Prepared by,

Jessica Low Sher PengA150018 – Masters in Islamic Finance PractitionerHandphone Line : +6010 8888825Email : jls@makamincapal.com

ON A SCALE OF 1 to 10 : HOW ISLAMIC IS YOUR BANK?

AC5023 Islamic Accounting with Dr. Bello LawalMaster of Islam Finance in Practice (MIFP) The Global University of Islamic Finance (INCEIF)

SyariahMandatory and Permissibility

Profitability product & service sales

Profitability from sales + Impact on social and ecology

1.Transparency2.Efficient3.Measurable 4.Ratio Benchmark

1. Zakat2. Industry Screening (-ve)3. Non-Interest bearing

1. Syariah Contracts2. Risk and Return

EXCELLENCE = 10

BASELINE = 1

reference : Hukm’ Taklifi, Usl Fiqh

Wajib + Haram + Makruh + Mubah + Manduh

COMPLIANCE = 3

How Islamic is Your Bank : Definition by degree in practice of Islamic doctrines and teachings AC5023 Islamic Accounting with Dr. Bello LawalJessica Low Sher Peng A150018

Q: WILL I NEED TO SPEND MORE?

A: Operating Expenses/Operating Income Ratio

TOWARDS EXCELLENCE Question of Profit Maximisation

ASSUME THAT ALL STATUTORY REGULATIONS AND RESERVES RATIOS ARE MET

Q: WILL I MAKE LESS PROFIT ?

A : ROE and ROA, Dividends Per Share

Q: WILL I NEED TO SPEND MORE? ASK: HOW DID I SPEND? A: Operating Expenses/Operating Income Ratio, Zakat collection and areas of Impact

TOWARDS EXCELLENCEQuestion of Benefit Maximization

ASSUME THAT ALL STATUTORY REGULATIONS AND RESERVES RATIOS ARE MET

Q: WILL I MAKE LESS PROFIT ?ASK : HOW DID I MAKE MY PROFIT?A : ROE and ROA, Dividends Per Share, financing portfolio according to economic sector

Baseline 0 - 1

Compliance 1.2 - 3

Social Ecology0% Loans

CultureArts

Zakat

Negative Screening

Positive Screening

Transparency 3.1 – 8

Standards and Audit

Efficiency Expenses 8.1 - 9

FinancialInnovation/Reporting9.1 - 10

Ehsan Indexing SystemHow Islamic is Your Bank? : 1 to 10 Scale

Boards Ratio

Earning

Spending

BA

SELI

NE

CO

MPL

IAN

CE

EXC

ELLE

NC

E

AC5023 Islamic Accounting with Dr. Bello LawalJessica Low Sher Peng A150018

Interest Bearing Disclosure

0% Interest Bearing Income

Industry LeadershipPSR / LSR

CSR

SE

1 0.5 0.25

Syariah Compliant

DJIM Screening

Scarcity Darruriyah

Illustration of Indexing SystemHow Islamic is Your Bank : Operational Indicators

Abundance

AC5023 Islamic Accounting with Dr. Bello LawalJessica Low Sher Peng A150018

Assets

Capital

Labor

Hajiyyah Tafsiniyyah

Commingling. Unclear source of funds and utilization

High RoE with low dividends per share and depositors PSR ratio

Above 50 Wealth income equality ratio (CEO and junior executive)

Below 10 Wealth income equality ratio (CEO and junior executive)

Between 10 to 50 Wealth income equality ratio (CEO and junior executive)

High RoE with High Dividends per Share but low depositors PSR ratio

High Gearing to Investment Ratio

Low Gearing to Investment Ratio

High RoE, Equal Dividends per Share to depositors PSR ratio

Risk / Return Exposure

Fair Redistribution

Wealth Equality

Negative changes in performance 0 Positive changes in performance

WILL I NEED TO SPEND MORE?

WILL I MAKE LESS PROFIT?

MODEL COMPARISON BETWEEN TOP ISLAMIC AND TOP SUSTAINABLE BANK

BANK SIMILARITY PROFILE

Bank

Name Dubai Islamic Bank Triodos BankSector Islamic Banking Sustainable BankingEstablishment 1975 1980Location UAE NetherlandsAsset Under Management USD 40.1 b USD14 b

ReputationThe first Islamic bank in the world. Top 5 establishments

The worlds top sustainable bank in the world.

PresenceStandards Applied

7 CountriesAAOIFI Audited 2015 Statement KPMG

5 CountriesIAS G4 ReportingAudited 2015 Statement PwC

Screening Process

Syariah Compliant Both business and charities are valuated on social or ecological benefit.

Table 1 : Comparison of bank similarity profiling for DIB and Triodos

Q: WILL I NEED TO SPEND MORE?

Triodos : 0.28Inclusive of all social benefactor payable 24% USD140mil

DIB : 2.266 Revised* inclusive all zakat payable 2% USD59mil

Highlights

Operating Income/Operating Expense Ratio

An Expenses charged immediately as part of PNL for social benefit reflect true social inclusion

A Percentage charged to income and transferred from zakat payable to DIB Foundation for utlization

How did I spend?

Yes.

Q: WHERE?

DIB : $59M out of $2984MExhaustive redistribution of collection is necessary. Only 63% was used 2015

Highlights

DIB Zakat Contributions

Issues : Used $37 or 63%. What happens to the balance?

Missing transparency of fund utilization. The zakat management transferred to DIB Foundation. Weightage of programs undetermined.

Q: WHERE?

TRIODOS : $142 out of $581Since it was expensed out, then 100% funds were utilised for the given benefit

Highlights

TRIODOS Social Contributions(Quantitative)

Issues : Impact cannot be quantified but qualified. It cannot be standardized as it is based on localization

Q: WHERE?

TRIODOS : Transparency of reporting and ease in understanding for profit + impact social and ecological total expensed = $

Highlights

TRIODOS Social Contributions(Qualitative)

Environmental ReportGreen EnergyOrganic Food

Co- Workers ReportElderly CareMicrofinance Borrowers and SaversProgressive EducationCultural Visits

WILL I MAKE LESS PROFIT ?

Highlights

DIB :Net Profit $1037milROE 17%ROA 2.56%Dividends Per Share $0.11

Iwad is measured. Capitalising equity and not paying dividends fairly. Possibility risk-transfer between manager and owner too?

TRIODOS :Net Profit $46.4milROE 5%ROA 0.5%Dividends Per Share $2.73

Risk and Return sharing is evident. Equal amount where treatment is called Fair Equity Value. Treatment of

Note Triodos maintains high dividend per share. shareholder as a benefactor for contributions. Similar to takaful concept of profit and surplus sharing

No.

Highlights

WHERE ? Negative and Positive Screening Process

Financing portfolio only reflects Syariah screening. Fail to reflect any pillars of Maqasid Al-Syariah Deen, Nafs, Aql, Progeny, Wealth

Financing portfolio reflects screening process and distinctive value-based banking : People, Planet, Profit

Note :Investment - Energy, Climate, Emerging Markets, Real Estate, Art and Culture, Sustainable Food and Agriculture, SRI

Scarcity Darruriyah

Illustration of Indexing SystemHow Islamic is Your Bank : Operational Indicators

Abundance

AC5023 Islamic Accounting with Dr. Bello LawalJessica Low Sher Peng A150018

Assets

Capital

Labor

Hajiyyah Tafsiniyyah

Commingling. Unclear source of funds and utilization

High Dividends per Share to depositors PSR ratio

Above 50 Wealth income equality ratio (CEO and junior executive)

Below 10 Wealth income equality ratio (CEO and junior executive)

Between 10 to 50 Wealth income equality ratio (CEO and junior executive)

High Dividends per Share to depositors PSR ratio

High Gearing to Investment Ratio

Low Gearing to Investment Ratio

Equal Dividends per Share to depositors PSR ratio

Risk / Return Exposure

Fair Redistribution

Wealth Equality

Negative Changes in performance 0 Positive Changes in performance

DIB 3.4

Triodos 9.1

Prepared by,

Jessica Low Sher PengA150018 – Masters in Islamic Finance PractitionerHandphone Line : +6010 8888825

AC5023 Islamic Accounting with Dr. Bello LawalMaster of Islam Finance in Practice (MIFP) The Global University of Islamic Finance (INCEIF)

ON A SCALE OF 1 to 10 : HOW ISLAMIC IS YOUR BANK?

Share your answer : sherpeng@gmail.com