An interview with Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia by MIFC
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A Special Epicentre Interview
An interview with Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia and Chairman, MIFC Executive Committee, on the resilience of Islamic finance and its role in cross-border financial stability and as a link between international financial markets and a wider range of economies.
Q1
Islamic finance has seen a significant surge in interest globally over the past decade and is becoming an actively used offering in the global financial landscape. Last year sukuk issuance marked a record high of USD131 billion globally with more issuers adopting this instrument as a source of funding. This continues to take place against a global climate of uncertainty. To what would you attribute this steady growth and the widespread adoption of Islamic finance in these recent times?
A1
Experience from the global economic and financial system in this recent decade have accorded us to draw critical lessons towards building a global financial system that is more stable and resilient. Issues with systemic implications that have emerged compel policymakers to consider and develop new policy directions which would positively impact global growth and stability.
The recent crisis in the advanced economies has reinforced the importance that any financial system needs to serve the real economy with the main purpose to effectively intermediate savings and excess funds to generate economic growth. In this regard, the universal values inherent in Islamic finance can be appreciated by people of different faiths and used by all, with the Islamic financial system having experienced significant growth since the mid-1990s with total Islamic financial asset size now at more than USD1 trillion.
According to Standard and Poor’s, this number is projected to grow by 20% over 2011-2015, doubling in size over this period, making it one of the most vibrant and fastest growing segments in the global financial industry. Islamic finance is an asset class that is becoming attractive for global investors to diversify their investment risks.
The core proposition of Islamic finance draws from its inherent principles found in Shariah such as profit-and-risk sharing, transparency, good governance and the avoidance of over- leveraged financial activities, many of which are in line with the universal values of fairness. These features, amongst others, bring to the economy the tremendous potential to support sustainable economic growth and promote financial stability, as they require financial transactions to be underpinned by real economic activities. Thus, financial innovation and intermediation are aligned to generating productive economic activities.
Innovation in Islamic finance has resulted in a wide range of products and services that are increasingly meeting the demands of an economy, for example, financing products offered include syndicated financing, equity financing and venture capital, a wide range of investment and treasury instruments, as well as fund and wealth management products.
Furthermore, Islamic finance products have grown beyond the traditional contracts to new hybrid contracts to serve the needs of a more dynamic market with new hybrid concepts such as bi al-istithmar wakalah (investment representative) and musharakah mutanaqisah (diminishing partnership) which are frequently being used today in the structuring of Islamic financial products.
The additional requirements in Islamic finance, which strongly discourage excessive risk taking and speculative business activities, provide additional safeguards for stability and resilience in the global financial system. There is also a rising demand for more ethical investment products which are not involved in the financing of prohibited activities and industries such as alcohol, tobacco, gambling and weapons, which is in line with the principles found in Islamic finance. All of these fundamental characteristics demand for financial institutions to focus on their core function of providing financial services that add value to the real economy. In particular, sukuk has been used to finance infrastructure projects and productive real sectors. Therefore, Islamic finance continues to internationalise its role and relevance in contributing to the global agenda to foster sustainable growth that is firmly anchored to the real economy.
Q2
You have spoken passionately about the development of Islamic finance with particular importance to the internationalisation of Islamic finance. What do you mean by internationalisation and why is this important?
A2
The basis for internationalisation is the practice of mutual economic benefits between markets. Islamic finance provides a common basis for financial flows of international trade and investment, which continues to bridge and deepen cross- border economic cooperation as we progress through shared prosperity.
In this current global environment, emerging economies are experiencing sustained growth despite the moderation in global expansion, mainly through greater domestic demand as well as increased intra-regional trade, which provides tremendous prospects for mutually reinforcing growth from increased economic and financial connectivity. With trade among the expanding emerging economies accounting for more than half of the world’s trade, Islamic finance has an important role to facilitate trade and investment flows that will be mutually reinforcing and serve the real economy. Today there are more than 600 Islamic financial institutions operating in 75 countries.
In evolving Malaysia as an Islamic financial marketplace, the goal is to be an open marketplace that is linked to a network of other financial hubs. The openness of Malaysia’s marketplace has seen increased foreign participation both in terms of institutional presence and participation in the capital market. In doing so the increased internationalisation of Islamic finance would influence the patterns of global financial and economic integration, and intensify financial and economic connectivity between countries. The business environment that is conducive particularly in cross-border fund raising activities, as well as fund and wealth management activities, has also attracted many foreign corporates, financial institutions and investors to opt for Malaysia as their location of choice for Islamic financial business and investment.
In the sukuk segment, Malaysia offers a multi-currency platform for international fund raising and for investment activities by multinational entities. Malaysia’s total sukuk issuance in 2012 was approximately USD97 billion, with total sukuk outstanding at USD144 billion as at December 2012. Our sukuk marketplace is delivered through players with global capabilities and connectivity to a wider investor base and supported by a robust regulatory and supervisory framework, an efficient price discovery platform and a deep primary and active secondary sukuk market, amongst others. This has enabled the cost effective issuance of sukuk as compared to that of a corporate bond in Malaysia.
To facilitate international trade, Malaysia’s settlement system allows for the settlement and clearing of securities in RM, USD and RMB. Furthermore, Malaysia’s progressive liberalisation of its financial and foreign exchange markets continues to facilitate the internationalisation of Islamic finance. This is reflected by the recently announced liberalisation measures to enhance the competitiveness of the Malaysian economy, which were, amongst others, aimed at promoting the development of the Islamic financial markets through greater flow of cross-border Islamic financial activities and greater use of Islamic financial intermediaries, where resident takaful operators are permitted to undertake investments abroad of any amount on behalf of their resident clients.
Q3
Malaysia has been a key driver in the implementation and development of Islamic finance. How do you see Malaysia’s role in the future development of Islamic finance globally?
A3
The internationalisation of Islamic finance forges strategic and collaborative partnerships where markets and society can benefit from economic and financial linkages. Opportunities come from jurisdictions having in place comprehensive frameworks that support the development and advancements in Islamic finance and shape the internationalisation of Islamic finance collectively. Tremendous opportunity will also come from the emerging markets where there is strong demand for effective financial intermediation. In supporting the real economy, Islamic finance can play a sustainable role, and in particular in emerging economies as they participate in a more internationally integrated financial system. All this will facilitate mutually reinforcing global growth and development.
For Malaysia’s Islamic finance marketplace, the vision was articulated in our first ten-year Financial Sector Masterplan that was launched in 2001, in which the plans for building the foundations and for further intensifying the framework for the Islamic financial system were outlined. This included strengthening and diversifying the financial intermediaries in the financial system, building and developing the financial markets, and enhancing the regulatory, supervisory, Shariah and legal framework. In 2011, a new Financial Sector Blueprint was launched, charting the next ten-year path for Islamic finance to transition to become increasingly internationalised, and thus to become more integrated with the mainstream of the global financial system. Malaysia continues to contribute to the strengthening of international infrastructures in Islamic finance that support financial stability such as the IFSB (Islamic Financial Services Board) and IILM (International Islamic Liquidity Management Corporation.)
Malaysia has built a comprehensive and international Islamic finance marketplace that is accessible to the world. It is connected to support the mobilisation of higher volumes of cross-border Islamic financial flows from a diverse range of market participants. These financial flows will be channelled through innovative and responsible Islamic financial instruments, to meet the diversified and sophisticated needs of trade, investors, markets, corporations and individuals globally.
Q4
There are different schools of thought when it comes to the interpretation of Shariah in finance. How does this affect the industry globally and can Malaysia play a role in Shariah harmonisation in the global market?
A4
Differing opinions promote deeper understanding and encourage innovation. While this is so, mutual recognition of Shariah interpretations across jurisdictions is imperative to ensure that the value proposition that Islamic finance brings to the global economy is sustained.
Malaysia’s Islamic finance marketplace accords importance to mutual recognition, as this contributes to greater global financial integration. Our practice of mutual recognition accepts Shariah interpretations and practices from the four major Islamic schools of thought – Hanafi, Shafii, Maliki and Hanbali. This enables the various markets to drive Islamic finance as their Islamic financial institutions will develop products to the needs of their target markets. While differences in Islamic finance interpretation still exist, though small, there is now greater convergence in Shariah interpretations and thoughts due to an increase of dialogue globally that promotes deeper understanding and awareness of the Shariah resolutions and rationale from various jurisdictions.
ISRA (International Shariah Research Academy for Islamic Finance), continues to organise and lead international and regional Shariah dialogues such as the International Shariah Scholars Forum to nurture greater engagement, understanding and mutual respect towards Shariah harmonisation amongst scholars, thought leaders and markets. ISRA recently launched the Islamic Financial Knowledge Repository Portal ‘i-Fikr’ to provide a comprehensive knowledge database on Islamic finance.
Due to the increasing convergence of Shariah interpretations as applied to Islamic finance, the practice of mutual recognition in our marketplace supports the opportunities for the global financial community to innovate products that meet the value propositions offered by Islamic finance.
Q5
Apart from Shariah harmonisation, what would a marketplace need for Islamic finance to flourish?
A5
For an Islamic finance marketplace to flourish it needs to be open, progressive and vibrant with a global focus that is cognisant of the cross-border opportunities for Islamic finance. A marketplace complete with innovative and responsible products and services, supported by a comprehensive, business-friendly infrastructure to deliver clarity and certainty for market confidence and predictability for businesses, players with global capabilities and connectivity. It must also handle a robust regulatory and supervisory framework, an efficient price discovery platform, and deep primary and active secondary markets, amongst others.
A major advancement in Malaysia’s Islamic finance marketplace is the recently enacted Islamic Financial Services Act 2013, which together with other financial sector laws, including the Central Bank of Malaysia Act 2009, provides for a deeper degree of market confidence to participate in a much more complex financial landscape. Another important requirement for the continued growth and resilience of the Islamic financial industry is robust liquidity management. The internationalisation of Islamic finance, with greater frequency of cross-border transactions require effective short-term liquidity management. This is a requirement not only in stressful conditions but also in normal times.
Malaysia’s approach to Islamic finance is to continue to facilitate the internationalisation of products, services and expertise, through deepening cross-border linkages and partnerships to collectively shape Islamic finance for the world thereby contributing towards the stability and resilience of the world’s financial markets.
Agents play crucial role in ensuring growth of Family Takaful
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Thursday, June 20, 2013
Takaful agents have a significant role to play in the further development of the Takaful industry and it is essential that there are ongoing dialogues between the agents and operators.
Agents are said to be the face and image of the Family Takaful industry as they have great understanding of consumer needs.
In a press conference today at the World Takaful’s Conference’s 4th Annual Family Takaful Summit in Kuala Lumpur, the CEO of Etiqa Takaful Berhad, Ahmad Rizlan Azman said that recent reports indicate that the Malaysian Takaful Industry is expected to surge with a 20% growth per annum for the next two years as consumer acceptance grows and regulatory changes provide a stronger and more stable infrastructure for the Sharia compliant insurance company.
Azman added that by having the widest distribution network with 4,500 agents, 31 branches throughout Malaysia, a wide Bancassurance distribution network with more than 401 Maybank branches and third party banks, Etiqa believes in and supports the role of a powerful agency force in ensuring an exciting future for Family Takaful.
Family Takaful contributions enjoyed a compound annual growth rate of 32% in the period from 2007 and 2011 with Malaysia dominating both at the regional and global level.
The contributions from Malaysia make up around 56% of the total global Family Takaful contributions.
The event, held under the support of Etiqa Takaful Berhad, highlighted the importance of empowering agents to be the driving force of Family Takaful growth.
Etiqa’s Family Takaful premium amounts to 37% of Etiqa’s total market share.
Global family Takaful market is expected to grow over 160% in the next five years to hit USD 5bil.
The 4th Annual World Takaful Conference: Family Takaful Summit is held for two days until 20th June 2013
Scotland: The new ethical finance hub?
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Scotland is keen to invest in Islamic Finance, say experts from the Islamic finance arena ahead of an Edinburgh conference on Scottish infrastructure and renewable projects.
The Islamic Finance Council UK (IFC), a body based in Scotland, said the “sukuk” bond market had surged to more than $250 bil (£159bn) and cited the example of Saxony Anhalt, the German state, which has already successfully issued a sukuk attracting 85 million pounds from Islamic investors.
The council has been proposing the idea to the Scottish Government and Scottish Enterprise for the past three years.
Saftar Sarwar, an IFC board member, said that there remains a window of opportunity in the market for an investment-rated sukuk from within the UK, which would attract Gulf and Asian investment funds to diversify currencies but also significantly help UK Islamic banks manage their liquidity requirements.
“The sukuk market is currently particularly buoyant and presents an excellent opportunity to tap 100 mil pounds or above backed against an infrastructure or renewable energy project in Scotland, if the Scottish Government is able to put matters in place.”
Graham Burnside, another IFC board member and chairman of law firm Tods Murray, which is co-hosting the conference, said “We are pleased to see that the agenda is moving on and that we have clear indication from the region of a real appetite to invest.”
Burnside is a well-respected specialist in banking and structured and asset-backed finance.
As head of Tods Murray’s award winning Banking and Finance team, he has guided the Firm to a number of prestigious new appointments and has played a leading role in the development of Islamic finance in Scotland.
After Christianity, the largest faith in Scotland is Islamic with a population of 40, 000 in the country. Its neighbouring England and Wales has a healthy population of 1.54 mil Muslim and Islam is the fastest growing religion in all of Europe.
Islamic finance in Tunisia could reach 25-40 pct share -study
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ndustry is currently tiny
* But expected to grow with government, private initiatives
* 54 pct in poll say would consider switch to Islamic banks
* But gap in consumer awareness of Islamic products
* Official sees first sukuk issue in second half of 2013
By Bernardo Vizcaino
DUBAI, June 16 (Reuters) - Tunisia's fledgling Islamic finance industry could take a 25 to 40 percent share of the country's financial sector in five years' time if necessary rules, consumer education and private investment plans materialise, a Thomson Reuters study found.
Islamic finance was previously neglected by Tunisia's rulers but in the wake of the 2011 revolution, the new Islamist-led government is promoting the industry.
Currently, sharia-compliant business accounts for just 2.5 percent of the Tunisian financial sector, the study said. In the Gulf Arab states, the ratio is believed to be about a quarter.
The study estimates that Islamic financial assets in Tunisia could reach $17.8-$28.5 billion by 2018, up from $1.4 billion at present.
In a poll of about 700 ordinary Tunisians conducted for the study, 54 percent said they would consider switching to banking with Islamic lenders even if that meant lower rates of return, while 40 percent would be open to switching even if their money was not guaranteed.
But 64 percent of respondents said they were unclear about how Islamic finance worked.
SUKUK
One boost for Islamic finance in Tunisia would be issuance of the country's first sukuk, which the government is planning.
"I expect the issuance process to take place in the second half of 2013," Chaker Soltani, general director of debt management and financial cooperation at the finance ministry, was quoted as saying in the study.
The Jeddah-based Islamic Development Bank (IDB) has given Tunisia a financial guarantee to issue a sukuk worth $600 million. Last week, the IDB extended said it would extend $1.2 billion in funding to Tunisia for industrial, agricultural and trade projects.
Mohamed Sadraoui, deputy director of general supervision and banking regulation at the central bank, said Islamic windows - units of conventional banks that offer Islamic financial services - would be permitted to operate under central bank guidelines that ensured operations were segregated.
"There are four or five well-known banks in Tunisia that are trying to facilitate the way for their Islamic finance businesses," said Mahmoud Mansour, deputy general manager of the Tunisian arm of Bahrain-based lender Al Baraka Bank.
He added that three takaful (Islamic insurance) companies had applied for licences.
Al Baraka, which entered the country in 1983, is awaiting approval for an onshore banking licence so it can open more branches and serve a broader client base, said Mansour.
Zitouna Bank, the country's only full-fledged domestic Islamic lender, also plans expansion.
"We are planning for over 100 branches across the country within the next five years," Ezzedine Khoja, president and general manager of Zitouna Bank, said in the study.
The bank, set up in 2009, plans to increase its capital base to 100 million dinars ($61.7 million) from the current 70 million dinars by the end of this year, as well as launching an investment funds unit and possibly expanding abroad, he added.
Some industry practices that are controversial among some Islamic scholars, and could therefore affect customer perceptions, are generally being avoided in Tunisia, the study found. One of these is tawarruq or commodity murabaha, a common cost-plus-profit arrangement in Islamic finance.
"We here in Tunisia do not consent to tawarruq, a product that is widely spread in the GCC (Gulf Cooperation Council)," said Khoja.
"We don't believe in this product and reject its use for Tunisia, despite its widespread use in other jurisdictions." (Editing by Andrew Torchia)
Progress in order
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Ezzeddine Saidane, Founder and GM at Directway Consulting spoke candidly to BME on the growth of sectors and the health of the Tunisian banking systemWhat is the health of the services sector to Tunisia's economy, especially overshadowed by the Arab Spring and government issues?
The service sector represents more than 50 per cent of the Tunisian economy. Like the rest of the economy, the service sector and especially tourism, is suffering from the conditions of the democratic transition environment. Growth, however for the economy as a whole was slightly positive in 2012. It looks like it will remain positive for the current year.
Is there any sign of recovery after the spread of civil resistance that began in December 2010?
Is recovery in the services sector made much harder by the growth of rival hubs?
direct investment.
How much have banking assets fallen since prior to the protests and what can Tunisia do to attract back these assets?
The fall in bank assets was rather limited, below three per cent. Part of those assets has been attracted back by banks already. The real issues of the banking sector are more related to NPLs and liquidity.
How do you see the growth in Islamic banking in Tunisia and the rest of the Maghreb?
It is obvious that there is room for growth of Islamic finance in Tunisia and in the region. This does not mean, however, that Islamic finance will replace conventional finance.
What is the future of Islamic banking in the country and region? What will this do for Islamic bank funding provision for projects?
Islamic banking is just another way of banking and finance. It will develop and enrich the financial sector with more financial products and a larger choice of financial solutions. The Central Bank seems to be moving in the direction of allowing banks to be either fully Islamic or to remain as conventional banks, while opening Islamic finance windows.
What is your view of the Sukuk market growth in Tunisia?
It is non-existent so far. But it is expected to start developing soon.
How have banks performed at end of 2012? What are your views for the future?
Most banks are showing positive growth in their total assets and net profit. That growth is however slightly above inflation, on the average.
What is the current political union with other Maghreb nations? How would a deeper political union affect Tunisia's economy: a bigger addressable market or more competition, less or more geopolitical risk?
The Maghreb Union project is at a standstill position for the time being. Serious studies show that the building of the Maghreb Union would add a minimum of two percentage points of growth every year to each of the member countries.
How have Tunisian asset prices (equities, fixed income, real estate) behaved in the past during periods of high tension?
Prime real estate prices continue to increase. But the stock exchange performance was negative in 2012. It continues to follow a negative trend for the current year. Very good buying opportunities are already visible in the market.
What is the current state of relationships and ties with sub-Saharan Africa, Europe and US?
The main partner for Tunisia remains by far Europe. Eighty per cent of our foreign trade, both ways, is dealt with Europe. That same percentage applies to tourism, FDI and remittances. I don't see a clear African strategy for Tunisia yet. The relationship with the US is very important, but not necessarily in economic terms.
How has the Ennahda Movement changed the outlook of the country? Please discuss the current state of government and public reactions.
Confusion is probably the right word. Doubts about the Tunisian identity and the Tunisian way of life are probably the other main feature. It is a common belief that the transition has been mismanaged so far.
Have you seen an increase in subsidies to households or major infrastructure projects going ahead?
Subsidies to households have increased significantly, but at the expense of the State Budget which shows a much larger deficit than before. The major indicators of the economy have also clearly deteriorated.
What are financial institutions' activities towards finance sector reforms?
Major financial reforms are being announced for the future. As for now, the banking sector is busy managing its NPLs and liquidity problems while trying to cope with rather difficult economic, social and political conditions.
It is obvious that there is room for growth of Islamic finance in Tunisia and in the region
Ezzeddine Saidane was trained as an economist at the University of Tunis, the University of Minnesota, USA and Oregon State University, USA. He started his career in 1974, as an Economist with the Ministry of Agriculture.
He then moved to the banking sector in 1977. He worked for BIAT (Banque Internationale Arabe de Tunisie), the largest private sector bank, from 1977 to 1998 where he filled various positions ranging from credit, marketing, capital markets to international banking. The last position with BIAT was that of Deputy General Manager. In 1998, he joined as CEO of Arab Banking Corporation Tunis, an off-shore banking unit belonging to the ABC group based in Bahrain. In 2000, he obtained a licence from the Tunisian Authorities to found ABC Bank, Tunisia, a local commercial bank of which he was Founder and CEO until October of 2003. Saidane is a banker and a professor who has taught economics and banking courses for 27 years at the IFID (Institut de Financement du Developpement) and at other educational institutions. In 2004, he founded Directway Consulting specialising in financial advisory. His main clients are banks in Tunisia, the Middle East and the Gulf, as well as state-owned and private-sector companies.
He then moved to the banking sector in 1977. He worked for BIAT (Banque Internationale Arabe de Tunisie), the largest private sector bank, from 1977 to 1998 where he filled various positions ranging from credit, marketing, capital markets to international banking. The last position with BIAT was that of Deputy General Manager. In 1998, he joined as CEO of Arab Banking Corporation Tunis, an off-shore banking unit belonging to the ABC group based in Bahrain. In 2000, he obtained a licence from the Tunisian Authorities to found ABC Bank, Tunisia, a local commercial bank of which he was Founder and CEO until October of 2003. Saidane is a banker and a professor who has taught economics and banking courses for 27 years at the IFID (Institut de Financement du Developpement) and at other educational institutions. In 2004, he founded Directway Consulting specialising in financial advisory. His main clients are banks in Tunisia, the Middle East and the Gulf, as well as state-owned and private-sector companies.
© Banker Middle East 2013
Transforming Dubai into a Global Centre for Islamic Bonds
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His Highness Sheikh Mohammad Bin Rashid Al Maktoum recently launched an initiative to transform Dubai into, among other things, a global centre for Islamic bonds (sukuk).
The initiative, called "Transforming Dubai into a Global Centre for Islamic Bonds", primarily aims at making Dubai the world capital of the sukuk market, hence potentially also transforming Dubai into the world capital of Islamic finance. According to reported statistics, Dubai's publicly listed Sukuk market alone was valued in 2012 at around USD 10 billion, making Dubai a major player in listed sukuk issuing competing with the world leaders Malaysia and London. Regionally, the UAE leads the sukuk market followed by the main regional issuers, Saudi Arabia and Qatar respectively.
Distinguishing factors:
The distinguishing factors behind the success of Dubai's sukuk industry, and Islamic finance more generally, can be attributed to various factors including economic, legal, administrative, and cultural factors. By way of an example, Dubai was the pioneer in 2010 to exempt Ijara transactions (a structure whereby title to property needs to be transferred to the bank and back to the customer) from the double payment of registration fees payable on a transfer of title; hence rendering this type of transaction more feasible, attractive, and effective. Dubai made these changes ahead of its competitors, including London where the same approach was adopted more recently.
On the economic and cultural side, the fact that Dubai is a tax free haven in which a large portion of local and regional fortunes culturally relate to Islamic finance has clear advantages. On the legal and administrative side, the necessary legal instruments were introduced in the UAE ahead of the other countries of the region and were accompanied by an effort from the executive and administrative bodies to adapt and anticipate market needs. These factors have contributed to the UAE becoming the first country in the region to achieve a leading position.
Issues and solutions:
Also, many Islamic structures, such as sukuk and property musharaka, apply the concepts of trust and beneficial ownership, which are concepts that is not accepted under UAE law and makes enforcement of Islamic structures in the UAE challenging and, to a certain extent, uncertain. Beneficial ownership is where an individual or group of individuals indirectly benefit from the title of the asset held in the name of someone else. If the local legislator could consider recognising this legal concept or introduce alternatives, this would add certainty to the application of these structures under UAE law and any related security granted over assets located in the UAE. As an example, options available in other jurisdictions include the ability to record beneficial interests in land and to legally register trust interests.
In addition, many Islamic structures entail the incorporation of an offshore special purpose vehicle (SPV). For transactions out of the UAE, offshore jurisdictions such as Jersey, the Cayman Islands and the British Virgin Islands are the popular but relatively limited choices. A one stop shop for the incorporation of SPVs for financing purposes within Dubai or the UAE would be advantageous, especially if key criteria such as speed of incorporation, low start up and annual maintenance costs, can be met.
Another issue is that courts throughout the UAE are sometimes faced to situations where they need to qualify Islamic finance arrangements using conventional laws that were not initially designed to suit Islamic finance structures because of the lack of adapted laws to date. As an example, the Dubai Courts have taken the view that an Ijara transaction viewed in its entirety is a contract for sale of property on deferred payment terms, rather than a lease. Although the approach of the Dubai Courts seems to have so far solved the issue of lack of specialised legalisation, laws specifically designed for Islamic finance structures, or which can encompass both the Islamic and the conventional models should be adopted as soon as possible to avoid misinterpretation, confusion or potential complications in the future.
Al Tamimi's engagement:
Sukuk has been a reliable financial instrument in developing many projects and certainly big projects such as airports and maritime infrastructure projects and other projects which required large scale funding in the region. Al Tamimi and Company has had the opportunity to be involved in some of these Islamic finance based projects; which in turn has helped us to identify and understand the recurrent issues among the jurisdictions of the region and how to overcome these issues to the extent possible. As you may recall from our October 2012 Law Update edition, Jordan passed a new law governing sukuk in mid September 2012 and was then followed by Tunisia, while it is now expected that other countries in the region will finalise the process of passing laws specifically governing the issuance of sukuk. We will naturally keep you updated on all major developments in this regard.
Please do not hesitate to contact us if you have any questions in regard to the above.
© Al Tamimi & Company 2013
Market to see major IPOs
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Bright outlook surrounding the Sultanate's macro-economic scenario, despite the global economic meltdown, is paving the way for a robust Initial Public Offerings (IPO) market.The market saw two initial public offerings last year, namely, Bank Nizwa andAl Izz Islamic Bank . Although the investors' approach in 2012 was cautious with the annual market return being 1.2 per cent, these two IPOs were successful in raising capital in the market.
On the other hand, the market sentiment has been very encouraging in the current year with market return year to date being 15.6 per cent as compared to the annual market return of 6.1 per cent in 2010 and minus 15.7 per cent in 2011, says Suresh Kumar, head of research, Al Maha Financial Services.
The key factors determining market returns, including macroeconomic fundamentals, corporate profitability, overall market sentiment, liquidity in the market supported by local funds and foreign investors, are also good this year. This bodes well for future IPO activity.
The IPO market got off to a strong start this year with the IPO of Sharqiyah Desalination which stood out from the crowd as being the first-ever IPO for individuals only. With the market return on the rise this year, Oman is poised to produce significant IPO activity in 2013. As the overall market sentiment is favourable at present, experts expect higher investor participation in the IPOs this year.
After Sharqiyah Desalination , as many as six more IPOs are expected this year, which include Salalah Power, Al Batinah Power, Al Suwaidi Power, Al Maha Ceramics Co , Takaful Oman and Oman Arab Bank.
Salalah Power and Water Company, which owns and operates Salalah's $1 billion independent water and power project (IWPP), is planning to float an IPO this year.
Al Batinah Power Company and Al Suwaidi Power Company are also expected to run their IPOs this year or early 2014, floating 35 per cent of their shares, as per Authority for Electricity Regulation (AER) conditions.
The shareholders of Al Maha Ceramics Co are planning to divest 40 per cent of their holding in the company in favour of investing public through an IPO this year. Oman Arab Bank's IPO is also expected to hit the market this year.
Oman was always among the region's strong IPO markets. The pace in its IPO market looks set to pick up again this year.
The Gulf Co-operation Council (GCC) region experienced a slow start to the year with two IPOs in first quarter of 2013, a pattern similar to the previous quarter which saw the same number of listings. Although IPO volumes remained flat, total offering value increased more than three times to $377 million in first quarter 2013 compared to total proceeds of $78 million raised in the same period last year. In comparison with fourth quarter 2012, total offering value increased by 35 per cent from $250 million.
Companies in the MENA region raised around $2 billion through 14 IPOs in 2012, up 134 per cent from $843.9 million in 2011, according to a report by Ernst & Young. Saudi Arabia led the country standings in 2012, raising $1.4 billion through seven IPOs, followed by the UAE with $277 million and Oman with $264.4 million. Morocco and Tunisia were the only other MENA countries with IPO activity in 2012, said the report.
Suresh Kumar says short-selling, if allowed in the Muscat Securities Market, would bring along a number of benefits like increased investor participation and market turnover. It would also lead to better price discovery and higher revenues for financial intermediaries.
On the other hand, the market sentiment has been very encouraging in the current year with market return year to date being 15.6 per cent as compared to the annual market return of 6.1 per cent in 2010 and minus 15.7 per cent in 2011, says Suresh Kumar, head of research, Al Maha Financial Services.
The key factors determining market returns, including macroeconomic fundamentals, corporate profitability, overall market sentiment, liquidity in the market supported by local funds and foreign investors, are also good this year. This bodes well for future IPO activity.
The IPO market got off to a strong start this year with the IPO of Sharqiyah Desalination which stood out from the crowd as being the first-ever IPO for individuals only. With the market return on the rise this year, Oman is poised to produce significant IPO activity in 2013. As the overall market sentiment is favourable at present, experts expect higher investor participation in the IPOs this year.
After Sharqiyah Desalination , as many as six more IPOs are expected this year, which include Salalah Power, Al Batinah Power, Al Suwaidi Power, Al Maha Ceramics Co , Takaful Oman and Oman Arab Bank.
Salalah Power and Water Company, which owns and operates Salalah's $1 billion independent water and power project (IWPP), is planning to float an IPO this year.
Al Batinah Power Company and Al Suwaidi Power Company are also expected to run their IPOs this year or early 2014, floating 35 per cent of their shares, as per Authority for Electricity Regulation (AER) conditions.
The shareholders of Al Maha Ceramics Co are planning to divest 40 per cent of their holding in the company in favour of investing public through an IPO this year. Oman Arab Bank's IPO is also expected to hit the market this year.
Oman was always among the region's strong IPO markets. The pace in its IPO market looks set to pick up again this year.
The Gulf Co-operation Council (GCC) region experienced a slow start to the year with two IPOs in first quarter of 2013, a pattern similar to the previous quarter which saw the same number of listings. Although IPO volumes remained flat, total offering value increased more than three times to $377 million in first quarter 2013 compared to total proceeds of $78 million raised in the same period last year. In comparison with fourth quarter 2012, total offering value increased by 35 per cent from $250 million.
Companies in the MENA region raised around $2 billion through 14 IPOs in 2012, up 134 per cent from $843.9 million in 2011, according to a report by Ernst & Young. Saudi Arabia led the country standings in 2012, raising $1.4 billion through seven IPOs, followed by the UAE with $277 million and Oman with $264.4 million. Morocco and Tunisia were the only other MENA countries with IPO activity in 2012, said the report.
Suresh Kumar says short-selling, if allowed in the Muscat Securities Market, would bring along a number of benefits like increased investor participation and market turnover. It would also lead to better price discovery and higher revenues for financial intermediaries.
Saudi banks to gain from sukuk growth
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The Saudi sukuk market will continue to grow over the next 12-18 months, a credit positive for Saudi banks, following a new record SR25.2 billion ($6.7 billion) issuance of riyal-denominated sukuk in 2012, said Moody's Investors Service in its report "Saudi Sukuk: Market Growth is Credit-Positive for Saudi Banks" published Monday. Strong sukuk issuance has continued in 2013, with SR11.6 billion already issued during Q1, leading the rating agency to expect that 2013 sukuk issuance will surpass 2012 levels.Moody's said the record issuance is being driven by (1) strong investor demand, with a marked preference for Islamic financings in the Kingdom; (2) increased financing opportunities to fund the country's large-scale infrastructure projects; and (3) a developing yield curve following the sovereign-guaranteed benchmark sukuk issuance by the General Authority of Civil Aviation in early 2012.
"We believe that the growing Sukuk market will be credit positive for Saudi Banks because it will provide a deeper pool of Shariah-compliant securities to facilitate liquidity management and support profitability at Islamic financial institutions (IFIs)," said Khalid Howladar, VP - Senior Credit Officer and co-author of the report. "We also believe that growth will support more term funding for all banks and ultimately encourage the reduction of persistent asset-liability mismatches, whilst facilitating further loan growth given regulatory constraints on loan-to-deposit ratios."
With limited investment options available, IFIs tend to maintain higher levels of very low-yielding cash and Islamic interbank placements on their balance sheet, thus partly sacrificing profitability to sustain their liquidity positions. A larger sukuk market would facilitate liquidity management through a pool of higher-yielding Shariah-compliant securities and offer a profitability boost to local IFIs. Deeper sukuk market in Saudi Arabia also provides a competitively priced longer-term funding option in domestic currency, which will allow conventional and Islamic banks to diversify and lengthen their funding profiles and ultimately help reduce contractual mismatches.
© The Saudi Gazette 2013
http://www.zawya.com/story/Saudi_banks_to_gain_from_sukuk_growth-ZAWYA20130618031845/
"We believe that the growing Sukuk market will be credit positive for Saudi Banks because it will provide a deeper pool of Shariah-compliant securities to facilitate liquidity management and support profitability at Islamic financial institutions (IFIs)," said Khalid Howladar, VP - Senior Credit Officer and co-author of the report. "We also believe that growth will support more term funding for all banks and ultimately encourage the reduction of persistent asset-liability mismatches, whilst facilitating further loan growth given regulatory constraints on loan-to-deposit ratios."
With limited investment options available, IFIs tend to maintain higher levels of very low-yielding cash and Islamic interbank placements on their balance sheet, thus partly sacrificing profitability to sustain their liquidity positions. A larger sukuk market would facilitate liquidity management through a pool of higher-yielding Shariah-compliant securities and offer a profitability boost to local IFIs. Deeper sukuk market in Saudi Arabia also provides a competitively priced longer-term funding option in domestic currency, which will allow conventional and Islamic banks to diversify and lengthen their funding profiles and ultimately help reduce contractual mismatches.
http://www.zawya.com/story/Saudi_banks_to_gain_from_sukuk_growth-ZAWYA20130618031845/
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