GROWTH CHALLENGES: Lack of a strong legal platform may hinder growth of the industry Read more: COVER STORY: “Strong legal framework needed for Islamic financing”

Despite the recent global economic crisis, the Islamic finance industry has continued pushing forward strongly. Entering 2012, the industry increased its total assets by 23.8 per cent by the end of 2011— comprising a hefty 22.4 per cent of the total assets of the banking system.

Global recognition has not been in short supply either as evidenced by The Banker Magazine’s 2011 rankings of top Islamic financial institutions which saw 21 Malaysian institutions listed.

 

By all appearances, Malaysia’s Islamic finance industry is well on its way to fulfilling its aspirations to becoming an international Islamic financial centre.

Is it all hunky dory?

 

Missing element: “The government should look into establishing a special court for Islamic banking,” says Datuk Ahmad Zaini Othman, Chief Executive Officer of the Malaysian Building Society Berhad (MBSB). “This is something I think is still missing in this country.”

“If they want Islamic financing in Malaysia to be recognised internationally, they need to do this,” the CEO stresses.

 

Zaini points out that at present the legal aspects such as legal settlements still go through conventional courts. While the conventional judiciary may be familiar with Islamic financing law, Zaini stresses that we need judges who not only know the Islamic financing law but who also possess deep understanding of the religious aspects that go beyond laymen comprehension.

 

“It is all there in the Quran and Sunnah, but we need people who can correctly interpret them,” says Zaini, emphasising that “interpretation is important.”

 

“For example, riba is not right and forbidden; however excessive profit, such as selling a property for 150 per cent profit, is wrong too.”

 

Mismatched avenue: Zaini believes that continuing to rely on conventional courts for Islamic financing’s legal matters would be detrimental in the long run.

 

“Conventional court in itself is a mismatch,” says Zaini, clarifying that the word ‘conventional’ does not match with ‘Islamic’.

 

“Because it is religion-based, at the end of the day we need to return to that essence and adhere to it,” says Zaini. “That means having the necessary infrastructure to uphold it in a dedicated manner.”

 

What might happen if conventional courts continue to be used to deal with legal matters pertaining to Islamic financing?

 

“For one, you will continue looking at it through a secular way of thinking,” replies Zaini, adding that it may lead to oversight of some aspects based on Islamic principles. According to Zaini, another effect would be the stagnation of Islamic financing expertise in the country.

 

“One example is the musharakah mutanaqisah product — this product is not feasible for properties under construction as some aspects of the law do not recognise certain parts of the transaction,” highlights Zaini. “So if a developer goes ahead with the product, there is no protection for the developer under any law.”

 

The CEO further points out how the lack of protection in certain scenarios is limiting the industry. “If you want to attract foreign Islamic investment in a big way, you need to have a strong Islamic legislative framework in place.”

 

“Foreigners would not come here and invest hundreds of millions if they are not protected,” Zaini emphasises. “With a proper legal framework, we can do much bigger business.”

 

In addition, Zaini also points out that such a framework would also mean that the country would be more attractive to top talents in the industry.

 

“If you do not have a very strong framework, you may not have a strong image of the Islamic platform,” says Zaini, asking rhetorically, “why would an Islamic financing talent from the GCC (Gulf Co-operation Council) come to work in Malaysia if we don’t even have a court for Islamic banking?”

 

“He would probably much rather go to GCC countries where the legislation is more developed in this respect.”

 

Challenging: However, Zaini admits that putting in place a legal framework for Islamic financing would be challenging. Differing opinions and interpretations worldwide pose a daunting obstacle — Zaini cites the introduction of Profit Equalisation Reserve (PER) by Bank Negara as an example.

 

“The Islamic deposit programme is based on profit and loss whereby banks pay dividends based on the allocated profits,” says Zaini, explaining that this means the dividends are higher if the Islamic banks make good profit and vice versa. “In comparison, conventional banks pay based on a fixed amount of interest.”

 

“So when Islamic banks report good profits and subsequently pay more dividends than conventional banks, there would be a flow of customers from the conventional banking market to the Islamic financing market.”

 

Zaini explains further that PER was introduced to avoid the mass movement between markets by fixing the percentage of profit shared as dividends by the Islamic banks.

 

“Say they make profit and are able to pay 9 per cent, PER means they can only pay for example 4 per cent while 5 per cent would be kept in reserve.”

 

“There might come a time when the profit margin is smaller, in such an event, the reserve would be used to top up the dividends to be paid out,” says Zaini. “The GCC is against this and do not recognise the practice because it is not in line with shariah.”

 

However, Zaini feels the way forward would be to ignore the differences and focus on what can actually be done.

 

“Malaysia is heading towards a two-system financial system and for the Islamic part of it, we need a strong legal platform,” says Zaini. “I think we have a sufficient pool of shariah legal expertise, and our universities are also producing enough experts in the area of Islamic financing.”

 

“But I think we also need to bring in scholars from abroad with a different perspective of the international market so that when we formulate the legal framework, it will be more comprehensive,” adds Zaini, explaining that doing so would enable Islamic financing in the country to reach greater heights.

 

“Like the English law, this will not happen overnight but instead through years of practice and experience.”

Read more: COVER STORY: “Strong legal framework needed for Islamic financing” - RED - New Straits Times http://www.nst.com.my/red/cover-story-strong-legal-framework-needed-for-islamic-financing-1.149172#ixzz281b5brlA

Islamic Finance Leads the Way

The upward trend of socially responsible investment mirrors a growing interest in Islamic finance

Ironically, the global financial crisis has triggered conservative investing through non-conventional means: non-Muslims are increasingly choosing to invest through Islamic institutions’ portfolios. The irony is particularly striking in the US, since Islamic financing often times carries the misnomer of “terrorist-financing”. However, for those looking to pursue more ethical investments, and with the rise of socially responsible investment culture, Islamic financial institutions create a new investing culture—specifically through Islamically-managed hedge-funds.

Before one identifies further trends that reflect the “mainstreaming” of Islamic investments, two questions frame the modern appeal of Islamic finance: 1) what are the religious prescriptions for this type of investment; and, 2) why would non-Muslims choose a mutual fund that follows Islamic Law while many non-Muslims worry that Islamic Law will trickle into their secular nations’ legislative process? The latter is a glaring paradox. According to Reuters Business Times Malaysia, the mixture of Islamic financial instruments (investments that adhere to religious principles) considers risk as well as appeals to those wishing for more transparency on the types of industries that comprise the investment portfolios. Furthermore, the upward trend of socially responsible investment (SRI) is due to the younger, progressive mentality of ‘social responsibility,’ as illustrated by a financial magazine’s listing of options that incorporated human rights and the environment factors into portfolios.

Muslims outside of Muslim-majority countries have augmented the Islamic finance industry and modernized outlets with respect to the SRI movement

The United Arab Emirates established the first Islamic banking institution. Outside of the Gulf Cooperation Council, four Islamic banks operate in Lebanon, while Tunisia is considering expanding its financial industry. Today there are over 300 institutions spread across six continents. For the last decade, Muslim-majority, Middle East, and North African (MENA) countries have used or promoted Islamic finance for three reasons. First, Islamic finance prohibits any financial returns from usury, or excessive interest rates, known asRiba (usury). Instead, a financial return is derived on a participatory, profit and loss sharing (PLS) basis called mudaraba andmusharaka contracting. This practice emanates from the principle that one should not sell assets before they exist, as described by the Ethica Institute of Islamic Finance. The subcategory of mutual funds follows PLS criteria as well as certain others. Second, Islamic finance guidelines exclude consumer goods and services in the following sectors: alcohol, gambling, and certain entertainment and media sectors (for example, pornography). Third, reporting requirements emphasize the transparency and accountability measures that many industrialized countries refer to as corporate governance’s best practices.

Trend #1: Culture of Socially Responsible Investment

The culture of socially responsible investment parallels the fine-tuning of Islamic mutual funds. Similarly, it is only fair to note how the parallel trend of socially responsible investing—which has catalyzed non-Muslim investors’ attraction to Islamic investments—has matured in many regions. Looking back at US investment experiences, SRI is not an entirely new concept; it has simply been reinvigorated. As one working paper stated, it was in “1971 that the first ethical mutual fund, the Pax World Fund, was publicly available to individual investors” to avoid investing in the gambling/casino sector. Both socially conscious and Muslim investors share this concern. As such, the process requires religious scholars to collaborate with fund managers and financial regulators to reconcile the investment process.

Like other social justice causes, SRI focuses on the externalities (e.g. pollution) that many economists describe as the unintended consequences of fully competitive markets and production. In turn, government might intervene with some public finance instruments and tax businesses to address the unintended consequences. However, government regulation creates further problems with bureaucracy and the expectation that oversight checks private forces. For example, because certain sectors, like the alcohol and tobacco industry, are legal, government will impose higher sales tax on these items to curtail consumption and use the tax revenue towards public infrastructure. But socially conscious citizens might not be satisfied with the outcomes and still feel that society must hold certain sectors accountable beyond taxation.

Given these social, economic, and environmental concerns, an SRI fund would appeal to Muslims seeking this type of ethical practice as well. More recently, Muslims outside of Muslim-majority countries have augmented the Islamic finance industry and modernized outlets with respect to the SRI movement. As such, one may argue that a new subcategory of Islamic finance has emerged. In the US, a group of Muslim Americans looking to invest according to Islamic practices approached Nicholas Kaiser, the founder of Saturna Capital, to develop a mutual fund. According to Kaiser, “Muslims in America had a desire to own stocks and they knew there were certain restrictions or guidelines that they should follow. By hiring a mutual fund management company to create a fund to follow those restrictions, they knew it would meet their religious needs to satisfy their goal of buying equities.” Thus in 1986, the Amana Mutual Fund was created, followed by the Amana Growth Fund in 1994. Both are now listed on the Dow Jones Index as AMANX and AMAGX.

Trend #2: Establishing Islamic Markets Indices

In 2008, Dow Jones noted the above and opened up its Middle East office to connect directly with the Islamic finance industry hub in Dubai, where the International Islamic Finance Forum, comprised of policymakers and scholars, is headquartered. They anticipated growing interest in Islamic finance and created the Dow Jones Islamic Market in 1999, thereby beating out the FTSE and Standard & Poor’s (S&P) version of cataloguing Islamic markets by almost a decade. (S&P established one in 2007, followed by FTSE in 2008.)

A debate persists as to how simple or complicated it is for investment managers to implement Islamic finance conditions. For example, critics of Islamic finance argue that complex and sophisticated transactions at an institutional level are still a challenge to Muslim financial scholars. Back in 2009, the Bahrain-based Islamic Banking regulatory body, the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI) asserted that 85 percent of Islamic bonds (sukuk) were in fact un-Islamic. Nonetheless, those opting for Islamic investment funds share much in common with others pursuing faith-based investment funds, like the underlying belief in holding both oneself and society accountable for community development. This explains why the larger trend of socially responsible investing will likely grow in popularity as middle-class families grapple with their mistrust of the latest banking crises.

Specifically, the notion of creating wealth for society—and not just the individual—operates as the modern equivalent of SRI’s goals for community investment. As a result, the philosophy of Islamic finance overlaps with socially responsible investment. The only difference is that Islamic finance proposes an entire financial system that interrelates with way of life and specifies rules and principles.

Trend #3: Non-Muslim Majority Countries Take Notice

Other regions with non-Muslim majority populations have taken notice of Islamic finance’s market potential. As a result of a 2004 decision, both Deutsche Bank and Citibank are reaping the benefits of their first mover advantage to open Islamic banking windows, since many European and American banks are holding back from lending. Deutsche Bank projects that the Islamic finance may double in assets of up to 1.8 trillion dollars by 2016. Earlier this year, Islamic Finance News awarded Deutsche Bank “Best Islamic Finance Trustee/Custodian”.

In 2009, other non-Muslim majority countries, like Japan, noticed this trend and started issuing Islamic bonds (sukuk). In addition, mainstream publications like The Atlantic illustrate the business world’s need to engage more directly with Islamic finance practices by offering courses: “Hong Kong University has been one of many institutions for higher learning in the region to establish a degree program in Islamic finance,” writes Massoud Hayoun.

Trend #4: Islamic Banks May Be the Other Side of the SRI Coin

Islamic Banks have grown beyond the GCC and spread to Turkey. Islamic banking enterprises successfully have engaged Turkey’s 70 million—and growing—population and developed American and Middle Eastern ties as Turkey secures its place as a political and regional leader. Banks like Turkiye Finans have developed investment portfolios that address both the Islamic elements as well as the growing need to become more ‘socially responsible’. In 2011, Turkey launched the ISE Participation Index, KATLM. The index is part of an initiative to promote ethical funds and SRIs. (See “Islamic Finance in Turkey–Looking Ahead With Confidence”, 2007, by Peter Wouters.)

About 10 years ago, Turkey experienced frustration over not getting into the European Union. Several reasons were cited, arising both from the Copenhagen Criteria and cultural bias. Ironically, the decision to exclude Turkey has produced hidden blessings: Turkey avoided the Euro financial crisis, and Islamic banking institutions have increased economic and social linkages within a secular country. Meanwhile, Turkey has become as a model country within the MENA region as it increases its investment in Iraq.

Coincidentally, the socially responsible investment trend is growing within cities like Paris and San Francisco, just like it is growing in Hong Kong and Ankara. In the US alone, Sustainable and Responsible Investing is a broad-based approach to investing that now encompasses an estimated $3.07 trillion out of $25.2 trillion in the US investment marketplace today, according to The Forum for Sustainable and Responsible Investing, which parallels the subcategory of faith based funding. Moreover, some industry analysts posit that the larger SRI phenomenon produces gains beyond its ethical benefits. SRI and its subcategories of faith based funds are seen as a market for long-term sustainability because their criteria look at economics, environmental and social issues. SRI is viewed by many industry analysts as the key to sustainability, which is attractive to investors. As such social issues encompass human capital, which function as good indicators of how the company is managing itself: ‘corporate governance’.

Market Potential

The wider market for SRI Funds exist beyond progressive, socially conscious investors—or what investment managers describe as a “niche identity” market representing 2 trillion dollars. Building on this SRI premise, the market potential for Islamic Fund clients is growing. Clients looking towards SRI have money to invest as well as a vested interest. For example, an increasing number of Americans wish to exercise more oversight with their retirement plans, in part because of the Enron and Maddoff scandals. Instead of investing in the typical 401 (k) plans, Americans may invest in 403 (b) plans, which allow more hands on decision-making. As a result, the additional oversight in a 403 (b) plan provides an opportunity to select industries that focus on social and environmental factors. Consequently, there is a large market potential for Islamically managed hedge-funds, given that the Arab Spring countries are considering many types of banking reforms, as stipulated by the Ernst & Young report.

In addition, many non-Muslims are looking for alternative investment options. In the UK and Malaysia, non-Muslims have opted to invest with Islamic finance institutions as a means to observe ethical investment choices. Almost a quarter of Islamic accounts in Malaysia are owned by non-Muslims, according to a BBC report.

Wealthy Muslims in the UK and the US participate in both the Western economy and the Islamic finance sector. Demographicdata by the Pew Forum on Religion & Public Life’s research support this market potential claim as well. Muslims comprise 23.4 percent of the global population, and is expected to increase by 35 percent over the next two decades.

Heightened Awareness

The global financial crises have heightened awareness and increased the investors’ interests in alternative investment strategies. Recognizing the common ground between Islamic finance principles and the modern investor’s vision for more transparency and investing sectors that address social concerns only promotes the most competitive investment strategies. A 2009 Working Paper by Novethic argued that there is no natural link between SRI and Islamic Finance because SRI do “not employ the same expertise or target the same clientele.” Nonetheless, the activity outside of non-Muslim majority countries presents a different story with respect to the global financial crisis and its effects. Overall, as more investors observe the parallel trends, alternatives have widened the scope for both social and financial accountability as well as deepened the hope to avoid a repeat of the unethical financial practices.

http://www.majalla.com/eng/2012/08/article55233666

Challenges to growth of Islamic banking

Although Islamic banking has grown rapidly over the last three decades, the volume of transactions touched $1.086 trillion (Dh3.98 trillion) in 2011

Although Islamic banking has grown rapidly over the last three decades, the volume of transactions touched $1.086 trillion (Dh3.98 trillion) in 2011, accounting for only one per cent of the world's total.

This point was made at a seminar organised last week by the Emirates Centre for Strategic Studies and Research in Abu Dhabi in cooperation with the Paris Institute of Geo-Political Studies.

The seminar also highlighted global interest in Islamic banking, motivated by the growing economic importance of Islamic countries and the increasing number of Muslims in places such as Europe. Even China is entering the market, recently approving a licence to set up the first Islamic bank in the country.

More than 310 Islamic financial institutions currently operate in more than 75 countries, and in the GCC the sector continues to flourish. The recent announcement that the world's largest Islamic bank, with a capital of $100 billion, would be headquartered in Bahrain, will boost this trend.But despite the global interest and new trends, Islamic banking still faces many challenges. Many of these challenges have complicated Sharia and professional characteristics.

Wide variation

Regarding Sharia, there is a wide variation in fatwas in each Islamic bank. Some of these fatwas contradict each other, thus creating hurdles in the progress of the sector.

This disparity reflects conflicts of interest and competition among Islamic banks on the one hand, and among scholars on the other. Some financial instruments adopted by some Islamic banks are prohibited or treated as undesirable in other lenders, which may hinder their adoption and the mission of the banking business in general.

On the professional side, although one of the most basic fundamentals of Islamic banking is based on the profit-and-loss sharing principle, the interest rate in Islamic banks mirrors interest rates in traditional banks, in that it moves up and down in accordance with the interest rate of the London Interbank Offered Rate (Libor) on the London Stock Exchange. This is the average interest rate that leading banks in London charge when lending to other banks.

Even though fatwa departments in Islamic banks are currently considering a substitute for this interest rate mechanism, in reality, Islamic banking is part of the global banking system and will remain so due to the integration of the economies of Islamic countries with the global economy.

This is because economic globalisation does not allow for such a separation between Islamic banks and traditional banks.

The impact of the global financial crisis on Islamic banking stand as evidence of strong association between Islamic banking and global banking, despite the fact that the effects on Islamic banks were less serious than those suffered by traditional banks. Let us not forget that one reason for this is that Islamic finance prohibits overestimating assets without sound financial foundations, and financial derivatives — two major causes of the crisis.

The efforts of Islamic banking to go global are important, particularly if they want to achieve the stature of French banks, for example, but it also requires finding a solution to the currently existing Sharia and professionalism-related problems.

Dealing with global fin-ancial markets is different from dealing with local and regional markets, especially given that there are complicated financial instruments and derivatives that are difficult to deal with in terms of Sharia only.

There are also major stock exchanges for commodities, gold and oil that deal with billions of dollars daily, thus putting big burdens on financial institutions because of the size and speed of transactions.

But if these issues can be resolved, it would be possible for Islamic banking to constitute an important part of the world banking system.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.

http://gulfnews.com/business/opinion/challenges-to-growth-of-islamic-banking-1.971299?flv=1

Sulaiman Al-Rajhi’s life a rags to riches story

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  Sulaiman Al-Rajhi with Muhammad Al-Harbi during the interview.

Saudi Arabia’s rags-to-riches billionaire Sulaiman Al-Rajhi is also a world-renowned philanthropist. He is the founder of Al-Rajhi Bank, the largest Islamic bank in the world, and one of the largest companies in Saudi Arabia. As of 2011, his wealth was estimated by Forbes to be $7.7 billion, making him the 120th richest person in the world. His flagship SAAR Foundation is a leading charity organization in the Kingdom. The Al-Rajhi family is considered as one of the Kingdom’s wealthiest non-royals, and among the world’s leading philanthropists.

Al-Rajhi is a billionaire who chose last year to become a poor man at his own will without having any cash or real estates or stocks that he owned earlier. He became penniless after transferring all his assets among his children and set aside the rest for endowments. In recognition of his outstanding work to serve Islam, including his role in establishing the world’s largest Islamic bank and his regular contribution toward humanitarian efforts to fight poverty, Al-Rajhi was chosen for this year’s prestigious King Faisal International Prize for Service to Islam.

In an interview with Muhammad Al-Harbi of Al-Eqtisadiah business daily, Al-Rajhi speaks about how he was able to succeed in convincing chiefs of the leading central banks in the world, including that of the Bank of England, nearly 30 years ago that interest is forbidden in both Islam and Christianity, and that the Islamic banking is the most effective solution to activate Islamic financing in the world and make it a real boost to the global economy.

The story of Al-Rajhi is that of a man who made his fortunes from scratch, relying on grit and determination. Al-Rajhi threw away his huge wealth through two windows — distributed a major part of his inheritance among his children and transferred another portion to endowments, which are regarded as the largest endowment in the history of the Islamic world. He had to fight poverty and suffering during his childhood before becoming a billionaire through hard work and relentless efforts, and then leaving all his fortunes to become penniless again.

Al-Rajhi is still very active and hardworking even in his 80s with youthful spirits. He begins his work daily after morning prayers and is active until Isha prayers before going to bed early. He is now fully concentrated on running the endowment project under his SAAR Foundation, and traveling various regions of the Kingdom managing activities related with it. He always carries a pocket diary containing his daily programs and activities and he is accustomed to stick on to the schedule he had prepared well in advance.

Al-Rajhi scored excellent performance results in almost all businesses in which he carved out a niche for himself. In addition to establishing the world’s largest Islamic bank, he founded the largest poultry farm in the Middle East. The credit of activating the organic farming experiment in the Kingdom mainly goes to him through launching a number of farming projects, including Al-Laith shrimp farming. He also established real estate and other investment projects.

Excerpts:

Sheikh Suleiman, have you become a poor man again?

Yes. Now I own only my dresses. I distributed my wealth among my children and set aside a portion for endowment to run charity projects. As far as I am concerned, this situation was not a strange one. My financial condition reached zero point two times in my life, and therefore I have had the feeling and understanding (about poverty) well. But now the feeling is accompanied by happiness, relaxation and the peace of mind. The zero phase in life this time is purely because of my own decision and choice.

Why did you choose this path?

All wealth belongs to Allah, and we are only those who are entrusted (by God) to take care of them. There were several reasons that prompted me to distribute the wealth and that resulted in performing this virtue. Most important among them is to foster brotherhood and love among my children and safeguard their harmonious relationship. This is more significant than any wealth in this life. I was also keen not to be instrumental in wasting the precious time of courts in case of any differences of opinion among them with regard to partition of inheritance. There are several examples that everybody could see when children entered in dispute over wealth and that led to the collapse of companies. Nation has lost many large companies and their wealth that we could have been saved if we tackled the matter in a right manner. Apart from this, every Muslim should work on some endowments that could benefit him in the life after death. Likewise, I prefer my children to work on developing wealth, which they inherit after my death, during my lifetime itself rather than I continue working to increase them.

Are you getting enough free time after the distribution of wealth?

As earlier I am still working on developing endowments. I will donate and give alms from it until Allah takes over this trusted deposit. I have worked out a meticulous scheme for this endowment and developed it with the support of specialist consultants and agencies. This idea struck me long before. Usually people in the Islamic world set aside one-third or one-fourth of their wealth for endowment and that will be effective only after their death. But in my case, I decided to implement this decision in my lifetime itself. So I invited my children to Makkah during the end of Ramadan and presented the idea in front of them. They readily agreed it and then I distributed my wealth among my children in addition to setting aside a part of it for endowment. I sought the help of consultants to facilitate the procedures for the distribution of all my assets including properties, real estates and stocks, and that was completed in a cordial atmosphere. All my children are now fully satisfied with my initiative and they are now working on these properties in my lifetime.

How much wealth you distributed among children and set aside for endowment?

He laughed without giving an answer.

How do you feel now about your projects?

I would like to point out that there were some factors that prompted me to make investments in certain specific areas. My experiment in money exchange was the temptation to set up a bank. The absence of any Islamic banking was also another factor in establishing Al-Rajhi Bank, which is now the world's biggest Islamic lender by market value. I began the experiment with opening an office in Britain where we introduced Islamic banking system at a greater level. The experiment was a success and it had received total backing of the Saudi Islamic scholars at that time. I still recall the application made for getting license for the bank was turned down in the beginning. This was because the concerned British officials did not have any idea about Islamic banking. Therefore, I went to London and met with the manager of the Bank of England and two of his deputies. I told them that Muslims and Christians see interest as forbidden (haram), and the Muslim and Christian religious people are unwilling to make transactions with banks based on interest and instead prefer to keep their cash and other valuables in boxes at their homes. I tried to convince them that (if we establish Islamic banks) this money would be helpful to strengthen the world economy. These talks were helpful in convincing them and they agreed to open Islamic banks. Then I traveled widely throughout the world in the West and East, and met with the chiefs of central banks in various countries and explained to them about the salient features of the Islamic economy. We started working and achieved success through launching it in the Kingdom and implementing it in London. When I returned to the Kingdom from London, I met the late Grand Mufti Sheikh Abdul Aziz bin Baz and Sheikh Abdullah bin Humaid, and informed them about the plan saying: 'We would reach, by the grace of Allah, the Islamic banking within a stipulated period of time.' They praised me for the initiative. We started aggressively implementing the project and that is in the form of Al-Rajhi Bank as you see now. Regarding Al-Watania Poultry, the idea of establishing such a venture struck me after my visit to a poultry project abroad. I saw that the way of slaughtering chicken was not proper. Then I decided to make investments in the field of poultry after considering it as a duty to my religion and nation. I started the project even though making investments in poultry involved high risks in those days. Now Al-Watania has become a mega Saudi project that is instrumental in achieving food security in many respects. The company enjoys a 40 percent market share in the Kingdom, and Al-Watania chickens are naturally fed and halal slaughtered in accordance with the Shariah principles.

What about your insistence on introducing organic farming through Al-Watania agricultural projects?

As you see, now I am 85 and still enjoy good health. If we pursue organic farming as our healthy food style, we can bring down cost of treatment to a great extent. We made several experiments in the field of organic farming. Our numerous experiments met with setbacks in the beginning. This prompted many engineers and workers to reach a conclusion that it is impossible to have organic farming and profit together. In the beginning, they were firm in their view that this would not at all be successful. But I insisted that it would work and continued compelling them to proceed with the venture. At one time, I took a firm position and told them either to do organic farming or quit. Now we are reaping the fruits of this lucrative business in line with my vision to provide only the healthiest, safest and most trustworthy food to consumers. Al-Watania Agricultural Company stopped using chemicals and artificial fertilizers and focused exclusively on organic methods such as the use of pest insect repellants and animal manure.

Your austerity and thriftiness on spending are well known. Please comment?

I am not a miser. But I am always vigilant against extravagance. I always try to impart this lesson to all those working with me whether it is in banking or poultry or other projects, and I am more concerned about it when it is coming to the case of my children. In the past, I never gave money to my children when they were young in return for nothing. When any one of them approached me to give them cash, I asked them to do some work in exchange for it. In our life, we practice some extravagance without being aware of it. But it affects our whole life, exhausting us and putting a burden on our country. For example, there is no logic in putting heavy curtain on our windows and then lighting lamps in daytime when we get sunlight free of cost while electric lamps are costly.

Despite all your wealth, why don't you still have a private aircraft?

Let me tell you that I have many planes but they belong to various airlines. I have ownership in all of them to the tune of the ticket fare that I pay for each travel. I always travel in economy class with the conviction that Allah bestowed us wealth not for showing arrogance or spend extravagantly but to deal with wealth as a trusted property.

What about the recreation and hobbies of Sheikh Al-Rajhi? How do you spend free time?

I have not any special recreations. However, I find happiness and enjoyment while making a trip to the desert. I never went out of the Kingdom on a tourism trip.

What about your will? What are its salient features?

Regarding my will related with wealth, I have already implemented it in my lifetime. As for the remaining aspect of my will, it is a public matter and also involves certain private matters, besides encouraging my children to maintain their kinship and always reminding them about the life after death.

How do you see your children's private investments? Are there any directives to them?

A number of them are doing an excellent work in accordance with their knowledge and experience. Most often, I try to guide them when I noticed anything undesirable even if it is in their private investments. Regarding my younger children, I always guide them, especially in the case of their investments. This is purely out of my keenness that they should be honest in their work as well as in spending wealth given by God as a trusted property. I am also eager to hear about my children that they are interacting with the society in the best possible manner, and that they are serving their religion and nation.

In what way you like to spend your time? What are the places that you like most?

I used to travel between Riyadh, Qassim, Al-Jouf, and Al-Laith to oversee my projects there. I always prefer to visit the farms in Qassim and Al-Jouf.

How could you preserve many old and precious things and antiques at Suleiman Al-Rajhi Museum?

A long time ago when I was in Jeddah, I was keen on preserving heritage pieces and gathered them together, especially those related with money exchange. There would be a history with every human being. The museum tells the story of money exchange. I particularly kept registers and cash boxes that were used when I started the money exchange business. The first cash box was made of wood, and there was a huge treasure box in which we kept our gold and silver. The artifacts kept at the museum tells the evolution of currency in the Kingdom through issuance of bank notes, as well as some currencies and coins that were in circulation among the Haj pilgrims. A major factor that prompted me to set up the museum was the visits made by a large number of officials from various countries to know more about these old coins and currencies. We have had to exhibit these rare collections in front of them to explain about our history and heritage, especially those related with money. I was keen to furnish the museum with historic and heritage pieces, especially with the same materials used for construction in the past. Hence, the roof of the museum was made of palm branches, and that was the case with the seating arrangements at the museum.

Al-Rajhi's punctuality

The interview also sheds light on many qualities of Al-Rajhi, including his punctuality. "In the beginning of my business career, I had appointments with several top European company executives and officials. I still remember that I reached late for such an appointment due to an unavoidable reason. My delay was only a few minutes but the official excused himself for the interview. Later, after expansion of the projects, the same official came late for an interview with me so I excused myself for the interview. I always carry a paper to note down the schedule of meetings and stick to the schedule at any cost."

Al-Rajhi continued: I am always keen to strictly adhere to the Islamic principles throughout my life. Once I received an invitation from an Arab government to attend an investment conference there. On the sidelines of the conference, I was invited to take part in a dinner reception. When I reached there, I found a recreational program, which is contrary to our religious customs and traditions, taking place. So I quit the place immediately and, Abdul Aziz Al-Ghorair from the UAE also joined me. Soon minister plenipotentiary rushed to us, and we explained to him that the function is against our Islamic tradition. So he informed us that the recreational party would be cancelled. When they canceled that party, we participated in the dinner.

Tackling crises

Al-Rajhi said: There was a huge fire that gutted down one of my factories managed by my son. When he came to inform me about it, I told him: Say praise be to God. I asked him not to submit any report about the losses to the authorities seeking compensation. In fact, the compensation is from Allah and it is essential for us to be satisfied with What Allah destined for us. Assam Al-Hodaithy, financial director of Al-Watania Poultry, said: "When the fire broke out at the factory, we decided not to hurt Sheikh Al-Rajhi by informing about it at that moment. Later, when we met him next morning, he told us to shift the factory to another place and remove the debris until completion of reconstruction." There was a similar fire at Al-Watania Poultry project in Egypt. The company incurred losses worth SR 10 million Egyptian pounds. When the concerned factory official contacted Al-Rajhi to inform about the fire, he was surprised to hear an instant reply from him: "AlHamdulillah."

http://www.arabnews.com/?q=sulaiman-al-rajhi%E2%80%99s-life-rags-riches-story

Islamic finance in spotlight

The World Islamic Funds and Financial Markets Conference (WIFFMC) has over the last eight years established itself as the world's most influential annual gathering of leaders in the global Islamic funds and investments industry.

The two-day WIFFMC 2012 opens at the Gulf Hotel on Sunday under the theme "New Growth Horizons: Expanding The Global Footprint of Islamic Funds and Investments".

It will again set the stage for industry leaders to gather to showcase cutting edge innovations and also address the key enablers that will boost growth in the international Islamic funds and investments industry.

It will bring together leading players, industry thought leaders and key regulators in the international Islamic funds and investments industry for discussions that will seek to capitalise on the new opportunities and chart the future direction of the global Sharia-compliant funds and investments industry.

The testimonials from key industry leaders further confirm the overall significance of WIFFMC 2012 as the meeting place of choice for the key decision makers in the global Sharia-compliant investments industry,

"The increasing interest in Islamic finance in major markets across the globe presents a unique opportunity of expanding the global footprint of the Islamic investments industry," said Central Bank of Bahrain (CBB) executive director of financial institutions supervision Abdul Rahman Al Baker, who will be a keynote speaker at the event.

"It is therefore important to ensure that the Islamic funds and investment industry has solid and strong foundations for future development and growth," he added.

"In addition to enhancing the innovations of new Islamic instruments and encouraging more spending in research and development, it is also essential that the Islamic financial institutions develop strategic alliances with other financial institutions globally, especially in the area of products structuring and offering.

"Formation of such alliances will help to achieve economies of scale and improve the services across the Islamic funds and investment industry," he said.

and improve the services across the Islamic funds and investment industry," he said. CBB is once again delighted to be hosting this prestigious event," he added.

"Whilst investors are now aware of the wide choice of Sharia investment products available in the market, they should now learn to appreciate the benefits that come along with Sharia investing," said CIMB-Principal Islamic Asset Management executive director Datuk Noripah Kamso.

"There has also been articulation by investors that the asset classes made available to the investors are not as broad and deep as what is made available to them in the conventional investment space.

"This concern could be the result of lack of visibility of the track record of these investment products by virtue that the various asset classes are structured using home-based currencies for their domestic sandbox.

"I hope that the above concerns will be answered at this year's conference and I am delighted to be part of this important gathering of international investment leaders."

http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=330236

Islamic finance industry to probe growth chances

As the Islamic finance industry continues to be one of the fastest growing components of the global financial system, with an estimated growth rate of 15 per cent to 20pc, international markets are witnessing a growing demand for Islamic financial products and services - even beyond the traditional markets of South East Asia and the Middle East.

The Islamic funds and investments industry has seen steady growth over the past decade due to the growing global demand for Sharia-compliant financial products and services and a significant increase in the number of institutions structuring Islamic investment products. According to Ernst and Young the Islamic funds industry grew to $58 billion, achieving a growth of 7.6pc in 2010.

Held under the theme "New Growth Horizons: Expanding The Global Footprint of Islamic Funds and Investments", the 8th Annual World Islamic Funds and Financial Markets Conference (WIFFMC 2012), opens today at the Gulf Hotel.

Leading players, industry thought leaders and key regulators in the international Islamic funds and investments industry will lead the discussions that will seek to capitalise on the new opportunities and chart the future direction of the global Sharia-compliant funds and investments industry.

The two-day event, under the patronage of the Central Bank of Bahrain, will be officially inaugurated with an opening keynote address by executive director - financial institutions supervision Abdul Rahman Mohammed Al Baker.

Speaking ahead of the event, Mr Al Baker said that as with other forms of Islamic finance, the Islamic funds industry has grown to become an increasingly substantial segment within the global financial markets and has gained significant interest as a viable and efficient alternative model of financial intermediation.

"Growing awareness and increasing demand for investing in accordance with Sharia principles on a global scale have been the catalyst towards making the Islamic financial services industry a flourishing industry.

"This is also a reflection of the increasing wealth and capacity of investors, both Muslim and non-Muslim, to seek and invest in new investment products that serve their needs."

He said with Islamic finance having considerable capacity to meet large investment requirements, opportunities therein lie in the more effective and efficient channelling of the sizeable surplus funds towards the vast productive investment opportunities within and across various key markets for Islamic finance."

World Islamic Funds and Financial Markets Conference chief executive David McLean said with an addressable universe in excess of $500bn for Islamic fund managers, which is still growing by at least 10pc to 15pc annually, it is essential that the industry players seize this opportunity and innovate new Islamic instruments and encourage more spending in research and development, in order to widen the contribution of Islamic investments in the global financial market.

"With sukuk emerging as a new asset class for global investors, it is essential to see that the demands of sophisticated investors are met in order to maintain the current growth levels that the Islamic funds industry has achieved.

"This calls for co-ordinated efforts in order to further improve the market for both issuers and investors," he said.

Irish Funds Industry Association chairman Ken Owens said that he was honoured to be asked to speak at the conference and "we very much look forward to our participation at this very prestigious event".

"As an international fund jurisdiction we very much look forward to our participation amongst this impressive gathering of senior industry representatives to discuss the different industry issues and how we in Ireland can assist the asset management community to respond to the challenges.

"It is also an excellent showcase for Ireland to demonstrate our capabilities and our determination to be the leading European centre for Islamic Finance."

http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=330415

Can Islamic banking close the gap on its conventional peers?

Fifteen years ago, Muslims wishing to take out a home finance, use a credit card or deposit money into a current account would have been hard pushed to do so and stay compliant with Sharia law. With few Islamic banks around - and a limited range of Sharia  products - banking as a Muslim invariably involved compromising either your faith or your financial needs.

Today, in many markets, such compromise is no longer necessary. Islamic banking is becoming a part of the mainstream, widely available across financial products and geographies. In 2012, Islamic banking assets are expected to reach US$1.1tn globally, up 33 percent on 2010, according to Ernst & Young. Within just a few years, Islamic banking has transformed into a global industry.

There are three major drivers behind this extraordinary journey - three reasons why I believe Islamic banking will keep on growing far into the next decade.

First, increased competition has resulted in a widening of the Islamic product offering, bringing it within scope for larger numbers of Muslims. In the early 2000s, a move by Islamic banks to make Sharia-compliant products more commercially compelling was a real game changer in the industry.

For the first time, Islamic banks were reaching customers for whom the commercial aspects of banking were just as important Islamic opportunity, have subsequently joined the fray, helping to grow the total market around the world.

Second, as the Islamic banking proposition has become more attractive, Muslims have converted from conventional banking at a rapid pace, spurring the industry to make the product offering even more sophisticated. Muslims who have been accustomed to using credit cards, for example, will not want to lose this benefit when switching to Islamic banking.

Whether in terms of access, technology, products or services, they expect nothing less than they have been getting from conventional banks, and Islamic banks are responding. Muslims now have a choice: to bank in a Sharia-compliant way, they no longer need to sacrifice the convenience, products and services they have been used to in the past.   

Third, the industry is receiving increasing regulatory support with governments in many markets actively encouraging the development of a healthy Islamic banking ecosystem. In the UAE, all new local banking licences granted in the last 15 years have been for Islamic banks. Countries such as Oman, Uganda and Nigeria are opening up their markets. Issuance of sukuk, or Islamic bonds, has become widespread, and Islamic finance is used increasingly for government support programmes.

In Bahrain for example, Standard Chartered Saadiq now works with independent employment authority Tamkeen to provide Sharia-compliant financing for small- and medium-sized enterprises (SMEs).  Malaysia - probably the world’s most successful Islamic banking market - shows what can be achieved. Here, concerted government action has pushed Islamic banking past the tipping point to represent around a quarter of total banking assets.

The next big step for the global Islamic banking industry will be to close the remaining gap with conventional banking when it comes to the range of products and services on offer. Islamic wealth management, for example, is clearly lagging behind, with Sharia-compliant funds comprising less than 0.25 percent of total assets under management.

It is a classic chicken and egg story. To attract wealthy Muslim clients, you need a competitive range of products and services, but to get this, you need scale. However, with the strong growth in Islamic assets and Islamic banking providers putting increased pressure on fund managers to respond, there is a good chance Islamic wealth management will catch within the next few years.

For all the industry’s recent growth, Islamic banking still represents a fraction of total banking assets globally, and the far majority (it is estimated that roughly only one in every eight Muslim with a bank account, banks Islamic) of Muslims still bank conventionally. Penetration remains low in some of the world’s largest Muslim countries, such as Pakistan and Indonesia at nine and four percent, respectively. There are several reasons for this, the most obvious being a simple lack of awareness of what Sharia banking has to offer. 

Regulatory barriers also persist in some countries. While different markets will develop at different speeds, support from governments and regulators will help keep up the pace of change.

Opening markets to international Islamic banks will help, too. International providers tend to accelerate development in individual markets with their ability to migrate best practice, product sophistication and banking expertise between geographies. At Standard Chartered, for example, we work with regulators in a number of countries to help develop their framework for Islamic banking, using our experience from other markets. 

Clearly, by tapping into their global networks, international Islamic banks also play a role in facilitating cross-border banking for Islamic customers.

This is essential if the industry is to attract more fast-growing SME customers as well as high net-worth individuals who wish to stay Sharia-compliant without missing out on growth opportunities in foreign markets.

The purpose of all banking, Islamic or conventional, is to help people to reach their aspirations. It is about connecting with customers and meeting their financial needs in a way that fits with how they live their lives. In the last few years, Islamic banking has caught up fast to meet this core requirement. 

It is still very early days for Sharia banking, but one thing is clear: with around 1.6bn Muslims in the world, the upside for Islamic banking is huge, and the best is yet to come.

http://www.albawaba.com/business/can-islamic-banking-close-gap-its-conventional-peers-426204?