Mohammed Amin

Why Islamic finance is insufficiently innovative

There are three possible explanations to the question why innovation might be slower in Islamic finance than in the conventional finance industry. These are the size of the industry, cultural factors and religious conservatism. First, the industry is tiny compared with conventional finance, Islamic finance assets are only 1.07% of total financial assets. Culturally, Muslim majority countries display much more respect for age and seniority than do locations like Silicon Valley or London. Finally, there is the question of religious conservatism. The rules of traditional Islamic law have always been derived from the original sources of Quran and hadith, and from past judicial rulings. Requiring all legal developments to be based on prior sources limits the scope for innovation. Mohammed Amin states that fintech can only transform Islamic finance if Shariah scholars are sufficiently agile in developing traditional Islamic law to accomodate innovation.

#UK slowly progressing towards providing Shariah compliant #student #finance

The UK Government has been thinking about the possibility of introducing Shariah compliant student finance since 2011. The Higher Education and Research Bill is currently before Parliament. However, the Bill contains no time-scale for when a Shariah compliant system is likely to be in place. When the Bill was reviewed in the House of Lords, Lord Sharkey proposed an amendment to give a deadline of the 2018-2019 academic year for the introduction of such a scheme. This proposal was rejected by the Government. Lord Sharkey instead proposed an amendment requiring quarterly progress reports from the Secretary of State. The final outcome is that the Bill will proceed forwards and once it has completed all stages, the Secretary of State for Education will have the power to implement a Shariah compliant student finance system.

Why Islamic #mortgages normally cost more than conventional mortgages

The principal reasons are the small size of Islamic banks, and the additional legal transactions involved with Islamic mortgages. In the UK, Muslims are often surprised to find that Shariah compliant Islamic mortgages are noticeably more expensive than conventional ones. A conventional mortgage is a reasonably simple transaction to document legally. Conversely, a residential Islamic mortgage involves both the bank and the new owner occupier purchasing the property jointly. The contracts used are less standardised and there are simply more pieces of legal paperwork involved in an Islamic mortgage. Furthermore, the stand-alone Islamic banks in the UK are very small compared with the very large conventional banks. All these costs must ultimately be borne by the customers and are reflected in the higher prices Islamic banks charge for Islamic mortgages.

How should #VAT systems treat Islamic finance transactions?

Unless tax systems properly accommodate Islamic finance transactions, prohibitive tax costs can arise. The legislation in South Africa, Singapore and Malaysia explicitly refers to Islamic finance transactions. Strictly speaking, this introduces a religious test into secular tax law, which may not be acceptable to other countries. The UK takes a different approach. UK tax law proceeds by only looking at the economic implications of the transaction, without any concern for whether it qualifies religiously as Islamic finance or not, so religious tests do not enter into the UK tax system. UK law already operates to avoid additional VAT costs. In other countries specific legislation will be needed to create parity of tax treatment between conventional finance and Islamic finance.

Are #UK universities mis-selling Islamic finance masters' degrees?

Where UK based students are led to take Islamic finance masters' degrees as a route to an Islamic finance career, mis-selling may be taking place. In world rankings, many UK universities rank relatively highly, and such a UK degree can enhance the promotion prospects of foreign students in their home country. However, many UK origin students are persuaded to take a master's degree in Islamic finance immediately after graduating. Unfortunately, the number of available positions in Islamic finance in the UK is very limited. Also UK Islamic financial institutions are too small to train people, and typically only hire experienced Islamic bankers.

Taxation Issues in Islamic Wealth Management

Mohammed Amin wrote a chapter for the "International Wealth Management Report 2016" published by Edbiz Consulting Ltd. The chapter titled "Taxation Issues in Islamic Wealth Management" outlines some generic taxation issues that need to be taken into account in the provision of Islamic wealth management services, and provides specific illustrations of how they are dealt with in one jurisdiction with a relatively advanced system for taxing Islamic finance, the United Kingdom, to provide some pointers as to how other jurisdictions should treat those issues. However it does not attempt to survey the tax treatment in other jurisdictions.

Radio interview: 15 Minute Introduction to Islamic Finance

An interview on Islamic Finance by Algeria International Radio took place on Monday 6 April and is now available on Youtube. The interview provides a short introduction to Islamic finance for those who have not come across it before. Mohammed Amin was asked several questions about Islamic finance, including: What definition would you give to Islamic Finance? What are the benefits of Islamic finance? Which countries apply this financial system? Has there been a historical evolution of Islamic Finance? How do you describe today’s Islamic Finance? What would be the challenges for Islamic finance?

The role of Islamic finance in Britain's international competitiveness

Countries gain or lose economic competitiveness not by one or two major decisions, but by the steady drip feed of political decisions that either enhance or weaken their competitiveness. While Islamic finance is only a small part of the financial scene in the UK, the way that the UK government has facilitated its grown illustrates the above point very well. Competitiveness is rarely lost by a single dramatic mistake. Similarly, success in increasing competitiveness is often achieved by having a large number of “micro-policies” affecting particular parts of the economy. Promoting Islamic finance as the government has done is clearly in the best interests of the economy and therefore of all British citizens and taxpayers.

Islamic finance in the UK - a look backwards

Looking back at Islamic finance in the UK over the last eight years is rather like looking at a roller coaster, with peaks of excitement and troughs of depression. On the one hand, in 2006 Gordon Brown MP, announced the ambition for Britain to be the global gateway to Islamic finance and trade. However, the excitement of these early developments was followed by a trough. The UK is already the world’s pre-eminent centre for international conventional finance. It also has a very strong position in international Islamic finance. These developments pose an important competitive challenge to Islamic finance centres such as Kuala Lumpur, Bahrain and Dubai. Each has a very strong domestic Islamic finance market, and a significant level of international reach, but lacks the overall scale and credibility of London.

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