Brunei Islamic Finance Has Potential To Go Global

Bandar Seri Begawan - The growth of Islamic finance products and the benefits they bring to Brunei will increase rapidly if new innovative products can be created, and the country also has the potential to market itself internationally in this regard.

Dr M Ishaq Bhatti, Associate Professor of La Trobe University Melbourne, Australia, said this in an interview with the Bulletin following the launch of the first FBEPS-AGBEP PhD Colloquium at Universiti Brunei Darussalam.

Speaking on Brunei's international marketing prospects via Islamic finance, he said, "Yes, there is a bright chance, because Brunei can set up a retail bank in Australia.

"At the moment Australia has wholesale Islamic finance," he explained. "There is a need for a retail Islamic bank - there is a high demand, so Brunei can be the first, and particularly in a Muslim majority area, they can wipe up the market."

Dr Bhatti said that the reason Islamic finance has not only survived but thrived in the global financial crisis is that it gives "backup with real, tangible assets".

He explained that it reduces the risk of making financial institutions collapse, and hence provides reassurance to investors, as the investments they make are backed up with tangible assets.

"That's why while everywhere else things are looking down, people are investing with Islamic finance and the reason is that there is a real asset attached to it."

Another reason is that Islamic finance bans short selling.

"Most of these financially troubled firms have been doing short selling and unethical investments that are of high risk," he said. "Islamic finance does not invest in unethical investment areas, rather it invests in ethical investment areas and hence it has limited and decreased risk of bringing down financial institutions, and hence, (provides) high returns during a financial crisis.

"Whenever there is a crisis, Islamic finance gives you a better return than conventional finance," he added.

"That's why everybody's trying to jump into this boat to invest, including western countries and Muslim countries as well."

Asked what he sees next for Islamic finance, he said, "Currently the size of the Islamic finance industry is equivalent to the Australian finance industry, or the Australian investment industry, which is 1.6 trillion dollars, and this is increasing exponentially with an average growth of more than 10 per cent."

He said that he sees this trend continuing, but added, however, that there has been a little bit of a slowdown in growth due to the financial crisis, as a result of causality effect, adding that as Islamic finance is a subset of conventional finance, it fits very well in the conventional finance portfolio.

Dr Bhatti set up the Islamic Banking and Finance Programme at La Trobe University, which is the first-ever in the Australasian region.

"Soon after the global financial crisis, we realised the need of such education in Australia, to educate our financial industry, to educate the government bodies and to educate the academicians on the difference between Islamic and conventional finance. So in 2008, we set up curriculum soon after we saw the crisis," he explained.

He mentioned that a number of events followed, including the largest-ever Islamic finance symposium in Australia, which he said garnered a lot of attention from the media, bankers, financial institutions and insurers.

The Associate Professor also highlighted that Islamic finance has a product called Qard e-Hasana for interest free loans for people who are poor.

"We recently set up interest-free loans in Australia, and we are getting amazing benefits out of it," he said. "We set up Zakat Australia last Ramadhan, and we can see amazing benefits.

"Students who could not pay fees or rent, they came up for Zakat, and those students who need money to buy a laptop or a refrigerator, for example, they can opt for Qard e-Hasana," he explained. "We just started this, and while Australia is a Muslim minority country, and we can offer this Zakat and Qard e-Hasana to non-Muslims as well."

Speaking on Brunei, Dr Bhatti said that as Brunei is an Islamic country, the growth of Islamic finance products will increase rapidly if new innovative products can be created.

Asked for examples, he said, "Like schools and building infrastructure for Brunei. Short-term, long-term liquidity products and particularly Islamic funds, Islamic mutual funds," he said.

Dr Bhatti also mentioned Sukuk, saying that it can give an average market return and that it's both Syariah compliant and is low risk.

"Insurance is another issue - Takafuls," he continued. "The people want to have health insurance, so there should be a compliant health insurance in Brunei. Everybody wants health insurance, but they want it to be Syariah compliant.

"They want it by Halal means," he added. "Bonds, Takaful, home loans, car loans - all by Halal means and easy instalments.

"I'm very happy to have met the Dean of FBEPS (Dr Hazri Kifle) and the Vice Chancellor of UBD (Dato Paduka Dr Hj Zulkarnain bin Hj Hanafi)," he said. "They are very enthusiastic, and by bringing me here it shows that they are very keen to contribute into this emerging area."

He said that, as a result, his keynote speech on Islamic finance at the colloquium would lay down more innovative ways of approaching Islamic finance for the PhD students.

"They are going to contribute to UBD, as well as to the Brunei financial structure, so I feel that Islamic finance has a mega effect on Brunei," he explained.

"Being at La Trobe University, I would love to have a chair in Islamic finance between UBD and La Trobe, which will strengthen the relationship between our two countries."

He added that he will also be coming back here next month on an exchange programme, under Royal Brunei Airlines' sponsorship, between La Trobe University and UBD.

"We are bringing a few students from Australia to visit Islamic banks here in Brunei."

--Courtesy of Borneo Bulletin


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Centre for Islamic Banking, Finance & Management launched

Her Royal Highness Princess Hajah Hafizah Sururul Bolkiah yesterday attended the official launching of the Centre for Islamic Banking, Finance and Management (CIBFM) and its first flagship, the Fiqh Mu’amalat Professional programme.

Held at the Indera Kayangan Ballroom of The Empire Hotel and Country Club, the launch opened with recitations of surah al-Fatihah and doa led by Pehin Orang Kaya Paduka Seri Raja Dato Paduka Seri Setia Ustaz Hj Awg Suhaili Hj Mohiddin.

On hand to officiate the launch of the centre and the programme was Acting Minister of Finance II at the Prime Minister’s Office Dato Paduka Awg Hj Bahrin Abdullah.

In his opening remarks, Permanent Secretary (Policy) at the Ministry of Finance cum Chairman of the Board of Directors for the Centre for Islamic Banking, Finance and Management Hj Shahbudin Hj Musa, in his capacity as chairman of the event, highlighted the objective of the establishment, function and roles of CIBFM, as well as the unique features of the Fiqh Mu’amalat Professional programme.

He emphasised on the centre’s role towards providing continuous learning and development programmes through a balanced mix of Islamic and conventional focus including the required soft skills.

He also shared future plans of the centre, which expects to offer and conduct some 50 programmes targeted for about 800 participants this year.

The launch saw the attendance of members of the Syariah Financial Supervisory Board, senior government officials, CEOs, managing directors and representatives of financial institutions and the first batch of the flagship.

In conjunction with the launching, a seminar in the form of special presentations and penal discussions by both local and well-known Syariah scholars and speakers were also held.

Following the opening ceremony, a special presentation was presented on Syariah Advisors for Islamic Financial Institutions – ‘Expectations and Challenges’ by a leading shariah scholar in Islamic Finance, Dr Mohamed Ali Elgari.

This was then followed by panel discussions on ‘Effective Human Capital Development – Mitigating the Gap on Applied Syariah Knowledge and Finance’ and another special presentation on ‘Value Propositions of Syariah Board in Contemporary Islamic Financial Market.’

The presentation delivered by founder and chairman of Amanie Advisors (Kuala Lumpur, Dubai, Luxembourg and Cairo), Dr Mohd Daud Bakar, concluded the morning event.

Later in the afternoon the event saw a continuation of panel discussions on Development of Islamic Investment Products and Services – A Local and Global Perspective and ‘Syariah Compliance Review – An Art or Science?’

http://news.brunei.fm/

Islamic banks urged to develop more instruments to manage risks

ISLAMIC financial institutions (IFIs) should develop more products for them to better manage risks, in light of the recent financial crisis that has affected public image and trust in the global banking sector, experts said here yesterday.

The secretary-general of Islamic Financial Services Board (IFSB) said that Islamic banks were more conservative than their mainstream counterparts and generally had the capital required under the new Basel III framework, which began implementation last year.

"There is a very high ratio of Tier One capital and common equity (among IFIs), which is loss-absorbing and the kind of capital that Basel III has brought in now for conventional banks," Jaseem Ahmad said.

"When I say that our banks have been conservative, what I mean is that they have not generally engaged in the kind of very rapid (and very risky) expansion of asset and credit that conventional banks have. So, Islamic financial banks are well-capitalised," he added.

Although Islamic banks had a high level of liquidity, Jaseem said since it was in the form of cash, it lacked the depth necessary to effectively manage risks. This gave the banks room for "substantial improvement" in the equity management framework in Islamic finance, he added.

"In that sense, there is still a shortage of Syariah-compliant instruments (or) securities. A capital market is being developed but it is still not as liquid or as deep as we would want it to be. And it needs to be deeper," he told The Brunei Times.

"We need to have more instruments to give Islamic banks greater opportunity for this management than they currently have."

The long-term objective was then to ensure that Islamic banks had access to a wider range of instruments, while also encouraging them with incentives and the provision of resources to strengthen their respective capabilities.

"You can have high level of capital loss absorbing capital but if your risk management framework is not strong and if your conduct is geared towards risky activities, then there will be problems for any bank, even if it is an Islamic bank," Jaseem said.

The secretary-general of the Kuala Lumpur-based international standard-setting body for IFIs was speaking on the sidelines of an IFSB seminar discussing Syariah issues on regulatory capital and risk management, held at a hotel in Gadong. One of the guest speakers of the seminar, the CEO of CIMB Islamic Bank Bhd of Malaysia, Badlisyah Abd Ghani discussed the issues surrounding alternatives for Syariah-compliant subordinated debt and hybrid capital as well as structuring Syariah-compliant substitutes for convertible contingent capital, under the Basel III framework.

Based on Malaysia's experience, Badlisyah said in his presentation on regulatory capital that there was "no Syariah issue" in converting debt to shares if the required features were clearly stated in Sukuk structure. However, he cautioned that it may require additional structure based on Bai Inah or Commodity Murabaha.

This would also lead to the bank incurring additional costs such as the brokerage fees in determining the share price.

"However, there will be insufficient acceptable assets (fixed assets or Iljirah assets) to be the underlying assets as some Syariah scholars do not allow trading of sukuk which are sale-based 'receivable' assets," Badlisyah said.

The Brunei Times

Brunei is 'speed boat' in Islamic Finance dev't

Oz Ahmed, Associate Director, Wholesale Banking, HSBC Amanah Malaysia giving a hypothetical scenario on the future of banking during The 2011 Brunei Business Forum "Promising Opportunities, Sustainable Approaches" held at Radisson Hotel last week. Picture: BT/ Raul Padernal

IN TERMS of Islamic Finance, Brunei is a speed boat while other economies are like oil tankers, which means the Sultanate has the ability to move faster than any other country if it desires to, putting the country in a prime position to be the industry leader.

Kuala Lumpur based Arsalaan "Oz" Ahmed, associate director of HSBC Amanah's Wholesale Banking, told The Brunei Times that other economies, compared to Brunei, can move and make waves, but their movement will be slower because of the size of their economy, what they have to integrate to make sure things go accordingly, and so on.

"In my view, Brunei is certainly not at an infant stage, but you're not at an advanced stage either. From looking at specific opportunities around wealth management and investment capabilities of Islamic Finance, I feel that within the next five to 10 years, a jurisdiction could capitalise on that and become a leader," Arsalaan said.

He added: "Brunei having the infrastructure that it has, a financial centre syariah advisory board, keen people in the business, and banking institutions that is compliant, is in the position to take on that mantle and be the leader."

In terms of converging standards on Islamic Finance, Arsalaan said that Brunei should focus on a niche area and develop a holistic set up in terms of concepts, its pronouncements and a clear integration within regulatory and frameworks of those jurisdictions. Basically, the world-class regulatory framework should instills confidence with regards to Shariah standards.

"Standards (around the world) are starting to converge, but it's not happening fast enough. The industry is growing at a huge pace, and there is a role for someone to play in doing that," he said.

Arsalaan believes that if done right, it would lead to diversification in the sector and will create and important chapter for the economy.

However, he warned that any other economy can do it if it wants to do it, which means Brunei has to move fast if it wants to take advantage of the situation. "When you have petro-dollars, looking to invest in a syariah compliant way, markets have to respond," he said.

Arsalaan gave an example of an investment by a Saudi telco, looking to invest in Indonesia's Axis (also a telco). "The Saudi telco wanted to make sure that the financing was syariah compliant and it became the largest syariah compliant transaction in Indonesia. So when you have petro-dollars, Brunei will play a role in investing in that way," he said.

Arsalaan, who was one of the speakers at the Asia Inc Forum's Brunei Business Forum last week, in his presentation, credited His Majesty's vision in 1990, on Islamic Finance, where His Majesty called on Brunei to look for external assistance on the matter.

"In 1990, His Majesty said, if we are not able to do something it does not mean we should sit still and do nothing. If we are unable because we have no skilled labour or expertise, and if we are in dire need to meet demands of, example, fardu kifayah, then is it wrong (to follow) international practice or tradition of nations by mutual exchange of information or undergo training, or if necessary, hire experts for temporary employment to help us meet our needs and desires," Arsaalan quoted.

Since 1990, Arsalaan said: "We've come a long way, and the industry itself, in a very insightful way, works exactly like that."

Currently 800 financial institutions offer Islamic products, of which 350 are Islamic financial institutions. Over 750 funds comply to syariah regulations and in Brunei the market penetration is an "astounding" 50 per cent.

Arsalaan said that the industry, within the next decade or two, is moving towards $4.4 trillion, growing an enormous $3 trillion from where it is at. "This screams opportunity that is coming and can be captured," he said.

The associate director said that every country wants to become a hub in Islamic Finance, but how can Brunei do it? "There is a difference between ambition and rights. Brunei has the right to it. That right has foundations within the affinity to Islamic Finance, within itself and the population and spirit of the country itself. Also, within the infrastructure established. Because of this, Brunei has the right to win," he said.

He added: "Brunei is the abode of peace, the peace that is from Islam. That in itself is an area where Brunei can have a right to win."

Brunei has to rely on its strengths, as Islamic Finance is not just sukuk, it's much more about equity, about where you are as a country.

"It's about developing the local talent pool. People in Brunei I dealt with, are some of the most engaged individuals and have world views. Now, the Sultan's words resonate now as much as they did then. Staying true to those words, reflecting on them, can assure Brunei fulfil the promise and not just have promising opportunities," he said.

As for the possibility of HSBC Amanah's entrance to Brunei, Arsalaan said that they have ambitions to reach as many markets as possible. "Where we can, we will. And it's important to HSBC and Amanah to develop in all key jurisdictions. It'll be a miss to say that Brunei isn't one of them," he said

The Brunei Times

Brunei - Expertise key to Islamic finance growth

From Isria.com: Having a sufficient pool of talent and expertise in Islamic Finance will be key to the development of Brunei as an Islamic financial services hub in Asia.

This was said by the Minister of Energy at the Prime Minister’s Office, Pehin Orang Kaya Seri Dewa Major General (Rtd) Dato Seri Pahlawan Hj Mohammad Hj Daud during the Public Seminar on Islamic Finance organised by Bank Islam Brunei Darussalam (BIBD) yesterday……………….....

Link: http://www.opalesque.com/IslamicFinance_Briefing/?p=4434