New rules and products lay groundwork for Nigerian Islamic finance

Nigeria is gradually opening up to Islamic finance, a move that could bring non-interest banking to over 80 million Muslims and develop one of Africa’s fastest-growing consumer and corporate banking sectors.

Home to the largest Muslim population in sub-Saharan Africa, Nigeria is trying to establish itself as the African hub for Islamic finance, which follows religious principles such as bans on interest and gambling.

In recent months, a string of regulatory initiatives have set the groundwork for products such as Islamic bonds (sukuk), insurance (takaful) and interbank lending products, although there is still only a small number of local market participants.

“The potential is there but the market is negligible in Nigeria because we have only one Islamic bank and one window — but it has potential to grow,” said Bashir Aliyu Umar, special adviser on non-interest banking to the central bank governor.

Islamic banking is currently offered by the Islamic window of Stanbic IBTC, a unit of South Africa’s Standard Bank, and Jaiz Bank, a full-fledged Islamic lender which has operated since 2012.

Abuja-based Jaiz now plans to obtain a national licence to expand operations beyond Nigeria’s north, which has been hit by an Islamist insurgency.

“That was where the security challenges started last year, that really affected the roll-out of the products,” Umar said.

Despite the challenges, Jaiz has grown its branch network to 10 from an initial three, with ambitious expansion plans calling for 100 branches by 2017.

It completed a capital raising in August, attracting investors such as the Jeddah-based Islamic Development Bank. As of June, it had total assets of 20.6 billion naira ($129 million) and capital of 10 billion naira.

Sterling Bank has been granted approval in principle for an Islamic window, while two more lenders have expressed interest in obtaining licences to operate Islamic windows, according to a central bank official.

The market needs the competition. A November report by Efina, a Lagos-based development organisation, estimated that 34.8 per cent of Nigerian adults who did not use non-interest banking products were likely to take them up if they were available.

http://gulfnews.com/business/banking/new-rules-and-products-lay-groundwork-for-nigerian-islamic-finance-1.1221575

India central bank allows non-bank Islamic finance firm

India's central bank has allowed a firm in the southern state of Kerala to operate as a non-banking financial company (NBFC) that follows Islamic principles - a small step towards developing sharia-compliant finance in the country.

An estimated 177 million Muslims in India, the largest Muslim minority population in the world, are unable to use Islamic banks because laws covering the sector require banking to be based on interest, which is forbidden in Islam.

But some companies, especially in Kerala which has a large Muslim population and an overseas diaspora of workers who remit money back from the Gulf, are nevertheless trying to develop Islamic financial products outside the banking sector.

Cheraman Financial Services, based in Kerala's city of Kochi, plans to offer leasing and equity-finance products under Islamic principles. It said it had obtained approval to operate from the Reserve Bank of India and would follow the Islamic ban on interest; it will not take deposits from customers.

"We propose to roll out the products by the end of August," a spokesman for Cheraman, formerly known as Al Barakah Financial Services, told Reuters.

He did not elaborate on the design of the products. Instead of interest, Islamic finance uses structures such as asset buy-backs and agency agreements to provide returns to investors.

The RBI did not respond to a request for comment on Cheraman's case. But its decision appears to open the door to the possibility of more NBFCs offering Islamic non-interest products in future, even though full-fledged Islamic banks are expected to remain banned.

RBI governor Duvvuri Subbarao, who will step down in September, has said Islamic banking is not possible in the country but sharia-compliant products could be delivered through alternative means.

LEGAL CHALLENGE

Last year, the RBI directed Kochi-based Alternative Investments and Credits Ltd (AICL) to stop its non-interest NBFC business almost a decade after the firm was launched. This prompted an ongoing legal challenge by AICL.

"The grant of an NBFC licence should have an impact on the AICL proceedings and there are good chances that the matter may get settled soon," said Suprio Bose, Mumbai-based lawyer at Juris Corp, a law firm which previously represented AICL.

"The event reflects a significant and welcome change in RBI's attitude towards sharia-based NBFCs and sets a precedent for others to follow suit."

However, many analysts think that unless and until full-fledged Islamic banks are permitted in India, an Islamic finance sector will find it hard to develop.

"I don't think there is going to be a rush for NBFC applications. RBI's attitude towards the sharia-compliance concept is yet to be tested," said Shariq Nisar, director of research and operations at Mumbai-based Taqwaa Advisory and Shariah Investment Solutions.

Running a sharia-compliant financial institution under Indian regulations is still difficult and other firms are likely to stay on the sidelines pending the success of existing schemes before deciding to join in, he added.

Islamic equity and venture capital products have attracted little demand in India and NBFCs could face the same fate, said Nisar. "NBFC business overall has been declining over the years."

The RBI issued guidelines for NBFCs in June, cracking down on debt issuance by an industry that relies heavily on capital markets to fund its business but has faced less regulatory oversight than banks.

According to central bank data, credit extended to NBFCs increased by 1.9 percent from a year earlier in June, compared with an increase of 43.9 percent in June last year. There are over 12,000 registered NBFCs in India.

A handful of politicians have been lobbying for years to start Islamic banking in India, but they have met strong opposition from bureaucrats in the finance ministry and banking circles. Some politicians, especially from the main opposition Bharatiya Janata Party, say they fear Islamic banking could be used by militants and might strengthen the hold of clergy over India's Muslim community. (Editing by Andrew Torchia)

http://www.reuters.com/article/2013/08/20/islamic-finance-india-idUSL6N0GK0NL20130820

Perception of money as a medium of exchange

First of all, I would like to express my sadness at the loss of a great champion of Islamic finance, Hussain Ahmad Najadi recently. He was a proponent of Islamic finance, who had moved the industry, at times single-handedly, to be where it is today.

It was an honour to have had the opportunity to interact with him especially in the early days of my career. May Allah bless him to be among the faithful in Jannah.

Last month, I wrote about the fact that there is no prohibition in the trading of debt at discount or premium under Shariah. I also said the argument prohibiting it is weak because it is based on an indirect Hadith on the trading of money. I received interesting feedback and queries on what I wrote, mostly centred on the difference between debt and money.

As such, in today’s article I will try to shed some light on what money is.

We know that money has been used by human beings as a medium of exchange for thousands of years Before Christ (BC). Money was invented because bartering system became difficult to operate. Money is simply an object that is agreed by people as having value as a medium of exchange in a trade.

Throughout the annals of human history, we know that many things have been used at one point or another in different cultures and civilisations as money, and they included things like precious stones and metals, salts, cattle, wood, tobacco, spices, leather, seashells, manillas, whales’ teeth and even wampum.

Metallurgy became a known skill and subsequently, the first official coinage was introduced in the Western world around 600BC-700BC by a tribe of people somewhere in Western Turkey. A coin was simply made of small, precisely measured flattened pieces of precious metal that had a stamp of animals on it. Due to its durability and mobility, coinage began to replace other types of money in Europe and elsewhere but it was still heavy to carry around, easily stolen and chipped.

As a solution, through Chinese ingenuity, paper money was invented around 600 After Death of Christ (AD), leading to the advent of representative money. Paper became another material that has been used as a medium of exchange, akin to how people had accepted seashells and stones as money in earlier times.

In fact, when coins became scarce in Europe due to hoarding by some rich merchants, the King of England decided to use “tally stick” made of woods as money because it was readily available, sturdy, durable and mobile.

Money is only as valuable as peoples’ faith in it, and without that faith even today’s money is just paper. Since tally stick was identified as money by the king, it made it easier for people to agree to use it.

Following which, the Bank of England (which at that time was privately owned) opted to just use coins and paper as money. The rest of the world slowly followed the standard adoption of coins and papers and as they say the rest is history.

Let’s now touch on the politics around the control of money and its circulation centred on the different theories of money, which had confused everyone on what money is really all about. There is the Credit Theory of Money and the Metallist Theory of Money. The former was supposedly idealised by Plato while the latter was idealised by Aristotle.

The Credit Theory of Money says that money is debt and debt is money or money derived its value from a corres-ponding debt issuance, while the Metallist Theory of Money says money is commodity or derived its value from commodity. With all due respect to their respective proponents, both in my opinion, are off tangent from the real essence of money.

What is the value of a wampum or whales’ teeth? Nothing if it is seen in its original form. Most people don’t care for either. However, when it is accepted as money, it carries value in the eyes of everyone as a medium of exchange. It is essentially something that has value as a medium of exchange even without fiat. Let’s call this the forgotten original or basic theory of money, in that money is what people accept as having value as a medium of exchange.

Knowing the basics of what money is will make one conclude that money is just money which is different from debt. The great debate between the Credit Theory of Money and the Metallist Theory of Money are just noises. Money is neither debt nor it is something that derived a value from the underlying object for example seashells, salts, and so on. The proponent of the two theories may disagree with me but I have always preferred to go back to the basics when I look at any subject matter isolating the irrelevant from what is relevant.

The whole confusion that debt is money or money is debt became more pronounced in the battle royale between the proponent of the Credit Theory of Money and the Metallist Theory of Money, when former US President Richard Nixon supposedly took the side of the former by suspending the link between money and gold in 1971. The latter seems to have lost the battle but they are not out yet because now there is talk of bringing back the gold standard.

Since Nixon’s act, debt creation and the creation of money increasingly takes place at once on a back to back basis. People call this fractional banking, which created more confusion on the real relationship between debt and money. If bankers themselves are confused, what more for Shariah scholars.

It is always important to remember that debt may be described in monetary terms but it is very distinct from money. A debt does not exist because money exists. A debt exists only when an indebtedness is created. There is no mysterious immaculate conception here.

Debt must be consummated in a tangible contractual relationship for it to exist. It is created separately from money. Even under the Credit Theory of Money, debt and money creation is done back to back connoting two distinct subject matters.

Indebtedness can arise or be created under a loan transaction (interest free or with interest) or under trade transactions. Money exists when people accept it as a medium of exchange. Until today, there has never been a point in time that debt has been accepted as a medium of exchange.

At the end of the day, we must always put things in the right perspective. The whole of our wealth is also referred to in monetary terms. Does that mean our wealth is money? In reality, only part of our wealth comprises money that we either keep in banks or under our pillows. The rest of our wealth i.e. our house, clothes, art collections, shares in company, investments and so on can’t be said to be money, though they are referred to in monetary terms. If they are, then are we doing riba when we sell our house at a premium? The illogical act of equating debt with money (i.e. cash or currency) by analogy or by whatever means becomes clear and visible when we start looking at things in the right perspective.

Lastly, Shariah is very clear already on the treatment of money and the treatment of debt. There is a specific written prohibition on trading money other than at par while there is no specific written prohibition on the trading of debt. Which means debt trading at whatever value is fine. Let’s stop complicating Shariah further.

***

Badlisyah Abdul Ghani is ED and CEO of CIMB Islamic Bank Bhd.

http://themalaysianreserve.com/main/sectorial/islamic-finance/4323--perception-of-money-as-a-medium-of-exchange

REDmoney inks MoU with Dubai Economic Council

REDmoney Group, the parent company of Islamic Finance News (IFN) together with the Dubai Economic Council (DEC) have signed a memorandum of understanding which enhances DEC’s role in boosting the private sector in its capacity as partner to the Dubai government for strategic decision making on the emirate’s robust economy.

In a press statement released on Tuesday, the signing the MOU on behalf of the DEC was the Secretary General of Dubai Economic Council (DEC), H.E. Hani Rashid Al Hamli and managing director and publisher at REDmoney Group, Andrew Morgan.

The ultimate objectives of this cooperation, Hani Al Hamli said, is to provide a general framework of support for strategic cooperation in different fields and in particular, to exchange advice, knowledge, contacts and particulars related to issues of mutual interest in the direction that helps in attainment of both Parties’ objectives; in addition to encourage the unification of efforts and resources of both parties in respect of the specific collaborative projects.

The partnership between the DEC and REDmoney will include the design, organization and hosting of conferences and forums on a non-exclusive basis; training; exchange of information, research findings and reports whether in a commercial, economic, financial or legal capacity; and additional studies and research in areas of mutual concern.

As the world’s leading publication on Islamic finance, Islamic Finance news is also in the position to provide information to the Emirati public through the publication of reports and studies related to different sectors in Dubai and the UAE, and to provide consultation on such issues to the DEC.

“We are extremely grateful to the DEC for this opportunity, and are confident of making significant contributions across all collaborations, based on REDmoney Group’s extensive reach and experience in the Islamic finance industry.

Our expertise in Islamic finance events is also unrivalled, while our research capability is further strengthened by our vast interactions with industry players; allowing access to invaluable primary data and research,” said the managing director of REDmoney Group, Andrew Morgan.

“We hope, in our capacity as the world’s premier Islamic finance Media Company, to play a key role in the development of the Dubai government’s aim to become a global Islamic economy and financial hub, and look forward to a fruitful partnership,” he added.

REDmoney group’s collaboration with the DEC is expected to place the council in a better position to facilitate its plans in the Dubai government’s bid to become the world’s premier Islamic economy under its Islamic Economy Agenda.

http://www.amilin.tv/news/redmoney-joins-dubai-economic-council/

Saudi leads MENA sukuk market in January-July 2013

The value of Islamic bonds issued globally from January to July 2013 slipped to USD 65 billion compared with USD 81 billion in the same period last year. However, the number of sukuk programs and tranches that were issued so far this year were relatively higher at 442 as against 417 in 2012, according to Zawya's Global Sukuk Monitor data.

The drop could be attributed to exceptionally large issues that took place in 2013, namely that of Saudi's General Authority for Civil Aviation (USD4 billion) and Malaysia's PLUS (USD10 billion), which made it hard to beat last year's levels even with a greater number of issues.

Add to that, the Holy Month of Ramadan started early this year, pushing some issuers to sell their sukuk in September, which could help markets recover and even post more bullish performance in the last quarter of 2013.

In that respect, 2013 has so far been as good as 2012 after it witnessed robust sales from Saudi Arabia, which helped the kingdom trail behind Malaysia in terms of market share both in size of sukuk issued and outstanding sukuk market.

SAUDI TRANSFORMS SUKUK LANDSCAPE

Recent developments, however, highlight Saudi Arabia's growing presence in the global Islamic bond market. The kingdom is not just a mere financial hub entering the market, but one of the largest Muslim economies in the world with insurmountable potential buoyed by its huge economic development program and long list of projects pipeline.

In addition, the oil-rich nation's clout spans some of the world's most influential agencies from the Organization of the Islamic Conference (OIC) to the Organization of the Oil Exporting Countries (OPEC), and almost every politically-, economically- and Shariah-related sectors.

Because of its financial weight, Saudi Arabia was able to make up for the slowdown experienced by the MENA sukuk market following the Arab Spring. It will be interesting to note that should countries like Egypt, Morocco, Tunisia and Oman start using sukuk as a means to access capital, MENA could rival Southeast Asia (SEA), which currently dominates the global sukuk scene. A bullish MENA sukuk will also diversify a market that is historically controlled by GCC and SEA players.

In the first seven months of 2013, Saudi Arabia sold USD8.2 billion of sukuk through 13 deals, followed by the UAE with USD5.16 billion from nine deals.

PLAYING FIELD WIDENS

Interesting deals that closed in July included Singapore-based Swiber's SGD150 million sukuk, which opened the possibility for Singapore to play a key role in SEA besides Malaysia and Indonesia, as well as other Asian countries like Pakistan. Singapore also attracted investors from neighboring Brunei, which should encourage issuers from this other SEA nation to sell sukuk.

Meanwhile, Saudi Binladin Group's sukuk is an example of a construction company in the MENA region that continues to sell short-term sukuk every year - a unique model from the Middle East region.Dubai is also bidding to become the world's Islamic economy and sukuk capital - an objective that will nevertheless be associated with a couple of issues that help aid the city's dream.

Surprises in the remaining four to five months of the year are still possible and all eyes are on new markets planning to enter the sukuk industry. While Muslims and Islamic capital markets experienced a relatively dormant July-August Ramadan and Eid break, governments and companies from different countries announced or have indicated that they are actively working on, or considering selling sukuk.

Saudi Arabia's GACA is reportedly considering selling a second huge tranche under its sukuk program, and talkshave emerged on the Saudi transport's plan to use sukuk to finance its multi-billion dollar project.

Luxembourg-based ATLANTICLUX Lebensversicherung announced its USD100 million Salam III sukuk via a Fitch rating press release on August 9. This is the first surprise. We still await Oman's Tilal to announce plans to close its first Omani sukuk deal. In Egypt, once the political conflict has been resolved, authorities are eyeing to sell the nation's first sovereign sukuk. Other issuers could be Saudi's Almarai and Bahri, IILM short-termed sukuk, Bahrain's Al Baraka, Dubai's DMCC and Dubai Investments Park.

For more in-depth analysis on select sukuk deals and trends, discussions and findings, and exclusive content, please join the Islamic Finance Gateway Community, where you can receive daily and weekly briefings or invitations to focus sessions and events.

Adnan Halawi is product manager at Zawya Islamic Finance and can be reached atadnan.halawi@thomsonreuters.com

http://www.zawya.com/story/Sukuk_value_down_as_volumes_rise-ZAWYA20130813080534/?utm_source=zawya&utm_medium=web&utm_content=editors-pick&utm_campaign=story

Dubai to launch global Islamic economy summit

The Dubai Chamber of Commerce and Industry will launch the first Global Islamic Economy Summit in Dubai in November. The conference is aimed at bringing together leading thinkers and policy makers from around the world.

The summit will be organised in partnership with Thomson Reuters and will initiate dialogue on the development of integrated sectors of the Islamic economy, covering Islamic financial services, halal manufacturing and related lifestyle sectors.

“As part of the ‘Dubai: Capital of Islamic Economy’ initiative, the Global Islamic Economy Summit 2013 offers that one point of focus highlighting a world of opportunities in the Islamic economy. And there’s no better place to do it than Dubai, the geographic and economic nexus of the Islamic world and a melting pot of citizens from hundreds of countries and dozens of cultures,” said Mohammad Abdullah Gergawi, Minister of Cabinet Affairs, and Director General of Dubai Executive Council and Chairman of the Executive Office.

The scale of opportunities and challenges within the global Islamic economy will be assessed at the summit. The six pillars of an Islamic economy — Islamic finance, halal food, halal lifestyle, halal travel, SME development and Islamic economy infrastructure — will be major discussion points at the summit.

“As a growing global business and leisure destination, Dubai is an ideal choice to become the capital of the Islamic economy. The UAE is already one of the biggest markets in the region for Islamic banking and we see major opportunities to enhance the halal food industry, develop trade policies and commercial laws and Islamic tourism among other sectors. The Global Islamic Economy Summit will be the ideal platform to explore these ideas and begin a constructive dialogue for future growth and development,” said Abdul Rahman Saif Al Ghurair, chairman, Dubai Chamber.

Earlier initiative

Earlier this year, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, had launched an initiative to turn the emirate into a global Islamic economy capital.

The global Islamic economy is estimated at $4 billion, with a consumer base of 1.6 billion Muslims.

Adnan Yousuf, chairman of the Union of Arab Banks, told Gulf News that these initiatives will not only protect the UAE economy but also have a positive impact on the Gulf economy overall.

“These initiatives will open a new channel of investments and cash flow into the region,” he said. “In the coming five years, the Islamic economy will represent 40 per cent of the overall economy.”

He said that the first Islamic economy infrastructure has its roots in Bahrain decades ago and other Gulf countries have also started implementing all the necessary legal and financial infrastructures for Islamic economy where Dubai comes at the forefront.

By Zaher Bitar Senior Reporter

Gulf News 2013. All rights reserved.

http://www.zawya.com/story/Dubai_to_launch_global_Islamic_economy_summit-GN_12082013_130830/

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