3. 3 Sanctions removal The main challenge of Islamic banking

4. The political context of the country Interaction under the two main political scenarios Interaction if the conditions are normal interaction if the sanctions exist 4

5. 1 st assumption: sanctions removal The presentation is based on sanction removal scenario. 5

6. 2 ed assumption: Riba is forbidden Riba is Forbidden in Islamic banking. We assume interaction with international banking system should be based on principles and restrictions of Islamic banking. 6

7. The main challenge of Islamic banking The main Problems Today our banking system is suspected that has not got rid of "riba". "Riba" has not be defined based on the fiat money rather than intrinsically valuable money. The ways that our banking system behave with borrowers affirm the suspect of existing "riba". 7

8. 8 The ways of interrelation The monetary and banking system evolution The banking system backwater

9. The ways of interaction Common Ways Money payment and transfer services LC brokerage Accepting counterparty’s drafts conditional confirmation Accepting counterparty’s drafts without confirmation Information exchange in the case of joint projects or joint clients Consortium formation in order to finance and share the risk of the joint projects 9

10. The monetary and banking system evolution  The existing discipline of international monetary and banking system is the outcome of the man experience and knowledge based on that money has emerged as a basic element, commercial banks have created, money creation has defined and central banks have organized. 10

11. Our banking system backwater Today and tomorrow Problems Today: understanding the different types of new money which now is restricted in a few financial instrument in the Tehran Stock Exchange. Tomorrow: understanding the future evolutions. electronic money is coming, and the researches about the globally accepted unique money is under evolution. 11

12. 12 The major commitment Setting agency relationship Credit scoring of the clients Improving human recourses Stress testing Revision of exchange rate regulations

13. The major commitment Trying to protect the primary owners’ interests Trying to protect the deposits 13

14. Deviations from major commitment Some Examples Misusing Gharzolhassana deposits in the favor of bank or borrowers Investing in high-risk projects To not adjusting deposit interest rate for inflation 14

15. Domestic and foreign monitoring All of the direct beneficiaries :monitor us Domestic Monitoring: people in the country monitor the performance of the banking system and perceive it’s imperfections. Foreign monitoring: international financial institutions monitor our banking system and discover it’s insufficiency. 15

16. Setting agency relationships Relationship between managers and stockholders Managers are not stockholders’ employee Managers’ mission is not to finance stockholders 16

17. Unhealthy agency relationships Common examples  The bank mission is to finance state.  The bank mission is to finance major individual and institutional stockholders. 17

18. Credit decisions support system Credit scoring system The banks need to develop an accurate and reliable credit scoring system by which they can provide sufficient information to make credit decisions. 18

19. Credit performance monitoring system The features of the system: It should not disturb the customers It should be reassuring 19

20. Human recourses improvement The human recourse is the main capital of the banks The human recourses need to be renewed fundamentally. The banks should develop an efficient and effective training system to promote personnel leanings. 20

21. Stress Testing Stress testing enhances the ability to understand risks and the potential impact of stressful event on bank’s financial condition. The potential stressful events may drive from: Internal factors such as systems, processes, personnel and... External factors such as economic indices. 21

22. Stress testing monitoring The central banks monitoring approach on the banks stress tests efficiency are commonly a bottom-up approach. Central banks ask the banks to design the appropriate and bank- specific stress tests and present them for the regulator. Bottom-up approach 22

23. Revision of exchange rate regulations Our exchange rate regulations need to be revised and multiple exchange rate regime should be replaced by the single one. 23

24. 24