bank of England. The Bank of England also lends money to conventional banks when required. However Islamic banks are not able to use these facilities as they are not considered Shariah compliant which makes their treasury management much more difficult. The Bank of England is currently consulting on how it might offer Shariah compliant central bank facilities. I have responded to the consultation, which closes on 29 April 2016.
Don't confuse religious questions and empirical questions
Religious and empirical questions are answered by different methods. Accordingly confusing them is a serious mistake. Whether God says that money should only be gold or silver is a religious question. Whether the economy would function better by replacing fiat money with gold or silver is an empirical question. The empirical answer is clear. All advanced economies use fiat money because they run better than they did with gold as money.
Working in a large firm as an Islamic finance tax advisor
My article for "IFN Education." Islamic finance tax advisors need to be tax experts, but they also need to know about relevant other areas such as Shariah, accounting, company law and treasury management. In addition, good client service also requires strong soft skills such as listening and communicating clearly.
Should Muslims be actuaries? How misunderstandings about Islam spread.
I regularly receive requests for advice, especially about careers. This recent enquiry was from a schoolboy who was under the impression that Islam prohibited Muslims from being actuaries. In response I gave him examples of actuarial practice within Islamic finance. More generally, I stressed the essential requirement to take one's own decisions on religious matters.
Taxation Issues in Islamic Wealth Management
Wealth management is important to individuals and to the financial services industry. For all transactions the tax implications must be considered. However, tax is always country specific. Accordingly this article explains some of the generic tax issues that need consideration, and then goes on to outline how UK law deals with the transactions discussed as a guide to those who need to research similar transactions in other countries.
VAT and Islamic finance transactions
Islamic finance presents challenges for VAT systems because it requires more transactions than the conventional finance assumed by most tax systems. Consequently it can cause extra VAT costs to arise. Malaysia and South Africa have introduced specific VAT rules for Islamic finance while the UK relies upon general VAT law, which can lead to difficulties in certain situations.
Why commodity speculators are socially useful
Commodity futures markets can look irrational and chaotic, while commodity speculators are often criticised for "speculating." I explain why commodity futures markets exist, and how they assist commodity producers and commodity consumers who need to make long term plans to protect themselves from unexpected price changes. Such futures markets would not work without the liquidity provided by speculators.
The language of international Islamic finance is English
International Islamic finance is normally conducted in English. However precision and brevity often require the use of vocabulary derived from Arabic. Such imported words become part of the English language and are no longer foreign words. Accordingly they should not have transliteration signs or use Arabic grammatical formulations.
Becoming an Islamic finance columnist
Although I have been writing technical articles for 18 years, I have just become a columnist for the first time with a monthly column in the magazine "Islamic Finance News." I devoted my first column to explaining how I got involved with Islamic finance, and why I am passionate about it.
What the UK Islamic banks' 2014 accounts tell us
In 2014 all but one of the UK's Islamic banks made a profit. However return on equity is still unacceptably low for all of them. Their accounts show very different strategies and it is wrong to talk of the UK's Islamic banks as if they were a homogeneous category.
Radio interview: 15 Minute Introduction to Islamic Finance
My interview on Radio Algeria International which gives a simple introduction to Islamic finance requiring no previous knowledge. The interviewer's questions are also written out on the page.
Cross-Border Taxation of Islamic Finance in the MENA Region
An article written for the Journal of International Taxation. It was based on the report "Cross border taxation of Islamic finance in the MENA region Phase One" which I wrote as part of a research project supported by the Qatar Financial Centre Authority. The intended audience was MNC tax directors not knowledgeable about Islamic finance. My website page has the full text submitted to the magazine, which was abridged somewhat for publication due to space constraints.
Islamic Finance 2014 Accounting and Tax Developments
During 2014 the International Accounting Standards Board (IASB) finally started to give some serious attention to Islamic finance accounting. It is also a good development that the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is now providing input to the IASB on accounting. While accounting is global, tax developments are always country specific. The trend continues of countries continuing to modify their tax rules to facilitate Islamic finance.
The role of Islamic finance in Britain's international competitiveness
Government action can increase or reduce the country's international competitiveness. In practice this happens with the cumulative effect of many small decisions. The UK Government's encouragement of Islamic finance illustrates this point very well.
Islamic finance in the UK - a look backwards
Outside Muslim majority countries, the UK has been the leading pioneer of Islamic finance. However, after some major announcements in 2006 and 2007, the UK seemed to lose interest. The UK government has recently taken Islamic finance much more seriously. This culminated in the UK issuing the first sovereign sukuk outside Muslim majority countries.
The impact of the OECD's tax policy challenges on Islamic finance
The rules for taxing international business developed in an era when communications were slow and difficult. However electronic communication and fast international travel make them outmoded. Consequently Governments are losing tax revenue as businesses sell via the internet from low tax jurisdictions for example. There is a risk that the likely policy responses could impact upon Islamic finance unless great care is taken with tax law drafting.
UK Government consultation on Shariah compliant student finance
The UK has a generous government provided student loan scheme. However some Muslim students do not use it for religious reasons. In October 2014 the Prime Minister committed to providing a Shariah compliant student finance scheme. The Government is now consulting on a proposed design. The consultation closes on 12 June 2014.
Sukuk - taxation of legal form or economic substance? The role for tax incentives?
In this interview on sukuk taxation I explain that no country taxes purely on legal form or purely on economic substance. I also discuss whether there is a role for tax incentives, and point out that in practice the benefits of incentives get shared between issuers and investors.
How should indirect taxes deal with Islamic finance? - Video
This 33 minute lecture explains the main indirect taxes: transfer taxes, sales taxes and value added taxes (VAT) from first principles. I then discuss how VAT should apply to financial services generally, before considering why VAT presents particular problems for Islamic finance transactions. I also suggest some possible ways forward.
Tax Treatment of Islamic Finance in the MENA Region - video
This 27 minute lecture explains the methodology and findings of a major study on the taxation of Islamic finance in the Middle East and North Africa. As well as summarising what we found, I give recommendations for how MENA region countries should modify their direct tax systems to facilitate Islamic finance.
Should accounting firms undertake Shariah audits?
My seven minute speech outlines the roles of the Board of Directors, the internal Shariah Department, the Shariah Supervisory Board and the external auditors. I explain the role I see for the external auditors in auditing Shariah compliance, and who I believe should report to stakeholders.
A late 2013 survey of the UK Islamic finance industry
The clouds of the global financial crisis are lifting. However the UK's Islamic banks are still unprofitable and the best performer had 2012 ROE of only 2%. The announcement of a UK sukuk was the highlight of 2013 for the industry.
A tale of two banks - video
This is a 26 minute video of my lecture for the Institute of Islamic Banking and Insurance, comparing the accounts of Bank of London and the Middle East plc and Islamic Bank of Britain plc. It explains the business of banking, and shows how much can be learned by reading published accounts.
Career prospects in Islamic finance in the UK
My chapter in a report published by Simply Sharia to coincide with the World Islamic Economic Forum being held in London. I explain that there is only a limited need for Islamic finance specialists in the UK. In practice experience for these careers generally needs to be acquired in the conventional finance industry.
A UK Government sukuk at last!
The UK has been thinking about issuing a sukuk since 2007. However it has kept putting it off as not being value for money. Accordingly David Cameron pleasantly surprised many people when he announced at the World Islamic Economic Forum that he wanted the UK to go ahead with an issue. I wrote an article the same day welcoming the announcement and answering some questions from 2008 about the implications.
A simple introduction to sukuk
Prime Minister David Cameron announced at the London World Islamic Economic Forum that he wanted the UK to issue a sovereign sukuk. This has led many to ask what a sukuk is. I have written a simple explanation.
A late 2012 snapshot of the UK Islamic finance industry
My contribution to the Islamic Finance News global "2013 Guide". In my view UK Islamic finance has struggled since the global financial crisis. The UK Islamic banks were unprofitable in 2011. Figures for 2012 were awaited when I wrote. One key challenge is that the UK retail Islamic finance market is small. If conditions improve, 2013 may see new entrants to the industry.
Report on the cross-border taxation of Islamic finance in the MENA region
I am the principal author of this report published by the Qatar Financial Centre Authority and the International Tax and Investment Center. It looks at the taxation of four common Islamic finance structures: commodity murabaha, sukuk, salaam and istisna in eight MENA region countries: Egypt, Jordan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Turkey and also in the Qatar Financial Centre. The report recommends how these countries should adapt their tax systems to facilitate Islamic finance.
How can Islamic finance enter western markets?
My response to this generic question is that each country market is distinct, and thinking about western markets as a whole will lead to bad strategic decisions. Each Islamic financial institution needs to decide what markets it can enter profitably and focus on its core strengths.
Some questions about the International Islamic Liquidity Management Corporation (IILM)
The IILM was set up by several central banks from Muslim majority countries. Its aim is to issue high quality Shariah compliant instruments suitable for Islamic banks to hold for their treasury operations. To date, it has not yet issued any such instruments. I pose some questions that must be answered before such instruments are issued.
The evolution of sukuk from asset-backed to asset-based structures
People use terms such as "asset backed" and "asset based" with sukuk without being clear what they mean. After defining the terms, I point out that investors in asset based sukuk have much less protection in the event of default by the sponsor. The credit ratings agencies have been saying the same thing for many years, but few people paid attention until the financial crisis hit some of the Gulf states.
Islamic Financial Institutions and the Implications of Accounting under IFRS
Islamic finance practitioners often question whether IFRS or AAOIFI accounting standards should be used. In practice, local law rarely allows a choice. While IFRS accounting often deviates from the transaction's legal form, so does AAOIFI accounting at times. IFRS accounting can make it harder to assess whether the company's transactions are Shariah compliant.
The impact on Islamic banking of Indonesia's new rules on bank ownership
Many countries have restrictions on foreigners owning banks. These are normally a bad idea. Indonesia's new rules are quite flexible, and therefore should not do any serious harm.
A tale of two banks: a comparison of the published accounts of Islamic Bank of Britain and of Bank of London and the Middle East
I gave a lecture based upon comparing the accounts of this Islamic retail bank and this Islamic investment bank. The accounts show the differing commercial pressures these banks face.
What businesses should Islamic banks finance?
The magazine Islamic Finance News asked: "Should the Islamic finance industry be responsible for funding the global Halal sector? And if so, how should this be facilitated?" This question appears to assume that Islamic banks exist to fulfil a social purpose. In my view, they do not; their sole purpose is to make a profit for their shareholders.
Does Islamic finance need you?
Many young UK Muslims obtain Islamic finance qualifications and want a career in Islamic finance. However the supply of UK Islamic finance jobs is very limited. Moreover, the Islamic finance industry needs specialist skills, which in most cases can only be acquired within conventional finance.
Non-Malaysian companies issuing ringgit sukuk
Like many developing countries, Malaysia has exchange controls. Whether foreign companies should be allowed to issue ringgit denominated sukuk in Malaysia is purely a foreign exchange management question, not an Islamic finance question.
Islamic banks' treasury management challenges
Islamic banks face far more challenges than conventional banks. In particular, the main contracts used by Islamic banks for treasury liquidity management are sometimes frowned upon by Shariah scholars. Also there is a shortage of liquidity management instruments apart from the Shariah compliant inter-bank market.
How industry standardisation in Islamic finance could help promote cross-border transactions
Islamic finance is far less standardised than conventional finance, with little standard documentation. This increases transaction costs. The industry also needs more Shariah standards and would benefit from greater willingness to publish fatwas.
Islamic financial institutions and the shortage of investible products
A short explanation of why Islamic financial institutions are often more liquid than their conventional counterparts, and how they should address this.
Written interview on the UK retail Islamic banking scene
In response to questions from the magazine Islamic Finance News, I explain why the industry has grown so little and the competitive pressures it faces.
When do cross-border Islamic finance payments suffer withholding tax?
As tax law varies from country to country, there is no general answer to this question. However this article, first published in Islamic Finance News, explains how to think about the issues.
The Royal Bank of Scotland disaster: its lessons for Islamic finance
The Financial Services Authority has published a 452 page report "The failure of the Royal Bank of Scotland." Islamic banks are exposed to many of the risks that brought down RBS.
The choice of applicable law for Islamic finance
Students of Islamic finance often wonder why so much of it takes place under English law. An interview with Global Islamic Finance Magazine allowed me to give a brief explanation.
Accounting and tax implications of sale and leaseback
This article first published in Islamic Finance News looks at the accounting under IFRS and AAOIFI accounting standards. It also briefly considers the tax issues that can arise.
Presentation on “Taxation of Islamic finance transactions” at ITIC MENA Tax Forum, Istanbul
The slides and addtional text explain why Islamic finance transactions often suffer a higher tax burden than equivalent conventional transactions. The coverage is not specific to any one country.
Accounting for sukuk under IFRS and AAOIFI accounting standards
My chapter from a new book which uses a hypothetical example to show how the two sets of accounting standards can give very different accounting results for the same transaction.
Liquidity management at UK Islamic banks
Islamic banks face greater liquidity management challenges than conventional banks. I cover the reasons and also review the liquidity management practices of the five UK Islamic banks.
A simple introduction to Islamic mortgages
There is much misunderstanding about Islamic mortgages. Accordingly, I have explained how they work in simple terms with diagrams and illustrative numbers.
Leaked US ambassador's report on UK Islamic finance scene.
The diplomatic cable released by WikiLeaks is a fair status summary with occasional errors, and quotes many people including myself.
What is AAOIFI’s Proper Accounting Standards Role?
A review of GCC Islamic banks shows that AAOIFI's accounting standards are only followed in Bahrain and Qatar. I conclude that AAOIFI should cease issuing its own accounting standards and instead collaborate with the IASB.
The tax treatment of Islamic finance in Western countries and Muslim majority countries
This is my chapter of the book "Euromoney Encyclopedia of Islamic Finance" edited by Aly Korshid and published by Euromoney Books. My goal in writing it was to explain the different approaches to the taxation of Islamic finance taken by the UK and some Muslim majority countries.
The role of the UK as an international centre for Islamic banking and finance
This is my chapter of the book "Islamic Investment Banking: Emerging Trends, Developments and Opportunities" edited by Sohail Jaffer and published by Euromoney Books. My goal was to explain the factors that have made the UK the leading centre for international Islamic finance outside Muslim majority countries.
Islamic financial products and their challenge to taxation systems
This is my chapter of the book "The Chancellor Guide to the Legal and Shari'a Aspects of Islamic Finance" edited by Humayon Dar. It explains why the UK would tax Islamic finance transactions more heavily than conventional finance, and discusses how UK law has been revised with the goal of parity of tax treatment.
The UK Islamic banking scene
This short article looks at the figures on the five UK Islamic banks as at 31 December 2009. Only one of them is a retail bank, and I explain why retail Islamic banking has not taken off in the UK.
A review of "Islamic Commercial Law: An Analysis of Futures and Options" by Mohammed Hashim Kamali
This is my favourite book on Islamic finance, and the one I always recommend to people new to the subject who want to understand the religious background.
Why has retail Islamic banking not taken off in the UK?
I read a newspaper article which posed this question, and decided to set out my own thoughts.
How conventional insurance and takaful differ numerically
Many people who are new to Islamic finance often ask about the difference between takaful and conventional insurance. I have tried to explain this with the simplest possible example; two people who each have a house that is at risk from fire.
British Government Policy on Islamic Finance
I was asked to contribute an article on Islamic finance for the brochure being prepared by the Muslim Council of Britain's delegation to the World Islamic Economic Forum. As the audience at the WIEF would mostly come from Muslim majority countries, I decided to explain how the UK has been able to promote Islamic finance while maintaining a policy of religious neutrality.
The United Kingdom’s approach to the regulation of Islamic finance
The UK is globally recognised as the leading Western country for Islamic finance.  However from time to time proponents of Islamic finance ask me why the UK does not allow Islamic banks to offer “true” profit and loss sharing investment accounts. This item is a long answer to that short question.
Would Islamic finance have prevented the global financial crisis?
I gave a presentation on this subject to the Institute of Islamic Banking and Insurance in July 2009, and then wrote an article based on the presentation.
Are Islamic banks Islamic enough?
In one form or another, this question often crops up at conferences on Islamic finance. In my view, the answer depends upon the personal religious views of each Muslim, and I have therefore not sought to address it in any of my published writings on Islamic finance. However, the receipt by the Muslim Council of Britain of an open letter required me to address it when composing the response.
Video presentation on "Would Islamic finance have prevented the global financial crisis?"
On 6 July 2009, I gave a presentation on this subject in Australia. The video can be watched free on iTunes.
Islamic finance in Australia
I visited Australia in July 2009. Australia is an important regional financial centre, and I believe it has significant competitive advantages if it chooses to compete regionally in international Islamic finance.
Should Financial Reporting for Islamic Finance be different?-video
This short video of 2 minutes and 17 seconds addresses the question of whether we need accounting standards for Islamic finance which are distinct from the accounting standards applicable to conventional finance. The short answer is no. The video is not very "bubbly"; apart from the subject being accounting, the other reason is that I was speaking without any notes or advance preparation, so I was literally making it up as I went along! It can be watched on the website of the Institute of Islamic Banking and Insurance.
Taxation of Islamic finance - video
The CFA Institute is a body engaged in financial training. I recorded for them a 25 minute video comprising a slide presentation with me talking on "Taxation of Islamic finance."


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