Going Islamic - Russia

The stricter, more ethical rules of Islamic finance helped many countries avoid the worst of the 2008 economic meltdown. Now officials in the Russian republic of Tatarstan are hoping that Islamic finance can help them attract direct investment from Muslim nations around the world.

Last week a summit on Islamic finance in Kazan, the capital of Tatarstan, welcomed delegates from as far afield as Malaysia, Saudi Arabia, Turkey, Azerbaijan and the United Arab Emirates.

Avoiding U.S. debt

Since the crisis, Muslim countries have accumulated “substantial liquidity” which needs to find investment opportunities in new markets, said Anatoly Aksakov, a State Duma deputy who also heads the Russian Association of Regional Banks.

“We are talking about tens of billions of dollars – assets that Islamic investors are seeking to diversify to escape dependence on U.S. dollardenominated instruments, which have become risky due to the high level of U.S. debt,” Aksakov told The Moscow News on the sidelines of the conference.

Local hero

Linar Yakupov, CEO of the Tatarstan Investment Development Agency, told The Moscow News that he was hired by the republic’s government to attract Islamic capital. In 2001, Yakupov returned to his hometown, Kazan, from Kuala Lumpur, where he studied Islamic finance at the International Islamic University of Malaysia.

“I was probably the very first certified specialist in Russia on the issue,” Yakupov said. His starting project in Tatarstan was a halal farm, set up to produce food in conformity with Islamic customs.

“We were pioneers in this. When the Tatarstan government took a decision to turn the republic into a gateway for Islamic financial resources into Russia,” he said. Yakupov’s halal farm attracted investment from Saudi Arabia and Malaysia, he said.

Dynamic local economy

Tatarstan has one of the more dynamic economies of the Volga Federal District. According to a KPMG survey, the republic’s GDP has been growing at a rate of 6.5 per cent annually, and has accumulated $7.4 billion of direct foreign investment. The Expert RA rating agency ranks Tatarstan 11th of Russia’s 83 regions.

Unlike many other regions of the country, Tatarstan has managed to maintain many of its Soviet-era industries – such as large farms, machinery and aviation factories – over the last 20 years.

The republic also has large oil reserves. Since the 1940s, Tatarstan has produced more than 3 billion tons of oil, according to official figures, and has retained control of the oil firm Tatneft, plus two key refineries, Kazanorgsintez and Nizhnekamsneftehim.

Tatarstan’s links with the Islamic world could now help it weather global economic headwinds, says Rustam Minnikhanov, the republic’s president.

“We are proud that we have historical and spiritual interaction with the Islamic world,” Minnikhanov told last week’s conference.

Some adjustments required

Aksakov said that Islamic finance would be a good fit with most Russian legislation. “Perhaps we will need to adjust the law in some specific cases,” Aksakov said.

For example, the Riba principle prohibits acceptance of interest for loans of money, and this could cause a conf lict with Russian laws.

“If you take a car loan, you don’t pay interest on money, you just repay your car to the bank in installments,” Aksakov said. But if you pay for goods by installments, you’d have to pay the VAT, which you aren’t supposed to pay in a traditional loan repayment situation.

This was one of the issues that delayed a $200 million Islamic bond, or “sukuk,” project.

But given that the world hasn’t fully recovered from the financial crisis, Islamic finance has quite an appeal here – especially if you consider the dangers of irresponsible, Western-style lending.

“Look what can happen if you ignore the Sharia principles in banking,” a Saudi Arabian delegate, Abdurrahman Atran, who heads the World Assembly of Islamic Youth, told the conference.

http://themoscownews.com

Dar Al Sharia, German Islamic Institute of Islamic Banking and Finance sign agreement

Dubai-based Dar Al Sharia Legal & Financial Consultancy has signed a collaboration agreement with the German Institute of Islamic Banking and Finance (IFIBAF)

The relationship between these two organisations originates from a highly successful Islamic Finance Trade Mission to Europe conducted by Dubai Exports, an agency of the DubaiDepartment of Economic Development.

The Islamic Finance Trade Mission sought to increase the awareness of Islamic financial service providers and institutions from the UAE in the European markets. In doing so the trade mission held a number of high level meetings and seminars with government and private sector participants in Europe. In due course, Dubai Exports will announce some of the outcomes fromthis mission but one success story was inked on 22 June 2011 at the Islamic Finance Forum organised by Dubai Exports with almost 200 participants.

Sohail Zubairi, Chief Executive Officer of Dar Al Sharia, said, “I strongly feel that the next big thing in the Islamic Finance industry may well be Germany. It is not the matter of why but when the first Islamic bank will start operation in the country. Our feeling is built upon pleasant revelation as to the high level of excitement and enthusiasm about Islamic finance amongst the bankers, lawyers, consultants and members of the public whom we met and talked to during the Islamic Finance Trade Mission in April.”

Dar Al Sharia and IFIBAF intend to work more close especially in the field of capital market transaction for retail and institutional business. Bringing in local market expertise in legal and regulatory requirements combined with Shari’ah-compliant product solutions, IFIBAF will benefit from the expertise of Dar Al Sharia, especially in the area of Shari’ah advisory and Shari’ah auditing.

IFIBAF is a German based consultancy that is developing Islamic banking and finance in the German speaking nations and Europe. IFIBAF serves clients in Shari’ah-compliant transactions and offers a full chain of services as an on shop system. IFIBAF was established in order to be a provider of Islamic finance knowledge and expertise to the largest Muslim population in Europe of 4.6 million with an estimated wealth in excess of EUR 35 billion.

Mounsif Chtaiti, Director of IFIBAF stated, 'This partnership brings together the huge and extensive expertise of Dar Al Sharia in providing Islamic financing and investment solutions to the institutions from around the world with the on the ground knowledge and connections of IFIBAF in Germany.

“This agreement will help in serving the institutions and clients needing consultancy services for Islamic finance products, training and Shari’ah audit in Germany and other German speaking nations in the Europe.”

Three quarters of the Muslim population in Germany is below the age of 49. In addition to this estimates show that the Muslim population in Germany has a much higher saving ratio of 18 per cent compared to 10 per cent for the country as a whole. More importantly, a survey in 2010 showed that 72 per cent of Muslims living in Germany are interested in Islamic financial products and services. The survey also found that if such products were to be offered in Germany, 60 per cent of respondents would consider making an investment. An amazing 94 per cent of them stated that they would purchase such products if offered by an Islamic financial institution. Muslim entrepreneurs generated more than EUR 50 billion in profits last year.

Dr Hussain Hamed Hassan, leading Shari’ah scholar and Managing Director of Dar Al Sharia said, “It is befitting to Dubai being the birth place of Islamic Finance that such an agreement is signed here which will allow the flow of innovative products from Dubai to Germany. I would personally like to thank Dubai Government represented by Dubai Exports Islamic Finance Team, and the German Government represented by AHK for facilitating the Islamic Finance Trade Mission and the agreement which is the direct result of the mission.”

cpifinancial.net

Need for development of robust Shariah compliant risk management infrastructure

There is need for the development of a robust Shariah compliant risk management infrastructure in Pakistan’s Islamic banking industry.

It will enable both the Islamic banks and their clients to mitigate genuine business risks, said Yaseen Anwar Deputy Governor, State Bank of Pakistan (SBP).Inaugurating a workshop on ‘Hedging in Islamic Finance and Master Hedging Agreement,’ organised by International Islamic Financial Market (IIFM) in collaboration with the SBP.He said while conventional banks have access to a variety of sophisticated risk management and hedging instruments, there has been a dearth of Shariah compliant hedging products in the country for mitigating risks arising out of genuine business transactions that put Islamic Banking Institutions (IBIs) at a disadvantageous position viz a viz their conventional counterparts.

Describing the pace of growth and development of the Islamic banking industry in Pakistan as encouraging, he said at present it constitutes over 7 percent of the country’s banking system. Given the healthy growth for the past several years, the enabling regulatory and Shariah compliance framework, the growing HR capacity of IBIs and increasing awareness of the masses about Islamic banking, the share of the industry is likely to increase manifold in the future, he added.He observed despite these positive developments and trends, we need not be complacent as the industry still faces numerous challenges, including development of a robust Shariah compliant risk management infrastructure.

 ‘Moreover, the absence of standardised documentation invariably results in significantly higher transaction costs thus making the transaction unviable,’ he added.He noted notwithstanding the dire need of Shariah compliant risk management and hedging instruments for Islamic banks, it should be explicitly understood that such instruments should cover/hedge the genuine risks arising due to real business and economic transactions and should in no way allow transactions for speculative motives. ‘I presume, the same is the spirit of the Tahawwut (hedging) Master Agreement (TMA). This workshop, I believe, will enable Islamic banking industry to better understand the objectives, the underlying transactions and legal documentation etc suggested in the TMA,’ he said.

He said it would also enable market to develop and offer Shariah compliant hedging instruments. He said the IIFM has played an active role in the standardisation of documentation for liquidity management and hedging products over the past few years, which would greatly facilitate the development of Islamic Capital and Money Markets across the globe. He said TMA developed by IIFM in collaboration with International Swaps and Derivatives Association (ISDA) has been received well globally and is likely to provide a big boost to the Shariah compliant derivatives market.He said the TMA is a major initiative to standardise the hedging document and thus minimise the transaction costs. Also at the institutional level, the TMA will hopefully pave the way for players to provide Shariah compliant and financially viable products as well as broaden the range of risk management instruments available at their disposal,’ he added.While giving a presentation on TMA, Ijlal Ahmed Alvi Chief Executive Officer IIFM said although in recent years Islamic hedging market has grown, yet it was still in the development phase. TMA is a framework risk mitigating document for hedging transactions and is developed for the entire Islamic finance industry especially for Islamic financial institutions (IFIs) as well as for Islamic windows, he added.

Habib Motani, partner, Clifford Chance LLP, London gave a presentation from London through video link and highlighted the key features (legal and documentation) of TMA. Peter M Werner Senior Director ISDA gave a presentation on ‘Islamic Jurisdictions-the Need for Law Reform.’

dailytimes.com.pk

Islamic Development Bank Group to hold 36th Annual Meeting Governors in Jeddah

The Islamic Development Bank (IDB) Group in Jeddah is making preparations for its 36^th annual Governors Meeting to be held under the patronage of the Custodian of the Two Holy Mosques, King Abdullah bin Abdulaziz.

Ministers of Finance, Economy and Planning from 56 IDB member countries will participate in the meeting which will take place in Jeddah, KSA, 26-30 June, 2011.

Several high profile events feature on the agenda of the upcoming IDB Board of Governors Meeting including: holding the 276^th session of General Directors; the signing of a large number of agreements with IDB member countries; a number of important seminars; and the presentation of awards to this year’s winners in the field of Islamic banking and financial services as well as other awards for promoting the role of women in development.

The meeting precedes the 6^th Global Forum on Islamic Finance on June 27, 2011, which will cover enhancing the liquidity and size of Islamic financial institutions, followed by several seminars on June 28, the most prominent of them being the joint seminar between the Association of National Development Finance Institutions in IDB Member Countries and other national development financing institutions. The gathering will be addressing the role that development financing institutions play in job creation. Other concurring events focus on economic empowerment and youth employment in Palestine and the impact of the recent events in the Arab region on the consulting sector in IDB member countries.

The events are to conclude with a meeting with the IDB African Governors’ Group on the Special Program for the Development of Africa (SPDA).

Meanwhile, IDB Group entities are also to hold meetings in conjunction with the annual Governors’ Meeting including: the 18^th annual meeting of the Board of Governors of the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC); the 4th annual meeting of the Board of Governors of the Islamic Solidarity Fund for Development (ISFD); the 11th General Assembly meeting of the Islamic Corporation for the Development of the Private Sector (ICD); and 6th General Assembly of the International Islamic Trade Finance Corporation (ITFC).

The IDB 22nd Annual Symposium on “Addressing Unemployment and Underemployment in Member Countries in the Post-Crisis World” on June 29, 2011 and the annual Supreme Council for Al Aqsa and Al Quds Funds meeting on June 30^th are amongst other functions taking place during the series of events. In addition, other key institutions such as the Association of National Development Finance Institutions in IDB Member Countries, the Federation of Consultants from Islamic Countries, and the Federation of Contractors from Islamic Countries will have their meetings convened alongside the main event.

albawaba.com

Islamic finance industry valued at $1tr

MUSCAT: The Islamic finance industry is currently valued at Dhs3.65 trillion ($1 trillion) worldwide, of which Dhs717 billion ($210 billion) is invested in the Middle East.

Following the royal decree by Sultan Qaboos Bin Said Al Said authorising Sharia-compliant financial products in Oman, International Turnkey Solutions (ITS), a global leader in Islamic banking technology solutions successfully concluded its first ‘Oman Islamic Banking Conference 2011,’ attended by over 80 banking decision makers, Islamic banking experts and financial organisations.

“Worldwide, some of the most renowned international banks use Islamic finance instruments such as sukuk (Islamic bonds) to raise funds for Sharia minded ethical investors,” said Mohamed Roushdy, Chief Information Officer, Siraj Finance, who presented an overview on migrating conventional banking structure to Sharia-compliancy.

“We believe that Islamic banking principals are ever more relevant today, given the chaos created by the financial crisis. Conducting business guided by Islamic principles, provides investors with confidence and peace of mind in today’s turbulent global marketplace.”

Dr Mabid Al Jarhi, financial expert and Head of Training, Emirates Islamic Bank, commented on the legal infrastructure required to sustain and grow Shariah-compliant finance.

He commented that the Central Bank of Oman (CBO) should look into amending its existing laws, or preparing a new draft banking law to put Islamic banks on an equal footing with conventional banks. In terms of taxation, Islamic transactions may also be taxed twice, placing them at a disadvantage.

“If these factors are in place the Islamic finance market in Oman could operate at levels that could compete with regional institutions. Funds, that have been flowing outwards, could be repatriated and foreign funds could be attracted in Oman,” Dr Al Jarhi added.

“Islamic banks need to mature operationally and make the technological investments required to be competitive on a global scale. For Oman, the future is very bright if banks here take the necessary steps required to build a solid foundation for Islamic banking,” said Dr Haroun Dharsey, Senior Vice President of Operational Projects at Dubai Islamic Bank (DIB), the UAE’s oldest Islamic bank.

“Successful Islamic banks have been able to combine operational and technological aspects of the business with Islamic practices and traditions is a leading international Islamic Banking solution provider that lives and breathes Islamic values and culture,” said Khalid Al-Saeid, Managing Director and General Manager of ITS.

Gulftoday.ae