New Islamic banking licences under process

Tuesday November 10, 2009

Keen interest to set up Islamic banking operations in Malaysia

KUALA LUMPUR: The applications for two new Islamic banking licences, which are part of the financial sector liberalisation plan, are still being processed, according to Deputy Finance Minister Datuk Dr Awang Adek Hussin.

“Bank Negara at the moment is processing the applications and making the necessary evaluations. The decision will be made by the central bank in the best interest of the financial sector.

“I was informed that there have been quite a number of applications as well as keen interest from other players to set up Islamic banking operations in the country,” he told a press briefing in conjunction with the Islamic Financial Planning and Wealth Management Conference 2009 (IFPC 2009) here.

In April, the Government announced a financial sector liberalisation plan that included the issuance of licences for seven banking and two takaful players from this year until 2011. It also, among others, eased foreign ownership rules by increasing limits of equity ownership to 70% from 49% for investment banks, Islamic banks, insurance companies and takaful operators.
From left: Financial Planning Association of Malaysia president Wong Boon Choy, Organising Committee IFPC 2009 chairman Datuk Ibrahim Muhammad, Datuk Dr Awang Adek Hussin and Islamic Banking and Finance Institute Malaysia CEO Datuk Dr Adnan Alias at the opening of the IFPC 2009 conference on Monday.

On whether there would be further liberalisation in the financial sector, Awang Adek said it would be done in stages and more would come over time.

“When the time is right and we think we are ready for the next step, we will take it. I don’t think this is the end of liberalisation,” he said.

He noted that the Islamic banking sector had registered double-digit growth over the past eight
years with an average annual growth rate of 20% in terms of assets.

As at end-June, the share of Islamic banking assets in the banking sector had expanded to 19% from 6.9% in 2000. Given the growing maturity of the local bond market, Awang Adek said it was timely that Malaysia offered its own “brand proposition”.

This was to distinguish foreign currency-denominated bonds and sukuk originating from the country in global capital markets, he said.

He added that Petroliam Nasional Bhd had become the largest issuer of US dollar-denominated bonds and sukuk in Asia ex-Japan with the issue of US$3bil worth of bonds and US$1.5bil of sukuk.

Awang Adek also called on Islamic and conventional advisors, including financial planners, to capitalise on the potential growth of syariah-compliant financial sectors, such as the financing-protection segment, where previously Muslims were not able to participate due to a lack of syariah-compliant products.

The increasing demand for Islamic financial products necessitates financial planners to be equipped with the knowledge of syariah requirements of Islamic finance and such expertise was a potential area for growth, he said.

http://biz.thestar.com.my/news/story.asp?file=/2009/11/10/business/5074249&sec=business

Bright outlook for domestic takaful business

Saturday September 19, 2009

PETALING JAYA: The outlook for the domestic takaful business remains bright due to the limited number of takaful operators in the country and because almost 60% of the Malaysian population is still uninsured, industry players and analysts said.


Syarikat Takaful Malaysia Bhd (STMB) group managing director Datuk Hassan Kamil said with only eight takaful operators in the country and two more takaful licences to be issued by Bank Negara, there was plenty room for growth for takaful products.


In line with the positive outlook, STMB aims to increase its market share to more than 50% by aggressively growing its retail distribution capabilities.

“Our key growth drivers will mainly come from the general takaful portfolio and retail life market,” Hassan told StarBizWeek.


He added that in order to ensure continuous growth, takaful products needed to be innovative and transparent, together with professional sales and customer service.


Acting on this strategy, STMB has in the pipeline three new takaful products for its financial year ending June 30, 2010, namely Takaful myGraduan (protection and savings plan), Takaful myInvest (protection and investment plan) and Takaful myGemilang (retirement plan).


“High-tech information technology solutions are also necessary to support the dynamic and various distribution channels such as corporate sales, bancatakaful and retail divisions within STMB,” Hassan noted.


He said with many multinationalcorporations vying for the upcoming takaful licences, competition was stiff but it showed that the takaful market domestically and overseas was still quite attractive.


“In any business, further liberalisation will have a positive and negative impact to existing takaful operators. The positive impact from liberalisation will come from the increased innovation in products and technology introduced by new entrants to the industry.


“The negative impact will be that the existing players will have their market share reduced and perhaps some of their staff pinched by the new entrants,” he said.


An analyst with a bank-backed brokerage agreed with Hassan that Malaysia was an attractive destination for the insurance business due to its low penetration rate and expertise in takaful, a segment which many global insurers were keen to dip their fingers into. The analyst also noted that the takaful industry had been enjoying double-digit growth, in revenue as well as takaful fund assets, every year for the past few years, which was another factor to attract investors.
“There (has been) interest shown by foreign parties since the liberalisation announcement, but it could take some time for things to start moving,” the analyst said.


“This has a lot to do with pricing. With the current market conditions and uncertainty still in the air, foreign investors and shareholders are taking a wait-and-see approach.”


STMB’s net profit shot up 170% to RM39.21mil for the fourth quarter ended June 30 compared with RM14.65mil from the previous corresponding period.


But revenue fell 5% to RM365.07mil against RM383.19mil previously.


Earnings per share was higher at 24.08 sen from 9.24 sen previously.


STMB attributed the higher profit to better underwriting results from the general takaful fund and lower operating expenses.


Lower contributions from the family takaful fund as well as lower investment income were cited as reasons for the slight drop in revenue.

http://biz.thestar.com.my/news/story.asp?file=/2009/9/19/business/4750116&sec=business

Takaful Malaysia eyes 10% increase in customer base with Takaful myDesk

Tuesday June 23, 2009
The Star

KUALA LUMPUR: Syarikat Takaful Malaysia Bhd (STMB) targets a 10% increase in customer base from 400,000 currently for its financial year ending June 30, 2010 with the launch of its latest initiative – Takaful myDesk – with Lembaga Tabung Haji (LTH).

Takaful myDesk is a one-stop centre for customers to carry their takaful transactions for all general and family-related takaful products at various LTH branches.

Through Takaful myDesk, STMB also hopes to achieve RM1mil worth of premium contributions in its first year of operations.

STMB group managing director Datuk Hassan Kamil said the collaboration was part of its strategy to enhance access to wider potential customer base, through sharing of database.

“We see this ‘smart partnership’ as a strong platform for various business opportunities, including cross selling of insurance products with investments and savings. We also hope to further reach out to customers, especially in remote areas, utilising LTH’s extensive network nationwide,” he said at the launch yesterday.

He added that the cost of the initiative was minimal as all that was required was Internet connectivity and one staff to man the desk located at LTH’s branch.

STMB’s majority shareholder is BIMB Holdings Bhd, with a shareholding of 65.22%. LTH in turn, is a majority shareholder in BIMB, holding 41.92% shares.

LTH group managing director and chief executive officer Datuk Ismee Ismail said with the inclusion of the Takaful myDesk to its list of additional services, it hoped to help promote the Islamic financial services sector within Malaysia. “Since the introduction of Takaful myDesk at our Jalan Tun Razak branch, LTH’s depositors have been very receptive towards the concept and execution of this new service,” Ismee said.

Due to this encouraging response, Hassan said that they had identified 11 other LTH branches to carry this service, and would be implemented in stages within the next six months.

http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4172502&sec=business

Growing Pains - Islamic finance is well positioned but faces governance challenges

C F A M A G A Z I N E M A Y – J U N E 2 0 0 9

KEY POINTS
• Islamic banks were largely spared the effects of the toxic assets at the heart of the global credit crunch.
• To take advantage of opportunities, Islamic financial institutions need to improve governance practices.
• Lack of standardization poses a challenge for practitioners, regulators, and investors.

Islamic banks, which shy away from leverage, have been largely buffered from the toxic debts of the credit crunch, now estimated by the International Monetary Fund to reach as high as US$4 trillion. Unlike mainstream houses, Islamic institutions are still growing. Their financial assets are estimated to be worth US$750–US$800 billion, having grown at a compound
annual rate of 20–30 percent over the past decade, according to a September 2008 research report by Morgan Stanley. This figure is widely expected to exceed US$1 trillion by 2010, and some consultants believe it could go as high as $2 trillion.

“Because of the global credit crunch, the potential for Islamic banking is now brighter than the potential of the conventional system,” explains Wohid Islam, legal counsel for the Qatar Investment Authority, the sovereign wealth fund of the state of Qatar.

Islamic finance is governed by Shariah law, which prohibits usury, making it difficult to offer debt, interest, or leveraged products to the market. Shariah-compliant institutions are also prohibited from making investments in companies involved in tobacco, weapons, gambling, alcohol, or porkrelated products. Shariah-compliant supervisory boards must approve each product, adding an extra layer of governance to the mix.

Growth in the industry has come largely from debt-based products. Sukuks are Islamic bonds that offer coupon profits instead of compound interest. They are the fastest growing area of the market.

Challenges to Growth

And yet, for the industry to reach its potential, there are growing pains to resolve. In 2007, Sheikh Muhammad Taqi Usmani, chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI) said that 85 percent of all Gulf Islamic bonds do not fully comply with Islamic laws. Hedge funds and structured products have also caused controversy, with critics saying that some Shariah scholars, who sit on the boards of multiple financial institutions because of rising demand, are often too well paid or too unfamiliar with products to make fair decisions. Very few of the Shariah scholars have financial backgrounds, and most have had to learn about the industry as they went along.


“Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else.”

One hedge fund of funds manager, after being given approval to develop a product by his own Shariah board, was startled to discover that other scholars at different institutions would not allow the product to be distributed. “It’s ridiculous to go ahead with something which takes up time, energy, and money only to then find out that there’s no consensus and you can’t launch the thing anyway,” he complains. “There needs to be some sort of coherent approach, we have to be able to trust our advice.”

Regulators are trying to deal with the issue. “Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else,” says Shaykh Yusuf Talal DeLorenzo, a leading Islamic scholar and adviser to the Dow Jones Islamic Market Indices. “Owing to the special nature of Islamic finance products, however, some jurisdictions have established an extra level of supervision. Such measures are welcomed by the industry.”

But even this is proving tricky. Malaysia has tackled the issue by developing its own Shariah board at a regulatory level to provide centralized oversight. But the Gulf Cooperation Council (GCC) and stricter Muslim nations feel Malaysia’s approach to Shariah compliance is far too liberal and relaxed.

“Investors here are not willing to invest in the products that are approved by Shariah boards in Malaysia,” explains Mohammad Shoaib, CFA, chief executive of Al Meezan Investment Management in Pakistan.

In most of the GCC, Shariah governance is devolved to the bank level. “It is almost privatized, and as a result there is quite a lot of variation in systems of governance. You don’t get standardization, and there are issues about the appointment of Shariah scholars and what qualifications they have and how many boards they sit on,” explains Rodney Wilson, professor of Islamic finance at Durham University and visiting professor at Qatar University. Wilson is also chair of the academic committee of the Institute of Islamic Banking and Insurance in the United Kingdom. “There is one scholar who sits on the boards of 55 institutions,” he points out. “We have published guidelines that highlight some of these issues, not least of which is confidential access to information.”

Unlike Malaysia, Dubai does not believe in a centralized approach to governance and regulation. “We don’t think we are qualified to be Shariah arbitrators,” insists Nik Thani, executive director of Islamic finance at the Dubai International Finance Centre (DIFC). He believes that Malaysia has limited its options by centralizing. “They have an excellent Islamic finance market, and it’s very efficient. But the backbone of their structure is not something that is recognised outside of Malaysia. Shariah law is like common law. It is dynamic, and it evolves. It’s difficult for a government to shift its position. We leave it to market players to develop products that will appeal to their clients.” Thani also points out that unlike other religions, Islam has no central authority. “We need a more collaborative approach between the various regulators,” he says.

Standardization

For some observers, standardization is a difficult concept. “From my perspective, you stifle development by having total standardization. If you had a universal Shariah committee, there would be more certainty to the market, but the downside would be a lack of innovation,” says Richard Thomas, managing director of GSH UK, the UK investment arm of a Kuwaiti-based real estate firm. He believes that a large amount of standardization has already been put in place. “What is universally agreed upon is far greater than areas where there is some conflict. A lot of the controversy has come up from the way that different organizations have exploited the industry and encouraged inappropriate uses for instruments like sukuks.” Others argue that standardization wouldn’t be necessary if international banks hadn’t jumped on the bandwagon and come into Muslim countries with the idea of paying lip service to Islamic
banking by pushing every esoteric structured product through the system. They believe that Islamic banks should continue to do what they are good at— follow classic banking models, with
financing to come from deposits. Then there are those who favor practical standards. “You don’t have to standardize products, but there’s nothing wrong with standardizing procedures,”
says Wilson. “There are different principles of Islamic jurisprudence, but there’s no reason why principles can’t be done in a way that gives confidence to the market.”


ISLAMIC BANKINGCONVENTIONAL BANKING

1. Money is not a commodity, good, or service. It has no price of its own and cannot be used in lending or borrowing for a price (i.e., interest).

2. Money is priced based on the concept of time value of money/opportunity cost, in
addition to the level of risk inherent in a given transaction.

1. Financing activities must be backed by tangible assets.

2. Financing activities are mostly carried out back to back without being asset backed.

1. Money (a stream of cash flow) cannot be exchanged against money (another stream of cash flow) for a price.Exchanging different streams of cash flow in terms of interest paid/received or timing of payment/collection is a common practice.

2. Transactions and activities that involve an element of uncertainty (speculation) regarding outcome and/or timing of execution or delivery are not allowed.Uncertainty and risk management are part and parcel of conventional banking activities

1. Penalties on late payments are prohibited. If penalties are levied, they must be re-channelled to charities.

2. Fees are typically charged for late payments.

1. Transactions and activities that involve engagement with unlawful business sectors, such as gambling and alcohol, are not allowed.

2. Besides money laundering and the financing of criminal activities, how customers use borrowed funds is typically unrestricted.

Source: Al Meezan Guide to Islamic Finance, Morgan Stanley Research.


Challenges to Development

Standardization is one of many challenges to future development. Morgan Stanley has identified four other areas of concern. First, the scarcity of Shariah scholars who are well versed in both Islam and finance leads to overburdened Shariah boards and slow approval processes. Second, Shariah compliance leads to greater product complexity, higher skills requirements, and more onerous documentation. Third, because of the unique aspects of Islamic finance and lack of hedging instruments, liquidity makes risk management that much more challenging. Finally, says Morgan Stanley, there is competition from conventional banking. Industry leaders are unfazed. “At the moment, Islamic finance only accounts for 1 percent of the global financial market,” says DIFC’s Thani. “We have done a lot of growing up in the past few years, and we’re conscious of the weaknesses in the system. We’re always addressing those. It’s difficult to set a time for the development of a level playing field [with conventional banking], but I think it will be relatively fast.”


Maha Khan Phillips is a financial journalist based in London.

Syarikat Takaful outsources IT infrastructure ops to HP

12 February 2009 Business Times

SYARIKAT Takaful Malaysia Bhd (STMB) has outsourced its information-technology (IT) infrastructure operations management services to Hewlett-Packard (HP) in a RM12 million deal. The move is part of STMB's strategy to be the country's leading takaful operator, said group managing director Datuk Hassan Kamil.

Under the three-year contract, STMB aims to enhance service deliveries and ensure faster product launches.

It will also help the company focus on its core competency of delivering insurance services.
Both companies sealed the agreement in Kuala Lumpur yesterday. Also present was STMB's chairman Tan Sri Hadenan Jalil and HP's managing director TF Chong.

HP was among three companies that participated in a tender for the project.

Using HP's expertise, Hassan said, will enable STMB to align its IT cost with actual usage, enhance service levels to its business and improve utilisation of computing resources.
Meanwhile, Hassan said STMB is on track to meet its gross premium target for the year ending June 2009 despite the sluggish economy.

http://global.factiva.com/ga/default.aspx

AIA first to get international takaful operator licence

Tuesday September 23, 2008
PETALING JAYA: American International Assurance Bhd (AIA) has received Malaysia’s first international takaful operator (ITO) licence from Bank Negara.

The licence would allow AIA’s wholly owned subsidiary AIA Takaful International Bhd (ATIB) to carry out composite (family and general) takaful and re-takaful businesses in international currencies.

ATIB has been operational since Sept 15.

AIA Bhd chief executive officer and ATIB director Khor Hock Seng said in a statement: “We are delighted to be granted the licence as we are now able to offer takaful solutions for the middle and affluent segments of qualified residents and non-residents in Malaysia.

“It is a significant step for AIA as we enter the growing Islamic financial market as a niche player offering consumers the choice of takaful solutions in international currencies, something that has not been largely available locally.”

He added that it would enable the company to tap the growing takaful global market and contribute to the expansion of ATIB’s takaful infrastructure. It would also establish Malaysia as a regional centre of excellence for AIA.

As one of the few players in Malaysia offering takaful solutions in international currencies, ATIB is well positioned to benefit from the steady growth of the global and domestic Islamic finance sector and the Malaysia International Islamic Financial Centre’s (MIFC) initiative to promote Malaysia as a major hub for international Islamic finance.

The MIFC initiative positions Malaysia as an international Islamic financial hub for international takaful, sukuk origination, Islamic wealth and fund management, international Islamic banking and human capital development.

“From an organisational perspective, ATIB is also strategically positioned to leverage on the established infrastructure of AIA as it adopts the shared services model which will help ensure overall efficiency and effectiveness,” said Khor.

Another notable key strength of ATIB lies in the wealth of knowledge possessed by the distinguished members of its syariah committee, which has been approved by Bank Negara.

“The committee comprises recognised syariah scholars who will guide us in ensuring all our takaful solutions are in line with established syariah principles,” he said.

http://biz.thestar.com.my/news/story.asp?file=/2008/9/23/business/2092990&sec=business

Sukuk issuance to exceed US$20bil this year

KUALA LUMPUR: The sukuk market is picking up again and the issuance is expected to exceeed US$20bil this year, Standard & Poor’s Rating Services (S&P) said in a report.

The Sukuk Market Continues To Grow Despite Gloomy Global Market Conditions report said the appetite from issuers in a large number of countries was growing.

In a statement yesterday, S&P said entities in more than 15 countries, predominately non-Muslim, had expressed interest or announced their intention to issue sukuks.

S&P credit analyst Mohamed Damak said more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing), most probably as a direct consequence of the debate among some syariah scholars regarding the syariah-compliance of most sukuks previously issued.

Mohamed said the US dollar had lost its position as the currency of choice for sukuk issuance this year not only because of its weakness but also due to speculation about the depegging of some Gulf Cooperation Council (GCC) currencies from the dollar.

“Corporates remained the main issuers, with financial institutions and sovereigns far behind,” he said.

According to the report, total issuance stood at about US$14bil in the eight months to Aug 31, down from about US$23bil during the same period in 2007.

“The lower level of issuance was largely due to the deteriorated conditions on the global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads,” it said.

It said most sukuks were issued in markets where liquidity was still abundant and/or appetite for syariah-compliant instruments was high, namely the countries of the GCC and Malaysia. — Bernama

http://thestar.com.my/news/story.asp?file=/2008/9/11/business/1995997&sec=business

What is Sukuk?

Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Conservative estimates by the Ten-Year Framework and Strategies suggest that over $700 billion of assets are managed according to Islamic investment principles.[1] Such principles form part of Shari'ah, which is often understood to be ‘Islamic Law’, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam.

Sharia-compliant assets worldwide are worth an estimated $500 billion and have grown at more than 10 per cent per year over the past decade, placing Islamic finance in a global asset class all of its own. In the Gulf and Asia, Standard & Poor's estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile.

With its Arabic terminology and unusual prohibitions, Sukuk financing can be quite mystifying for the outsider. A good analogy is one of ethical or green investing. Here the universe of investable securities is limited by certain criteria based on moral and ethical considerations. Islamic Finance is also a subset of the global market and there is nothing that prevents the conventional investor from participating in the Islamic market.

History
In classical period, Islam sakk (sukuk) – which is cognate with the European root "cheque" (which itself derives from Persian)- meant any document representing a contract or conveyance of rights, obligations or monies done in conformity with the Shariah. Empirical evidence shows that sukuk were a product extensively used during medieval Islam for the transferring of financial obligations originating from trade and other commercial activities.

The essence of sukuk, in the modern Islamic perspective, lies in the concept of asset monetisation - the so called securitisation - that is achieved through the process of issuance of sukuk (taskeek). Its great potential is in transforming an asset’s future cash flow into present cash flow. Sukuk may be issued on existing as well as specific assets that may become available at a future date.

Valued at the end of 2006 more than US$ 50bn the sukuk market is due for an exponential rise in 2007 with every issue likely to be oversubscribed 5 to 6 times amid a fast growing interest in the western countries.

Principle
Shari’ah requires that financing should only be raised for trading in, or construction of, specific and identifiable assets. Trading in indebtedness is prohibited and so the issuance of conventional bonds would not be compliant. Thus all Sukuk returns and cashflows will be linked to assets purchased or those generated from an asset once constructed and not simply be income that is interest based. For borrowers to raise compliant financing they will need to utilise assets in the structure (which could be equity in a tangible company). Equity financing is Shari’ah compliant and fits well with the risk/return precepts of Islam.

As Shari’ah considers money to be a measuring tool for value and not an asset in itself, it requires that one should not be able to receive income from money (or anything that has the genus of money) alone. This generation of money from money (simplistically interest) is "Riba", and is forbidden. The implications for Islamic financial institutions is that the trading and selling of debts, receivables (for anything other than par), conventional loan lending and credit cards are not permissible.

This principle is widely understood to mean uncertainty in the contractual terms and/or the uncertainty in the existence of an underlying asset in a contract and this causes issues for Islamic scholars when considering the application of derivatives. Shari’ah also incorporates the concept of "Maslahah" or "public benefit", denoting that if something is overwhelmingly in the public good, it may yet be transacted – and so hedging or mitigation of avoidable business risks, may fall into this category but there is still much discussion yet to come.

Islamic Capital Market Terms

Bai` Bithaman Ajil (BBA)
A contract which refers to the sale and purchase transaction for the financing of assets on a deferred and instalment basis with a pre-agreed payment period. The sale price will include a profit margin.

Bai` al-`Inah
A contract involving the sale and buy-back transaction of assets by a seller. A seller sells an asset to a buyer on a cash basis and later buys it back on a deferred payment basis where the price is higher than the cash price. It can also be applied when a seller sells an asset to a buyer on a deferred basis and later buys it back on a cash basis, at a price which is lower than the deferred price.

Bai` al-Istijrar
A contract whereby the supplier agrees to supply a particular product on an ongoing basis, e.g. monthly, at an agreed price and an agreed mode of payment.

Bai` al-Dayn
A transaction involving the sale and purchase of securities or debt certificates which conforms with the Shariah. Securities or debt certificates are issued by a debtor to a creditor as evidence of indebtedness.

Bai` al-Muzayadah
An action by a person to sell his asset in the open market, which is accompanied by the process of bidding among potential buyers. The asset for sale is awarded to the person who offers the highest price. It is a sale and purchase transaction based on tender.

Bai` al-Salam
A contract whereby payment is made in cash at point of contract but delivery of asset purchased is deferred to a pre-determined date.

Bai` al-Wafa'
A contract with a condition that when the seller pays back the price of the goods sold, the buyer returns the goods to the seller.

Dhaman
A contract of guarantee whereby a guarantor underwrites any claim and obligation that should be fulfilled by the owner of an asset. This concept is also applicable to a guarantee provided on a debt transaction in the event a debtor fails to fulfil his debt obligation.

Gharar
Gharar is an element of deception either through ignorance of an essential element of the goods, the price, or through faulty description of the goods, in which one or both parties stand to be deceived. E.g. gambling is a form of gharar because the gambler is ignorant of the result of the gamble.

Gharar is divided into three types, namely gharar fahish (excessive), which vitiates the transaction, gharar yasir (minor) which is tolerated and gharar mutawassit (moderate) which falls between the other two categories. Any transaction can be classified as forbidden activity because of excessive gharar.

Haq Maliy
Haq maliy is a right on the financial assets, e.g. haq dayn (debt rights) and haq tamalluk (ownership rights).

Hibah
A gift awarded to a person.

Hiwalah
A contract which allows a debtor to transfer his debt obligation to a third party.

Ibra'
An act by a person to withdraw his rights to collect payment from a person who has the obligation to repay the amount borrowed from him.

Ijarah
A manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset or equipment to a client at an agreed rental fee and pre-determined lease period upon the `aqd (contract). The ownership of the leased equipment remains in the hands of a lessor.

Ijarah Thumma Bai`
A contract which begins with an ijarah contract for the purpose of leasing the lessor's asset to the lessee. Consequently, at the end of the lease period, the lessee will purchase the asset at an agreed price from the lessor by executing a purchase (bai`) contract.

Istisna`
A purchase order contract of assets whereby a buyer places an order to purchase an asset to be delivered in the future. The buyer requires the seller or a contractor to construct the asset and deliver in the future according to the specifications given in the sale and purchase contract. Both parties decide on the sale and purchase prices and the settlement can be delayed or arranged based on a schedule of work completed.

Ittifaq Dhimni
A sale and repurchase of an underlying asset whose prices are agreed by the parties prior to the completion of the contract. This is an agreement which must be reached before the contract can be concluded to allow for the bidding process (bai` al-muzayadah) to take place.

Ji`alah
Contract of reward – a unilateral contract promising a reward for a specific act or accomplishment.

Kafalah
It has the same meaning as dhaman.

Khilabah
A form of fraud, either in word or deed by a party to the trading contracts with the intention of inducing the other party into making a contract. This is prohibited according to the Shariah.

Khiyanah
Deception, by not disclosing the truth or breaching an agreement in a hidden way. This is prohibited according to the Shariah.

Mal
Something which has value and can be gainfully used according to the Shariah.

Maisir
Any activity that involves betting whereby the winner takes the bet and the loser loses his bet. This is prohibited according to the Shariah.

Mudharabah
A contract made between two parties to finance a business venture. The parties are a rabb al-mal or an investor who solely provides the capital and a mudarib or an entrepreneur who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. If the business is a loss, it will be borne solely by the a provider of the capital.

Murabahah
A contract referring to a sale and purchase transaction for the financing of an asset whereby the cost and profit margin (mark-up) are made known and agreed to by all parties involved. The settlement for the purchase can be settled either on a deferred lump sum basis or on an instalment basis, and is specified in the agreement.

Musyarakah
A partnership arrangement between two parties or more to finance a business venture whereby all parties contribute capital either in the form of cash or in kind. Any profit derived from the venture is distributed based on a pre-agreed profit sharing ratio and a loss is shared on the basis of capital contribution.

Muqasah
Debt settlement by a contra transaction.

Qabdh
Qabdh means possession, which refers to a contract of exchange. Generally, qabdh depends on the perception of `urf or the common practices of the local community in recognising that the possession of a good has taken place.

Qardh Hasan
A contract of loan between two parties on the basis of social welfare or to fulfil a short-term financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed. It is, however legitimate for a borrower to pay more than the amount borrowed as long as it is not stated or agreed at the point of contract.

Rahn
An act whereby a valuable asset is used as a collateral for a debt. The collateral will be used to settle the debt when a debtor is in default.

Riba
An increase, in a loan transaction or in exchange of a commodity, accrued to the owner (lender) without giving an equivalent counter value or recompensation in return to the other party. It covers interest both on commercial and consumer loans, and is prohibited according to the Shariah.

Sarf
A buying and selling of currencies.

Suftajah
A credit instrument issued to enable a creditor to use or cash it at another pre-determined venue and at a future date.

Sukuk
A document or certificate, documenting the undivided pro-rated ownership of underlying assets. The sak (singular of sukuk) is freely traded at par, premium or discount.

Shariah
Islamic law, originating from the Qur`an (the holy book of Islam), and its practices and explanations rendered by the prophet Muhammad (pbuh) and ijtihad of ulamak (personal effort by qualified Shariah scholars to determine the true ruling of the divine law on matters whose revelations are not explicit).

Tadlis al-`aib
Refers to the activity of a seller intentionally hiding the defects of goods. This activity is prohibited according to the Shariah.

Takaful
A form of Islamic insurance based on the principle of ta`awun or mutual assistance. It provides mutual protection of assets and property and offers joint risk sharing in the event of loss incurred by one of its members. Takaful is similar to mutual insurance in that members are the insurers as well as the insured.

Tanajush
Refers to a conspiracy between a seller and a buyer wherein the buyer is willing to purchase the goods at a higher price. This is done so that others would rush to buy the goods at a higher price, resulting in the seller obtaining a huge profit. This transaction is not permissible in Islam.

Ta`widh
Penalty agreed upon by contracting parties as compensation which can be rightfully claimed by the creditor when the debtor fails or is late in meeting his obligation to pay back the debt.

Ujrah
Financial payment for the utilisation of services or manfaat. In the context of today's economy, it can be in the form of salary, wage, allowance, commission, etc.

`Urbun
A deposit or earnest money forming part payment of the price of goods or services paid in advance, but is forfeited if the transaction is cancelled. The forfeited money is considered as hibah (gift).

'Uqud al-Mu'awadat
Contracts of exchange.

'Uqud al-Tabarruat
Charitable contracts.

'Uqud al-Ishtirak
Contracts of partnership.

Wakalah
A contract which gives a person the power to nominate someone to act on his behalf, as long as he is alive, based on the agreed terms and conditions.

Wadiah Yad Dhamanah
Goods or deposits kept for safekeeping with another person, who is not the owner. As wadiah is a trust, the depository becomes the guarantor and guarantees repayment of the whole amount of the deposits, or any part thereof outstanding in the accounts of the depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.

Zakat
A tax, which is prescribed by Islam on all persons having wealth above a certain amount at a rate fixed by the Shariah. According to the Islamic belief zakat purifies wealth and souls. The objective is to take away a part of the wealth of the well-to-do to distribute among eight categories of people stated in the Quran.

source: http://www.sc.com.my/eng/html/icm/Glossary.html

Islamic Banking Concepts

Wadiah
Islamic banks in Malaysia mostly use Wadiah concept to accept deposits from customers. Under this Islamic scheme of savings and current account, depositors will enjoy interest free safekeeping services of their money, as well as a share of any profit that the bank makes by utilising the deposits.

Banks typically use an Islamic banking principle that is known as "Wadiah Yad Dhamanah" which means guaranteed custody or savings with guarantee. This scheme ensures that Islamic financial institutions acquire deposits under Islamic banking principles. The core of this arrangement is that the bank has the authority to use deposits and give a guarantee to return it to depositors when demanded. The depositors are not entitled to any share of the profits but the bank may provide returns periodically to the depositors as a token of appreciation. The portion of profit to be shared with depositors is at the absolute discretion of the bank. This reward is the alternative to the interest income that depositors would otherwise receive from a conventional bank.

Mudharabah (profit sharing)
An Mudharabah transaction is derived from a partnership based on risk and profit sharing. This partnership is a collaboration between an investor (Rabbul Mal) and an entrepreneur (Mudharib) under which the former provides funds to the latter for the purpose of investment and profit sharing. This is how it works in practice - the customer (which is the investor) will deposit an amount of money with the bank (which acts as the entrepreneur).

This investment is utilised as business capital by the bank. In this contract, the customer (investor) has no authority to interfere in the management of its investment. On the other hand, the bank will have the right to manage the investments as it thinks fit by placing it into businesses that are permissible in Islam, and which it thinks are profitable.

Depending on the tenure of the investment, the customer will be offered a pre-agreed profit sharing ratio which will form the basis of the agreement made between the customer and the bank. On the date that the investments mature, the bank will distribute a share of accumulated profits into the customer’s investment account.

Bai Bithaman Ajil (BBA) or Al-Bai Bithaman Ajil (deferred payment sale)
Bai Bithaman Ajil is a common mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. Technically, this financing facility is based on the activities of buying and selling. The property that the customer wishes to purchase for example, are bought by the bank and sold to the customer at an agreed to price, once the bank and customer determine the tenure and the manner of the instalments. The price at which the bank sells the property will include the actual cost of the property, and will also incorporate the bank's profit margin. There is no interest charged and the extra price compensates the bank for its profit. Instalments remain fixed over the period of the contract and no adjustment is made if the prevailing interest rates fluctuate. The fixed monthly instalments are determined by the selling price, repayment period and the percentage margin of financing. The profit earned by the bank is legitimate from the Shariah point of view since the transaction is based on a sale contract rather than a loan contract.

Bai Inah or Bai’ al-Inah (sell and buy back)
This refers to the selling of an asset by the bank to the customer through deferred payment.

Bai Inah comprises two agreements (akad). In the first agreement, the bank sells an identified asset to the customer at an agreed price. The customer can complete the purchase of bank's asset via fixed monthly instalments on agreed tenure. While for the second agreement, the bank re-purchases the same asset from the customer at a lower price. Upon completion of the second transaction, the bank will pay the lump sum amount as per agreed by both parties in the agreement.

The difference in the price is therefore the bank's maximum profit, which is determined in advance.

Ijarah (leasing)
Ijarah in Arabic means to give something on rent, which resembles leasing as it is practised in today’s commercial world. As in a normal lease transaction, a lessor who owns the leased asset will lease it to the lessee in exchange for rental. The unique feature offered by this financial instrument is that the asset remains the property of the bank and can be put on rent every time the lease period terminates. Ijarah is suitable for high-cost assets with a long life span. Both contracting parties benefit where the lessee will get the full benefit of using the lease asset within the specified period (for as long as he adheres to the lease terms and conditions) without incurring a large capital expenditure. On the other hand, the bank receives the rent as return and also retains the asset. At the end of the lease period, the leased asset will be returned to the lessor.

There are some other variants of leasing which incorporate the transfer or option to transfer ownership of the leased asset from the lessor to the lessee at the end of the lease period. These include:

Ijarah Thumma Bai or al-Ijarah Thumma al-Bai’ (AITAB) - Lease Agreement Incorporating Sale of Leased Asset at the end of the lease tenure. Refers to an Ijarah (leasing/renting) contract to be followed by Bai' (purchase) contract. Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price.

Ijarah Muntahiya Bil Tamlik - Lease Agreement with option to Own Leased Asset at the end of the lease tenure

Ijarah Wal Iktina - Lease Agreement with option to Acquire Leased Asset at the end of the lease tenure

Istisna' (project financing)
Istisna' is by definition an order sale used mainly in financing assets that are under construction, i.e., where a commodity is transacted before it comes into existence.

For instance, one can order a manufacturer to make a specific commodity for the purchaser. If the manufacturer undertakes to make the goods for the customer with material from the manufacturer, the transaction is known as istisna. The price of the commodity to be manufactured must be agreed by both parties.

Istisna is a contract of exchange with deferred delivery, applied to specified made-to-order items. Istisna is suitable for high-technology industries such as the automotive, shipbuilding and construction industries. This agreement allows the Bank to disburse payments according to the stage of completion. As a financier, the Bank rarely orders the asset for its own use.
Once completed, the asset will be handed over to the customer through a leasing arrangement (Ijarah), a deferred sale arrangement (Bai Bithaman Ajil), a cost plus arrangement (Murabaha) or a profit sharing arrangement (Mudharabah or Musyarakah).

Kafalah (guarantee)
Islamic banks use Kafalah to issue Bank and Shipping guarantees. Kafalah is a contract made between the Bank and another party whereby the Bank agrees to discharge the liability of a third party in the case of default by the third party. As a surety, the third party will give the bank some form of collateral and pay a small fee for the services.

Under the Kafalah Shipping Guarantee, the Bank gives a surety to the owner of the shipping vessel, to discharge goods to the importer pending receipt of the original bill of lading.

For the Kafalah Bank Guarantee, the bank guarantees the company's standing to facilitate any business endeavours that may require such guarantees.

Musyarakah Financing (joint venture)
Musyarakah a profit and loss sharing partnership. In a Musyarakah financing arrangement, the Bank and the Customer will both contribute their capital as well as expertise in a project. Profit and loss will be shared between partners according to some agreed formula depending on the equity ratio, normally based on the capital contribution. However, it is permissible to have profit sharing not according to the proportion of shares (ownership) but liability is limited to contribution of their shareholders. Investors cannot be held liable for more than the amount of capital they have invested.

Mudharabah Financing
As in Musyarakah financing, Mudharabah financing is a form of partnership where the Bank will provide the capital and the customer will provide the expertise. Both will agree on a profit sharing ratio. The customer will be solely responsible for running the business, project or contract without interference from the Bank. All forms of capital loss, if any, will be borne by the Bank and all forms labour loss, if any, will be borne by the customer.

Murabahah Financing (cost plus)
Murabahah financing arrangement is a trust sale financing arrangement. In this financing arrangement, the customer will first identify the goods to be financed. The bank will then secure the goods, add the mark up profit, deliver the goods and collect the payment from the customer - usually in deferred terms. In a Murabahah transaction, the cost price paid by the Bank must be transparent to the customer. Murabahah is widely used in short-term Islamic Trade Finance arrangements.

Under murabahah, the bank purchases, in its own name, goods that an importer or a buyer wants, and then sells them to the customer at an agreed profit. The bank takes title of the goods, and is therefore engaged in buying and selling. Its profit is derived from a real service that entails a certain risk, and is thus seen as legitimate.

Murabahah is one of the most widely used modes of short-term financing and follows a lump sum repayment schedule. It is suitable for purchase of commodities by customers operating in industry or trade. It enables customers to buy finished goods, raw materials, machines or equipment through the bank which may not be otherwise available directly to them due to their credit worthiness.

Wakalah (nominating another person to act)
Wakalah means agency, or the delegating of a duty to another party for specific purposes and under specific conditions. Under this concept, the bank acts as an agent in completing a particular financial transaction. As the agent, the Bank will be paid a certain amount of fee for the services it provides.

Bai’ al-Dayn (debt trading)
Refers to the buying and selling in the secondary markets of debt certificates, securities, trade documents and papers which are Shariah compliance. Only documents evidencing real debts arising from bona fide merchant transactions can be traded.

Qard (interest-free loan)
A loan extended on a goodwill basis and the borrower is only required to repay the principal amount borrowed. However, he may pay an extra amount at his absolute discretion, as a token of appreciation.

Bai’ Salam (future delivery)
Refers to an agreement whereby payment is made in advance for delivery of specified goods in the future.

Bai’ Istijrar (supply contract)
Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment.

Rahnu (collateralised borrowing)
Refers to an arrangement whereby a valuable asset is placed as collateral for debt or right of claim. The collateral may be disposed in the event of default.

Hiwalah (remittance)
Refers to a transfer of funds/debt from the depositor's/debtor's account to the receiver's/ creditor's account whereby a commission may be charged for such service.

Sarf (foreign exchange)
Refers to the buying and selling of foreign currencies.

Ujr (fee)
Refers to commissions or fees charged for services.

Hibah (gift)
Refers to gifts award voluntarily in return for any transactions given or provided.

Tawarruq
Tawarruq refers to a transaction in which a financial institution sells a commodity to a customer on deferred payment at cost plus profit, and the customer then sells the commodity on a spot basis to a third party for cash. With tawarruq, customers can raise loan financing through buying instalments in a local commodity, owned by the Bank. The applicant then authorises the bank to sell his share in this commodity, on his behalf, to a third party for cash and then deposits the proceeds into his bank account.

Urbun
Earnest money held after a contract is established as collateral to guarantee contract performance

Riba’
The excess paid or received over and above the principal in a loan contract.

Ibra'
Rebate given by the Islamic banking institution for the unearned profits, in the event of early redemption of financing. The rebate will be in the form of a reduction in the balance outstanding of the selling price.

Qardhul Hassan
Benevolent loan

Islamic Banking Terms

Amanah

This refers to deposits in trust. A person can hold a property in trust for another, sometimes by express contract and sometimes by implication of a contract. Amanah entails an absence of liability for loss except in breach of duty. Current Accounts are regarded as Amanah (trust). If the bank gets authority to use Current Account funds in its business, Amanah transforms into a loan. As every loan has to be repaid, banks are liable to repay the full amount of the Current Accounts.

Arbun

Down payment; a non-refundable deposit paid by a buyer retaining a right to confirm or cancel a sale.

Al-‘Aariyah

(Gratuitous loan of non-fungible objects) (Al-‘Aariyah means the loan of a particular piece of property, the substance of which is not consumed by its use, without anything taken in exchange, In other words, it is the gift of usufruct of a property or commodity that is not consumed on use. It is different from Qard in that it is the loan of fungible objects which are consumed on use and in which the similar and not the same commodity has to be returned. It is also a virtuous act like Qard. The borrowed commodity is treated as liability of the borrower who is bound to return it to its owner.

Bai‘ Muajjal

Literally this means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the seller earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in instalments. The bank has to expressly mention the cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

Bai' Salam

Salam means a contract in which advance payment is made for goods to be delivered later. The seller undertakes to supply some specific goods to the buyer at a future date in exchange for being paid in advance a price fully paid at the time of contract. According to the normal rules of the Shariah, no sale can be effected unless the goods are in existence at the time of the bargain, but Salam sale forms an exception given by the Prophet himself to the general rule provided the goods are defined and the date of delivery is fixed. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to potential disputes. The objects of this sale are goods and cannot be gold, silver or currencies because these are regarded as monetary values exchange of which is covered under rules of Bai al Sarf, i.e. mutual exchange which must be hand to hand without delay. Barring this, Bai' Salam covers almost everything which is capable of being definitely described as to quantity, quality and workmanship.

Bai' bil Wafa

Sale with a right in the seller, having the effect of a condition, to repurchase (redeem) the property by refunding the purchase price. According to the majority of Fuqaha this is not permissible.

Daman

1) Contract of guarantee, security or collateral; 2) Responsibility of entrepreneur/manager of a business; one of two basic relationships toward property, entailing bearing the risk of its loss.

Dayn

means Debt. A Dayn comes into existence as a result of any contract or credit transaction. It is incurred either by way of rent or sale or purchase or in any other way which leaves it as a debt to another.

Duyun

(debts) ought to be returned without any profit since they are advanced to help the needy and meet their demands and, therefore, the lender should not impose on the borrower more than what he had given on credit.

Falah

Falah means to thrive, to become happy or to have luck and success. Technically it implies success both in this world and in the Akhirah (Hereafter). The Falah presumes belief in one God, the apostlehood of Prophet Muhammad, Akhirah and conformity to the Shariah in behaviour.

Fiqh

Islamic law. The science of the Shariah.

Gharar

This means any element of absolute or excessive uncertainty in any business or a contract about the subject of contract or its price, or mere speculative risk. It has the potential to lead to undue loss to a party and unjustified enrichment of the other, which is prohibited.

Al Ghunm bil Ghurm

This provides the rationale and the principle of profit sharing in Shirkah arrangements. Earning a profit is legitimized only by engaging in an economic venture, applying risk sharing principles and thereby contributing to the economy.

Hadith

(see Sunnah)

Halal

Anything permitted by the Shariah.

Haram

Anything prohibited by the Shariah. Examples are wine and pork.

Hawalah

Literally, this means a transfer. Legally, it is an agreement by which a debtor is freed from a debt by another becoming responsible for it, or the transfer of a claim of a debt by shifting the responsibility from one person to another – contract of assignment of debt. It also refers to the document by which the transfer takes place.

Hibah

Gift.

Ijara

means letting on a lease. It refers to the sale of a definite usufruct of any asset in exchange for a definite reward. It refers to a contract of land leased at a fixed rent payable in cash and also to a mode of financing adopted by Islamic banks. It is an arrangement under which the Islamic banks lease equipment, buildings or other facilities to a client, against an agreed rental.

Ijarah-wal-Iqtina‘

means a mode of financing, by way of hire-purchase, adopted by Islamic banks. It is a contract under which the Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rental as well as the purchase price are fixed in such a manner that the bank gets back its principal sum alongwith with some profit, which is usually determined in advance.

Ijtihad

Refers to the endeavour 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 Qur’an and the Sunnah. Express injunctions have no room for Ijtihad. Implied injunctions can be interpreted in different ways by way of inference from the accepted principles of the Shariah

‘Illah

this is the attribute of an event that entails a particular Divine ruling in all cases possessing that attribute. ‘Illah is the basis for applying analogy for determining permissibility or otherwise of any act or transaction.

Ijma‘

Consensus of all or a majority of the leading qualified jurists on a certain Shariah matter in a certain age.

‘Inah

(A kind of Bai): this is a double sale by which the borrower and the lender sell and then resell an object between them, once for cash and once for a higher price on credit, with the net result being a loan with interest.

‘Inan

(A type of Shrikah): this is a form of partnership in which each partner contributes capital and has a right to work for the business, not necessarily in equal shares.

Istihsan

this is a doctrine of Islamic law that allows exception to strict legal reasoning, or guiding choice among possible legal outcomes, when considerations of human welfare so demand.

Israf

this refers to immoderateness, exaggeration and waste and covers spending on lawful objects but exceeding moderation in quantity or quality; spending on superfluous objects while necessities are unmet; spending on objects which are incompatible with the economic standard of the majority of the population. See also Tabzir

Istisna’a

this is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. A manufacturer or builder agrees to produce or build a well described good or building at a given price on a given date in the future. Price can be paid in installments, step by step as agreed between the parties. Istisna’a can be used for financing the manufacture or construction of houses, plant, projects, and the building of bridges, roads and highways.

Jahala

Ignorance, lack of knowledge; indefiniteness in a contract, sometime leading to Gharar.

Kali bil-Kali

The term Kali refers to something delayed. It appears in a maxim forbidding the sale of al-Kali bil-Kali i.e. the exchange of a delayed counter value for another delayed counter value.

Al-Kafalah

(Suretyship) Literally, Kafalah means responsibility, amenability or suretyship. Legally in Kafalah a third party become surety for the payment of a debt. It is a pledge given to a creditor that the debtor will pay the debt, fine etc. Suretyship in Islamic law is the creation of an additional liability with regard to the claim, not to the debt or assumption only of the liability and not of the debt.

Kharaj bi-al-Daman

Gain accompanies liability for loss. This is a Hadith forming a legal maxim and is a basic principle of Islamic finance– see also Al-Ghunm bil Ghurm.

Khiyar

means an option or the power to annul or cancel a contract.

Khiyar al-Majlis

means the power to annul a contract possessed by both contracting parties as long as they do not separate.

Khiyar al-Shart

A right, stipulated by one or both of the parties to a contract, to cancel the contract for any reason for a fixed period of time.

Mal-e-Mutaqawam

Things the use of which is lawful under the Shariah; or wealth that has a commercial value. Legal tender of the modern age that carry monetary value are included in Mal-e-Mutaqawam. It is possible that certain wealth has no commercial value for Muslims. Examples would be pork or wine.

Mithli

(Fungible goods): Goods that can be returned in kind, i.e. gold for gold, silver for silver, US $ for US $, wheat for wheat, etc.

Mubah

means an object that is lawful (i.e. something which is permissible to use or trade in).

Mudarabah

a form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a pre-agreed basis, while loss is borne by the provider(s) of the capital.

Murabaha

Literally this means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and the profit. Murabaha has been adopted by Islamic banks as a mode of financing. As a financing technique, it can involve a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is stipulated in advance.

Musawamah

Musawamah is a general kind of sale in which the price of the commodity to be traded is bargained between seller and the purchaser without any reference to the price paid or cost incurred by the former.

Maisir

An ancient Arabian game of chance played with arrows without heads and feathering, for stakes of slaughtered and quartered camels. It came to be identified with all types of hazard and gambling.

Musharakah

Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in a joint business. It is an agreement under which the Islamic bank provides funds which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by every partner strictly in proportion to respective capital contributions.

Qimar

Qimar means gambling. Technically, it is an arrangement in which possession of a property is contingent upon the happening of an uncertain event. By implication it applies to a situation in which there is a loss for one party and a gain for the other without specifying which party will lose and which will gain.

Qiyas

Literally this means measure, example, comparison or analogy. Technically, it means a derivation of the law on the analogy of an existing law if the basis (‘illah) of the two is the same. It is one of the sources of Islamic law.

Riba

means an excess or increase. Technically, it means an increase over the principal in a loan transaction or in exchange for a commodity accrued to the owner (lender) without giving an equivalent counter-value or recompense (‘iwad) in return to the other party; every increase which is without an ‘iwad or equal counter-value.

Riba Al-Fadl

Riba Al-Fadl (excess) is the quality premium in exchanging low quality with better quality goods e.g. dates for dates, wheat for wheat, etc. – an excess in the exchange of Ribawi goods within a single genus. The Concept of Riba Al-Fadl refers to sale transactions while Riba Al-Nasiah refers to loan transactions.

Qabul

Acceptance, in a contract; see also Ijab.

Qard

(Loan of fungible objects): The literal meaning of Qard is ‘to cut’. It is so called because the property is really cut off when it is given to the borrower. Legally, Qard means to give anything having value in the ownership of the other by way of virtue so that the latter could avail of the same for his benefit with the condition that same or similar amount of that thing would be paid back on demand or at the settled time. It is a loan which a person gives to another as a help, charity or advance for a certain time. The repayment of the loan is obligatory. The Holy Prophet is reported to have said “…..Every loan must be paid……”. But if a debtor is in difficulty, the creditor is expected to extend time or even to voluntarily remit the whole or a part of the principal. Qard is, in fact, a particular kind of Salaf. Loans under Islamic law can be classified into Salaf and Qard, the former being loan for a fixed time and the latter payable on demand. (see Salaf)

Riba Al-Nasiah

Riba Al-Nasiah or riba of delay is due to an exchange not being immediate with or without excess in one of the counter values. It is an increment on principal of a loan or debt payable. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender at the end of the period the amount originally lent together with an increase on it, in consideration of the lender having granted him time to pay. Interest, in all modern banking transactions, falls under the purview of Riba Al-Nasiah. As money in the present banking system is exchanged for money with excess and delay, it falls, under the definition of riba.

Ribawi

Goods subject to Fiqh rules on Riba in sales, variously defined by the schools of Islamic Law: items sold by weight and by measure, foods, etc.

Al- Rahn

means pledge or collateral; legally, Rahn means to pledge or lodge a real or corporeal property of material value, in accordance with the law, as security, for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt or some portion of the goods or property. In the pre-Islamic contracts, Rahn implied a type of earnest money which was lodged as a guarantee and material evidence or proof of a contract, especially when there was no scribe available to put it into writing. Theinstitution of earnest money was not accepted in Islamic law and the common Islamic doctrine recognized Rahn only as a security for the payment of a debt.

Salaf

means loan/debt .The word Salaf literally means a loan which draws forth no profit for the creditor. In wider sense, it includes loans for specified periods, i.e. short, intermediate and long-term loans. Salaf is another name for Salam as well wherein the price of the commodity is paid in advance while the commodity or the counter value is supplied in future; thus the contract creates a liability for the seller. Amount given as Salaf cannot be called back, unlike Qard, before it is due. (see Qard)

Al-Sarf

Basically, in pre-Islamic times this was the exchange of gold for gold, silver for silver and gold for silver or vice versa. In Islamic law such an exchange is regarded as ‘sale of price for price’ (Bai al Thaman bil Thaman), and each price is consideration of the other. It also means sale of monetary value for monetary value – currency exchange.

Shariah

The term Shariah refers to divine guidance as given by the Holy Qur’an and the Sunnah of the Prophet Muhammad and embodies all aspects of the Islamic faith, including beliefs and practice.

Shirkah

means a contract between two or more persons who launch abusiness or financial enterprise to make profits. In the conventional books of Fiqh, the partnership business is discussed under the option of Shirkah and that may include both Musharakah and Mudarabah.

Sunnah

means custom, habit or way of life. Technically, it refers to the utterances of the Prophet Muhammad other than the Holy Quran. These utterances are known as Hadith, or his personal acts, or sayings of others, tacitly approved by the Prophet.

Tabarru’

means a donation/gift the purpose of which is not commercial but is done to seek the pleasure of Allah. Any benefit that is given by a person to other without getting anything in exchange is called Tabarru’. It is absolutely at the lender’s own discretion and without any prior condition or inducement for reward.

Tabzir

Spending wastefully on objects which have been explicitly prohibited by the Shariah irrespective of the quantum of expenditure. See also Israf.

Ujrah

A contract of agency in which one person appoints someone else to perform a certain task on his behalf, usually against a certain fee.

The History of Islamic Banking in Malaysia

Before the re-emergence of the Islamic financial system, the Muslims throughout the world has only conventional financial system to fulfill their financial needs. The Islamic resurgence in the late 1960's and 1970's has initiated the call for a financial system that allows Muslim to transact in a system that is in line with their religious beliefs. The Islamic banking system involves a social implication which is necessarily connected with the Islamic order itself, and represents a special characteristic that distinguished Islamic banks from other banks based on other philosophies. In exercising all its banking or developmental activities, the Islamic bank takes into prime consideration the social implications that may be brought by any decision or action taken by the bank. Profitability, despite its importance and priority, is not the sole criterion or the prime element in evaluating the performance of Islamic bank, since they have to match both the material and social objectives that would serve the interests of the community as a whole and help achieve their role in the sphere of social mutual guarantee. Social goals are understood to form an inseparable element of the Islamic financial system that cannot be dispensed with or neglected.

As the need to have an Islamic financial system was vital and immediate, Muslim scholars had taken the effort to embark on the development of Islamic financial system. This had led to the establishment of Islamic Development Bank in 1974 followed by the Islamic Bank of Dubai, the first Islamic commercial bank in 1975. In the following years, a number of Islamic banks were established, concentrated mainly in the Middle East such as the Islamic Bank of Faisal in Egypt (1977), the Islamic Bank of Faisal in Jordan (1978), Bank of Islamic Finance and Investment in Jordan (1978), Islamic Investment Company Ltd.in UAE (1979) and others.

In Malaysia, Islamic finance traces its root back to 1963, with the establishment of the Pilgrims Fund Board or Lembaga Tabung Haji (LTH). This was a savings mechanism under which devout Malaysian Muslim set aside regular funds to cover the costs of performing the annual pilgrimage. These funds were in turn invested in productive sectors of the economy, aimed at yielding return uncontaminated by riba'.

As a country which population is dominated by Muslims, Malaysia was also affected by the resurgence that had taken place in the Middle East. Many parties were calling for the establishment for an Islamic bank in Malaysia. For example, in 1980, the Bumiputera Economic Congress had proposed to the Malaysian Government to allow the setting up of an Islamic bank in the country. Another effort was the setting up of the National Steering Committee in 1981 to undertake a study and make recommendations to the Government on all aspects of the setting up and operations of Islamic bank in Malaysia, including the legal, religious and operational aspects. The study concluded that the establishment of an Islamic bank in Malaysia would be a viable project from the operation and profits points of view. The conclusion marked the establishment of the first Islamic bank in Malaysia, Bank Islam Malaysia Berhad (BIMB) in July 1983, with an initial paid up capital of RM80 million. The establishment of BIMB also marked a new milestone for the development of the Islamic financial system in Malaysia. BIMB carries out banking business similar to other commercial banks, but along the principles of Syari'ah. The bank offers deposit-taking products such as current and savings deposit under the concept of Al-Wadiah Yad Dhamanah (guaranteed custody) and investment deposits under the concept of Al-Mudharabah (profit-sharing). The bank grants financing facilities such as working capital financing under Al-Murabahah (cost-plus), house financing under Bai' Bithaman Ajil (deferred payment sale), leasing under Al-Ijarah (leasing) and project financing under Al-Musyarakah (profit and loss sharing). BIMB had grown tremendously since its inception. It was listed on the Main Board of the Kuala Lumpur Stock Exchange on 17 January 1992. BIMB's total assets rose from RM325.5 million in 1984 to RM10.12 billion in 2000.

It has been the aspiration of the Government to create a vibrant and comprehensive Islamic banking and finance system operating side-by-side with the conventional system. A single Islamic bank does not fit the definition of a system. An Islamic banking and finance system requires a large number of dynamic and pro-active players, a wide range of products and innovative instruments, and a vibrant Islamic money market. The first step in realizing the vision was to disseminate Islamic banking on a nationwide basis with as many players as possible and within the shortest period possible. This was achieved through the introduction of Skim Perbankan Islam (SPI) in March 1993. SPI allows conventional banking institutions to offer Islamic banking products and services using their existing infrastructure, including staff and branches. The scheme was launched on 4 March 1993 on a pilot basis involving three banks. Following the successful implementation of the pilot-run, Bank Negara Malaysia allowed other commercial banks, finance companies and merchant banks to operate the scheme in July 1993 subject to the specific guidelines issued by the central bank. From only three banks in March 1993, the number of Islamic financial institutions have increased to 36, comprising 14 commercial banks (of which 4 are foreign banks), 10 finance companies, 5 merchant banks and 7 discount houses. On 1 October 1999, the second Islamic bank, Bank Muamalat Malaysia Berhad, was established.

Today, Malaysia has succeeded in implementing a dual banking system and has emerged as the first nation to have a full-fledged Islamic system operating side-by side with the conventional banking system. The aspiration to establish a comprehensive Islamic banking and finance system has created a spill-over effect to the non-bank Islamic financial intermediaries which started to offer Islamic financial products and services. Such institutions include the takaful companies, the savings institutions (i.e. Bank Simpanan Nasional & Bank Rakyat) and the developmental financial institutions (i.e. Bank Pembangunan dan Infrastruktur Malaysia and Bank Pertanian).

MNRB takaful business to drive future growth

Tuesday August 26, 2008

KUALA LUMPUR: MNRB Holdings Bhd, which has 60% market share of the local reinsurance business, expects its takaful and retakaful businesses to drive revenue growth in the coming years.

Chairman Sharkawi Alis said for the financial year ended March 31 (FY08), wholly owned unit Takaful Ikhlas Sdn Bhd’s gross contribution improved significantly to RM427.5mil from RM223.9mil previously, surppassing the company’s initial target of RM320mil.

“Takaful Ikhlas’ net profit also rose to RM11.4mil from RM1mil previously,” he told reporters after the company AGM yesterday.

MNRB president and group chief executive officer Annuar Mohd Hassan said the company believed the takaful and retakaful businesses had good growth potential.

“We see these two businesses contributing significantly to revenue over time,” he said, adding that the company had successfully launched MNRB Retakaful Bhd, which had progressed well, posting a profit after tax and zakat of RM1.9mil in its first eight months of operation.

Annuar said the company was also looking to expand its overseas reinsurance business, which currently contributed about 18% of its revenue.

“We are targeting a 25% revenue contribution from our overseas reinsurrance business by March 2009,” he said, adding that another subsidiary Malaysian Re (Dubai) Ltd was officially launched at the Dubai International Financial Centre in United Arab Emirates.

For FY08, MNRB posted an impressive 31.6% jump in net profit to RM170.44mil, compared with RM129.47milin FY07.

Revenue rose 17% to RM978.6mil from RM834.1mil previously.

“We posted record profit this time,” Annuar said, adding that the achievement might be difficult to emulate for FY09 because of the gloomy economic outlook.


http://thestar.com.my/news/story.asp?file=/2008/8/26/business/1884343&sec=business

Hong Leong Bank gears up for further expansion

Tuesday August 26, 2008

Electronic banking, regional expansion and Islamic banking are part of its plans

KUALA LUMPUR: It has been about four years since Hong Leong Bank Bhd (HLBB) set out its business transformation programme and the stellar financial performance unveiled Monday is only one of the outcomes of the programme.

Not resting on its laurels, the banking group is gearing up for electronic banking, expanding regionally and beefing up new business lines such as Islamic banking.

Expansion in Malaysia

Group managing director and chief executive Yvonne Chia told StarBiz: “The next level of transformation in Malaysia will be to review the existing distribution network to further optimise our productivity and efficiency as well as to reach out to new communities and a new way of delivery.”

This meant that as customers became more sophisticated, the bank had to think about segmenting the delivery channels for these specific customer segments “and in what way we can achieve high quality service through face-to-face interaction as well as electronic channels,” she said.

The bank is reviewing its entire network, including how the electronic channels can complement the branches.

The recent upgrade of branches goes beyond a face-lift.

“We have already upgraded many branches. You can see our new signboard is brighter and there is differentiation in that sense.

“But now we are going beyond the look and feel,” Chia said.

HLBB has built its network with a key focus on bandwidth and disaster recovery.

“In the process, it has spent on business applications such as in treasury, and also stepped up IT infrastructure and platforms,” she said.

Regional Expansion

Essentially HLBB’s investment in China is on track.

Chia said: “In terms of the regional expansion, we have already concluded the transaction in China and we have today, in China, a chief operating officer who is also the vice-chairman.’’

HLBB announced on July 21 that it had completed the subscription of 650 million shares or 20% equity interest in Chengdu City Commercial Bank Co Ltd.

“We also have two representatives on the board and up to eight people whom we have assigned to strategic positions – finance, personal financial services (PFS), IT, credit and operations,” she said.

HLBB is involved in the strategic planning of the bank.

She said: “At present, we believe it has more or less (been successful in) segregating the non-performing assets and non-performing loans (NPLs).”

HLBB is working with Chengdu City Commercial Bank to scale-up (with the right foundation) the IT infrastructure, governance and internal controls.

“I think these are the foundation for scaling-up especially in a consumer culture. So potentially, this will be one of the fastest growing projects for us,” Chia added.

Islamic banking in Hong Kong

The bank has just last week announced the opening of a window of operations for Islamic banking in Hong Kong.

Chia said: “That is the precursor for us to offer wholesale deposit and investment banking services, fully supported by Hong Leong Islamic bank as well as the head office wholesale and treasury (department).”

She cautioned that it would be a slow process, but the new window was part of preparations to take part in the Islamic banking business out of Hong Kong, where the Hong Kong Monetary Authority (HKMA) is intent on building that business up.

Singapore Business

Despite a competitive market, the bank has been able to sustain its growth in Singapore.
“Singapore (operations) today continues to be ahead in terms of its investment banking transactions, private banking and has been able to differentiate on a sustainable basis,” Chia said.
The bank has also been able to sustain its fee income in Singapore which is on the uptrend.
“We continue to enjoy the support of our clients from the Middle East, China and South East Asia,” she added.

More on transformation

Chia said: “Our results show the momentum of this transformation.”

Post Asian financial crisis, HLBB has undertaken a re-engineering of its workflow and a revamp of credit origination and collection.

“We have also refocused our wholesale and consumer credit with a clear focus on two credit officers,” she said.

The impact has been seen and overall, NPLs have come down with the bank’s emphasis on credit culture based on “a wholesome approach”.

The key now, according to Chia, is finding ways to automate and which will coincide with efforts to step up the bank’s analytics and scorecard to meet the requirements of Basel 2.

“These become our business engineering tools, especially analytics which can aid in marketing and risk management,” she said.

Analytics looks at consumer behaviour from which HLBB aims to draw up marketing programmes.

“In terms of risk, analystics of consumer behaviour becomes the basis to build credit scorecards,” she said.

On the new banking credit management regime, Chia said: “We are comfortable with Basel 2 which allows us to scale and grow in a sustainable manner.”

Talent management

“Part of the challenges that probably would differentiate us today, is people and talent management,” Chia said.

“I think I would say the top team at Hong Leong Bank is strategic and clear with their own respective business programmes in place.

“Let’s just say that I am proud of the leadership as a team, who are able to come together and seen the benefits of the transformation journey and undertake their respective parts,” she added.

In the process, HLBB has built a team that brings in new skill sets which contribute to change across the breath of the business.

“I guess the change is to be relevant to the marketplace, where we retrain the older staff and bring in new skill sets as well.

“It is a combination of training as well as new compensation in-line with the marketplace,” she said.

In strategic terms, the bank is actively bringing in new skill sets to address “the market risk” of a changing environment.

The challenge is to get the combination of old and new to assimilate into the Hong Leong culture of integrity and high performance standards, where we benchmark against the best in the world and the best in class, she added.

Outlook

“Analysts in the US expect that the fallout from the subprime crisis will last until 2009,” Chia said.

However, Asia’s resilience is only in relative terms and the performance of the regional economies still depend on the changing environment in the US and Japan.

The China factor is the main reason that Asia is expected to be able to weather global volatility.
Meanwhile, competition with China’s low-cost manufacturing has actually improved efficiency in many industries in Asia, including Malaysia, making various sectors stronger.

From an investment view point, Chia does not see political risk as the reason for the lacklustre investment scene.

Instead she believes it is all about global efficiencies, incentives in individual countries and events in global markets.

“Nowadays, a dollar is a dollar, and investors look for returns and markets,” she said.
The credit crunch is not so much affected by Asian local currencies, but tight liquidity of US dollars. And foreign investment into Asia is dependent on US dollar position.

Chia remains “cautiously optimistic” about the second half of the year. The banking system is in a much healthier state but cost push inflation is affecting consumption, business growth and demand.

“The bank will have to drive efficiency to cater for the changing marketplace,” she said. It will have to watch the credit and costs, stay in touch with customers’ ongoing business and find new areas as well as offerings in a changing market.

Asia ex Japan could be the bright spot in the global economy in the second half of this year and for the rest of next year even as the credit crisis starts to affect the real economy in the US.


http://thestar.com.my/news/story.asp?file=/2008/8/26/business/1881612&sec=business

AmInvestment second to start Islamic stockbroking

Friday August 22, 2008

KUALA LUMPUR: AmInvestment Bank Group aims to achieve RM1mil net profit for its newly launched Islamic stockbroking (ISB) unit in the first year of operations.

Operations director Shaharuddin Hassan said RM1mil in bottomline was achievable and translated into RM600mil trading volume.

AmInvestment is the second bank to set up an ISB unit in the country after Bank Islam Malaysia Bhd.

According to retail broking director Lee Yew Kin, two or three local investment banks will soon launch their ISB units.

AmInvestment Bank Group launched of its first Islamic Structure Deposit, Active Commodities Islamic Negotiable Instruments of Deposit (NID-i).

Meant for Muslim and non-Muslim customers, ISB offers syariah-compliant products, activities, business and operations.

Services offered carry no elements of riba’ (interest) such as contra service charge, interest charges and interest income.

“We are now using the strength of the infrastructure in our conventional stockbroking to provide this service,” Shaharuddin said, adding that the new venture cost about RM2mil.

The bank will consider setting up a full-fledged centre when the demand has picked up.
On the possibility of introducing ISB beyond Malaysia with a partner, Shaharuddin said the bank’s intention was to first build a track record in the local market.

He said about 800 counters listed on Bursa Malaysia were syariah-compliant and this translated into a huge potential for the ISB market.

He said Islamic stockbroking now contributed less than 1% of the total trading volume.

On the outlook of the local stock market, he said it would be choppy in the next few months due to the slowdown in the global market and political instability in the country.

http://thestar.com.my/news/story.asp?file=/2008/8/22/business/1860649&sec=business

Malaysia poised to be global Islamic capital market centre

Thursday August 21, 2008

KUALA LUMPUR: Malaysia can become the centre for the global Islamic capital market due to its favourable regulatory environment, says Prudential Corp Asia funds management chief executive Arne Lindman.

“The support from the Securities Commission (SC), for example, has helped Malaysia become the leader in Islamic bond issues or sukuk. The country issues more than 69% of the world’s sukuk estimated to be worth about US$62bil.” he said yesterday after the signing of a memorandum of understanding (MoU) between Prudential Fund Management Bhd (PFMB) and Dubai-based Prudential Asset Management Ltd (PAMD).

Also present at the ceremony was SC chairman Datuk Zarinah Anwar.

Under the MoU, both corporations will work closely to distribute Prudential-managed syariah funds in Malaysia and the Middle East.

Lindman said the MoU would help Malaysia and Dubai cooperate, instead of compete, with each other, and this would spur business development.

PFMB chief executive officer Mark Toh said this was the first time that two Asian countries were promoting the cross-marketing and distribution of Islamic funds. Recently the SC and the Dubai Financial Services Authority signed an agreement to allow such activities.

“Instead of setting up a company in Dubai, we will be able to sell funds directly to the country. It will also allow each country to promote and sell funds between jurisdictions without hassle,” he said.

PAMD chief executive officer Suraj Mishra said this would create synergy between the two countries.

“Instead of getting additional fund managers to sell the funds, the two countries can rely on each other as both have expertise in this sector,” he said.

In Asia, Prudential’s asset management business is one of the region’s largest, operating in 10 markets with funds under management of US$68bil as at end of June 2008.


http://thestar.com.my/news/story.asp?file=/2008/8/21/business/1850243&sec=business

Global sukuk to gain momentum

Thursday August 21, 2008

KUALA LUMPUR: The global sukuk market is likely to gain momentum in the first quarter of next year following a period of slower growth due to the United States subprime market impact.

CIMB Islamic Bank Bhd executive director and chief executive officer Badlisyah Abdul Ghani said demand for infrastructure based issuance would remain strong with Malaysia and the Gulf Cooperation Council (GCC) countries being prominent players.

“The new issuance of global sukuk would find it difficult though to surpass the US$16bil of last year due to the current credit crisis conditions,” he said yesterday after the launch of CIMB Islamic’s new product, Market Select, a syariah-compliant capital-protected fund.

CIMB Islamic is, however, confident that the fund would be a success in spite of the global economic scenario. CIMB Islamic is the CIMB group’s global Islamic banking and finance franchise. Both CIMB Bank and CIMB Islamic offer retail banking services to over 4.7 million customers in 366 branches nationwide.

Badlisyah said by catering to the different investment portfolios of countries around the world, the Market Select fund was able to capture the upside of each market while mitigating risk arising from each.

The new fund would invest in 17 countries from developed and emerging markets around the globe.

These include developed nations such as the United States, Europe and Japan and emerging economies like China, India, Malaysia, Russia, Brazil and Vietnam.

According to CIMB Bank head of retail banking, Peter England, Market Select potentially offers higher returns than fixed deposits as it rides on the growth of new emerging markets.

He said Market Select’s dynamic investment allocation strategy would give average annual returns of 16.5% and 23.6% for the three-year and five-year plans respectively.

“This marks another innovative offering from the CIMB group through combining our skills and expertise in treasury, Islamic finance and takaful to bring previously inaccessible markets to the retail investor,” he added.

England said the group was targeting RM200mil take-up for the fund. — Bernama

http://thestar.com.my/news/story.asp?file=/2008/8/21/business/1855103&sec=business

HLB unveils Islamic banking window in Hong Kong

Thursday August 21, 2008

KUALA LUMPUR: Hong Leong Bank (HLB) on Monday launched the first Islamc Banking Window (IBW) in Hong Kong, a platform for the bank to expand its international Islamic financial business.

Through the IBW, the bank would be able to facilitate cross-border Islamic transactions, HLB said in a statement.

The IBW would enable the bank to tap the West and North East regions and China markets, it said.

Permission was received from the Hong Kong Monetary Authority for the bank’s IBW to offer innovative syariah-compliant wholesale and investment banking solutions.

As a start, HLB will offer the Commodity Murabahah programme, a trade-related transaction with mark-up price element that serves as liquidity management instruments, thus paving the way for Islamic money market transactions in Hong Kong.

It said it had the capability to customise Islamic financial solutions designed to help maximise investors’ returns within syariah-accepted tenets. – Bernama

http://thestar.com.my/news/story.asp?file=/2008/8/21/business/1835972&sec=business