Islamic Finance - Before and After the Market Disturbances

Transcription

1. Islamic Finance – before and after the market disturbances Madhukar Shenoy Global Islamic Finance Team PricewaterhouseCoopers PwC
2. Agenda The Islamic finance business model The evolution of Islamic finance Impact of financial crisis on Islamic finance Consequences
3. The Islamic finance business model Avoidance of riba 1 Business modelled around the real economy Avoidance of gharar 2 Business models devoid of derivative /synthetic structures Avoidance of maisir 3 Greed eliminated PricewaterhouseCoopers March 2010 Slide 3
4. The evolution of Islamic finance •  Several new banks Egypt, Dubai and Bahrain established contemporary style Islamic banks 1970s 1980s Bahrain, Malaysia emerged as key centres of Islamic finance PricewaterhouseCoopers emerged in the region and across the globe. •  Western banks such as HSBC, Citi, UBS etc. entered the fray 1990s New millennium •  Retail to corporate focus •  Birth of private equity and real •  •  •  •  estate focused firms Corporate Sukuk issues Government interest Conversions from conventional Takaful growth March 2010 Slide 4
5. Impact of financial crisis on Islamic finance Subprime Housing bubble Housing bubble Lehman 's Lehman's collapse collapse Contagion effect Contagion effect Loss of confidence Liquidity Liquidity crisis crisis Islamic banks had no significant exposure Shari’a compliant investment banks with global exposures impacted most Liquidity, asset quality and impairment problems impacted regional banks Funding and capital raising under pressure Dubai events PricewaterhouseCoopers March 2010 Slide 5
6. Consequences Financial crisis and impact on Islamic finance Impact Investment Banking • Private equity • Real estate • Lack of exits • Loss of investors • Profit and liquidity pressure • Risk (breadth and depth) PricewaterhouseCoopers Commercial Banking •  Interbank liquidity •  Margins under pressure •  Capital adequacy •  Asset valuations Retail • Margins under pressure • Asset valuations March 2010 Slide 6
7. Consequences Financial crisis and impact on Islamic finance Impact Profitability • Impairment • Lack of exits • Margins under pressure • Fee earning activities PricewaterhouseCoopers Liquidity •  Interbank liquidity •  Mistrust •  Transparency •  Fear Asset growth •  Credit squeeze •  Lack of confidence •  Leverage Capital • Regulatory capital decline • Increased risk March 2010 Slide 7
8. What do we need ? Robust infrastructure Greater levels of transparency PricewaterhouseCoopers Robust business models March 2010 Slide 8
9. From survival to sustainability * Thank you madhukar.shenoy@bh.pwc.com © 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). PwC