UBS and Islamic Banking
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : FINC047
Case Length : 18 Pages
Period : 2000-07
Pub. Date : 2007
Teaching Note :Not Available
Organization : UBS AG
Industry : Banking
Countries : Bahrain
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts
Noriba - Products and Services
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The main problem that Noriba faced initially was that Shariah
law was interpreted differently in different countries. While Noriba was
committed to developing Shariah-compliant products globally, the differing
Shariah schools of thought made it hard to develop a single product type that
could be rolled out across all the countries.
Malaysia, for instance, which was
a thriving market for Islamic finance, was generally thought to adopt a more
lenient interpretation of Shariah law. The use of derivatives in Islamic
transactions and products was therefore more acceptable, and more common, in
Malaysia than in the Middle East countries...
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Products Launched by UBS
In order to build a single brand, UBS decided, in March 2006,
to integrate Noriba into its own operations. The integration was completed by
the end of 2006. According to a UBS official, it was also felt that UBS would be
able to meet its client needs better via an integrated business model...
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UBS
Shariah-Compliant Deposit (Commodity Murabaha)
The UBS Shariah-Compliant deposit mobilized funds from investors who
wanted to earn some profit but at the same time, were risk-averse. The
money that they deposited with the bank was invested in a commodity
transaction (investing in gold and base metals, for instance) and the
profits were shared with the investors at the end of the maturity
period.
The deposits could be made for defined periods up to one year.
This product provided risk averse investors capital protection along
with profit at maturity... |
UBS Shariah-Compliant FX Bloc
UBS FX Bloc enabled the investors to make profits through the changes in foreign
exchange rates. The deposit with a tenure of one to three months provided higher
returns compared to Shariah compliant deposits. UBS FX Bloc had tenure between
one and three months. Investors could earn profits through this product when the
movement in the foreign exchange markets was sideways.
Though UBS FX Bloc offered higher profits than the UBS Shariah-Compliant
Deposit, it came with a risk of receiving an alternative currency at the
expiration of the tenure. The product involved two separate but simultaneous
transactions - a UBS Shariah-Compliant Deposit and a unilateral promise that
meant that UBS had full right to convert the investment amount into an
alternative currency amount at a promised foreign exchange rate at the
expiration of the tenure of the product...
Excerpts Contd...>>
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