Can Dubai make it?

Are we missing the trees by looking at the forest? Given all the fanfare, regarding Dubai’s mission to position itself as the Islamic economic centre, there is a pressing need for substantial action plans that focus on key deliverables involving people or talent & knowledge. Joy Abdullah explores —“Can Dubai Make It?”

With the Halal & Islamic finance industries seeing double-digit growth in recent years’, Islamic economy has come into the spotlight and with Dubai’s announcement of re-inventing itself as the ‘Islamic economic center’ these twin industries have taken center-stage.

This is great news for a variety of reasons:

1. Business growth opportunities for multi-nationals, regional and national businesses in the twin industries of Islamic finance & Halal.
2. UAE’s seven pillar strategy brings to fore additional industries that would benefit.
3. Increasing employment requirement i.e. job opportunities which will then impact on increasing consumption.
4. Increased requirements of up-skilling of industry professionals.

But should the focus be on Islamic finance & Halal or elsewhere?

The driving forces for the Islamic economy are the twins– Islamic finance & Halal.
While these two industries are in pole position for leading Dubai’s charge to establish itself as a global center, the powerhouse that would provide the fuel to these two industries is the education sector.

Why the education sector?

There are two key drivers that are easily identified, looking at the strategic overview that has been laid out, for ensuring success of this project within the timeline given. These two drivers are common and equally important for all the seven industry sectors involved. These drivers are:

1. Talent: Having both, technical & behaviourial competencies, in key specific positions would be of crucial necessity in order to ensure successful strategy implementation.
2. Knowledge: Providing the required learning & development facility to up-skill current professionals & to develop a pipeline of talent is a long-term necessity.

In order for Dubai to be able to achieve its goal of being the Islamic economic centre, the education sector will have to take a leadership role.

Need of the hour

The education sector will have to put in place a blueprint that would provide the short-term knowledge up-skilling of professionals with the long-term graduate talents pipeline development.

Knowledge up-skilling will have to be in the form of collaborative projects, with regards to content development, between the educational and the seven key industries identified in this national project.

Industry organisations would have to look at putting in place talent development programs coupled with aiding the education sector in upgrading their academic content for developing graduate talent.

Will Dubai Make It?

These are early days still. With approximately 120 days into the 36 month project timeline valuable time is ticking by. Key action plans which show such collaborative efforts across the seven industries are yet to be seen on ground.

Whilst the hardware or infrastructure is in place it’s time to focus on the software or people that will enable Dubai to achieve its mission.

(Joy Abdullah is a cross-functional organisational expert, specialising in brand-based business sustainability which, in essence, is getting the organisation to focus on its customer experience. To know more about Joy, follow him on LinkedIn or check out his Blog Benefit Point)

Source: http://www.arabiangazette.com/can-dubai-make-it-20140423/

Halal food and lifestyle sectors to grow to $2.47 trillion by 2018

DinarStandard (DS), a growth strategy research and advisory firm specialising in the global Islamic economies, recently released the State of the Global Islamic Economy Report, in partnership with Thomson Reuters.

The report finds the market potential of the fast-growing global halal food and lifestyle sectors, worth $1.62 trillion in consumer expenditure in 2012 and expected to be valued at $2.47trn by 2018.

The report has charted a clear roadmap for companies within (or peripherally related to) the referenced industries, as well as countries at large, to distil and leverage the quantified opportunities that exist within each of these sectors, both individually and collectively.

The lack of convergence between the related Halal food and lifestyle sectors and Islamic finance sector has made Rushdi Siddiqui, senior partner at DS, to refer to the two segments as “twins separated at birth.”

“Today, there is very little connectivity between Islamic finance and halal food – the two big segments of the Islamic economy. The Islamic economy needs a global, ‘go-to’ five-star quality consulting firm and DS has provided the likes of McKinsey with quality work for western companies, country tourism boards, OIC governments, private equity firms, SMEs and non-profits. In today’s fast moving and complex financial environment, the market values timely deliverables, with ground-breaking and innovative ‘think work’,” says Siddiqui.

Dubai is determined to establish itself as the capital of the global Islamic economy. Sheikh Ahmad bin Mohammed bin Rashid Al Maktoum, in his role as chairman of Noor Bank, said recently that: “Islamic finance is the fuel to propel our nation towards even greater accomplishments”.

According to DS analysis, while the broader food and agriculture segment within OIC countries has seen 340 completed investment transactions (between 2011 to 2013) with total disclosed value of transactions at $14.9 billion, only 17 completed transactions relating to halal food companies were reported worldwide, with the seven disclosed deal amounts adding to just $22 million.

(AME INFO)

http://www.amilin.tv/news/halal-food-and-lifestyle-sectors-to-grow-to-2-47-trillion-by-2018/

Need to further internationalise Sukuk market

There is a need to further internationalise the sukuk market by making issuances in hard currencies such as the US dollar and not just confine it to the domestic currencies.

This follows the observation by a Standard & Poor’s Ratings Services (S&P) report that the lack of integration has kept sukuk a local affair.

The report, “Despite Players’ Global Aspirations, Lack Of Integration Keeps Sukuk Issuance A Local Affair”, also says the sukuk market operates as a collection of local markets, of which the strongest by far is Malaysia.

It also highlights that over 40 per cent of the worldwide issuance in 2013 was short-term sukuk issued in ringgit by just one issuer, Bank Negara Malaysia.

Moreover, it said issuance in domestic currencies continued to significantly outpace issuance in “hard” currencies such as the US dollar.

Over the past 10 years, local sukuk issuance in Malaysia and the countries in the Gulf Cooperation Council (GCC) region comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, has helped fuel impressive growth in domestic sukuk.

But of the US$117 billion in sukuk issued in 2013, only 16 per cent was truly “international”, that is, listed on major exchanges and generally issued in hard currencies.

Most international issuances to date have originated in Malaysia or the GCC. Since 2001, Standard & Poor’s has seen only about 20 international sukuk from issuers domiciled outside these countries, for a total amount of around US$10 billion.

However, interest from issuers outside these traditional markets has increased, chiefly because Sharia-compliance attracts deep-pocketed Middle Eastern and Asian investors.

S&P said it understands that about half of sukuk investors invest in such instruments for religious reasons.

It also estimates that about 60 per cent of investors in sukuk issued by entities domiciled outside the GCC and Malaysia were from the Middle East and Asia.

The structured nature and lower liquidity of sukuk means that they are generally priced with a premium compared with conventional bonds, so attracting these investors comes at a cost.

In future, S&P said it expects this premium to reduce as sukuk documentation becomes more standardised and liquidity stronger.

(BERNAMA)

http://www.amilin.tv/news/need-to-further-internationalise-sukuk-market/

Islamic finance body IIFM eyes first sukuk standard -CEO

The Bahrain-based International Islamic Financial Market (IIFM) will develop its first standard contract template for sukuk (Islamic bonds), and aims to double the number of its standards as early as next year, its chief executive told Reuters.

A standard for leasing-based sukuk will be developed first by the IIFM, a non-profit industry body which creates specifications for Islamic finance contracts, to help harmonise industry practices, said chief executive Ijlal Ahmed Alvi.

“Our aim is to come up with more standards – that is the focus we are trying to push for. We have five standards now and we hope to double that for next year.”

The move comes after a consultation meeting in Dubai this week which identified a need for guidelines covering the ijara sukuk structure, a sharia-compliant sale and lease-back contract, as a priority.

Alvi said a working group would be established after the IIFM’s board meeting in May, and it would also study other common sukuk structures such as mudaraba, wakala and musharaka, as well as convertible and exchangeable sukuk.

Sukuk issuance globally reached $117 billion last year from a total of 811 issues, of which 175 where based on the ijara structure, according to data from Zawya, a Thomson Reuters company.
The ijara sukuk standard could be ready by the end of this year at the earliest, although this would depend on the working group’s schedule, Alvi added.

The working group would include representatives from a wide range of Islamic banking institutions including the Jeddah-based Islamic Development Bank (IDB) , as well as the International Monetary Fund, he added.

While ijara sukuk are popular among corporate issuers, the absence of standard documentation has spawned different versions which can limit their acceptability among Islamic investors. A general lack of uniformly accepted standards in Islamic finance has slowed global growth of the industry.

The new sukuk standard will seek to address a variety of issues including primary market issuance and the use of special purpose vehicles, Alvi said.

In the past two years, the IIFM has launched standard contract templates for Islamic interbank transactions and profit rate swaps.

It is currently working on standards for cross-currency swaps, foreign exchange forwards and collateralised murabaha, while also consulting on credit support arrangements in Islamic finance contracts, said Alvi.

The IIFM started operations in 2002, founded by the IDB and the central banks and monetary authorities of Bahrain, Brunei, Indonesia, Malaysia and Sudan. Additional members include the State Bank of Pakistan and the Dubai International Financial Centre.

http://www.amilin.tv/news/islamic-finance-body-iifm-eyes-first-sukuk-standard-ceo/

Volume of global Halal products trade estimated at USD2trn

The Islamic Chamber of Commerce and Industry plans to launch a number of initiatives including the "Halal" project and the International Center for Operation and Development to assist in the creation of new jobs, as part of its 2014-2017 strategy.
The chamber is also looking into adopting regulations pertaining to the fund supporting members of the chamber.

The decisions came on the sidelines of the 19th meeting of the Board of Directors of the Islamic Chamber of Commerce and Industry, the 52nd session of the Finance Committee of the Islamic Chamber, and the 30th session of the General Assembly of the Chamber, which concluded recently in Tunisia.

Fahad Al-Rabiah, deputy chairman of the Council of Saudi Chambers, stressed the need for the chamber to issue certificates for Halal products and put in place certain fees to strengthen the role of the chamber.

He estimated the trade volume of halal products worldwide to be worth about two trillion dollars, of which 700 billion dollars is in the Islamic markets.

The vice-president of the Council of Saudi Chambers, who took part in the meeting as head of the Saudi delegation noted to the formation of a sub-committee to discuss the revitalization of the membership and the development of the financial resources of the chamber.

He acknowledged that the economic challenges facing the Arab and Islamic region require the interaction of all countries in the Islamic Chamber to push for Islamic economic cooperation efforts, overcome economic challenges, and address issues of community development in an active manner.

Al-Rabiah also pointed to the importance of the development of the financial resources of the Islamic Chamber to enable it to play its role toward these issues.

He called for the strengthening of economic cooperation between Islamic countries and doubling the volume of trade exchange between them via the spread of greater trade and investment opportunities available in Islamic countries.

For his part, Omar Bahalioh, secretary general of the International Trade Commission, stressed the need to collect dues from member states.

Regular payments or contributions would help meet the expenses of the activities and programs of the chamber in order to help it achieve its objectives in the region.

http://www.zawya.com/story/Volume_of_global_Halal_products_trade_estimated_at_USD2trn-ZAWYA20140405033751/

Islamic finance set to expand in Arab countries

The new agreement signed by the Jeddah-based Islamic Research & Training Institute (IRTI) and the Alexandria-based Arab Academy for Science and Technology will contribute to expanding Islamic banking and finance in the Arab world, said IRTI Director General Mohd Azmi Omar.
Speaking to Arab News, he emphasized the significance of the deal, saying it involves translation of books in Islamic banking and finance into Arabic. "Most books in the industry are now in English," the director general said.

Omar said the popularity of Islamic banking, which is value-based and production-oriented, is growing rapidly especially after the global financial crisis. "Islamic banks finance productive projects that can boost real economy and do not engage in speculative and unethical business activities," he said.

Asked why many countries are still reluctant to adopt the Islamic system, Omar said there is a lack of knowledge about the system, its benefits and how it functions. The IDB and IRTI have been spearheading a campaign to promote the system by organizing international conferences and seminars, conducting research and publishing books.

According to World Islamic Banking Competitiveness Report 2013 of Ernst & Young's, the global Islamic banking assets jumped from $1.3 trillion in 2011 to $1.8 trillion. The Islamic banking industry continues to record robust growth, with the top 20 Islamic banks registering a growth of 16 percent in the last three years, the report said.

Ismail Abdul Ghaffar Faraj, president of the academy, and IRTI chief Omar signed the agreement in the presence of Ahmed Mohamed Ali, president of Islamic Development Bank Group. It was in line with a memorandum of understanding signed by the IDB and the academy in July 2012.

The two sides will organize joint training courses in Islamic economics, Islamic finance and Islamic banking, Omar said, adding that IRTI would select the trainers for each course in coordination with the academy.

In a statement on the occasion, Faraj said the agreement would strengthen the partnership between his organization and the IDB. "I am happy over the good relations between the two institutions," the academy president said.

The IDB chief said the agreement would help the bank promote Islamic banking and finance in the member countries of Arab League, which are also members of the IDB. An affiliate of the Arab League, the academy is specialized in maritime transport. It was established in 1972.

© Arab News 2014

---

http://www.zawya.com/story/Islamic_finance_set_to_expand_in_Arab_countries-ZAWYA20140408031905/

GCC takaful industry set to stay on the path

he takaful industry in the Gulf Cooperation Council (GCC) countries will maintain its growth path in the next five years, but competition, operational issues and lack of qualified talent continue to pose challenges, experts told Gulf News on Monday.

Takaful, an Islamic alternative to conventional insurance, has been growing at a double-digit rate and global premiums are forecast to expand from $4 billion (Dh14.7 billion) in 2007 to $20 billion in 2017. As of 2010, takaful premiums accounted for nearly half (43 per cent) of the GCC region’s composite premiums, compared to 31 per cent nearly a decade ago, or in 2005.

Industry experts who attended the 9th Annual World Takaful Conference (WTC 2014) in Dubai on Monday said the profitability of takaful companies has been threatened not just by competition but by the lack of a uniform regulation that will allow them to operate across different markets. The industry also needs to invest in qualified professionals that will help drive the takaful business forward.

Takaful operators are likely to continue to struggle in the next few years, although some will look at alternative customer segments and explore merger options. There is, however, potential for growth, especially in the area of family takaful and medical insurance in major markets like the UAE and Oman.

Speaking on the sidelines of the conference, Gautam Datta, chief executive officer of Al Madina Takaful, said the uptake of takaful products is still low compared to conventional insurance, as operators struggle to compete for bigger market share.

“They’re trying to balance the return on equity with the competition, with the volume [among other issues],” Datta told Gulf News. “What is required is focus and broad vision. The biggest challenge is the operational aspect of making it work. And that is not just a challenge for takaful but for any new entrant in the market.”

However, Datta said, the industry will continue to record double-digit growth in the short term. “The GCC takaful premiums as of 2012 were roughly about $1.7 billion if I take Saudi Arabia out,” he said. “The CAGR has been in the region of about 10 to 12 per cent and I think that would be maintained, if not increased, in the next few years because of the growth in medical in the UAE and Oman.”

Christian Gregorowicz, chief executive officer of Nextcare, said that with a price-driven market like the UAE, takaful companies need to rethink their strategies, come up with new products and strengthen their customer service to stand out, and if not, sustain their business.

“The industry is on a challenging path because it’s been trying to establish itself as an alternative to conventional [insurance],” Gregorowicz told Gulf News. “It’s facing tough competition on growing its market share and on making its profitability comparable to conventional industry.

“There is price competition, especially in the UAE. At the end of the day, everything is about price.”

Globally, the takaful sector is forecast to grow by 16 per cent annually in the coming years. David McLean, chief executive of WTC, said the projection indicates a ‘slight deceleration’ when compared to the average 22 per cent growth rate that the industry achieved between 2007 and 2011.

“Though the industry has achieved significant market share in its key markets, including the Kingdom of Saudi Arabia, Malaysia, Bahrain and the UAE, the acquisition of market share has not necessarily translated into sustainable profitability levels in many instances,” he said. “Financial performance, return on equity and the quality of growth remain key challenges for takaful operators in many markets.”

By Cleofe Maceda Senior Reporter

http://www.zawya.com/story/GCC_takaful_industry_set_to_stay_on_the_path-GN_14042014_150456/

Hong Kong readies sukuk issuance

Well-written articles depend on sustained investments. You can purchase individual and corporate subscriptions as well as copyright permissions by contacting us at subscribe@theasset.com or on +852 2165 1627. To read more : http://www.theasset.com/article/26442.html#ixzz2yvmNqHP7

Hong Kong's financial platform is ready for sukuk issuance after putting in place a tax framework to level the playing field between theseand conventional bonds, and more recently a a legal framework for the government to issue sukuk under the government bond programme.

The deputy chief executive of Hong Kong Monetary Authority (HKMA) Peter Pang on April 14 told a conference on Islamic finance in Hong Kong organized jointly by HKMA and Bank Negara Malaysia that they are now working closely with the Hong Kong SAR government to prepare for the inaugural issue of a government sukuk under the government bond programme to promote the further development of the sukuk market in Hong Kong.

He said a detailed issuance plan is being devised with reference to international practices and market conditions. "According to our current plan, the inaugural government sukuk would be based on the ijara structure and targets institutional investors globally," he adds.

Bank Negara deputy governor Muhammad bin Ibrahim noted the creation of a sukuk market in Hong Kong is a timely initiative as it has the potential to further spearhead its foray into Islamic finance. He added that sukuk, as a new asset class, is ideal for portfolio diversification and is increasingly well-accepted all over the world.

"From our experience, the new venture by Hong Kong into the sukuk market may be able to deepen its bond market further and open the opportunity to tap the burgeoning investor pool seeking good quality Shariah-compliant and ethical-based instruments," pointed out Ibrahim.

Citing the benefits in tapping the sukuk market, Pang saids potential issuers would be able to broaden their investor base and diversify their funding sources. "By issuing sukuk, you will be able to get both conventional and Islamic investors to participate," he pointed out. "In particular, issuing sukuk will help you to gain access to the large pool of liquidity in the Middle East and other Islamic countries, where investors are progressively looking for Shariah-compliant assets in this part of the world."

Being a player in an increasingly developed sukuk market, Ibrahim said Hong Kong has the opportunity to adopt the best practices in sukuk issuances. The first one is in the area of Shariah standards where it provides principle-based guidance on the execution of Islamic financial contracts. Such standards are designed to cover the needs of different jurisdictions. "The adoption of these standards would contribute towards promoting greater transparency, recognition and consistency - thus facilitating greater cross-border Islamic financial transactions," he added.

The second one is to have proper legal infrastructure and dispute resolution mechanism in place to safeguard Islamic financial transactions and integrity of the financial system. Ibrahim said the comprehensive legal framework as embodies in the recently-introduced Islamic Financial Services Act 2013 by Bank Negara provides a clear focus on Shariah compliance and governance in the Islamic financial sector.

http://www.theasset.com/article/26442.html#axzz2yusXT5WE

Yurizk Launched First Online Coaching for Entrepreneurship Development in Islamic Finance and Halal Industries

Delaware, USA: Yurizk, the leading online provider of Islamic Finance education information has launched the first online leadership program for developing entrepreneurship in Islamic Finance and Halal sectors. The program will be held from May 4 to June 8, 2014 and will be delivered as live online coaching program.

Click below for the program details:
Yurizk's Business Leadership Coaching 2014

The development and growth of a sustainable Islamic economy depends on several factors, one of which is bringing creative solutions to the existing challenges through innovative ideas and turning those ideas into feasible business models. Islamic Finance industry has been focusing on building skilled labor to solve the skill gaps. However frustration from certified Islamic Finance professionals emerged while many of them were unable to find jobs within Islamic Finance industry due to lack of experience. Yurizk's Business Leadership Program aims to empower these individuals with entrepreneurial resources, strategies and tools and assist them in utilizing their knowledge, skills, and talents to bring innovative business solutions. Through entrepreneurship these professionals may choose to create their own career while bridging demand and service gaps within halal economic sectors.

"We are all human being and we become resources when we contribute effectively to the community, society and to the world at large. The definition of human resource doesn't have to be only skilled labor working 9 to 5 for someone else. In case for Islamic Finance and halal economy what should also be in consideration is whether in the long run we are solving problems or not." says Sadia Karim founder and CEO of Yurizk.

In recent industry forums efforts have been undertaken by the organizers to bring Halal sectors and Islamic Finance together. Aligning with that trend Yurizk structured the entrepreneurship development program to cater to the needs of both sectors. The program is offered to not only qualified Islamic Finance professionals but also individuals and existing SMEs who are interested in launching and growing for profit and non-profit causes within Halal economic sectors which includes Food, Finance, Fashion, Pharmaceuticals, Education, Media and Recreation, Tourism.

According to "State of the Global Islamic Economy", a recent research study published jointly by DinarStandard and Thomson Reuters, "despite a trillion dollar plus consumer market with a potential for a wider global consumer base, there are very few global brands that are based on halal integrity principles." Facilitating the growth of SMEs and investing in developing niche leadership in each Halal sector can contribute towards building global brands that are ethical and universally appealing.

Click below for the program details:
Yurizk's Business Leadership Coaching 2014

Yurizk's Business Leadership Coaching program is focused on the following five areas:

1. Empower the underutilized talents in Islamic Finance industry with entrepreneurial strategies and resources to facilitate entrepreneurship and SME development
2. Inspire niche leadership in Halal economic sectors
3. Coach new startups within Halal industries on their business management and growth areas
4. Provide strategic resources to the existing SMEs within Islamic Finance and Halal sectors in their branding, re-branding, marketing, and promotional campaigns
5. Bring insight on specific areas of opportunities within Halal sectors through guest speaker sessions

"No one can guarantee or predict the outcome when something new is launched specially in the present world that is full of uncertainty, but there is always a starting point for everything. What we are doing is initiating that starting point with our resources to contribute and to further the cause of Islamic economy by facilitating entrepreneurship development. In the long run this process may become a catalyst of innovative solutions to the existing challenges." said Yurizk CEO.

-Ends-

For further information on Yurizk's Business Leadership Coaching Program, please visit: coaching.yurizk.com/yblc2014/

About Yurizk 

Yurizk is the leading online source of global Islamic Finance education information for the stakeholders in Islamic Finance industry. Focused on facilitating human resources development for Islamic Finance industry, Yurizk has contributed the following since its inception:

2012: Launched Yurizk Directory - the first online directory of Islamic Finance education providers that houses the largest database of Islamic Finance education and training related information.

2013: Released 'Global Islamic Finance Education Report 2013' - the first of its kind report on global Islamic Finance education that revealed the latest comprehensive intelligence in education sector of Islamic Finance.

2014: Launched 'Yurizk's Business Leadership Coaching 2014' - the first online entrepreneurship development program for facilitating entrepreneurship and niche leadership in Islamic Finance and Halal industries.

Click below for the program details:
Yurizk's Business Leadership Coaching 2014

Please feel free to share the link with others.

Plan for 'Sharia-compliant' student loans to get more Muslims into university

The Universities Minister unveils plans for ‘Sharia-compliant’ student loans amid fears Muslims are being put off degree courses by the higher education finance system

A new system of “Sharia-compliant” student loans is to be launched to allow more Muslim students to go to university, it has been announced.

David Willetts, the Universities Minister, said an alternative financial model was being created to satisfy Islamic law that forbids Muslims taking out loans that make interest.

Under the system, students would apply for taxpayer-backed loans but repay them into a mutual-style fund that would be ring-fenced to provide future finance to other students with the same religious beliefs.

The move will raise concerns over a two-tier system in which Muslim students pay less than other undergraduates.

But the Government insisted it would be set up in a way that ensured repayments were made at the same rate as students who take out traditional student loans.

http://www.telegraph.co.uk/education/universityeducation/10743368/Plan-for-Sharia-compliant-student-loans-to-get-more-Muslims-into-university.html

Dubai Financial Market (DFM) publishes Sukuk standards

As part of efforts to create all-inclusive standard environment for Islamic finance and promote the ‘Dubai the Capital of Islamic Economy’ initiative, the Dubai Financial Market (DFM) has published the final version ofStandard for Issuing, Acquiring and Trading Sukuk.

http://www.cpifinancial.net/news/post/26114/dubai-financial-market-dfm-publishes-sukuk-standards

Islamic financial system: Shariah prohibits discounts, premiums in debt trading

Dominant Shariah opinion prohibits selling debt for a price other than its face value. This prohibition covers both discounts and premiums in the sale and purchase of debt.

Thus an individual, corporate or any other institution (eg government) is not allowed to sell to a third party the debt a debtor owes to it, for a price other than the face value of the debt. Furthermore, there is a clear prohibition on selling debt for debt even if the two (deferred counter-values) are equal.

There is a simple rationale behind it. Islam does not allow re-pricing of debt even if it is between the initial creditor and debtor. This is so because pre-agreed (contractual) re-pricing of debt is likely to give rise to the pre-Islamic practice of interest, known as riba, which Islam prohibited.

Although a creditor enjoys discretion to offer an early payment rebate to the debtor, Shariah does not allow formalising this discretion in the original debt agreement between the two parties. In the case of late payment by the debtor, classical Shariah opinion disallows a penalty, although the contemporary Shariah view is flexible.

In modern day practice of Islamic banking, default penalty is allowed, as long as it is used only as a deterrent to wilful non-payment or delay. In practice, this means that the creditor should not benefit, directly or indirectly, from the amount of the penalty, rather it should be given away as charity. Discretionary rebate is normally applied to early payment but may also be exercised if payments remain in accordance with the contractual schedule. It is equally permissible (rather preferred) for the debtor to pay more than he borrowed, as long as it remains discretionary on the part of the debtor and there is no contractual agreement on it.

In both the rebate and penalty cases, effectively the debt agreement is re-negotiated – potentially shortening the contract in the case of rebate and prolonging in the case of late payment or default.

Third party

Although re-pricing and limited re-negotiation of debt contracts is possible between a creditor and debtor even in Islamic finance, the mechanisms of doing so do not allow creditors to sell their debt in a meaningful way to a third party for a discounted price.

For example, consider bank A that owns a Murabaha asset with a face value of $100, which was created by selling a Shariah-compliant asset to client C on a deferred payment basis. Applying the prohibition of discounted trading in debt, bank A can sell the Murabaha asset (debt in the form of receivable) to a third party B for a price no other than $100, which must be paid on the spot (by B). If A wants to sell this debt to B for a lower price, say $90, it could do so only after unilaterally forgiving (or writing off) $10 from the debt owed by C, and then selling the remaining debt for its face value of $90. Of course, this makes little sense for B who would otherwise wish to benefit from the discount.

Having said that, there might be cases where parties A and B still wish to proceed with the transaction, which would be in compliance with Shariah.

Debt collecting agent

While discounted sale of debt is prohibited, Shariah allows partial transfer of debt through agency-based debt collection. Thus, it is permissible for creditor A to appoint a third party B as its agent to collect its debt receivable against a fixed fee and/or variable rate determined by B’s performance.

In practice, a combination of undiscounted trading in debt and the agency-based debt collection contracts can affect the economic effects of discounted trading in debt.

For example, a corporate owning a debt-based portfolio worth $100 may wish to “sell” it off by selling 50% of it to a third party for its face value, ie, $50. In addition, it appoints the same third party as its agent to collect the remaining 50% of the debt from its debtors against an agency fee of 50% of the amount collected.

This combination of debt sale and debt collection gives rise to a Shariah-compliant way of achieving the economic effect of selling $100 worth of debt, with a 25% discount.

Shariah vs conventional

There are two differences between this Shariah-compliant solution and the conventional discounted trading in debt. First, during the term of the contract between the creditor and its agent, the debt (50% of the total in this example) remains on the creditor’s balance sheet until it is paid off (ie, it is collected by the agent).

Second, the combination of (undiscounted) sale of debt and agency for debt collection is a performance-based arrangement, as the amount of “discount” very much depends on the recovery and collection of debt. If the agency fee was a fixed percentage of the amount recovered, the combination model would offer a variable “discount” depending on the performance of the agent.

The writer is an economist and PhD from Cambridge University

Published in The Express Tribune, April 7^th, 2014.

http://tribune.com.pk/story/692141/islamic-financial-system-shariah-prohibits-discounts-premiums-in-debt-trading/

Shariah-compliant listed firms increase

THE RANKS of listed firms found compliant with principles of Islamic law have grown following a quarterly review by the Philippine Stock Exchange (PSE).

An updated list of Shariah-compliant securities, uploaded on the PSE Web site on Monday, was longer at 61 out of 259 listed firms from the 47 in the first list released last December.

The latest list saw the exit of 12 companies: AgriNurture, Inc.; Alphaland Corp.; Alsons Consolidated Resources, Inc.; APC Group, Inc.; Basic Energy Corp.; Chemical Industries of the Philippines, Inc.; City & Land Developers, Inc.; Concrete Aggregates Corp. “A” and “B” shares; DFNN, Inc.; Keppel Philippines Properties, Inc.; Megawide Construction Corp.; and Philippine Realty & Holdings Corp.

There were 25 additions: Abra Mining & Industrial Corp.; Bogo-Medellin Milling Company, Inc.; Concepcion Industrial Corp.; Da Vinci Capital Holdings, Inc.; Dizon Copper Silver Mines, Inc.; Far Eastern University, Inc.; Federal Resources Investment Group, Inc.; Forum Pacific, Inc.; Globalport 900, Inc.; Greenergy Holdings, Inc.; IRC Properties, Inc.; iRipple, Inc.; Island Information & Technology, Inc.; ISM Communications Corp.; Jolliville Holdings Corp.; Millennium Global Holdings, Inc.; Minerales Industrias Corp.; MRC Allied, Inc.; NiHAO Mineral Resources, Inc.; Now Corp.; Pacifica, Inc.; SPC Power Corp.; Swift Foods, Inc.; United Paragon Mining Corp.; and Wellex Industries, Inc.

ATN Holdings, Inc. “A” and “B” shares, which were counted as one in the original list, were separated in the current roster.

Rounding up the latest list were: Aboitiz Equity Ventures, Inc.; Aboitiz Power Corp.; Apex Mining, Inc.; Araneta Properties Inc.; Asian Terminals, Inc.; Calapan Ventures, Inc.; Centro Escolar University; Chemrez Technologies, Inc.; Cirtek Holdings Philippines, Inc.; D&L Industries, Inc.; DMCI Holdings, Inc.; EEI Corp.; Holcim Philippines, Inc.; Ionics, Inc.; iPeople, Inc.; Jollibee Foods Corp.; Lafarge Republic, Inc.; Liberty Flour Mills, Inc.; Mabuhay Vinyl Corp.; Manila Bulletin Publishing Corp.; Manila Electric Co.; Marcventures Holdings, Inc.; Nickel Asia Corp.; Oriental Peninsula Resources Group, Inc.; Pepsi-Cola Products Philippines, Inc.; Philex Miing Corp.; Philex Petroleum Corp.; Philippine Long Distance Telephone Co.; Semirara Mining Corp.; Starmalls, Inc.; STI Education Systems Holdings, Inc.; Universal Robina Corp.; Vivant Corp.; and Vulcan Industrial & Mining Corp.

PSE tapped the services of San Francisco-based Islamic finance specialist IdealRatings, Inc. to screen listed firms every quarter against standards set by the Accounting and Auditing Organization for Islamic Financial Institutions.

To be Shariah-compliant, a firm’s primarily business should not be involved in conventional interest-based lending, insurance, mortgage and leasing, derivatives, pork, alcohol, tobacco, arms and weapons, embryonic stem cell research, hotels, gambling, casinos, music, cinema and adult entertainment. It can be involved in these activities but revenues from them should not exceed 5% of the total.

Moreover, interest-bearing debt and interest on deposits/investments should not exceed 30% against the company’s 12-month average market capitalization. Also, accounts receivables should not exceed 67% against the 12-month average market capitalization.

http://www.bworldonline.com/content.php?section=TopStory&title=Shariah-compliant-listed-firms-increase&id=85876

BIBF delivers Bahrain’s first Shari’ah-based risk management qualification

BIBF conducted the Kingdom’s first training course focusing entirely on concepts, strategies and instruments used for hedging risks in Islamic Finance earlier this week.

The two-day course was delivered by Dr. Sami Ebrahim Al-Suwailem, Head of Financial Product Development Center at Islamic Development Bank (IDB) in Jeddah, Saudi Arabia. Speaking from the perspective of both practitioner and Shari’ah scholar, Dr. Al- Suwailem gave real-life examples of hedging products developed by the IDB.

The course is designed for those keen to gain an in-depth understanding of hedging in Islamic banking relative to a multitude of Islamic finance contracts and products. Attendees included risk management and product development professionals, mid and top level management, credit officers and investment analysts.

BIBF Director Ms. Solveig Nicklos commented, "As Islamic Finance evolves, increasingly sophisticated techniques are required to structure products and manage risk. BIBF will continue to serve the market through thought leadership in partnership with leading subject matter experts."

http://www.cpifinancial.net/news/category/islamic-finance/post/26211/bibf-delivers-bahrains-first-shariah-based-risk-management-qualification