Transcript Diapositiva 1 - Malta Institute of Management

SHARIA COMPLAINT
FINANCE
A NEW AVENUE FOR
M&SME’S
Dr Atef El Shabrawy
Al-Maali Consulting Group-UAE
@Atef Elshabrawy 2014
Ex. CEO of Family Bank-Bahrain
‘’THIS IS THE BEST
TIME IN HISTORY TO
BE AN
ENTREPRENEUR”
STEVE STRAUS,
Planet Entrepreneur’s Author
@Atef Elshabrawy 2014
A NEW ERA FOR ENTREPRENEURS
More……
 Business:
 Money
500 million MSME, 137,000 per day worldwide,
:$1
trillion for 68,000 new SME loans in Chain from 2008
 Tools
: VC/ Angle/Microfinance/Crowd; Incubators, Accelerators,
Training, Social media,
 Recognition
 Valuation
: 100s of awards for entrepreneurs,
: 25 start-ups are valued at $1 billion
@Atef Elshabrawy 2014
BUT ……
 Tough
competition
 Control
 Large
on finance (selection criteria& rules, Basel III
financial gap
 $3.2
to 3.9 trillion credit gap for MSMEs worldwide
 Less
than 20% of SME’s in MENA use external finance
 50%
of the population in are “unbankable”
 High
business mortality rates
 Lack
of financial & money management skills
@Atef Elshabrawy 2014
WHERE TO LOOK FOR MONEY
1- Venture capital
Actually, venture capital financing is very rare. Only a very few highgrowth plans with high-power management teams are venture
opportunities.
Decrease number of deals
@Atef Elshabrawy 2014
WHERE TO LOOK FOR MONEY
 Commercial

lenders
Actually, banks don’t finance business start-ups. Banks aren’t
supposed to invest depositors’ money in new businesses.
Ireland -82%
Spain -66%
Portugal -42%
Netherland -32%
France -37%
@Atef Elshabrawy
2014
Source:
Bain & Company,
2013
fall in
European
SME lending
Microfinance
Offer& demand gap In
180 millions by 2015
Characteristics
Developing countries
Industrialized countries
Focuses
Poverty
Social exclusion
unemployment
Average loan size
≥ $200 in Asia to $1,600 in Latin
America
≥$6,500 to $25,000 in
Belgium
Interest rates
17 % in Bangladeshi, 70 % in
Latin American
5 % in Belgium up to 7.5 %
in France
@Atef Elshabrawy 2014
NEW FINANCE
PHILOSOPHY IS NEEDED
@Atef Elshabrawy 2014
THE DEFINITION
Complaint Finance is a financial
system operates according to Islamic
law (sharia).
It features banks, capital markets, fund
managers, investment firms, and
insurance companies.
It is not a religious nor a geographical
matter,
It started in the Middle East but became a
global growing financial industry,
Sharia
@Atef Elshabrawy 2014
THE HISTORY
11th to 16th centuries, financial transactions in Middle East
were on basis of a profit-and loss-sharing.
1960s : the re-initiation in small scale in Egypt
1970s : the creation of banks
Nasser Social Bank - Egypt
 Islamic Development Bank , Dubai Islamic Bank,

1990-2000s : the expansion



ISLAMIC FINANCE grow
at 15-25% annually,
some countries “islamize” their entire banking systems,
Global expansion in most Western Countries
@Atef Elshabrawy 2014
THE GROWTH
38 million customers globally
400 Islamic financial institutions from 58 countries
$2.1 trillion global assets estimated end of 2014
$3.4 trillion forecasts estimate in 2018
$38
billion Sukuk (Islamic bonds) by London Stock Exchange for 52
issuers
$2
billion Sukuk joint venture Aramco-KSA & US-Dow
Chemical, 2013,
$25.4
billion issued Sukuk only in Gulf in 2013
@Atef Elshabrawy 2014
THE INDUSTRY IN WESTERN EUROPE
• 31 Islamic financial institutions in Western Europe 22 only in UK,
some of London’s recent iconic real landmarks
Athletes’ village for “2012
Olympic Games
@Atef Elshabrawy 2014
Shard Skyscraper
Battersea Power Station
Aston Martin
THE INDUSTRY IN WESTERN EUROPE
@Atef Elshabrawy 2014
BUT WHAT ARE THE
MAIN PRINCIPLES OF
ISLAMIC FINANCE?
@Atef Elshabrawy 2014
MAIN PRINCIPLES
1.
No interest (riba),
2.
Profit & Loss sharing (Risk sharing)
3.
No hazard, uncertainty (gharar),
4.
No forbidden assets (haraam)
5.
Promotions of real economy
6.
Disclosure of information
@Atef Elshabrawy 2014
STORY about ‘’Loan Interst’’
Ex President Obasanjo, commented the debt Nigeria
faces at the G8 Summit 2000:
$5 billion borrowed in 1985
$16 billion paid until 2000
$28 billion they still have to pay
“If you ask me what is the worst thing
in the world, I will say it is compound
interest.”
@Atef Elshabrawy 2014
THE MAIN DIFFRENCES
CONVENTIONAL
BANKING
Rules
Money
Time
Banking industry
principles
As commodity to be sold
& rented out.
The basis for earning
ISLAMIC BANKING
Banking industry + Sharia
principles
Money is not a commodity
Profit making is the basis for
earning
Profit and loss sharing based
Risks It is almost risk free
Values Priority on profits, Focus Permissible businesses& linked to
on speculative ventures
@Atef Elshabrawy 2014
social &religious, Focus on real
economic value
@Atef Elshabrawy 2014
Video
M& SME BANK
@Atef Elshabrawy 2014
ENTERPRISE LANDSCAPE
IN EMERGING COUNTRY
Corporate &
multinationals
0.1%
0.9%
5-10%
20%
Large
Medium
SME’s
finance
Small
65-75%
Micro
@Atef Elshabrawy 2014
Equity
finance
Micro
finance
Ex: GCMI Microcity Loan Fund ($1,000 to $35,000) -USA
FINANCE & BUSINESS SIZE
Export credit
Securitization
Supply chain finance ,Public debit market
Factoring , Asset finance, Inventory, Public equity
Crowd funding
Microfinance
Seed
Informal /smaller
@Atef Elshabrawy 2014
Angels
Family & friends
Start-up
Private
VC
Debt placement
Early growth
Sustained
growth
formal /larger
HOW IT DOES WORK
IN REALITY?
@Atef Elshabrawy 2014
THE CONVENTIONAL FINANCE
Personal
savings
Venture
capitalists
Friends and
family
Forms of
Equity
Financing
Angels
Private
investors
Partners
Equity Financing
@Atef Elshabrawy 2014
Trade
credit
Microfinance
Banks
Sources of
Debt
Financing
Commercial
finance
companies
SME' s
investment
companies
Government
programs
for SME' s
Debt Financing
23
THE ISLAMIC FINANCE
1.
2.
3.
4.
Equity
Trade
Rental
Free loans
Equity-based
Finance
Trade-based
Finance
Musharaka
Mudaraba
Muzaraa
Murabaha
Salam
Istissna
Takaful
(INSURANCE)
Rental-based Finance
Ijara
Diminshing
Musharaka
Free-Loan
Qard-Hassan
non-bankable
individuals
@Atef Elshabrawy 2014
Trade
credit
Microfinance
Sources of
Debt
Financing
Commercial
finance
companies
Personal
savings
Venture
capitalists
Main diffrences
Banks
Government
programs
for SME' s
@Atef Elshabrawy 2014
Debt
Financing
Equity-based
Finance
Trade-based
Finance
Musharaka
Mudaraba
Muzaraa
Murabaha
Salam
Istissna
Friends and
family
Forms of
Equity
Financing
Angels
SME' s
investment
companies
Takaful
(INSURANCE)
Private
investors
Rental-based Finance
Ijara
Diminshing
Musharaka
Free-Loan
Qard-Hassan
Partners
Equity Financing+++
25
MURABAHA (TRADING)
How it works :
the bank supplying goods for re-sale to the
customer at a price that includes a margin
above the costs, and allows them to repay
in instalments.
What for:
Used to provide a mortgage on a property,
however, the property is registered to the
buyer from the start.
@Atef Elshabrawy 2014
$110
$100
@Atef Elshabrawy 2014
MUSHARAKA (PARTNERSHIP)
How it works :
a
joint venture in which the customer and
bank contribute funding to an investment or
purchase and agree to share the returns (as
well as the risks) in proportions agreed in
advance.
What for:
Plays a vital role in financing business
operations.
@Atef Elshabrawy 2014
Musharaka
Sharing fund for agreed time
Enterprise
Losses
Profits
Divided according to pre-agreed ratio
@Atef Elshabrawy 2014
IJARA (LEASING)
How it works :
works as a leasing arrangement, the bank buys something
for a customer and then leases it back to them:1- Operating Ijarah
2- Ijarah Muntahia Bittamleek
What for:
Provides the customers with short to medium-term
financing to lease items: real estates, buildings,
equipments, machineries, computers, motor vehicles..
@Atef Elshabrawy 2014
Ijarah
1
Ijarah (operating lease)
contract
3
2
Purchase of
asset
4
Asset is
leased to
client
Period lease payment
over life of contract
Asset remains the property of the bank, and revert back to it at the end of ijarah
contract
@Atef Elshabrawy 2014
MUDARABA (VENTURE CAPITAL)
How it works :

is a partnership (profit sharing agreement) where capital is provided, in
cash or assets (no debt is accepted) by one party - the fund provider - and
labour is provided by the other party - mudarib.

A trust-based contracts, the mudarib is not liable for losses except in case of
breach of the requirements of trust or misconduct.

Contracts notify whether the mudaraba instrument is unrestricted to specific
location or type of investment or restricted .

Bank can not say the enterpreneur that ” I am giving you 100.000 USD and
you are going to give me 120.000 USD at the end of process” but Bank can
say ” I am giving you 100.000 USD and you are going to share 20% of your
profit at the end of process.”
What for:
Mudaraba is simply capital – labor partnership: bank puts all the money,
enterpreneur puts the labor and they share the administration part.
@Atef Elshabrawy 2014
Mudaraba
Mudaraba fund for agreed time
Rabbulmal
Losses
Divided according to pre-agreed ratio
@Atef Elshabrawy 2014
PLS (no pain no gain)
Mudarib
Enterprise
Profits
Sharia Compliant Businesses
Sharia law states that all kind of businesses are
permissible on condition that they do not deal with:
1.
Forbidden asset: Alcohol, pork, Prostitution,
Pornography, dangerous drugs,
2.
Unjust personal & business behaviours :cheating,
fraud, and hoarding),
3.
Forbidden way to transact :using usury (riba),
speculative motive (gharar), and gambling
(maysir).
@Atef Elshabrawy 2014
SELECT THE RIGHT PRODUCT
Working
Capital
Trade
Finance
Business
Projects
Working
Capital
Service
Finance
Car
Finance
Persoanl
Fianace
Constructi
on
Finance
Car
Finance
Persoanl
Fianace
Home
Finance
Real
Estate
Murabaha
Mudaraba
Musharaka
@Atef Elshabrawy 2014
Home
Finance
Ijara
Istisnaa
Salam
Constructi
on
Finance
Islamic banker expects
Islamic banks are expected to have risk-sharing contracts rather than
fixed rate loans, they need to be convinced of the viability of the
projects as their return would depend on the success of these ventures.
Lender (Banks)
Expectations
Angel
Investor
Expectation
s
VC Investor
Expectations
-Profitable
Business
-Track Record
-Ability to
Repay
-Staying Power
-Collateral
- Finance less
@Atef
Elshabrawy
2014of
than
100%
- Return
- Ego
Philanthrop
y
Involvement
- Mastering the
business:
• value
proposition
• Growing
Market
• Strong Team
• Strong Sales
- Exit Strategy
Islamic finance
Expectation
-Mastering the
business
-Sharia
complaint
-Community
impact
EXAMPLE OF NEW GENERATION
OF ISLAMIC SME BANK
kingdom of Bahrain
@Atef Elshabrawy 2014
The Shareholders
Public & semi organization
Islamic & commercial banks
• Paid-up capital: $15m & allowed $45m
• Licensed by CBB as Islamic microfinance bank
@Atef Elshabrawy 2014
THE PHILOSOPHY
Innovation in Islamic finance services :
1. 100% Sharia- complaint M&SME bank
2. Collateral/ guarantee free finance
3. No legal or formal entity required
4. Priority for youth & women
5. Provide Non-financial services
6. Partnership with NGO’s to deliver
7. 100% Social Business
@Atef Elshabrawy 2014
THE PROGRAMS
1.
SME’s interest free finance
2.
Microfinance by Grameen model
3.
Microfinance (savings, housing,
education, live improvement, )
4.
Finance schemes through NGOs/ MFI
5.
Non-Financial Services (training,
counseling, marketing,)
@Atef Elshabrawy 2014
Award of Sheikh Mohammed Rashid, Ruler of
Dubai, the best SME’s supporting bank in Arab
World, December 2013.
@Atef Elshabrawy 2014
www.almaaligroup.com
Consulting | Training |Sharia Advisory
@Atef Elshabrawy 2014