LV thạc sỹ_Building marketing plan for an islamic bank in vietnam

In only a short period of time from 2003 to 2009,pivotal countries of the Gulf Cooperation Council GCC – the cooperation organization of the Arabian Gulf – include Kuwait, United Arab Em

RESEARCH DISSERTATION

BUILDING MARKETING PLAN

FOR AN ISLAMIC BANK IN VIETNAM

Ha Noi, October

I would like to thank Mr …

TABLE OF CONTENT

CHAPTER I INTRODUCTION ……….……….6

1 PROBLEM STATEMENT……… 6

2 RESEARCH PURPOSES……….….8

3 METHODOLOGY……… … 9

CHAPTER II THEORETICAL FRAMEWORK ON ISLAMIC BANKING 10 2.1 AN OVERVIEW OF ISLAM……….……10

2.1.1 HISTORICAL REVIEW……….………… 10

2.1.2 THE FIVE PILLARS OF ISLAMIC RELIGION……….………13

2.1.3 SHARIAH – THE ISLAMIC LAW CODE……… …….14

2.2 KEY CONCEPTS AND PRINCIPLES IN ISLAMIC BANKING … ….15

2.2.1 PROHIBITED RIBA – CORE CONCEPT OF ISLAMIC BANKING……… 15

2.2.2 PROFIT-AND-LOSS-SHARING BASIS……….…16

2.2.3 ASSET- BACKING……… 17

CHAPTER III ISLAMIC FINANCIAL INSTRUMENTS……… ……….…18

3.1 ISLAMIC FINANCIAL INSTRUMENTS………18

3.1.1.WADIAH (SAFEKEEPING)…… ……… ….18

3.1.2 MURABAHA (COST PLUS FINANCING) ……… ……… 18

3.1.3.MUDHARABAH (PROFIT SHARING) ……….… 18

3.1.4 MUSHARAKA (EQUITY FINANCING)……… 19

3.1.5 IJARAH THUMMA BAI’ (HIRE PURCHASE)……… …19

3.1.6 SUKUK (INVESTMENT CERTIFICATE)……… …19

3.1.7 TAKAFUL (INSURANCE)……… 19

3.2 ISLAMIC VS CONVENTIONAL BANKING SYSTEM……… …20

3.2.1 STRUCTURE……… ….20

3.2.2 PRACTICES……… …20

3.3 ADVANTAGES OF ISLAMIC FINANCE……… …21

3.4 THE DEVELOPMENT OF ISLAMIC BANKING……… … 23

CHAPTER IV BUILDING MARKETING PLAN FOR THE FIRST

ISLAMIC BANK IN VIETNAM……… ….26

4.1 EXECUTIVE SUMMARY……… 26

4.2 SITUATION ANALYSIS ……… ……27

4.2.1 THE ROLE OF ISLAMIC COUNTRIES IN GLOBAL ECONOMY ……….… 27

4.2.2 TRADE AND INVESTMENT BETWEEN VIETNAM AND ISLAMIC COUNTRIES ……….…30

4.2.3 PEST ANALYSIS FOR THE MACRO ENVIRONMENT OF VIETNAM……….… 32

A POLITICAL FACTOR……… ……… 32

B ECONOMIC FACTOR……… ….34

C SOCIAL FACTOR……….….35

D TECHNOLOGICAL FACTOR ……….…36

4.3 MARKET SURVEY ANALYSIS……….….36

4.4 SWOT ANALYSIS ……… … 40

4.5.GOAL FORMULATION……… ……… 41

4.6 MARKETING MIX…… ……… ……… 42

4.6.1 Product……… …….42

4.6.2 Pricing………46

4.6.3 Place……… 47

4.6.4 Promotion……… …50

4.6.5 People………50

4.6.6 Process……….…… 51

4.6.7 Physical evidence……… 52

4.6.8 Budget explanation………53

4.7 ACTION PLAN……….……… 53

CHAPTER V CONCLUSION……… ……….….55

ANNEX 1………56

REFERENCES……… 66

LIST OF ILLUSTRATIONS

TABLES:

Table 1: Riba vs Profit……… ….…17

Table 2: The development of Islamic banking in the world……….25

Table3: Oil Reserves in OAPEC Members and World 2006……… ………28

Table 4: Natural Gas Reserves in OAPEC Members and World 2006…… ……29

Table 5: Value of oil exports in OAPEC Member countries, 2004 – 2008…….…30

Table 6: Trade Exchange between Vietnam and Islamic countries…….…………

31 Table 7: GDP growth and CPT of Vietnam 2000 – 2010………35

Table 8: LC related fees of Big Four and suggested level for Islamic bank………47

Table 9: Number of branches of Vietinbank, Indovina bank and AgRibank in 13 provinces and cities……….……… 48

Table 10: Marketing budget explanation for the first year……… ……….53

FIGURES Figure 1: Strategic planning steps………26

Figure 2: SWOT analysis of Islamic bank in Vietnam………40

Figure 3: Network design of Islamic bank……….….49

Figure 4: Distribution network of Islamic bank……… 49

Figure 5: Procedure of supplying products/services……… ….52

Figure 6: Time table for action plan of the first Islamic bank in Vietnam…….…54

CHAPTER I INTRODUCTION

1 PROBLEM STATEMENT

The idea of an Islamic banking in Vietnam may be traced from a far more

popular story named “oil.” Oil has been known since the most ancient times and first

used as medicine, not as fuel At dawn of the nineteenth century, with the first oil wellfound and drilled, it was used as a much more effective substitute for coal and steamwater, the oil industry was born and quickly boomed In 1908, Henry Ford released hisfamous Model T automobile It was the first car mass produced on assembly lines withcompletely interchangeable spare parts marketed to the middle class in United States

By 1924, there were 18 million cars on the road Since then, oil in the role of the mainengine fuel became the lifeblood of our modern civilization It is the start of wealth [andwar] for those countries which possess this invaluable limited raw material

And it is the fate of the Arab world generally; the Middle East and the ArabianGulf particularly to be cursed by “oil,” in which Arab people believe to be a blessed

present for their unshakeable faith in the true religion of God – Islam Beneath their

land are the oil reserves of hundred times more than that in the US In centuries, thestrategic importance of oil became reasons for many invasions, wars and terrors Some

of them ceased with the dawn of the independence era, some last till our days Howeverthe situation is, oil brought a new face for the land of sandy deserts and camels

Nowadays, countries in Middle East like Kuwait, Saudi Arabia, UAE, Qatar…have large budgetary surpluses with little or no international debts thanks to theirrevenues from oil This excess liquidity cannot be consumed immediately Moreover, allgovernments here are aware that incomes from this raw material are highly volatile bymarket needs and prices, unstable extraction and especially exhaustibility It isforecasted that at current rates of extraction and consumption, oil resources in the world

is to end “in the next 60 years” (From: The end of oil is closer than you think by JohnVidal - The Guardian, Thursday 21 April 2005) Subsequently, while incomes from oilwould not last, their future would be at risk too As a natural trend, they need to investtheir money now to create long and ever lasting profits for their next generations Formany years since the beginning of the twentieth century, governments of most Arabcountries whose incomes are substantially based on oil exports have been investing theirnational excess money overbroad through various channels: sovereign wealth fund,sovereign investment fund, FDI, public aids, They also built framework and createdfavorable conditions for their entities and citizens to do so

This policy provided these states with many strategic interests Firstly, itdiversifies national and budgetary resources and reduces their independence on oil Thefacts show that nowadays, countries like UAE or Qatar became commercial hubs both

of the region and the whole world Their prosperities started obviously from oil andnatural gas resources But it is their sound economic policies and investment strategythat raised and fertilized the nation wealth Oil incomes were used to improveinfrastructures, create incentives for enterprises and tax-free market for business,tourists and national citizens; thus enhance the national trademark Secondly, on thefinancial market which exert crucial influence on every national economy, excessrevenues were allocated in bonds, securities and shares that their governments andcompanies hold, their national economic positions on the global stage would beenormously enhanced Third and foremost, the religion of Islam and Arab culture arewidely spread and rooted around the world One of the clearest sight of this phenomenalwere the fast development of Islamic banking Nowadays, Islam is the largest religiouscommunity in the world with around 1,5 billion followers Although Islam was the latestborn among the major religions but almost all their doctrines and ritual practices remainunchanged All Islam followers say their pray in Arabic because the Koran Alkarim –their holy bible – was not translated into any other languages [except for the purpose ofexplanation] The usury [or interest in our word] which is the primary base of ourmodern banking system is still strictly forbidden Islamic world built their own Islamicbanking and this system rooted wherever an Islam company, business, individual put hisstep on or have relationship with Islamic banking become an indispensable part of theglobal financial market It should be built and spread in all countries which is to have acomplete and highly-developed financial system with strong integral level with theglobal finance

For many years, Arab countries have directed to the West and tried to be part ofthe prosperity However, their increasing gap in religious believes and concept offreedom with the Western world make Asia the harmony in between Moreover, at dawn

of the twentieth first century, Asia, especially South East Asia become new destination

of many investment flows The reasons seem to be clear Other than the old Europe andAmerica at already peak, Asia rises as the world’s economic development center withbooming industries, new emerged economy and new money nations As a natural trend,Arab countries, especially those of the Arabian Gulf would put their eyes on thispotential market

Moreover, it is necessary to mention that the global heating, climate changes andnatural disasters on large scale have rang the alarm of a food crisis on the whole world,especially in countries with poor agricultural land resources like the Arabs Majorexporters of agricultural products such as Thailand, Vietnam, Malaysia, Indonesia wouldattract huge investment flows from Arabian countries to cover their food demand in thefuture

In this favorable climate, in addition to the development of an increasinglycomplete market economy after WTO membership, the political and especiallycommercial relationship between Vietnam and the Arab world in the recent yearsachieved considerable progresses In only a short period of time from 2003 to 2009,pivotal countries of the Gulf Cooperation Council (GCC) – the cooperation organization

of the Arabian Gulf – include Kuwait, United Arab Emirates, Qatar and biggest Arabcountry – Saudi Arabia - opened their embassies and trade representative offices in HaNoi and Ho Chi Minh City, followed by many official visits between high-rank officials.The idea of an Islamic bank in Vietnam raised from the official visit of our PrimeMinister Nguyen Tan Dung to Qatar in 2009, as the result of the skyrocketed tradevolume investment projects between the two countries particularly and the Arab worldgenerally Since then, many works have been done on the project This research isexpected to be a step on the road to realize the idea of establishing a Islamic bank inVietnam

2 RESEARCH PURPOSES

This research was implemented to serve FOUR main purposes The first is tobuild up a theoretical framework of Islamic banking system As far as the author mayunderstand, Islamic banking is a quite new concept in Vietnam Although many Arabcountries established diplomatic relation with Vietnam right after 1975 Countries likeIran and Iraq provided Vietnam with aids and political support during the wartime, but

so far the relationship is still in the shape of potentiality The number of researches onthe Arab world in general is still limited, ones about a specific area like Islamic banking

is far more scarce For all those reasons, it is important to build up a theoreticalframework for the purpose of a comprehensive understanding and subsequently anyfurther analysis and implementation and development

It is the matter of fact that Islamic banking products in the world are not limited

to Islamic followers only They are made to be capable of serving any individual andorganization that see them profitable Hence this paper also conduct a survey to have an

insight of what Vietnamese people and businesses understand of Islamic banking andhow they are interested in its products if an Islamic bank is established in Vietnam

As financial market in Vietnam is still unfledged, it is very potential for newproducts In this research, the author will do some analysis on the advantages anddisadvantages of local market, how it will favor and how it will obstruct anestablishment of an Islamic bank in Vietnam This part would provides those who mayconcern with not only the environment in which a Islamic bank is developed but also itsperspective in the future

Finally, the research will recommend an action plan for the implementation of anIslamic bank in Vietnam As an officer working on the Islamic banking project inVietinbank, the author hopes that his works would contribute to the progress of theproject and thus make the idea closer to being real

3 METHODOLOGY

This research was conducted on the basis of quantitative method with bothprimary and secondary data To build up a theoretical framework for Islamic banking,academic reference textbooks are required However, as information sources are notavailable in Vietnam, the author made intensive study on electronic database, review ofonline books and articles as well as information scattered on the Islamic websites

For a deeper understanding of various aspects of a common Islamic bank as well

as its practical activities in real life, the author discussed directly with some Arabpeople who are living in Ha Noi, most of them work in diplomatic missions with largebackground knowledge about Islamic doctrines and their appliance in Islamic bankingpractices

One of the main source of data were collected from the survey on Islamicbanking in Vietnam The survey was built to acquire the level of understanding ofVietnamese community about Islamic banking It was implemented during two months.Questionnaires were sent directly or emailed to 112 persons including individuals andbusiness representatives throughout the country who are trading with the Arab states.The primary data were then analyzed to give readers an understanding of the level ofknowledge of community about Islamic finance and indentify potential groups ofcustomers for this kind of activities in Vietnam

CHAPTER II THEORETICAL FRAMEWORK

ON ISLAMIC BANKING

Discovering a brand-new system like Islamic banking may confuse readers whoare more familiar with conventional banking system, which sometimes may lead tounexpected misunderstanding if we do not take into account the roots and the rules ofIslam from which Islamic banking system arises To avoid this unfortunate mistake,especially in the context of globalization and current sensitive situation regarding the

“clash between civilizations”, between Islam and the West; relevant and respectfulattention to the origin, key concepts and principles of Islam is required in order tocollect more useful knowledge and better understand the unrevealed lands of the world’ssecond largest religion

2.1 AN OVERVIEW OF ISLAM

2.1.1 HISTORICAL REVIEW

The word “Islam” in Arabic language is derived from the root “s-l-m” whichmeans primarily “peace.” But in a secondary sense “surrender” or “submission”, its full

connotation is “the peace that comes when one’s life is surrendered to God” Until

recently it was still called “Muhammadanism” by the West, which is not only

inaccurate but also offensive It is inaccurate because, as explained in the Qur’an,

Muhammad (Peace be upon him - pbup) did not create the religion but God did Hewas merely God’s mouthpiece It is offensive because it conveys the impression thatIslam focuses on a man, an ordinary man by blood and flesh instead of the divine God.God (called Allah in Arabic language) himself created everything in the universe,including Islam and then sent His Messengers to reveal to mankind who deserves to beworshipped and how to do that But over time, the messages and revelations werechanged or distorted; so God sent his latest and greatest Messenger – Muhammad(pbuh) – to restore the uncorrupted original monotheistic faith which had beencontinuously preached by a series of prophets, among whom Adam, Noah, Abraham,Moses of the Judaism and Jesus of the Christian

Muhammad (pbuh) – fully named Muhammad Ibn Abdullah – was born in 570into the leading tribe of Mecca (presently Saudi Arabia), the Koreish His name meant

“highly praised” which now becomes the most popular name in the Islamic world; it isestimated that more than 15 million people in the world bear this name (The ColumbiaEncyclopedia, sixth edition, 2000) He early life was a tragedy for his father died only a

few days before his birth, his mother also went away when he was six and hisgrandfather, who care for him after his mother’s death, died when he was eight.Thereafter he was adopted into his uncle’s home The boy was made to be hard-working because the declining fortunes of Abu Talib, his uncle Upon reachingmaturity, Muhammad (pbuh) took up the caravan business, and at the age of twenty-five entered the service of a wealthy widow named Khadija His prudence and integrityimpressed her greatly, and gradually their relation deepened into affection, then love.Though she was fifteen years his senior, they were married and the match provedhappy in every respect

Following his marriage were fifteen years of preparation before his ministrywas to begin A mountain on the outskirts of Mecca, known as Mount Hira, contained acave, and Muhammad (pbuh), needing solitude, began to frequent it Peering into themysteries of good and evil, unable to accept the crudeness and superstition that wereaccepted as normal, he was reaching out for God It is believed that one night, in themonth of Ramadan, as Muhammad (pbuh) lay on the floor of the cave, there came tohim an angel in the form of a man The angel said to him: “Recite!” but he refused to

do so until the third time, when the angel finally said to him fully words:

Recite! Recite in the name of your Lord, who created!

Created the man from a clot of blood Recite and your Lord is the Most Bountiful one, Who by the pen, taught the man what he knew not.

These words after that became the very first ones in Qur’an, the Holy Book to

every Muslim Three years after this event Muhammad (pbuh) started preaching theserevelations publicly, proclaiming that "God is One", that complete "surrender" to Him

is the only way acceptable to God, and that he himself was a prophet and messenger ofGod, in the same vein as other Islamic prophets

Muhammad (pbuh) gained few followers early on, and was met with hostilityfrom some Meccan tribes; he and his followers were treated harshly To escapepersecution, Muhammad (pbuh) sent some of his followers to Abyssinia before he andhis remaining followers in Mecca migrated to Medina (then known as Yathrib) in theyear 622 This event, the Hijra, marks the beginning of the Islamic calendar, which isalso known as the Hijri Calendar In Medina, Muhammad (pbuh) united the conflictingtribes, and after eight years of fighting with the Meccan tribes, his followers, who bythen had grown to 10,000, conquered Mecca In 632, a few months after returning to

of his death, most of the Arabian Peninsula had converted to Islam; and he united thetribes of Arabia into a single Muslim religious polity Since then the history of Islam istied to the development of not only a religion but also an identification of a political,military, economic and social community of believers that involves enormous ofgeographical territories

After Muhammad’s dead, his followers not only outspread the faith of Islam butalso built up an Islamic empire that extended from the Atlantic Ocean to the CentralAsia The glorious eras of subsequent empires of the Umayyads, Abbasids, theFatimids, the Mughals, the Safavids, and Ottomans were among the largest and mostpowerful in the world They brought to the history of the world considerable andvaluable contribution with achievements in various fields from military to science,trade, technology to culture and literature

The Golden Age of Islam was from mid-eighth century to mid-thirteenthcentury when the great Islamic Empire of Abbasids was built by waves of invasions.Spreading from Atlantic to West India, from North Africa to Middle Asia, from RedSea and the Gulf to Cyrus and Crete Island in Mediterranean, the Empire was evenlarger than the one of Alexander the Great As a result, Muslim population increasedsharply and Islam, crossed deserts and oceans, reached every corner of the knownworld at that time, from Spain and France to Egypt and Ethiopia, from Turkey to India,from North West China to South East Asia, excluding only America and Australiawhich were remained undiscovered

But from mid-thirteenth century, armies from other countries began to invadeIslamic world It was only with the end of World War II, especially with the collapse ofOttoman Empire that Muslims were no longer governed by foreign powers When theCold War started, influenced by the U.S.S.R, most newly independent Islamic stateschose the way of socialism, mixing it with nationalism to build policies for developingtheir economies But with the failure of socialist experiment and the aversion againstthe West which originated from Colonial Period, those countries tried to find out a newmodel, not from outside but inside their own, this movement also known as

“Islamism.” Gradually, they proposed Islamic alternatives to the legal and economicsystem A new economic theory was developed, absolutely differed from plannedeconomy of socialists and market economy of capitalists, in which every concept was

based on Shari’ah law and called Islamic economy.

Banking system, as a backbone of any modern economy, could not be leftbehind in the process of applying this newly developed theory And it was in the forties

of last century, several small Islamic banks appeared for the first time in Malaysia andPakistan; then the model spread out all over Islamic countries and now even to theWest

2.1.2 THE FIVE PILLARS OF ISLAMIC RELIGION

In Islam, there are five essential practices that are compulsory for almost everygrown-up Muslim, called The Five Pillars of Islam They are roots of all other ritualpractices and activities in all Islamic societies

The “Shahadah” is a word-expressed of the faith of Islam that must be recited

in Arabic as the oath: "'ašhadu 'al-lā ilāha illā-llāhu wa 'ašhadu 'anna muħammadan

rasūlu-llāh", which means "I testify that there is none worthy of worship except God

and I testify that Muhammad (pbuh) is the Messenger of God." This testament is afoundation for all other beliefs and practices in Islam Muslims must repeat the

shahadah in prayer, and non-Muslims wishing to convert to Islam are also required to

recite

“Salah”, which means ritual prayer, must be performed by Muslim five times

every day Unlike other religions in which ritual prayer is built up and agreed amongthe followers, the practice of prayer in Islam is described in details in the Holy Koranwhich is believed to be sent to mankind by God through his Messenger Muhammad.That is the reason why many other practices of Islam remained unchanged till our days.Salah in Islam is made to direct a man to God as a personal communication with him.Through prayer Muslim expresses his gratitude to God Salah is compulsory butflexibility in the specifics is allowed depending on circumstances The prayers must berecited in Arabic language, and consist of verses from the Holy Koran

“Sawm” is typical practice available in Islam from the very start of this

religion During the month of Ramadan, according to Islamic calendar, Muslims mustnot eat or drink (among other things) – called fasting - from dawn to dusk During thistime, they would pray and contemplate their sins The fast aimes at encouraging afeeling of nearness to God, and during fasting period Muslims should express theirgratitude for and dependence on him, atone for their past sins, and think of the needy

and poor people Sawm is not obligatory for several groups for whom it would

constitute an undue burden For others, flexibility is allowed depending oncircumstances, but missed fasts usually must be made up quickly.

“Zakat”, or alms-giving is a practice in which a fixed portion of accumulated

wealth is offered by those who can afford to help the poor and needy, and contribute tothe spread and of Islam religion and development of Islamic societies It is considered areligious obligation (as opposed to voluntary charity) that the well-off owe to the needy

because their wealth is seen as a "trust from God's bounty" The Qur’an and the Hadith

also suggest a Muslim give even more as an act of voluntary alms-giving

The “Hajj”, which is the pilgrimage during the Islamic month of Muslims all

over the world to the city of Mecca Every healthy Muslim who can afford it mustmake the pilgrimage to Mecca at least once in his or her lifetime Rituals of the Hajjinclude walking seven times around the Kaaba, touching the black stone if possible,walking or running seven times between Mount Safa and Mount Marwah, andsymbolically stoning the Devil in Mina Nowadays, there are around four to fivemillion Muslim gather in Mecca every year The pilgrimage becomes one of the mostimportant events in spiritual life of Islamic community in the world

Islam is an absolute monotheistic, that explains why the faith in God (Allah) isthe first statement should be made before one can become a Muslim and every truebeliever in Allah must do this daily from the age of six till his death; therefore, theyhonestly think that submission or surrender to God, His Messengers and His Words

which were revealed and recorded in the Qur’an is their lifetime responsibility There

will be no question about whether or not complete obedient is necessary but only thequestion about how to perform and fulfill that responsibility This is the most importantpoint that should be kept in mind when one wants to study about Islam

2.1.3 SHARIAH – THE ISLAMIC LAW CODE

Shari’ah is the Islamic jurisprudence derived from three sources: the Holy Qur’an (the holy scriptures of Islam), the Hadith (the Prophet’s sayings and

commentary on the Qur’an) and the Sunnah (practices and traditions of the Prophet).

This code has a very strong influence on Muslim’s behaviors because of its origin Asmentioned above, all Muslim will obey completely what are considered to be recorded

and explained in their Holy Qur’an as well as their Prophet’s sayings In some

countries like in Egypt or Libya, people cannot be punished if their behavior violated

the Civil Law but comply with Shari’ah Especially, in Iran, Shari’ah is the

constitution, the highest code that regulates every aspect of society’s life However, if a

solutions to problems cannot be found in these two sources, rulings are made based onthe consensus of a committee of independent Islamic scholars They would make theirjudge based on Islamic doctrine and past practices to make sure that nothing deviates

from the fundamental teachings in The Qur’an.

2.2 KEY CONCEPTS AND PRINCIPLES IN ISLAMIC BANKING

2.2.1 PROHIBITED “RIBA” - CORE CONCEPT OF ISLAMIC BANKING

In Islam, There are several kinds of activities, called “Halal”, that Muslims are

not allowed to do because those are prohibited and considered to be harmful to society.They include:

o Drinking alcohol, smoking and taking drugs These activities are condemned of diminishing people’s ability of self-control

o Trading weapons and arms (as they might be used for unjustpurposes)

o Producing pornographic products (they corrupts social morality)

o Producing pork-related products (In Islam, pork is consideredunclean and harmful to human’s health)

o Taking Riba (which mean usury or interest)

The last “Halal” is the core concept of the Islamic banking system Riba is clearly quoted in the Holy Qur’an The Surah al-Baqqarah (Chapter 2) verse 275 says that: “ Those who eat Riba will not stand (on the Day of Resurrection) except like the

standing of a person beaten by Satan leading him to insanity That is because they say:

“Trading is only like Riba,” whereas Allah has permitted trading and forbidden Riba.

So whoever receives an admonition from his Lord and stops eating Riba shall not be punished for the past; his case is for Allah (to judge); but whoever returns (to Riba),

such as the dwellers of the Fire – they will abide therein forever.” Then the verse 276

says: “Allah will destroy Riba…” “O you who believe! Be afraid of Allah and give up what remains (due to you) from Riba (from now onward), if you are (truly) believers.”

(277) And if you do not do it, then take a notice of war from Allah and His Messenger

(pbuh) but if you repent, you shall have your capital sums Deal not unjustly (by askingmore than your capital sums), and you shall not be dealt with unjustly (by receivingless than your capital sums (279).

Regarding to banking activities, Shari’ah strictly prohibit Riba (interest),

which is the payment of charge for renting or lending money because of ethical reasonwhich intends to avoid injustice in financial activities as the lender – creditor enriches

at the expense of the poor borrower – debtor Besides, the prohibition on paying orreceiving fixed interest is based on the Islamic tenet that money is only a medium ofexchange, a way of defining the value of a thing; it has no value in itself, and thereforeshould not be allowed to give rise to more money, via fixed interest payments, simply

by being put in a bank or lent to someone else The human effort, initiative, and riskinvolved in a productive venture are more important than the money used to finance it

2.2.2 PROFIT-AND-LOSS-SHARING BASIS

As Riba is prohibited, Islam allows profit-and-loss-sharing basis, in which

parties involved in a financial transaction must share both the associated risks andprofits Earnings of profits or returns from assets are permitted as long as the businessrisks are shared by both the investor and investee concerned

Some people may be confused in distinguishing Riba and profit-sharing, and the scope of Riba is still controversial even among Shari’ah scholars and Muslim

community However, there are some major differences between the two concepts that

may help people recognize if Riba or Profit is present in a specific circumstance It is called Riba when a positive, fixed amount of money is charged as a compulsory conditions on a loan In Islamic doctrines, Riba is not accepted because when a lender

offers a borrower a loan for productive activity (such as trading), the excess that theborrower takes aftermath is uncertain If the borrower succeeds in his work, he willshare a portion of what he gets (other than the loan) with the lender, this is called profit.However, if the borrower fails, the lender is willing to take back only what he gave

without any excess amount As such, by definition, Riba is the premium paid by the

borrower to the lender along with principal amount as a condition for the loan.Otherwise, profit is the difference between the revenue generating from selling goods

or services and the cost of goods or services sold As Riba is prefixed, hence the lender

has no responsibility in taking uncertainties together with the borrower On thecontrary, even if a sharing ratio is agreed in advance between the lender and the

borrowers, profit is still uncertain, as its amount is not known until the activity is

completed That is the reason why Riba cannot be negative, it can at the very best be

exceptionally low or zero while profit can be positive, zero or even negative Thelender, as such, shares both opportunities and risks with the borrower The table belowwill figure out basic points from what mentioned above:

1 Haram (Prohibited) Halal (Allowed)

2

Charged money Uncertain result when money is

used in productive activity

3 Premium along with principal

amount as a condition for the

5 Can not be negative

At best be very low or zero

Can be positive, zero or even

CHAPTER III ISLAMIC FINANCIAL

INSTRUMENTS

As the elimination of Riba is a must in all Islamic economic institutions, it is

very important to develop a set of Islamic financial instruments that provide bothinvestors and banks with efficient degree of profitability, security and liquidity Theseinstruments play crucial role in encouraging Muslim to make right investmentdecisions while stay compliant to the law code of Islam So far, the following areintroduced in the modern Islamic banking system:

3.1 ISLAMIC FINANCIAL INTRUMENTS

3.1.1 Wadiah (Safekeeping)

This kind of service is the same like flexible deposit in conventional banking,except that there is no interest will be paid to depositor The bank receives the moneyplaced, keep them safe and guarantees the right to withdraw of the owner at anytime Afee may be charged on the account of depositor which is called “management fee” and

on the contrary, the bank may pay some gifts to the owner if it is found necessary

3.1.2 Murabaha (Cost-plus financing)

This is a form of asset financing and its mechanism is as follows: the client

picks an asset he wants to buy Then he ask the bank for a Murabaha contract and

therefore promise to buy the asset from the bank at pre-agreed price This price is notthe same as the initial one which will be paid by the bank to the first owner The profitfor the bank is the difference between paid and resale price The interest inconventional loan is also replaced by this difference The client will pay his debt indeferred payments or over an installment period

3.1.3 Mudharabah (Profit sharing)

Mudharabah is a profit sharing arrangement between two parties referred as

capital provider and manager The capital provider is responsible for supplying initialcapital in order to set up and operate a business The manager is responsible forperforming management and other necessary skills during lifecycle of the business.The profit generated will be shared based on a predetermined ration between the twoparties Loss suffered shall be borne only by the capital provider

In this type of service, the Islamic bank can play the role of capital provider(usually) or manager (not very often)

3.1.4 Musharaka (Equity financing)

This transaction requires contribution of capital from both sides and based onproportion of amount provided, one of them will act as the manager of the business orthey will appoint a third party to play this role on behalf of them Profit generated will

be shared due to proportion of initial capital, but it is noted that this proportion may benot the same as the agree-to-share ratio of profit

3.1.5 Ijarah Thumma Bai’ (Hire purchase)

This type of transaction is usually employed in automobile purchase It

includes two separate contracts: Leasing/renting contract (Ijarah) and Purchase contract (Bai’) Firstly, you pick a car you would like to have Then you go to the bank

to ask for Hire-purchase contract and by doing that, you agree to hire the car after thebank purchased it Otherwise, there is an option for you to buy the car when the hiringperiod ends After that, the ownership will be permanently passed to you

3.1.6 Sukuk (Investment certificates)

Sukuk are investment certificates economically equivalent to bonds Unlike

bonds, which are debt-based instruments that pay interest, Sukuk are asset-backed or asset-based instruments and represent the ownership by the Sukuk holders in the underlying pool of tangible assets Sukuk holders are entitled to a share in the revenues generated and the capital appreciation of the assets involved Sukuk can be issued by

governments or private companies

3.1.7 Takaful (Insurance)

Takaful is a Shariah-compliant cooperative insurance arrangement where a

group of individuals agree to share the risk of a potential loss to any of them Eachindividual fulfils his or her obligation by contributing a specific sum of money (known

as Tabarru) to a fund, and the pooled capital will be used to cover payouts to member

of the group when a claim is made

In Takaful, participating members are acting both as insurers and insured as they are mutually contributing to and potentially benefiting from the fund The Takaful fund is managed by a third party (the Takaful operator), who will invest only in Shariah-compliant assets In return, the Takaful operator will receive a fee for the

services provided to the fund At the end of a financial year, the profits (net of expenses

and claims payable) earned by the Takaful fund will be shared among its members,

thereby instilling an element of profit sharing into the cooperative insurance scheme.3.2 ISLAMIC VS CONVENTIONAL BANKING SYSTEM

The readers may have deeper understanding of Islamic system when compare

it to the conventional one From the basic concept of prohibited Riba mentioned in the

Koran, a set of financial instruments (analyzed above) were built up to apply in Islamicsociety so that the core rule is not violated Many of these instruments are applied also

in the conventional system However, some of them are very different and require aspecific mechanism As such, Islamic banking is built with many differences from thetraditional ones from structure, activities, relationship with Clients and other aspects

3.2.1 Structure

In any Islamic bank, there is always a board called Shari’ah Board, consists of

Shari’ah scholars to determine whether its financial activities are Shariah-compliant or

not In particular, the board will review the institution's product and service structures,and evidence its opinion on their compliance by issuing a "fatwa" "Fatwas" are written

legal opinions issued by Shari’ah scholars to endorse the launch of Shariah-compliant

financial products or services in the market

On the contrary, in a conventional banking system, there is only the Law orPolicy Department to supervise whether the products and services offered by the bankare compliant with issued Codes and Laws or not

they are still forbidden, for example: trading the soil of holy places, like Mecca andMedina.

Sources of funds in a Islamic bank are mainly from depositors who want tokeep their savings safe and investors who want to find good chances, ready for risk-sharing with the bank while in a common bank they come mainly from depositors whowant to earn some returns on their saving accounts

Return on capital in Islamic banking system depends on productivity, idlemoney cannot earn any return By other words, the time value of money is stillrecognized in Islamic banking but just only money acts as capital, as a resource joininghands with other resources and human efforts to undertake a productive business

In Islamic banking and finance, investors have chances to earn higher returnscompared with those in conventional system But higher returns is going hand in handwith higher risks Therefore, it forces both investors and the bank to manage risks moreprofessionally to reduce risks and ensure better results Unlike common banking, wheredepositors earn interests without taking any risk or paying any attention to theperformance of the bank and the borrowers

Since it shares profit and loss, the Islamic banks pay greater attention todeveloping project appraisal and evaluation systems during the whole lifecycle of anyproject While a common bank only pay attention in the beginning period when it iscarrying appraisal process or before granting the client his credit limit

The status of the relation between an Islamic bank and its clients is thatbetween partners or investors, meanwhile the status between a conventional bank andits clients is that between debtors and creditors

3.3 ADVANTAGES OF ISLAMIC FINANCE

Efficient allocation of funds: Since the compensation that received by thebank is not a fix one as interest in conventional financing but depends on the soundness

of the project and the performance of Management Board, the bank must pay moreattention to the project, from considering and evaluating to assigning representative inDirector Board

Productive use of capital: Any bank must supervise whether their clients usethe borrowed funds in applied purposes or not; in case of Islamic bank, this could betightened more because some activities are allowed to invest in conventional bank’scategories but prohibited in Islam; for example the production related to alcohol orpork or weapon trading.

Equitable distribution of wealth: This can be easily observed when comparedwith the conventional banking, where the depositors pay no attention or shares no riskwith the borrowers but still have the right to collect interest without considering theresult of the business

Generation of employment: Productive use of capital implies investmentsand creation of jobs Investment in productive purposes obviously gives more workingchance for people than doing so in speculative activities, hence number of new-createdjob increases

Saving in information costs: Being a partner of the entrepreneur (or a firm),the financial institution has easier and cheaper access to information on matters relating

to the firm This may make credit rating agencies redundant and lending more efficient

Higher profits: Account holders under Islamic finance could expect higherprofit from their investment as the profit earned will be shared by a pre-determinedratio rather than a fix one in form of interest in conventional finance

Less likelihood of flight of capital: Under Islamic finance, debt instrumentsthat may be created through selling goods and services on credit are not readilytradable This greatly eliminates the possibility of sudden mass movement of fundsfrom one country to another

Reduction in speculative transactions and unproductive use of borrowings:Speculation is strictly prohibited in Islamic finance; therefore borrowers will have nochance to be financed by Islamic bank for their speculative business This will lead tolower uncertain level of price’s fluctuation

3.4 THE DEVELOPMENT OF ISLAMIC BANKING

The first modern Islamic bank was established in 1963 in Mit Ghamr, Egypt.This was a rural area and the people were religious They did not put their saving inany bank, knowing that receiving interest from banks is forbidden in Islam So thepurpose of this project was not only to provide banking services that is consistent withIslamic concepts to them but also to educate people in undeveloped countries about theadvantages of using banking services There were 3 types of accounts:

+ Saving account: money was kept in the bank without interest;withdrawal could be made on demand Borrowers could ask for small, short-term and interest-free loans for productive purposes

+ Investment account: money was used to investment in projects based

on profit-and-loss sharing basis; withdrawal was subject to be restricted

+ Zakat account: rich people could donate money to be given to poorones as charity

After that was the establishment of Tabung Haji in Malaysia Dubai IslamicBank, the first private commercial Islamic bank was established in 1975, following byFaisal Islamic Bank in Egypt and Sudan; then Kuwait Finance House in 1977, BahrainIslamic Bank in 1979; within the next ten years, i.e by 1985, 27 more banks wereestablished in the same manner in other Islamic countries Also by 1985, over 50conventional banks, some of them located at money centers like London were offeringIslamic financial products This was followed by up by some of the major conventionalbanks establishing Islamic branches dealing exclusively in Islamic products Citi-Islamic in Bahrain and Grindlays in Karachi, Pakistan were followed by the NationalCommercial Bank in Saudi Arabia establishing over 50 Islamic branches by 1990s

At the state level, Pakistan the first country in the world that Islamized theirentire banking system in the period between 1979 and 1985 through a series ofOrdinances issued by the Federal government and a number of circulars issued by theState Bank of Pakistan, the country’s central bank The interest rate paid for savingaccounts was replaced, assets were required for each transaction and several kinds of

Shari’ah-compliant products and services were launched but their role in the market

was still minimal

Then in 1983, Iran passed its usury free banking laws in 1983 All banks arenationalized In accordance with the school of Islamic law followed in Iran, depositorsmay get ‘rewards’ on their savings provided they are not committed in advance.Financing of domestic and external trade is done on mark up basis But sharing modes

do play a significant role in financing agriculture and industry Interest free loans areavailable for the poor to meet such needs as housing, their source being the state

After these above-mentioned countries, other Islamic states began to partly

Islamize their banking system by passing laws, setting up Religious Board (Shari’ah Board) to assist banks which wanted to launch Shari’ah-compliant products and

services, including Indonesia, Turkey, Malaysia, Saudi Arabia, Kuwait, Bahrain,Qatar…

Before that, the Organization of the Islamic Conference (OIC) was established

on September 25, 1969 in Rabat, Tunisia to preserve Islamic social and economicvalues; promote solidarity amongst member states; increase cooperation in social,economic, cultural, scientific, and political areas; uphold international peace andsecurity; and advance education, particularly in the fields of science and technologyamong member states

And in the first conference of OIC’s Finance Ministers convened on December

18th, 1973; the Islamic Development Bank (IDB) was found to participate in equitycapital and grant loans for productive projects and enterprises besides providingfinancial assistance to member countries in other forms for economic and socialdevelopment, to foster the economic development and social progress of membercountries and Muslim communities in non-member countries and to provide interest-free loans primarily for infrastructural projects with socio-economic benefits Itsactivities officially began on October 20th, 1975

Initially, 22 countries of the OIC elected to sign up for membership Today,that number has more than doubled to include 56 member nations from Africa, Asia,Europe and Latin America The Bank’s authorized capital has increased fifteen-foldfrom USD 3 billion in 1975 to USD 44 billion in 2008 Over the past thirty-five yearsthrough the end of 2008, the Bank’s cumulative net financing reached USD 56.9 billionfor supporting 6,103 operations to member countries in the key sectors of theireconomies such as public utilities, transport & communication, social services,agriculture, industry and mining and financial services

Here we can see a brief history of Islamic banking through the table below:

1963 First modern Islamic bank was established in Mit Ghamr, Egypt

1975 Dubai Islamic Bank was established in United Arab Emirates

Islamic Development Bank officially began its operations

1983 Iran began to Islamize its banking system

Malaysia passed comprehensive legislation on Islamic finance

1984 Faisal Islamic bank was launched in Egypt and Sudan

1985 Takaful was considered to be fully Islamic, paving the way for Islamic

Insurance to flourish all over the world

1991

The Accounting and Auditing Organization for Islamic Financial

Institutions (AAOIFI) was established, its role was to contact with the

standards committee of the Bank of International Settlements based at Basel,Switzerland to advise on the standards required for worldwide Islamic institutions

2002 Islamic Financial Service Board (IFSB) was established in Malaysia,

playing the same role as AAOIFI

2005 IFSB issued new Standards based on Basel II for Islamic institutions

2007 Global Assets of Islamic Finance reached about 729 billion USD, growing

at the rate of 10 – 15% during past decade

Table 2: The development of Islamic banking in the world

CHAPTER IV BUILDING MARKETING PLAN FOR THE FIRST ISLAMIC BANK IN VIETNAM

This part of the research would come back to the idea of setting up the firstIslamic bank in Vietnam as the author mentioned in the first part The marketing plan

of this new business unit is based on the theoretical framework of Philip Kotler, one ofthe world’s leading authorities on marketing with hundreds of books and articlespublished and sold all over the world It includes the steps in the figure below:

In the context of globalization and overall integration into the global market,especially after Vietnam became member of the World Trade Organization in 2006,

Vietinbank confronted big challenges that require a considerable competitivenessenhancement Since its equitization in 2007, with the strategic goal of being a leadingfinancial corporation in Vietnam, Vietinbank has continuously expanded the network,diversified products and services, reformed the operational structure to meetinternational banking standards To meet the demand of capital increase, the bank hasstrengthened relationship with foreign partners to attract and mobilize their vast capitalresources to Vietnam Among the most ambitious projects are the establishment of twobranches in Germany and the first Islamic bank in Vietnam with an Arabian partner.

With this first Islamic bank in Vietnam, Vietinbank would break into brandnew banking – service products with the market has not even been addressed This willprovide the new business unit with extraordinary opportunities for growth Vietinbank

is the first and so far the only bank in Vietnam which has submitted the preliminaryscheme for an Islamic bank to the State Bank of Vietnam It would work to develop thedifferentiated products that fulfill great demand of a large group of business andindividuals It is working hard on the selection of one suitable Arabian partner whosecompetencies and experiences would contribute to the fast and significant marketpenetration, hence create distinguished advantages over any other competitor who mayget into the market later on Through this first Islamic bank, Vietinbank would developcorrespondent relations with an outspread network with banks in such a sensitive area,among them banks that America and Western countries impose embargo policy andcease all money – transfer activities, which will create unique strength in tradefinancing services and capital mobilization in Vietnam financial market

4.2 SITUATION ANALYSIS

4.2.1 THE ROLE OF ISLAMIC COUNTRIES IN GLOBAL ECONOMY

According to many sources, the Muslim population in 2009 is around 1.3 to1.8 billion, that makes Islam is the second largest religion in the world And with thepopulation growth reached about 1.8 to 2% per year compare to 1.25% world’saverage, Islam is considered to be the fastest growth religion because any new-bornchild, whose father is a Muslim, is obviously a Muslim too Otherwise, the number ofpeople whose original religion is not Islam want to convert their belief is increasing asIslam is widely spread in Europe, North America and South Asia, meanwhile thenumber of people want to do the opposite thing is inappreciable as the faith of Muslim

is quite solid and strong Therefore, the potential market for Halal products, including

In term of natural resources, the Islamic countries are long famous for their oiland gas reserve; especially those are in the Middle East region As we can see sometables below: (OAPEC – Organization of Arab Petroleum Exporting Countries)

Oil Reserves in OAPEC Members and World 2006

(Billion barels)

Percentage to OAPEC

Percentage to World

Table 3: Oil Reserves in OAPEC Members and World 2006

Source: Annual Report of Secretary General of OAPEC 2008

Natural Gas Reserves in OAPEC Members and World 2006

Country Quantity (Billion

cubic meters)

Percentage to OAPEC Percentage to World

Table 4: Natural Gas Reserves in OAPEC Members and World 2006

Source: Annual Report of Secretary General of OAPEC 2008

Possessing 56.38% oil and 28.5% gas reserves of the world, the Islamic Arabiccountries now are playing an important role in political-economical life as fossil fuel isconsidered as indispensable source of energy of any modern economy As a result, thesurplus budget coming from oil and gas exporting, which is so called “petrodollar”rapidly accumulated in those countries’ accounts:

Value of oil exports in OAPEC Member countries, 2004 – 2008

Table 5: Value of oil exports in OAPEC Member countries, 2004 - 2008

Source: Annual Report of Secretary General of OAPEC 2008

4.2.2 TRADE & INVESTMENT BETWEEN VIETNAM AND ISLAMIC

COUNTRIES

However, those countries, which locate on Middle East, have to fight withthreats to their national security and social stability resulting from the lack of self-supported ability in foods producing as their territories mostly are covered by desertsand the volume of annual rainfall is very low Therefore, it is necessary for them to findout a stable supply of vital food and vegetables, which can be met by Vietnam.According to Arab Organization of Agricultural Development (AOAD), volume offoods import of Arabic countries during period 1998 – 2008 reached more than 180billion USD of which peaked 29.8 billion in only 2008 On the contrary, Vietnam needslong term funds to invest in developing infrastructure, financing huge projects andimproving the living standard for people Besides, although possessing some reserves

of oil and gas, Vietnam is forecasted to become energy importer from the year of 2015

in order to meet rapidly-increased domestic demand in both consumption andproduction Naturally, the two sides can cooperate with each other to serve their owninterests

In fact, Middle East countries are now applying policy named “Toward theEast” which means boosting relations with countries locating in Asia – Pacific region,because those countries have a favorable climate conditions to produce kinds of rationslike rice, wheat…etc and they are also emerging markets which promise a high incomelevel generating from petrodollar invested in projects in different sectors And theMinistry of Industry and Commerce of Vietnam even decided to choose the year of

2008 as “The year of Middle East” to emphasize the importance of this region and pavethe way to push bilateral relations in term of trade and investment We can observe thegrowth of these relations between Vietnam and Islamic countries, including Arabicones and the others:

Trade Exchange between Vietnam and Islamic countries

Table 6: Trade Exchange between Vietnam and Islamic countries

Source: Ministry of Foreign Affairs – Ministry of Industry and Trade of Vietnam

The above figures are only close to the fact; the precise ones for sure will behigher Otherwise, investment coming from those countries is also increasing during

recent years; e.g Kuwait invests 2 billion USD in Nghi Son Refinery Project andguarantees to supply long-term input crude oil; United Arab Emirates invests 1,2billion USD in tourist and hospitality sector; Qatar wants to invest 1 billion USD toflower project in Da Lat and rice project in Tra Vinh; Indonesia invests more than 2billion USD (up to October 2009); Malaysia invests 18,06 billion USD in 337 projects(up to October 2009) – making Malaysia the third largest investor in Vietnam

4.2.3 PEST ANALYSIS FOR THE MACRO ENVIRONMENT OF VIETNAM

A POLITICAL FACTOR

Regarding to domestic situation, Vietnam is considered as one of the moststable country in term of politic, compared with other neighbors in South East Asianregion like Indonesia; Philippines; Thailand or Myanmar with Communist Party as thegoverning party for over 65 years This is an advantage to attract more investors, bothindividuals and corporations to look for business chances and create an image ofVietnam as a safe place to invest in Stabilizing the macroeconomic is a priority of thepolitical system and this responsibility has been being carried out effectively duringrecent years

In business sector, questions and queries from companies gains specialattention of the government meanwhile the National Assembly is trying to build a fullsystem of codes and laws relating to regulations in doing business, especially intaxation Although there are still many complaints from small and medium enterprisesabout taxation policy, the time-consuming procedure to pay tax, the unfriendly andannoyed way of working in tax departments, no one can deny that both Vietnamesegovernment and National Assembly are making effort to facilitate business operations.One of the observable evidence is the support package that the government granted tocorporations in order to help them deal with the world’s financial crisis, including cutdown the corporate tax from 28% to 25% in some certain sectors Otherwise, theGeneral Department of Tax is now applying the online tax-paying procedure to helpbusiness community save costs, time and human resources while contributing in statebudget

Another problem that every company has to face with in Vietnam is thecomplexity of administrative procedures and the epidemic of corruption Officially, theadministrative procedures claim to take applicants no longer than regulated period sinceregulations are fully issued But in fact, achieving this could be impossible mission One

reason is the lack of sufficient information from applicants’ side The others which aremore important come from the lack of transparency of the system, the non-proliferation

of issuance of new legal documents on mass media or other easily-accessed channelsand the differences in interpretation those documents of civil servants This feeds thecorruption as applicants don’t want to wait too long and the administrative officerscould change their mind when they receive some “under the table” money fromapplicants This unhappy fact could not only annoy honest enterprises, increase theircost and decrease their competitiveness but also worsen the image of the country in theeyes of foreign investors

Regarding to foreign affairs, the current policy of Vietnam is “Implementconsistently the foreign policy line of independence, self-reliance, peace, cooperationand development; the foreign policy of openness and diversification and multi-lateralization of international relations Proactively and actively engage in internationaleconomic integration while expanding international cooperation in other fields Vietnam

is a friend and reliable partner of all countries in the international community, actively

taking part in international and regional cooperation processes” (Extract

from the Political Report of the Central Committee - Vietnam Communist Party, 9th Tenure, at The Party’s 10th National Congress)

In the past, the foreign relations of Vietnam were built based on the commonideology of socialism or anti-imperialism But after the collapse of the U.S.S.R in 1991,marking the ending point of the Cold War and US’s lift embargo imposed on Vietnamsince 1975, these relations started to be built based on the country’s interests; mutualunderstanding and respect as well as corporation with new partners Therefore, Vietnambegan to open new embassies and trade offices in several areas that never been touchedbefore, including the Middle East (except Iraq; Egypt; Syria and Palestine) and ArabPeninsula This is a breakthrough that helps the country not only expand relation in allfields, from politic to trade exchange but also open new chances in attracting foreigndirect investment from potential countries and territories and improve the nation’simage

However, there is still a threat to stability of Vietnam as well as other countries

in the region; that is the multi-lateral disputes relating to sovereign in the East Sea.China is on the way to become a superpower with the second largest economy in theworld and line with that, its claims of sovereign on almost the whole area of East Sea isalso rapidly increasing This leads to a tension air between China and ASEAN members