Don’t worry, be happy — it’s time to cheer up

The Islamic finance market is having arguably its best year ever. After a catalogue of breakthroughs, the industry has plenty to celebrate and every reason to look forward to an even better 2013. So why is it so downbeat? 

There was a oddly sombre mood at the Kuala Lumpur Islamic Finance Forum last week — odd because 2011’s event had been so upbeat and because the industry is enjoying such a successful 2012.

It may be that the approaching Malaysian elections have encouraged more introspection. Perhaps there was a bigger share of local attendees to the conference than last year. Or perhaps it was just because bankers were thinking about all the paperwork they still had to do ahead of fourth quarter reporting.

Whatever the reason, there was an eerie hush on day one of this year’s event — a sharp contrast to 2011’s rambunctious crowd. The difference was not lost on those chairing the discussions. Richard Thomas, CEO of Gatehouse, a London-based Islamic bank, kicked off the second morning by asking speakers to talk about what had made them happiest over the last year.

Game changers

They have plenty to choose from. Islamic finance in 2012 has witnessed a litany of game-changers — particularly in the international primary market. Turkey finally cast aside its secular misgivings and issued a benchmark-setting debut $1.5bn sukuk, while Qatar’s $4bn Islamic debut drew an unprecedented $26bn global book.

Malaysia, for its part, began the year with a record breaking MR19.6bn ($6.18bn) public sukuk from Plus Expressways, while the recent $1.5bn multi-currency sukuk programme from mobile phone company Axiata Group opened the door wide to Chinese investment in Malaysia with its inclusion of a well received Rmb1bn ($157.8m) debut dim sum note.

The Gulf has bounced back from the financial crisis, with Dubai’s storming market return via a $1.25bn sukuk that included five and 10-year tranches. Saudi Electricity Co also managed to push out investor trust to 10 years with its $1.75bn sukuk, which drew over $18bn of orders. Meanwhile, Islamic Development Bank issued $800bn of sukuk (its biggest deal since the crisis) at the tightest ever spreads of just 40bp over mid-swaps — converging on the levels of its better-known conventional development bank peers.

The sector is rapidly broadening, too, with new entrants lining up to join the ranks of international sukuk issuers. Post-revolutionary Egypt is closing in on laws that will allow it to issue a deal, while South Africa continues to work meticulously towards its own debut. Kazakhstan has gone further, issuing a MR240m ($76m) sovereign proxy bond into Malaysia through its Development Bank.

All of this has been accompanied by frenzied activity behind the scenes, with the industry making huge progress in areas such as regulation, tax law, indexing, Shariah standards, microfinance initiatives and human capital.

It's still too soon to say that 2012 will pass without a single blip — Dana Gas has a difficult looming sukuk maturity next week. But even a disastrous result there would be only a small cloud in an otherwise blue sky. Momentum is a precious commodity in the current market environment, and Islamic finance seems to have it in spades. In the interests of building a sound pipeline for 2013, it needs to get a little less bashful and a little more celebratory.

http://www.euroweek.com/Article/3107296/Dont-worry-be-happyits-time-to-cheer-up.html

Islamic finance thrives, amid global crisis

The global financial crisis has hurt most banks, but the Islamic banking sector is doing well. The Islamic finance sector is enjoying double-digit growth and proving to be a viable economic alternative.

The Islamic faith has over one and a half billion followers--a demographic searching for the right tools combining their beliefs with the best of capitalism.

Omar Sheikh, Exec. Board Member, Islamic Finance Council, said,"Against the backdrop of the seismic collapse of the conventional finance market and the moral bankruptcy that’s come out, people are more and more looking, these are people of all faiths or people of no faith for that matter, they’re more and more looking for an alternative, a stable alternative, an ethical alternative, an alternative that’s more socially aligned and Islamic finance can present that if its principles are truly applied."

Islamic finance-is governed by the basic principles of Islamic law or shariah-at its core-a ban on charging and receiving interest.

It prohibits investments in sectors considered harmful to society as gambling, pornography, alcohol and arms.

Sectors as technology, real estate and commodities as mining are halal.

Zahir Khurshid, head of products, Dubai Band, Emirates Islamic Bank, said,"All of the banks as well as investment banks that they have or anybody who wants to state or claim that this is shariah compliant will get the portfolio reviewed by their shariah advisors. So they will have a shariah board, they will have their shariah advisors or a set of advisors who will review the portfolio then they will give their declaration that yes these funds are they meet, they’re not contrary to any shariah principles."

The financial model is asset-based, Islamic banks aren’t allowed to engage in derivatives-doing away with speculation and volatility.

Mahvish Khan, Dubai, said,"According to Standard and Poors the $1 trillion global Islamic finance industry is set to grow by 20 percent from 2011 to 2015, doubling in size, an indication that many are putting their faith in Islamic finance."

Sukuks or Islamic bonds are also driving growth, Ernst and Young estimates sukuks will reach nearly 900 billion dollars of issuances over the next five years.

As Islamic finance grows in popularity-driven by wealthy Muslims-conventional banks are also joining in.

http://english.cntv.cn/program/newsupdate/20121026/106944.shtml

Islamic finance shall be ethic model for global banking: banker

 In order to avoid a repetition of the financial crisis' shocks, Islamic finance can be an ethical and sustainable business model in the global financial landscape, said Tirad Al Mahmoud, CEO of Abu Dhabi Islamic Bank (ADIB) Sunday.

Speaking on Bloomberg Television's inaugural episode named " Faith in Finance", Mahmoud said conventional banks shall endorse the principles of Islamic finance as a non-interest, non- conventional, ethical style of investing.

According to global auditing and consultancy firm Ernst and Young, there are 390 Islamic financial institutions worldwide, based in 75 countries. Islamic investments reach the mark of 1.2 trillion U.S. dollars, Ernst and Young estimated.

"There is enormous demand for ethical banking all over the world, especially in the aftermath of the global financial crisis. Global consumers do not want any more to lose their savings and sometimes even their pensions," said Mahmoud.

The global financial crisis, which started with the downfall of U.S. investment bank Lehman Brothers in September 2008, was mainly triggered by excessive high-yield lending, uncontrolled speculation and exploiting retail bank customers by putting their savings into risky investment vehicles.

ADIB, which is primarily active in retail and corporate banking, reported on Oct. 16 a group net profit for the nine-month period of 958.5 million dirhams (261.38 million U.S. dollars), representing an increase of 21 percent year-on-year.

Based on Islamic law or Shari'ah, Islamic banks are not allowed to lend money against interest, nor are Islamic funds allowed to speculate with money by buying and selling shares on the same day. Investing into firms which produce un-Islamic goods like alcohol, pork meat, entertainment products or weapons are also banned under Shari'ah.

Consistency of performance and not excessive outperformance shall be the ethical guidelines for global finance in the coming years, Mahmoud said.

"Shari'ah-inspired finance has brought discipline and high- ethical standards to banking," Mahmoud said, adding that "we make money in a way that is transparent and far from being excessive... We make money when the client is able to perform and honor his contracts."

"We don't have a monopoly over these values, but we see a real value to promote them in the best interest of the banking industry all over the world," said Mahmoud.

http://www.shanghaidaily.com/article/article_xinhua.asp?id=104217

Islamic Finance In Australia Part 3 - What's Stopping Islamic Finance Flourishing and What Must Be Done

If Australia's desire to become a regional financial services centre is to ever progress beyond just rhetoric, then we must come to terms with our location. On our door step sits the world's largest Muslim population with a growing demand for Islamic financial products and services.

Australia can rise to become an important Islamic finance hub in Asia Pacific but it requires urgent regulatory and tax reform.

It was two years ago that the Board of Taxation first alerted the Government to the challenges facing Islamic finance in Australia. The Board recommended a raft of regulatory reforms designed to make it easier for Islamic products to be approved and supervised.

While it was an encouraging start, since then the Government has sat on its hands, putting off making the necessary regulatory and tax changes....

http://www.mondaq.com/australia/x/203322/islamic+finance/Islamic+Finance+In+Australia+Part+3+Whats+Stopping+Islamic+Finance+Flourishing+and+What+Must+Be+Done

Lack Of Rules Hinders Islamic Financing

After 40 years of delays, the Philippines still faces hurdles in a renewed push to attract Shariah-compliant investors to Muslim Mindanao, its poorest region, according to Islamic lenders.

The Southeast Asian nation lacks regulations and talent to develop the market, said Kuala Lumpur-based Asian Finance Bank Bhd. and CIMB Group Holdings Bhd. Al-Amanah Islamic Investment Bank in Manila, the sole lender dedicated to the industry, was forced to postpone a sale of what would have been the country's first sukuk last year because it wasn't making a profit.

The government announced over the past month that it would draw up a list of Shariah-compliant stocks and revisit a plan to sell bonds complying with the Koran's ban on interest, after signing a peace treaty with rebels to end a four-decade insurgency in the resource rich south. Now is an opportune moment to promote legislation for Islamic finance, Treasurer Roberto Tan said in an Oct. 18 interview in Manila, adding that it would help integrate the Muslim community.

"What remains to be seen is whether the Philippines can develop a tax-friendly regulatory framework and muster the political will to raise awareness of the benefits of Islamic financing," Malek Khodr Temsah, vice president of treasury and investments at Albaraka Banking Group BSC in Bahrain, said in an Oct. 24 interview. President Benigno Aquino's commitment to "lay the groundwork to develop Islamic finance isn't in doubt," he said.

The Philippines has toyed with proposals to draft a Shariah finance bill since 1973 as it seeks development funds for the autonomous region of Mindanao, home to most of its five million Muslims. Idiosa B. Ursolino, Al-Amanah's senior vice president, said in an Oct. 24 e-mail that the bank has no immediate plan to sell sukuk even after it trimmed losses last year.

The government may consider selling Islamic bonds to raise cash for Mindanao, Finance Undersecretary Rosalia de Leon told reporters in Manila on Oct. 17.

Issuing sukuk may be more expensive than debt that doesn't comply with religious tenets. The yield on the Philippines 4 percent non-Shariah-compliant notes due in 2021 dropped 140 basis points, or 1.40 percentage points, to 2.33 percent from the year's high of 3.73 percent reached in January, according to data compiled by Bloomberg. That compares with record-low borrowing costs for global Islamic securities of 2.86 percent, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows.

Sergey Dergachev, a senior portfolio manager at Union Investment Privatfonds in Frankfurt, said he would buy a sukuk from the Philippines as sovereign Islamic bonds are rare and they would offer diversification. Albaraka's Temsah said he isn't interested as valuations aren't compelling.

"I would assume that a Philippine sukuk would be strongly supported by local banks and dedicated sukuk investors, making this deal very interesting," Dergachev said in an e-mailed reply to questions on Oct. 24.

Global issuance of Islamic bonds climbed 79 percent to a record $39.4 billion in 2012 from a year earlier, data compiled by Bloomberg show. The notes returned 8.5 percent this year, while debt in developing markets jumped 16.3 percent, according to separate prices on the HSBC/Nasdaq index and JPMorgan Chase & Co.'s EMBI Global Composite Index.

Average yields on sukuk have dropped 113 basis points this year, narrowing the spread with the London interbank offered rate by 91 basis points to 182 basis points as of Oct. 24, the HSBC/Nasdaq index shows.

The Southeast Asian nation will face challenges like all new countries looking to develop a Shariah market, according to Asian Finance Bank and CIMB Group Holdings.

It took Malaysia, a global hub for financing along religious guidelines, 30 years to develop into what it is today, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group, said in an Oct. 25 interview.

Al-Amanah was set up in 1973 by then President Ferdinand Marcos with a mandate to promote development in Mindanao through banking, financing and agricultural ventures in accordance with Shariah law, its website says.

The bank is undergoing a five-year rehabilitation plan that started in 2010 and is still looking for an investor expert in Shariah finance to purchase a stake, Senior Vice President Ursolino said. It has nine branches and plans to open 10 more in the next two years, subject to finding a buyer, she said, adding that it has assets of less than 1 billion pesos ($24.3 million).

"There's no notable growth in assets or improvement in deposits because of the limitations in Islamic investments," she said in the e-mail. "We hope there will be renewed interest in Islamic banking with the latest peace treaty. Al-Amanah can be an instrument to introduce economic development in the area following the Shariah principles."

President Aquino announced an agreement on Oct. 7 to create a "political entity" called Bangsamoro to replace the failed autonomous region set up in 1989. The talks with the Moro Islamic Liberation Front called for a 15-member committee to draft a new law that will need to be passed in Congress and approved by a local referendum.

The region has per capita gross domestic product of 26,000 pesos, the lowest among the 17 provinces and below the national average of 103,366 pesos, according to the government's National Statistical Coordination Board. Muslims account for 5 percent of the 103 million population, the U.S.-based Central Intelligence Agency estimates.

Finance Secretary Cesar Purisima said in February last year that the government was studying options for Islamic banking in Mindanao. Central bank Governor Amando Tetangco said in July of 2010 that the monetary authority was drafting a Shariah bill.

"The Philippines can successfully open up its Islamic finance market once it puts in a place a broader and deeper infrastructure framework," CIMB's Badlisyah said. "Mindanao is resource-rich, and when peace settles it would be a natural market that Islamic players would look at."

Al-Amanah is holding consultations with the stock market regulator, government agencies and the Asian Development Bank to compile standards for Islamic equities, Leo Quinitio, head of the exchange's capital markets development division, said in a Sept. 21 interview.

Shariah law bars investment in businesses deemed unethical such as those involved in gambling, pork, alcohol and pornography, as well as some entertainment establishments.

The Dow Jones Islamic Market World Index of companies that operate in accordance with Shariah law rose 9 percent this year, outpacing a 7.8 percent gain in the MSCI Asia Pacific Index.

"The Philippines has a long way to go," Mohamed Azahari Kamil, CEO of Asian Finance Bank, the Malaysian unit of Qatar Islamic Bank SAQ, said in an Oct. 25 interview. "How fast the Philippine government will be able to implement Shariah rules and the level of acceptance are some of the challenges that it will have to face."

http://ph.news.yahoo.com/lack-rules-hinders-islamic-financing-083352401--finance.html

Islamic Microfinance has solution of all issues relating to poverty: Zubair Mughal

Poverty has become a global problem. Due to the current Global Financial Crisis, even the Developed countries of world are also trying to fight against poverty whereas the solution of all the problems and issues related to poverty lies in Islamic Microfinance.

These thoughts were expressed by the Chief Executive Officer of AlHuda Centre of Islamic Banking and Economics, Mr. Zubair Mughal in an International Microfinance Conference which was held in Yogyakarta, the city of Indonesia.

The Conference was jointly organized by Government of Indonesia and World Bank. Delegates and experts from 30 different countries including Dr. Susilo Bambang Yudhoyono – President of Indonesia, Noble Prize Winner Dr. Muhammad Yunus – Founder Grameen Bank, Dr. Larry Reed – Director of Global Microcredit Summit Campaign, Mayada El. Zoghbhi – World Bank and 600 people participated in the conference.

Conference was inaugurated by the President of Indonesia – Dr. Susilo Bambang Yudhoyono whereas Ministers, Governors, Parliamentarians and Ambassadors of Indonesia have also participated in the conference. In the inaugural speech, President of Indonesia has declared Microfinance as an effective strategy for the eradication of poverty and by using this source; poverty has decreased in many countries including Indonesia.

While addressing to the ceremony, Dr. Muhammad Yunus explained that how Grameen Bank started social work for reducing poverty and fulfilled the needs of poor people by starting the social work instead of Charity and met their financial needs by giving them small loans and now finally they are useful civilians of society.

Government of Indonesia has specially invited Mr. Muhammad Zubair Mughal to speak on the topic of Islamic Microfinance. During his address, he said that recent research has proved that Islamic Microfinance is a good alternative for eradication of poverty from which both Muslims and Non- Muslims can get benefits.

He further said that in order to provide Islamic Microfinance to poor people, one should firstly determine the level of poverty of the poor so that relevant products of Islamic Microfinance may be used to remove the poverty.

He said that the people living in the underneath of poverty should be given products like Zakah Ushar, Sadqah so that they could come to the next level whereas the poor falling in the middle level of poverty should be given products like Musharakha, Mudarbah and Murabaha and poor living in the last stage of poverty must also be given Salam and Istisna in addition to Murabah and once poor crosses the line of poverty, they should be given the facility of Microtakaful (Islamic Insurance) for safety net so that they may not return to the darkness of poverty.

International experts and the audience of the conference highly appreciated Islamic Microfinance as a best solution for poverty alleviation and Mr. Muhammad Yunus has appreciated the efforts of Mr. Zubair Mughal for the promotion of Islamic Microfinance.

http://pakistannewswire.net/?p=49778

Capital Market Authority and Islamic Ministry unite to promote Islamic finance

The Maldives Capital Market Development Authority (CDMA) has signed a memorandum of understanding with the Ministry for Islamic Affairs to further develop an Islamic capital market in the country.

Among the most prominent details of the agreement was a joint commitment to establish the ‘Maldives Centre for Islamic Capital Market and Finance’.

“This is going to help in promoting the various services available in Islamic financial services under one organisation,” read a press release from the CDMA.

Other features of the arrangement include the scheduling of meetings between the CDMA’s Capital Market Shariah Advisory Committee and the Ministry’s Fiqh academy, a program of training events on the practice, and the ministry’s endorsement of Shariah advisors registered with the CDMA.

The CDMA is an independent body charged with regulating the capital market and the pension industry in the Maldives, with statutory powers to license brokers, asset managers, and investment advisors.

“The vision of CMDA is to develop an Islamic capital market parallel to the existing conventional capital market in Maldives,” reads the authority’s website.

The country’s first shariah-compliant bank opened just over 18 months ago, when the Maldives’ Islamic Bank (MIB) first began offering services to the public after what the company’s head described as strong demand.

MIB is part owned by the Ministry of Finance and Ministry (15 percent), with the remaining 85 percent owned by the Islamic Corporation for the Development of the Private Sector (ICD) – a Saudi based multilateral organisation designed to promote Islamic finance globally.

2011 also saw the first public offering for a Shariah compliant company on the Maldives Stock Exchange – Amana Takaful (Maldives) Plc – for which shares were oversubscribed, report the CDMA.

Amana Takaful offers Shariah compliant insurance services, including third party vehicle insurance, which became mandatory in the country earlier this month.

Director of Amana Takaful Osman Kassim explained at the time that Islamic finance was “a phenomenon worth 1.4 trillion and growing at a rate of 20 percent annually,” which functioned through the prohibition of riba, or interest.

“Taking a return without participating in the risk of the return is not allowed, be it 1 percent or 99 percent. Any additional revenue is riba,” he said. “Even if you give a loan and he gives a gift, and is not in the habit of giving a gift, that is also riba.”

Islamic finance in its current form emerged 40 years ago, Kassim explained, first in Egypt and the Arab Emirates.

“It promises to be a just system. Interest is oppression – the charging of something where nothing is due,” he said, noting that in the wake of the global financial crisis, “All major banks now have Islamic financing products, and the more adventurous have their own Sharia Councils.”

Islamic finance and financial products also differ from conventional services in that they abstain from ‘Maisir’ and ‘Gharar’ – speculative transactions – considered akin to gambling under Shariah.

Minivan News was unable to gain further comment from the Ministry of Islamic Affairs at the time of press.

http://minivannews.com/society/capital-market-authority-and-islamic-ministry-unite-to-promote-islamic-finance-46439

Islamic Finance Rules Edge Forward Amid 5-Year Impasse

After at least five years of delays, Islamic finance experts in Saudi Arabia and Malaysia are renewing efforts to create common regulations for scholars.

Malaysia’s International Shariah Research Academy for Islamic Finance is working with its Middle Eastern counterpart on guidelines that will address the number of boards on which scholars can sit to reduce conflicts of interest, according to Executive Director Mohamad Akram Laldin in Kuala Lumpur. An institution will also be established to provide global accreditation, said Akram, who helped set up a body last year to oversee advisers’ activities in the Southeast Asian nation.

The industry needs such measures to boost confidence and improve transparency, Abas A. Jalil, Kuala Lumpur-based chief executive officer of Amanah Capital Group Ltd., said in an interview yesterday. Discussions have faltered in the past because of Persian Gulf experts’ more stringent interpretations of Shariah law, which could still hinder progress, he said.

“The main challenge is to get everyone on the same page,” Abas, who has helped form Islamic funds in Bahrain and Kazakhstan, said. “Scholars in Malaysia are more liberal. In the Middle East, their products focus mainly on local investors so they don’t mind not being flexible.”

Share Ownership

In most countries there’s no limit to the number of entities to which a scholar can advise on Shariah compliance, Akram at Malaysia’s academy, said in an Oct. 10 interview. To avoid conflict of interest in the Southeast Asian nation, the central bank doesn’t allow Islamic experts to sit on more than one board involved in the same business.

The new rules being worked on in conjunction with the Islamic Research & Training Institute in Jeddah, Saudi Arabia, will also determine if religious scholars can own shares in companies they advise and govern the disclosure of information relating to products they help structure, Akram said.

“A universal Shariah governance framework will enhance competitiveness and growth of Islamic financial institutions,” Abdul Rahim Abdul Rahman, a scholar who advises HSBC Amanah Malaysia Bhd. in Kuala Lumpur, said in an Oct. 14 e-mail. “Shariah governance will ensure the achievement of accountability toward stakeholders.”

The $1.3 trillion global Islamic finance industry is seeing annual average growth rates of 15 percent, Malaysia’s Securities Commission said in a June 27 statement. The proposed regulations from the two academies come as sales of Shariah-compliant debt, which pays returns on assets to comply with Islam’s ban on interest, climbed to a record in the six-member Gulf Cooperation Council, which includes Saudi Arabia.

Record Sukuk

Issuance in the GCC rose four-fold to $19.2 billion in 2012 from a year earlier to account for 49 percent of the $39.1 billion worldwide, which is also an all-time high, according to data compiled by Bloomberg.

Global Islamic bonds returned 8.1 percent this year, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows, while debt in emerging economies gained 16 percent, according to JPMorgan Chase & Co.’s EMBI Global Composite Index.

Average yields on sukuk fell five basis points last week to a record low of 2.92 percent, after dropping 42 basis points in the July-to-September quarter, according to the HSBC/Nasdaq index. The difference between the average and the London interbank offered rate, or Libor, narrowed one basis point, or 0.01 percentage point, to 195 basis points.

Public Trust

The Bloomberg-AIBIM Bursa Malaysia Corporate Index, which tracks 57 local-currency sukuk in the world’s biggest Islamic debt market, gained 0.5 percent last week to 101.085. It reached an all-time high of 101.1963 on Sept. 26.

The proposed guidelines would strengthen an industry which now has varying degrees of supervision for religious experts, Megat Hizaini Hassan, partner and head of the Islamic finance practice at Kuala Lumpur-based law firm Lee Hishammuddin Allen & Gledhill, said in an e-mail yesterday.

Engku Rabiah Adawiah Engku Ali, a scholar who sits on Bank Negara Malaysia’s Shariah Advisory Council in Kuala Lumpur, said in an Oct. 12 interview that a more robust framework would reinforce the public’s trust.

Islamic experts versed in Shariah law are generally required to have recognized university degrees before they can act as advisers to banks and companies. A shortage of trained personnel means they tend to sit on a number of advisory boards simultaneously.

“Some Islamic Scholars with the highest qualifications from top religious schools do not have a good knowledge of economics and financial products, yet they sit on various boards because of their influence in the Islamic world,” Amanah Capital’s Abas said.

‘Self-Regulated’

Mohammad Daud Bakar, a scholar who heads Bank Negara’s Shariah committee also sits on boards of Malaysia’s Securities Commission, Islamic Bank of Asia Ltd., BNP Paribas SA and Noor Islamic Bank among others, according to the institutions’ websites.

Mohamed Ali Elgari, an expert in Kuala Lumpur, holds positions on boards including those of HSBC Amanah Malaysia Bhd., Islamic Bank of Asia, National Commercial Bank, and Abu Dhabi Islamic Bank PJSC, the lenders’ websites show.

Islamic markets would benefit from rules overseeing scholars although it could be a challenge to create a set of guidelines that are applicable worldwide, according to Hong Kong-based law firm Norton Rose.

“Scholars operate on a global basis and it is very difficult to create regulations and systems which apply across borders,” Davide Barzilai, a partner with Norton Rose, said in an e-mail yesterday. “Scholars are self-regulated by the market and of course by their own conscience and Shariah.”

To contact the reporters on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

http://www.businessweek.com/news/2012-10-15/scholar-rules-edge-forward-amid-5-year-impasse-islamic-finance

Islamic finance to be demand-driven: KPMG

KPMG, a leading International firm providing Audit, Tax and Advisory services yesterday organised at the Grand Hyatt, a seminar on Islamic Finance-Lessons Learnt from abroad & Challenges faced in Oman.

This was the latest in a series of Breakfast Seminars that KPMG held earlier and is planning to hold over the coming months. This Seminar brought together people involved with Islamic Finance industry, the regulators and the support organisations.

Khalid Ansari, Partner in Charge of Advisory Services of KPMG in Oman, highlighted that the seminar had received an enthusiastic response, with representatives attending from a wide variety of Islamic Finance industry groups and regulatory organiSations. The seminar was delivered by Khalid Yousaf, Director Islamic Finance Advisory Services of KPMG in Oman.

The seminar provided a comparative analysis of Islamic Finance models adopted by various countries around the world, their experiences and the pros and cons of their approaches.

Khalid highlighted the aspects of lessons learnt from other countries and how a methodical approach for the development of Islamic Finance industry infrastructure could be taken for best results in Oman. The challenges and issues relating to Islamic Finance in Oman will require government and regulatory authorities’ attention and support for the industry to achieve a successful launch and rapid growth. He emphasised that since the introduction of Islamic Finance in Oman is demand-driven from markets and customers, its future is secure. The growth after a steady start is likely to overtake the conventional banking assets by 2020.

The audience actively participated in the discussions with questions, practical problems and suggestions throughout the presentation which made the seminar highly interactive and interesting.

Khalid Ansari mentioned that KPMG is running similar Breakfast Seminars in the coming months covering topical issues in Islamic Finance. He also invited the participants to suggest topics which could be addressed in future seminars.

http://main.omanobserver.om/node/115476

EASE LAWS TO ALLOW ISLAMIC FINANCE TO FLOURISH

The federal government is under pressure to tweak tax incentives that make it easier for the Islamic finance sector to flourish in Australia and allow greater cross-border transactions with Asia.

The Dubai-based global head of Islamic finance for law firm Allen & Overy, Anzal Mohammed, says there’s a push to encourage policy makers to ease regulations on such things as stamp duty and withholding tax so people who want to invest in Islamic-compliant funds don’t get hit with tax penalties.

Mohammed met Treasury officials in a bid to encourage such a move. It comes as the chairman of the Australian Financial Services Task Force, Mark Johnson, also recommended that impediments to Islamic finance be removed as part of the Board of Taxation review.

Islamic finance is based on the principles of Sharia law and bans the payment and receipt of interest. Investors instead need to make returns that are linked to profits and cannot invest in what Mohammed terms as “Sharia-repugnant” companies such as those associated with gambling, pornography or alcohol.

In early 2010, the federal government asked the Board of Taxation to review federal and state tax laws to ensure they did not unfairly disadvantage Islamic finance products.

While few bankers expect there to be a surge in Islamic finance even if the government changes any tax guidelines, Mohammed says it opens up the local market to more of these products by providing a “more level
playing field”.

“The key change we need is to the taxation regime to allow Islamic finance to develop,” Mohammed says.

“This discussion has been going on for a number of years and now everyone’s waiting to see what they [the government] do next.”

He also says Islamic finance is popular in countries such as Malaysia, so there may be more opportunities for cross-border transactions, as well as providing “more diversified funding sources” in an environment where there’s generally less liquidity.

He says government tweaks to legislation, whether federal or state, may change the state of play for wholesale investors but it’s not clear whether such changes will result in a bigger uptake in the retail market.

The major financial institutions are slowly moving into the Islamic finance space but a recent report by Austrade found Islamic finance is still a “nascent” industry.

The major banks are yet to offer retail investors comprehensive products and Australia’s first Sharia-compliant equity fund, Crescent Wealth, was only set up in October last year. The fund will begin offering products, including superannuation, tapping into the $1.4 trillion global Islamic investment market .

The Austrade report did note, however, that Islamic finance has potential for development, with Australia’s Muslim population hitting almost half a million and more than 60 per cent of the world’s Muslims located in the Asia-Pacific.

http://www.brw.com.au/p/sections/fyi/ease_laws_to_allow_islamic_finance_hIzXlz2To4Mas1iygJtKAI?

The blossoming appeal of Islamic finance

The Islamic finance sector has seen robust growth over the years, blossoming to become the fastest growing segment in the global financial industry. In tandem, the Malaysian Islamic finance realm has scaled new heights as it represented 18 per cent of the Malaysian banking sector’s total assets as at December 2011. BizHive Weekly takes a look at the the current state of the industry, challenges faced by players and measures taken to grow and move forward.

Tracking the growth path of Islamic finance

Islamic finance has seen tremendous growth and acceptance over the recent years in Malaysia and on a global scale in over 70 countries from financial centres in Malaysia to the Middle East.

It is considered as the fastest growing segment in the global financial industry.

Global Islamic financial assets have increased significantly over the past three decades, crossing US$1 trillion in 2010 and estimated to have exceeded US$1.2 trillion in 2011 from about US$5 billion in the late 1980s, according to the World Bank.

Dr Mahmoud Mohieldin, World Bank managing director

World Bank managing director Dr Mahmoud Mohieldin stated recently that the size of Islamic finance assets was expected to grow between 10 per cent and 15 per cent annually over the next three years, supported by strong demand and supply factors in addition to effective regulation and quality of services that would sustain growth.

“The (Islamic finance) asset size is currently around US$1.2 trillion to US$1.3 trillion but if you compare it with the global financial assets, it is just about or less than 0.5 per cent,” he pointed out, adding that it was expected to touch US$1.6 trillion by year-end.

In the local context, the Islamic banking segment represented 18 per cent of the Malaysian banking sector’s total assets as at December 2011, where the total assets stood at RM1.78 trillion at that time.

“Based on records, this segment has shown an impressive growth from RM185 billion in 2008 to RM326 billion in 2011 which constituted an average growth of around 21 per cent over the past three years,” RHB Islamic Bank Bhd (RHB Islamic) managing director Abdul Rani Lebai Jaafar said to BizHive Weekly.

“Malaysia has a comprehensive legal, tax, accounting, regulatory and supervisory framework which are well articulated.

“Further, the establishment of well-defined syariah parameters as well as the bold move by the regulatory authorities to centralise syariah rulings have been instrumental in pushing further the growth of Islamic banking and finance in Malaysia.

“Coupled with the strong support from the government as well as Bank Negara Malaysia (BNM) along with the introduction of the Financial Sector Master Plan (FSMP) with its various initiatives, the Islamic banking sector had managed to meet its target of contributing 20 per cent share of Malaysia’s total banking assets in 2010,” he noted.

BNM governor Tan Sri Dr Zeti Akhtar Aziz

The resilience of growth in the Islamic finance sector against the backdrop of the ongoing global financial crisis had proven to be a ‘defining period’ for the industry, according to BNM governor Tan Sri Dr Zeti Akhtar Aziz.

Nonetheless, the industry must now work towards ‘bridging economies’ to foster growth moving forward, the central bank governor said while adding that better understanding and clarity on syariah matters would also help to attain convergence.

“Islamic fi nance needs to be dynamic and innovative, with an emphasis on the development of diversifi ed and comprehensive syariah-compliant fi nancial solutions that meet the differentiated needs of different businesses, including the requirement of international businesses and thus facilitate cross-border investment,” she said.

Expanding on the ever-growing acceptance of Islamic finance practices, chief executive officer and executive director of Asian Islamic Investment Management Sdn Bhd Akmal Hassan believed the key principles in Islamic finance, such as ethical, transparent, prohibition of excessive risk, leverage and speculation appealed to many investors especially after the devastating global financial crisis four years ago.

“The global financial crisis in 2008 highlighted one of the main basics of investing: ‘buy what you understand’,” he pointed out to BizHive Weekly.

EXPECTING ROBUST GROWTH: The size of Islamic finance assets is expected to grow between 10 per cent and 15 per cent annually over the next three years, supported by strong demand and supply factors in addition to effective regulation and quality of services that will sustain growth. — Reuters photo

“The bundling of subprime loans in a convoluted structure and sold to investors as a high grade bond highlights the pitfall of investing when one does not truly understand what one is buying into.

“That also calls for the need of more transparent and less risky products, which Islamic finance could help to address.

“Besides, Islamic law prohibits making money from money, in other word interest or ‘riba’, as wealth can only be generated through legitimate trade and investments in assets reminded many investors that it is time to go back to basics,” he emphasised.

Read more: http://www.theborneopost.com/2012/10/21/the-blossoming-appeal-of-islamic-finance/#ixzz2A7Qw0nxi

Introduction of the world’s first Islamic arbitration rules will grow Islamic finance assets

The introduction of the world's first Islamic arbitration rules last month by the Kuala Lumpur Regional Centre for Arbitration (KLRCA) will pave the way for further expansion of Islamic finance with total global assets now estimated to be worth around US$1.2 trillion (RM3.72 trillion) to US$1.3 trillion (RM4.03 trillion).

Not only are the arbitration rules the first of its kind worldwide, it caters to both conventional and syariah-compliant commercial transactions and contracts as well.

KLRCA director Datuk Sundra Rajoo told StarBiz that with these new Islamic arbitration rules, the relevant parties to a dispute could have a complete syariah-compliant process, from the formation of the Islamic products right to the dispute resolution process.

Most disputes relating to Islamic finance ended up in civil courts where usually common law principles on conventional banking were applied, he said, adding that due to lack of expertise and precedents, the courts were less equipped to apply and interpret the relevant syariah principles where required.

Stressing the importance of such rules, Sundra said with the global Islamic finance sector already worth US$1 trillion and set to triple its value over the next decade, he foresee there would be more domestic and cross-border agreements and transactions, hence more disputes arising out of it.

The rules were also a great tool in support of the internationalisation of the Islamic finance, which complemented the Bank Negara Financial Sector Blueprint, he noted.

http://biz.thestar.com.my/news/story.asp?file=/2012/10/22/business/12181506&sec=business

Does Islamic finance have a responsibility to reduce unemployment

There is a buzz about the prospects for Islamic finance in parts of the Middle East and North Africa region (MENA). News reports are suggesting that as a consequence of change in public policy, the market share of Islamic banking in Egypt will grow to “35 per cent in five years from 5 per cent now”. Much attention in Islamic finance circles is also falling on the relatively smaller markets, such as Oman and Morocco. Observers, such as researchers from Credit Suisse, are also pointing to Islamic finance as a potential source of spurring economic growth in the Arab Spring countries.

A question arising out of all this buzz is this: Will the rise of Islamic finance address the problem of high unemployment among the Arab youth?

The economic literature on MENA tends to see unemployment as the region’s greatest challenge. It is difficult to exaggerate its scale and socio-economic implications. According to Global Employment Trends 2011 by the International Labour Organisational youth unemployment in the MENA region is estimated to be 24.8 per cent compared to world average of 12.6 per cent.

It is frequently argued that job growth in MENA is best expected from high-growth small and medium sized enterprises (SMEs). According to research by the World Bank, these SMEs consider limited access to finance to be a significant constraint. The buzz about Islamic finance in building expectations that it could help tackle unemployment in MENA by doing things like financing the under-financed SMEs that will create jobs.

But is helping create more jobs a social responsibility of for-profit shareholder owned institutions offering Islamic financial services? Or does this responsibility only belong to others, such as the government and development financial institutions?

The issue is not ‘can Islamic finance solve MENA’s unemployment problem?’ It cannot. Even governments are finding the challenge overwhelming and Islamic finance is but a niche within the financial sector. The question is whether the Islamic finance sector should consciously attempt to contribute to tackling unemployment as part of its business strategy rather than a byproduct of its activities.

If you are a follower of the economist and Nobel laureate Milton Friedman, you will probably think that tackling unemployment is not the business of for-profit finance. According to Friedman, the social responsibility of business is to increase its profits, as he argued in his article published in the New York Times Magazine in 1970. Friedman’s core argument is simple and powerful: Management of for-profit shareholder-owned companies should do what these companies are meant to do — maximise profits for shareholders.

Friedman’s argument is often invoked in Islamic finance. In a recent blog, a London-based Islamic finance practitioner writes:

Islamic financial services providers, whether they are banks, Takaful operators, asset managers or real estate fund providers, are normally companies with shareholders. Accordingly their prime responsibility is to maximize shareholder value while conducting their operations in accordance with the requirements of their Shariah supervisory board. Consequently any expenditure by the Islamic financial services firms must be directed towards building their businesses either directly or indirectly.

A somewhat different view of corporate social responsibility (CSR) is taken by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Bahrain-based standard setter in Islamic finance. AAOIFI’s standard on CSR is not confined to simply acting responsibly while going about business as usual — a common notion of CSR — but goes far and deep into actively doing good. For instance, its “mandatory conduct” includes possible impact assessment of financing on economy, society, and environment while its recommended “voluntary conduct” includes assisting small and micro businesses.

Some of the messages coming out of Islamic financial institutions also suggest that they do not exist solely to maximize shareholder’s wealth. For instance, Kuwait Finance House (KFH), a prominent institution in Islamic financial sector, reports that in 2010, among other philanthropic activities, it donated USD 2 million for flood victims in Pakistan. Giving away such a sum to the poor in a country where KFH does not even operate is unlikely to increase the wealth of KFH’s shareholders, directly or indirectly.

AAOIFI CSR standard and philanthropy are materially different from some of the modern notions about CSR. For instance, in its 2011 Environmental, Social, and Governance (ESG) report, Goldman Sachs says “we define our social value by what we contribute to making markets robust and economies strong.” Such modern notions of the role of corporations in society are most likely to be seen as consistent with Friedman’s position of maximizing profits.

Should Islamic finance follow Friedman’s position or should it align itself with the social cause of tackling unemployment?

The answer to this question probably lies in how the term ‘Islamic’ in financial services is interpreted by the financial institutions, their stakeholders, and society. The term Islamic, just like other terms such as sustainable, responsible, or ethical used regularly in finance, do not mean the same thing to everyone.

To some, it may only mean avoiding financing to businesses built around ‘sins’ — like drinking alcohol and gambling — and giving lending the form of sales or leases while retaining its economic substance. This minimalist and form-oriented approach, while not uncommon, also explains much of the criticism that is frequently levelled at the industry. It is safe to assume that to others, particularly the enthusiasts of Islamic finance in MENA, the term Islamic means more. While what exactly is the “more” remains relatively fluid, AAOIFI’s standard on CSR, despite lacking regulatory power, helps us understand some of the expectations associated with it.

The institutions eager to capitalise on the renewed prospects of Islamic finance in parts of MENA will do well to clarify their position. Will they consciously channel financing to business and sectors, tacking unemployment, even if involves comprising some financial return? Or will these institutions invoke Friedman’s argument and only maximise profits because this is what they believe to be their reason for existence?

Both paths will have their challenges. Those wishing to address unemployment on a sustainable basis will probably need a clear mandate from their shareholders and account holders to do so. Those wishing to only maximise profits will probably find it hard to maintain support from policy makers and society.

It will be interesting to observe if and how far Islamic is willing to go beyond maximising shareholder’s wealth to tackle MENA’s unemployment challenges.

Usman Hayat, CFA, Director of Islamic Finance and ESG at CFA Institute.

http://gulfnews.com/business/banking/does-islamic-finance-have-a-responsibility-to-reduce-unemployment-1.1092049

Dubai Bank to be rebranded by November-end It will be branded as Emirates Islamic Bank

It’s official: By end of November, Dubai Bank will be rebranded as Emirates Islamic Bank (EIB).

Following the transition, EIB will become the third largest Islamic bank in the country after Dubai Islamic Bank and Abu Dhabi Islamic Bank.

In a letter sent to its customers, Jamal bin Ghalaita, CEO, Dubai Bank, said: “Emirates NBD Group is bringing together its two Islamic banking holdings to create a stronger, more resilient proposition for its customers under the Emirates Islamic Bank brand. By the end of November, you will begin to see your branches, ATMs, cash deposit machines (CDMs) and other related materials reflecting the Emirates Islamic Bank brand.”

Once the alignment process is completed, customers will have an expanded network of 50 branches, 100 ATMs and CDMs across the UAE in addition to free access to over 700 ATMs and CDMs that are part of the Emirates NBD Group.

Emirates NBD, UAE’s biggest lender, took over Dubai Bank last October, after it was acquired in May by the government from its previous owners, Dubai Holding and Emaar Properties.

Ghalaita, in the letter, further said: “We are also working to minimize any disruptions to your banking experience. As such, your present account numbers, cheques, debit and covered cards and other services including online banking and telephone banking will remain valid.”

EIB has said previously that customers of the larger entity will benefit from economies of scale, have a more substantial list of payment partners and access to a more comprehensive range of Shariah-compliant products.

http://www.emirates247.com/business/economy-finance/dubai-bank-to-be-rebranded-by-november-end-2012-10-22-1.479927