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Down to Business English

Islamic Finance
April 17, 2010

Skip: My name is Skip Montreux, and this is Down to Business English. As

you can probably already tell, Dez Morgan is not here today.
Unfortunately, he is one of thousands of travelers stranded in Europe
at the moment due to the recent eruption of the volcano in Iceland.
Since we can not record together, we will be rebroadcasting an
earlier episode of Down to Business English. In this Episode, Dez
was on location in Kuala Lumpar, Malaysia. The big story of the day
was Islamic Finance. So lets get Down to Business with Skip and
Dez talking about lending practices in an Islamic nation.

Dez: My name is Dez Morgan and after 16 years teaching English in

Japan,I have decided to take some time off and do some world
traveling. Along the way I will be Down to Business English’s roving

Skip: And my name is Skip Montreux. I am based in Tokyo, where I have been an ESL instructor for the past
decade. Between the 2 of us I am definitely the one who knows very little about the inner workings of
international business. But I have always enjoyed listening to Dez explain things to me in a way that
makes sense.

Dez: That's who we are and together, through this podcast, we hope to help you improve your business
English ability.

Skip: The format for Down to Business English is quite straightforward. First, Dez will introduce a business
story currently making the news and explain it in a way that even a complete business novice such as
myself can understand.

Dez: After that, Skip and I will explain any business vocabulary or phrases that come up in our conversation
and give examples as to how you could use them in your business situation.

Skip: Each episode comes with a complete transcript, so if want, you can always download the PDF file
from our website.

Dez: Let’s get D 2 B, down to business!

Skip: So Dez, where are you this week ?

Dez: Kuala Lumpur, Malaysia, and there is a pretty big story going on here at the moment. Basically in the
Islamic religion it is against the law to make any transaction that profits from another party which means
that banks cannot pay or receive interest and as such cannot really function as we generally understand
a bank to work.

Skip: So the title of today's story is Islamic Finance. That is a term I have never heard of before. I guess being
in K.L. , that story must be front and center in the business world?

Dez: Actually it is, because KL is trying to make itself the center for Islamic Finance.

Skip: So how is a financial institution to make any money if they are prohibited from charging interest on the
money they lend?

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Dez: Take the example of a mortgage. The Bank cannot lend money and then charge interest on that loan.

Skip: Yes, I understand that. So what motivation does a bank have to lend money?

Dez: What the bank does is they buy the house and rent it to you similar to a loan company renting you a
car. Then, at the end of the agreement you own the house, and the amount you pay in total is similar
to what you would have paid if you had a mortgage.

Skip: What do you call this kind of agreement?

Dez: That particular type is called an Ijara.

Skip: Okay, so it seems to me that the only difference between a mortgage and a, what did you say, an
Ijara contract, is the name. There must be more to it than that.

Dez: Well the real difference is that a Ijara is Sharial compliant, which means that it is acceptable in the
Islamic faith.

Skip: So it is just a different method of achieving the same end result without using interest as a means to
do that

Dez: Yes, it is and there are other instruments that simulate bonds and shares as well.
Skip: That is very interesting but is this really a significant market outside of Islamic nations?

Dez: Interesting question, but first lets look at the size of the market in the Islamic nations. A spokesperson
for a major Malaysian bank gave the following estimate late last year, “The liquidity surplus in the
Middle East, as a result of rising oil prices, amounts to over $500 billion per annum.”

Skip: Wow that is a lot of money.

Dez: It certainly is. To give you picture of the size of $500 billion, the entire GDP of Australia per annum is
only about 650 billion.

Skip: What does liquidity surplus mean exactly in financial terms?

Dez: Liquidity really just means money and surplus means money with nothing to do. Simply put- there is
$500 billion looking for a place to invest.

Skip: $500 billion just sitting around, and the people holding that money can't lend it using traditional
banking methods.

Dez: Yes, that’s basically true. To return to your original question, as you can see there is a lot of money at
stake and this is a very new market, so yes a lot of western banks and other institutions are certainly
entering the Islamic Finance market. In fact, the biggest players in the market at the moment are the
conventional banks such as Citibank and HSBC who have large banking operations in Islamic
markets. However, here in KL there is a big push from the government and regional institutions to get
more involved in that market.

Skip: That’s all fine and dandy but how does that directly affect Malaysia?

Dez: The Malaysian Government is easing the rules on foreign ownership of financial institutions to try
and encourage some of this capital to make its way into Malaysia.

Skip: Do you think this will be successful?

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Dez: To be honest that’s a difficult question. The Malaysian Government argue that they have a large pool of
qualified English speaking graduates that will be needed to make K.L. the Islamic Finance capital.
However, on the other hand, they have little experience in the capital markets and the, more established
markets, noticeably London, would also like a share of this trade.

Skip: Well, it will be interesting to follow this story as it develops and see where this surplus money ends up.

Dez: Yes it will, and we should also watch the price of oil to see if the surplus liquidity rises or falls.

Skip: Thanks a lot Dez for bringing this story to our attention. Islamic finance, something I think we will be
hearing a lot more about in the future.

Dez: So now that you have listened to our business story this week, lets get down to Vocabulary.

Skip: Our first keyword today is the word novice. N-o-v-i-c-e. At the beginning of the show I mentioned how
Dez has the knack for explaining business stories to people who are complete novices. What does it
mean? A novice is a person who is inexperienced or very new to a situation. So Dez, let me ask you, are
you a novice at anything?

Dez: Yeah, funny you should say that because as our listeners can probably hear, I’m certainly a novice at this

Skip: Well so am I. But, even though it is a new media, there is a lot of support out there so hopefully we will
get better.

Dez: Yes listeners, we will get better.

Skip: Only on direction to go.

Dez: Exactly, Exactly. That brings us to our second word. Now the second keyword here is interest.

Skip: Okay.

Dez: I-n-t-e-r-e-s-t. Now, interest is when you lend someone some money and they have to pay you a
percentage each year for the use of your money, so that both sides are happy in that situation. And
one of the key uses of interest is in a mortgage. That’s M-o-r-t-g-a-g-e. Now a mortgage is when
you borrow money from the bank usually to buy a house and then every year you have to pay
some interest to the bank for the use of their money.

Skip: Is there a difference between mortgage and a bank loan?

Dez: There is one key difference. A mortgage is usually secured by the house. So what that means is, if you
don’t pay back your mortgage then the bank can take your house.

Skip: I gotcha.

Dez: Now loans can be either secured or unsecured. If it’s a small loan, it’s usually unsecured which means if
you don’t pay back that loan then they have to try and get the money from you in some other way. An
example of that would be a credit card loan. If it is a larger loan you have to put up what’s called
collateral. Collateral is when you put up something, either a property or some other monies to secure
that loan. Then in that case the bank can come take your money, or your house.

Skip: I understand. So that money that I owe you, are you charging me interest?

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Dez: No I’m not but I probably should be.

Skip: It’s going to take me a few more months to pay you back.

Dez: Yeah, I know.

Skip: Okay, moving on. Our next word is prohibit. P-r-o-h-i-b-i-t. Prohibit means you are not allowed to do
something. Usually in an official sense. For example, the directors of a company are usually prohibited
from selling shares in the company based on insider information.

Dez: So that means it never happens then Skip?

Skip: I think it shouldn’t happen. One word comes to mind, or one name comes to mind- Martha Stewart.

Dez: Yeah, I’m sure most of our listeners have heard of Martha Stewart. Okay, well interesting, that leads us
on to our next word which is to be compliant.

Skip: Compliant.

Dez: I’ll spell that for you. C-o-m-p-l-i-a-n-t. Now, this is really the opposite of prohibited. This is an action
that is acceptable. And usually it’s used when something is compliant by law. There was an interesting
case of this in Tokyo, I think it was last year when Citibank Japan sold some long-dated bonds, I think
they were 30 year bonds, to an 82 year old customer. And that was ruled not to be compliant because it
wasn’t in the interest of the customer.

Skip: Okay. Next word. Simulate. S-i-m-u-l-a-t-e. Simulate. This simply means to copy or act in the same way
as another person or another group. Here’s an example. Last week in my University Business English
class we simulated different situations using role plays.

Dez: That’s interesting. I think a lot of my students used to simulate studying. Okay, so we’ve had some fun
with those. So Skip, there’s some useful vocabulary that I hope that our listeners will be using in the

Skip: Yes, and we will try to use these in future episodes.

Dez: We will. Okay, thank you.

Skip: That was Dez and I speaking about Islamic Finance, way back in the summer of 2007. I hope you have
enjoyed today’s episode. As we mentioned in the show, please feel free to visit our website and
download the audioscript. The address is www.downtobusinessenglish.com .

Also, if there is a business story that you would like to hear Dez and I discuss on the show, please email
us and let us know.
Our email address is downtobusinessenglish@gmail.com

Finally, if you are enjoying this podcast and finding it useful, the best way to support it is to tell a
colleague, or tell a friend. Just send them to our website or ask them to search for us in the iTunes music
store. Both Dez and I would sincerely appreciate it.

Thanks again for listening. Talk to you soon. Goodbye everyone.

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