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

Islamic finance taps into mobile phone airtime

The use of mobile phone airtime as an underlying asset in structuring financial products is making a comeback especially in the Islamic finance space. Malaysia’s Axiata Group Berhad, one of Asia’s largest telecoms operators, is setting the pace in using mobile phone airtime as one of the underlying assets to back its sukuk issuances. 

The Group launched a $1.5 billion Sukuk Al-Wakalah Issuance Program a few weeks ago, followed by a RM5 billion Sukuk Al-Murabaha offering last week by its mobile phone subsidiary, Celcom Axiata Berhad, which was issued through its unit Celcom Transmission (M) Sdn Bhd. 

But it was the Saudi telecoms operator Etihad Etisalat (Mobily) which was the pioneer of using mobile phone airtime in their financing requirements.

In March 2008, Mobily raised a $2.875 billion syndicated Islamic financing facility, which was based on mobile phone airtime, whereby Mobily was able to sell minutes of airtime to the financiers involved, and then taking on the role of agent to these banks and selling the minutes for a profit. 

The facility, whose proceeds were used to refinance the Saudi telecoms operator’s short-term debt and to fund its operations and infrastructure expansion, was arranged by a consortium of banks which included Samba Financial Group, National Commercial Bank, Saudi French Bank, Calyon Bank, Saudi Hollandi Bank, ABNAMRO and National Bank of Abu Dhabi. 

Similarly, in August 2009, Malaysia’s RHB Islamic Bank, pioneered the first tawarruq (Islamic cash management) product based on the use of mobile phone airtime, which the bank claims was the first commodity murabaha type product based on mobile phone airtime.

Tawarruq is used as a cash management instrument by some Islamic banks which allows customers to raise funds. Normally in a tawarruq transaction, according to RHB Islamic Bank, the purchaser will buy a commodity from the bank on a deferred payment plan and thereafter, sells it to the market to raise instant funds. In the past, commodities such as precious metals and crude palm oil have been used as the intermediary asset for tawarruq. 

Under the airtime-based RHB Islamic Bank tawarruq offering, the minimum financing was RM3,000 and the maximum financing was RM150,000. The bank bought the mobile phone airtime from a broker at cost price and sold it to the customer at the mark up price depending on the rate of the facility at the point of application and the customer then chose the payment period between 2 years up to the maximum of 10 years. RHB Islamic Bank signed an agreement with Sedania Media Group and E-Pay for the introduction of telecommunication airtime in its tawarruq offerings, with Sedania being the ready buyer and E-Pay the ready seller for the commodity.

With Asia and the Middle East seen as two of the largest growth areas for mobile phone ownership, the prospects for using airtime as an asset class for structuring various types of financing structures are both exciting and potentially big. 

In a statement, Jamaludin Ibrahim, Axiata Group President and CEO, emphasized that “both programs are in line with Axiata Group’s on-going group-wide initiative to optimize its balance sheet and improve its financial flexibility, while supporting the government’s vision of developing Malaysia into a major Islamic financial hub and reaffirming Malaysia’s position as a leader in the global Islamic capital market.”

In July, Axiata Group Berhad, through its wholly owned subsidiary, Axiata SPV2 Berhad, launched a $1.5 billion Sukuk Al-Wakalah Issuance Program, which the issuer stresses is the Asia Pacific Region’s first internationally rated multi-currency sukuk program and whose underlying is based, inter alia, on mobile phone airtime. 

Axiata is one of Asia’s largest telecommunications companies with controlling operations in Malaysia, Indonesia, Sri Lanka, Bangladesh, Cambodia and Thailand and minority operations in India and Singapore, and joins a growing number of companies using mobile-phone airtime to back Islamic transactions. In fact, airtime joins other non-tangible asset classes as underlying for Islamic finance transactions including sukuk issuances, which has been introduced into the market over the last few years. These include intellectual property, tariffs due on electricity meters, and receivables due on petrochemical marketing contracts.

This indicates the growing innovation in structuring sukuk and the increasing flexibility by Shariah advisories especially in recognizing the legitimate use of assets, which would have been non-existent and thus inconceivable during the last 1,430 years following the advent of Islam. It also signifies an important Ijtihad (discourse among the Muslim jurists) albeit in the context of modern finance which perhaps has been absent in other areas or sectors of life in Muslim countries. 

Airtime as an asset is set to flourish in debt financing deals, given that Asia is projected to see a massive increase in mobile phone ownership in the world over the next few years. ROA Holdings Inc. in Tokyo, for instance, estimates that Asia will account for a staggering 65 percent of 7 billion mobile phone owners by 2015. 

In the Islamic finance space, its use in tawarruq deals may proliferate in the short-term but given the uneasiness due to Shariah concerns over the use of certain tawarruq structures, its use could be more increasingly used to form a component of the asset pool to back sukuk transactions. 

The $1.5 billion Axiata Sukuk Issuance Programme, which was lead arranged by CIMB Bank (L) Limited, HSBC Amanah Malaysia Berhad and Merrill Lynch (Singapore) Pte. Ltd., and which was approved by the Shariah advisory board of HSBC Amanah, has an innovative structure which provides for the issuance of sukuk under the principle of wakalah (agency arrangement), which allows the use of assets comprising airtime vouchers (representing an entitlement to a specified number of airtime minutes on the mobile telecommunications network of subsidiaries of Axiata for on-net calls), Shariah compliant shares, lease assets and murabaha receivables arising from the sale of commodities as the underlying assets. The three banks also acted as dealers and bookrunners for the transaction. 

According to Jeremy Stoupas, Partner at Allen & Overy, the international law firm which acted for Axiata, “this transaction represents a significant development in the fast evolving market for Shariah compliant products in Asia Pacific. It is particularly pleasing to see this program come to market as it meets the challenge of trying to accommodate Shariah requirements without compromising on the robustness of the structure from an English law perspective.”

Axiata, which is not in urgent need of funds, will not immediately issue a sukuk tranche under the program, which is more a part of a future funding and development strategy. The multi-currency structure is also intended to attract investors from various parts of the world.

Equally importantly, according to a statement from Axiata, the sukuk program, “is in line with Axiata’s commitment to support the government’s ongoing initiatives and efforts in positioning Malaysia as an international Islamic finance center.”

At the same time, in August, Celcom Axiata Bhd successfully priced its RM5 billion sukuk in nominal value, of which RM3 billion attracted orders of RM10 billion via a bookbuilding process from asset management companies, financial institutions, insurance companies and corporates, and the remaining RM2 billion was privately placed with strategic investors comprising 8-year, 9-year and 10-year tranches respectively. 

 

The sukuk, which was lead managed by CIMB, HSBC Amanah Malaysia and Maybank Investment Bank, which also acted as bookrunners, has been assigned a rating of AAAIS with a stable outlook (the highest credit rating available from the Malaysian rating agencies) by the Malaysian Rating Corp. Bhd (MARC), which stressed in a statement that the rating reflected the credit strength of the Axiata Group.

Proceeds from the sukuk, with tenors ranging from 3 to 10 years, will be used to refinance Celcom Transmission’s existing debt of RM4.2 billion and the company’s capital expenditure and working capital requirements.

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120822133713

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

Lack of awareness on Takaful, conventional insurance differences

Many Malaysians do not understand the importance and difference between takaful and the conventional insurance, says Zuraidah Hanim Ibrahim, the first lady agent from Takaful Ikhlas Sdn Bhd to break into the Million Dollar Round Table (MDRT) ranks.

She said Malaysians were not aware of takaful coverage, as they often had the misconceptions on the differences between the Islamic and the conventional insurance.

"Only 10 per cent of Malaysians have takaful coverage compared to 42 per cent who have insurance coverage.

"The untapped market is actually is in the high-income market.

This is because they have no time to explore what is takaful and usually, they are insurance policy holders, yet looking for more and better coverage," she told Bernama in an interview.

Zuraidah said takaful, an Islamic insurance concept grounded in Islamic muamalat (Islamic banking), observed the rules and regulations of Islamic law.

"In reality, it is better to have both kinds of coverage for a person, as both insurance structures give benefits in different ways," said Zuraidah, who manages over 1,500 Takaful Ikhlas policyholders.

On MDRT, Zuraidah said, with a personal production of family takaful for the first year contribution of RM461,000, she was able to make it to MDRT 2011, along with 7,000 other insurance and takaful agents from around the world.

The minimum premium qualifying mark will increase every year, and for the MDRT 2011, the mark was RM420,000.

With the induction, Zuraidah, who runs her own financial consultancy via Subang Jaya-based Darul Asiah Consultant Sdn Bhd, joined the ranks of some 36,000 life insurers and financial services professionals from over 430 companies in 78 countries.

The MDRT annual meeting is also designed to expose participants to innovative sales ideas in the life insurance-based and financial services business.

It will have about 100 speakers during its sales ideas breakfast sessions, motivational main platform presentations, educational afternoon sessions, and what it badges as insightful evening sessions.

MDRT members demonstrate exceptional professional knowledge, strict ethical conduct and outstanding client service. - Bernama

http://www.dailyexpress.com.my/news.cfm?NewsID=82297

Malaysians to bring Islamic banking to Germany

Islamic investing represents a 1.2 trillion euro market. Now one Malaysian firm wants to bring the trend to Germany. Others have tried and failed before, so it could be a struggle.

Confident and professional, the female chief executive of Malaysia-based CIMB-Principal recently gave a press conference in Frankfurt about the only registered Islamic investment fund in Germany.

With uncovered hair, red lipstick and silver earrings, Noripah Kamso said, "I want to share the new i-word with you. It doesn't stand for iPad, iPhone or inflation–but for Islamic banking."

Kamoso wants to improve the image of Islamic investment

The firm's goal is to win over Germany's roughly 4 million Muslim residents, along non-Muslims, to the bank's strategy of investing in accordance with the Koran.

The Muslim market

Islamic investment firms have been around since the 1970s. They prohibit interest, speculation and betting. They also do not put any money into companies that make alcohol or deal with pornography, gambling or pork. Islamic investment firms also keep away from companies with debts amounting to more than 30 percent of their own value.

In spite of these restrictions, customers of Islamic financial products can make money through a number of tricks. For instance, such customers earn no interest, strictly speaking, on their bank accounts. Yet it is a common practice for banks to contribute a sum to such customers' accounts every year in place of the interest.

An association of banks based in Muslim countries assesses whether or not firms conform to the Koran. According to CIMB-Principal, Germany has 27 publicly traded companies, including chemical giant BASF, that qualify.

The Islamic finance industry value is estimated at about 1.2 trillion euros (about $1.6 trillion), with yearly growth of more than 15 percent. Malaysia and countries in the Persian Gulf are the main nations to bind their firms to Islamic rules.

Abdullah is convinced Islamic investing can thrive

Even though Islamic banking accounts for just one percent of the global financial industry, there has been an increasing demand for alternative investments since the onset of the financial crisis. That's according to Daud Abdullah, president of the Global University of Islamic Finance in Malaysia's capital Kuala Lumpur.

"If people invested more in Islamic finance, the world would not have such problems," he said. "Then we wouldn't have highly speculative instruments that provide no economic benefit, but get countries deep into debt."

Branching out

Islamic financial products got their first major boost after the terrorist attacks of September 11, 2001. Many Arabs withdrew their money from the US at the time, and Abdullah says some of those funds ended up in Malaysia and the Gulf states.

A second boost came during the international financial crisis, when Islamic financial products actually showed profits. The Dow Jones Islamic Market Titans Index, which tracks the 100 biggest Islam-compliant businesses in Europe, the US and Asia, has nearly doubled over the last five years.

That is why a growing number of non-Muslims are also showing interest, said Abdullah, a scientist and Muslim convert.

"Islamic finance is for everyone," he added. "If you look at [Islamic finance] globally, 60 percent of investors are not Muslims."

Islam is the state religion of Malaysia

If you build it, they will come?

In CIMB-Principal's first phase, the firm wants to arouse interest in Germany's Muslim population. According to studies by the firm, 23 percent of German Muslims want to put their money in Islamic investments.

"Most Muslims in Germany are from the second or third generation," Kamso said. "Many of them have good jobs."

CIMB-Principal's second phase is to target non-Muslim investors. But the prospects are not especially promising. Unlike in the UK, where many firms similar to CIMB-Principal have long been on the market, there is little experience of Islamic firms in Germany.

"German firms are making Islamic bond portfolios and investment funds available," manager Karim Zaazou said. "But they only offer these products in Arab countries, to get a share of the petro-dollars."

Scandal casts a shadow

CIMB-Principal's plan is not the first to try and encourage Islamic investment in Germany. In the 1990s, Commerzbank and the state of Saxony-Anhalt developed a Islam-compliant bond known as a "Sukkuk." But the scheme was undermined by a scandal concerning share certificates.

Some 300,000 Muslims invested in one product, known as the "Konya model," only to see its Turkish operators disappear with the money. The damage was estimated at five billion euros.

Based on this experience, the general secretary of Germany's second largest Muslim organization does not think the Turkish community will be eager to invest in the new fund.

"There is obviously a need to apply one's religious principles in investing," Milli Gorus said. "But there is also a great deal of scepticism because of the past."

CIMB-Principal's first phase in Germany might come to nought. But you don't have to be religious to be interested in a good investment. The firm might not make headway in Germany until its second phase begins – unless this latest attempt at Islamic investments falls by the wayside like others before it.

http://www.dw.de/dw/article/0,,15946102,00.html

All eyes on the Islamic finance industry

Malaysia is emerging as a leading hub for the growing Islamic financial industry, with more push from the government to establish an Islamic economic and financial system. This industry is rapidly growing, with total global syariah-compliant fund assets estimated at a hefty US$60 billion as at the end of 2011. BizHive Weekly takes a snapshot of the industry and looks at potential areas for growth both locally and internationally for Malaysian players.

Financing: The Islamic way

Akmal Hassan, CEO and executive director of Asian Islamic Investment Management Sdn Bhd

As a country with Islam as its official religion, Malaysia is no stranger to the practices of an Islamic financial system.

As a matter of fact, Malaysia is well on its way to strengthening its global position as a leading hub for the growing Islamic financial industry, capitalising on its long-established dual-banking system.

The government is currently pushing for more progress in this division as exemplified in the Financial Sector Blueprint 2011-2020 which outlines the government’s plans to aggressively push for Islamic banking.

Also, earlier this week, the Malay Consultative Council (MPM) revealed its plans to create an Islamic economic and financial system in its efforts to realise the government’s target of achieving 30 per cent Bumiputera equity holdings in the economy. Under this system, MPM proposed the establishment of the National Islamic Economic Consultative Council, controlled by the Conference of Rulers meeting, as a reference and monitoring body in the implementation of the principles of the Islamic Economic Model.

MPM had also hoped for a separate legislation for Islamic Banking and Finance Act, but this would not contradict the provisions of the existing Banking and Financial Institutions Act 1989. With all this in play, it was no wonder that the industry has been growing leaps and bounds over the last decade. To note, data dictating the growth of the global Islamic fund management industry over the past ten years has been very encouraging, supporting the trend and the size of syariah-compliant funds which accounted for 4.5 per cent of total Islamic finance assets.

In fact, total global syariah- compliant fund assets were estimated to be at US$60 billion as at the end of 2011, with a projected growth of 10 per cent to 15 per cent in 2012. All this encouraged the birth of a diverse range of investments in the Islamic fund management industry across the globe which has started to attract non- Muslim investors, benefitting Malaysia in turn.

“Malaysia’s Islamic finance continues to grow rapidly, supported by a conducive environment that is renowned for continuous product innovation, a diversity of finan-cial institutions from across the world, a broad range of innovative Islamic investment instruments, a comprehensive financial infrastructure and adopting global regulatory and legal best practices,” noted Akmal Hassan, chief executive officer (CEO) and executive director of Asian Islamic Investment Management Sdn Bhd (AII-MAN).

“Malaysia has also placed a strong emphasis on human capital development alongside the development of the Islamic financial industry to ensure the availability and retention of the right talent,” he added.

“All these value propositions have transformed Malaysia into one of the most developed and dynamic Islamic finance markets in the world and put us in the forefront when foreign players think of when they come to Asia.”

An additional factor that has been driving the development of the industry was the push towards the mainstream to attract non-Muslim wealth.

Moreover, rapid liberalisation in the Islamic finance industry has encouraged foreign financial institutions to make Malaysia their destination of choice to conduct Islamic business and finance.

This created a diverse and growing community of local and international financial institutions.

Despite seeing such positive development, director and head of Islamic Banking division of OSK Investment Bank Bhd (OSK Investment), Yazit Yusuff believed the Islamic financial industry still had a lot more potential for growth.

“As an outfit that represents the Islamic banking operations of OSK Investment, we hope the Islamic financial industry would continue to grow at a more rapid pace both locally and internationally,” he told BizHive Weekly.

“On the local front, the industry just barely achieved targets set by the regulator in the first Financial Sector Master Plan which ended in 2010, whereby the Islamic banking industry achieved just over the targeted 20 per cent of the total banking system.

“Takaful contributed only eight per cent of the overall insurance industry.”

Internationally, the Islamic financial markets have also seen more harmonisation in terms of product structure between what was accepted in the middle-east market and what has been practiced in the Asian region, especially in Malaysia.

“For example, we have seen global sukuk issued by the Malaysian government, taking into account syariah view from the Middle Eastern counterpart,” Yazit stressed.

“We have also seen sukuk originating from Middle East institutions that have receivable components in the asset portfolio of more than 70 per cent in appreciation of the accepted view from some Malaysian syariah counterparts whereby debt trading is acceptable,” he added.

“Even though we do not have direct operations in insurance or takaful businesses, being one of the players in the overall Islamic financial system, we do hope that takaful industry can also grow and similarly grow at a more rapid pace.”

Read more: http://www.theborneopost.com/2012/04/15/all-eyes-on-the-islamic-finance-industry/#ixzz1sB28bjig

Standarization of Islamic industry sought Standarization of Islamic industry sought

Economic brotherhood: Indonesian President Susilo Bambang Yudhoyono (center with black cap) joins other Islamic leaders at the opening of the fifth World Islamic Economic Forum (WIEF) in Jakarta on Monday. The other leaders are (from left to right) WIEF chairman Tun Musa Hitam, United Arab Emirates Crown Prince Sheik Saud bin Saqr Al Qasimi, Moroccan Prime Minister Abbas El Fassi, (Yudhoyono), Malaysian Prime Minister Abdullah Ahmad Badawi, Qatar Deputy Prime Minister Abdullah Bin Hamad Al Attiyah, Organization of Islamic (OIC) Secretary-General Ekmeleddin Ihsanoglu and the fifth WIEF organizing committee chairman Sofyan Djalil. JP/R. Berto Wedhatama

As the Fifth World Islamic Economic Forum (WIEF) officially opened Monday, participating nations geared up to promote their lagging Islamic finance system amid the ongoing crisis in the “conventional” system.

Malaysia Prime Minister Abdullah Ahmad Badawi said as the conventional financing system continued to collapse, having a serious impact on the global economy, it was high time for the Muslim world to turn the “adversity into an opportunity”.

“The world is beginning to appreciate the need for alternative arrangements to the current international financial system. At the same time, Islamic finance is gaining credibility as an alternative,” he said.

Badawi said he believed Islamic finance had a bright future but that banking and finance standards needing harmonizing and Islamic financial products really required greater innovation.

“As long as our markets remain divided by different jurisdictions and interpretations of sharia standards, Islamic finance is unlikely ever to grow beyond the shore of Muslim countries.

He said the Islamic Development Bank (IDB) could play a pivotal role in attracting young and bright practitioners to develop the Islamic finance industry.

Indonesia, as the most populated Muslim country in the world, will play a major role in developing Islamic finance, President Susilo Bambang Yudhoyono said.

“Islamic banking should now be able to take a leading position in the banking world. Islamic banks have been much less affected by the financial meltdown than conventional banks — for the obvious reason that sharia banks do not indulge in investing toxic assets and leveraged funds. They are geared to supporting the real economy,” said Yudhoyono.

He however stopped short of mentioning concrete efforts the country would take to bolster the development of Islamic finance.

In moves to boost trade within the participating nations, four memorandums of agreement (MoA) worth more than US$3 billion were signed at the WIEF.

The country’s Islamic financing industry remains relatively small compared to the overall financing industry, but having last year enacted the Islamic Financing and Islamic Bond Laws, the government is upbeat about the industry outlook.

The amount of financing provided by the country’s Islamic banking institutions has grown from a mere Rp 5.5 trillion ($458 million) in 2003 to Rp 28 trillion in 2007 and Rp 38.2 trillion in 2008, despite the 2008 figure constituting less than 3 percent of the total national bank financing

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