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ISLAMIC FINANCE & CAPITAL MARKETS

Alliance Bank and SURI Launch Upcycling Empowerment for Langkawi’s Single Mothers

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Alliance Islamic Bank Berhad (“Alliance Islamic Bank” or the “Bank”) today announced a meaningful collaboration with SURI Inspirasi (“SURI”) to launch the MAH-SURI Lifestyle Project (“MAH-SURI”), an initiative aimed at improving the lives of underprivileged single mothers in Langkawi, by equipping them with skills to generate income.

As a community-centric organization, Alliance Bank is committed to creating a positive impact on society by supporting the sustainable development of local communities in Malaysia. This corporate giving campaign is part of Alliance Islamic Bank’s social impact strategy under its SocioBiz initiative, a Shariah-compliant social funding platform that aims to empower communities through entrepreneurship. This initiative promotes financial inclusion and investment in social good, by providing resources and knowledge to the underprivileged in our communities to help them sustain their wellbeing and livelihood for the long run.

SURI is a social enterprise that provides financial opportunity and living skills for B40 single and underprivileged mothers who struggle with financial challenges. SURI aims to improve long-term sustainability by providing struggling mothers with the opportunity to generate income through employment support programs. Under the MAH-SURI project, SURI will be expanding its operations to Langkawi to help underprivileged mothers there make a living by providing support and training in Creative Sewing Techniques, Design, and Product Development.

MAH-SURI is the embodiment of sustainability principles and the empowerment of underprivileged individuals to create a synergy that drives positive change and social elevation. At its core, this initiative seeks to uplift the livelihoods of a disadvantaged community by equipping them with skills to upcycle discarded hotel bed sheets, imbuing them with a fresh purpose and transforming them into innovative products and sustainable fashion items. Notably, this people and planet initiative stands out as Langkawi’s first locally conceived sustainable handcraft brand, which is supported by the Langkawi Development Authority.

Through this campaign, the Bank plans to raise RM70,000 in funds to procure equipment essential in enabling the project’s success such as industrial and portable sewing machines, dedicated laptops for designing purposes, and the locally engineered Flexsilk attire printing machine.

“At Alliance Islamic Bank, we are focused on enhancing the lives and societal well-being of our communities, enabling the development of sustainable livelihoods. Aligned with our goal of evolving into a bank for the community, this collaboration with SURI underscores our shared mission of alleviating the challenges of disadvantaged communities through empowerment and entrepreneurial skills, emphasizing our dedication to positive transformation. We envision the MAH-SURI initiative to nurture seeds of self-reliance and financial resilience while championing an approach founded on sustainability and environmental consciousness,” said En. Rizal IL-Ehzan Fadil Azim, Chief Executive Officer of Alliance Islamic Bank.

The MAH-SURI initiative is a pivotal component of the Bank’s sustainability efforts, in support of the United Nations’ Sustainable Development Goals 1 (No Poverty), 8 (Decent Work and Economic Growth), and 12 (Responsible Consumption and Production).

“SURI aims to erase the mindset of charitable offerings to these mothers, but instead we are geared towards income-based plans through employment support programs. As they work and earn a living, it will leave an impact of growth and personal improvement on them and their children,” said Pn. Salena Ahmad, founder of SURI.

Overall, Alliance Islamic Bank has raised approximately RM1.7 million over the past 3 years and in FY24, the Bank strives to donate RM1 million through various initiatives under the SocioBiz program as well as contributions such as The Flood Relief Assistance Programme, whereby more than RM50,000 worth of flood relief necessities were donated to over 200 households. The Bank collaborated with the Malaysian Relief Agency on this relief initiative to provide aid to those who were impacted by the flood crisis in Johor.


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ISLAMIC FINANCE & CAPITAL MARKETS

How Shariah-Compliant is Islamic Banking?

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Islamic banking has garnered significant attention globally, especially among Muslim communities seeking financial solutions that align with their faith. Rooted in Shariah law, Islamic banking aims to offer an alternative to conventional banking by adhering to principles derived from the Quran and Hadith. But how Shariah-compliant is Islamic banking in practice? This comprehensive blog post explores the core principles of Islamic banking, the mechanisms ensuring Shariah compliance, and the challenges and criticisms faced by the industry.

How Shariah-Compliant is Islamic Banking?

Core Principles of Islamic Banking

Islamic banking operates on several fundamental principles that distinguish it from conventional banking:

  1. Prohibition of Interest (Riba): The most well-known principle is the prohibition of Riba or interest. Instead of earning interest on loans, Islamic banks earn profit through equity participation, trade, leasing, or investment in Shariah-compliant projects.
  2. Risk Sharing: Islamic banking promotes risk-sharing between the bank and its clients. This is achieved through profit and loss sharing (PLS) contracts, such as Mudarabah (profit-sharing) and Musharakah (joint venture).
  3. Ethical Investments: Investments must adhere to ethical and socially responsible principles. Islamic banks cannot invest in businesses involved in activities considered haram (forbidden) such as alcohol, gambling, and pork.
  4. Asset-Backed Financing: All financial transactions must be backed by tangible assets or services, ensuring that speculative practices (Gharar) are minimized.
  5. Transparency and Fairness: Contracts and financial transactions must be transparent, fair, and agreed upon by all parties involved.

Mechanisms Ensuring Shariah Compliance

To ensure adherence to these principles, Islamic banks implement several mechanisms:

  1. Shariah Boards: Each Islamic bank typically has a Shariah board consisting of Islamic scholars and experts in Islamic finance. This board reviews and approves all financial products and services to ensure they comply with Shariah principles.
  2. Shariah Audits: Regular Shariah audits are conducted to assess and verify that the bank’s operations and transactions comply with Shariah guidelines. These audits ensure that any deviations are promptly addressed.
  3. Product Structuring: Financial products are carefully structured to align with Shariah principles. Common products include:
    • Murabaha: A cost-plus-profit financing structure used for purchasing goods.
    • Ijara: Leasing agreements where the bank buys and leases out assets to clients.
    • Sukuk: Islamic bonds representing ownership in a tangible asset or a pool of assets.
    • Takaful: Islamic insurance based on mutual assistance and shared responsibility.
  4. Continuous Education and Training: Islamic banks invest in educating their staff and clients about Shariah principles and the importance of compliance. This helps maintain a high standard of Shariah adherence across all operations.

Challenges and Criticisms

Despite these mechanisms, Islamic banking faces several challenges and criticisms regarding its Shariah compliance:

  1. Standardization: There is no universal standard for Shariah compliance, leading to variations in interpretations and practices across different regions and institutions. This lack of standardization can create confusion and inconsistencies.
  2. Replicating Conventional Products: Some critics argue that certain Islamic banking products are merely replications of conventional banking products with minor modifications to appear Shariah-compliant. This raises questions about the authenticity of these products.
  3. Limited Shariah Expertise: There is a shortage of qualified Shariah scholars with expertise in both Islamic jurisprudence and modern finance. This scarcity can hinder the development and approval of innovative Sharia-compliant products.
  4. Operational Costs: Ensuring Shariah compliance can be costly due to the need for Shariah boards, audits, and continuous education. These costs can make Islamic banking products more expensive than their conventional counterparts.
  5. Market Perception: Some potential customers remain skeptical about the genuineness of Islamic banking, questioning whether it truly adheres to Shariah principles or if it’s merely a marketing strategy.

To address these challenges and enhance Shariah compliance, several measures can be taken:

  1. Developing Universal Standards: Efforts should be made to develop and adopt universal standards for Shariah compliance. Organizations like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are working towards this goal.
  2. Enhancing Shariah Governance: Strengthening Shariah governance frameworks and increasing the number of qualified Shariah scholars can improve compliance and innovation in Islamic banking.
  3. Transparency and Education: Increasing transparency in product structuring and operations, along with educating the public about the principles and benefits of Islamic banking, can build trust and acceptance.
  4. Innovation and Differentiation: Developing truly innovative and differentiated Islamic banking products that go beyond merely replicating conventional products can enhance authenticity and attractiveness.

Islamic banking, with its foundation in Shariah principles, offers a viable alternative to conventional banking for Muslims and ethically-minded individuals worldwide. While it faces challenges and criticisms regarding its Shariah compliance, ongoing efforts to standardize practices, enhance governance, and promote innovation are crucial for its growth and success. By addressing these issues, Islamic banking can better fulfill its promise of providing ethical, equitable, and Shariah-compliant financial solutions.


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ISLAMIC FINANCE & CAPITAL MARKETS

Afghanistan Central Bank Joins Global Islamic Economics Forum in Malaysia

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The Afghanistan Central Bank, also known as Da Afghanistan Bank, has recently sent a delegation to Malaysia to participate in the Global Forum of Islamic Economics and Finance. This forum aims to foster discussions on the development of Islamic banking, support for small and medium-sized enterprises (SMEs), and the expansion of financial markets. Haseebullah Noori, the spokesperson for the Central Bank, emphasized the significance of this event, highlighting that representatives from central banks and financial institutions from various countries are expected to attend.

Noori stated, “A delegation from the Afghanistan Central Bank traveled to Malaysia to attend the Global Forum of Islamic Economics and Finance. Representatives from central banks, Islamic banks, and financial institutions worldwide will also participate in this forum.” This gathering presents an excellent opportunity for Afghanistan to strengthen its financial sector and align with global banking standards.

In addition to attending the forum, the Afghan delegation is scheduled to meet with several Malaysian officials to discuss establishing and enhancing bilateral relations. These meetings aim to address various economic challenges and explore potential collaborations that could benefit both countries.

Economic experts in Afghanistan believe that standardizing the banking system and developing Islamic banking are crucial for the country’s economic growth. Shaker Yaqoubi, an economist, remarked, “The more our banking system in Afghanistan meets global standards, the better we can align with the global economy. Regulated trade and investment will take shape, and given that Afghanistan is an Islamic country, Islamic banking is a crucial need.”

The Chamber of Commerce and Investment in Afghanistan also stressed the importance of addressing the challenges related to money transfers through banks during these meetings. Mohammad Younis Momand, First Deputy of the Chamber of Commerce and Investment, expressed his hopes, stating, “We hope the global community and the Central Bank’s proposals will address Afghanistan’s banking issues so that the problems we face with money transfers can be resolved.”

Abdul Nasir Rashtia, another economist, added, “The more we normalize our relations with the world and lift sanctions and restrictions, the better we can expand our international trade and provide more facilities for traders.” The lifting of sanctions and restrictions is seen as a critical step towards enhancing Afghanistan’s economic stability and growth.

Previously, the acting governor of the Afghanistan Central Bank met with the Deputy Secretary-General of the United Nations to discuss the negative impact of international sanctions on Afghanistan’s banking sector. The acting governor emphasized that these sanctions have hindered the country’s financial stability and urged for their removal to foster economic growth.

The participation of the Afghanistan Central Bank delegation in the Global Forum of Islamic Economics and Finance is a strategic move towards integrating Afghanistan’s banking system with international standards and promoting the growth of Islamic banking. This initiative aligns with the broader goal of stabilizing Afghanistan’s economy and fostering sustainable development through enhanced financial cooperation and economic integration.

By addressing key issues such as money transfer challenges and advocating for the lifting of sanctions, Afghanistan aims to create a more conducive environment for trade and investment. The focus on Islamic banking, given Afghanistan’s cultural and religious context, further underscores the importance of this financial model in the country’s economic landscape.

As Afghanistan continues to navigate its economic challenges, the efforts of the Central Bank to engage with international counterparts and seek collaborative solutions are vital. The outcomes of the forum and subsequent meetings with Malaysian officials are anticipated to pave the way for significant advancements in Afghanistan’s financial sector, contributing to the overall economic resilience and prosperity of the country.


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ISLAMIC FINANCE & CAPITAL MARKETS

ICB Islamic Bank Faces Challenges in Repaying Depositors

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By Ameer Yaqub

The ICB Islamic Bank, which emerged from the collapse of Oriental Bank in 2008, is currently grappling with a severe liquidity crisis that has left it unable to repay depositors. This situation underscores the vulnerabilities within the bank and the broader challenges facing the Islamic banking sector in Bangladesh.

The crisis has had a direct impact on depositors. Abdul Hamid Mahbub, with a deposit of Tk 1,00,000 at the bank’s Moulvibazar branch, recently faced the stark reality of the bank’s financial troubles. “On Tuesday, I went to the bank with a cheque for Tk 55,000, but the branch manager said they had no money at the time,” Mahbub told The Daily Star. Similar stories are being reported across other branches, including in Dhaka’s Paltan and Karwan Bazar areas.

In a bid to mitigate the crisis, ICB Islamic Bank sought Tk 50 crore in collateral-free liquidity support from Bangladesh Bank (BB) on January 31. However, this plea was denied two weeks later due to the bank’s existing liabilities, which total Tk 425 crore. BB’s Off-site Supervision Department has since requested the Banking Regulation and Policy Department to take corrective measures, as the bank’s operations are severely hampered by the liquidity crunch.

The liquidity crisis is compounded by a range of systemic issues. ICB Islamic Bank is dealing with frozen deposits, a significant capital shortfall, and high levels of defaulted loans. As of the end of 2023, the bank faced a capital shortfall of Tk 1,823 crore, with 87% of its total loans amounting to Tk 790.4 crore classified as bad.

The crisis has also affected the bank’s ability to pay its employees. Currently, ICB Islamic Bank employs 350 people across 33 branches, and delays in salary payments have become routine. According to Muhammad Shafiq Bin Abdullah, the bank’s managing director, the influx of depositors seeking withdrawals has exacerbated the situation. “This year, we repaid our depositors Tk 50 crore,” Shafiq noted, emphasizing the unprecedented nature of the current crisis.

Legal complexities surrounding the bank’s ownership have further muddied the waters. Issues stemming from its previous owner, Orion Group, have left ambiguities regarding current ownership, and a related case is still pending in court. This uncertainty has hindered efforts to stabilize the bank and secure necessary funds.

ICB Islamic Bank’s roots trace back to 1987 when it operated as Al-Baraka Bank. It was rebranded as Oriental Bank in 2004 and later dissolved by the central bank in 2006 due to significant irregularities. The restructured bank renamed ICB Islamic Bank in 2008, saw Swiss ICB Group and Malaysian investors take majority ownership. Despite these changes, the bank has struggled to achieve financial stability.

Efforts are ongoing to address the liquidity crisis. Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, highlighted that a large portion of ICB Islamic Bank’s funds are tied up with leasing companies, contributing to the liquidity shortfall. “We asked the Malaysian shareholder of the bank to inject fresh funds,” he stated, expressing hope that the crisis could be resolved soon.

ICB Islamic Bank’s struggle to navigate this crisis is a crucial test for the resilience of the Islamic banking sector in Bangladesh. While the bank’s management remains hopeful, the path to recovery will require strategic interventions, regulatory support, and renewed confidence from depositors and stakeholders.


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