Islamic finance industry grew by 24.4% & global Sukuk issuance increased by more than 60% in 2011

Highlighting the role of Islamic finance in the global economy

NCB Sponsors and Partakes in Harvard's Islamic Finance ForumThe National Commercial Bank has recently participated in the Islamic Finance Forum organized by Harvard University in the United States of America. The forum is a renowned annual event that brings together top scholars, researchers and analysts, with economists and industry leaders in Islamic Finance from around the world.

Held in its tenth session this year, the forum's agenda was focused on discussing the role of Islamic finance in the global economic development, shedding light on the latest challenges facing the growth of the industry and defining the competitiveness and opportunities inherent in Islamic finance as a potential alternative for the conventional financial system.

NCB is a three-year sponsor of the forum, extending its support to the event's organizer, the Islamic Finance Project (IFP), under the Islamic Legal Studies Program (ILSP) at Harvard Law School, Cambridge, USA.

Commenting on the sponsorship, Abdulrazak ElKhraijy, Executive Vice President and Head of Islamic Banking Development Group, commended the efforts exerted by the organizers and their relentless contributions to the development of Islamic finance over more than a decade of time. He explained that the Harvard's Islamic Finance Forum provides a distinctive platform for exchanging knowledge and experiences amongst industry leaders, scholars and researchers specializing in the Islamic Finance field from around the world, which in turn accelerates the pace of development in the industry.

ElKhraijy explained that the care NCB bestows on such events comes in total harmony with the role it plays as one of the world's pioneers in Islamic banking and the importance the Bank attaches to providing innovative financing solutions compatible with the provisions of Islamic Sharia.

He further indicated that "NCB has been a major contributor to the industry's advancement in the past, bringing forward best practices in Islamic banking and sharing our hands-on experience in international conventions in order to support the growth of Islamic banking services worldwide; a mission we proudly take on ourselves and we support all efforts pouring towards the same direction".

Representing NCB in the forum's panel discussion, Abdulrazak ElKhraijy, presented a paper under the title "the Contributions of Islamic Finance to Economic Growth" wherein he explained the industry's role in the development process, saying "the developmental contributions of the Islamic banking industry are not limited to the direct economic development, but transcends that to embody the social and moral aspects of development as well; elements that are not currently included in the 'Human Development Index' of the UN."

He added "It's known that Islamic finance is but a part of an integrated system underpinning Islamic economics. This system is based on a strong social and moral foundation that abides by general principles and core values set by Islam which aim at preventing exploitative and unfair practices such as profiteering with interest or investing in activities that are prohibited for their detrimental effect on societies, or transactions that involve uncertainty(Gharar) speculations(Maisir). Besides that, the system gains its solid grounding from the institutionalization of Sadaqah (Voluntary Charity), Zakat (Obligatory Levy on Wealth) and Waqf (Voluntary Giving in Cash or Asset) which aim at creating a just and equitable society; a key factor in realizing total development."

"To this extent, it may not be proper to look at Islamic Banking using the same criteria and parameters as applicable for 'Conventional' or even 'Social Responsible Investment' banks. We need to adopt a holistic perspective in assessing the developmental role of Islamic Finance."

Commenting on the role Islamic finance plays in the modern global economy, ElKhraijy stated that "the global Islamic Finance industry has grown exponentially in the past years and has succeeded in attracting the attention of economists, bankers, policy makers and financial regulators across the world, especially in the wake of the global financial crisis. In 2011 alone, the Islamic finance industry grew by 24.4% to reach a $ 1.084 trillion dollars, while the global Sukuk issuance increased by more than 60% up to 84.5 billion."

"This significant growth rate in the industry was a pull factor for many financial institutions" Elkhraijy said "however, we remain aware of the fact that the industry is relatively new in the international financial arena and its infrastructure and constituents are still under construction. There are lots of challenges facing the industry on all fronts, be it in liquidity management (asset-liabilities management), risk or in the area of skills and capabilities necessary to compete effectively with conventional banks. Moreover, there's a need to create a robust regulatory and institutional framework that facilitates the introduction of a varied range of Sharia-compliant banking products that can be competitive and a real alternative to what the conventional banking industry offers in terms of facilities and services that meet the changing needs in the market. "

He continued "In the past few years Islamic banking has surely proven its presence and worth but there's still a long way to go to reach a full implementation of the principles of Islamic economics in its ideal and integrated way that we aspire to. The journey requires continuous work, perseverance and concerted efforts to develop the essential components underlying the industry."

ElKhraijy expected a continued momentum in the growth of Islamic banking and an increasing popularity of Islamic finance in various countries around the world, and said "we have seen during our participations in such international conventions a growing desire to change by financial institutions and there is a certain level of persistence in the search for real alternatives offered by Islamic finance which may help economies avoid the series of financial crises that hit various parts of the world on a cyclical basis, a matter that became widely believed to be natural and an inevitable reality under the existing global financial system."

While affirming that the transition to a full Islamic financial system is possible and promising to many financial institutions, Elkhraijy stressed that there is a kind of consensus that this transition should be gradual and should take its due time and a considerable amount of coordinated efforts, both at the business and the regulatory levels, to ensure complete readiness for the requirements of such systematic change; a change that can be considered fundamental to a large extent.

During his participation in the Harvard forum, ElKhraijy shared NCB's experience in Islamic financing in Saudi Arabia and the contributions the Bank made in embodying the principles of Islamic economics and introducing Islamic Banking business models and practices that provided the industry with practical benchmarks, helping many financial institutions around the world in adopting similar practices.

The Islamic Finance Project was established in 1995, and for the past sixteen years it has been part of a ground-breaking academic research, publications, and other initiatives in Islamic finance. The project has worked with numerous private as well as governmental institutions, such as the US Treasury Department, the Federal Reserve Bank, and other US government agencies and regulators who have expressed interest in Islamic finance in the US. The project has hosted many forums and seminars on Islamic finance and sponsored many publications and workshops both at Harvard and other prestigious academic institutions. The speakers in the Harvard Islamic Finance Forum included distinguished speakers from heads of states and ministers, to central bank governors, besides industry leaders and academics. The Islamic Finance Project's initiatives have attracted great interest in the project's work from faculty members and students in various fields of study at Harvard and other leading universities around the world.

http://www.zawya.com

Islamic finance set to surge

The Eurozone crisis and widespread protests against the global financial system present the $1 trillion Islamic the finance industry with a big opportunity to accelerate growth, Hussain Al Qemzi, chief executive of Noor Islamic Bank said.

Speaking at the 2^nd Annual Middle East Islamic Finance and Investment Conference on Wednesday, Al Qemzi said greater cooperation, rather than competition, between the Middle East’s Islamic financial institutions is necessary if the industry is to provide a real alternative to the conventional international banks operating in the region.

“We need to build bigger banks, bigger capital and to cooperate,” Al Qemzi said.

He said regional Islamic banks do not have the financial punch to challenge their larger competitors from the US, Europe and the Far East. He said the global Islamic finance industry could grow to around $4 trillion from $1 trillion at present within five years as untapped markets such as China open up and new products drive demand.

Al Qemzi called for the Islamic banking industry to build scale through consolidation, but said his own bank is currently not considering any mergers and acquisitions activity.

“It is now time to talk about how Islamic finance can contribute to long-term inclusive, equitable and sustainable economic growth not just here, in the Middle East, but in every country across the globe,” he said.

“Though it is true that greater awareness of the inbuilt strengths of Islamic finance has contributed towards increased international participation in Islamic financial markets, awareness alone is not sufficient to ensure sustainable growth for our industry. To remain competitive we have to continually innovate and adapt. If we are to challenge the conventional banks’ entrenched position in international financial deals, we must develop the capacity to structure multi-currency and cross border transactions and build scale,” Al Qemzi said.

Moinuddin Malim, Mashreq Al Islami CEO, said global Islamic banking and finance industry has been on a steady and consistent growth path with the Middle East being its nerve centre. Though the industry has built a wealth of opportunities and options for investors over the last decade, a lot more still has to be done in order for the industry to successfully compete with their conventional counterparts.

He said the Islamic finance industry in the Middle East is at a crucial evolutionary phase. “Regardless of the current socio-political concerns facing some markets in the Middle East, there is large untapped liquidity available at the disposal of investors in the region and it is critical that the Islamic finance industry realises this potential and utilises the opportunity to ensure stronger growth for the industry in the region.”

Conference organiser David McLean noted ‘though Islamic banking assets have grown significantly over the past few years, they still only represent less than one per cent of total global banking assets – with more than 50 per cent concentration in the Middle East region and this represents a unique growth opportunity. Islamic finance represents one of the fastest growing segments in the global finance industry and the Middle East region has been at the forefront of the dramatic and exponential growth.

“Being a significant source of capital, Islamic financial institutions in the Middle East are significantly contributing towards the global development of Islamic finance with an increasing number of Middle East based Islamic financial institutions now taking a more global perspective. With the growing global demand for Islamic finance, the Middle East region is well positioned to be the global hub of Islamic finance linking key markets of Asia, Europe and Africa,” said Mclean.

Dr. Jarmo Kotilaine, chief economist of the National Commercial Bank, said while Islamic banking assets have grown significantly in the past decade, their share of total global banking assets remains marginal. Absence of long-term financing tools and a growing importance of long-term capital projects launched in the region has significantly increased the attractiveness of Islamic finance, he pointed out.More than 250 leaders of the international and regional Islamic banking and finance took part in    the conference.

http://www.khaleejtimes.com

Govt committed to Islamic finance centre

The Irish Government is committed to establishing the IFSC as a centre of excellence for Islamic finance, a seminar hosted by the International Fiscal Association Ireland (IFA) heard today.

The seminar was chaired by Andrew Quinn, Chairman of IFA Ireland and Head of Tax at international law firm Maples and Calder. Andrew was joined by the Tanaiste, Leader of the Labour Party and Minister for Foreign Affairs and Trade, Eamon Gilmore, and a number of expert speakers who gave their views on current opportunities for Ireland in Islamic finance.

In his opening remarks the Tanaiste discussed current Government policy in this area and the legislation adopted by Government to encourage growth within this sector.

"We need to build on areas where we already have strengths, such as in financial services, but expand our horizons and our activities to create more and better jobs. There is potential for significant growth in Islamic finance and this forms part of the Government's strategy for the financial services industry in Ireland. Ireland is already a base for 20pc of Islamic funds which are domiciled outside the Middle East. We want to establish the IFSC as a centre of excellence for Islamic finance. While Ireland is currently out of the market, we are open to considering issuing an Irish sovereign 'sukuk' (Islamic compliant bond) in the future."

Andrew Quinn, Chairman of IFA Ireland and Head of Tax at Maples and Calder, said that the clear message from the seminar is the Government's interest in developing the IFSC as a centre of excellence in Islamic finance.

"The expert speakers outlined the size and potential for growth in Islamic finance and the opportunities for Ireland. Ireland has a track record in establishing centres of excellence in financial services, such as in investment funds, debt capital markets and aircraft leasing, and this success can be replicated in Islamic finance."

Farmida Bi, Partner and Islamic finance specialist at international law firm Norton Rose, gave an overview of structures used in these transactions and trends developing within this area. She noted that, "Global Islamic assets are US$1 trillion today representing 1pc of global banking assets. However, Islamic finance has been growing at a 15pc to 20pc per annum since the 1990's and there is significant potential for further growth."

http://www.businessworld.ie

AAOIFI to convene its Annual Shariah Conference

Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) will convene its Annual Shari’a Conference on 7 and 8 May 2012 in Manama, Kingdom of Bahrain. The conference will be held under the patronage of the Central Bank of Bahrain.

AAOIFI is the international body responsible for developing and issuing standards on Shari’a, accounting, auditing, ethics, and governance for the global Islamic finance industry. (Press Release)

http://www.opalesque.com

Islamic finance - the social paradigm

The genie out of a modern day bottle is the first home purchase plan approved by the Financial Services Authority (FSA) for the mainstream UK market, rather than a specialised market. It demonstrates that the religious principles underlying Islamic products are relevant in the ethical and social finance marketplace; that Islamic principles can inspire and enhance the finance products being developed to meet these challenging times in the residential domestic market. Natalie Elphicke, head of structured housing finance, partner, international law firm Stephenson Harwood gives her take on the application of Shari’a principles to ethically-charged social housing and the investment opportunities that arise from it.

Risk sharing, not profiting unjustly or unfairly, not charging excessive charges; in a residential purchase context, allowing part rent, part purchase, sharing equity upside, sharing downside property risks. These characteristics apply equally to an approved Islamic home finance plan as they do to a new conventional purchase plan designed for a housing association in the north east of England.

What does this matter? For many years it has been felt that Western finance constructs have been squeezed and shaped to meet the requirements of the fatwa (approval) for Islamic finance. One result of this has been an understandable reluctance to provide an Islamic checklist to those structured financiers who specialise in dressing a product to fit a market, rather than perhaps understanding and applying the underlying intentions and principles. The desire to conform to those Islamic standards is being driven by a desire to access a rich seam of devout consumers prepared to pay a premium for compliance, and to harness rich Islamic investment funds, rather than shape and deliver products or investments which enhance and develop the lives of Muslims within their beliefs and philosophy. 

The tide is turning. In ethical and social investment arenas there is significant interest in three areas of Islamic finance: Ijara, Musharaka and Mudaraba. Musharaka is the basis for property transactions which allow shared equity participation within a trust holding, providing much more flexibility to manage changes in lifestyle and more fairly share market rises and falls in residential property over a longer period of time.  This can provide a much more transparent and fairer approach than Western style 100% mortgage finance or the more limited traditional shared ownership structures.  

There are similarities between partnership finance structures of Mudaraba, and ljara leases. In the former, some people provide labour and others money, in a plethora of 'Big Society' style co-operatives and social enterprises, bringing together those who work, and give their 'sweat equity'. Then there are those who provide funding and those who share in a financial loss/gain Ijara- based lease-purchase contracts, which can offer a fairer sort of hire-and hire-purchase arrangement of equipment, such as washing machines and other household appliances.

If there is an interest from ethical and social residential property to engage with and be inspired by Islamic based principles, how interested are Islamic funds in residential property, especially student, affordable or social housing?

The evidence is mixed. There is also anecdotal evidence of a tightening of conditions for investment funding to reflect wider, purposive beliefs of Islamic funds. One such interesting example is the financing of student halls of residence. The usual student bar and pool table on the ground floor is being replaced by a coffee bar, with a restrictive covenant on the space becoming licensed, as a condition to access to that investment funding.

Housing associations have started dialogues with Islamic funds which have financed other UK core infrastructure and utilities, such as ports and airports, water and electricity. Social housing can offer a solid investment yield.  Not racy but solid and responsible, reflecting the core values of a mature residential regulated housing industry worth around £100bn.

Islamic finance techniques offer new ideas and new ways of financing. This financing is perhaps more in line with the spirit of our times. There is a greater sense of partnership and risk sharing; and an aversion to excessive rates of return. Islamic finance principles offer useful ideas to the increasingly social and ethical spirit of our post banking crisis. Yet even so, ethical and social structures still have to provide a return and perform at an acceptable yield or investors will be thin on the ground. The real plus is that Islamic finance offers different ways to raise finance and widens to base of potential funders.

http://www.ftseglobalmarkets.com

Saudi leads the way in takaful sales

Global Islamic insurance sales rose nearly 20 per cent to US$8.3 billion (Dh30.48bn) in 2010, but opportunities still abound for further expansion, a new report has found.

Takaful contributions in the UAE grew by 28 per cent to reach $818 million during the year, said Ernst & Young's World Takaful Report 2012.

Saudi Arabia was the biggest market, with $4.3bn of sales, or more than half of the industry. Malaysia was the second-largest market, ahead of the UAE, with contributions of $1.4bn.

"The takaful industry continued to show double-digit growth in 2010, albeit at a relatively slower rate of 19 per cent compared to previous years," said Ashar Nazim, the head of Islamic financial services in the Middle East and North Africa (Mena) region for Ernst & Young.

"With current growth trends, and the addition of new fringe markets such as Indonesia and Bangladesh, we expect gross contributions of $12bn by 2012."

Takaful has grown from a low base in recent years as popularity rises for Islamic alternatives to conventional insurance products. Unlike conventional products, investments are held in Sharia-compliant assets.

The six-nation GCC made $5.68bn of Islamic insurance contributions in 2010, and South East Asia $2bn, according to the report.

Expansion in the GCC slowed to 16 per cent in the year from an annual average of 41 per cent between 2005 and 2009.

Opportunities existed for further growth in Islamic insurance catering for families, which accounted for as little as 5 per cent of the total takaful market in certain countries, Ernst & Young said.

"With high disposable income average and low market penetration, the GCC presents great potential for family takaful," said Gordon Bennie, a financial services industry leader in the Mena region for Ernst & Young

"Large Muslim markets such as Libya, Egypt, Bangladesh, Indonesia and Brunei are opening up to takaful."

Strong competition, evolving regulations and a lack of takaful expertise are key risks in both the GCC and South East Asia, said the report.

Young takaful operators were using aggressive pricing strategies to compete against more established players, it said. Such pricing was "not sustainable" and causing significant pressure on the industry's profitability.

At the same time, the industry was being squeezed by increasingly strict regulatory requirements on capital and solvency, it said. One in five insurance brokers in the UAE shut down in 2009 after new rules came in requiring Islamic and conventional insurers to have stronger financial backing.

But Ernst & Young forecasts further shake-ups.

"Industry consolidation would allow takaful operators to compete effectively with larger, more established conventional insurers and also reduce unhealthy price wars," said Mr Nazim.

"However, the industry is still growing rapidly, which is keeping shareholders interested in their takaful operations."

The industry would take more time to establish itself before it could be decided which players could sustain themselves and which could not, he said.

The Islamic Financial Services Board estimates assets of the Islamic finance industry will grow to $2.8 trillion by 2015, up from $1tn at the moment.

http://www.thenational.ae

Al Amanah Bank faces more obstacles

Al Amanah Islamic Investment Bank of the Philippines, the country’s only Islamic-oriented financial institution, is facing several challenges in its bid to grow as a financial institution.

Among these obstacles include the lack of legal and regulatory framework; oversight of Shariah; technical capacity and pool of practitioners; Shariah-complementary product/service demand in the Philippines; correct perception of Islamic finance; coordination for a globally-accepted legal and regulatory standards.

In a Amanah Islamic Bank brief, it was proposed that the bank seek partnerships with government agencies and the private sector with a know-how on Islamic banking and finance.

That includes exploratory partnership with Tabungg Haji and Zakat Fund.

Tabung Haji, or Lembaga Tabung Haji, is the Malaysian hajj pilgrims fund board. The main headquarters is located at Jalan Tun Razak, Kuala Lumpur. Tabung Haji facilitates savings for the pilgrimage to Makkahthrough investment in Shariah-compliant vehicles.

The Zakat Foundation of America is a Chicago-based, Muslim non-profit dedicated to alleviating the immediate needs of the poorest communities, as well as providing emergency relief, post-disaster rehabilitation, development, education, healthcare, orphan sponsorship, and seasonal programs such as Ramadan Iftars and Udhiya/Qurbani.

It likewise seeks assistance for the establishment of a National Shariah Advisory Council. The body is a prerequisite to the formation of Islamic-oriented financial institution.

The primary market of Amanah Islamic Bank is the six-million Muslim population found primarily in Mindanao, but are likewise scattered throughout the country.However, it has been unable to service the target market due to limitations to its full implementation of the Shariah-compliant financial products. It has also been unable to tap the billions of dollars worth of Shariah-compliant assets globally.

Islamic finance has grown significantly with Sharia-compliant assets of at least $1 trillion. Sukuk bond issuance, Islamic debt and equity papers, grew 50 times from 2001 to 2010 amidst slow global growth in the aftermath of the 2008 global financial crisis.

According to data from the British Embassy, Southeast Asia is seen as a top source of growth. Furthermore, the growth of Islamic finance in the country may play a crucial role in the economic development of Mindanao.

The UK is home to almost every major international bank and financial institution in the world, ranking first in the March 2011 Global Financial Centers Index (GFCI) survey. It is by far the most successful non-Islamic country in Islamic banking, with 22 banks offering Sharia-compliant financial instruments.

There are 34 Islamic funds managed from the UK, and 31 Sukuk issues raising $19 billion listed on the London Stock Exchange.                          

http://www.philstar.com

Winds of change

It is almost a year since the Royal Decree paved the way for the creation of Islamic banks in the sultanate and the Central Bank of Oman (CBO) is in the final stages of putting down the final set of regulations. Bank Nizwa, the first dedicated Islamic bank in Oman, has unveiled its logo and says it plans to start operations in July. BankMuscat and Ahli Bank have already announced the setting up of Islamic windows – Meethaq and Al Hilal respectively – which will be operational once approval from the Central Bank of Oman (CBO) comes through and the regulatory framework is in place.

Meanwhile BankDhofar has appointed Deloitte and Touche for a market assessment and feasibility study and Bank Sohar has entered into an agreement with Dar al Shariah Legal & Financial Consultancy of Dubai, a subsidiary of Dubai Islamic Bank, to help it with launching its Islamic banking window. Both Oman Arab Bank and National Bank of Oman too have expressed their intent to foray into Islamic banking.

 Bankers expect Islamic banking products and services to debut by June this year in the market. The initial draft of the proposed guidelines by CBO was presented to the banks in the beginning of the year and bankers say the Omani model incorporates best practices from the GCC and Malaysia, customising them to suit the local market. But some rue that the 15 per cent limit (of the Islamic window capital base) stipulated for a single borrower may not be adequate to meet the requirements of some clients. “We have some concerns on the proposed regulatory ratios to operate Islamic banking windows. 

Since the assigned capital for Islamic banking window is in addition to the minimum capital requirements for the existing conventional banking operation, we are of the view that the total capital base of the legal entity should be considered for the computation of various regulatory ratios, including single borrower limit and the capital adequacy,” says Abdullah al Jabri, deputy general manager, head of central operations, Ahli Bank.

As of now, apart from dedicated Islamic banks Bank Nizwa and Al Izz International that are yet to start operations, and Sarasin-Alpen Oman that won a licence to offer Islamic products, the conventional players are yet to get their licences for their Islamic banking windows. “At this point banks just want clear regulations from CBO before one can start offering Islamic banking services and expedite the licencing processes,” says Mohammed Redha Ahmed Jawad, general manager, wholesale banking, Bank Dhofar.

With CBO advising banks to put in place the right systems before licences can be awarded, Ahli Bank and BankMuscat have already set up their internal Shariah boards comprising at least three members. Both have at least one Omani Shariah scholar on their team. The other members are selected from various countries in the Middle East. 

“This helps us benefit from their years of expertise in the other regions along with the local insights that will help address Oman specific matters. With the support of our strategic partner Ahli United Bank, Bahrain, we are well prepared and geared up to rollout Shariah compliant products and services,” says al Jabri.

Some in the industry predict that a successful marketing strategy will not just aid the Islamic banking sector in gaining up to US$6-8bn in assets over the first five years, but may also affect conventional banking in some ways. “By 2015, 60 per cent of assets will be Islamic, so over a period there will be a shift from conventional banking to Islamic banking. Islamic banking is on a growth mode in almost all the Islamic countries,” says Sulaiman al Harthy, group general manager, Islamic Banking, BankMuscat.  

But Ahmed al Rawahi, chairman of the founding committee of Bank Nizwa says it is too early to speculate if conventional banking will face any sort of decline due to Islamic banking activities. “Conventional banks can benefit from establishing Islamic windows. It is good that many of them are establishing Islamic windows as it is good for the market and the country. It will raise public awareness about Islamic banking and help share knowledge on the subject,” says al Rawahi.

Companies in other industries may start altering their business models to become more Shariah compliant. “It has been noticed that companies in the other parts of GCC that converted their business models to Islam have experienced an increase in their valuation by anywhere between 18-25 per cent,” says Fares Mourad, head of Islamic Finance, Bank Sarasin.

Systems in place

To ensure watertight Islamic banking regulations, CBO has examined the evolution and practices of Islamic banking in some major jurisdictions and studied how the challenges arising from a new system in banking were tackled. 

“Our team has worked with external consultants to evolve a draft framework and the same is being subjected to consultative process with the banking sector as well as relevant professionals,” says a CBO spokesperson. Simultaneously, CBO is working on further facilitations that may be made on the legal and operational side, considering that Islamic banking is in some ways different from conventional banking.

Bank executives point out that certain regulations like the establishment of an independent and separate Islamic window and setting up of standalone Islamic branches to ensure segregation of funds are unique to Oman. 

“The Malaysian and Pakistani central banks tried to introduce relaxed window models but couldn’t ensure Shariah authenticity, while CBO has managed to devise a trustful and viable window model. It will help to enhance the public’s confidence in Islamic products. A customer service representative entertaining customers in a regular branch will not be able to justify the requirements of Islamic and conventional banking as both demand a different set of mindset and skills. 

We have experienced such kind of problems in the region, so in this regard we really appreciate what CBO has done,” says al Harthy. He adds that CBO’s move to ban all controversial Islamic products (a first ever regulation in the realm of Islamic banking) like the commodity murabaha (buying and selling commodity for financing purpose) in the Oman market is also a step in the right direction as it will help foster public confidence in a relatively conservative market.

It has also been the first time in the GCC that the initiative for Islamic banking has arisen from the central bank itself instead of local banks first requesting for such services. But Alun Williams, an independent consultant in Islamic Banking in the sultanate points out that the rules for the existing commercial banks opening up an Islamic window are likely to be slightly different from those being developed for dedicated Islamic banks coming up in the country. 

“However, both Islamic windows and dedicated Islamic banks will still be required to conform to common Islamic banking standards, such as those issued by Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the international Islamic finance governing body,” says Williams. Bankers say that the Islamic products that will be sold in Oman will not differ markedly from that in the other countries. BankMuscat is looking to introduce full range of Islamic products for consumer, corporate and investment customers, while Ahli Bank is periodically consulting with its experts at its headquarters in Bahrain to introduce similar products. 

Meanwhile, Sarasin Alpen is looking to assist its clients in areas such as state and succession planning and Islamic financial planning, apart from offering regular Islamic products. “The advisory services of Sarasin Alpen in Oman are tailored to meet the clients’ requirements and we will use our existing expertise in Islamic wealth management to add value as long as it is within the scope of our licence,” says Mourad.

Evolving landscapes

The introduction of Islamic banking is by no means a simple addition of another investment tool in the market, but such services will alter the landscape of Oman’s banking industry, say bankers. However, the biggest challenge in the successful implementation of Islamic banking in Oman lies in adopting the right marketing strategy to increase awareness. Organisations such as Sarasin Alpen are adopting the word of mouth marketing approach while others like BankMuscat are stepping up their road shows as well as media presence to increase awareness within society.  

“Training of competent staff is a challenge. People who don’t know about Islamic banking will not be able to hire the right people as worldwide in this industry, resources are short and people need time to build expertise,” points out Mourad. While the banks adopting Islamic windows have managed to find at least one Omani Shariah scholar to join their board, executives admit that there is a dearth of Shariah scholars worldwide and Oman is no exception. “Oman has credible Shariah scholars who will be able to advise and assist institutions to formulate their Shariah advisory units. Shariah scholars around the world work very closely to standardise fatwas and Shariah rulings. 

In that context, we believe that Omani Shariah scholars will partner with other Shariah scholars from both the region and international scene. Government support is key to the success of the industry,” says Hatim el-Tahir, director of the Islamic Finance Knowledge Center at Deloitte & Touche (ME). He feels Islamic finance will have a fair share of government’s fund-raising needs and contribute to the overall GDP of the economy.

Al Harthy says an IFAAS study has estimated that the demand for Islamic banking is good with around 86 per cent of Omanis now seeking such services. The cascading effect of the success of Islamic banking in Oman is immense on the banking assets on the whole, as Oman vies for a piece of the pie of this US$20bn industry.

Ernst & Young estimates that Islamic banks in Oman may gain up to US$6-8bn in Islamic assets over first five years.

“We expect Islamic finance to capture up to ten per cent of the market in the next few years,” says Ashar M Nazim, MENA leader, Islamic Financial Services, Ernst & Young. “The first year would be really challenging but the moment the Islamic banking community is able to communicate the message in the right way to people, you will see a big shift in business. Islamic finance will help to encourage productive purpose-based financing in the society rather than consumptive loans. The banking sector is integrated with other industries, hence it will aid the growth of other industries too,” says al Harthy.

While the effect of Islamic banking will be slowly felt on the conventional banking side, Mourad points that the ultimate benefit is for the clients. “Islamic finance is going to increase the pressure on Oman’s conventional banks to revaluate their business models, products and service offerings. We are not just talking about banking but also on the insurance sector which will eventually evaluate their business models too which will result in optimisation in both cases,” says Mourad.

Companies in other industries too might slowly start adopting a Shariah model that will help attract more foreign investments, executives point out. The prolonged wait to introduce Islamic banking in the sultanate seems to imply that enough groundwork has been done and carefully thought out processes have been adopted to make the concept a remarkable success in the region, taking the industry to new heights in the coming years.  of assets will be Islamic, so over a period there will be a shift from conventional banking to Islamic banking. Islamic banking is on a growth mode in almost all the Islamic countries, says al Harthy, group general manager, Islamic Banking, BankMuscat

http://www.businesstoday.co.om

Muslims Caught Between Islam, Wall Street

Making inroads into America’s financial hub of Wall Street, Muslims are caught in practices that run counter with their religious teachings.

“Wall Street is basically blind to religion,” Rushdi Siddiqui, global head of Islamic finance at Thomson Reuters, told The New York Times on Sunday, April 15.

“What it’s concerned about is deal flow, assets under management and transactions.”

Rushdi is one of many Muslims taking executive positions in banks on Wall Street, who are facing many hurdles to abide by their religious teachings.

Seeking Lawful Earnings Islamic Economics Tips for Keeping a Balance in Life Interest, Unlawful – Profit Making, Lawful … Why?

For instance, they do not have dedicated prayer rooms at work to perform prayers.

They also have to deal with interest (Riba), which is banned under Islam.

“We have a concept called law of necessity,” Rushdi said.

“You have to, at one level, abide by the laws of the land that you happen to reside in, whether it’s the formal laws or the unwritten laws.”

Aisha Jakaku, a former health care analyst at Goldman Sachs and a freelance financial consultant, also faces difficulties in abiding by her religious teachings.

Jukaku, who dons a hijab since she was 11, avoids physical contact with men outside her family.

She makes exceptions for handshakes extended to her in a business setting that would be awkward to decline.

“It’s not something I want to do,” she says of shaking hands with men.

“But that’s the common American way of doing business.”

Right or Wrong?

For Ali Akbar, a Pakistan-born managing director at RBC Capital Markets, it is almost difficult to perform his five daily prayers on time.

“You can’t just get up in the middle of a deal and say, ‘I have to go spend two hours in a mosque,’ ” Akbar, 34, said.

Despite the difficulties, Muslim bankers see their religion as an asset in their career advancement.

“Rightly or wrongly, if you’re religious, you’re considered to have a reasonable degree of integrity,” said Sohail Khan, a managing principal at StormHarbour Securities and former trader at Citigroup.

Having less business expenses than colleagues, Khan considers his lifestyle an asset in negotiating deals.

“When you’re the only guy at the table that’s not drunk, it’s a great weapon,” he said.

“You know more than anyone else at the table the next morning.”

Akbar of RBC agrees.

“Being a good Muslim helps you be a good banker,” he said.

He, however, acknowledges that the union of his religious beliefs and his work in finance has been less than perfect.

“When I made a decision to pursue a career on Wall Street, there were certain things I knew I would have trouble reconciling with my faith,” he said.

“I did some research, and I gained comfort that God is all-forgiving.”

To ease these challenges, three Muslim young men formed an organization, Muslim Urban Professionals, nicknamed “Muppies,” in 2006 to help fellow young professionals negotiate issues that arise.

The Muppies fill an “amazing need” in the community, said Iftikar A. Ahmed, a general partner at the venture capital firm Oak Investment Partners.

“It’s telling them that you can follow an American way of life while not denying the fact that you happen to be a Muslim.”

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