Islamic Retail Banking: The foundation of the Islamic Finance Industry Sultan Choudhury Managing Director Islamic Bank of Britain 24 th June 2011 The 4 th Biennial International – Business, Banking and Finance Conference Trinidad and Tobago

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Agenda Why Islamic retail banking is important? International experience Factors for growth SME product solutions Future developments

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Why Islamic retail banking is important? Suppliers of capital Balance sheet Liabilities Productive economic factors: Labour Assets Mudaraba and Musharaka Ijara, Murabaha, Salam Equity financing DepositsDebt financing Assets Investments Profit & loss Retail bankingSME / business banking Capital Entrepreneur

Development Bank: largest pan-OIC financial institutionIndustry The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Where do you want to be in a growing international market? Mainstream Niche Engaging with regulators Conceptual Critical mass Retail customers driving force Malaysia, GCC – Saudi Arabia, UAE, Bahrain Expanding market Industry, regulators and customers engaged UK, Turkey, Pakistan, Indonesia Working groups Reviewing framework France, India, West Indies Understanding concepts and impact China, Central Asia, Australia

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago UK is the most mature Western market 1990s Consultation consumer, industry and government Legislative and regulatory changes New entrants 2000s standalone Islamic banks 22 banks Islamic financial services £3.2bn home finance market £1.6bn savings market IBB 50,531 customers £188m deposits £55m financing

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Converging factors for the growth of Islamic finance 10% - 15% growth p.a. $1.5 trillion in assets in all banks Growing population New markets - customers & suppliers Expertise in Law, Finance, Marketing Legislation changes to make a level playing field Consumer choice and protection High oil prices Alternative sources for investments AOOIFI IFSB IAS IIFM Customer demand Economic opportunities Legislation Regulation Capital Harmonisation of standards

Solutions for SMEs The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago SME Business RequirementsIBB SolutionIslamic Principle FIXED ASSETSProperty Commercial Property FinanceDiminishing Musharaka with Ijara EquipmentMachinery financingIjara or Murabaha Fleet financingMurabaha or Ijara InvestmentsTreasuryWakala Fund ManagementMudaraba CURRENT ASSETSCashCash secured on propertyTawarruq OverdraftsPart of fee paying bundleQard DebtorsReceivables financingMurabaha and reverse Murabaha StockTrade financeMurabaha and Kafala Work in progressIstisna'a CommoditiesSalam CreditorsLetter of GuaranteeKafala LIABILITIESLong term liabilitiesCorporate SukukIjara, Mudaraba or Musharaka Equities Private EquityMusharaka instruments

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Case study – Cab Safe Security Scenario Instrument Broker IBB Customer’s Agent Customer Sell commodity £ £ £ Deferred payment Murabaha Start up business Security screens £25K working capital

The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Case study – Sparkbrook Pharmacy Expansion £200K required for new property ScenarioInstrument Bank grants the customer the right to occupy its share in the property IBB Identifies the property & agrees the purchase price PROFITS Generated through rent payments Customer purchases 20% share in the property Bank purchases 80% share in the property Customer pays monthly payment over the term of the finance [consists of two parts: Rent payments (variable) + Acquisition payment (fixed)] Stage 3 Stage 2 Stage 1 Stage 4 Customer Diminishing Musharaka with Ijara

Huge potential for growth Islamic Finance Retail Inter bank markets Sukuk SMEs Wealth Management The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago Funds Estate planning Pensions Working capital Leasing Equity based Sovereign Corporate Trading Long term savings Packaged accounts Investments Liquidity Hedging FX Education and awareness of consumers, regulators and industry

Thank you The 4 th Biennial International - Business, Banking and Finance Conference Trinidad and Tobago