The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking, 2nd Edition

CHAPTER 15 Case Studies Developing the RF Banking Investment Products

This chapter is designed to apply the RF (riba-free) banking principles discussed in the book to different financing situations. Portfolio managers are trained to diversify an investment portfolio between different asset classes to optimize the expected return in light of the risk level that fits the particular situation of each investor. The portfolio manager is trained to construct an investment pyramid (see Exhibit 15.1). Because the conventional riba-based banking system has been in existence for hundreds of years, serves some of the major world economies, and is standardized worldwide, the portfolio manager can tap many asset classes to build a certain portfolio. This is not the case in RF banking. This brand of banking has lagged behind the conventional system for about 600 years. The challenge ahead for RF bankers is to develop such a menu of diversified RF products that can help RF investors build a diversified RF investment portfolio that can be designed to deliver an acceptable return with commensurate risk. In designing these RF products, RF bankers must try to fulfill the following two important guidelines:

1. The RF investment product must comply with the Judeo-Christian-Islamic Shari'aa law and the laws of the land.
2. The RF product, at least in the beginning, must have the same feel and purpose as those offered by the conventional riba-based banks to enable the customer to conduct a fair and equitable ...