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Islamic Finance Investment & Capital Considerations – An overview Presented By: Amr El-Husseini. Investment Considerations (1). Debt to Equity Ratio Ratio should be below 33% in case of non sharia compliant debt structure.

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Islamic finance investment capital considerations an overview presented by amr el husseini

Islamic Finance Investment & Capital Considerations – An overviewPresented By: Amr El-Husseini


Investment considerations 1
Investment Considerations (1)

  • Debt to Equity Ratio

    • Ratio should be below 33% in case of non sharia compliant debt structure.

    • Exceptions: when debt is expected to be restructured into sharia compliant.

  • Interest income as a percentage of total income

    • Interest bearing income not to exceed 5% of total revenues.

  • Industry and Nature of operations

    • Exceptions only in case of turnaround within three years, during which profits are retained in equity.


Investment considerations 2
Investment Considerations (2)

  • Practical conditions in case of conversion of a conventional bank into a sharia compliant one:

    • Turnaround within three fiscal years.

    • Renegotiation and modification of existing contracts.

    • Disposal of non sharia compliant assets & liabilities

    • Amendment of equity structure by eliminating non sharia compliant items such as bonds & preferred shares.

    • Non sharia compliant income to be distributed to charity

    • Change of governance structure (sharia committees)

    • Impact on valuation of potential acquisition targets


Capital considerations
Capital Considerations

  • Ordinary shares / preferred shares

  • Uses of Capital in Islamic Banks – Theory vs. Practice

    • Concept of Profit / Loss sharing

  • Profit Equalization reserve

  • Differences in treatment of restricted and unrestricted investments by central banks.

  • Priority deposits take over equity


Major limitations to expansion of islamic finance into new geographies
Major Limitations to Expansion of Islamic Finance into new geographies

  • Taxation issues:

    • Double taxation

    • Property transfer tax

  • Central Bank Regulations:

    • Legal reserve requirement and its remuneration

  • Consumer laws:

    • Protection of deposits (deposit insurance).

    • Ability to define sharia compliant structures under existing financial vehicles i.e. impact on commercial laws.


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