Essentials of Shariah Compliant Finance

Introduction

Driven by growing demand for Shariah-compliant investment possibilities, and the development of competitive financial products, Shariah compliant finance is attracting investors all over the world. The tremendous growth of Shariah compliant finance demands standards and sound risk management practices, in addition to professionals trained in risk management for Shariah compliant financial products. This interactive course is designed to help professionals better understand introductory and intermediate Shariah compliant finance topics through exploring the fundamentals and origins, structured products, and principles of risk management in this field.

Objectives

After completing this course, participants will be well versed in:

• The fundamentals of Shariah finance and banking, including founding principles, historical context, and current outlook;
• A multitude of Shariah-compliant contracts and structured products and their unique features;
• The principles of risk management for Shariah-complaint finance and management approaches to credit, market and operational risk

This intensive and interactive Seminar is designed for a wide audience of both experienced practitioners and new entrants involved in any aspect of Shariah finance, such as risk managers, traders, sales professionals, financial analysts, cash/money managers, auditors and compliance professionals. Additionally, individuals or institutions that are considering entering the field, those who create and market Islamic products, and those catering to Islamic institutions, would strongly benefit from this seminar.

Content

Day One: Introduction to Shariah Compliant Finance

What is Shariah compliant finance?

• Faith-based finance in a conventional world?
  • Similarities between monotheistic religious traditions
  • Common prohibitions against Riba
• Basic underlying principles of Islam and their religious interpretations
  • Key players and country-specific market differences 

The basic framework of Islamic finance: requirements, prohibitions and promotions

• Requires: risk sharing
• Promotes: fair pricing practices and open markets, full accounting disclosure, ownership, Zakat
• Prohibits: Riba, Gharar, Qimar, Maysir, investment in Haram activities
• Basics of Islamic Contracts Law: Wa’d, Muwaada, Mua’hida, Aqd’

The role of regulators and standards setters

• Shariah Supervisory Boards
• Central Banks and/or Monetary Authorities
• Islamic Financial Services Board innovations
• Accounting and Auditing Organization for Shariah Financial Institutions
• International Islamic Financial Market
• Islamic International Rating Agency
• Islamic Development Bank

Day Two: Fundamental Islamic Finance Contracts & Risk Management Techniques

Functions and activities of a typical Islamic commercial bank

• Investment and investment management
• Generic banking services
• Social services activities funded through Zakat
• Sources and applications of funds

The Islamic banks’ balance sheet

• Accounting and Auditing Organization for Islamic Financial Institutions’ role in standardization
• Comparison of conventional and Islamic banks’ balance sheets

Comprehensive review of fundamental Shariah-compliant contracts, including:

• Sale-based: Murabahah
• Lease-based: Ijarah
• Partnership-based: Musharakah/Diminishing Musharakah
• Intermediation-based: Mudarabah, Sukuk, Takaful, Salam/Parallel Salam
• Overview of Islamic securization (ABS) versus direct structuring
• Islamic capital markets

Risk profiles in Islamic financial intermediation

• The Islamic balance sheet and embedded risks
• Transaction risk: credit risk, market risk, mark-up risk, foreign exchange risk
• Market risk: displacement risk, withdrawal risk, solvency risk
• Treasury risk: asset/liability management risk, liquidity risk, hedging risk
• Reputation and legal/regulatory risks
• Risk measurement and management in Islamic Finance
• Islamic Financial Services Board guiding principles of risk management