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“ESTABLISHING AN ISLAMIC BANK –KEY SUCCESS INGREDIENTS”
By Hizamuddin JamalluddinHead, Strategic Management & Managing Director’s Office
Strictly Private & Confidential
TABLE OF CONTENTS
Strategic Management & Managing Director’s Office Page 2
Welcoming Remarks
Corporate Video Presentation
Special Presentation – “Establishing an Islamic Bank – Key Success Ingredients”
Q & A Session
Photo Session with Members of Association of Banks
Sec 1
Sec 2
Sec 3
Sec 4
Sec 5
OUR FOUNDATION
Originating Department Page 3
KEY SUCCESS INGREDIENTS
Originating Department Page 4
Enabling Environment
Business Modality
Resources
Financial Products & Services
Governance
Key Business/Operation Infrastructure
Education & Market
Readiness
GOVERNANCE
Page 5Strategic Management & Managing Director’s Office
“Centralised vs. Self Regulated”
Shariah Schools of Thought
Scholars – Capability & Dynamics
Scholars' Locus Standi
Shariah Governance Framework
ENABLING ENVIRONMENT
Page 6Strategic Management & Managing Director’s Office
Political Will –“As a National Agenda”
Central Bank as “Champion”
Local Sponsor –“Passion to Succeed”
Legislative, Legal & Shariah Framework
Law of Land (Taxation, Stamp Duty, etc to cater for Shariah Contracts
Central Bank as“Lender or Buyer of the Last Resort”
(to address liquidity position or absorb surplus)
Interbank Money Market
Single Banking System vs Dual Banking System
Regulatory Supervisory Framework
(Islamic Financial Service Authority)
Industry Incentives
Building Critical Mass
BUSINESS MODALITY
Page 7Strategic Management & Managing Director’s Office
Standalone vs Leverage Structure (Window or Subsidiary)
Specialised Institutions(i.e. Islamic
Microfinance, Ar Rahnu)
Universal License vsCommercial Banking
License Cost benefits Co-mingling of funds Co-mingling of marketing Resource Allocation Career Progression Cost of Conversion Cannibalisation
RESOURCES
Page 8Strategic Management & Managing Director’s Office
Capital (BASEL III, Strategic Partner or Investor)
Manpower – Skill Sets & Competency
Technical Assistance & Training Fund
Capital Expenditure(“Brick & Mortar”, Technology, etc)
Risk Management Infrastructure, System &
Capability
Strategic Collaboration
with Established Islamic Bank
PRODUCTS
Page 9Strategic Management & Managing Director’s Office
In-houseDevelopment
White Labeling
Shariah Documentation Compliance to Standards Development Costs Time-to-Market
Debt-based vs. Equity-based
KEY BUSINESS/OPERATIONAL INFRASTRUCTURE
Page 10Strategic Management & Managing Director’s Office
IT Infrastructure & Architecture“Off-the-Shelf”
Accounting Framework & System
Correspondent Banking –Counter Party
Credit Enhancer by Multilateral Institutions
Credit Default Swap Equivalent
Access to Payment System
Shariah Contracts & Standard Documentation
Treasury Operations
(to facilitate Sale-based Contracts i.e.
Tawarruq)
EDUCATION & MARKET READINESS
Page 11Strategic Management & Managing Director’s Office
Muslim Market –Banking by“Conviction”
Non-traditional Customers
Market Emergence Value Proposition Emotional Appeal Customer’s Expectation Level Playing Field Overcoming Barriers/Constraints
START UP COSTS & GESTATION PERIOD
Page 12Strategic Management & Managing Director’s Office
In reality, cost to set up is similar to any establishment of a bank, except for additional element of Shariah compliance
Gestation period is subject to business modality. Rule of
thumb is at least 2 years
Initial Opex to cater for Education & Market
Awareness, Staff Training and etc
Incidental costs due to nature of Shariah contracts
or commodity trading
BALANCE SHEET OF AN ISLAMIC BANK
Liabilities
Demand Deposits
(Qard / Wadiah Yad Dhamanah)
Term Deposits
(Tawarruq)
Investment Accounts (Mudharabah/Wakalah/Musharakah)
Shareholders’ Funds
Capital Instruments (Tier I/II Sukuk)
Assets
Financing Assets (Debt-based : i.e. MPO, IMBT, Istisna’ Parallel Istisna’, Inah
Equity –based : Mudharabah, Musharakah, MM)
Treasury Assets (Cash, Sukuk, Money Market)
Ijarah Assets (Operating lease)
Investments (Subsidiary or Associates)
Inventory
Non-Financial Assets
Originating Department Page 13
ISLAMIC BANKING INSTITUTIONS
Originating Department Page 14
BANK ISLAM – “GIVING BACK TO ISLAMIC FINANCE”
Page 15Strategic Management & Managing Director’s Office
Originating Department Page 16