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Wednesday, 4 April 2012

AAOIFI proposes Islamic finance accounting changes

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has proposed more detailed accounting standards for real estate while increasing disclosure for Islamic banks’ investment accounts.

The move by the Bahrain-based AAOIFI, one of the main standard-setting bodies in Islamic finance, suggests it is responding to the same kind of pressure to tighten standards that has been seen in the conventional finance industry since the global financial crisis erupted in 2008.

Both proposals were discussed at a public hearing for industry participants in Manama and there will be another hearing in Doha on April 12. They could become effective as early as July this year and would be applied retroactively.

The new real estate standards focus on valuation methodology, clarifying the differences between mark-to-market values and book values, and specifying how to treat buildings that are still under construction. Disclosure requirements are increased.

“Complex accounting issues have evolved in line with the expansion of the real estate sector,” AAOIFI said, making the current standards look “very basic.”

Islamic investment houses across the Gulf have been under increased investor scrutiny over their exposure to the real estate sector and their approach to valuing those assets.

Bahraini investment house Arcapita, a major real estate investor, filed for U.S. bankruptcy protection last month ahead of the maturing of a $1.1 billion Islamic facility. AAOIFI standards are applied in Bahrain and used as guidelines in many other national jurisdictions.

AAOIFI also proposed merging two of its existing standards for Islamic banks' investment accounts, saying it wanted to eliminate “accounting arbitrage.” The investment accounts are the equivalent of deposit accounts at conventional banks, and are a major source of funds for Islamic banks.

Current requirements for banks to disclose risks surrounding the accounts are insufficient, considering the risk that investors are taking, AAOIFI said.

(Al-Arabiya News / 03 April 2012)

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Islamic finance makes its mark in banking

Muscat: Islamic finance industry is making mark in the world and it is a good sign as it presents an opportunity for people to apply the true tenets of Islam to their present-day economic needs, Dr Ali Mohiyuddin Al Quradaghi, chairman, Shariah Supervisory Board of Al Hilal Islamic Banking Services, ahlibank Oman, and the Secretary-General of the International Union of Muslim Scholars said. 

Shaikh Ahmed bin Saud Al Siyabi, the Secretary-General of the ifta’a office 
(Ministry of Awqaf and Religious Affairs), graced the occasion as chief guest. Addressing academicians and students at the Sultan Qaboos University premises at a seminar on ‘Islamic Banking, Best Practices and Development’ hosted by ahlibank and the SQU yesterday, Dr Al Quradaghi  asserted that Islamic finance should be made a part  of one’s life   because it is based on Islamic  Shariah.  

Scores  of Islamic banks 
“There are scores  of Islamic banks working to achieve the goals it has set in and Al Hilal Islamic Banking services of ahlibank is one of them.  There are number of Islamic financial tools like mudaraba, musharaka  on the liabilities front  while on the assets side, there are around 60 such instruments. So you have plenty of options to work upon the principles based on Shariah,” he said. 

The Shariah scholar called upon the countries to adopt more to using Islamic finance in the aftermath of the global financial crisis and stressed that the industry is here to stay and definitely has a future in the global financial system. 

Dr  Ali Al Quradaghi reiterated the commitment of Al Hilal Islamic banking to provide innovative products and services to all ahlibank customers, in compliance with the Shariah laws. 

He added that ahlibank’s Al Hilal Islamic banking services will continue working towards promoting Islamic finance understanding within the Omani community. 

Sheikh Aflah Ahmed bin Hamad Al Khalili, member, Shariah Supervisory Board of Al Hilal Islamic Banking Services, Ahlibank Oman and the Head of Research and Studies at the Institute of Fatwa in the Ministry of Awqaf and Religious Affairs, pointed out that ahlibank owns a unique distinction and exposure of Islamic banking and finance which it obtains through the presence of its strategic partner Ahli United Bank with its presence in several countries. 

Shariah-compliant products 
“Al Hilal Islamic banking will provide Shariah-compliant products and services and in no way will enter into any Shariah-repugnant and interest-based transactions. We are truly committed to truth and transparency in banking,” he added. 

Dr Humayon Dar, chairman and CEO of Edbiz Consulting, a London-based Islamic Financial Consultancy Firm,  said that riba has been  misunderstood. It is actually an exchange of likes for likes in unequal quantities and it refers to amount/quantity rather than the value.  

Prof. Dar urged Oman to incorporate social responsibility element in implementing Islamic finance as it will serve the needs of society based on Islamic principles. 

Dr Nasser al Mawali, assistant professor of economics, Sultan Qaboos University, debunked some of the myths surrounding the Islamic finance. This seminar is one of the steps taken by ahlibank to educate the general public about the merits and strengths of Islamic banking.

(Times Of Oman / 03 April 2012)

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