UK Experts Eye Islamic Finance Solution

A decision by the UK government to put on hold earlier plans for the first Islamic sovereign bond from a western country was criticized as a setback for the initiative that could have provided more security to a shaking economy. 

“It would certainly help the UK market if the government decided to go ahead with a benchmark sukuk,” Farmida Bi, partner at Norton Rose, the law firm, told the Financial Times. 

“It could galvanize the market and would lead to more interest in Islamic finance in London and [continental] Europe.”

Affected by a financial crisis, the UK put the plans to issue the Islamic instrument on hold which would have been the first Islamic bond to be issued by a western government. 

The government cited fears that a new instrument might struggle to attract demand in difficult market conditions that have been made worse by the troubles in the eurozone.

Yet, London still remains the main arena outside the Muslim world for Islamic finance. 

In 2006, Britain's fifth-biggest bank, Lloyds TSB, began to roll-out its Islamic financial services across the country. 

The UK is the only country in the European Union to have Islamic banks. It is also developing its takaful market for Islamic insurance. 

The UK also has a strong foothold in developing products such as commodity murabaha – Islam’s version of interbank short-term lending and syndicated loans. 

Moreover, London has established the first secondary market in sukuk outside the Islamic world to help Islamic investors who seek to buy property and assets in the UK in a way that fits in with their religion, which bans earning interest, speculating or risk-taking.

London is also advanced in Islamic retail services, with institutions offering a range of Islamic banking products, such as mortgages and car loans. 

The Islamic Bank of Britain, granted a license in August 2004, became the first Islamic bank in the UK and has continued to attract customers for mortgages.

Enhance Market

Admitting that the government made huge efforts to facilitate Islamic finance in the UK, there is a feeling among many bankers that the government must launch a sovereign sukuk to help the market move to the next stage.

“I think it has been a mistake by this government not to revive the idea of an Islamic government bond,” a banker at a big City institution told Financial Times. 

“They worry about price and demand, but the UK gilts market is a haven.

“We are confident there would be strong demand for this product, as it is Islamic and would be denominated in sterling, which is what investors want, as there are so many problems in the eurozone.”

Despite the recent decision to hold the new instrument, the Islamic finance was gaining popularity in UK better than other European countries.

For example, though France has around 7 million Muslims, compared with UK 2 million Muslims, progress in Islamic finance in France was stalled due to problems over banning the face veil and burka in public places which put off investors. 

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

The Shari`ah-compliant system is now being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.

http://www.onislam.net

Islamic economics

News media are providing full coverage of the euro malady, but they have failed to highlight the main reason for this crisis.

Yes one of the reasons is overspending.

To cover this some European nations resorted to the printing of money or borrowed money from financial institutions on high interest rates.

The root cause is not borrowing but the system of charging interest on unproductive spending. Since it does not generate any positive revenue, the affected countries will not be able to pay back the loan and the amount of loan will increase due to interest. It will become a vicious circle from which they will not be able to escape.

Interest is forbidden in all major religions, because of its evil effect on society. In Islam usury is condemned in the strongest possible terms. Now economists are studying the Islamic economic system to find a solution to the global financial crisis.

http://arabnews.com

Oman gears up for Islamic finance

Executive President of the Sultanate of Oman predicts rapid growth for Islamic finance in the Sultanate as the Central Bank develops rules and regulations HE Hamoud Bin Sangour Al Zadjali, Executive President of the Central Bank of Oman, was speaking at the Oman Islamic Economic Forum, which took place in Muscat on 17 and 18 December. He said, “These banks need to follow assorted accounting standards in certain cases that are acceptable by the parties who are trading in the stock markets and are in line with international standards. The Central Bank of Oman will review regulatory issues at the legislations which came into force in the first quarter of 2011 and will revise the legislations from time to time based on the developments at the local and world markets. He added that these banks are not isolated from traditional banks and that the Central Bank, the regulator of the banking sector, will keep a link between Islamic banks and other banks. However, he said that it will be a real challenge now and in future. Also present was Dr. Abdul Aziz Mohammed al-Hinai, Deputy Chairman of the Islamic Bank for Development, who agreed and said that Islamic banks, which have achieved great success since their launch, are currently facing many challenges, the most notable of which are developing the relationships among Islamic banks, central banks and regulatory bodies to create a proper supervisory system for the Islamic financial industry. Tun Abudllah Bin Haji Ahmed Badawi, former prime minister of Malaysia, said in his keynote address that there is a need for global standards in Islamic banking and finance to help it emerge as an international alternative in the sector. Sheikh Dr. Kahlan bin Nabhan al-Kharousi, Assistant of the Sultanate's Grand Mufti, said that the Sultanate seeks to benefit from the experience of some Islamic countries in the field of Islamic banks to avoid the shortcomings of the Islamic banks’ experiences, as well as the shortcomings of the financial and Takaful insurance companies that provide Shari’ah-compliant products. Khalid Bin Hilal Al Yahmadi, Chairman of Amjad Development Company, said that studies conducted found that principles of transactions in the Islamic economy provide satisfactory and fair solutions for the society. He said, “More than OMR 2 billion ($5 billion) in the Sultanate are semi-frozen money or interest-free deposits. This amount accounts for one-third of the total deposits at local banks. One of the studies affirmed that two-thirds of Omani society prefers to deal with financial solutions that are Shari’ah-compliant.” The forum consisted of sessions which discussed topics such as: Competing Islamic Banking Regulatory Models: Which one is the Best for Oman; Islamic Banking as Practices by Fully-fledged Banks; Structuring of Islamic Finance Products; and Shari’ah Issues in Islamic Banking and Finance. http://cpifinancial.net

Al-Mulla Obtains PhD In Islamic Financial Ops

Al-Mulla Offering A Copy To Al-Omar

Al-Mulla Obtains PhD In Islamic Financial Ops

Kuwait Finance House (KFH) CEO Mohammed Al-Omar asserted that the development of skills of KFH employees has no ceiling, and noted that all employees are aware of the importance of improving and upgrading their skills. It is worth noting that the Development and Research Manager Unit at KFH Adnan Al-Mulla has obtained a PhD degree in his field of work, which prompted Al-Omar to receive him and take a copy of his studies. He went on to say that such academic efforts are highly appreciated, since they allow KFH to offer its clients innovative Islamic services and products.

Meanwhile, Al-Mulla stated that the PhD that he had obtained from Cairo University focused on Islamic financial operations, and noted that he chose this field of studies, since it is part of his work at KFH. He added that investors and institutions currently applaud Islamic financial transactions, especially after this industry withstood the financial crises that hit global markets during the past few years by offering real financial solutions. Such success forced non-Islamic markets to take advantage of such transactions.

http://www.arabtimesonline.com

Oman's Bank Muscat to launch Islamic banking arm

Bank Muscat, Oman's largest bank by assets, will set up a sharia-compliant banking arm, it said in a statement, becoming the latest financial institution to announce plans to operate in the sultanate's fledgling Islamic financesector.

Operating under the Meethaq brand name, the bank will function independently from the conventional arm and has appointed a three-member sharia board.

No timeframe for the start of operations was given, with the new bank still subject to the Central Bank of Oman's approval, the statement added.

Oman said in May it would allow Islamic banking in the country for the first time, in an attempt to keep investment funds in the Gulf state and grab a share of the rapidly growing industry.

Earlier this month, Standard Chartered said it was studying whether to offer Islamic banking in Oman.

So far, two new Islamic banks have been granted banking licences - Bank Nizwa and Al Izz International Bank - while conventional lenders are also allowed to establish Islamic banking windows, as Bank Muscat has done. (Reporting by David French; Editing by Firouz Sedarat)

http://www.reuters.com

Let’s bank the Muslim way?

Do you recognise the headline? I imagine many will. "Let's bank the Muslim way?" was a slogan that appeared on a protestor's placard last month. The image has appeared in many places on the internet and in print around the world. The ‘Occupy Wall Street' movement started outside the New York Stock Exchange, spread to cities across the US and indeed to financial centres elsewhere, notably the City of London. The movement started as a modest protest in New York's financial district by demonstrators opposed to the apparent greed of bankers.

Will this protest movement actually change anything? Frankly, almost certainly no but is there something satisfying about seeing such a call? I guess there is. Not least for the implicit suggestion in the placard that Islamic banking will be understood by the potential viewers of the protest and of the image, where it has been reproduced, to be a recognised alternative to conventional finance. Indeed we have not one but two major reports recently published on the prospects for Islamic banking: Ernst & Young's annual World Islamic Banking Competitiveness Report and Deutsche Bank Global Market Research's Global Islamic Banking - No longer unconventional. You can read in-depth commentary on what both had to say elsewhere in this issue.

Suffice to say at this point that Deutsche Bank's researchers note that over 2006-2010, Islamic banks have outgrown conventional banks by 55 per cent in loan growth and 59 per cent in deposit growth on aggregate. This growth is set to continue with Islamic banking assets rising to $1.78 trillion by 2016. Ernst & Young's report is a touch more cautious, forecasting that Islamic banking assets will reach $1.13 trillion next year. For the record, Deutsche Bank's forecast for 2012 is $1.22 trillion.

So let me return to "Let's bank the Muslim way?" As Deutsche Bank's report says, "That every person on the planet may be a candidate for Islamic finance may be stretching the facts, but it is conceivable that, other things being equal, every Muslim could be a customer." As a prospect for Islamic banking this is surely encouraging but (you knew there had to be a ‘but') what is Islamic banking? What is ‘the Muslim way'? There isn't one, there are several!

Will the growth of Islamic banking be derailed by the multiplicity of interpretations and practices? Derailed? No I don't believe so, but will opportunities be missed and will growth be slower than it could have been if the challenges facing regulators and financiers are not addressed? Almost certainly, yes! I would draw your attention to another article in this issue, our review of my friend Amr Mohamed El Tiby's book Islamic Banking: How to Manage Risk and Improve Profitability. As a Vice President of a UAE-based bank, he is not an ‘ivory tower' academic but is active in the business of banking. So, "Let's bank the Muslim way?" Indeed, let us do so. But can we first agree on what it is?

Robin Amlôt, Managing Editor CPI Financial

http://www.albawaba.com

Malaysia to continue global sukuk market domination

Malaysia is expected to continue its strong 60% contribution to global sukuk issuance next year, bolstered by projects under the Economic Transformation Programme (ETP).

HSBC Amanah said that this year had seen significant growth in sukuk, principally driven by issuance out of the country.

“This is by far the best year since 2002. Over 60% of total global sukuk issuance come from Malaysia,” HSBC Amanah chief executive Rafe Haneef said.He believes that the ETP and other projects would continue to drive the sukuk market.

“Most of (the projects) are funded by sukuk which is in the local currency and by the sheer size, I believe there will be around 60% coming from Malaysia for next year as well,” he said after launching the nation's 13th HSBC Amanah branch here.

HSBC Bank Malaysia Bhd chief executive and HSBC Amanah global chief executive Mukhtar Hussain said that the level of interest in the sukuk market remained high and the prospects of the industry overall was positive. He added that HSBC was currently the largest international sponsor of global sukuk and it was expected to hold that market position next year.

“The share of sukuk financing within the overall share of capital markets financing will continue to increase and you'll also see diversification not only in the issuance among sovereign community but also by corporations and banks,” he said.

Rafe also said that HSBC Amanah was looking to diversify its products.

“We need to look at diversifying our products to more investment products like real estate investment trusts and retail bonds next year.

“I think Malaysia is focused on opening up the retail bond market so that you can monetise the sukuk into smaller sizes and distribute throughout our retail branches,” he said.

He said that sukuk issuance had been mostly at the institutional level so far and that “the idea is to democratise sukuk so that it can be reached by the retail investors.”

On the contribution of the Islamic finance division to the HSBC group, Mukhtar said it “forms a larger component of our business” and was proportionate to the number of HSBC Amanah branches currently.

There are 13 HSBC Amanah branches of the bank's 55 branches nationwide. The bank aims to open another 13 Amanah branches by next year, two of which will be opened this month.

On outlook of the banking sector, Mukhtar said: “(It) will continue to grow but it is obviously moderated by global circumstances.

HSBC remained optimistic about the future over the medium term but expected some challenges in 2012, he said, adding that the bank continued to project a gross domestic product growth of 4.5% to 5% for Malaysia next year.

“For HSBC Amanah, we have grown around 12% to 13% this year and aim to grow within the 10% range next year. But it all depends on how the crises in Europe and elsewhere play out,” Mukhtar said.

http://biz.thestar.com.my

HSBC Amanah upbeat on sukuk market

HSBC Amanah Malaysia Bhd is upbeat on the local banking sector next year, expecting over 60% of global sukuk issuance to continue to come from Malaysia.

Its CEO Rafe Haneef said the sukuk sector saw significant growth this year, with over 60% of sukuk issued worldwide denominated in ringgit.

Speaking to reporters after the launch of the 13th HSBC Amanah branch in Old Klang Road here yesterday, he said the bank expects the sukuk sector to maintain the same performance next year, especially with the Economic Transformation Programme projects that are funded by sukuk coming on line and projected a 4.5% to 5% gross domestic product growth for th country.

Rafe added that HSBC, which is the world's largest sponsor of Islamic bonds, aims to maintain its global growth of 10% and looks to diversify with more investment products in Malaysia next year.

The opening of the latest branch brings the number of HSBC branches in the country to 55.

HSBC Amanah global CEO Mukhtar Hussain said it will open another two branches this month in Penang and the Klang Valley, and has a target of having 26 HSBC Amanah branches in its network next year.

http://www.thesundaily.my

SEB to issue more sukuk to meet additional RM1.5bil to fund power plant projects

Sarawak Energy Bhd (SEB) plans to borrow an additional RM1.5bil in January 2012 in the form of Islamic debt (sukuk) under its RM15bil Sukuk Musyarakah Programme. This is in addition to its issuance of RM3bil of sukuk in June this year which was oversubscribed by three times.

The RM1.5bil obtained next year would be used by SEB to fund the progress payments of some of its power plants and transmission lines currently being constructed as well as other capital expenditure requirements, the company said in a statement yesterday. It had presented its plans for existing and potential investors here yesterday.

The Sukuk Musyarakah Programme has a long-term rating of AA1 byRAM Rating Services Bhd. AmInvestment Bank Bhd, Kenanga Investment Bank Bhd and RHB Investment Bank Bhd are the joint lead managers/joint bookrunners for this second sukuk issuance under the Sukuk Musyarakah Programme. The principal adviser/lead arranger of the sukuk is RHB Investment Bank Bhd.

SEB said demand for electricity in Samalaju industrial park was strong and that its energy intensive customers were investing billions of ringgit to construct new plants there.

SEB says demand for electricity in Samalaju industrial park is strong

“The company has reached an agreement with Sarawak Corridor for Renewable Energy (SCORE) and export customers for more than 1700MW of additional demand. The tariff prices now achieved with SCORE customers are 40% higher than the levels negotiated in 2009,” it said in the statement.

SEB had also signed a power purchase agreement for the entire electricity output of Bakun Hydroelectric project that is supplying energy to Sarawak's electricity grid.

Meanwhile, its next project, the Murum Hydroelectricity facility is more than 50% complete and SEB said that it was on track to commence commercial operations for this facility in 2014.

Future energy production projects that the company will be undertaking include the Balingian coal fired plant and the Baram, Limbang and Lawas hydroelectric projects.

“The combination of strong demand, rising prices and the organisational capacity required to execute this massive infrastructure agenda will propel SEB's growth and financial performance for the remainder of this decade,” it said.

SEB controls Sarawak's electricity transmission and distribution infrastructure. Its presentation yesterday was delivered by CEO Torstein Dale Sjtveit.

http://biz.thestar.com.my