Indonesia's pious Muslims boost Islamic financ

Nurhidayati is an enterprising businesswoman. The 28-year-old has been running a garment company with her husband Endri, making clothes for the Indonesian army for the past few years.

It's a lucrative contract, but one that requires large upfront capital in order for her to expand.

But borrowing money from a commercial bank just did not sit well with her.

"I needed cash for my business and for a new house that we wanted to buy," the devout young Muslim told me at the central Jakarta branch of Islamic bank, Bank Jabar Banten Syariah, as she adjusted her bright pink headscarf.

"But I've always been taught to avoid bank interest because it is forbidden in Islam. The other good thing about Islamic banks is that no matter how small your deposit, your money won't be reduced by bank charges."

Nurhidayati and her husband are among the Indonesian Islamic finance customers that have helped this industry grow by 40% a year.

Piety

Indonesia is the world's most populous Muslim nation, with close to 90% of the 250 million population Muslim.

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The market share that Islamic banks have is only 4% of the total banking system”

Riawan AminIslamic Banking Association

Although the country is secular, Islam plays a big role in daily life. Analysts say over the last few years there has been a marked increase in the piety of Indonesian Muslims.

This has been reflected, they say, in the way people dress, how much more regularly they go to the mosque - even in the way they choose to bank.

This increased piousness has led to a demand for the services of Islamic or Sharia banks in Indonesia.

Islamic or Sharia banks are financial institutions that are consistent with the principles of Islamic or Sharia.

That means you aren't allowed to accept interest or charge fees on loans, and that you can only invest in businesses that are not considered sinful.

The practice only started in Indonesia about a decade ago and has been competing with the more traditional forms of commercial banking.

'Huge potential'

"We're very satisfied with the growth of Islamic banking in Indonesia - it is growing by 40% a year," Riawan Amin, the head of Indonesia's Islamic Banking Association told me.

There are more Muslims in Indonesia than anywhere else in the world

"But as a country that claims to be one of the biggest Muslim nations, the market share that Islamic banks have is only 4% of the total banking system," he added.

"That's still very small. The conventional banking system has been around for more than 100 years in Indonesia.

"The country is so big so you need a lot of branches to have a presence here. And up till now Islamic banks only have about 1,500 branches in the country in comparison to the tens of thousands that other banks have. But the potential here is huge."

Foreign money

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Judging from their experience we thought it made sense to structure our Islamic Sukuk bond and issue it in Malaysia”

M RusydiThe Solar Guys

Islamic banking insists on ethical investments, which is why solar power projects - considered "green investments" - can raise huge amounts of money through Islamic finance.

The Australian-based power firm, the Solar Guys, plans on building five solar-powered stations across the Indonesian archipelago.

It has already secured a memorandum of understanding with the Indonesian government and is in the process of talking to provincial governments.

The company has also raised all the money it says it needs for the project - $500m (£310m; 383m euros) - all through Islamic finance.

But the money is coming from Malaysia and the Middle East - not Indonesia.

Growth

"Malaysia has already developed their Islamic finance industry for some time now," M Rusydi, an Islamic financial consultant with the Solar Guys told me.

"They haven't just focused on the retail banking side of the business - but they've also focused on the corporate and commercial sectors, infrastructure and project development.

"Judging from their experience we thought it made sense to structure our Islamic Sukuk bond and issue it in Malaysia."

Experts say Indonesia is poised to see a huge boom in Islamic banking.

Many banks who have ventured into this industry have seen spectacular growth over the last few years.

But critics say that in order for Islamic finance to truly take off in the world's most populous Muslim nation, the government needs to do more to encourage the maturing of this industry.

http://www.bbc.co.uk/news/business-20583530

Islamic finance to surpass trillion-dollar mark in 2012: Tharman

 Islamic finance is poised to expand over the next 10 to 15 years after surpassing the trillion-dollar mark in 2012, said Minister for Finance Tharman Shanmugaratnam at the World Islamic Economic Forum in Johor Bahru, Malaysia.

Mr Tharman, who is also Singapore's Deputy Prime Minister, said that he was optimistic about the potential for the sector after it chalked up growth of about 19 per cent a year since 2006.

This has lifted total Shariah-compliant assets to nearly US$1.3 trillion in 2012.

However there is considerable scope for development since Islamic finance now forms less than 1 per cent of the global financial industry, said Mr Tharman.

Even in Muslim countries, Islamic finance constitutes less than 5 per cent of the financial sector, he added.

The minister also noted that Islamic financial institutions have mainly escaped significant damage from the global financial crisis.

"They are well-placed to grow at a time when many of the global banks, especially the European banks, are deleveraging or focusing on consolidating their balance sheets," said Mr Tharman.

He adds that Islamic finance has the potential to diversify into new growth areas such as trade and infrastructure financing in Asia and emerging markets. 

This will allow Islamic banks to reduce their exposure to the real estate sector and take advantage of the stronger growth potential of the emerging market economies.

Another factor that can boost the growth potential of Islamic finance is its focus on transparency, price certainty and its risk-sharing framework. 

Mr Tharman says Islamic finance can ride this wave of demand for simpler and more basic investments. 

Yet, he also pointed out several challenges in the industry that need to be overcome to ensure continued growth.

Among them is the need to reduce fragmentation in Islamic finance markets due to differences in accepted standards of Shariah compliance.

"This has hampered the flow of liquidity between jurisdictions and is in part why there are presently no Islamic equivalents to the international monetary and bond markets." 

The minister also touched on the need to manage capital flows in Asia and emerging market economies.

Excessive capital inflows can cause volatility, and it would be "wise to strengthen our policy toolkits in Asia, so that we can deal with unpredictable and often excessive capital flows," said Mr Tharman.

One of the policy responses is to curtail volatility in the exchange rate in the short term, he said.

Mr Tharman also pointed to macro-prudential policies such as property cooling measures to discourage speculative demand for residential properties. 

"These targeted administrative and prudential measures are not conventional macroeconomic tools. But they are likely to remain part of our policy toolkit, at least for the foreseeable future."

The finance minister has also called for greater depth in Asia's capital markets, especially the corporate bond market.

"Broader and deeper capital markets will allow investors to invest for the long term while hedging risks," Mr Tharman said.

Separately, the minister also said that Singapore and Malaysia were happy with the progress of joint ventures on both sides of the Causeway.

The two countries will continue to take steps to improve connectivity, cross-border trade facilitation, and immigration processes, he said.

Mr Tharman also met Malaysian Prime Minister Najib Razak on the sidelines of the forum.

DPM Tharman said that bilateral relations between the two countries were well and that joint developments in Malaysia's Iskandar region, for example, will enhance the complementary space between both economies.

Prime Minister Najib expressed interest in moving ahead with discussions concerning the proposed high-speed rail link between both countries and also hoped for a joint launch of projects on both sides of the Causeway next year under the Points of Agreement with Singapore.

"There will, over time, also be increasing pressures on our smaller and medium-sized businesses because of shortage of labour in Singapore and shortage of land. And increasingly, they will assess where best to base their operations, particularly those that require more labour and more land. And Malaysia is of course, a very logical hop away, very easy in terms of operational flexibility and logistics," said Mr Tharman.

http://www.channelnewsasia.com/stories/marketnews/view/1241011/1/.html

Waqaf, zakat are areas of growth in Islamic finance

Waqaf and zakat (tithe) management are among areas of growth for Malaysia as the global hub of Islamic finance, according to Fajr Capital Ltd chief executive officer Iqbal Khan.

“There are a lot of areas of growth in the Malaysian Islamic finance as the country is well positioned for this purpose and the regulations are already in place,” he told reporters after giving a public lecture on “Our Markets, Our Values — A principles-based approach to creating value in Muslim majority markets” in Kuala Lumpur yesterday. The lecture focused on the developments and key issues in the Muslim-majority markets including values which had fundamentally driven the history and development of the Islamic finance industry.

Earlier in September, Bank Mualamat Malaysia Bhd had tied up with Perbadanan Wakaf Selangor to enable its customers and the public to contribute cash to waqaf.

Kicking off the fund, Bank Muamalat had made a RM1 million contribution, while the bank employees had chipped in RM75,040 to be mainly chanelled to improve and develop health and education.

In 2010, Maybank Islamic Bank Bhd had launched Waqaf, a structured community-giving initiative that allows its customers and the public to make waqaf contributions through its payment channels.

It had then signed a memorandum of understanding with Yayasan Waqaf Malaysia. It is understood that in the latest Bank Muamalat venture, the bank also plays a role in the management of the funds.

Besides that, Iqbal added another area of growth includes the corporate social responsibility (CSR) sukuk where Malaysia can excel and become the role model economy which can create a good demonstration effect for other countries.

He said the CSR sukuk can be issued by any institution or government which have got long-term commitment budgeted for CSR causes for the next five to 10 years.

“What the CSR sukuk will do in the current climate is to create the funding for priority social sector initiatives like others. I hope Malaysia will be again the first one to issue such a sukuk,” he said.

He said previously, there was such a CSR sukuk done in the conventional format including debt for equity swaps and debt for CSR swaps including bond issuance for the purpose of vaccination on budgeted commitment of the Organisation for Economic Cooperation and Development and Bill & Melinda Gates Foundation.

Meanwhile, the Securities Commission (SC) held a public lecture in Kuala Lumpur yesterday by Iqbal, who is a recipient of the prestigious Royal Award for Islamic Finance 2012.

http://themalaysianreserve.com/main/index.php?option=com_content&view=article&id=2676&catid=36&Itemid=120

Islamic Banking and Legislation in Oman

It had been reported that studies have shown that projects play a key role in reducing the problems and minimising the risk of failure.

As it seems, the Islamic banking legislation expected within the amendments added to the Banking Act comes in this context and they have taken a bountiful share of studies and discussions as a new experience in the Sultanate.

We all followed the progress in these legislation while moving between the relevant authorities for review and discussion in transparency and clarity. This made everyone interact with the issue, banks and the public alike, in addition to allowing the establishment of two banks working in accordance with Islamic law which are Nizwa Bank and Al Izz Bank. It was allowed also to commercial banks to open ports operating accordingly.

However, what is surprising is to allow banks to move forward before the issuance of the amendments on the law that could govern the Islamic banking.

How it was allowed to Nizwa Bank, the first bank operates according to Islamic law to raise its shares for public subscription and collecting money and proceeding to complete the operational legal and procedures and other steps before the issuance of regulation that govern the dealings, because the capital cannot be moved or invested without a law that preserves investors' money.

This bank, which was officially set to start its business in the third quarter of this year, is until today left like ink on papers without any real activity.

It is true that the bank benefited in the last period to set all papers ready to start activation of the bank, but the current situation which resulted in the delay in the issuance of amendments to the Banking Act entail many consequences and according to the opinion of religious scholars that the inclusion of shares of a company that doesn’t exist at the first place is something that does not comply with the provisions of Islamic rules.

Given that the Bank Nizwa commercial enterprise like any other institutions that seek to make a profit and capital operation in the aspects allowed for this type of transaction, there is other effects resulting from the survival of the bank without the work so far, including the stock did not rise to the value expected in the stock market, and therefore reflected in the shareholders, especially small investors.

Given that the Nizwa Bank is a commercial enterprise like any other institutions that seek to make a profit and operate capital in the aspects allowed for this type of transaction, there are other effects resulting from leaving the bank not activated until today. The stock did not rise to the value expected in the stock market, and therefore this is reflected in the shareholders, especially small investors.

Because subscription in Nizwa Bank was allowed for Omanis and other investors, these problems reflect negatively on attracting foreign investment to the Sultanate as the foreign investor who subscribed to shares of Nizwa Bank, for example, is not bind to hold off and wait long months before he could evaluate his investment in the bank and get a return on this investment.

There are many local banks that have sought to allocate large investments to open ports operating according to rights on preference shares subscription and decisions remained without activation waiting for amendments, while some of them exercised this kind of banking without having this legislation which is problematic issue that requires clarification by the Central Bank.

http://www.globalislamicfinancemagazine.com/?com=news_list&nid=2749

Prominent banker says commercial and investment banking should be separated

The global banking industry which is going through a confidence shakeup of late must go back to the heart of the GlassSteagall Act and separate their commercial and investment banking entities, said prominent Islamic banker Iqbal Khan (pic).

This should be done to ensure the overall health and sustainability of the banking industry moving forward, he said.

“An ethically enhanced Glass-Steagall Act as advocated by Paul Walker and as recommended by the Vickers Report will provide the systemic resilience which is needed to bring stability to our economies,” Iqbal told journalists after his public lecture here yesterday.

The Vickers Report, also known as the Independent Commission on Banking, released in the United Kingdom last year had recommended that Britain-based banks should “ring-fence” their retail banking divisions from the investment banking entities to safeguard against the latter's perceived higher-risk financial business.

“If you look at what has happened in the western banking markets, over the last 20-25 years there have been a gradual chiselling away of the Glass-Steagall Act which was put in place after the 1920's financial crisis where commercial and investment banking were separated,” Iqbal said.

“What this did was to create huge universal banks which were doing all kinds of risk-related activity while the fundamental activity that a bank does is to be a financial intermediary. At the same time, these banks were also controlling the payment systems,” he added.

Iqbal said after his public lecture at the Securities' Commission titled “Our Markets, Our Values” that the investment banking entity would come under pressure should an economic crisis or any slowdown in the economy come about because of highly-leveraged activities that it undertook such as what happened before.

“This had an impact on the banks where their share prices and equity values came down while Tier-1 capital ratios were also impacted. Non-performing loans also went up then. As a result, taxpayer's money were used to bail out the banks in many countries,” he said.

He said the likely reason the banking industry was bailed out was because they were the controllers of the payment system.

Meanwhile, Iqbal said the Islamic banking industry should aim to widen its appeal among the masses to ensure growth of the market moving forward.

This should be done by offering competitive products, educating customers of the benefits of their products and make these known through effective marketing strategies such as advertising, Iqbal explained.

“Finally, they can pursue cause related marketing' whereby the banks can say: if you bank with us we will donate a percentage of our profits to a (honourable) cause which is on the top of the customers' mind,” he said.

http://biz.thestar.com.my/news/story.asp?file=/2012/12/4/business/12408262&sec=business

First Saudi mutual fund to be launched from Dublin

The first international mutual funds run by a Saudi Arabian manager will be launched from Dublin this month.

NCB Capital, the investment banking arm of Saudi Arabia's largest bank, will launch equity funds investing in Saudi Arabia and the wider Gulf Co-operation Council (GCC) region, the Financial Times reported. They will be run in accordance with the principles of Islamic Sharia law.

"This is a continuation of our strategy to be a sizeable player in the sharia market," Faysal Badran, chief investment officer at NCB Capital, said.

"The macroeconomic story in the GCC is quite compelling in the current slow global economic environment."

Last month, Islamic finance company Amanie Advisors announced plans to set-up an operation in Dublin.

.....

http://www.businesspost.ie/#!story/Home/News/First+Saudi+mutual+fund+to+be+launched+from+Dublin/id/19410615-5218-50bc-83f2-827308123205

QIB UK closes seventh Islamic structured note

London-based QIB UK, a subsidiary of Qatar Islamic Bank, has closed its seventh Islamic capital-protected note with plans to roll out similar products every year, its head of asset management said.

QIB UK has now raised over US$190m since it launched its "Hemaya" structured note programme in 2010, having raised US$153m through the first six tranches.

"We are looking to launch several tranches every year," Anouar Adham told Reuters by email. "The idea is to offer different vehicles to [investors with] different risk profiles to match their requirements."

The latest tranche is a three-year note linked to Islamic bank stocks from the Qatar and Saudi Arabia stock exchanges.

"As far as I know we are the first and only institution that offered a capital-protected structure note that allows the client to get exposure to Islamic banks," Adham said.

The first three tranches of the programme, which had raised a combined US$62m, have also matured, he added.

In September, QIB UK announced it would also offer a structured note based on a five-year sukuk which Qatar Islamic Bank issued in October.

http://www.arabianbusiness.com/qib-uk-closes-seventh-islamic-structured-note-481579.html

Revisiting awards in Islamic finance

Rushdi Siddiqui (PARTICIPATION FINANCE/BANKING) / 2 December 2012

‘Hollywood has its Oscars. Television has its Emmys. Broadway has its Tonys. And Advertising has its Clios... And those are just the big ones...’ Joanne Lipman.

Its well accepted awards reward individuals and institutions for innovation, invention, performance, etc., based on absolute or relative (peer) basis. The recipient often issues a Press release and the award photo-ops, especially in competitive sectors like banking, which are incorporated in marketing and public relations (PR) campaigns.

In Islamic banking, deemed to have too many conference organiser/magazine awards, award winners, categories, etc., are the public, exiting and potential customers, influenced by the recipient’s award?

The question on the jaded minds concerning awards is not:

1.   The Islamic banker of the year award? or

2.   Best Islamic banking, takaful or asset management institution? or

3.   Best ‘Islamic’ regulator?

But, ‘does the Islamic finance award recipient have a responsibility to the award category, especially high level awards, like the Royal Award for Islamic finance in Malaysia?’

Thus, much like the Pulitzer Prize (for journalists), Noble Peace Prize, or, even, the Miss Universe/World contest (probably not ideal example in this context), the recipients of such awards, typically, travel, talk, reach out to the public at large to convey the ‘values’ espoused by such honours. The interactions are meant to not only encourage the message of the Pulitzer or Noble, but also to inspire others to achieve such awards.

CSR

The follow-up question is, ‘should the high level award recipient be mandated to take time off from their ‘day job’ for, say, three (3) months, and talk, travel and reach out?’ This would be part of the corporate social responsibility of not only the person, but also the institution they represent that would sponsor the ‘tour.’

Yes, its disruption at the very top, but it’s also a smart strategy as addresses key man risk and establishes a track for potential successors. Thus, it also has corporate governance benefit as it reduces some uncertainty (on successor) for shareholders.

The tour in emerging Islamic finance markets like certain African, CIS, or even G-20/OECD countries would be like the inaugural Islamic finance conferences in these countries.

The first Islamic finance conference is almost always well received in new jurisdictions. The locals want access to practitioners and scholars they have read about; they want to ask questions that locals cannot answer; they want to discuss opportunities with outsiders, etc.

The tour would allow the executive to (1) connect with people, (2) hear their words and spread his/her own words via one on one, town halls, etc., (3) gain insights (first hand) into business development opportunities, partnerships, joint ventures, etc., and (4) provide great pictures for marketing materials and public relations with real people in real situations. For example, His Highness Shaikh Mohammad bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, is one of the few leaders from the 57 Muslim countries that is not only a key stakeholder of Islamic finance, but also a supporter of the movement before it became fashionable to support it. 

Obviously, an Islamic finance executive would not generate the same level of enthusiasm as Shaikh Mohammad visit, but they can learn from His Highness’ trips.

IF award for environment

Islamic banks need to think outside the real estate box, and address something impactful that is local. For example, the GCC has a very large carbon foot print, hence, an opportunity to be part of environment, sustainability and governance (ESG). These are the ‘positive’ screens that build bridges to the ‘conventional’ ESG communities and movement.

It’s well-known that not one dedicated Islamic bank is a signatory to the carbon, climate or equator principles. Where are their stewardship responsibilities to the planet for future generations?

The global excitement created by the announcement of the massive Mohammad bin Rashid City, compromising of culture, entrepreneurship, retail and tourism (CERT), will augur well for Islamic finance, much like Qatar winning the FIFA 2022 mandate.

The leading Islamic banks have the opportunity to ‘green finance’ all aspects of CERT of the new city, including artificial turf golf courses and parks. 

For example, turf does not huge amounts of water (especially summer), spraying of chemicals, carbon monoxide and dioxide emissions associated grass mowing, etc.

Conclusion

Conference organisers need to examine awards with not only recipient commitment to the category, but also expanding it to include pressing issues, like the environment with, say, a ‘Green Sukuk’ to build the Mohammad bin Rashid City.

The writer is Global Head of Islamic Finance & OIC Countries for Thomson Reuters. Views expressed by the author are his own and do not reflect the newspaper’s policy

http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/opinionanalysis/2012/December/opinionanalysis_December1.xml&section=opinionanalysis

Dubai Islamic Bank launches SME Business Solutions

Dubai Islamic Bank (DIB) announced today the launch of SME Business Solutions, a Sharia-compliant suite of products and services specifically developed to support the growth of small and medium enterprises (SMEs), including through the provision of Business Finance up to AED 1.5 million per customer.

Launched on the eve of the 41^st anniversary of the founding of the United Arab Emirates, the introduction of SME Business Solutions reflects the bank’s unique commitment to supporting the country’s economic development and diversification.

“Small business is the growth engine of the UAE economy. In Dubai, for example, SMEs make up 95 per cent of all companies, employ 42 per cent of the workforce and contribute 40 per cent to the emirate’s GDP,” said Dr. Adnan Chilwan, Deputy Chief Executive Officer of DIB.

“Today, as we celebrate the founding of our nation,” he said, “we are proud to launch SME Business Solutions, which will help sustain our country’s growth for many years to come.”

SME Business Solutions provides small business owners with a broad range of customised solutions, ranging from the establishment of business accounts and cash management tools to trade and treasury services, as well as business credit cards.

In particular, the bank’s Business Finance solutions have been designed to meet the specific needs of SMEs, which, worldwide, frequently face challenges accessing finance. By providing high finance amounts and rapid approvals, Dubai Islamic Bank will help unlock the potential of the thousands of small and medium enterprises across the UAE.

Working with dedicated Relationship Managers, SMEs will be able to access working capital finance, capital expenditure finance, and contracting and fleet finance – supported by flexible repayment options over periods up to 48 months.

SME Business Solutions offers a range of additional products and services, such as online business services, foreign exchange, letters of credit and guarantee, and much more.

http://www.albawaba.com/business/pr/dubai-islamic-bank-sme-business-453555

Jordan to establish regional center for Islamic banking

The Jordanian government will cement the role of Islamic banking in the kingdom and establish a leading regional center for Islamic finance, especially after the rapid growth of Islamic banking in the country, due to laws that organize the work of takaful insurance and sukuk, KFH-Research said in a report recently.

The assets of the four Islamic banks operating in Jordan is $4.6 billion and forms 5 percent of total banking assets. They achieve annual growth of 13 percent and are better than traditional banks in growth of deposits and financing. This reflects high demand for transactions; especially that they offer various unique services and products.

In addition, the report mentioned that Islamic insurance companies are still performing poorly, but after receiving a nod from the government regarding the takaful insurance, the performance is expected to get better. The Jordanian government plans to issue sukuk to face the deficit in budget, after a legislation that organizes that matter received a nod. The legislation allows the trading of sukuk in Amman bourse.

Islamic finance in Jordan is still at a very early stage of development. The Islamic finance started in the country when the Banking Law 13 was endorsed in 1978 which has allowed the establishment of an Islamic bank. Since then, the first Jordanian Islamic bank, the Jordan Islamic Bank for Finance and Investment ( JIB ) was set up. Even though it was established as a member of the Saudi -based Dallah Al Baraka network of Islamic banks, 90 percent of its capital was owned by the Jordanian citizens. By 1986, it had become the sixth largest Jordanian bank in terms of total assets and had financed numerous projects. This indicates that Islamic banking was welcomed by the Jordanian citizen which subsequently led to the introduction of the second Islamic bank, the Islamic International Arab Bank, in 1998.

As at end-2011, the total assets of Jordan’s Islamic banks stood at JOD3.25 billion (USD 4.58 billion) with 13.13 percent y-o-y growth (2010: JOD2.87 billion). Currently, there are 4 Islamic banks operating in the country. In addition to the Islamic banks mentioned above, two other Islamic banks operating in Jordan are Jordan Dubai Islamic Bank which was established in 2010 and Al Rajhi Bank which set up its branch in 2011.

Presently, Jordanian Islamic banks hold approximately 4.85 percent of the country’s banking sector total assets. Based on a compound annual growth rate (CAGR) of 18.3 percent between 2009 and 2011, Islamic banking assets in Jordan are expected to grow from JOD3.25 billion as at end-2011 to approximately JOD 3.84 billion by the end-2012, accounting for more than 5.4 percent of the country’s banking sector total assets. Based on the key financial highlights, total deposits and total financing of Islamic banks in Jordan have increased by 16.35 percent y-o-y and 15.58 percent y-o-y respectively as at end-2011. This indicates that Islamic finance is gradually being accepted in Jordan. In fact, it performs better than its conventional counterpart where conventional loans and advances and deposits grew at less than 10 percent per annum.

In terms of products and services, Jordan Islamic Bank offers a wide range of financial products and services to both individuals and corporations. The services include Murabahah and Ijarah Muntahia Bithamleek as well as some investment products such as Musharakah and Mudarabah. Other well established Islamic banks the likes of Islamic international Arab Bank, Al Rajhi Bank and the Jordan Dubai Islamic Bank offer services such as home and car financing as well as Musawwamah and Murabahah.

The Jordanian Islamic capital markets remain relatively nascent. Ijarah has been the main principle for fund raising activities. In 2011, Al Rajhi Cement Co. issued the first sukuk out of Jordan which was based on ijarah principle worth $119.6 million. The country is mulling tapping the sukuk market to bridge its budget deficit with debts worth $3.7 billion maturing 2012. – SG/Agencies

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20121202144662

Don’t worry, be happy — it’s time to cheer up

The Islamic finance market is having arguably its best year ever. After a catalogue of breakthroughs, the industry has plenty to celebrate and every reason to look forward to an even better 2013. So why is it so downbeat? 

There was a oddly sombre mood at the Kuala Lumpur Islamic Finance Forum last week — odd because 2011’s event had been so upbeat and because the industry is enjoying such a successful 2012.

It may be that the approaching Malaysian elections have encouraged more introspection. Perhaps there was a bigger share of local attendees to the conference than last year. Or perhaps it was just because bankers were thinking about all the paperwork they still had to do ahead of fourth quarter reporting.

Whatever the reason, there was an eerie hush on day one of this year’s event — a sharp contrast to 2011’s rambunctious crowd. The difference was not lost on those chairing the discussions. Richard Thomas, CEO of Gatehouse, a London-based Islamic bank, kicked off the second morning by asking speakers to talk about what had made them happiest over the last year.

Game changers

They have plenty to choose from. Islamic finance in 2012 has witnessed a litany of game-changers — particularly in the international primary market. Turkey finally cast aside its secular misgivings and issued a benchmark-setting debut $1.5bn sukuk, while Qatar’s $4bn Islamic debut drew an unprecedented $26bn global book.

Malaysia, for its part, began the year with a record breaking MR19.6bn ($6.18bn) public sukuk from Plus Expressways, while the recent $1.5bn multi-currency sukuk programme from mobile phone company Axiata Group opened the door wide to Chinese investment in Malaysia with its inclusion of a well received Rmb1bn ($157.8m) debut dim sum note.

The Gulf has bounced back from the financial crisis, with Dubai’s storming market return via a $1.25bn sukuk that included five and 10-year tranches. Saudi Electricity Co also managed to push out investor trust to 10 years with its $1.75bn sukuk, which drew over $18bn of orders. Meanwhile, Islamic Development Bank issued $800bn of sukuk (its biggest deal since the crisis) at the tightest ever spreads of just 40bp over mid-swaps — converging on the levels of its better-known conventional development bank peers.

The sector is rapidly broadening, too, with new entrants lining up to join the ranks of international sukuk issuers. Post-revolutionary Egypt is closing in on laws that will allow it to issue a deal, while South Africa continues to work meticulously towards its own debut. Kazakhstan has gone further, issuing a MR240m ($76m) sovereign proxy bond into Malaysia through its Development Bank.

All of this has been accompanied by frenzied activity behind the scenes, with the industry making huge progress in areas such as regulation, tax law, indexing, Shariah standards, microfinance initiatives and human capital.

It's still too soon to say that 2012 will pass without a single blip — Dana Gas has a difficult looming sukuk maturity next week. But even a disastrous result there would be only a small cloud in an otherwise blue sky. Momentum is a precious commodity in the current market environment, and Islamic finance seems to have it in spades. In the interests of building a sound pipeline for 2013, it needs to get a little less bashful and a little more celebratory.

http://www.euroweek.com/Article/3107296/Dont-worry-be-happyits-time-to-cheer-up.html

Islamic finance thrives, amid global crisis

The global financial crisis has hurt most banks, but the Islamic banking sector is doing well. The Islamic finance sector is enjoying double-digit growth and proving to be a viable economic alternative.

The Islamic faith has over one and a half billion followers--a demographic searching for the right tools combining their beliefs with the best of capitalism.

Omar Sheikh, Exec. Board Member, Islamic Finance Council, said,"Against the backdrop of the seismic collapse of the conventional finance market and the moral bankruptcy that’s come out, people are more and more looking, these are people of all faiths or people of no faith for that matter, they’re more and more looking for an alternative, a stable alternative, an ethical alternative, an alternative that’s more socially aligned and Islamic finance can present that if its principles are truly applied."

Islamic finance-is governed by the basic principles of Islamic law or shariah-at its core-a ban on charging and receiving interest.

It prohibits investments in sectors considered harmful to society as gambling, pornography, alcohol and arms.

Sectors as technology, real estate and commodities as mining are halal.

Zahir Khurshid, head of products, Dubai Band, Emirates Islamic Bank, said,"All of the banks as well as investment banks that they have or anybody who wants to state or claim that this is shariah compliant will get the portfolio reviewed by their shariah advisors. So they will have a shariah board, they will have their shariah advisors or a set of advisors who will review the portfolio then they will give their declaration that yes these funds are they meet, they’re not contrary to any shariah principles."

The financial model is asset-based, Islamic banks aren’t allowed to engage in derivatives-doing away with speculation and volatility.

Mahvish Khan, Dubai, said,"According to Standard and Poors the $1 trillion global Islamic finance industry is set to grow by 20 percent from 2011 to 2015, doubling in size, an indication that many are putting their faith in Islamic finance."

Sukuks or Islamic bonds are also driving growth, Ernst and Young estimates sukuks will reach nearly 900 billion dollars of issuances over the next five years.

As Islamic finance grows in popularity-driven by wealthy Muslims-conventional banks are also joining in.

http://english.cntv.cn/program/newsupdate/20121026/106944.shtml

Islamic finance shall be ethic model for global banking: banker

 In order to avoid a repetition of the financial crisis' shocks, Islamic finance can be an ethical and sustainable business model in the global financial landscape, said Tirad Al Mahmoud, CEO of Abu Dhabi Islamic Bank (ADIB) Sunday.

Speaking on Bloomberg Television's inaugural episode named " Faith in Finance", Mahmoud said conventional banks shall endorse the principles of Islamic finance as a non-interest, non- conventional, ethical style of investing.

According to global auditing and consultancy firm Ernst and Young, there are 390 Islamic financial institutions worldwide, based in 75 countries. Islamic investments reach the mark of 1.2 trillion U.S. dollars, Ernst and Young estimated.

"There is enormous demand for ethical banking all over the world, especially in the aftermath of the global financial crisis. Global consumers do not want any more to lose their savings and sometimes even their pensions," said Mahmoud.

The global financial crisis, which started with the downfall of U.S. investment bank Lehman Brothers in September 2008, was mainly triggered by excessive high-yield lending, uncontrolled speculation and exploiting retail bank customers by putting their savings into risky investment vehicles.

ADIB, which is primarily active in retail and corporate banking, reported on Oct. 16 a group net profit for the nine-month period of 958.5 million dirhams (261.38 million U.S. dollars), representing an increase of 21 percent year-on-year.

Based on Islamic law or Shari'ah, Islamic banks are not allowed to lend money against interest, nor are Islamic funds allowed to speculate with money by buying and selling shares on the same day. Investing into firms which produce un-Islamic goods like alcohol, pork meat, entertainment products or weapons are also banned under Shari'ah.

Consistency of performance and not excessive outperformance shall be the ethical guidelines for global finance in the coming years, Mahmoud said.

"Shari'ah-inspired finance has brought discipline and high- ethical standards to banking," Mahmoud said, adding that "we make money in a way that is transparent and far from being excessive... We make money when the client is able to perform and honor his contracts."

"We don't have a monopoly over these values, but we see a real value to promote them in the best interest of the banking industry all over the world," said Mahmoud.

http://www.shanghaidaily.com/article/article_xinhua.asp?id=104217

Islamic Finance In Australia Part 3 - What's Stopping Islamic Finance Flourishing and What Must Be Done

If Australia's desire to become a regional financial services centre is to ever progress beyond just rhetoric, then we must come to terms with our location. On our door step sits the world's largest Muslim population with a growing demand for Islamic financial products and services.

Australia can rise to become an important Islamic finance hub in Asia Pacific but it requires urgent regulatory and tax reform.

It was two years ago that the Board of Taxation first alerted the Government to the challenges facing Islamic finance in Australia. The Board recommended a raft of regulatory reforms designed to make it easier for Islamic products to be approved and supervised.

While it was an encouraging start, since then the Government has sat on its hands, putting off making the necessary regulatory and tax changes....

http://www.mondaq.com/australia/x/203322/islamic+finance/Islamic+Finance+In+Australia+Part+3+Whats+Stopping+Islamic+Finance+Flourishing+and+What+Must+Be+Done

Lack Of Rules Hinders Islamic Financing

After 40 years of delays, the Philippines still faces hurdles in a renewed push to attract Shariah-compliant investors to Muslim Mindanao, its poorest region, according to Islamic lenders.

The Southeast Asian nation lacks regulations and talent to develop the market, said Kuala Lumpur-based Asian Finance Bank Bhd. and CIMB Group Holdings Bhd. Al-Amanah Islamic Investment Bank in Manila, the sole lender dedicated to the industry, was forced to postpone a sale of what would have been the country's first sukuk last year because it wasn't making a profit.

The government announced over the past month that it would draw up a list of Shariah-compliant stocks and revisit a plan to sell bonds complying with the Koran's ban on interest, after signing a peace treaty with rebels to end a four-decade insurgency in the resource rich south. Now is an opportune moment to promote legislation for Islamic finance, Treasurer Roberto Tan said in an Oct. 18 interview in Manila, adding that it would help integrate the Muslim community.

"What remains to be seen is whether the Philippines can develop a tax-friendly regulatory framework and muster the political will to raise awareness of the benefits of Islamic financing," Malek Khodr Temsah, vice president of treasury and investments at Albaraka Banking Group BSC in Bahrain, said in an Oct. 24 interview. President Benigno Aquino's commitment to "lay the groundwork to develop Islamic finance isn't in doubt," he said.

The Philippines has toyed with proposals to draft a Shariah finance bill since 1973 as it seeks development funds for the autonomous region of Mindanao, home to most of its five million Muslims. Idiosa B. Ursolino, Al-Amanah's senior vice president, said in an Oct. 24 e-mail that the bank has no immediate plan to sell sukuk even after it trimmed losses last year.

The government may consider selling Islamic bonds to raise cash for Mindanao, Finance Undersecretary Rosalia de Leon told reporters in Manila on Oct. 17.

Issuing sukuk may be more expensive than debt that doesn't comply with religious tenets. The yield on the Philippines 4 percent non-Shariah-compliant notes due in 2021 dropped 140 basis points, or 1.40 percentage points, to 2.33 percent from the year's high of 3.73 percent reached in January, according to data compiled by Bloomberg. That compares with record-low borrowing costs for global Islamic securities of 2.86 percent, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows.

Sergey Dergachev, a senior portfolio manager at Union Investment Privatfonds in Frankfurt, said he would buy a sukuk from the Philippines as sovereign Islamic bonds are rare and they would offer diversification. Albaraka's Temsah said he isn't interested as valuations aren't compelling.

"I would assume that a Philippine sukuk would be strongly supported by local banks and dedicated sukuk investors, making this deal very interesting," Dergachev said in an e-mailed reply to questions on Oct. 24.

Global issuance of Islamic bonds climbed 79 percent to a record $39.4 billion in 2012 from a year earlier, data compiled by Bloomberg show. The notes returned 8.5 percent this year, while debt in developing markets jumped 16.3 percent, according to separate prices on the HSBC/Nasdaq index and JPMorgan Chase & Co.'s EMBI Global Composite Index.

Average yields on sukuk have dropped 113 basis points this year, narrowing the spread with the London interbank offered rate by 91 basis points to 182 basis points as of Oct. 24, the HSBC/Nasdaq index shows.

The Southeast Asian nation will face challenges like all new countries looking to develop a Shariah market, according to Asian Finance Bank and CIMB Group Holdings.

It took Malaysia, a global hub for financing along religious guidelines, 30 years to develop into what it is today, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group, said in an Oct. 25 interview.

Al-Amanah was set up in 1973 by then President Ferdinand Marcos with a mandate to promote development in Mindanao through banking, financing and agricultural ventures in accordance with Shariah law, its website says.

The bank is undergoing a five-year rehabilitation plan that started in 2010 and is still looking for an investor expert in Shariah finance to purchase a stake, Senior Vice President Ursolino said. It has nine branches and plans to open 10 more in the next two years, subject to finding a buyer, she said, adding that it has assets of less than 1 billion pesos ($24.3 million).

"There's no notable growth in assets or improvement in deposits because of the limitations in Islamic investments," she said in the e-mail. "We hope there will be renewed interest in Islamic banking with the latest peace treaty. Al-Amanah can be an instrument to introduce economic development in the area following the Shariah principles."

President Aquino announced an agreement on Oct. 7 to create a "political entity" called Bangsamoro to replace the failed autonomous region set up in 1989. The talks with the Moro Islamic Liberation Front called for a 15-member committee to draft a new law that will need to be passed in Congress and approved by a local referendum.

The region has per capita gross domestic product of 26,000 pesos, the lowest among the 17 provinces and below the national average of 103,366 pesos, according to the government's National Statistical Coordination Board. Muslims account for 5 percent of the 103 million population, the U.S.-based Central Intelligence Agency estimates.

Finance Secretary Cesar Purisima said in February last year that the government was studying options for Islamic banking in Mindanao. Central bank Governor Amando Tetangco said in July of 2010 that the monetary authority was drafting a Shariah bill.

"The Philippines can successfully open up its Islamic finance market once it puts in a place a broader and deeper infrastructure framework," CIMB's Badlisyah said. "Mindanao is resource-rich, and when peace settles it would be a natural market that Islamic players would look at."

Al-Amanah is holding consultations with the stock market regulator, government agencies and the Asian Development Bank to compile standards for Islamic equities, Leo Quinitio, head of the exchange's capital markets development division, said in a Sept. 21 interview.

Shariah law bars investment in businesses deemed unethical such as those involved in gambling, pork, alcohol and pornography, as well as some entertainment establishments.

The Dow Jones Islamic Market World Index of companies that operate in accordance with Shariah law rose 9 percent this year, outpacing a 7.8 percent gain in the MSCI Asia Pacific Index.

"The Philippines has a long way to go," Mohamed Azahari Kamil, CEO of Asian Finance Bank, the Malaysian unit of Qatar Islamic Bank SAQ, said in an Oct. 25 interview. "How fast the Philippine government will be able to implement Shariah rules and the level of acceptance are some of the challenges that it will have to face."

http://ph.news.yahoo.com/lack-rules-hinders-islamic-financing-083352401--finance.html