alBaraka in Bahrain stock exchange and Nasdaq Dubai.

alBaraka Islamic Bank B.S.C.

About:

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Established in 1984, Al Baraka
Al Baraka Islamic Bank – Bahrain is one of the banking units of Al Baraka
Banking Group (ABG), which is a Bahrain Joint Stock Company listed in Bahrain
stock exchange and Nasdaq Dubai. Al Baraka Islamic Bank B.S.C. © (AIB) – Bahrain
provides Islamic financial products and operates under a Retail Banking license
issued by the Central Bank of Bahrain.

During the year 2010, AIB
completed the merger of its branches in Pakistan, which their operations date
back to 1991, with the branches of Emirates Global Islamic Bank Limited, to
establish Al Baraka Bank Pakistan Limited. Thereafter in financial year 2016,
the bank acquired and merged Burj Bank Limited in ABPL. In July 2012, the bank
acquired 60% of the issued shares of Itqan Capital (previously Al Tawfeek
Financial Group). This share increased to 83.07% in October 2015. Itqan Capital
is a closed joint stock company registered in the Kingdom of Saudi Arabia and
licensed by the Capital Market Authority. Furthermore, AIB has an authorized
capital 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, while
total equity amounts to around US$2.0 billion

Board 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:

 

Shaikh
Dr. Abdul Satar Abdul Karim Abu Ghuddah

Shaikh
Esam Mohammed IshaqHarbi

Shaikh
Nizam Yaqoobi

 

Operational Highlights & Awards:

 

In
2015, Al Baraka Islamic Bank has moved to its new headquarters “Al Baraka
Towers” in Bahrain Bay. Moving forward and late in 2016, Al Baraka Bank
Pakistan Limited has successfully acquired Burj Bank Limited .The result of
this acquisition was a strong entity that owns 224 branches scattered in more
than 100 Pakistani cities. International Islamic Rating Agency (IIRA) has
assigned 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 was
awarded the Global Islamic Finance Award as the best Islamic bank in Treasury
management in 2016. Nevertheless, AIB has been awarded (along with six other
ABG units) the best bank in Bahrain in 2016 within the annual awards by Global
Finance.

Treasury Department
Overview:

 

Similar to most Islamic
Financial Institutions, AIB’s treasury’s function is to essentially manage the
bank’s liquidity on daily basis in which mainly consists of managing the
depositors and shareholders’ funds. Henceforth, eligible liabilities of Islamic
Financials Institutions represent mainly customer deposits such as (i.e.
current account deposits, saving account deposits, general or unrestricted
investments deposits (URIA) and special or restricted investment accounts
(RIA). The aforesaid sources of funds are used in different investment and
financing activities on daily basis, in which the excess from such utilization
is generally comingled, pooled and managed by a treasury department,
respectfully in compliance with the Sharia Principles.

Moreover, AIB’s treasury
department is relatively small with the following units each with its different
roles and responsibilities:

1.  
Treasury dealing room:

 

o  
Daily cash
management activities (i.e. covering banks liquidity shortage and investing
surplus funds into money market opportunities.

o  
IIFM FX Wakala
Agreement (spot basis)

o  
Participating
in Long Term Sukuk issued by the Central Bank of Bahrain.

o  
Managing
Short-term liquidity through interbank transactions. 

o  
Managing funds
placed by (i.e. Banks, FI’s, Corporate and individual clients.

2.  
Capital Markets:

 

o  
Dealing in
Long Term basis Capital Markets.

o  
Investing
Treasury funds in Long-Term Sukuk Products.

However, unlike many Islamic
Financial Institutions, The Financial Institution Department (FI) in AIB does not
operate under the treasury department’s umbrella, yet is managed by the
International Banking Department – Business Unit.

 

Treasury Department Systems & Tools:

 

Below are systems and tools used by AIB Treasury in order to execute and
process deals on daily basis:

o  
FX Trading : Reuters dealing system.

o  
Reuters Eikon: Rates viewing tool and Daily/Latest Market
Information. 

o  
Reuters messenger system: A communication tool between dealers within various
banks, 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 are
utilized 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 ordinarily
used products.

Wakala Investment: Is the most used treasury
product in AIB, whereas the bank is a Wakeel or Agent of funds through a bank
investment pool.

Murabaha: Second most used treasury
product, wherein Murabaha Assets are typically used for surplus in bank’s
liquidity and Murabaha Liability in cases of shortage in liquidity.

Mudharaba : Placing excess cash with other
banks in a (NOSTRO) account. Or receiving cash placements from other banks
opening a (VOSTRO) account in the other bank’s favour. Maturity of such
deposits 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 profit
margins throw spreads between buy and sell rates. These are usually done in
order to fulfill other department needs based on customer transactions.

 

Limitations:

Despite that many limitations
in Islamic Banking has been somehow surpassed since inception, yet is still in
lack and limited in many aspects that shall be identified and encountered by
(i.e. Shariah Scholars, Islamic Regulatory Bodies & Individuals in Islamic
Banks). 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 to
smaller number of participants in the money market. 

o  
Nonexistent Sharia’ Compliant lenders of the last
resort facility in which are offered by many Central Banks.

o  
Unlike conventional banks, Islamic liquidity bank
management is strictly limited in the Islamic inter-bank market.

o  
Most conventional banks liquidity tools are
non-sharia’ compliant. Thus, Islamic banks struggle with their liquidity
management and ratios.

o  
Difficulty in introducing new Sharia’ Compliant liquid
instruments and developing the current products.

o  
Standardization of documentation; wherein most of
Islamic banks have their own formats of agreements in which results to time
inefficiency for both Islamic Banks & Conventional banks. As such,
non-standardization results in many conventional banks being shy to deal with
Islamic Banks which also leads to the following shortcoming;

o  
Efficiency/cost ratio is relatively low.

Role of AAOFI in Islamic Banking:

 

Accounting & Auditing
Organization for Islamic Financial Institutions (AAOFI) is a Bahraini based
non-profit organization in which has been established to promote Shariah
standards for Islamic Financial Institutions. Its roles are to develop
Accounting & Auditing ideas relevant to Islamic Banks and Institutions
through training, seminars, publication of periodical newsletters, and
commissioning of research. Additionally, AAOFI prepares, circulates, interpret,
reviews and amend accounting and auditing standards for such institutions.

 

 

 

Role of IIFM:

International Islamic Financial
Market (IIFM) is plays its role in Market Unification by developing best
practices at a global level. The IIFM addresses the documentation standardization
needs of the industry in areas such as Capital & Money Markets (CM),
Corporate Finance & Trade Finance. In addition, it provides universal
platform by bringing regulatory bodies, FI’s, law firms, stock exchanges etc.
Then creates project specific global working groups and committees. Their extended
roles also include organization of specialized events, market consultative
meetings and standardization of specific seminars and workshops. Additionally,
IIFM regularly does research and reports on Sukuk products.

Shariah Scholars:

The existence and decisions of
Sharia Scholars is fundamental as they attend to ensure the legitimacy of
Islamic finance operations and products and that such operations and
development of Islamic Finance is based on Sharia guidelines. Their roles were
previously limited to advice and product endorsement. However, nowadays their
involvement in product development and innovation has been prolonged. Development
in Islamic Banking increases the challenges facing the Shari’ah advisors, hence
they need to interact more with various people and stakeholders in the industry
to understand and perform their roles better. In certain instances, expertise
from relevant banking departments, such as corporate banking, risk management etc.,
are requested to attend Shari’ah board meetings to provide a better
understanding to the Shari’ah Boards on issues and obstacles these relevant
departments face in order to operate more efficiently and competitively.
Therefore, such invitations certainly give the Shariah Scholars a better
understanding on the importance of development and innovation of new products.

Suggestions to overcome the limitations:

Islamic Banks should penetrate
new markets such as Far East countries (e.g. Malaysia & Indonesia).
Interaction of Islamic banks between each other globally creates more liquidity
management opportunities and a larger interbank market. Regulatory bodies
should put more effort in promoting Islamic products within countries that are
not very active in such field. Sharia’ Scholars should interact more often with
Islamic Finance experts in order to develop and introduce new Sharia’ Compliant
liquid instruments which gives treasurers more room to manage banks liquidity.

Conclusion:

 

Islamic Banks should penetrate
new markets such as Far East countries (e.g. Malaysia & Indonesia).
Interaction of Islamic banks between each other globally creates more liquidity
management opportunities and a larger interbank market. Likewise, regulatory
bodies should put more effort in promoting Islamic products within countries
that are not very active in such field.

To end with, Sharia’ Scholars
should interact more often with Islamic Finance experts in order to develop and
introduce new Sharia’ Compliant liquid instruments which gives treasurers more
room to manage banks liquidity.