First Global commences Islamic Financial Advisory Services

| Monday, September 28, 2009
First Global Investments (FGI), a member firm of the Sri Lanka-based First Global Group, has commenced offering Advisory Services for sourcing, structuring and distributing world class Islamic investments and financial products to emerging markets, a move it believes would facilitate the growth of this emerging financial sector worldwide.

The company which has amassed considerable exposure in advising and training emerging Islamic banks in the middle east feels that it is time that it shared its experiences with the rest of the industry, especially in a context where Islamic Banking is fast emerging as a viable alternative to conventional banking in the aftermath of the global economic crisis.

MD of First Global Group, Ikram Thowfeek, a start-up specialist who counts over 15 years of hands-on experience in the industry, said that his company worked with international Islamic financial institutions and specialized investments and financing boutiques to source and advice on the creation of a new breed of Shariah-compliant financial and investment products and services that can compete in every respect with mainstream conventional banking products and services. "Islamic banking is catching on worldwide at a phenomenal pace and we intend to be part of the engine driving Islamic Finance forward. I would say that the funds so far tapped by the industry are only the tip of the iceberg and there is immense potential for the development of the industry which I believe will gather greater momentum in the days ahead due to greater awareness of the merits of the industry, not just among Muslims, but also among non-Muslims".

FGI offers financial advisory services in setting up of Islamic banking windows, independent branches or subsidiaries in which it has wide experience; product due diligence to ensure that products offered in the market are of the highest standard in respect of structure, track record, regulation and management; selection of appropriate Shari'ah consultants and Supervisory boards for issuances of product fatwas and regular Shari'ah audits; cost analysis for product launches which will provide guidance on the likely costs incurred in launching Shari'ah-compliant products including the cost of structuring, procuring a fatwa and constituting an appropriate Shari'ah Supervisory Board for the product; identification of gaps in current product offerings; assessing potential market appetite or size for different types of products which is a speciality of the company given its in-house experience in working with institutional investors thereby allowing it to conduct pre-launch marketing activities and enabling it to advice on the likely investment size for any given product.

FGI also specializes in training staff for banks and financial institutions intending to commence an Islamic unit or window. The personnel will be trained at three different levels- Foundation, Intermediary and Advanced while up-to-date market information on the industry and the latest course material will be shared with the participants. Among the major projects undertaken by the company is the training of the 1000-strong workforce of Abu Dhabi Commercial Bank (ADCB) in its move towards an Islamic banking known as Meethaq.

Link: http://www.dailymirror.lk/DM_BLOG/Sections/frmNewsDetailView.aspx?ARTID=62827

First group of students in Sri Lanka complete SII's Islamic Finance Qualification

| Thursday, September 24, 2009
A first group of 26 students in Sri Lanka have completed the Securities & Investment Institute's (SII) ground-breaking Islamic Finance Qualification (IFQ).

The students were trained for the international benchmark qualification in Islamic finance by First Global Knowledge Center (FGKC). Part of a network of 40 providers around the world accredited to train for SII qualifications, FGKC is the Institute's first training partner in Sri Lanka.

FGKC also offers training in Pakistan, Bangladesh, the Maldives and Qatar. It has entered a partnership with MENATSA Training & Development to provide specialist education programmes in Islamic finance, including the IFQ, in the Gulf region.

Arwa Tapia ASI, the SII's head of client relationship for India, travelled to the Sri Lankan capital Colombo to oversee the exam. She said: "There is a huge potential market in Sri Lanka in financial services education. We aim to complement what is already available in terms of qualifications in the domestic market and work with regulatory bodies, the Central Bank and other eminent trade bodies towards the enhancement of competence and skills in the financial services industry."

The IFQ, launched in 2006, has attracted candidates in more than 40 countries.

Maybank hoping to leap into top 5 banks

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As a results of the Leap30 programme, Malayan Banking Bhd (Maybank) is hoping to capitalise by growing to be one of the top five banks in South and South-East Asia by 2015, according to Datuk Seri Abdul Wahid Omar, President and Chief Executive Officer of the banking group.

Omar said, ‘Leap30 has already made a positive impact on the group’. He continued by saying, ‘The results since we launched the programme last year have been encouraging – for example, the initiatives led to a RM40mil contribution in pre-tax profit plus cost savings of RM143mil for the financial year ended June 30 (FY09)’.

The Leap30 programme is the banks performance improvement programme, whereby three key strategies are focused upon. These include securing the position of the country’s leading financial services provider, strengthening the banks regional presence in its current countries as well as looking for growth opportunities in other regional markets and lastly, becoming a talent and execution-focused company.

This programme intends to get the bank to the top five status through its implementation in two waves. These waves consist of 30 different initiatives to which 16 have already been carried out, with another four due to be executed before December.

However, although the outcome looks positive for the Leap30 programme, one local analyst, although stating Maybank’s success had been positive so far due to the growth of its regional Islamic banking business, said ‘It has only been a year since it started the programme so it is still too early to say if it will succeed’.

Source: GIF Correspondent

The steady rise of Islamic finance

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London has become one of the biggest centres for Islamic finance in the world, with five Islamic banks, and many others in the high street offering Islamic financial products, or "windows" as they are known.

The growth of Islamic finance has been an unexpected outcome of the attacks on the World Trade Center of 11 September 2001.

Islamic finance is based on rules from Islam's holy texts - the Koran. Scholars claim the fundamental difference to conventional banking is that Islamic finance is more ethical.

First it bans any form of "riba" or interest, preventing consumers being exploited by high rates of borrowing.

'Sinful'

Secondly, it regards speculative trading as sinful. One of the world's leading experts on Islamic finance, Sheikh Hussain Hassan, argues the whole crisis in Western banking could have been avoided if these basic sharia principles had been followed.

He said: "$600 trillion were wasted on options, futures and derivatives, all gambling. Sharia prohibited these kind of risks 14 centuries back."

We have a policy of no obstacles, no special favours, towards Islamic banking or indeed any new financial company
Financial Services Authority

Some Muslims regard ordinary mortgages as sinful. The idea is for the lender and the borrower to share the risk. There are now more products on the market which help Muslims buy a house without paying interest.

The most common form of Islamic home purchase loan works like this: When a couple wants to buy a house, instead of borrowing the money, the Islamic bank buys 80% of the house for them.

The couple puts down a deposit for the other 20% and then pays the bank rent, plus regular portions of the capital. During the fixed period, ownership gradually passes from the bank to the buyer.

But if the borrower loses his job and defaults on the payments, under sharia law it is very difficult for the family to be thrown out of their home, as that would be seen as a creditor exploiting a debtor.

These interest-avoiding transactions can work on a bigger scale as well.

The old Chelsea Barracks in London was bought by the Qatari government for nearly £1bn - the biggest residential property deal in the UK.

The entire transaction was done under sharia pinciples, with contracts drawn up by lawyers at Norton Rose.

Farmida Bi, one of the law firm's partners, explained that London has attracted this kind of investment because the British government wooed Islamic money in the wake of 9/11, at the expense of the US.

"It was really September 11th that made being a Muslim a political statement and not just a matter of personal faith," she said.

"And with the Patriot Act, which made investments in the US difficult for many Islamic investors, there was a significant increase in Islamic investors choosing to invest in Islamic institutions and Islamic products."

So while groups in the US were investigating terrorist connections with Islamic banks, Muslim investors pulled their money out of America.

Some of the money got diverted to London, which had traditionally been a banking centre. The British government then helped further by changing regulations to give sharia-compliant funds a level playing field with conventional ones.

Staff at Salaam Insurance. Picture: Bhasker Solanki
Salaam Insurance offers Europe's first sharia-compliant car insurance

A spokesperson for the Financial Services Authority, the body which regulates UK financial services, said: "We have a policy of no obstacles and no special favours towards Islamic banking, or indeed any new financial company."

The desire of British Muslim consumers to affirm their identity is also leading to a growth in new consumer services.

Salaam Insurance has launched Europe's first sharia-compliant car insurance aimed at Britain's 700,000 Muslim drivers.

Bradley Brandon-Cross, its non-Muslim chief executive, finds most Muslims do not yet understand the profit and loss sharing principles of "takaful" that it is based on.

"There's clearly an education campaign we are undertaking for British Muslims, to help them understand what Islamic finance is and what it means for them," he said.

Critics say the Islamic character of the products is merely window dressing to lure in Muslim customers.

And others argue the scholars who authorise them are a narrow group whom financial institutions choose to support their new services.

But this scepticism is unlikely to halt the inexorable growth of Islamic finance - as big investors and growing numbers of Muslim consumers demand it.

Link: http://news.bbc.co.uk/2/hi/business/8270490.stm

Islamic banks need benchmark profit rates

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Islamic banks should shun conventional benchmark interest rates in favour of a profit rate derived from their activities, an Islamic banking economist said on Wednesday.

Islamic finance forbids interest-based lending but the conventional LIBOR (London Interbank Offered Rate) is routinely used to price sharia products in the absence of a benchmark Islamic rate.

Critics say this makes the $1 trillion industry a mere copy of traditional banking and exposes it to the volatility in conventional financial markets.

Iranian economist Iraj Toutounchian said Islamic banks should use a profit rate based on their businesses as interest is "a cancer cell and it ruins the whole body."

"Interest is not supposed to be present in any Islamic contracts. Interest and speculation produce instability," the 68-year old U.S-trained Iranian economist said in an interview.

Toutonchian has published books on Islamic money and banking and is regarded as an authority on the subject.

"Suppose we have 10 Islamic banks, each of which engage in say hundreds of, thousands of, different projects. The weighted average of the internal rate of return of these 10 banks which include thousands of activities will give you the benchmark."

Islamic banks can grant each other short-term interest-free loans to overcome any temporary shortage of funds, Toutounchian said.

Islamic banking requires that gains be based on real economic activity that benefits society rather than profiting select individuals.

Islamic financial contracts are often structured as leasing or sale and purchase transactions involving real assets such as metals, property or palm oil.

The industry has grown beyond traditional markets in the Middle East and Malaysia after the recent collapse of some top conventional banks and due to rising demand for ethical investments.

Toutounchian said Islamic finance activities had mushroomed in many countries recently but they were not sharia banking in its true form.

"Under the name of Islamic banking many steps have been taken, even in Japan, in the U.S., in European countries, they have started so-called Islamic banks," he said.

"What they are really after is probably looking for Muslims' petrodollars."

UK firm offers course on Islamic banking to Nigerian managers

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LONDON-BASED training firm, London Corporate Training (LCT), has rolled out series of training programmes for the year 2010 while offering two promotions in its bid to encourage Nigerian managers to enrol.

At the introduction of the programmes to Nigerian managers in Abuja recently, Managing Director of LCT, Mr. Ian Mann, said that the coming year will offer robust general and customised programmes for the benefit of participants.

Mann, who said that his firm had trained managers from Nigerian organisations such as the Central Bank, the Nigerian Ports Authority (NPA), NNPC, oil companies and the banks, in the past, added that for the coming year, programmes have been designed in a flexible manner so as to accommodate the specific needs of participants.

Among the programmes to be taught in 2010 are: Streamlined credit control and debt management, economic crime and fraud prevention, corporate financial planning, strategic human resources and organisational development, internal auditing- procedures and control, performance management- motivation and development, and strategic public relations management.

Others are in the areas of Islamic banking, courses for secretaries and personal assistants. "We run 40 regular courses covering different aspects of management such as Leadership, Time Management, Team Building and Public Relations", Mann said.

Commenting on the training on Islamic banking, he said, "this is a new development, it works on a different principle from the western banking system. This course will address how the Islamic banking system works".

Sales Development Manager, Mr. Rohit Chandiramani, at the event, said that the courses for 2010 would be held in London as well as in other countries such as Dubai, Morocco and Egypt. According to him, there will also be one-day training programmes.

"We will build custom-made courses based on your needs and requirements", he said. He added that there would be a welcome back promotion of £100 for each participant that had attended a course with the firm in the past as well as a 25 per cent rebate for group participants.

The two promotions are tagged the welcome back promotion and the group discount scheme. Under the latter, booking for three participants for the same course will earn the organisation one additional free booking for a fourth participant. For six bookings, there are two extra free slots while bookings for nine participants on the same course will give their organisation an opportunity to register three additional participants free of charge.

In a press release made available to The Guardian, Mann was quoted to have said that the organisation, which has been in business for 15 years, has continued to train Nigerians because it has established close working relationship with prestigious Nigerian firms.

"The reason for our continued and growing success in Nigeria is not just that we have a splendid team of experienced, highly qualified and expert trainers. It is because we know that each individual who comes to us for training is an important person and we treat them as such", he said.

At the occasion, a raffle draw was held with the assistance of Mr. Peter West, the deputy British High Commissioner in Nigeria. Three prices were given away. The first prize was a laptop.

Link: http://www.ngrguardiannews.com/business/article09/indexn2_html?pdate=230909&ptitle=UK%20firm%20offers%20course%20on%20Islamic%20banking%20to%20Nigerian%20managers

UK Tories would maintain Islamic finance focus

| Saturday, September 19, 2009

LONDON, (Reuters) - The UK Conservative Party would foster the development of Islamic finance as much as the Labour government, if it comes to power after next year's general election, an Islamic finance expert linked to the Party said.

Mohammed Amin, partner and head of the UK Islamic Finance practice at PricewaterhouseCoopers (PwC), said at a conference on Wednesday: 'All the ways (in which) Labour has supported Islamic finance would be every bit as valuable under David Cameron (Conservative Party leader) as prime minister.

'The next conservative government would be very supportive of Islamic finance,' he told delegates of the Islamic Finance News Roadshow 2009 conference in London.

Amin said he was speaking as vice-chairman of the Conservative Muslim Forum, an affiliate of Cameron's party working to encourage support from the Muslim community.

The UK has undergone a series of tax and law changes in the last few years to allow the launch of retail Islamic-compliant services such as mortgages, bank accounts and insurance.

In April the budget 2009 changed the tax regime to facilitate Islamic-debt issuance and encourage the growth of London as an Islamic finance hub.

Rules were changed to remove fiscal penalties to UK companies willing to issue sukuks, or Islamic bonds, effectively ending a regime which would have double-taxed the transactions needed to set up a sukuk.

The government however shelved its plans to launch a sovereign sukuk last November, citing the troubled market conditions in the wake of the Lehman Brothers ( LEHMQ -news - people ) collapse.

Amin said the Conservative party had been quiet about the Islamic finance field because there was 'no political mileage' in highlighting the achievements of the Labour government.

The Conservative Party is widely tipped to be the winner of the next general election next year. The party did not return Reuters' requests for comment.

(Reporting by Cecilia Valente; Editing by Jon Loades-Carter) Keywords: CONSERVATIVES/ISLAM

Link: http://www.forbes.com/feeds/afx/2009/09/17/afx6899245.html

Islamic finance industry must broaden portfolios

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Islamic finance is winning many fans but further evolution is necessary.

Islamic investment banking is being described as the darling of the new financial age. At least that has been the overriding theme of much of the industry talk and articles written since the onset of the global crisis. One Asian newspaper recently described Islamic finance as the emerging "blue ocean", which is a reference to the business strategy book written by W. Chan Kim and Renée Mauborgne of INSEAD, an international business school. The two business gurus promote creating new market space or "blue ocean" rather than competing in an existing industry.

Islamic finance certainly fits this description. However, much of what has been written fails to acknowledge that the sector has been hurt by the global financial crisis too - and it would be unrealistic to think otherwise. And moreover, it may turn out that Islamic investment banking will find itself reproducing some of the characteristics which make conventional finance so successful.

Of course, that is not to say that a prudent, asset-backed banking model such as the one on which the Islamic finance model works does not have good reason to look to the future with optimism. Unquestionably it does.

The industry is currently worth $700 billion (Dh2.6 trillion), according to rating agency Moody's, but has the potential to amount an impressive $4 trillion. Although precise figures are not available, the rate of the industry's expansion is estimated at somewhere between 10 per cent and 20 per cent annually.

Another reason for optimism is the fact that many recession-weary finance experts in the West are coming round to an acceptance of merits of Islamic banking.

The ethical principles which form the cornerstone of the industry are seen as a more sustainable alternative to conventional investment banking, which has found itself accused of unhinging the global economy.

So it is almost inevitable that the current furore in international banking has resulted in the surge of interest in Islamic finance we're now seeing.

The Sharia-compliant sector is emerging from the global financial crisis in a relatively healthier position than its conventional counterparts.

Any Islamic bankers who migrated from conventional institutions must think themselves most fortuitous when they look at the position their old colleagues now face.

Their favourable situation, however, did not come down to luck. Rather, Islamic banking made its way through the worst of the financial conflagration primarily on the back of its more prudent risk management principles.

That is not to say that the sector did not suffer at all - according to Standard & Poor's, sukuk issuance globally fell 56 per cent year-on-year to $14.9 billion last year, largely mirroring the same curve as their conventional version, the bond.

It remains to be seen quite how fully regional states and corporates will use debt issuance in the post-crisis era, though there is a feeling amongst insiders that the private sector will be more inclined toward it if central banks take a lead.

Islamic funds are struggling, too. The average return for Islamic equity funds for 2008 was the equivalent of -39 per cent, while the average returns for the first quarter of 2009 stood at the equivalent of -3.7 per cent, according to Ernst & Young.

Meanwhile, Islamic private equity is also hobbled by the slump and the broader issue of exit strategy, which has long dogged this particular sector.

While these nasty side effects of the global slump will pass in time, two challenges remain to be tackled, especially in the Gulf, if the industry is to reach what many see as its significant potential.

Firstly, Islamic finance currently lacks diversity in its investment banking portfolio. Put simply, the product and service offering is not deep enough. If the industry wants to evolve from being a niche player - albeit operating profitably in its "own space" - Islamic innovators would do well to look for more equivalents to conventional vehicles. Just like traditional investment banking, a diverse range of asset classes offering multifaceted products will be necessary.

Secondly, and this is interrelated to the need for more products, the sector, just like the whole region, has become over dependent on real estate. But given the real estate asset deflation witnessed across the Gulf over the last year, that strategy, at least for now, has lived out its last days.

A more balanced spread of asset classes will help the industry to reduce its vulnerability in any one sector. This, in turn, will give it the depth needed to win over more customers, and at a time when many are looking for alternatives to the conventional system this can only be a good thing.

- The writer is editorial manager of Oxford Business Group, Abu Dhabi. Opinions expressed here are his own and do not reflect the views of Gulf News.

Link: http://www.gulfnews.com/business/money/10350099.html

SII introduces Islamic Finance Qualification elearning revision aid

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An innovative elearning product has been launched by the SII to help candidates study successfully for its ground breaking Islamic Finance Qualification (IFQ).

The online revision aid covers the key points of the syllabus for the IFQ, the first international benchmark qualification in Islamic finance.

Designed to be used in conjunction with the Institute's IFQ workbook, it contains:


- interactive exercises
- multiple choice revision questions
- useful website links
- tests on IFQ terminology.

SII managing director Ruth Martin said:
"Islamic finance is growing and we need to provide as much support as possible for candidates preparing for the IFQ. We hope that candidates will view the elearning product as a key resource and an integral part of their revision ahead of taking the IFQ exam."


The IFQ covers Islamic finance from both a technical and Sharia perspective. Edition 3 of the IFQ workbook and elearning product covers exams from 1 October 2009 until further notice.

Takaful Takes Off In The UK

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Principle Insurance, the UK's first fully Shariah compliant car and home insurance provider, has been instrumental in taking the Islamic principle of Takaful insurance to Britain. In doing so, the company has changed the competitive landscape of the UK insurance market over the last 14 months.

The company, which has major investors throughout the GCC region, including the Kingdom of Saudi Arabia, Bahrain, Kuwait, Qatar, the UAE as well as Malaysia, trades under the brand name Salaam Halal insurance.

Despite London being hailed at the emerging global 'hub' for Islamic finance* it was severely lacking in one aspect of Shariah compliant financial services - a dedicated Takaful provider.

Even though the UK insurance market has more than 167 insurance companies** actively writing motor and home insurance, there had never been a real choice for Muslims who wanted the option of buying a product that was aligned with their faith, until now.

After many months of planning, the UK's first independent Islamic insurance company, Principle Insurance, was granted FSA approval in April 2008. At the end of July 2008, it launched its first product, motor insurance, under the Salaam Halal insurance brand. A Shariah compliant home insurance product followed in April 2009.

For the first time, Britain's 2.4 million Muslims are now able to purchase motor and home insurance from Salaam Halal insurance, which offers them all the benefits of conventional insurance, without compromising their religious beliefs. Non-Muslims are also attracted by the ethical nature of the Salaam products and their competitive price.

Key facts about the company:

- Salaam Halal insurance has provided two million motor quotes since launch and conversion rates via the call centre are in excess of 20% and 5% on the web.

- There is a 40% prompted brand awareness of Salaam Halal insurance amongst its target audience - higher than many mainstream insurance providers in the UK.

- The company's objective is to be competitive for the vast majority of its customers.

- The company's UK Call Centres are able to converse with customers in English, Arabic, Bengali, Gujarati or Urdu.

- Principle Insurance has been shortlisted for the category 'Insurance Innovation of the year' for the Insurance Times magazine Awards 2009.

Principle Insurance adopted elements of a classic direct response advertising campaign to promote the Salaam Halal products and adapted it to work for an ethnic audience, using TV, press, direct mail, inserts and online activity. All the advertising directs consumers to a UK-based call centre, or to the website www.salaaminsurance.com where they can get a quote and buy online.

In addition, Principle also embarked on a community awareness and outreach programme with mosques, Imams and community leaders across the UK, as well as organisations such as the Muslim Council of Britain, to raise awareness of its products.

In January 2009, Salaam Halal insurance launched exclusively on Moneysupermarket.com (the UK's leading price comparison website) giving both Muslims and non-Muslims the opportunity to compare prices of Shariah compliant insurance with conventional motor insurance for the first time.

Bradley Brandon Cross, Chief Executive of Principle Insurance Holdings Limited, said: "Salaam Halal insurance has had a huge impact on the UK insurance market over the last 14 months and we have been very encouraged by the level of interest and take up by UK Muslims and non-Muslims alike. Building on the success of the car insurance product, we recently launched the Salaam Halal home insurance product and are now in the process of consolidating our successes to date and looking at the next stage of our development. Further products, including Family Takaful; commercial insurance products for Muslim businesses; and car and home insurance specifically targeted at non-Muslims are all being planned."

Full details of the Salaam Halal insurance products are available at www.salaaminsurance.com

Liquidity assessment of Islamic banks

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The nature of Islamic banking with its prohibition on interest has served to protect Islamic banks to some extent, says the Islamic International Rating Agency (IIRA) , but adds that Islamic banks face challenges from declining levels of liquidity in the markets.

IIRA, meezan, meezan bank, Pakistan, Al Baraka, Bahrain, Al Salam Islamic Bank, Bahrain Islamic Bank, BIsB, Dubai Islamic Bank, DIB, Jordan Islamic Bank, JIB, Khaleeji Commercial Bank, KCB, KHCB, Kuwait Finance House Bahrain, KFH,

The subprime mortgage crisis resulted in a loss of confidence among banks. As a consequence, many banks declined to participate in interbank markets. The result was diminished liquidity in the banking system at a crucial time. A lack of liquidity means a loss of depositor’s confidence and the resulting systemic risk which has caused runs on a number of banks.

Since the origins of the crisis rest in the diminution of asset values, especially asset-backed securities; the nature of Islamic banking with its prohibition on interest has served to protect Islamic banks to some extent.

That is not to suggest they are entirely immune from the impact of declining real estate values and restricted real estate lending. However, Islamic banks are less likely than conventional institutions to suffer negative outcomes beyond their capacity to sustain core profitability and capital.

In particular, IIRA has evaluated the liquidity of Islamic banks. We have selected a sample of key Islamic commercial banks based in a number of Islamic markets. The banks selected for this study are: Al Baraka Islamic Bank Bahrain, Al Salam Islamic Bank Bahrain, Bahrain Islamic Bank (BIsB), Dubai Islamic Bank (DIB), Jordan Islamic Bank (JIB), Khaleeji Commercial Bank (KCB), Kuwait Finance House Bahrain (KFH) and Meezan Bank Pakistan (MB).

Liquid assets to total liabilities in various banks

At year-end 2007, the Islamic banks’ liquidity position was strong. They were holding a large amount of liquid assets on their balance sheets. Reflecting the constraints in the deployment of funds imposed by Shari'ah guidelines and the competition from conventional banks, liquid assets constituted an average 46.9 per cent in 2007 for the banks in the study.

The most liquid banks are Al Salam and Khaleeji Commercial Bank which were new start-ups in 2007. Excluding these, the average drops to 32.5 per cent of liquid assets in 2007, indicating strong liquidity irrespective of jurisdictions.

IIRA defines liquid assets as cash or cash equivalents, short-term placements to banks or financial institutions and liquid-quoted investments such as government paper and quoted Sukuk.

Short-term liabilities include deposits and borrowings. The least amount of liquid assets were held by KFH Bahrain at 9.9 per cent and the most liquid was Jordan Islamic Bank at 45 per cent.

On average, excluding the ratios of start-up banks (KCB and Salam as mentioned above), liquid assets declined to 26 per cent of total assets during 2008 from 32.5 per cent in 2007. This shows that on average during 2008 the impact of the global crisis on liquid assets has remained limited as reflected in a modest downward adjustment of the ratio. This decrease should be seen in the context of an increase in the loans to core funding ratio which indicates that some of the liquid assets are now transferred to loans and advances.

The chart above clearly shows how liquid assets in Islamic financial Institutions have declined relative to liabilities. Quite noticeable among them are BIsB and Dubai Islamic Bank. A few exceptions are also present, such as AlBaraka and Meezan, which increased their liquid assets during the year.

Core funding

Loans to core funding is a measure that captures the resource utilisation of a bank. Core funding is the amount of funds available from customers’ deployment of resources. The two principal components of core funding are the stable portions of customer deposits and unencumbered capital (capital after deducting mandatory reserves, investments in fixed assets, branches and subsidiaries).

As a result of the need to book only Shari’ah-compliant assets, this ratio has historically been low for Islamic banks representing an under-utilisation of resources.

This however proved to be an advantage for Islamic banks as the conservative posture of their balance sheet helped them to cope with the repercussions during the crisis situation. Depending on its market, business model and risk positioning, a bank often keeps 75-95 per cent of its core funds in customer assets.

The remainder is kept in liquid assets and the investment portfolio in order to provide liquidity and enable the bank to earn a small spread. In the universe under discussion we see most of the banks registering a healthy increase in their utilisation ratio and also keeping it below 100 per cent at the same time. Only Al Baraka and Meezan have reduced their loans as a percentage of core funding which was also evident in their increased liquid assets ratio.

Interbank funding

The interbank ratio is to assess if the bank is a net taker of funds or a net contributor of funds to the interbank market. A net provider status means that lendings to financial institutions are higher than borrowings.

Many Islamic banks who were net providers of funds to the interbank market in 2007 became net borrowers during 2008. Unlike 2007, when all Islamic banks except Albaraka Islamic were net lenders, the money market 2008 has seen a reversal in trend.

Banks like KFH Bahrain, Dubai Islamic Bank, Bahrain Islamic Bank, and Al Baraka Islamic Bank became net borrowers, indicating their increasing liquidity needs. They registered interbank ratios of 0.21, 052, 0.19 and 0.06 respectively. This shows that they have increased their reliance on professional sources (interbank and brokered deposits) of funds to cover the increased deployment in the business.

Three-month maturity gap to total assets

An additional significant measure to assess the liquidity position is the maturity profile of assets and liabilities of the Islamic bank, which is commonly known as a gap analysis. A gap analysis gives an indication of how well the bank is expected to meet its maturating obligations with the help of inflows from maturing assets. The deficit needs to be covered with the help of external borrowings.

Evident from the gap analysis is that the above two banks are facing challenges with respect to their liquidity positions. Large maturities in shorter tenures indicate a reliance on borrowings and the use of short-term sources to advance longer tenure customer assets such as loans and advances.

A bank is considered to have positioned itself adequately in terms of maturities of assets and liabilities as long as the negative gap in up to three months doesn’t exceed 10 per cent of total assets. Excluding the above two, the rest of the institutions are adequately covering the maturing liabilities from maturing assets. Dubai Islamic Bank has not reported maturing assets and liabilities in their published accounts.

Link: http://www.cpifinancial.net/v2/fa.aspx?v=0&aid=270&sec=Islamic%20Finance


Kerala plans stake in bank run on Islamic principles

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In support: Kerala’s minister for finance Thomas Isaac.

In support: Kerala’s minister for finance Thomas Isaac.

Kerala State Industrial Development Corp. Ltd, a state government arm, will take an 11% stake in the institution and the balance will be held by individuals, primarily Keralites based in West Asia.

The institution, to be registered as a non-deposit taking, non-banking financial company because Reserve Bank of India rules do not allow an Islamic bank to be licensed as a commercial bank, will act like a venture capital firm and fund infrastructure projects.

Kerala has been trying to boost its deficient infrastructure to attract investment and lift economic growth. A high-speed train link between northern and southern Kerala is one of several ambitious projects that has been proposed by the LDF.

“The exercise will be sponsored by the Kerala government and the state can utilize the funds for its infrastructure development,” Kerala’s finance minister Thomas Isaac said. “Once it is established, we can use the money to fund the proposed north-south bullet train in the state.”

The Kerala government had approached Delhi Metro chief E. Sreedharan to prepare a project report on the Kannur-Thiruvananthapuram bullet train. The finance ministry had made a provision of Rs20 crore for the feasibility study in the last budget.

Islamic finance, based on the principles of Shariah, prohibits the payment or receipt of interest and investment in businesses that offer products or services that do not confirm with Muslim religious beliefs, and stresses profit sharing.

Audit and consultancy firm Ernst and Young had been asked to prepare a project report on the proposed Islamic financial institution. Al-Baraka and Al-Salama are two of the names thought up for the entity.

“The Islamic financial institution, which is going to work within the boundaries of Shariah law, will be a platform for the state government’s investment initiative in infrastructure,” said P.V. Abdul Wahab, a Rajya Sabha member from Kerala. “The paid-up capital can go up to Rs1,000 crore.”

“The money will not be used for investing in any business which is prohibited in Islamic law such as alcohol, tobacco and some entertainment businesses,” said Wahab, who represents the Indian Union Muslim League. He is one of the promoters of the venture in a personal capacity.

Finance minister Isaac, a leader of the Communist Party of India (Marxist), or CPM, which heads the Kerala government, is confident there wouldn’t be any problem in attracting funds for the venture, given the strong presence of Keralites in the Gulf. The Gulf region is the most preferred destination of Keralites looking for jobs abroad.

Isaac sees no conflict between the secular, non-religious platform of the CPM and its Left partners and the Kerala government’s promotion of a financial institution that would be based on religious beliefs.

“The government decided to support it as there is a set of people in a particular religious community who do not want to dabble with certain activities, which they think are morally wrong, but we want to tap the resources available,” the minister said.

“This does not mean that CPM is following Shariah law,” he added. “There is nothing wrong in it.”

Muslims make up around 25% of the population of Kerala, which was 31.8 million according to the 2001 Census.

Vinoj Abraham, a lecturer at the Centre for Development Studies (CDS) in the state capital Thiruvananthapuram, said the move to introduce Islamic finance is pragmatic, against the backdrop of the global economic downturn that has forced the return of Indian workers from many parts of West Asia.

“This will help to channelize the resources coming from and through the Gulf countries,” he said.

Gulf-based Keralite businessmen P. Mohammed Ali of the Galfar Group (Oman), C.K. Menon of the Behzad Group (Qatar), M.A. Yusuf Ali of Lulu Supermarket (United Arab Emirates) and Azad Moopen of Dr Moopen’s Group (Dubai) have already joined as initial promoters. Mohammed Ali is the chairman of the board.

According to a study conducted by CDS, foreign remittances to Kerala surged 135% during 2003-08.

The report, Decade of Kerala’s Gulf Connection, Migration Monitoring Study, 2008, said foreign remittances to the state rose from Rs1.84 trillion in 2003 to Rs4.33 trillion in 2008.

Link: http://www.livemint.com/2009/09/17233457/Kerala-plans-stake-in-bank-run.html

Islamic finance filling liquidity gap

| Friday, September 11, 2009
A guide for International Business and Investment', is now available from GMB Publishing.

A guide for International Business and Investment', is now available from GMB Publishing.

Mohammad A Qayyum, Director General of the Institute of Islamic Banking and Insurance (IIBI) remarked: "In the years to come, the growth in Islamic banking looks set to continue to make rapid progress as more and more, the great reserves of wealth of Muslims are diverted away from conventional banking practices. This book is invaluable in understanding how the principles of Islamic financing and investments are being practiced in modern times."

Produced in association with the Institute of Islamic Banking and Insurance in London, 'Islamic Finance: A guide for International Business and Investment' aims to support international investors and finance professionals now considering the buoyant Islamic finance sector.

While the global economy remains uncertain, Islamic finance is steadily growing at an annual rate of 10% to 15%., and is estimated to be currently worth US$800 billion. Although Islamic financial products do not pay interest they can often be as advantageous, or more so, than conventional products. And at a time when derivatives-based markets have failed, Islamic financial instruments, based on the firm establishment of underlying assets, are going to be ever more popular.

This new book provides accessible advice and up-to-date guidance for foreign investors helping them understand the principles and current practice of Islamic banking and Shari'a-compliant finance: outlining the background to Islamic finance; examining Islamic financial products including loans, mortgages, trade finance, investment banking and Takaful; and exploring important regulatory issues.

With contributions from leading industry experts including the Institute of Islamic Banking and Insurance, Denton Wilde Sapte, State Bank of Pakistan, Al Rajhi Bank, the Islamic Bank of Britain, PricewaterhouseCoopers and the Bank of London and the Middle East, this new book is an essential resource for organizations engaged in business development, asset management, banking and finance in an Islamic context.

Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=2097&Cat=11&RetId=0

Sukuk ideal instrument for Sri Lankan funds

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The end of the 30-year civil war in Sri Lanka has generated a significant amount of interest in necessary rebuilding and infrastructure development. Market estimates suggest that funds worth around US$150 million are in circulation among Sri Lanka’s Muslim community.

The end of the 30-year civil war in Sri Lanka has generated a significant amount of interest in necessary rebuilding and infrastructure development. Market estimates suggest that funds worth around US$150 million are in circulation among Sri Lanka’s Muslim community.

However, no Shariah-compliant formal investment tools are available to channel the millions of dollars into development projects. As a result, experts are suggesting that the country should use sukuk to draw in and channel funds.

“Islamic financial institutions that cater to the local Muslim community also have the same problem. They don’t have an investment instrument. The available investment opportunities that conform to Islamic religious principles are limited, and can only absorb a portion of their funds. So these financial institutions don’t make an effort to increase their deposits because they have no way of re-investing a large portion of their funds,” CEO of RAM Ratings Lanka Adrian Perera told reporters after a conference on sukuk last week.

Despite the obvious need for an Islamic investment tool, the Sri Lankan legal framework does not currently accommodate sukuk.

“We do not have the required legal, regulatory, supervisory and accounting structures for Sukuk in Sri Lanka at the moment,” explained Director General of the Securities and Exchange Commission (SEC) of Sri Lanka, Channa de Silva.

“We also don’t have a Sharia Council here. The Sukuk has to be approved by a Sharia Council before being used. So at this point we are looking into the possibilities,” he said.

According to RAM Ratings, sukuk is a perfect instrument for infrastructure or project financing.

Islamic Marketing Ethics

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Ethics, governance, corporate behaviour, branding - all in all, how does one combine marketing and Islamic finance? On the other hand, what is the level of recognition and validity given by Muslim customers to Shariah compliant investments? How does one determine the level of preference for a compliant solution versus a conventional one? Is there such a preference or is it perceived as a penalty on financial performance? Is there a way to quantify all this? Can this methodology be applied to other services beyond banking products (from insurance & car financing to food, clothing, etc?). A vast topic indeed!

Islamic Marketing Ethics and Its Impact on
Customer Satisfaction in the Islamic Banking Industry

Abul Hassan, Abdelkader Chachi, Researcher, Islamic Economics Research Centre, King Abdulaziz University, Jeddah, Saudi Arabia, and
Salma Abdul Latiff, Director of Centre for Islamic Banking, Finance and Management, University Brunei Darussalam.

Islamic banking and the economy

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AMIDST growing public realisation that his handling of the looming distress in five banks occasioned by huge debts would inflict serious unintended economic damage, Central Bank Governor, Sanusi Lamido again chose the wrong time and inappropriate forum to announce government's mere commitment to a far-from-ready introduction of Islamic financial services and to seek preliminary advice on how to even proceed. The timing was wrong because the country had just witnessed the violent eruption of the Boko Haram Islamic sect in some Northern states and the precautionary disbandment of the Daruslam sect in Niger State while the banking sector had become unsettled.

To proceed, as Sanusi did, to interject therein the imminence of Islamic banking operations that were unfamiliar could not but alarm ordinary non-Moslems. Also a Ramadan symposium, being a religious forum, is not the right occasion for the apex bank governor of a secular country whose responsibility is national in scope to table an otherwise purely mundane proposal that happens to bear Islamic appellation.

It is worth noting that an Islamic Bank delegation visited and met the then Finance Minister Ngozi Okonjo-Iweala, a non-Moslem, in 2006 while the draft policy framework towards the establishment of the Islamic finance industry was issued last March with the apex bank again still under a non-Moslem. Therefore, the Islamic banking initiative should not be credited to Moslems alone just as its financial services will not be credited to Moslems alone. Islamic finance is for all.

Now, Islamic banking is relatively new: the first Islamic bank was established in 1975. From 2000, Islamic finance witnessed very rapid growth especially in the Middle East, Malaysia and Indonesia. However, it has been estimated that in 2007 Islamic banking assets accounted for only about 0.5 per cent of the world's total. Hence the Islamic finance industry, whatever its benefits and appeal in the wake of the global financial meltdown, will more likely complement than supplant the conventional banking system even in its home base of the Middle East. While the number and spread of stand-alone Islamic banks are on the increase, access to Islamic financial services is much wider based because some conventional banks operate sections dedicated to that purpose.

Nonetheless, the success of global Islamic finance should not be taken for granted in the country. Because conventional banks charge high lending rates of up to 35 per cent, the advent of Islamic non-interest and profit-sharing system will appear to be a veritable godsend. In reality, however, after the realisable normal profit of a given project is shared, the profit margin for either financier or borrower would be dwarfed by the persistently high inflation rates: the project would not yield positive return for the financier. The losses would be compounded if it were decided to repatriate any funds owing to the constant and fast depreciation of the naira. Thus fully aware that Islamic banking cannot thrive under existing conditions, the CBN governor invited from the symposium workable suggestions and strategies that would engender a conducive and enabling environment for attracting the multi-billion dollar global Islamic finance to the country.

The CBN call is either hypocritical and insincere or an attempt to project double standard and to attribute to a Kaduna-based Islamic movement the irrefutable solution to Nigeria's 31-year-long economic malaise. For, there is no gainsaying the fact that Nigeria possesses on an annual basis multi-billion dollar funds for transforming the economy that would render as a minor supplement any combined amounts that Islamic finance and other foreign direct investors could ever bring into the country. Instead of making Nigeria's multi-billion dollar earnings beneficial to the country, the CBN has collaborated over the years to waste them. Yet, if only the CBN abides by Sections 2 and 38 of the CBN Act 2007, which economic best practice also demands, the prevalent inhospitable economic environment will disappear; stable and competitive conditions will set in.

As recent experience has shown, the CBN and other relevant agents will be expected to adequately regulate and properly supervise the operations of conventional and Islamic (if finally introduced) banking systems. Indeed, Sharia-compliant products are said to be more complex than conventional ones. Besides the above, we do not consider it as the role of the apex bank to promote, popularise and sensitise the general public on the benefits to be gained from Islamic banking. That aspect is the business of institutions that elect to offer the financial services.

Finally, we do not really need to institute Islamic banking or have to await Islamic solution to our chronic economic woes. The real solution is known: it is to adopt the foreign exchange-infusion method employed in the world's leading economies since the 1970s. Therefore, CBN Governor, Sanusi should spare us the pretence of putting individual economic sectors in good condition.

Link: http://www.ngrguardiannews.com/editorial_opinion/article01/indexn2_html?pdate=100909&ptitle=Islamic%20banking%20and%20the%20economy

Islamic banks unaffected by crisis, says head of Union of Arab Banks

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The global financial crisis has failed to have any impact on Islamic banking said Adnan Ahmed Yousif, the President and Chief Executive Officer of Albaraka Banking Group and the head of the Union of Arab Banks.

Speaking at a Ramadan Majlis held at the Atlantis Hotel by Dubai Press Club and Albaraka Group, Adnan Yousif identified three separate blocs of Islamic banks: those in countries where the banking system is closed to external factors such as Libya, Syria and Iran; countries where there is limited flexibility to invest externally such as Lebanon and Egypt; and banks in the GCC where there are few restrictions.

While Islamic banks in the first two blocs have no exposure to the financial crisis at all, Yousif said that on a consolidated balance sheet basis overall, Islamic institutions in the GCC faced little impact from the crisis because they had no involvement in derivatives.

“But that does not mean we remain isolated from the rest of the world. It is indeed possible for the GCC countries to become more influential internationally. GCC will actually be the fifth major economic block in a few years provided they implement a common currency system and consolidated economic activity across the region further,” he explained.

Indeed he claimed Islamic banking as a remarkable success story against the backdrop of the general gloom in the financial sector, noting that Albaraka Group itself not only remained unaffected by the financial crisis, but also managed to increase profits this year.

Yousif said though the end of financial crisis had already begun, recovery will be slow. “Proactive government initiatives are a precondition to get over the financial crisis. The developed countries must listen to Asian countries to avert this kind of situations in future,” he demanded.

Commenting on the Saad/Algosaibi situation, Yousif said the central banks should exchange information about corporate debts to avoid future problems, “It is important that the debts of corporate entities be made globally public in order for banks to avoid giving risky loans. This is something very easy to implement as all central banks have the information at their disposal.”

Yousif added that he did not believe that the Saudi groups’ debts pose a major threat to banks in the GCC, noting that the Arab banks affected have already made provisions of 25-50 per cent against their exposure to the firms.

First Islamic bank set to open in Kochi

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KOCHI: India's first bank that will only deal in financial products compliant with Islamic law will open in Kochi by next year. The first project that the government is looking at the bank to finance is the 80-billion-rupee north-south high-speed corridor.

The Kerala State Industrial Development Corporation (KSIDC) has initiated the incorporation of the company with an authorized capital of Rs.5 billion. The company is expected to invest mainly in infrastructure projects and pay dividends to depositors, officials said.

Besides KSIDC, which holds an 11 percent stake in the company, P. Mohammed Ali of Oman's Galfar Group, C.K. Menon of Doha-based Behzad Group, M.A. Yusuf Ali who heads LuLu supermarket chain in the Gulf and Azad Moopen of Moopen's Group are the company's major promoters.

The Left Democratic Front (LDF) government has called a high-level meeting of officials and promoters to be held in Kozhikode on Sept. 12 to finalize the project. A similar meeting held a month ago approved the project report prepared by Ernst & Young.

The new entity will start functioning as a non-banking finance company (NBFC) before becoming a fully-fledged Shariah-compliant bank, they said. It will avoid all interest-based businesses and will set apart a social fund to provide interest-free loans to Gulf returnees to set up small-scale ventures.

By Mohammed Ashraf

© Arab News 2009

The absence of zakat’s impact on Yemen’s economy

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Zakat, alms Muslims are required to give to the poor, provide the government with a significant amount of revenue, but the funds are often mishandled despite a 1999 law intended to regulate and streamline the practice, according to academics and officials.

“Unfortunately, local councils, which now are authorized to collect zakat duties do not distribute revenues to the poor and the needy,” said Dr. Mohammed Jubran, professor of economics at Sana'a University. “Most of zakat revenues that local councils collect are spent as rewards and travel expenses for councils’ members.”

Zakat makes up less than .18 percent of Yemen's GDP, according to an online study by Studies and Economic Media Center this year.

“In general, zakat has a big role in any society, but in Yemen, its role is scattered and unclear in terms of its impact on Yemen’s economy,” said Jubran.

Although there is an administration for zakat duties in Yemen which collects the duties and submits revenues to the government, Jubran thinks that the role of zakat in Yemen’s economy is still absent.

“We notice that the amount that the General Administration of Zakat Duties gathers is very little and does not exceed 10 percent of duty amounts that should be collected,” pointed out Jubran.

According to information from the General Administration for Zakat Duties in Sana’a, the government spends more than twice as much providing for poor families than it collects in zakat revenue.

The total 2008 zakat revenue in Yemen was YR 8 billion (USD 40 million) and the Social Welfare Fund alone spends around YR 20 billion (USD 100 million) on poor families in the country.

“Collecting zakat duties is also done by individual efforts from some charitable organizations that distribute it as aid to needy families,” said the professor. “But the distribution is done inaccurately, which leads some families to get aid from more than one organization, whereas other poor and needy families receive nothing.”

Charitable organizations also collect zakat duties in Yemen because the law allows merchants retain 25 percent of the money they are required to pay, in order to personally distribute it to the poor.

Jubran suggested establishing a specialized corporation that is authorized to collect and distribute revenues to avoid duplication in distribution.

The professor said this measure would reduce poverty. According to 2008 UN statistics, 45 percent of the people in Yemen live on less than USD 2 a day. Extra zakat revenues can then be used to he
lp unemployed young people that lack direction.

Additionally, Jubran said that if zakat revenues were distributed efficiently, there would be income redistribution flowing money from rich to poor. Zakat will activate the economy because poor families will spend more money.

“The current authority of zakat duties does not do the task properly as evidenced by the fact that there is no tangible impact of zakat on Yemen’s economy,” said the professor.

“If zakat duties were collected correctly, zakat revenues would have reached around YR 100 billion (USD 500 million)” said Jubran.

A study by the Studies and Economic Media Center about the reality of zakat authorities in Islamic countries also pointed to failings within collection systems.

All Islamic countries have weak collecting systems, including Yemen, it says. The study attributes the weaknesses to bad performance of officials and flimsy legislative structures.

Mohammed Kawkaban, the general manager of the General Administration for Zakat Duties in Sana’a, admitted that challenges deter the improvement of collection performance.

“Performance of any foundation is connected with the level of awareness and efficiency of its employees," he said. "Frankly, the employees of the General Administration for Zakat Duties in Sana’a and its branches are still not qualified.”

“We need to organize specialized training courses for our employees in zakat accountancy, how to deal with zakat payers and training courses for all employees including managers in Islamic law of zakat,” said Kawkaban.

He recommended building a network to facilitate counting the zakat revenue. The total amount collected in Yemen has not been accurately counted for seven years, he added.

He suggested awareness campaigns because many people are ignorant of zakat issues and some of them think that people only one have to pay one duty and the end of Ramadan, and are not aware of other kinds of zakat, such as commercial item zakat and income zakat.

According to Kawkaban, the total revenue from zakat in Sana’a is increasing since in 2008 reached over YR 5 billion (USD 25 million) whereas in the first half of 2009 alone reached over YR four billion (USD 20 million).



Zakat Al-Fitr

Zakat al-fitr is required at the end of Ramadan from every Muslim who has the sufficient food, according to the Yemeni law.

According to Islamic literature, companion to Proph
et Mohammad Ibn Umar said, "The Prophet (PBUH), imposed a payment of one sa'a [2.5 kilograms] of dates or one sa'a of barley or one sa'a of wheat as zakat al- fitr from every Muslim, young and old, male and female, free and slave."

The purpose of zakat al-fitr is to purify Muslims from indecent acts or speech they may have committed while fasting, as well as to help the poor.

According to Islam, it is important that this zakat is paid before the Eid Al-Fitr prayers take place at the end of Ramadan. Some Islamic schools say it must be paid in foodstuff. However, Yemeni law allows people to give money instead of the required amounts of food, as long as the value is equal.

Some religious scholars also say that Zakat Al-Fitr can be given as money equal to quantity of foodstuff. That means if you are the head of a family of seven, you have to give eight sa'as of wheat, or the most served food in the country, or the value of this quantity.

Muslims all over the world are obliged to pay this kind of zakat. In some Arab and Islamic countries, it is the responsibility of the government to collect this zakat and in other countries non-governmental charitable organizations do this job.

In Yemen, it is the government that does this task through the General Administration for Zakat Duties.

Zakat al-fitr revenues increase yearly because, unlike other zakats, every Muslim who is not poor is required to contribute, and the Yemeni population is growing rapidly.

In 2008, zakat al-fitr in Sana’a revenues were about YR 272 million (USD 1.3 million) compared to about YR 187 million (USD 935,000) the year before according to Kawkaban, general manager of the administration.



Zakat on commercial items

Another kind of Zakat required by Islam applies to wealthy Muslim merchants. Traders are obliged to pay charity out of their commercial revenues, and in Sana'a, most zakat revenue is commercial.

Merchants are obliged to pay 2.5 percent of the value of commercial items they own for a full year. For instance, if he or she has commercial items worth YR 600,000 (USD 3,000), and one year of ownership passes and he or she still owns the property, YR 15,000 (USD 75) must be paid.



Zakat of livestock

In Islam, farmers are required to give animals that can be utilized, including camels, cows and sheep.

The animals have to have a minimum value, owned for one year for the farmer to be required to pay. The animals also must be grazing, as apposed to doing work such as plowing, watering, and carrying weights or riding.

Zakat of sheep

Far
mers who own 40 to120 heads of sheep for the entire year, which are grazing, are required to give one sheep as zakat. Farmers that own 121 to 200 have to give two sheep. If they own more, they have to give one more sheep for every hundred that they own.



Zakat of camels

People that have five camels or more are required to and if he or she does have less than that, no charity is imposed.

If a Muslim farmer owns five camels for the entire year, he or she is required to give one sheep for every five camels- up 25 camels. Farmers that own 25 camels must give bint mukhadh (a 1-year-old female camel). And if it was reached 36 camels he or she must give bint laboon (a 2-year-old camel). The required donation continues to increase, with the amount of camel’s owned by the farmer.



Zakat of cows

A farmer that has 30 or more cows and is also required to contribute livestock.

If the Muslim farmer owns 30 to 39 cows, he or she must give one, 1-year-old calf. If he or she owns 40 to 59, the duty is a cow that is two years old.If he or she owns 60 to 69, the duty is two calves.

However, this kind of zakat in Yemen can be paid with money that has the same value as the animals.



Who is entitled to be given the zakat?

Yemeni law says the that zakat revenue must be distributed to the poor, the needy, those employed to administer zakat, recent converts to Islam, to free the captives and slaves, debtors, in the cause of Allah, and to travelers.



Special administration against those who refuse to pay

In the General Administration for Zakat Duties, there is a special administration for those who underpay or refuse to pay zakat duties, according to Kawkaban.

“This administration sends a letter notifying him to pay the duty and gives him one month as an extension,” explained Kawkaban

“If he or she, after this extension, does not pay, the administration again gives him extra month but if he refuses to respond, the administration refers him to prosecution,” added Kawkaban.

“Many cases have been referred to prosecution,” said the manager.