alBaraka while total equity amounts to around

alBaraka Islamic Bank B.S.C.About: Established in 1984, Al BarakaAl Baraka Islamic Bank – Bahrain is one of the banking units of Al BarakaBanking Group (ABG), which is a Bahrain Joint Stock Company listed in Bahrainstock exchange and Nasdaq Dubai. Al Baraka Islamic Bank B.S.C.

© (AIB) – Bahrainprovides Islamic financial products and operates under a Retail Banking licenseissued by the Central Bank of Bahrain. During the year 2010, AIBcompleted the merger of its branches in Pakistan, which their operations dateback to 1991, with the branches of Emirates Global Islamic Bank Limited, toestablish Al Baraka Bank Pakistan Limited. Thereafter in financial year 2016,the bank acquired and merged Burj Bank Limited in ABPL.

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In July 2012, the bankacquired 60% of the issued shares of Itqan Capital (previously Al TawfeekFinancial Group). This share increased to 83.07% in October 2015. Itqan Capitalis a closed joint stock company registered in the Kingdom of Saudi Arabia andlicensed by the Capital Market Authority. Furthermore, AIB has an authorizedcapital of US$600 million and issued and paid -up capital of US$122 million.The authorized capital of Al Baraka Banking Group is US$1.

5 billion, whiletotal equity amounts to around US$2.0 billionBoard of Directors: Mr.Khalid Rashid Al Zayani (Chairman)Mr.

Adnan Ahmed Yousif (Deputy Chairman)Mr.Abdultatif Abdulrahim Janahi (Board Member)Mr.Moosa Abdul Aziz Shihadeh (Board Member)Mr.Ashraf Ahmed Mustafa El-Ghamrawi (Board Member)Mr.Yousif Ali Fadil Ben Fadil (Board Member)Mr.Maqbool Habib Khalfan (Board Member)Mr.

Abdulrahman Abdulla Mohamed (Board Member)Dr.Khalid Abdulla Ateeq (Board Member)Mr.Mohamed Isa AL Mutaweh (Chief Executive Officer & Board Member)Shariah Board: ShaikhDr. Abdul Satar Abdul Karim Abu Ghuddah ShaikhEsam Mohammed IshaqHarbi ShaikhNizam Yaqoobi  Operational Highlights & Awards: In2015, Al Baraka Islamic Bank has moved to its new headquarters “Al BarakaTowers” in Bahrain Bay. Moving forward and late in 2016, Al Baraka BankPakistan Limited has successfully acquired Burj Bank Limited .

The result ofthis acquisition was a strong entity that owns 224 branches scattered in morethan 100 Pakistani cities. International Islamic Rating Agency (IIRA) hasassigned the Bank an international scale rating of (BBB-/A-3) and(BBB+/A-3(BH)) on the national scale with a stable outlook. The Bank wasawarded the Global Islamic Finance Award as the best Islamic bank in Treasurymanagement in 2016. Nevertheless, AIB has been awarded (along with six otherABG units) the best bank in Bahrain in 2016 within the annual awards by GlobalFinance.Treasury DepartmentOverview: Similar to most IslamicFinancial Institutions, AIB’s treasury’s function is to essentially manage thebank’s liquidity on daily basis in which mainly consists of managing thedepositors and shareholders’ funds.

Henceforth, eligible liabilities of IslamicFinancials Institutions represent mainly customer deposits such as (i.e.current account deposits, saving account deposits, general or unrestrictedinvestments deposits (URIA) and special or restricted investment accounts(RIA). The aforesaid sources of funds are used in different investment andfinancing activities on daily basis, in which the excess from such utilizationis generally comingled, pooled and managed by a treasury department,respectfully in compliance with the Sharia Principles. Moreover, AIB’s treasurydepartment is relatively small with the following units each with its differentroles and responsibilities: 1.  Treasury dealing room:  o  Daily cashmanagement activities (i.

e. covering banks liquidity shortage and investingsurplus funds into money market opportunities.o  IIFM FX WakalaAgreement (spot basis)o  Participatingin Long Term Sukuk issued by the Central Bank of Bahrain.

o  ManagingShort-term liquidity through interbank transactions.  o  Managing fundsplaced by (i.e.

Banks, FI’s, Corporate and individual clients.2.  Capital Markets:  o  Dealing inLong Term basis Capital Markets. o  InvestingTreasury funds in Long-Term Sukuk Products.However, unlike many IslamicFinancial Institutions, The Financial Institution Department (FI) in AIB does notoperate under the treasury department’s umbrella, yet is managed by theInternational Banking Department – Business Unit.

 Treasury Department Systems & Tools: Below are systems and tools used by AIB Treasury in order to execute andprocess deals on daily basis:o  FX Trading : Reuters dealing system.o  Reuters Eikon: Rates viewing tool and Daily/Latest MarketInformation.  o  Reuters messenger system: A communication tool between dealers within variousbanks, allowing them to execute deals through FX Trading.o  Bloomberg: Sukuk information & Latest Market information.o  Core banking (Equation System): a path system used to input, settle and track deals.

Treasury Products: The following products areutilized by AIB’s treasury department in order to manage the bank’s cash flows.The products illustrated below are listed in order as the bank’s ordinarilyused products. Wakala Investment: Is the most used treasuryproduct in AIB, whereas the bank is a Wakeel or Agent of funds through a bankinvestment pool. Murabaha: Second most used treasuryproduct, wherein Murabaha Assets are typically used for surplus in bank’sliquidity and Murabaha Liability in cases of shortage in liquidity. Mudharaba : Placing excess cash with otherbanks in a (NOSTRO) account. Or receiving cash placements from other banksopening a (VOSTRO) account in the other bank’s favour. Maturity of suchdeposits are usually pre-agreed upon between both banks and could be placed as(i.e.

overnight, monthly rollover deposits etc.   FX (Foreign Exchange): Treasury manages the profitmargins throw spreads between buy and sell rates. These are usually done inorder to fulfill other department needs based on customer transactions.

 Limitations:Despite that many limitationsin Islamic Banking has been somehow surpassed since inception, yet is still inlack and limited in many aspects that shall be identified and encountered by(i.e. Shariah Scholars, Islamic Regulatory Bodies & Individuals in IslamicBanks). Below are some limitations which the Islamic Banking world is facing: o  Lack of sufficient Sharia’ based liquid instruments. o  Lack or limitation in practical instruments has led tosmaller number of participants in the money market.  o  Nonexistent Sharia’ Compliant lenders of the lastresort facility in which are offered by many Central Banks.

o  Unlike conventional banks, Islamic liquidity bankmanagement is strictly limited in the Islamic inter-bank market. o  Most conventional banks liquidity tools arenon-sharia’ compliant. Thus, Islamic banks struggle with their liquiditymanagement and ratios. o  Difficulty in introducing new Sharia’ Compliant liquidinstruments and developing the current products.o  Standardization of documentation; wherein most ofIslamic banks have their own formats of agreements in which results to timeinefficiency for both Islamic Banks & Conventional banks. As such,non-standardization results in many conventional banks being shy to deal withIslamic Banks which also leads to the following shortcoming; o  Efficiency/cost ratio is relatively low. Role of AAOFI in Islamic Banking: Accounting & AuditingOrganization for Islamic Financial Institutions (AAOFI) is a Bahraini basednon-profit organization in which has been established to promote Shariahstandards for Islamic Financial Institutions. Its roles are to developAccounting & Auditing ideas relevant to Islamic Banks and Institutionsthrough training, seminars, publication of periodical newsletters, andcommissioning of research.

Additionally, AAOFI prepares, circulates, interpret,reviews and amend accounting and auditing standards for such institutions.   Role of IIFM:International Islamic FinancialMarket (IIFM) is plays its role in Market Unification by developing bestpractices at a global level. The IIFM addresses the documentation standardizationneeds of the industry in areas such as Capital & Money Markets (CM),Corporate Finance & Trade Finance. In addition, it provides universalplatform by bringing regulatory bodies, FI’s, law firms, stock exchanges etc.

Then creates project specific global working groups and committees. Their extendedroles also include organization of specialized events, market consultativemeetings and standardization of specific seminars and workshops. Additionally,IIFM regularly does research and reports on Sukuk products.Shariah Scholars:The existence and decisions ofSharia Scholars is fundamental as they attend to ensure the legitimacy ofIslamic finance operations and products and that such operations anddevelopment of Islamic Finance is based on Sharia guidelines. Their roles werepreviously limited to advice and product endorsement. However, nowadays theirinvolvement in product development and innovation has been prolonged. Developmentin Islamic Banking increases the challenges facing the Shari’ah advisors, hencethey need to interact more with various people and stakeholders in the industryto understand and perform their roles better. In certain instances, expertisefrom relevant banking departments, such as corporate banking, risk management etc.

,are requested to attend Shari’ah board meetings to provide a betterunderstanding to the Shari’ah Boards on issues and obstacles these relevantdepartments face in order to operate more efficiently and competitively.Therefore, such invitations certainly give the Shariah Scholars a betterunderstanding on the importance of development and innovation of new products. Suggestions to overcome the limitations:Islamic Banks should penetratenew markets such as Far East countries (e.g. Malaysia & Indonesia).

Interaction of Islamic banks between each other globally creates more liquiditymanagement opportunities and a larger interbank market. Regulatory bodiesshould put more effort in promoting Islamic products within countries that arenot very active in such field. Sharia’ Scholars should interact more often withIslamic Finance experts in order to develop and introduce new Sharia’ Compliantliquid instruments which gives treasurers more room to manage banks liquidity.

Conclusion: Islamic Banks should penetratenew markets such as Far East countries (e.g. Malaysia & Indonesia).Interaction of Islamic banks between each other globally creates more liquiditymanagement opportunities and a larger interbank market. Likewise, regulatorybodies should put more effort in promoting Islamic products within countriesthat are not very active in such field. To end with, Sharia’ Scholarsshould interact more often with Islamic Finance experts in order to develop andintroduce new Sharia’ Compliant liquid instruments which gives treasurers moreroom to manage banks liquidity.

 

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