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Potential Aspects
MASTER THESIS
Submitted by:
Islam Hamed
Gabriel-von-Seidl-Strae 75
67550 Worms
Islam_fathy@live.com
Matriculation no.:
666149
Acknowledgements
Acknowledgements
First of all, I would like to thank Almighty Allah for everything in my life,
Without his guidance I would never be able to accomplish anything in my whole
life.
I would like also to thank my mother who has supported me with her prayers, as
well as her best dedication. I cannot forget my sister and my brother who had been
always beside me.
Finally, I would like to offer my gratitude to my supervisors Dr. Jger and Dr.
Engels for their support and guidance through this thesis.
Students Declaration
Students Declaration
I hereby declare that this thesis is my own original work and that no other than the
listed references have been used as sources of information.
I further declare that no part of this thesis has been previously submitted to this or
any other institution.
Signature
Abstract
Abstract
The Islamic banking sector has grown rapidly with double digit rates in the past
decades. It is further considered the fastest growing segment in the global
financial system. Hence, several countries were attracted by the business around
the globe. In particular, several western countries who started to realize the
potential of its Muslim minorities, and started to open doors for Islamic banks. In
consequence, Islamic banks started to spread in several western countries. On the
contrary, other European countries with a large group of Muslims did not launch
the business yet, such as Germany.
The purpose of this thesis is to examine the German market and to investigate
whether it is potential for Islamic banking or not. It will further highlight the main
opportunities for the future growth of the business, as well as the main challenges
facing Islamic banks in the country.
Key words: Islamic banking, Islamic finance, Islamic banks, Market potential,
German banks and regulatory framework.
IV | P a g e
Table of Contents
Table of Contents
Acknowledgements ................................................................................................... II
Abstract ................................................................................................................... IV
List of Figures ......................................................................................................... VIII
List of Abbreviations ................................................................................................. IX
Glossary ................................................................................................................... XI
1.
2.
Introduction ........................................................................................................ 1
1.2.
Purpose ............................................................................................................... 3
1.3.
1.4.
2.2.
2.3.
2.3.1.
3.
2.4.
2.5.
2.6.
2.7.
Zakat ................................................................................................................. 16
3.1.1.
Mudaraba ................................................................................................. 18
3.1.2.
Musharaka ................................................................................................ 19
3.2.
3.2.1.
Murabaha ................................................................................................. 21
3.2.2.
3.3.
3.4.
3.5.
3.5.1.
V|Page
Table of Contents
3.5.2.
3.6.
Sukuk ................................................................................................................. 29
3.6.1.
3.7.
4.
Takaful .............................................................................................................. 32
4.1.1.
4.1.2.
4.1.3.
4.1.4.
4.2.
4.2.1.
AAOIFI ....................................................................................................... 42
4.2.2.
IFSB ........................................................................................................... 42
4.2.3.
IDB............................................................................................................. 43
4.2.4.
LMC ........................................................................................................... 43
5.2.
5.2.1.
5.2.2.
5.3.
5.3.1.
5.3.2.
5.4.
6.
5.
5.4.1.
5.4.2.
Commerzbank ........................................................................................... 60
5.4.3.
Conclusion ....................................................................................................... 63
6.1.
6.2.
References ................................................................................................................. i
APPENDIX 1 ............................................................................................................ viii
APPENDIX 1.1 ................................................................................................................ viii
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Table of Contents
APPENDIX 1.2 .................................................................................................................. ix
APPENDIX 1.3 .................................................................................................................. xi
Appendix2 ............................................................................................................... xii
VII | P a g e
List of Figures
List of Figures
Figure 1 Thesis Structure .................................................................................................... 4
Figure 2 Trend in Global Islamic Banking Assets ................................................................ 8
Figure 3 Geographical Breakdown of Total Global Islamic Financial Assets ...................... 9
Figure 4 Mudaraba Model ................................................................................................ 19
Figure 5 Diminishing Musharaka Model ........................................................................... 20
Figure 6 Murabaha Model ................................................................................................ 22
Figure 7 Bai'salam Model.................................................................................................. 24
Figure 8 Istisna'a Model .................................................................................................... 25
Figure 9 Ijarah - Leasing Model......................................................................................... 26
Figure 10 Sukuk issuance .................................................................................................. 30
Figure 11 Structure of a generic ijarah sukuk .................................................................. 31
Figure 12 The global gross Takaful contributions ............................................................. 33
Figure 13 Takaful Mudarbah Model ................................................................................. 35
Figure 14 Muslims According to Region of Origin ............................................................ 46
Figure 15 Muslims according to denomination ................................................................ 46
Figure 16 Age Structure of Muslims According to countries of Origin ............................. 47
Figure 17:Bank preferences for Muslims in Germany with Turkish Background ............. 50
Figure 18 Attitude on Banks in Germany 51
Figure 19 Relevance of Shariah Compliance and Adherence of Islamic principles .......... 52
Figure 20 Importance of Islamic Investments by Religiousness ....................................... 53
VIII | P a g e
List of Abbreviations
List of Abbreviations
A
AAOIFI
ARCIFI
B
BaFin
Bundesanstalt fr Finanzdienstleistungs-aufsicht
(the Federal Financial Super-visory Authority).
BOT
Buildoperatetransfer.
C
CIBAFI
G
GCC
I
ICD
ICIEC
IDB
IFIs
IFSB
IIFM
IRTI
IX | P a g e
List of Abbreviations
K
KFH
KTP
KWG
L
LIBOR
LMC
P
PBUH
PLS
R
ROE
Return on equity
S
SDLT
SPV
SSB
X|Page
Glossary
Glossary1
11
Allah
Amana
Bay (bai)
Baimuajjal
a deferred-payment sale.
Baisalam
a pre-paid purchase.
Fiqh
Gharar
uncertainty, speculation.
Hajj
Halal
Haram
The definantions are according to the glossary from Lewis & Algaoud ( 2001) and Ayub (2007).
XI | P a g e
Glossary
Ijara contract
a leasing contract.
Ijara wa iqtina
Ijma
Ijtihad
Islam
Istisnaa
a contract to manufacture.
Maysir
Mudaraba
Mufti
Murabaha
Musaqah
Musharaka
Qard hasan
XII | P a g e
Glossary
Qiyas
Quran
Rabb al-mal
Riba
Shariah
Sukuk
Takaful
Zakat
XIII | P a g e
Research Overview
1. Research Overview
1.1.
Introduction
The negative consequences of the global financial crisis have made both investors
and experts rethink the current financial system. Speculation schemes, as well as
sub-prime loans, drove the global economy to the so called black hole. Several
banks have gone bankrupt and as a result, customers started to lose trust in the
current financial system, particularly, in the banking sector (Ernst & Young,
2011). Despite the fact that governments began to pursue restrictive schemes
against speculations and credit lending, the situation was beyond recovering. The
Eurozone crisis has hit the financial system again, resulting with an ongoing
financial crisis, and the reason was still the same.
On the other side, the consequences were slightly lighter across the majority of the
Muslim countries, especially the ones that are operating according to the Islamic
financial system. The Islamic-financial system which based on the elimination of
both interest rates (riba) and speculation (gharar & maysir), has been very stable
against the global financial crisis. Following the crisis, some Investors started to
search for other alternatives than conventional banks. As a result, many investors
have switched to Islamic banks, as they could structure profitable products, with a
lower risk. Furthermore, Investors started to orient their investments into ethical
products, which could be found only in Islamic banks. In 2009, The Vatican
announced officially in its newspaper, that banks should learn from the Islamic
banking procedures in order to retrieve customers confidence.
All the above reasons and more have elaborated to make Islamic banking and
finance a hot topic among researchers and experts. Despite the fact that the
principles of Islamic banking and finance were set in the 7th century (the
Muslims golden age), the phenomenon began to evolve in the past 30years. In
particular, in the 1970s , with the rise of the Islamic banks in the GCC area. The
sector started to grow rapidly with double digit rates. According to the European
central bank (2013, p. 19), Islamic banking has shown annual sustainable growing
1|Page
Research Overview
rate by 15-20percent over the past five years, the handled assets by the Islamic
banks have reached $1.3 trillion at the end of 2012.
Western banks were also attracted by this profitable business. Hence, several
banks started to launch Islamic windows in many Arab countries, by offering
Islamic financial products through its subsidiaries (mainly GCC region).
Moreover, some western countries started to realize the potential of its Muslim
minorities, and thus started to launch Islamic financial banks in their countries.
The United Kingdom, with a potential market of more than 2 million Muslims,
was one of the leaders in Islamic finance and banking business in Europe since
1980s. It was the first Western country to open the doors for Islamic banking
with the first established Islamic bank in 1982 (Wilson, 2007, p. 420). Currently,
the UK is the centre of Islamic finance in Europe, with $19 billion of reported
assets and various banks delivering Shariah-compliant products (UKTI, 2013).
Other European countries have also a large group of Muslims as the UK or maybe
more; however, Islamic banking did not penetrate its markets yet, such as
Germany. The success of the UK raised the question of whether Germany can be
also a potential market for Islamic financial products or not. Despite its large
Muslim population and its strong economy, no serious actions have been taken to
launch the Islamic business till now. Several Islamic banks showed a real interest
in launching a subsidiary in Germany, however, regulatory and legal issues are
still the major constraints facing the implementation of this business.
The Kuveyt Trk Participation Bank was the first bank to take a serious step in
the Islamic banking business in Germany. The new Islamic bank has opened its
first branch in Mannheim, in 2010, with a limited license issued by BaFin (the
Federal Financial Super-visory Authority). However, the bank did not obtain the
Full license yet, due to the different regulatory constraints. In this regard, many
questions have been raised, such as is Germany really a potential market for this
business? What are the opportunities & challenges? This paper will try to
investigate about these questions.
2|Page
Research Overview
1.2. Purpose
The purpose of this thesis is to examine the German market and to investigate
whether it is a potential market for Islamic banking or not. In this context, the
paper will scrutinize the financial behavior of the German Muslim population. In
addition, the anticipated key players in the domestic market will be outlined. The
dissertation will further highlight the main opportunities for the future growth of
the business, as well as the main challenges facing the business. In this regard, the
regulatory restrictions as well as the other implications facing the business will be
discussed. It is important to note that the paper will not discuss further any legal
issues.
Dr. Johannes Engels is a Senior Advisor at The Federal Financial Supervisory Authority (BaFin)
Germany. He has studied General Economics in Aachen and Cologne; he finished in at
University of Cologne with Doctor Degree. He has been working for the Federal Financial
Supervisory Authority for twenty two years, in the international dept. for eight years. Since
October 2012 he has been the lecturer for Corporate Governance at University of Applied Sciences
in Mainz. He has written several publications in the field of Islamic finance.
3|Page
Research Overview
Research Overview
Introduction
& Overview
Islamic
Modes of
Finance
Corporate
Governance
In Islamic
Banks
Islamic
Banking &
The German
Market
Conclusion
This paper is divided into six chapters. This first chapter, is an introductory
chapter, which outlines the research objective as well as the methodology and the
chapters contents.
The second chapter gives a brief overview of the history and the evolution of the
Islamic banking, as well as the Islamic legal system (Shariah and Fiqh). In this
regard, the main principles of the Islamic finance and banking will be discussed.
The chapter is geared to provide the reader with the basic knowledge of the
Islamic finance & banking principles for a better understanding of the following
sections and chapters.
The third chapter introduces the main financial instruments offered by Islamic
banks. In this context, the structure of the several products and services will be
explained with practical examples presented graphically for understanding their
concepts better. Moreover, the chapter discusses other Islamic financial
alternatives, such as the Islamic insurance (Takaful) and Islamic bonds (sukuk).
Compliance structure and governance of Islamic banks will be discussed in
chapter four. The first section will be about the Shariah supervisory board in the
Islamic banks and its central role in assessing and monitoring the Islamic banking
business. The second section will examine the International Islamic financial
infrastructure. In this respect, the most important Islamic international
organizations will be addressed.
In order to investigate whether the German market has potential for Islamic
banking or not, this matter will be analyzed in chapter five. This
4|Page
chapter
Research Overview
scrutinizes the Muslim populations in Germany and its financial attitudes and
behaviors. In addition, the chapter will highlight the main key players in the
domestic market. Finally, the major regulatory and taxation issues facing the
implementations of this sector will be discussed.
In the last chapter, the research conclusion will be outlined.
5|Page
Sudan
President of Egypt (1956-1970), a leader of the Egyptian free officers revolution of 1952.
7|Page
The Islamic banking industry has shown substantial growth in the past decade. As
part of the Islamic finance industry, Islamic banking accounted for almost 80
percent of the Islamic financial assets with $1.3 trillion assets in 2012 (figure 2),
and with 15-20 percent annual growth for the past 5 years (ECB, 2013, p. 19).
8|Page
Figure 3 Geographical Breakdown of Total Global Islamic Financial Assets (ECB, 2013, p. 19)
9|Page
represents a set of
including. It regulates the relationship between man and Allah (Fiqh Ibadah)
concerning worship duties and activities (prayers, fasting, pilgrimage, etc.). On
the other hand, it regulates the relationship among people in the society (Fiqh
muamlat) (Millar, 2008, p. 5), such as manners and morals, crime and commercial
transactions. In the latter case, in business transactions, Shariah
acts as a
regulator between the seller and the buyer. In this context, business transactions
can be divided into four classes: first, sales (bay), the transfer of a propertys
ownership to another entity with a beneficial value. Second, hire (ijara), the
transfer of the usufruct of certain property to another entity with a beneficial
value. Third, gift (hiba), a gratis transfer of the property. Fourth, loan (ariyah), a
gratis transfer of the usufruct (the right to use) of the property. Based on this,
almost all financial transactions fall in the context of the latter cases, for instance,
deposits, partnerships, guarantee, agency, etc. (Algaoud & Lewis, 2007, p. 38).
The Quran
evidence of his Prophecy. The literal meaning of the word Quran is reading or
10 | P a g e
The Sunnah
Ijma (Consensus)
Apart of the confirmed primary sources of Shariah , the Quran and the Sunnah,
there are two secondary sources Ijma and Qiyas. The word Ijma derived from the
Arabic verb ajmaa, which means to determine and to agree upon something.
Thus, Ijma refers to a consensus on a certain opinion of the prophets early
companions and the followed Muslims jurists on a various Islamic matters
(Kettell, 2010, p. 92). Actually, Ijma applies just in cases where there is no
explicit or clear solution for a certain problem from the Quran or the Sunnah. The
process is only done by the Muslim jurists (fuquahaa ) and not by the individuals
(Abdul-Rahman, 2010, p. 68). Indeed , Ijma can just occur after the death of the
11 | P a g e
Ijtihad
Ijtihad is considered to be an important source when developing new Shariahcompliant products. In fact, it took over an effective role in developing the Islamic
Banking and finance industry. Ayub ( 2007, p. 489) defined Ijtihad as :
[a]n endeavor of a qualified jurist to derive or formulate a rule of law to determine the
true ruling of the divine law in a matter on which the revelation is not explicit or certain,
on the basis of Nass or evidence found in the Holy Quran and the Sunnah.
Indeed, there are strong debates about ijtihad, which is mostly concerned about
who can perform ijtihad, as he should be a very qualified scholar (Millar, 2008, p.
5). Ayub ( 2007, p. 441) further argues that ijtihad is the main cause for the non
standardized products across the IFIs, due to the different Shariah interpretation.
12 | P a g e
There are other prohibitions governing the business activities side by side with
riba, such as gharar (uncertainty) and maysir (gambling) (Visser 2009, p. 45).
The latter type, maysir, is derived from the Arabic word usr (ease and
convenience), which refers to mass wealth without effort (Algaoud and Lewis
2007, p. 39 ). The prohibition of maysir is to be found in the Holy Quran in many
verses, for instance, O you who believe! Khamr, Maysir, Ansab, and Azlam are a
filth of Shaytans handiwork. So avoid that in order that you may be
successful(Holy Quran, 5:90). In this context, any form of gambling is forbidden
in Islam, as it is based on hazards and speculation. Moreover, it is against the
concept of fairness in Islamic law (Algaoud and Lewis 2007, p. 39 ). Therefore,
Islamic banks are not allowed to engage in any gambling games, lotteries,
disproportionate prizes as well as conventional insurance (Ayub, 2007, p. 76).
The other type is gharar, which literally means risk or deception( Visser
2009, p. 45). This ban implies that both commercial parties should have a fair deal
and to be aware of the real counter value of the business transaction. Professor
Mustafa Al-zarqaa defined the forbidden gharar as the sale of probable items
whose existence or characteristics are not certain, the risky nature of which makes
transactions akin to gambling (Abl-rahman 2010, p.43).
14 | P a g e
2.7. Zakat
According to the Islamic faith, Allah owns all wealth and property (Holy Quran,
31:26), private property is given by Allahs trustee to people in order to achieve
integration and prosperity in the community (Abl-rahman 2010, p. 32). Justice and
equality in the society are major concerns in Islam, everyone should have equal
rights, irrespective of their positions, rich or poor (Algaoud & Lewis, 2007, p. 40).
Accordingly, Islam designed a new system called Zakah which allows a fair
transfer of wealth from the rich to the poor. Zakah literally means purityand
cleanliness (Visser 2009, p. 27), it is considered to be one of the five pillars of
Islam (Appendix 1.3), which guarantees a fair redistribution of wealth (Algaoud
and Lewis 2007, p. 40). It is an obligation for every adult Muslim to pay a
percentage of 2.5 per cent on any assets held for one year if it reached a specific
agreed amount of money ( nisab in the Arabic language) (Algaoud and Lewis
2007, p.40). Islamic banks are obligated as well for paying zakah in addition to
regular income taxes. In consequence, the proceeds from the bank and individuals
are to be transferred to special zakah funds established by each bank (Samad, et
al., 2005, p. 74).
16 | P a g e
18 | P a g e
Customer
(Mudarib)
Know-How
Business Activity
Kmk;lk;
Kmk;lk;
Islamic Bank
(Rab-al-mal)
Kmk;lk;
Negative
e.g. 60%
from profits
e.g. 40%
from profits
Outcome
Positive
3.1.2. Musharaka
Islamic Bank
Payments to increase
Customer
ownership
20% of the payment
Asset
Figure 5 Diminishing Musharaka Model (Own illustration)
Even though it seems that interest-based and PLS systems are looking alike, there
is a significant difference between their mechanisms. Under the latter system,
there is no fixed yield, or maybe there is no yield based on the profit, whereas,
under the former there is a fixed yield translated into a form of a predetermined
interest rate. Moreover, PLS systems represent a physical share of profits and
losses, which indicates a strong concern from the both sides in terms of project
profitability. In contrast, the interest-based system is just concerned about the
default of the loan, in other words, the periodical interest payment regardless of
the profit or loss of the other party. For this and other reasons, Scholars asserted
that PLS contracts aim to develop and sustain the financial market, as it
20 | P a g e
3.2.1. Murabaha
Seller
Islamic Bank
Customer
Kmk;lk;
Kmk;lk;
In fact, It can be seen that the respective model operates similarly as the interestbased model, however, several reasons contradict this argument. First, the markup margin is for a service done by the bank (intermediary service), which stands
for a certain effort. Second, in contrast with the interest based model, the mark-up
is a pre-agreed ratio which not linked to a certain time factor. Therefore, it will not
increase if the customer fails to pay in the case of deferred payment. Finally, all
risks which might occur before the possession by the customer will be borne by
the bank, as he is the owner of the goods (Mirakhor & Zaidi, 2007, p. 52).
According to Shariah, there are basic terms govern any sales contract and prevent
any occurrence of gharar. First, The commodity must exist at the time of the sale.
Second, the commodity must be owned by the seller at the time of the sale.
Finally, after the execution of the contract, there must be a physical transfer of the
commoditys ownership from the seller to the buyer as well as the associated
risks. However, Some contracts do not fulfil all the latter criteria; nevertheless,
they are still accepted by the Islamic Shariah (Ayub, 2007, p. 241). The following
will discuss two examples of these contracts, which are Salam and Istisnaa
contracts (Ayub, 2007, p. 241).
22 | P a g e
Baisalam
23 | P a g e
Seller
Kmk;lk;
Islamic Bank
Kmk;lk;
Delivery of the
goods on schedule
Customer
Kmk;lk;
Ayub (2007, p. 243) argues that Salam contracts are an effective way to stabilize
the price in the market as well as protecting both buyer and seller from any
speculative transaction. The argument is based on the fact that Shariah prohibits
any reselling of Salam contracts before maturity; thus, there will not be any room
for speculative actions.
3.2.2.2.
Istisnaa
Istisnaa is a trade contract whereby the buyer requires the seller to manufacture a
specific item for him. In this context, both parties agree on the price and the
delivery date. In principle, the item will be manufactured from the sellers raw
material and the payment method can be either lump amount or instalments.
Istisnaa is similar to salam contract, as the product does not exist at the time of
the contract. However, the payment can be deferred based on the contract
agreement, unlike salam (Kettell 2010, p.66). Istisnaa contracts can be used for
different modes of finance, for example, house finance, constructing buildings and
plants as well as BOT arrangements (Usmani, 2002, p. 134).
In theory, both Manufacture (seller) and the buyer can go together in a direct
istisnaa contract. However, in practice, the Islamic bank takes over the mediator
24 | P a g e
Manufacturer
Islamic Bank
Kmk;lk;
Delivery of the
goods on schedule
Customer
Figure 8 Istisna'a Model (iFIS, n.d.)
Kmk;lk;
Ijarah is one the major financial schemes in the Islamic financial system. The
term is permitted by the majority of Islamic scholars as it was viewed in both the
Quran and the Sunnah. Literally, ijarah is derived from the Arabic word al-Ajr
which means compensation (Ayub, 2007, p. 279). Ijarah or leasing is a contract
25 | P a g e
Seller
Kmk;lk
;
Lease payments
Islamic Bank
Kmk;lk;
Customer
Kmk;lk;
Both ijarah and Ijarah Wa- Iqtina are widely practiced by the Islamic banks;
several assets can be leased under this mode of finance, for example, aircrafts
26 | P a g e
27 | P a g e
The Islamic current accounts are way similar to the conventional accounts. The
main benefit from these accounts, is to build an effective relationship with the
customer in order to gain his trust and to profit from his/her investments in the
future. These types of accounts are held by the trustee of the bank without any
interest charges at any level. However, the Islamic bank can charge an
administration fee to cover its cost, as well as a penalty fee in case of overdraft.
Furthermore, the deposits amount support and strength the banks balance sheet in
order to meet the regulatory requirements (Millar, 2008, p. 32).
The Islamic current accounts are justified by the Islamic Shariah based on the
concept of al-wadiah (trust or safekeeping). Wadia can be defined as setting up
an agency contract for the purpose of protecting ones wealth (Lewis & Algaoud,
2001, p. 47). In other words, the bank does not have the right to invest these
accounts at any type of investment.
Both conventional and Islamic saving and investment accounts are equal in their
nature, but are way different in their mechanism. Under the Islamic saving
accounts, the bank guarantees a full repayment of the deposits nominal value
with a small return (based on the applied method ). Whereas under the investment
accounts, the full repayment of the deposits nominal value is not guaranteed, and
the return is higher. The return on the both former types of deposits is not fixed;
otherwise it would endure a sort of riba transaction such as in the conventional
system.
The Islamic saving accounts can operate under several methods. The first method
is according to al-wadiah principle (please refer to 3.5.1.), under this scheme the
bank invests the deposits in a Shariah complaint business with a pre-permission
from the depositors. In return, the bank guarantees a full return of the value with a
shared profit. The second method is to deal with the saving deposits as a qard
28 | P a g e
3.6. Sukuk
The Islamic capital market has grown expeditiously after the 1990s; it started in
the GCC region and spread across Europe and Asia. Several products have been
introduced as an alternative to the conventional financial instruments; indeed, the
new Islamic products had attracted the worldwide investors.
The most famous type of these Islamic instruments is the Islamic bonds, or sukuk.
The new sukuk market has been the fastest growing market after Islamic banking.
Sukuk refers to certificates of equal value representing undivided share in
ownership of tangible assets of particular projects or specific investment activity,
usufruct and services (Ayub, 2007, p. 494). At the end of 2012, the value of the
outstanding global sukuk recorded $229.4 billion. The latter number has increased
due to the new issuances by $131.2 billion (figure10 a). The GCC countries, as
well as Indonesia have been the major players in the growth of the sukuk primary
market (figure10 b). In fact, it is expected that the demand for sukuk will grow by
significant numbers in the next decades (ECB, 2013, pp. 20-22).
For better understanding of the mechanism, an example from Mirakhor & Zaidi (
2007, p. 54) will be illustrated. A corporation wants to raise funds with $50
million for the purchase of a piece of land. The corporation (originator) starts the
process through the SPV by issuing sukuk with small denominations (e.g. $10000
each) totalling $50 million. In this respect, the corporation transfers the ownership
of the land to the SPV, which will then securitize the asset by issuing certificates
to the investors. Consequently, the investors became the real owners of the
acquired asset. The funds generated from the sales proceeds will then be
transferred to the SPV and further to the corporation. The asset now is leased back
to the originator, in other words, the investors became the lessor, whereas the
corporation became the lessee. Afterwards, The rent proceeds from the originator
is divided between the investors through the SPV.
Apart from GCC sukuk market, sukuk had penetrated the western capital markets
as well. Germany was the first European country to introduce Ijarah sukuk to the
31 | P a g e
3.7. Takaful
The need for insurance coverage by individuals and institutions arose over time. It
became the only way to mitigate the several types of risks associated with their
wealth and lives. Despite the fact that, the conventional type of insurance is
rejected from the Shariah point of view, the IFIs had to find other alternatives in
order to fulfil this needy gab. The new Islamic insurance (Takaful) system has
been developed over several decades in accordance with Shariah principles.
Currently, large number of financial institutions are providing the service with
wide acceptance from customers in the Muslim communities (Ayub, 2007, p.
417).The following will briefly discuss the new scheme and its mechanism;
furthermore, it will highlight the main differences between takaful and
conventional insurance system.
Takaful industry which started in Sudan in 1979 has evolved over decades to
spread across the Arab and Muslim countries. The rapid growth and success in
the Muslim countries made it an attractive investment for the western world as
well. Several non Muslim countries started to launch takaful in their countries,
such as Germany (Hannover-Re entered both Takaful & re-Takaful insurance in
2007 & 2010 respectively), Britain (the establishment of Salam insurance in
2008) and Switzerland (Swiss-Re in 2009) (E&Y, 2012).
According to Halim (2012), The main takaful business is to be found in the GCC
region and southeast Asia. Saudi Arabia considered to be the largest takaful
market with approximately US$4.3 billion and 51.8 percent of the whole industry.
Malaysia contributes with US$1.4 billion while UAE contributes with US$818
32 | P a g e
The new insurance Scheme differs substantially from the conventional insurance
in terms of concept and mechanism. Khan & Coopers (2008, p. 23) define
conventional insurance as an agreement whereby an insurer undertakes (in return
for the agreed premium) to pay a policyholder a sum of money (or its equivalent)
on the occurrence of a specified event. Even though that Islamic Shariah does not
reject the idea of risk mitigation, the rejection of the conventional insurance has
been debated between Muslim scholars for other reasons (Hussain & Pasha,
2011).
The rejection is based on the idea that conventional insurance involves all
prohibited transactions; this includes riba, maysir and gharar ( please refer 2.3. &
2.4.) (Visser, 2009, pp. 102-104). With regard to the involvement of riba, it is
directly involved as a result of any excess between the amount of paid premiums
and the sum insured, moreover, it is involved indirectly as the insurer normally
invest the money in an interest-based business. Concerning gharar and maysir,
33 | P a g e
Wakala: the term means agency and refers to the absolute power of attorney where a
representative is appointed to undertake trasactions on another persons behalf (Kettell, 2010, p.
232)
34 | P a g e
35 | P a g e
Study and analyze the previous fatawa concerning the current business
transactions, in addition, issuing new fatawa based on banking and
financial questions.
37 | P a g e
products
with
the
banking
professionals
to
increase
its
competitiveness.
38 | P a g e
As one of the main components of the Islams banking structure, SSB members
are chosen based on specific criteria. The AAOIFs Governance standard No. (1)
pointed out that the board must contain at least three members, and should have a
high expertise members in economics, and/or law, and/or accounting, etc.. Most
importantly, the board must not include any influential person from the institution
administration or the shareholders (Al-Qattan, 2008).
The IFSB (2009, p. 5) has issued guidelines to strengthen the governance structure
of the Islamic financial institutions. In particular, it includes a specific criteria
concerning the selection of the SSB members in order to ensure a high level of
expertise. The main criteria are summarized in the qualification (competence) and
independence of the board members.
39 | P a g e
Qualification
Independence
A mufti is one who reports the rule of Allah on His behalf, or he is the one who is capable of
knowing the
Shariaa rulings for events with their evidence and who has memorized most fiqh issues.
40 | P a g e
41 | P a g e
4.2.1. AAOIFI
4.2.2. IFSB
42 | P a g e
4.2.4. LMC
43 | P a g e
45 | P a g e
Middle East
1.4
North Africa
1.2
4.6
South/Southeast Asia
1.7
63.2
Iran
1.5
0.4
Central Asia/CIS
With regard to the religious affiliation (figure 15), the majority of Muslims from
all origins tend to follow the Sunni faith with approximately 74 percent from all
origins, except Iranians who are from the Shiite faith. In addition, there are nearly
13 percent following the Alevi faith and 7 per cent following the Shiite faith. The
minority of the Muslims group in Germany are following other faiths like
Ahmadi, Sulfis/Mystics, Ibadis and other Muslim faiths.
Sunni
7.1
Shiite
Alevi
12.7
Ahmadi
1.7
74.1
Sufis/Mystics
0.1
4.0
0.3
Ibadis
Other
46 | P a g e
31.0
Turkey
Central Asia/CIS
13.4
23.0
6.4
Iran
17.5
14.7
19.5
26.1
24.8
0%
0 to 15 years old
10%
17.1
16.6
28.8
20%
0.0
63.2
31.7
North Africa
4.2
70.2
28.0
Middle East
0.6
55.3
23.4
18.9
South/Southeast Asia
55.0
3.2
49.9
2.6
48.0
3.2
55.4
1.7
10.6
58.7
1.8
16.9
54.8
3.5
30%
16 to 24 years old
40%
50%
60%
25 to 64 years old
70%
80%
90%
100%
47 | P a g e
Figures and numbers about Muslims with Turkish background indicate a potential
target group. According to Chahboune & el-Mogaddedi (2008), Muslims of
Turkish origin in Germany accounts for 720,000 households with an average of
3,8 persons. Whereas, the average in the German households is 1.8 persons. In
this context, the Turkish average net household income is estimated by 1917,
while the average for the German household net income is 2596. Furthermore,
Turks tend to save as double as Germans with 18 percent saving rate in
comparison with 10 percent for Germans. The saving capacity of the Turks
accounts for 2.2 billion with 25 billion as an estimated total Muslim wealth
(Nienhaus, 2012).
Evers & Jung (Hayen, et al., 2005) conducted a study over the Turkish community
in Germany, in order to investigate their financial behaviours and demands. In this
regard, the research classified the Turkish community into 4 main generations and
highlighted the preference of each generation. The first generation who came to
Germany between 1960-1973 as guest workers, the rest generations are their
children and grandchildren. In fact, the first two generations are likely to preserve
their culture and traditional mentality, on the contrary, the third and the fourth
absorbed more the German culture equal to their own culture or maybe more.
48 | P a g e
49 | P a g e
1%
0%
8%
0%
1%
7%
20%
10%
4%
45%
9%
76%
19%
Spakasse/Volksbank
Deutsche Bank
Dresdner Bank
Commerzbank
Postbank
Comdirect Bank
BMW Bank
Hypovereinsbank
DAB Bank
Other Banks
Figure 17:Bank preferences for Muslims in Germany with Turkish Background (according to
Gleisner, et al., 2010)
Despite the fact that, there is neither a full operated Islamic bank in Germany nor
typical Islamic retail banking products or services, the different sectors across
Germany have designed special products to attract the country Muslim
community (mainly Turks). Different stages have been taken; different marketing
campaigns took place across Germany held by Turkish representatives offering
materials in the Turkish language. With regard to the telecommunication industry,
one of the big companies, E Plus has launched a special mobile service between
Turkey and Germany. In the financial service industry, Deutsche bank has offered
special branches called Bankamiz. The main purpose is to consult Turkish
customers in their language as well as offering free money transfer service to
Turkey. Other banks such as HypoVereinsbank (HVB) has served customers in
Turkey with the cooperation of the YapiKredi bank. Furthermore, Allianz and
50 | P a g e
30.8%
23.6%
44.2%
0%
20.0%
17.2%
20%
1
40%
2
7.6%5.9% 12.1%
60%
4 5
80%
100%
`
Figure 18 Attitude on banks in Germany (according to Farhoush & Schmidt 2011 (p. 251))
51 | P a g e
56.8%
54.4%
17.4%
53.6%
17.2%
0%
8.3%3.0%
3.8% 12.3%
15.8%
20%
40%
1
11.5%3.0%
4.0% 9.7%
9.8%2.5%
3.2% 13.7%
60%
3
80%
100%
29.1%
Rather religious
9.6%
25.5%
16.2%
5.4%
1.6%
16.3%
Very important
5.4%
18.4%
4.8%
64.9%
9.7%
91.3%
10.2%
0%
27.3%
53.1%
12.7%
10%
12.5%
14.4%
20%
Rather important
30%
4.8%
56.7%
40%
50%
60%
70%
6.2%
80%
Not important
90%
100%
No comment
On the other hand, Experts such as Zaid el-Mogaddedi (2007) stated that the
experience of so-called Islamic holding in Germany must be taken into account
when trying to give a correct answer to the question on the market potential for
Islamic financial products in Germany. Mr. el-mogaddedi further argues that this
experience has demonstrated the financial power of the Turkish community in
Germany. Furthermore, it has indicated a strong willingness to invest in such an
Islamic products, if structured and marketed correctly. Mr. Nienhaus (2012) also
reported that all numbers and figures about Muslims in Germany indicates a
potential market for Islamic Banking; however, the unsolved problems of legal,
regulatory, taxation and accounting issues are the main problem (please refer to
section 5.3.2 ).
To sum up, all figures and numbers about the Muslim population in Germany as
well as their financial attitudes and demands indicates a potential market for
Islamic banking. There might be a doubt from some researches about the expected
demand; however, the issue cannot be determined before structuring the right
products which can be marketed efficiently.
53 | P a g e
The strong integration of the financial markets with the gradual evolution of the
financial products across the different sectors in Germany has eliminated the
typical variances between banking, financial services and insurance business. For
instance, insurance companies started to offer banking products; likewise,
financial institutions started to develop new products in accordance with insurance
companies. Equally important, the electronic business evaluation made the client
cares more about the product regardless of its source, whether a bank or insurance
company (Engels, 2010, p. 175). For these reasons, creating a single regulator
that supervises the different financial businesses including banking, financial
service institutions and insurance companies, was a mandatory action.
The new entity, the Federal Financial Super-visory Authority (Bundesanstalt fr
Finanzdienstleistungs-aufsicht BaFin) was established in 2002, in order to take
over the roles of the three former supervisory agencies, the Federal Banking
Supervisory Office (Bundesaufsichtsamt fr das Kreditwesen BAKred), the
Federal
Securities
Supervisory
Office
(Bundesaufsichtsamt
fr
den
55 | P a g e
Regulatory Concerns
1- Deposit business,
2- Lending business,
3- Discount business,
4- Principal broking services,
5- Safe custody business,
6- Guarantee business,
7- Giro business,
8- Underwriting business,
9- E-money business.
Based on the latter criteria, some had argued that the Islamic banking business is
not engaged in all of the above transactions. However, such an argument is
relatively weak, as the law did not explicitly states whether the bank must fulfil all
the above transaction, or must not perform any other type of transactions.
Moreover, from commentaries and legal practices, performing at least one or
some of the above transactions is enough for qualifying the entity as a bank
(Engels, 2010, p. 181).
The second major concern relies on the concept of investor protection. In fact,
no legal definition was given to the term deposits, deposits were explained by
the Banking Act section1 as the receipt of funds from others regardless of the
actual repayment of interest. In this respect, the current accounts in the Islamic
banks conform to this definition. However, the investment accounts which are
56 | P a g e
the matter of fact that the particular techniques were designed for the
57 | P a g e
Taxation Issues
The German tax regulation is also a major challenge facing the Islamic banking
business in Germany. In fact, Based on the current taxation system, any Shariah compliant product will be exposed to different types of taxes. In addition, the
possibility for any cost efficiencies will be very hard in comparison with
conventional banks (Klein, 2012). The following will focus on one of the main
taxation problems, the double taxation treatment.
The double taxation problem is mainly facing Islamic banks across the western
countries, particularly, in mortgage finance under murabaha mode of finance.
Taking the example of mortgage finance, in the conventional banking system, the
bank takes over the role of external creditor, where the bank does not acquire
the underlying asset at any stage until the final delivery to the customer. In
consequence, the underlying process will be taxed just one time (stamp duty tax).
On the contrary, Under murabaha finance, in the Islamic banking system, the
bank takes over the role of the intermediary between the buyer and the seller. In
this respect, two steps will take place. Firstly, the acquisition of the underlying
asset from the seller by the bank, Secondly, reselling the asset to the customer (the
buyer) with a profit mark-up. In consequence, the latter transaction will be taxed
twice (stamp duty tax) at the two steps, which will impose higher costs on Islamic
banks (Klein, 2012).
Several western countries have tried to solve this problem, in order to attract
Islamic banks. One concrete example is the United Kingdom. The UK has taken
major steps in terms of tax regulations, in order to ensure that Islamic finance
investors have similar tax treatment as conventional investors. For instance, in the
case of double taxation issue under the murabaha finance, the legislator
considered the latter finance scheme as alternative finance arrangement. In this
regard, the bank will be subjected to the stamp duty land tax (SDLT) only once at
the acquisition step, whereas, in the second step the mark-up will be regarded as
deemed interest (Butt, 2012; PWC 2008).
58 | P a g e
The Islamic banking business has attracted many German banks over the past
decade. Several German banks started to launch the so called Islamic window
across the Muslims countries (mainly GCC region). In fact, they have been very
active and successful in this type of business. Thus, In case of Islamic banking
implementation, these banks can be major players in the market.
The following will highlight the main German banks which operate with an
Islamic window across the Muslims countries.
Deutsche Bank AG is one of the leading banks in Germany and Europe, the bank
was founded in 1870 with its headquarter now in Frankfurt. According to the
Banks figures in 2012, the bank has achieved a net profit of approximately 291
million euros wit A+ rating by Fitch and Standard & Poors ( Deusche bank,
2013). Over a decade, the bank has been a major player in the Islamic finance
59 | P a g e
5.4.2. Commerzbank
Commerzbank is one of the leading banks in Germany with approximately 1200
branches across the country. The bank has started to establish a regional footprint
in the Islamic finance business since more than one decade. In 1999, Commerz
international capital management (CICM), the owned subsidiary by the
Commerzbank has launched a new equity fund under the rules of Shariah.
AlSukoor European Equity Fund was launched with 100 percent focus on the
European equities, in order to attract investors from the middle east. In fact, it was
only for institutional investors from the middle east area, however, since 2000 it
became accessed by private clients in Germany. Commerezbank searched a
60 | P a g e
in
in 2011
Commerzbankbank undertook the role of the joint lead manager for the Kuveyt
Trk Banks sukuk issuance. The $350 million 5year ijarah sukuk were issued to
attract investors across the Middle East, Asia and Europe. Commerzbank
presented the issue through its international network , Indeed, the issue was quite
successful and was rated at BBB by Fitch rating (Commerzbank, 2012).
Commerzbank can be also a critical player in this business in the future, especially
in the sukuk sector. In case of launching Islamic banking in Germany, The bank
experience in Islamic finance will be a major asset for him in the market.
61 | P a g e
62 | P a g e
Conclusion
6. Conclusion
There is no doubt that Islamic banking is a fast growing industry in the world. The
overview presented in chapter 2 reflects a stable growth for the future of this
business. This is supported by its new approach in doing the banking business,
therefore, it has attracted both Muslim and non Muslim investors. The cause is
that investors can earn high profits with lower risks, in comparison with
conventional banking. Moreover, consumers now are tending to invest more in
ethical products, which could be found in the Islamic banking principles as
discussed in chapter 2 and 3.
With regard to the German market, the Muslim population in Germany is the
largest in Europe, and the second largest minority in the country. The different
industries across the country have been trying to target the Muslim population, as
they believe that it is a potential group. As discussed in chapter 5, religion takes
over an important role in the life of the Muslims in Germany. Nearly two thirds
of the Muslims have identified themselves as devoted to religion. As a result, this
will be a positive trend for accepting Shariah-compliant products in the future.
Below are the main opportunities as well as the main challenges for the Islamic
banking business in Germany.
The country has the Largest Muslim population in Europe, with a quite
large population between 25-64, who are still in the working age .
63 | P a g e
Conclusion
Muslims. With regard to the Financial industry, Deutsche bank as well as
other banks has already offered private services to the Turkish Muslims
(please refer to 5.2.2.).
Results and finding from the conducted researches have shown a keen
desire to follow Shariah rules from a higher percentage of the Muslim
population.
Several German banks have been running Islamic windows in the GCC
region; hence, they had gained wide expertise in the Islamic finance and
banking industry.
Indeed, any Islamic bank who will be able to structure the right products
for the market, will definitely acquire an appropriate market share (around
5%), away of the competitors.
Launching the business will further tie the trade business between
Germany and Turkey as well as the other Muslim countries, Moreover, it
will provide funding alternatives for the investors.
The role of the Shariah Supervisory board is not compatible with the
regulation, as the board might intervene in the banks decisions. Equally
important is the strong separation between religion and business across
the western countries.
64 | P a g e
Conclusion
Islamic banks will have a significant problem with the German respective
European accounting, reporting, auditing and monitoring techniques. In
fact, amending or changing the respective system will be very hard.
The double taxation treatment for mortgage finance has been one of the
main challenges, however, the excellent idea of the silent partnership
by Ernst & Young , has solved this issue.
To sum up, the paper has highlighted the main opportunities as well as the main
challenges for this industry in Germany. It can be concluded that there is a huge
potential for the business in the country, as illustrated in 5.1 & 5.2. The majority
of Muslims are keen to invest in Shariah-compliant products. However, the
negative impact of the Islamic-holding still an obstacle. Therefore, any Islamic
bank must take necessary steps before launching any Shariah-compliant products.
Firstly, the bank must change the negative idea about Islamic banking to attract
more customers (Muslims and non Muslims). This can be done through
implementing different campaigns and conferences across the country, in order to
illustrate the mechanism of this new phenomena and the mechanism of the
different modes of finance. Equally important, the majority of the latter campaigns
should be offered in the customers' native language. Secondly, any bank must
understand first the needs of the customers, in order to structure the right products
for them. In this regard, the bank must take effective marketing strategies as well
as extensive analysis work. Finally, Islamic banks must try to find solutions to
settle down all the regulatory issues with the country regulators, in order to start
launching the business as soon as possible.
Germany as a country still needs to take further steps towards the Islamic banking
business, as it will be beneficial for the economy, especially after the European
financial crisis. Starting that business in the country will attract more investors
who are keen to follow Shariah. Furthermore, it will be the first step to launch
other profitable Islamic financial products, such as sukuk, which can further
strength the capital market. In fact, German regulators should try to come to a
common point with Islamic banks to ease this process. Indeed, The current
challenges can be easily solved if the country decided to give this business a
65 | P a g e
Conclusion
chance. However, Experts are sure that the business will start in the near future
and will be indeed positive for investors as well as for the country.
66 | P a g e
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International Financial Services Board.
Islamic Financial Service Board, 2009. Guiding Principles On Shar`Ah
Governance Systems For Institutions Offering Islamic Financial Services.
[Online]
Available at: http://www.ifsb.org/standard/IFSB10%20Shariah%20Governance.pdf
[Accessed 1August 2013].
Islamic Financial Service Board, 2010. Objectives. [Online]
Available at: http://www.ifsb.org/objectif.php
[Accessed 14 July 2013].
Kettell, B., 2010. Islamic Finance in a Nutshell: A Guide for Non-Specialists.
West Sussex: John Wiely & Sons ltd.
Khan, M., 2007. Islamic methods for government borrowing and monetary
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Banking. Cheltenham: Edward Elgar Publishing Limited.
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& H. Anwar, eds. Islamic Finance: A Guide for International Business and
Investment. London: GMB Publishing Ltd..
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[Accessed 3 October 2013].
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Millar, R., 2008. Religious Foundations of Islamic Finance. In: R. Millar & H.
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Appendices
APPENDIX 1
APPENDIX 1.1
The prohibition of Riba in the Quran6
Surah al-Rum, verse 39
That which you give as Riba to increase the peoples wealth increases not with
God; but that which you give in charity, seeking the goodwill of God, multiplies
manifold. (30: 39)
Surah al-Nisa, verse 161
And for their taking Riba although it was forbidden for them, and their wrongful
appropriation of other peoples property. We have prepared for those among them
who reject faith a grievous punishment. (4: 161)
Surah Al-e-Imran, verse 130
O believers, take not doubled and redoubled Riba, and fear Allah so that you
may prosper. Fear the fire which has been prepared for those who reject faith, and
obey Allah and the Prophet so that you may get mercy. (3: 130)
Surah al-Baqarah, verses 275281
Those who take Riba shall be raised like those who have been driven to
madness by the touch of the Devil; this is because they say: Trade is just like
interest while God has permitted trade and forbidden interest. Hence those who
have received the admonition from their Lord and desist, may keep their previous
gains, their case being entrusted to God; but those who revert, shall be the
inhabitants of the fire and abide therein forever. (275)
Allah deprives Riba of all blessing but blesses charity; He loves not the
ungrateful sinner. (276)
6
These are not the only the versus dealing with Riba in the Quran, Riba was mentenioed
explicitly in other versus as well.
viii | P a g e
Appendices
O, believers, fear Allah, and give up what is still due to you from Riba if you
are true believers. (278)
If you do not do so, then take notice of war from Allah and His Messenger.
But, if you repent, you can have your principal. Neither should you commit
injustice nor should you be subjected to it. (279)
And if the debtor is in misery, let him have respite until it is easier, but if you
forego it as charity, it is better for you if you realize. (280)
And be fearful of the Day when you shall be returned to the Allah, then
everybody shall be paid in full what he has earned and they shall not be wronged.
(281)
APPENDIX 1.2
The prohibition of Riba in the Sunnah (Ahadith)7
1. From Jabir (Gbpwh): The Prophet (pbuh) cursed the receiver and the payer of
interest, the one who records it and the witnesses to the transaction and said:
They are all alike [in guilt].
2. From Anas ibn Malik (Gbpwh): The Prophet said: When one of you grants a
loan and the borrower offers him a dish, he should not accept it; and if the
borrower offers a ride on an animal, he should not ride, unless the two of them
have been previously accustomed to exchanging such favours mutually.
3. Zaid B. Aslam reported that interest in pagan times was of this nature: When a
person owed money to another man for a certain period and the period expired,
the creditor would ask: you pay me the amount or pay the extra. If he paid the
amount, it was well and good, otherwise the creditor increased the loan amount
and extended the period for payment again.
ix | P a g e
Appendices
4. The holy Prophet (Pbuh) announced the prohibition of Riba in express terms at
the occasion of his last Hajj, which was the most attended gathering of his
Companions.
The Prophet said: Every form of Riba is cancelled; capital indeed is yours which
you shall have; wrong not and you shall not be wronged. Allah has given His
Commandment totally prohibiting Riba. I start with the amount of Riba which
people owe to my uncle Abbas and declare it all cancelled. He then, on behalf of
his uncle, cancelled the total amount of Riba due on his loan capital from his
debtors.
5. The holy Prophet (Pbuh) said, Gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt like for like, equal for equal,
and hand to hand; if the commodities differ, then you may sell as you wish,
provided that the exchange is hand to hand.
6. Bilal (Gbpwh) once visited the Messenger of Allah (pbuh) with some high
quality dates, the Prophet (pbuh) inquired about their source. Bilal explained that
he traded two volumes of lower quality dates for one volume of that of the higher
quality. The Prophet (pbuh) said: This is precisely the forbidden Riba! Do not do
this. Instead, sell the first type of dates, and use the proceeds to buy the others.
7. A man deputed by the holy Prophet (pbuh) for the collection of Zakat/Ushr
from Khyber brought for him dates of very fine quality. Upon the Prophets
asking him whether all the dates of Khyber were such, the man replied that this
was not the case and added that he exchanged a Saa (a measure) of this kind for
two or three (of the other kind). The holy Prophet replied: Do not do so. Sell (the
lower quality dates) for dirhams and then use the dirhams to buy better quality
dates. (When dates are exchanged against dates) they should be equal in weight.
x|Page
Appendices
APPENDIX 1.3
The Five Pillars of Islam8
1. Acceptance of the shahada or witness of faith which consists of reciting the
sentence la ilaha illa llah, Muhammadu rasulu llah (in its alternative translation,
There is no God but the God and Muhammad is his Prophet). Anyone who utters
the shahada in full faith must be regarded as a Muslim.
2. Prayer, or salat, is prescribed to be performed five times per day (at dawn,
around midday, in the afternoon, at sunset, and at night before going to bed),
preceded by self-purification through ritual washing, performed facing in the
direction of the Holy Mosque in Mecca, demonstrating submission to Gods will
by word of mouth and physical gesture.
3. Alms, or zakat (a term derived from the Arabic zaka, meaning pure). The
Holy Quran stresses that the giving of alms is one of the chief virtues of the true
believer, the generally accepted amount being onefortieth of a Muslims
accumulated personal or business wealth. Because all such revenue benefits the
poor and pays for certain activities within a 19 Islamic banking community, the
very act of giving shows the believers sense of social responsibility, thus leaving
acquired wealth free of disrepute.
4. Fasting or sawm. All believers are required to observe the ninth lunar month of
the Muslim year, Ramadan, as a period of fasting in which they abstain from
eating, drinking, smoking and sexual relations from sunrise to sunset (Holy
Quran 2:185-6). The purpose is to subjugate the body to the spirit and to fortify
the will through mental discipline, thus helping the believer to come nearer to
God.
5. Pilgrimage. The hajj, or pilgrimage to Mecca must be performed at least once
in the life of every Muslim, health and means permitting (Holy Quran 3.97).
xi | P a g e
Appendices
Appendix2
In the course of this research, several experts in the field of Islamic finance as
well as banks representatives were contacted via email, in order to perform an
interview about the respective topic. However, there was no answer from all of
them except Dr. Johannes Engels.
Dr. Johannes Engels is a Senior Advisor at The Federal Financial Supervisory
Authority (BaFin) Germany. Dr. Engels has studied General Economics in
Aachen and Cologne; he finished in at University of Cologne with Doctor Degree.
He has been working for the Federal Financial Supervisory Authority for twenty
two years, in the international dept. for eight years. Since October 2012 he has
been the lecturer for Corporate Governance at University of Applied Sciences in
Mainz. He has written several publications in the field of Islamic finance.
The below interview took place on October 29th, 2013 at Dr. Engels office.
Appendices
business (e.g. import and export business). Indeed, there will an economic niche.
Later on, it might a room for retail banking business; however, it should be taken
step by step.
3- Several German Banks have launched the so-called Islamic
Windows in the GCC region, Do you think that these banks can be
key players in this business, In case of further implementation?
I think in the long run, if the business shows a successful trend in the market; the
German banks will try to play such a similar role. However, I think it will not be
in the retail business, except for important clients, where they deal with them in
Kuala Lumpur or Dubai.
4- With regard to the regulatory issues, what are the major challenges
facing the business implementation? And how can Germany overcome
it?
We have no general line, when we look at the German banking act (KWG), there
is no explicit forbiddance for Islamic banking. In my opinion, the thing is
possible when it is not strictly forbidden. I think it is only a different type of
calculation in Islamic banking, for instance, deposits and lending mechanism. It
is another way to do this business and not forbidden in the KWG. My opinion, it
will be possible. There is no general line till now, still there is no final decision
about it. I think it will be a soon a final decision , as there is already a full licence
application from the Kuveyt Trk bank, which located in Mannheim.
There are indeed other concerns which related to the Islamic deposits. According
to the EU regulation, each deposit up to 100,000 euros must be fully protected,
and this type of deposit insurance system is against Shariah rules. Any Islamic
bank must follow these rules, otherwise it will be hard to obtain a banking license.
Another issue is the role of the Shariah board (SSB), it is absolutely a need to
have a qualified Shariah board. As a supervisor, I highly welcome it when there is
a qualified Shariah board. However, I know that in several countries, the SSB is
as well included in heading the bank , and it can intervene in the banks decisions.
In the European Union as well as in Germany, Only CEOs are responsible for
heading the business, and SSB can take over the role of a Consultant.
5- The Kuveyt Trk bank has entered the market as an Islamic bank,
however, it has obtained only a limited license, What are the main
reasons for this? And can the bank get a full banking license in the
future?
The Kuveyt Trk bank is a well known bank in Turkey and operates through
highly qualified managers. However, the main issues previously discussed
xiii | P a g e
Appendices
(deposits issue & SSB role) are the main reason for not getting a full license till
now. Indeed, I hope that it will be successful in the future, in my opinion; it is
just a new business in the country, which might face some resistance. However, I
am sure that they will get a full license in the future, but it will take some time.
Indeed, there should be some compromises from the Islamic banks' side to
overcome these issues. For instance, the SSB can be equal to the role of the
supervisory boards in the conventional banks, but not more.
6- Tax conditions in Germany also impose some restrictions to Islamic
banks? Are there any current solutions for this issue?
Under the current taxation system, Islamic banks will be exposed to double
taxation treatment in the case of Islamic mortgage finance. In addition, Germany
has a different level of taxes according to each region (e.g. 2.5% in Hessen region,
whereas 5% in the Rheinland Pfalz region). In fact, it will very difficult to change
the taxation system, such as in the UK (one time treatment) and France (double
taxation but with a lower level of taxes). However, Ernst & Young has proposed
an excellent idea, the silent partnership. In consequence, the bank will only be
registered only one time in this process as he acts as a sleep partner. This is
simply the solution for the double taxation problem, without changing anything
the taxation regulation.
7- Finally, what do you think about the future of the Islamic banking
business in Germany?
I think in the long run; it will be very successful, as we will have another
generation than the one who experienced the Islamic holding in the 1990s.On the
other hand, the success of Islamic finance in London (new sukuk issuance ) as
well as in Luxemburg, will positively affect the European market. Hence, in the
near future, first with a trading business (Import and export), then step by step it
will further develop to offer Islamic products and services. I think also that we
will see an Islamic index in the stock market in the future. It is not impossible;
there are several companies which dont engage with haram business (gambling,
pork, weapons, etc.).
P.S. The above mentioned interview reflects only the private opinion of Dr.
Johannes Engels and does not automatically display the position of German
Federal Financial Supervisory Authority.
xiv | P a g e
Europass
Curriculum Vitae
Personal information
Surname(s) / First name(s)
Address
Mobile
E-mail(s)
Nationality
Gender
Islam Hamed
Gabriel-von-Seidl-Strae 75, 67550 Worms (Germany)
004917671298135
islam_fathy@live.com
Egyptian
Male
Work experience
Dates
Occupation or position held
Main activities and responsibilities
17/09/2012 - 12/02/2013
Lean Coordinator-Intern (Product Development Department)
Implement lean tools in the PD department (e.g. Lean meetings, visual boards, 5S and VSM).
Monitor PDP/APQP running projects.
Support top management in presentations preparation and workshops organization.
Coordinate RFQ value stream mapping/analysis project.
Development of standards in Project Management.
SKF
Schweinfurt (Germany)
Engineering
03/03/2008 - 31/05/2010
Credit Analyst (Credit Department, retail Banking & SMEs)
Manage, direct, and coordinate all activities to implement bank policies, procedures and
practices concerning underwriting, applications, and granting or extending / enhancing loans.
Analyze customers financial history to grant loans in accordance with risk management in the
different products.
Assist and support the lending staff with matters of credit policy, guidelines and procedures.
Monitor the quality of the loan portfolio.
Assist top management in preparing manuals for new credit products.
Prepare internal and external reports.
Answer branches inquires and dealing with complex issues.
Banque Misr
Cairo (Egypt)
Financial and insurance activities
08/07/2007 - 01/03/2008
Accountant (Engineering Department)
14/03/2011 14/02/2014
Master of Arts (International Business Administration and Foreign Trade)
1.7 (scale: 1 5, with 1 being the highest)
Advanced Corporate Finance and Value Investing.
International Project Management.
Strategies of Internationalisation.
International Logistics & Transportation Management.
University of Applied Sciences Worms
Worms (Germany)
01/10/2007 - 20/08/2009
MBA (Financial Management)
Excellent
International Finance.
Advanced Financial Management.
Investment Management.
Arab Academy for Banking & Financial Sciences
Cairo (Egypt)
15/09/2002 - 30/05/2006
Bachelor of Arts (Accounting)
Accounting.
Economics.
Financial management.
Ain Shams university
Cairo (Egypt)
15/09/1999 - 20/06/2002
Secondary school
Shobra Elthanawya
Cairo (Egypt)
Arabic
Other language(s)
Understanding
Self-assessment
European level (*)
English
German
Listening
Reading
Proficient user
Speaking
Spoken interaction
Spoken production
C2
Proficient user
C2
C2
Proficient user
C2
C1
Proficient user
B2 Independent user C1
Proficient user
Social Engagement
Writing
Proficient user
C1
Proficient user
MS Office.
Mind Manager.
Project Link.
Lotus Notes.