Media and public relations — the missing link in Islamic finance Read more: Media and public relations — the missing link in Islamic finance

NEED FOR CONTROL ROOM: The industry has alphabet bodies that deal with various issues but when it comes to public relations and marketing, there seems to be a gaping hole that is getting larger

IS THERE a media and public relations (PR) "control room" for Islamic finance that educates, creates awareness, undertakes damage control, etc, so that the industry is "conventionally efficient" media-savvy? 

Some recent headlines, by-lined articles, blogs and press releases from Islamic finance provide the answer:

* Is Islamic Finance a Failure? Reuters (Guest Columnist)

* KFH: Banking Products that Cement Value of Savings in Society, press release

* Islamic Banks Misleading: Clients Emirates 24/7 (Dubai, UAE)

* Reporters Notebook: The Ethical Aspects of Islamic Banks, www.greenprophet.com 

* Most Trusted Middle East Banks, www.Alifarabia.com 

* Questionable Islamic Banking Principles, www.freemalaysiatoday.com

* Shining Star of the Middle East, Financial News

* The Trillion Dollar Hoax, The Islamic Globe 

* The Lessons from the Goldman Sachs Proposed US$2 Billion Sukuk Saga, Arab News

* Mega Islamic Bank Plans Cancelled, Gulf Daily News (Bahrain).

Let's put aside those writers seeking publicity, cheerleaders of the industry, the anti-syariah movement and the well-meaning purest, and those who, unfortunately, have had a bad experience, from inappropriate products to fraud to customer service, in Islamic finance. The truth about Islamic finance is somewhere between "today's offering and where we eventually want it to be tomorrow".

The continued "conflicting" headlines should be the "cold water" wake-up call for the industry on two fronts:

ADDRESSING the substance, over form, of the Islamic finance, and;

CONVEYING its message, as the perception of the industry is not aligned to the objectives of movement, including raising/writing comments after "unbalanced, out-of-context, exaggerated, or untrue" articles in the media circles.

Industry body

Usually, industries, from finance and healthcare to technology, have financed a designated company/industry body to educate, lobby, promote to new customers and market, undertake damage control, and so on. Their broad message is supplemented and complimented by local institutions with customised local message. 

For example, in many of non-Muslim countries with an established Muslim population, there are Muslim organisations, like Council of American Islamic Relations in the US or Muslim Council of Britain and so on, that, in effect, act as the "PR" arm for "righting wrongs, damage control, or addressing media/political errors of omission and commission".

In Islamic finance, we have alphabet industry bodies: for accounting and auditing (Bahrain-based AAOIFI), for prudential regulations and governance (Malaysia-based IFSB), for Islamic capital and money market (Bahrain-based IIFM), etc. 

Although, they have some common shareholders, let's put aside the inability of these industry bodies to host one Islamic finance event that is supported by all of them. Let's put aside lack of speaker invitation of one industry body to the head of its sister industry body for a presentation slot. 

Notwithstanding present "turf" challenges, these industry bodies have done a commendable job of raising awareness and educating the wholesale stakeholders of the technical aspects of Islamic finance, in Muslim and non-Muslim countries, on standards, governance, and regulations. However, when it comes to the public relations and marketing of Islamic financial institutions or even damage control, there is a gaping hole and it is getting larger. 

In fairness to the above-mentioned industry bodies, they have resource constraints, from manpower to finance, and, furthermore, expanding their mandate to include marketing and public relations for a geographically- dispersed and fragmented industry at various stages of development is unreasonable. However, something more needs to be done as Islamic finance is only strong as the weakest link. 

The continued negative headlines will not go away even if we continue to ignore them or convince ourselves that it's the growing pains of an emerging industry. They should be seen as the tip of the iceberg of issues and feedback on the industry's perception/message. 

Funding of body

The time has arrived for the majority to conclude there is need for an industry body that is tasked with public relations and marketing of Islamic finance at, say, the "wholesale level" - governments, regulators, financial institutions, law firms, western media, and so on. It allows for a universal message, a necessary pre-requisite to achieve harmonisation-cum-standardisation, that builds the foundation for local Islamic financial institutions to customise and add local content. 

After determining a need for an industry body to promote and educate Islamic finance, the funding question must be addressed. Fortunately, the experience of AAOFI, IFSB, IIFM, etc, suggests the stakeholders could include the Islamic Development Bank (IDB), Islamic financial institutions (possibly one from every country that has declared itself an Islamic finance hub), forward-looking governments like Malaysia, the United Arab Emirates, and possibly the existing industry bodies (to include their technical message).

One of the lessons learned from the existing industry bodies is the need for adequate capitalisation and annual budget (adjusted for demand). It makes no sense to provide a shoestring budget when the objectives are global and the awareness and education is on-going and expanding.

Location of industry body

One of the takeaways about an industry body's location is that it raises the profile of the country and the country raises the profile of the industry body, as there is now a "go to" place on the global map. Thus, bodies like the AAOIFI, IIFM and IIRA have raised the profile of Bahrain, while the IFSB, ISRA, and INCIEF have raised that of Malaysia.

Therefore, Dubai (UAE), Qatar, Pakistan, Indonesia, Brunei or even London, Paris, or Luxembourg have an opportunity to host an industry body that promotes awareness and information about Islamic finance and shows their commitment to the industry. Furthermore, much like the phrase "think global, act local", it makes to have geographically situated satellite offices to address local time zone challenges.

Mandates

Beyond awareness, education, damage control, etc, one of the areas that require immediate attention is a more robust investor relations depart of Islamic financial institution, including addressing media training for executives. The media, especially western, wants access to senior executives, which implies challenging questions, and, it is here that the industry can best utilise them to send its message to the masses globally.

Additional responsibilities could include establishing and hosting a Davos-type event, including the US$640 billion (RM1.9 trillion) halal industry, in Europe, the Gulf and Southeast Asia. Thus, not Islamic finance per se, but the link of Islamic finance and funding education, healthcare, infrastructure, know-ledge-based economy, etc.

Some examples where the proposed PR Islamic body could have provided guidance for clear, coherent and concise clarifications:

SCHOLARS (confusion as to their role in the West), purification and zakat (not funnelling money to financing extremists), money exchange places in Muslim countries are not Islamic financial institutions, etc.

COORDINATE with other industry bodies for job openings, direct inquiries to appropriate industry bodies and Islamic financial institutions (reduce information cost for existing/potential users)

PRODUCT launches, new bank/takaful launched, etc. I'm not convinced that a general or financial PR firm can provide the needed specialised message and follow-ups that a dedicated body can direct.

DAMAGE control includes recent media frenzy on Islamic banking in Nigeria, Goldman Sachs' US$2 billion sukuk, sukuk defaults, Islamic funds closing, Islamic bank (Dubai Bank and Islamic Bank of Britain) rescue, etc.

BRANDING of Islamic finance. Has time arrived to survey the stakeholders on the naming? In Turkey, its called Participation Banking and it conveys the essence and objective of the movement and is less politically charged, especially if Islamic finance is for all mankind.

Continuing to call it "Islamic", combined with marketing materials emphasising syariah board and adherence, may not convey its universality.

Many of these issues also go to trust and confidence of Islamic finance by depositors, investors, shareholders, etc.

Conclusion

Although Islamic finance is less than 40 years old, the time has arrived for the industry to have a dedicated well-financed body to send a coherent and consistent message about the industry. This is an investment and not a cost, and not having such a body is to have continued schizophrenia headlines and resulting systemic brand risk. 

Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

Read more: Media and public relations — the missing link in Islamic finance http://www.btimes.com.my/articles/SCHIZO/Article/#ixzz1nkCtfO9G

Bank Negara Indonesia to grow Shariah banking

Indonesia's fourth largest lender Bank Negara Indonesia (BNI) is actively searching for a partner to further tap growth opportunities in Shariah banking. 

Its CEO Gatot Suwondo said the bank is also looking to venture into micro-banking - an area that's new to BNI right now.

Bank Negara Indonesia is one of the familiar household names in Indonesia with over 1,500 branches.

And the lender is looking to grow its business further.

For 2011, BNI booked a net profit of about 5 trillion rupiah (US$550 million) - up by some 40 percent from the previous year.

In 2010, BNI injected around US$100 million in Shariah banking. Now it is evaluating potential business partners to spur growth in Shariah banking space.

Mr Gatot said: "We need a partner who has knowledge in Shariah and besides that, we have network in Shariah and of course, strong funds to grow our shariah banking.

"Some of our potential partners for Middle East are approaching us. Looking at partners, you can't do it in one night. You need to know first if their vision is in line or not."

BNI also has its eye on some potential acquisition targets to help the bank make inroads into the micro-finance market.

Micro-finance refers to the provision of banking services to poorer clients, who typically do not have access to many financial services.

Mr Gatot added: "We prefer maybe to acquiring bank to cater to market segment that we're not in a capacity to do, for example micro-banking.

"For micro-banking, we can't do it through our BNI because we're not designed for that market. So it's most likely we are going to focus on banks towards that segment. There are 125 banks in Indonesia. And 40 banks out of 125 are controlling the market so there are small banks that we can target." 

Mr Gatot said BNI would also focus on organic growth.

For 2012, he estimates that loans could grow by 15 to 18 percent, a touch lower than the previous year due to slower economic growth. 

BNI also intends to strengthen its headcount in Indonesia, partly to capture opportunities arising from higher foreign direct investments into the country.

Mr Gatot said: "If I could project the FDI to grow somewhere around 20 percent a year, it is good enough, 20-30% per year is good enough. 

He said this is on condition that they fix the regulations so as to attract more FDIs and secondly, to provide more incentives for foreign investments.

Indonesia's FDI hit a record US$20 billion in 2011, an 18 percent hike over 2010.

And it could rise further after rating agencies Moody's and Fitch recently upgraded Southeast Asia's largest economy to investment grade.

http://www.channelnewsasia.com/stories/corporatenews/view/1185565/1/.html

HNB launches Al-Najah Islamic banking unit

Hatton National Bank PLC, the premier private sector commercial bank in the country, entered into Islamic banking with the introduction of an Islamic banking unit to cater to the rapidly-growing Islamic banking market.

Al Najah, the first Islamic banking unit launched by HNB, will serve its Islamic banking clients with a special banking unit located at its head office at HNB Towers. The unit is fully equipped with trained staff and systems and well-structured products to serve its customers.

The unit will operate under the overall supervision of HNB and will offer a broad spectrum of Shariah compliant products and services to its entire clientele.

In addition to the current accounts, the bank’s Islamic Banking Unit (IBU) will provide depositors with profit sharing Mudaraba savings and Mudaraba investment options which will provide depositors with a Shariah based return on their investments.

For business and personal customers seeking financing, the bank would offer a range of trade related services, leasing for vehicles/equipment and machinery, home financing, working capital requirements and other personal financial services.

All operations of the Islamic Banking Unit will be in accordance with the CBSL guidelines and shall also be in conformity with the Shariah principles. This will also ensure that the fund management operations and earnings of the IBU will be segregated and distinct from the conventional banking activity.

The bank has already appointed a Shariah advisory panel headed by Ash-Shaikh Mufti Yoosuf Haniffa comprising of extremely knowledgeable and experienced well-known Shariah scholars who would supervise and advise on Shariah-related aspects of the IBU business.

Commenting at the official launch, the Head of the Islamic Banking Unit L.A.M. Hisham opined that HNB’s range of Shariah based services provide customers with the option of choosing a product or service in harmony with their individual ethical considerations.

Speaking at the inauguration, HNB MD/CEO Rajendra Theagarajah stated that HNB, a bank with a longstanding history of 123 years, saw its initiation in the hill capital with the objective of serving the nation at a grass root level. “HNB, which ranks amongst one of the largest private sector commercial banks in the country with an asset base of over Rs. 380 billion, is delighted to venture in to the domain of Islamic banking and finance.”

He went on to state that Islamic banking caters to the ever-growing demand of customers. Theagarajah stated that it was a great pleasure to have obtained the fullest support and cooperation of the HNB Board of Directors and corporate management for this venture. This, he stated, was a true testimony of HNB’s far-sighted vision in going the extra mile.

Speaking at the occasion ADL Capital Chairman A.I. Marikkar, the former Managing Director of Amana Investments Ltd. (presently known as Amana Bank), stressed that HNB with its widespread islandwide coverage and the cooperation of its management had ventured out to provide an efficient customer service to its Islamic banking customers. He also stated that the HNB Shariah Board comprises well-known eminent Shariah scholars and that the Islamic banking unit of HNB would be well received by customers due to HNB’s strong brand affiliation.

The first deposits of the Islamic banking unit were accepted by HNB Chairperson Dr. Ranee Jayamaha. The vote of thanks was delivered by HNB Islamic Banking Unit Manager Fariz Fuad.

The event was graced by members of the Shariah Board Ash-Sheikh M.M. Mubarak, Ash-Shaikh Fazil Farook and Ash-Shaikh Mohamed Mashood Muhamed Insaf. ADL Capital Limited Chairman A.I. Marikkar, ADL Capital Managing Director Ishrath Rauf and members of ADL Capital Ltd. Azad Zaheed, Shabri Abdul Cader and Ishrath Mohideen were also present.

HNB Chairperson Dr. Jayamaha, MD/CEO Theagarajah, HNB Deputy CEO Jonathan Alles and members of HNB’s corporate management, senior management, customers and staff of HNB were also among the distinguished gathering.

http://www.ft.lk/2012/02/29/hnb-launches-al-najah-islamic-banking-unit/

UAE issues takaful law to regulate industry

A new UAE law regulating the growing Islamic insurance industry will provide more transparency and oversight but the extra costs of compliance may drive consolidation in a fragmented market, lawyers said.

The Islamic insurance, or takaful, law was issued Sunday, placing companies under the jurisdiction of the Insurance Authority of the United Arab Emirates and giving them a year to reorganize their processes.

Under the law, every takaful firm must have a Sharia board consisting of three qualified scholars with experience in Islamic finance.

The boards will be responsible for issuing an annual report and will fall under the oversight of a supreme committee within the authority charged with all Islamic legal opinions.

The law also sets standards for financial and accounting issues as well as rules for paying out surpluses resulting from premiums and investments.

“Up until now, companies were just trying to put insurance law in an Islamic context without any specificity,” said Peter Hodgins, partner at Clyde & Co. “The new law aims to standardize the operating structure of all takaful firms which will strengthen the industry.”

But any standardization process will likely result in an increase in costs that could hit an industry already struggling to make a profit. That could help spur some long-awaited consolidation, said Justin Balcombe, director of Middle East advisory at Ernst & Young.

 http://www.dailystar.com.lb) 

Tunisia seeks to establish legal framework to regulate Islamic economy

"The Tunisian Government will seek to establish a legal framework to regulate the Islamic economy in Tunisia," said, Monday, Interim Prime Minister Hamadi Jebali, adding that the country plans to become "a regional centre of Islamic finance."

 Speaking at the opening of the first Forum on "Islamic Economy," held in Gammarth, Mr. Hamadi Jebali also said "Tunisia needs 35 to 45 billion dollars in financing in the next five years to carry out its development projects. 

Islamic banks, at the forefront of which the Islamic Development Bank (IDB), can provide part of these funds, he indicated.

IDB President Ahmed Mohamed Ali said the Bank wishes to see the Tunisian private sector play a more significant role in implementation of the bank's projects in Tunisia and Africa.

Since its inception in 1975, The IDB has allocated 3.13 billion dollars for the realization of development projects in Tunisia in the sectors of energy, water distribution, sanitation, education, health, exports insurance...

The French Development Agency (AFD) had recently suggested to the IDB drawing up a micro-finance program in Tunisia," he said.


http://www.africanmanager.com

Islamic finance must adapt to prosper

If Islamic finance is ever to be anything more than a poor relation of the conventional credit markets, those responsible for guiding the sector need to learn to adapt. The indecision and disputes that can delay deals at the moment will only get worse as issuers look to push into more innovative areas. Scholars that stand in the way of progress may well find themselves sidelined. 

It is often argued that Muslim countries have a natural inclination to move towards a model in which Shariah-compliant finance dominates. But at the moment, even for Islamic industry centres like Saudi Arabia and the UAE, this would entail a big increase from the current market share.

Prospective participants — so the argument goes — just need assurances that adopting Islamic finance principles would still allow them the flexibility to do business with the conventional market and to effectively risk-manage positions.

But those assurances are in short supply. The palpable discomfort of leading scholars in answering questions about Goldman Sachs’s sukuk plans at a recent Euromoney Islamic finance conference will be as nothing compared to the headaches that topics like Islamic derivatives and short term liquidity tools look set to cause in 2012.

At a time when the wider market is pursuing greater regulation, Islamic finance should keep pace, say its critics.

Perhaps it is faulty — or inappropriate — conventional-market thinking to suggest that Islamic finance will only achieve greater credibility with greater standardisation. But the notion clearly struck a few conference attendees that a potential issuer as important and pace-setting as Goldman Sachs, for example, should have a right to approach top Islamic finance scholars and expect them to give their judgement, whether positive or negative. Investors also deserve answers, so they can act with confidence.

Public indecision over a deal like Goldman's is perhaps understandable, given that approval could open a Pandora’s Box of conventional entrants to the sukuk arena. But top scholars must show their stomach for the challenge in this and other cutting-edge matters. It is no longer (if it ever was) acceptable to hide behind the catch-all excuse of “we neither accept nor refute”.

Maybe a central arbitration panel is required (or regional if that is more palatable). This could remove the reliance on bespoke sign-offs every time a new question arises. Naturally, scholars raise all kinds of objections to this: it would be too difficult, too rigid, governments would interfere, who would decide?

These are challenges, but they are not insurmountable. Helpful analogies abound in the conventional credit sector. If a bond defaults, for instance, one can go to Isda and ask if a credit event has taken place. Isda gives its verdict in a timely manner, based on a defined set of criteria and path of arbitration.

By comparison, the Islamic market considering cutting edge products looks rather like a blind man who wants to cross the road. Some helpful people tell him he should cross immediately and take his chances with the traffic. Others declare it will never be safe so he should just forget about it.

Then there are the traffic experts, the scholars: they know the road and can act as lollipop men to help him get across. But for whatever reason, they often appear reluctant to assist — perhaps they are too busy, or worried about their own safety amid the busy traffic.

So what is the blind man to do? He can stay exactly where he is, or he could wander off in another direction and become lost. Worse still, he might walk out into the road at the wrong time and get hit by a bus.

There is another option, of course. He might figure out that he could build a traffic light. And that would put the lollipop men out of a job.

For more news on Islamic finance, see www.securities.com/ifis

Islamic finance: An industry inclusive to all, irrespective of background

Highest standards applied each day to achieve growth and succes

• Image Credit: Courtesy: Dr Mohammad Daud Bakr
• Dr Mohammad Daud Bakr

Dr Mohammad Daud Bakr, president and CEO of Amanie Advisors, has the distinction of being both a globally-renowned Sharia scholar as well as an acclaimed entrepreneur.

His decades' worth of industry experience is both Amanie's pillar of knowledge as well as the focus of its clients' attention.

In an exclusive interview with Gulf News, Dr Daud provides insights into Arab Spring countries' potential for Islamic finance, scholars sitting on multiple Sharia boards and some of the challenges faced by the $1 trillion (Dh3.67 trillion) industry.

GULF NEWS: You sit on Sharia boards of many institutions in Malaysia/Asia, GCC, and Europe. Are you seeing a convergence on standardisation for Sharia interpretation and regulations?

Dr Mohammad Daud Bakr: The process of determining what you might call "global best practice" is a very gradual and long-term proposition.

Many esteemed groups are working on these initiatives and each year the consensus and understanding gets a few steps further along.

On the day-to-day level it is much more about finding the best Sharia interpretation for a given product, often comprised of unique features, and offered in markets that have country-specific laws that must be followed.

So in summary, while best practice develops across the globe, the highest international standards must be applied each day within the current frameworks for growth and success to take hold. 

Your Sharia consulting firm, Amanie, has offices in Malaysia, Dubai, Luxembourg and most-recently Cairo. You are also looking at other Arab Spring countries. What is your assessment for Islamic finance in the Arab Spring countries?

We made a number of trips to these countries in recent months and the demand is strong from all sectors: general public, the business and financial community, and among regulators.

Whilst it will take some time for all of the pieces to come together, we are optimistic of the industry's success across North Africa and quite keen to play a constructive role in the process.

The total population in this region and the strong demand for Islamic finance add the flavour to the new market opportunities in these countries. 

Much like the many small capitalised Islamic banks, there are many small capitalised Sharia consulting firms. Is consolidation needed amongst Sharia consulting firms to improve quality, accessibility and achieve economies of scale?

I do not believe so. There are relatively few such firms operating in the world today and like comparable professional service firms in the conventional world (tax advisory, legal firms, and accountancy firms), we are not a capital intensive industry.

The real ‘capital' for this Sharia advisory services is the intellectual capabilities in providing solutions and services to our clients in who are looking predominantly at Sharia-compliant structures in a timely manner.

Having said that, we are constantly doing the new recruitment to have more qualified consultants joing our firm, particularly in the new markets.

 Does their small size present a risk to quality of their work, as such firms are trying to get clients while advising on exiting mandates?

Small can also mean fluid and dynamic and I believe it does in the case of advisory firms like ours.

Like many boutique advisory firms, we must be quick to react and responsive in our decision-making.

In the financial services industry, especially among banks and fund managers, there has been some appetite for engaging a boutique service provider that is efficient and effective in terms of time and work flow.

In many ways, being small (but functional) is our strength.

Malaysia is often tagged with the label of being too liberal on Sharia interpretations compared to the GCC/Pakistan. What is your response?

On many of the technical issues and in terms of the regulatory framework, you could make a case that Malaysia is more rigid in their interpretations.

It is hard to make a general statement in this respect and let us remember that there is broad consensus among geographic regions on perhaps over 90 per cent of the many contemporary issues of Islamic finance. 

We are increasingly hearing the need to move form Sharia-compliant to ‘Sharia-based'. Would you please define what Sharia-based is and give some examples?

This is a frame of reference distinction which is somehow prevailing the industry to manifest a different approach to the industry.

Using the term ‘Sharia-based' implies taking a more organic or ‘bottom up' approach to industry development; as opposed to remedying or amending what presently exists in the largely conventional financial marketplace.

From my personal perspective, there is no solid intellectual basis to advocate the distinction between two behaviours of Islamic financial products.

While the distinction between the two may have some merits, the nomenclature of these two terms may be intuitively coined without having the academic justifications for these two terms. 

There are a number of non-Muslim and Muslim countries that want to become an Islamic finance hub. What is the first step? Is it educating the regulator on Sharia modes of contract and accounting?

Surely education is among the first steps. A thorough and compelling legal and regulatory framework must underlie such initiatives.

Beyond that, there must be a compelling business-case and some evidence of pent-up demand for these initiatives to flourish. Our group is active in many such hubs, from Luxembourg to the DIFC [Dubai International Financial Centre] to Labuan and KL [Kuala Lumpur], and we try support all the worthwhile projects that we can.

What has been the most challenging aspect of Islamic finance for you?

The most challenging aspect is to convince the relevant authorities that Islamic finance is not detrimental to any taxation framework as Islamic finance should be treated equally with conventional finance.

Islamic finance would not require special taxation exemption but would only need a level playing field to co-exist in existing legal framework. As Amanie is active in many new markets, these are some of critical challenges to pave the way for Islamic finance. 

What are you most proud about in Islamic finance?

Islamic finance is a profession and an industry that is inclusive to all irrespective of countries, religions, economic status, etc.

Islamic finance shows how Islam is the religion for life. Islamic finance never denounces the commercial aspects of any transaction but would require the financial behaviour of the transaction to be in tandem with certain principles of Sharia while seeking legitimate gains and profits. 

The writer is global lead of Islamic Finance and OIC Countries at Thomson Reuters. Opinions expressed here are the writer's own and do not reflect those of his own organisation or those of Gulf News.

http://gulfnews.com