Information Disclosure in Islamic banks

1) Information disclosure in general

A bank discloses their financial and other information, aimed at providing a broad and reasonably up-to-date view of the bank through annual reports. Major groups of the reports users are ⒜ Shareholders; ⒝ Account holders and depositors (clients of the bank); ⒞ Borrowers and others who transact with the bank; and ⒟ Regulatory bodies.

Information disclosure leads to transparency and supervision and regulation of the banking sector. Moreover, it gives banks stability in consequence, despite the fact that almost all banks’ activities face a variety of risks. For that reason, major global financial institutions such as the World Bank and IMF’s Financial Sound Indicators system have emphasized the importance of transparency and disclosure as one of the core components of bank stability because transparency which arises from greater disclosure by banks will further benefit the financial system as a whole, by reducing the doubts and it provides an essential foundation to a more stable and efficient financial system.


2) Information disclosure in Islamic banks

Not only in conventional banks but also in Islamic banks, truthful and relevant disclosure of information is necessary and Islamic banks, which avoid Gharar and follow Mudarabah principle, are encouraged to make more extensive disclosure since it shows banks’ strategies and relevant risks and also assists depositors and other investors to make well-informed decisions on where to put their money.

Islamic banks apply a Shariah and legal framework which ensures effective risk management practices, adequate financial disclosure and governance to their information disclosure. This leads them to have a strong financial system by including these components as follow: ⒜ Performance Overview; ⒝ Statement of Corporate Governance; ⒞ Directors’ Report; ⒟ Statement by Directors; ⒠ Statutory Declaration by Director or person responsible for reparation of financial statements of the reporting institution; ⒡ Auditors’ Report; ⒢ Shariah Committee’s Report; ⒣ Balance Sheet; ⒤ Income Statement; ⒥ Statement of Changes in Equity showing either all changes in equity or changes in equity other than those arising from capital transactions with owners and distributions to owners; ⒦ Cash Flow Statement; and ⒧ Accounting Policies and Explanatory Notes.

This form of information disclosure based on a Shariah and legal framework has increased the reliability of the Islamic financial system and strengthened the incentives for banks to maintain sound banking practices. Besides, it provides both the supervisory authorities and the public with better information of a bank's strategies and risks including Islamic banks’ special risks.



Sources
1) Reserve Bank of New Zealand, “Your bank's disclosure statement: what's in it for you?”
2) Nafis Alam & Prof. Bala Shanmugam, “Promoting Transparency in Islamic Banks”, THJ Jan/Feb 2007 edition
3) Luca Errico & Mitra Farahbaksh, “Islamic Banking: Issues in Prudential Regulation and Supervision”, IMF Working Paper, March 1998
4) Islamic Banking and Takaful Department of Bank Negara Malaysia, “Guidelines of Financial Reporting for Licensed Islamic Banks”
5) Mohamed Abdelhamid, “Islamic Banking”, Department of Economics in Carleton University, September 2005

What is Riba?

Although Islamic finance is playing a more and more important role in the world, I even didn't know what is different between conventional and Islamic banks. I thought it was not my business as I'd never seen any Islamic bank in Korea.

Things are always changing though. I happened to come to Malaysia and this country is closely connected with Islamic banks. It's time I needed to know at least what it is!

I asked my Thai friend if she knew anything about it and she said there's something different in their interest system. I found out later that it was about riba, which is one of the most crucial concepts in Islamic finance.

Then what is Riba?

Literally, riba means ‘excess’ or ‘increase’ in the Arabic language, which is also thought to be ‘effortless profit’ in the Islamic terminology and translated into ‘interest’ in English. However, riba is so much more than what I mentioned above in fact. There are a number of opinions about the definition of riba, depending on scholars, and the meaning seems to be too general and indefinable, so we are going to have a look at it from the different angle in order to get a better understanding of what riba is by explaining 1) why riba is prohibited in Quran and 2) why a profit in the Islamic banking is not riba.


1) why riba is prohibited in Quran

In the conventional economics, a loan is considered a means to make greater economic benefits. That is why the lender returns to the borrower more and better than the quantity borrowed in compensation for the time value of their money.

However, it is assumed that those who are in difficulties borrow a loan to get out of the situation in the Islamic economics. In other words, what Quran prohibits is not ‘riba’ itself but the worse result which can be happened to the borrower not being able to pay back. This is the reason why riba is not accepted in Quran.


2) why a profit in the Islamic banking is not riba

Nevertheless, a profit called interest in the western banking still exists in the Islamic banking and it is one of the vital sources which allow the Islamic bank to run the business smoothly. Then why is the profit in the Islamic banking not riba?

While the borrower has to take the risk of the lender by paying them the interest in the conventional economics, the borrower and lender share not only the profit but also the risk as a partner in the Islamic economics. Moreover, either a product or a service must be delivered in Islamic banking transactions so that the profit is not riba anymore, but just a profit from their investment in the partnership.


It is true that the definition of riba has similarities to interest in some ways but we can find the certain differences between them and when the reasons, why riba is prohibited in Quran and why a profit in the Islamic banking is not riba, are taken into account, we can get a better understanding of the definition of riba.

Example of an Award Acceptance Speech

I got an assignment about an award acceptance speech in Public Speaking class a few weeks ago but it was quite hard to find any example on the Internet. So I'd like to share my speech example with those who are looking for any sample or example of an award acceptance speech :)

Award Acceptance Speech

Let me begin by saying I am simply speechless now and this is just amazing! I am overwhelmed with this honor. Thank you, thank you and thank you.

Ever since I started the business school here, to win the ABC Business Plan Competition has been always my biggest dream as it is a well-known prize among business students. That is why I cannot believe that I am awarded. I think the idea-market website, the topic that I dealt with, was original and interesting and that made me stand up here in the first place. Otherwise, I do not think I can get this prize since I know I am no better than others and all competitors did absolutely fantastic job.

I remember that all the professors I visited to ask for a piece of advice said my idea about the idea-market website was impossible to realize in the real business world. That night, I cried a lot and almost gave up carrying out the project. Then I got an answer from Prof. Kim the following day and he said it would be perfect if I modified some parts of my project. He was the only person who saw the possibility of my project for this competition and led me to develop my idea more logically and realistically. Without his support, I would not have been able to do this.

Thank Prof. Kim for giving me such useful and helpful advice all the time and helped me to apply possible real business models to this project. Also, thank my family who always encouraged me to think of a better idea in a creative way and all of my friends who stood by me especially during tough time and thank you for recognizing my project with this reward. And I would like to say thank you to all people here. Thank you again.

Spring, Flower, Lake, and the Goyang Korea Flower Show!

Spring, Flower, Lake, and the Goyang Korea Flower Show!

The Goyang Korea Flower Show, which features new flower species and flower painting technology, takes place in my neck of the woods every spring. Basically, this show started in order to advertise advanced Korean floricultural industry widely and promote relevant trade and investment. Now, it is one of the biggest events in my city, Goyang. I’m going to introduce 3 things to do there.

Firstly, enjoy Korean colorful spring, fragrant flowers, and the sparkling lake.
A number of kinds of fabulous flowers decorate the whole Lake Park, where the show is held, and they are formed into interesting objects such as a castle, a mermaid, or whatever you can imagine as if you are in a fairytale, which harmonize perfectly well with the warm and breezy Korean spring. For this reason, there are always tons of people taking photos of the scenery.

Secondly, see how flowers themselves become fantastic art work through a variety of contests.
Actually, this is my favorite part since it is a good opportunity to see how flowers can be used in real life and how participants deal with the same topic in a different way. Many contests are held such as the Traditional Flower Arrangement Contest, the Drawing Flowers Contest and so on.

Thirdly, join any event and make your own floral piece.
The Goyang Korea Flower Show is full of events. For example, I have a friend who got a flowery hand mirror from her boyfriend who made it himself with traditional Korean paper and flowers for her. She says it is the most adorable present ever as not only is it pretty but it also reminds her of the pleasant memory.

It is no exaggeration to say that Goyang is called the City of Flowers and the Lake thanks to the Goyang Korea Flower Show. It is very special to residents and a must for tourists – you will understand why it is said so when you join the show. Why don’t you come and enjoy lovely Korean spring with the beautiful lake and scented flowers in full bloom?

Our past, too important to lose!

CAE writing practice :)

I was given this specific topic to write an article in my writing class and it should be done in 40 minutes. That's why I can't deny this article isn't well-written, but I want to share this with those who are learning English like me. I think it'd be quite helpful for CAE students in particular.


You have had a class discussion on why it is important to preserve the past. Now your teacher has asked you to write an essay giving your opinions on the following statement: 'We should spend more money on preserving our past - it is too important to lose.

Write your essay in 200-260 words.

Our past, too important to lose

It is said that knowing our history is so important that we should make more efforts to preserve our past. But is it really necessary to do so?

On the one hand, there are some people who insist that we have already spent enough money and would rather invest in more practical fields such as education or medical services. Supposing we had developed new technology with the money, we would have improved our lives more. Or it may have been better to give away that money to charities since we can immediately see how wisely the money is spent. Moreover, we have not got any useful result from preserving out past, although a great deal of money and time were used. We are living in the present and going to the future, not the past. That is why they say it is a complete waste.

On the other hand, it is widely thought that the past reflects us who are living in the present and shows the future as history has repeated all the time. For this reason, if we are aware of our past well, we can get a better understanding of the way we live and think, and prepare for what will happen in the future in order not to make mistakes again which caused problems before. Furthermore, our past is not only ours, but also our future generation’s. Just because it does not seem important for us at this moment does not mean that they will not need to know about the past. It would be a vital resource for them.

It seems to me that it is absolutely necessary for us to preserve our past, because there are more things in life than simply being practical. Therefore, I agree with the statement that we should spend more money on preserving our past – it is too important to lose.