Oman Islamic Economic Forum to be held in Dec.

 The first Oman Islamic Economic Forum 2011 (OIEF) will be held at the Al Bustan Ritz Carlton Muscat Hotel on December 17 and 18.

Organised by Amjaad Development, the event will be the first international conference of its kind in the Sultanate.

The OIEF will bring together leading practitioners, prominent heads of state and opinion-making academicians and introduce best practices in Islamic finance to Omani authorities and other relevant players, while discussing key issues in Islamic finance. The conclave will also provide an opportunity for interested foreign stakeholders to network with key Omani players and establish long lasting relationships.

Tun Abdullah Bin Haji Ahmad Badawi, former prime minister of Malaysia will be an important keynote speaker at the OIEF.

Bank Nizwa will be the strategic partner for OIEF.

Bank Muscat and Al Madina Financial and Investment Services Company will be the main sponsors of the event. CIBAFI, Islamic Finance News and CNBC Arabia will also take part in the event.

“We want to develop Bank Nizwa into a new model for Islamic banking to merge world-class professional performance with faith-based social responsibility to the core of our business,” said Ahmed Saif Al-Rawahi, chairman of the founding committee of Bank Nizwa.

“We have entered into a strategic partnership with Amjaad Group to hold the OIEF because we believe that our commitment to Shariah-based financial services and Amjaad’s organisational professionalism will make a success of the forum, create broad awareness of Islamic finance in the Sultanate, showcase our country’s potential to the industry and lead to new trends in Islamic banking,” he added.

According to Khalid Hilal Alyahmadi, chairman of Amjaad Development, after the recent global financial crisis, more and more emerging economies are looking to explore Islamic finance, paving the way for commercial opportunities for local corporations and international banks. Islamic banking is only one part of the Islamic economic structure, but is definitely a good start. Gradually, and in accordance with a well-defined and structured plan, the entire Islamic economic infrastructure can be put in place”.

On selecting Oman as the venue of the forum, Alyahmadi said that the Sultanate had the potential to become a regional centre of excellence for Islamic finance, “but we shall start from the level where others have reached already and not from scratch.”

A highlight of the OIEF will be the annual global Islamic finance awards (GIFA), which as based on an objective proprietary methodology developed by Edbiz Consulting. 


http://www.omantribune.com

Dubai Seminar Highlights Shariah Banking Growth

Halim Alamsyah, a Bank Indonesia deputy governor, told a seminar on Sunday that the country’s Shariah banking industry grew by an average of 36.3 percent from 2000 to 2010, from Rp 100 trillion ($11.3 billion) to Rp 1.79 trillion. 

Halim was speaking in Dubai, where the Indonesian Consulate General brought together more than 130 participants, including banking officials from both countries, to discuss Shariah finance. The consul general, Mansyur Pangeran, said Shariah finance was expected to continue to grow. 
http://www.thejakartaglobe.com/

Islamic finance 'set for solid growth'

slamic finance is continuing to go from strength to strength and in the near future the industry is likely to see a period of consolidation, said a top banking expert.

'Mergers within the industry will make it more efficient through economies of scale but it will also allow the industry to finance the kind of mega projects sometimes outside its scale at present,' remarked Dr Mohammed Nedal Alchaar, the secretary-general of  Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

Dr Alchaar said he expected to see a lot of merger and acquisition activity in the industry in the near future.

'It will give the industry more capacity and create the strength and credibility that will make it easier for financial institutions to successfully issue more sukuk which is something the industry needs.

Dr Alchaar is standing down to take up a post as Minister for Economy and Trade in Syria but will remain a member of the AAOIFI board of trustees. He said that a successor would be announced in the next few weeks.

AAOIFI chairman Shaikh Ebrahim said that Dr Alchaar had provided strong leadership as well as critical strategic thinking to the industry and had championed the cause of Islamic finance as a global financial platform.

More that 300 delegates from 30 countries took part in yesterday's event.-TradeArabia News Service

Islamic finance experts head to Bahrain

More than 1,200 industry leaders, senior decision-makers and key regulators from over 50 countries are set to gather in Bahrain for the 18th annual World Islamic Banking Conference (WIBC 2011) next month.

The event, being hosted in strategic partnership with the Central Bank of Bahrain, will run from November 21 to 23 at the Gulf International Convention Centre, Gulf Hotel.

The event, supported by the Economic Development Board of Bahrain, comes as the global Islamic finance industry enters the next phase of growth, said the organisers.

This year's WIBC theme, “Competing for Global Growth”, reflects the expanding geographical footprint of Islamic finance and increasing presence of Islamic financial institutions in new jurisdictions that is providing significant opportunities for cross-border trade and investment flows that are Shari'ah-compliant.

Discussions at WIBC 2011 will emphasize strategies for managing the challenges of industry globalization and reinforce co-operation across jurisdictions to ensure stronger international capabilities for the Islamic banking and finance industry.

Announcing the launch, David McLean, managing director of the WIBC said that 'Islamic finance is no longer a niche market and is rapidly becoming an important component of the mainstream financial system.'

'As various jurisdictions seek to intensify efforts in developing their respective Islamic banking and finance markets, it is vital to strengthen the global framework for greater collaboration between these geographies that will facilitate significant cross-border activities and deal flow,' he added.

McLean said in order to ensure the industry's orderly evolution as an integral component of the international financial system, it is essential to manage the challenges of industry globalization.

'WIBC 2011 will provide the leading industry players with the platform to capitalize on the growth opportunities from new emerging frontiers for Islamic finance.'

The three-day event will kick off on November 21 with a series of pragmatically focused pre-conference summits led by industry experts, who will place a range of complex themes in a practical framework, enabling a deeper understanding of the critical issues facing the Islamic finance industry today.

The main conference will be inaugurated by CBB Governor Rasheed Mohammed Al Maraj on November 22.

The inaugural session which focuses on strengthening the regulatory frameworks to accelerate the international development of Islamic finance will also feature Khaled Mohammed Al-Aboodi, CEO  and general manager, The Islamic Corporation for the Development of the Private Sector, the private sector arm of the Islamic Development Bank Group (IDB), Saudi Arabia.

Confirming his participation at the event, Al Maraj said, “The growing internationalization of Islamic finance reflects its ability to be competitive and respond to the complex needs of businesses globally.'

'As the industry’s geographic footprint expands, it is becoming increasingly vital to develop appropriate global frameworks and overcome the challenges of globalization faced by Islamic finance.'

'We believe that the WIBC 2011 will play a meaningful role in facilitating dialogues to prepare the international Islamic finance industry to 'Compete for Global Growth'. The CBB is delighted to be again hosting this unique global industry gathering,' he added.

A key highlight of WIBC 2011 will be the exclusive Industry Leaders’ Power Debate led by internationally respected CEOs and decision-makers from the key players in the industry.

Moderated by Ashar Nazim, partner, Assurance and Advisory Business Services, Ernst & Young, this dynamic session will analyze how the leading players are positioning themselves to capitalize on the new growth opportunities presented by the increasing internationalization of Islamic banking and finance.

The Power Debate session will feature Tirad Mahmoud, CEO of Abu Dhabi Islamic Bank; Toby O’Connor, CEO of the Islamic Bank of Asia; Syed Abdull Aziz Jailani Bin Syed Kechik, CEO of OCBC Al-Amin Bank Berhad; Asad A Ahmed, CEO of Gulf African Bank; Abdulrazzak Mohammed Elkhraijy, executive VP and head of the Islamic Banking Development Group at the National Commercial Bank-Saudi Arabia, and Dr Salah Addeen A Qadar Saeed, general manager – Credit & Risk Management at Bahrain Islamic Bank.

WIBC 2011 will also feature a special keynote address on “Competing for Global Growth: Preparing for the Asian Century” by Prof. Kishore Mahbubani, the dean and professor in the Practice of Public Policy at the Lee Kuan Yew School of Public Policy (LKY School) at the National University of Singapore on the final day of the event.

The eagerly-anticipated World Islamic Banking Competitiveness Report, developed in collaboration with Ernst & Young, will also be launched on-site at the conference in an exclusive session on November 22.

The 2011/12 Report which is now in its 8th annual edition, will explore the key trends and successful strategies deployed by leading Islamic banks.

Announcing support for the event, Dr Jamil El-Jaroudi, CEO of Elaf Bank said, “The global Islamic banking and finance industry has seen tremendous growth internationally and Bahrain is at the forefront of this growth and has a long history of being a pioneer in the global industry.'

With the industry now beginning to break out from its niche status to achieve critical mass in the global financial system, it is essential that we prepare the industry to tackle the challenges ahead, he added.-TradeArabia News Service

Turkey’s Islamic Bank gets $75 million from IDB

The Islamic Development Bank (IDB) has assigned $75 million line of finance to Turkey’s Islamic Bank, Turkye Finans Participation Bank.

At the 27th meeting of the Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation, (COMCEC), in Istanbul, IDB Group President Dr. Ahmad Mohamed Ali signed an agreement with the one of Turkey’s largest Islamic Banks.

The agreement, counter-signed by CEO of the Turkish bank, Mr. Derya Gurerk, provides long term financing opportunities to small and medium enterprises in Turkey through Installment Sale, Ijara and Istisna’a modes of Islamic finance. It aims to further develop key targeted sectors, i.e. agriculture and food security, transport, energy and manufacturing and is expected to positively contribute towards job creation.

The financing facility is part of the IDB Group’s Member Country Partnership Strategy (MCPS) Program for the Republic of Turkey. The MCPS, which covers 2010-2013 period, envisages a total financing envelope of US$ 2 billion from IDB Group to Turkey. The IDB Group has long been supporting the development of the Turkish private sector through project and trade finance as well as insuring export and import operations.

http://iina.me

A closer look at Islamic finance in Sri Lanka by MM (Published by CIMA-UK)

The buzzphrase in today’s business world is ‘Islamic banking and finance (IB&F)'.

Background

Islamic finance takes its principles and rules mainly from primary and secondary sources. The primary sources include the Quran (text of god) and Sunnah (Words or Acts of the Prophet [SAW]).

Secondary sources include Ijma - consensus, Qiyas - Analogy and Ijthihad – interpretation of learned jurists and scholars. Other authorities of interpretation such as Sharia supervisory boards (SSB) and ‘The Islamic Fiqh Academy’ – KSA are also important elements in Sharia.

Sharia has been translated as ‘Islamic Law’ but comprises not only Islamic law, but also moralities, ethics and guidelines for a complete way of human life. In the field of Islamic Banking and Finance Sharia plays a vital role.

Islamic finance in Sri Lanka

Sri Lanka is not well known for this niche market, but Sri Lanka's recent resolution of its civil armed conflict has given new hope and positive views about the future of Sri Lankans.

Sri Lankan Sharia conscious investors and other interested groups were pleased to see the country's first fully fledged Islamic commercial bank inaugurated by the central bank governor in August 2011.

This was a remarkable event in the history of Islamic banking and finance in Sri Lanka. It took more than a decade to achieve, due to issues like double taxation, separate banking rules and regulations, corporate governance and other issues that needed to be addressed to cater to this new market.

The Sri Lankan financial market consists of a number of Islamic financial service providers in the form of investment companies, leasing companies and subsidiaries of finance companies.

Additionally, the government owned Bank of Ceylon has started its own Islamic windows model operating under the brand name of Al-Noor a year ago.

These market needs were witnessed by the current retail banking market leader in conventional banking - Commercial Bank, which kickstarted its operation as a specialised branch and a delivery channel for Islamic banking customers under the name of Al-Fadhla two months ago.

As per the estimates and research studies, there is an Islamic banking asset base within the country of more than approximately USD 1,000 million in 2010.

Global Islamic fund assets under management grew by 7.6% to $58 billion in 2010, up from $53.9 billion in 2009, according to Ernst & Young Islamic funds and investments report (2011). 

According to the figures released by research firm - Cerulli Associates (2011), global Islamic finance assets will reach USD 5 trillion by 2015.

Creating an infrastructure

To create the infrastructure for the Islamic banking and finance market, other components play a major part - the insurance industry.

The Islamic insurance (Takaful) industry was started in Sri Lanka with a very few players catering to Sharia conscious insurance holders. The current players are winning the trust of the whole Sri Lankan community in terms of Islamic insurance by highlighting its unique features of rewarding the policy holders, where Takaful scheme payments will be pooled and invested in acceptable Islamic investment opportunities and the return shared with customers.

The Sharia conscious investors have more options in terms of Islamic Finance in Sri Lanka. They have a golden opportunity to invest in Colombo Stock Exchange (CSE), by way of participating in the Islamic funds (Eg: Amana-Namal Equity Funds) and unit trust (‘Crescent I-fund’  is an open ended Shariah compliant fund).

The myth that Islamic finance caters only to the high end market and does not consider the needs of lower income earners is not entirely accurate. In fact, there are institutions in Sri Lanka striving to alleviate Sri Lankans by providing Islamic Micro Finance facilities throughout the island in order to make difference in their lives.

Change and local implications

Although Islamic Finance has proved groundbreaking, with far reaching impacts worldwide while flourishing as a young market, there are issues and critical challenges to be addressed locally.

The Islamic banking and finance industry is facing challenges around the globe - a lack of Sharia scholars with in depth knowledge of finance products (in a recent press release for The Star news media, Dr Zambry said statistics by the International Islamic University of Malaysia (IIUM) showed that two million Islamic finance professionals were required to fill positions in IFIs worldwide by the year 2020), modern technology (the current software systems and other technologies have been developed based on interest bearing tools and products which Islamic banks cannot use without customisation).

This has been addressed by some Islamic finance education institutes in Sri Lanka through classroom education, public awareness and events enhancing knowledge in the field. This has helped Sri Lanka shine globally with well educated, qualified and experienced industry professionals who work outside Sri Lanka as top executives in Islamic banks.

Islamic finance as a solution

It can be argued that Islamic finance is a solution provider for many current local and global economic ills, since Islamic finance functions without interest/usury (Riba), uncertainty (Gharar), gambling (Qimar) and speculation (Mysir).

To safeguard global financial markets, Islamic finance industry experts should have a global view and take actions to develop Sharia, accounting, auditing, ethics and corporate governance standards for banking, insurance, leasing, capital market and money market sectors.

As a value addition, the Bahrain based Accounting and Auditing Organisation for Islamic Financial Institute (AAOFI) and Malaysian based Islamic Financial Services Board (IFSB) is working closely with other international standard setting bodies to integrate global norms, standards and best practices of Islamic and conventional banking and finance.

Islamic finance and information technology

Islamic finance's growth has been fuelled by many factors, including rapidly changing information communication technology.

Even though Sharia compliance is the key for Islamic banking, competitive technological advancement facilitates fully automated branches - a touch screen for banking transactions with no human resources, advanced mobile applications for smart phones, hightech security ATM machines, SMS and GPRS banking services and so on.

These drive the industry forward with rapid changes in the modern business environment. Modern world customers are smarter and more knowledgeable and can easily switch to other banks just by a click of mouse. And information systems strategy is the heart of the banking sector and will determine the success of the business.

Customising software for Islamic finance

We need to customise conventional core banking software to be used as ready made products since there is no standalone core banking software system for Islamic banks.

The customisation should be done to Islamic banking principles, accounting, cash management, credit facilities and other operational requirements as per Islamic finance regulations.

Standalone software

Because of the customisation of conventional banking software for Islamic banks, the urgency or need for the stand alone Islamic banking software has been shadowed.

One of the important issues is the change in legal and tax systems for Islamic finance. The banking act of 2005 brought in some changes to accommodate a profit and loss sharing banking system and is a proactive action of the government.

There are some tax modifications such as double taxation, stamp taxes (for Islamic banking transactions) that have been proposed by Islamic Finance Focus Group (IFFG) which includes experts of the industry from Sri Lanka. These are positive signs which accommodate this niche market by making amendments to the current legal and tax system which has been developed over period of time to suit conventional banking products.

Other countries - especially the UK - are aspiring to become Islamic finance hubs by making changes in legal framewors through their budgets.

The UK has five Islamic banks regulated under FSA.

The following list of the countries shows the global appetite for the fast growing Islamic banking industry: 

Thailand	Thailand already has the Islamic Bank of Thailand, backed by the government to attract Foreign Direct Investments through Islamic finance, which is to be used for economic development
Singapore	The first regional bank launched, which is the Asian Islamic Bank with a $100Mn investment
India	An emerging market for Islamic finance, deliberations going on with the Reserve Bank of India (RBI) with Islamic finance propositions
Canada	Canada is seriously looking into regulatory issues in accommodating Islamic banking and finance institutions
Germany	Appetite portrayed through their debut in the industry: Saxony Sukuk worth USD 100 million
Oman	Already given approval for the second full-fledged Islamic Bank
Malawi	Very recently created an Islamic Pension Fund
Mauritius	They have launched the first Islamic bank in the country in the middle of this year
Kazakhstan	Banking and financial institutions are looking at different options for investments because the world sees this country as the hub for Commonwealth (CIS) countries
Australia	Pushing through legislation to remove tax barriers on Sharia-compliant products that would pave the way for issuing of Islamic bonds
Nigeria	Stanbic IBTC Bank, a unit of South Africa's Standard Bank Group, has been issued with a preliminary licence to offer Islamic banking services in Nigeria
Gabon	Changing its financial laws to accommodate Islamic Finance and attract FDI as a part or their economic reform
Hungary	Magyar Iszam bank will be the first Islamic bank to be launched very soon
Afghanistan	Expects to enact an Islamic Banking law before end of 2011

A new future

Sri Lanka is a conflict affected middle income country with high national achievements in social indicators like literacy rates, doctors per patient, medical expenditure per patient and more.

The country’s economic performance improved vastly in 2010, reflecting the post war era optimism and reduced negative impact of the global financial crisis.

GDP growth is estimated at around 8% for this year based on the positive expectations of healthy growth in investments and business opportunities.

Islamic finance can contribute to the development of infrastructure of the Sri Lankan economy, especially by attracting foreign direct investments from oil rich nations for upcoming development projects in the country.

The global banking and finance system market is shifting from conventional systems to Islamic finance systems by understanding benefits from it.

Well articulated and effective government policies, an appropriate Sharia compliance framework, efficient, effective and market based regulations and tax and legal frameworks accelerate institutional infrastructure. Comprehensive Islamic finance market products and service offerings will drive this local niche and young market segment the next level.

http://www.cimaglobal.com/en-gb/Thought-leadership/Newsletters/Regional/The-CIMA-Edge-South-Asia-and-Middle-East/September--October-2011/A-closer-look-at-Islamic-finance-in-Sri-Lanka-/

Banks need to train more people in Islamic banking

 The need to educate more staff on Islamic banking products and services is apparent as Malaysia moves towards becoming a hub for Islamic finance, said Islamic Banking and Finance Institute Malaysia (IBFIM) senior consultant in training and professional development Zanariah Zahari.

She said while the country retained a dual-banking system to cater to conventional and Islamic banking needs, employees with Islamic banking knowledge were not many as compared to conventional banking staff.

“There is a demand for staff who know the products. We have a lot of products but a lot of the people selling them do not fully understand them,” she said.

Zanariah said staff promoting Islamic finance had to be able to give customers the full details of the products and services so that they could decide what to sign up for under conventional or Islamic banking.

She noted that although there were many staff trained in conventional banking moving to Islamic banks, they would need more education on the Islamic services.

“We can refer to scholars on what is halal and what is not but it is very difficult to get good scholars who can also see the business side of their knowledge,” she said, adding that employees at all levels needed to know the products well enough as customers expected them to.

She added: “(Islamic banking) is very competitive now in Malaysia. Not only do the individual Islamic banks have to compete with their conventional sister banks but also full-fledge Islamic banks like Al Rajhi.”

Zanariah noted that Bank Negara had set up institutions like IBFIM and International Shari'ah Research Academy (ISRA) to train bank employees on Islamic finance and was also monitoring the industry to ensure all banks were sending their staff for training.

However, banks have also taken the initiative to educate their employees instead of relying only on the central bank.

On maintaining a dual-banking system, she said it was because the local market segments required both types of financial services.

“Also, we learn from countries like Pakistan where the full conversion to Islamic banking did not work out,” she said.

http://biz.thestar.com.my

Islamic banking — some regulatory insights, Oman

The Royal Decree issued by His Majesty Sultan Qaboos authorising use of Shari’a compliant means of finance has provided a unique opportunity to the financial services sector and people of Oman at large. Islamic Finance is practiced in many jurisdictions and a closer look at country experiences reveals that countries with a robust Islamic ecosystem (an appropriate framework to provide a level playing field to Islamic finance from a legal, regulatory, prudential supervision, accounting and tax perspective) have been more successful in this space. While Oman is new to Islamic finance, it can benefit from experiences of other jurisdictions.

Different countries use different methods and approaches to identify monitor, quantify and mitigate banking risks. These approaches, however, have one important theme in common; i.e. a risk based, formal and systematic supervision. Although there are many risks which are common to Islamic and conventional banks, the embodied features of risk and profit-and-loss sharing in Islamic banking create a unique set of risks associated only with Islamic banks.


This necessitates a regulatory framework that is able to respond to such risks. A practical example In 2004 when Islamic Bank of Britain was being established, one of the main issues that arose was relating to the definition of “deposit”. In UK, a deposit is defined as a “sum of money paid on terms under which it will be repaid either on demand or in circumstance agreed by parties”. The capital protection embedded in the legal definition and ensured through various regulatory monitoring tools including deposit insurance scheme, is in direct contrast with “Mudaraba” deposits which carry a theoretical risk of capital loss. 


A regulatory regime targeted to protect a capital guaranteed deposit is clearly incapable of dealing with a deposit that carries an investment level risk.Risk of Shari’a compliance An Islamic bank’s success resides in its claim of being Shari’a compliant. It is acknowledged that there is diversity of opinion on what constitutes Shari’a compliance. A regulator needs to see the basis on which the Islamic bank claims to be Shari’a compliant. In most jurisdictions, regulators do not look at this aspect, mainly due to religious sensitivity and stature of the scholars providing guidance to banks.

However, of-late certain initiatives have been taken in different jurisdictions to regulate and govern the activities of Scholars to ensure that appropriate safeguards are in place with regard to conflict of interest, commercial expediency and market pressure to innovate. In some jurisdictions, the Central banks have created their own panel of Shari’a scholars to ensure consistency of Shari’a interpretation within the system.In the absence of robust Shari’a compliance process, there is significant reputational risk converging into withdrawal risk whereby depositors may decide to move to other banks and jurisdictions. Nevertheless, regulators have to provide an environment that creates a balance between innovation and credibility.A case for disclosure and transparencyThe risks and rewards of products offered by Islamic banks are significantly different and require much more transparency when these are being offered to customers. Most customers are ignorant of the risks features emanating from product structures, and complain of improper sale when they incur losses.The concept of treating the customers fairly and providing them sufficient disclosure fits naturally with the principles of Shari’a, however, regulators need to ensure commercial expediency on the part of the banks does not result in un-informed decisions by the customers.Monitoring Islamic bank’s assetsThe composition of assets held by Islamic banks pose significant problems for regulators, on two counts a) liquidity risk b) concentration risk.Islamic banks have struggled for a long time to develop Shari’a compliant substitutes for two instruments widely used to manage short term liquidity namely inter-bank deposits and government treasury bills / short term notes.Shari’a does not permit sale of debt at profit and hence it is not possible for Islamic banks to liquidate their financing receivables to generate short term liquidity. Hence, short term commodity Murabaha and Tawarruq (reverse murabaha) are currently being used to manage this risk.


However, both solutions have their Shari’a issues.The regulator needs to take cognizance of this problem while determining minimum liquidity requirements because Islamic banks cannot be treated at par with conventional banks in this matter. A higher liquidity threshold, is expected to spark the debate about liquidity vs profitability.In 2002, a Liquidity Management Centre was established in Bahrain which is owned by Islamic banks operating in the GCC and supported by Central Bank of Bahrain with a view to enable Islamic financial institutions to manage their liquidity mismatch through short and medium term liquid investments. A similar initiative has recently been taken by Islamic Financial Services Board (IFSB) in setting up of International Islamic Liquidity Management Corporation based in Malaysia.Concentration risk arises from trade based financial instruments where the bank takes exposures to commodities and properties to generate profit. A market dislocation, as experienced very recently, tends to expose Islamic banks to significant risks and regulators need to think about a mechanism to manage this concentration risk.Displacedcommercial riskThis implies that, due to rules around distribution of profit arising from separate pools of assets, the bank may not be able to pay competitive rates of return as compared to conventional banks. This creates an incentive for depositors to seek withdrawal, creating a systemic risk. It is not uncommon that shareholders forgo their profit to prevent such withdrawals. The regulators need to consider whether a mechanism is in place to ensure that any act of shareholders or depositors does not create systemic risks resulting in financial instability.Contracts and their enforceabilityThe legal system within which Islamic banks operates creates many regulatory challenges. While products structures may comply with Shari’a principles and rights and obligations are appropriately defined, it is the enforceability of these rights and obligations that may come under question.From a regulators perspective, if an asset represented on the balance sheet of an Islamic banks is not backed by an enforceable right, it cannot be considered for solvency purposes. This issue was highlighted in a very famous case of Shamil Bank of Bahrain vs Beximco Pharmaceuticals Ltd in 2004, where a UK court did not allow the case to be heard under Shari’a law and cited the diversity of interpretation of Shari’a as one of the reasons.


There are a number of initiatives under way to ensure standardisation of documentation across jurisdictions to achieve some level of regulatory comfort from these contracts.The accounting challengeThe accounting for Islamic financial instruments has been a subject of long and heated debate. IFRS specialists insist on treating Islamic contracts on the basis of their commercial substance rather than legal form, while religious scholars have longdisagreed with lack of acknowledgement of Shari’a compliant structures. The Accounting and Auditing Organisation for Islamic Financial Institution offers an alternate, however this lacks a wider recognition at this stage. The regulators in general have glued on to IFRS except in a few jurisdictions, where modified IFRS frameworks have been enforced.Edward Kane’s concept of a “regulatory dialectic” may be most useful in the context of Islamic banking. This refers to a dynamic interaction between the regulated and the regulator, where there is continuous action and reaction by all parties in a kind of strategic game.


(The writer is a partner at KPMG Lower Gulf and Heads the Islamic Financial Services team. He can be contacted at: muhammadtariq@kpmg.com)




http://main.omanobserver.om

Islamic finance a better risk than banks?

Islamic finance could provide some of the multi-billion-dollar loans needed by Asia to pay for $US8 trillion in infrastructure costs over the next decade, says ratings agency Standard and Poor's (S&P).

Islamic financing is a growing source of loans worldwide and is now a better way to fund huge Asian infrastructure deals than banks, S&P says in a new report.

"Although banks have dominated the financing landscape for Asian infrastructure projects over the past decade, we believe that Islamic finance may be a better match for the region's infrastructure funding needs."

Struggling to keep up with infrastructure demands posed by solid economic growth and surging population, Asia is faced with massive spending requirements on projects in the water, transport, energy and power sectors.

"With the outlook in global lending markets still uncertain, conventional financing such as bank funding might not be able to completely shoulder this huge financing task," says Singapore-based S&P credit analyst Allan Redimerio in a statement.

"We believe alternatives, such as Islamic finance, could play a key role."

The Sharia principles governing Islamic finance ban speculation and specify that income must come from shared business risk, S&P says in the report.

"What's more, Islamic finance is based on the concept of asset-backing."

Malaysia is leading the way in Islamic financing and other countries in the region could also provide the right regulatory and tax frameworks, S&P says in the report, titled: `Will Islamic Finance Play a Key Role in Funding Asia's Huge Infrastructure Task?'

Large companies such as Malaysia's state-owned oil and gas company Petroliam Nasional Bhd had taken part in corporate-related Islamic financing.

"The Islamic financing market is gradually expanding, and is now moving toward listed instruments both in international and local markets, including Dubai, Malaysia, and Saudi Arabia," the report says.

Malaysia had created a very attractive environment for Islamic finance investors, including laws to provide favourable tax treatment for Shariah-compliant sukuk bonds (interest-free bonds which comply with Islamic law).

"We think other economies in the region can benefit from Malaysia's example, especially some countries with large infrastructure requirements that do not have a developed local bond market, such as Indonesia, Philippines, Vietnam, and India," the report says.

Indonesia was probably in the best position to benefit from Islamic finance, given that it had already put in place regulations for such transactions and issued a few sovereign sukuk bonds.

The Asian Development Bank (ADB) recently predicted that Asian economies require US$8 trillion over the next decade to fully address the region's basic infrastructure needs.

Asian infrastructure projects such as power plants and toll roads benefited from long-term concession agreements of 15-to-20 years or beyond that usually offered stable and predictable cash flow.

"These are the sorts of traits that sukuk investors, which are typically buy-and-hold investors, tend to prefer," the report says.

"On the other hand, bank loans typically have tenors of five-to-seven years, which in many cases translate to a poor match for infrastructure projects.

"Indeed, the short tenors of bank loans may introduce refinancing risk for these sorts of long-term developments."

Governments across Asia had been making moves to create a more attractive investment climate for infrastructure-related investments, including promotion of Islamic financing, the S&P report said.

ASEAN had announced the creation of a new fund to help finance major infrastructure projects across the region, with the fund's total lending commitment through to 2020 to be about US$4 billion.

This rises to more than US$13 billion when the 70 per cent co-financing from the ADB is included.

Regional governments had also channelled pension fund money into infrastructure funding and issued public bonds into the market backed by infrastructure projects.

The World Bank had launched "a hub for knowledge and financial activities" in Singapore to find solutions to infrastructure financing problems.

Governments across Asia had also been encouraging more access to local bond markets.

"In our opinion, Malaysia and Singapore are the two markets best-positioned to play the role of hubs for Islamic infrastructure investing and promotion."

http://news.ninemsn.com.au

Islamic finance 'set for solid growth'

Islamic finance is continuing to go from strength to strength and in the near future the industry is likely to see a period of consolidation, said a top banking expert.

'Mergers within the industry will make it more efficient through economies of scale but it will also allow the industry to finance the kind of mega projects sometimes outside its scale at present,' remarked Dr Mohammed Nedal Alchaar, the secretary-general of  Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

Dr Alchaar said he expected to see a lot of merger and acquisition activity in the industry in the near future.

'It will give the industry more capacity and create the strength and credibility that will make it easier for financial institutions to successfully issue more sukuk which is something the industry needs.

Dr Alchaar is standing down to take up a post as Minister for Economy and Trade in Syria but will remain a member of the AAOIFI board of trustees. He said that a successor would be announced in the next few weeks.

AAOIFI chairman Shaikh Ebrahim said that Dr Alchaar had provided strong leadership as well as critical strategic thinking to the industry and had championed the cause of Islamic finance as a global financial platform.

More that 300 delegates from 30 countries took part in yesterday's event.-TradeArabia News Service

Islamic banks need 'shake up'

Islamic banks must do more than merely rely on the Muslim faith of potential customers if they are to secure their business, industry experts have warned.

A panel discussion at the World Islamic Retail Banking Conference in Dubai yesterday saw several heavyweights from the industry call on banks to improve everything from services to branding if they want to compete with household names of conventional finance.

"I think in terms of the distance that we need to cover, there is still a lot more ahead of us. We haven't even come halfway towards the real potential [of Islamic banking]," he said.

Wasim Saifi, global head of Islamic banking at Standard Chartered, said that research showed the majority of Muslims still bank with conventional institutions. And, he added, just advertising services as 'Sharia-compliant' is not going to be enough to make them move to an Islamic bank.

Qatar has ordered that conventional banks close the 'Islamic windows' that previously allowed them to offer Sharia-compliant services.

Gary Mond, retail banking adviser to Qatari lender Barwa Bank, said the shake-up has revealed that many customers had been comfortable using both the conventional and Islamic services offered by such mixed institutions.

He said that Islamic banks had taken significant steps to matching the products offered by conventional banks - but while this would help them snare first-time customers, those who already have an account with a Western bank may take some convincing to shift their business.

"Actually making customers move across is the barrier. It's easier to get new customers," he said.

Mohammad Zaqout, an executive vice president at the UAE-headquartered Al Hilal Bank said Islamic banks are still considered more "rigid" than many of their conventional peers - and they should invest in strong branding and modern conveniences for customers to compete.

Islamic retail banks, he said, "need to focus on the retailing, rather than just the banking".

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Grand Shia cleric prescribes Islamic economics to help world economic crisis

“Scholars should stand against the economic despotism,” said grand Ayatollah Nouri Hamedani.

 Speaking at a meeting in Tehran, ayatollah Hussien Nouri Hamedani underscored the necessity of introducing Islamic Economy to the world. “It is incumbent upon scholars to introduce the Islamic economy to the world while the economic and "political despotism" are being collapsed,” the grand Ayatollah mentioned.

 “The scholars should stand against the cultural and political arrogance,” said the ayatollah, adding that via compiling books and delivering lectures, they should introduce the Alhalbayt culture and economical rules. 

The senior cleric pointed to the uprisings in Arab countries and  said,” Muslims Nations took the Islamic Revolution of Iran as a paradigm and stood against the arrogant world.” Ayatollah Nouri Hamedani urged Muslims to be more aware and said,” the enemies of Islam try to hijack these revolutions but Muslims and especially Islamic scholars should neutralize this plot.

”Islamic Revolution of Iran let Islamic scholar present in different international realms and these days, they should study the crisis and find a solution for them,” the ayatollah said.  “By introducing the Islamic economy to the world, they should show the world the right way for solving their economic crisis,” the Islamic scholar underscored.

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Europe can learn from Islamic finance, says Luxembourg's Finance Minister

Europe can learn and gain from Islamic finance, given that financial institutions under it, have remained stable against the backdrop of the eurozone debt crisis.

This observation was made by Luxembourg's Minister of Finance, Luc Frieden, in a keynote address at the IFN 2011 Issuers & Investors Asia Forum here today. Frieden said despite the credit crunch that has impacted Europe's banks, Islamic financial institutions had weathered the global crisis and emerged to be the most well managed.

"Therefore, we can learn a lot from Islamic finance and from Asia, as we have much in common.

"The key elements in Islamic finance that we need in the world today, particularly in Europe, are stability, financial partnership, provision of excessive risk and speculation as well as ethical principles," he added.

He said in Islamic finance, the financial relationship between the lender and borrower, had assured the "partnership mentality", which was found to lead to certain stability.

Explaining the need to avoid excessive risk taking place, Frieden said this is among the key goals of Europe and is an important feature found in Islamic finance.

"The provision against speculation and gambling which is prohibited in Islamic finance, is what we can concentrate on," he added.

He also said the element of ethical principles should not be limited to the Islamic finance industry alone. Frieden gave an assurance that Europe would find a solution to the debt-crisis that had led to volatility in the global economy.

"There's no one easy solution and one meeting can't solve the crisis. We have embarked on a step-by-step process to solve the problems.

"We will find a solution to the Greek issue. The Euro will be a currency you can count on in the future and see growth," he said.

He said Asia and Europe must join forces for the development and prosperity of the global economy.

"Therefore, Asian investors should look at Europe for trade and investment purposes, going forward," he added. - BERNAMA

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