Читать книгу Introduction to Islamic Banking and Finance - M Kabir Hassan - Страница 27

Academic literature that discusses the philosophy and rationale of banking as an institution explains the rationale for having banks as institutions that bring efficiency in intertemporal trade, distribute risk, deal effectively with asymmetric information and provide an effective means of monitoring.

Islamic banking enables short-term intertemporal finance between risk averse investors and individual and corporate clients who require short-term finance. Risk averse investors want to minimize risk and delegate the responsibility of credit portfolio monitoring to the Islamic banks. There are certain short-term finance needs that might be difficult to finance through long-term equity finance or which can be more efficiently funded through employing trade and lease based modes of financing. Interest-free Islamic banking primarily caters to short-term finance needs involving an asset and the investor client base of Islamic banks are investors who want to smooth the path of consumption through regular incomes with limited chances of risk. Thus, Islamic banking investments are suitable for impatient, risk averse and loss averse investors who invest in a limited way by sharing in the financing of real assets where the returns are linked to the asset’s sale or use rather than their long-term productivity.

At the outset, it is important to know that Islamic banking is a set of principles, rules and product structures that are compliant with Islamic laws and principles. Islamic law or Shari’ah is embodied in the Qur’an and the Sunnah (teachings) of Prophet Muhammad (pbuh). Since the contemporary financial and banking system did not exist 1,400 years ago, the foundational principles in Islamic Shari’ah are used to prescribe the true Islamic viewpoint with regard to contemporary products and practices by the Shari’ah advisors. The term Shari’ah compliant in Islamic finance refers to an instrument, transaction or contract which is compliant with the principles of Shari’ah.

The basic structure of Islamic banking looks like this. First, an Islamic bank establishes an asset pool. In that asset pool, the investment comes in the form of the bank’s equity and deposits. The deposits in Islamic banks have two further categories, i.e. return-generating deposits and nonreturn-generating deposits. Investors expect to gain profits on return-generating deposit accounts, such as savings deposits and fixed/time deposit accounts. On the other hand, investors expect to gain no profit on non-return-generating deposit accounts, such as the current account. Such accounts are used for safekeeping of deposits as well as facilitating payments and remittances.

Return-generating deposits are mobilized by using Mudarabah structure. It is a form of partnership in which one party Mudarib provides management expertise and the other party Rabb-ul-Maal provides the investment capital for the partnership. Profits are shared between the two partners on the basis of a pre-agreed profit-sharing ratio. In case, there is a loss in partnership, it is exclusively borne by the investing partner, i.e. Rabb-ul-Maal.

In deposit mobilization operations of Islamic banking, bank’s shareholders act as Mudarib, i.e. working partner and depositors act as Rabb-ul-Maal, i.e. investing partner to form the partnership. Profit-sharing ratio is agreed at the start of this partnership. Non-return-generating deposits are mobilized by using Qard (interest-free loan) or Wadiah (safekeeping deposits).

The pool of assets established for the investment purpose is then used to provide asset backed financing to the individual and corporate clients. In accounting terminology, the asset pool is the liability side of the Islamic bank’s balance sheet; whereas, the asset backed financing assets and receivables comprise the asset side of the Islamic bank’s balance sheet. Asset backed financing comprises various financing assets based on different underlying lease and trade based modes of financing.

Islamic banks generate income through rents and profit on credit sale. The distribution of income takes place first between the shareholders of the bank and the depositors as one category. Then, the income is distributed among the different category of deposits based on a weightage mechanism. Among the depositors, the horizontal distribution of profits makes the use of a weighting mechanism to provide an opportunity to earn higher profits on larger and long-term deposits. Weights are pre-assigned to different types of depositors depending on the magnitude and maturity profile of the deposit category. The detailed illustration of profit distribution will be discussed in Chapter 3.