The blossoming appeal of Islamic finance

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

Tracking the growth path of Islamic finance

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

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

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

Dr Mahmoud Mohieldin, World Bank managing director

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

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

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

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

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

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

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

BNM governor Tan Sri Dr Zeti Akhtar Aziz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Does Islamic finance have a responsibility to reduce unemployment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Islamic finance in bloom

Last week, the Islamic finance industry received another boost when Bloomberg launched its Malaysian Ringgit corporate sukuk index, a move that further cements Malaysia as a major player in the niche sector.

Investor demand for Shariah-compliant products, both corporate and sovereign, has grown significantly in recent months. In particular, sukuks (financial certificates seen as the equivalent of Islamic bonds) have been issued at record amounts on the back of cheap borrowing costs.

Bloomberg’s new index, developed with the Association of Islamic Banking Institutions Malaysia (AIBIM) and the stock exchange Bursa Malaysia, aims to offer a benchmark for investors in Ringgit-denominated sukuks in Malaysia, a country that has styled itself as a global hub for Islamic finance. Malaysia accounted for nearly 60% of global sukuk issuances in 2011, dwarfing its nearest rival Qatar by over a factor of six (see chart below).

Islamic finance promotes an economic order that conforms to Islamic scripture, namely the Koran. It prohibits interest on debt, which is deemed a form of exploitation under Shariah law, and promotes a close link to the real economy. Islamic financial contracts need be backed by (or at least tied to) real assets or transactions. Purely speculative investments are banned.

“Malaysia has become a centre for Islamic finance, in part because it has spent the last 30 years building (and providing incentives for) Islamic finance,” says Blake Goud, Principal of Sharing Risk, a website that provides analysis of current issues in Islamic finance.  “It has addressed some of the questions regarding the different Shariah standards with the Gulf Cooperation Council (GCC), which has encouraged issuers from that region to enter sukuk markets.  The launch of this index is probably just confirmation of this growth.”

“Sukuk issuance is still growing from a small base – compared to conventional bonds – and the growth will probably continue,” notes Goud.  “That is the main factor, but a withdrawal of European banks from lending in the GCC has probably contributed to growth in sukuk issuance and Malaysia's markets have become more attractive to issuers because it provides a more liquid secondary market than markets in the GCC (which have been improving).”

In a press statement, Bloomberg was keen to stress that it “will track and measure the performance of the most liquid and credit-worthy Islamic corporate bonds in Malaysia” – a comment perhaps placed to alleviate some investors’ uncertainty of Shariah-compliant products.

But the demand for sukuks, or Islamic bonds, is getting ever stronger.  Sukuk issuance in the first half of 2012 alone was over $67 billion, a record number for half-year issuances, according to the business information company Zawya.  Four decades ago, Islamic finance was usually the preserve of Muslim businesses wishing to tap the capital markets in accordance to religious principles.  Now sukuks are a practical funding alternative.  A Deutsche Bank report back in November 2011 estimated that Islamic finance industry could be worth $1.8 trillion in assets by 2016 as corporates continue to think outside the box and seek unconventional methods of funding.

Bloomberg’s initiative is one of several recent developments favouring the growth and acceptance of Shariah-compliant financial products.  Thomson Reuters has launched its own index to monitor the performance of the sukuk market in line with the Bloomberg release.  The Islamic financial sector also benefits from a growing Muslim population; more market players introducing degrees of competition and liquidity; and a recent commodity boom, which has generated large revenue surpluses in several Middle East economies.


http://treasurytoday.com/2012/09/islamic-finance-in-bloom

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

Amana Takaful records 32 % growth for 1H of 2012

Amana Takaful, recorded an impressive growth of 32% for the first half of 2012, well above the industry. The first half figures released by the company reflects a total Gross Written Premium(GWP) of Rs 770.8 million up from Rs.584.7 million in the comparative period of 2011. Individually, the first half General and Life businesses’ GWP of Rs. 603.3 million and 167.5 million respectively, grew by 32 % each in the same comparison.

This compares with the overall industry growth of 11 % in which General and Life segments moved up by 17 % and 3 % respectively as per industry sources. This performance propelled ATPLC’soverall market position. The General business performance was well supported by the Motor portfolio growth as well as the Non-Motor classes which moved up by 29 %, in which Medical was at the forefront. With the launch of “PROSPER” an Investment-linked Life product in the second half of 2011, ATPLC realized a significant contribution in the overall growth.

At an underwriting level, though the result was positive in comparison with the corresponding period last year, the significant increase in the Motor Claims stifled the planned performance goal.

Notwithstanding the slide in the equity market conditions, the judicious management of our diversified investment portfolio yielded an upside in investment returns of 263 % over the same period last year.

Despite the afore mentioned, ATPLC ended the half year with a loss of Rs. 34 million primarily driven by an over-run in Motor claims, as stated earlier. However, at Group level, a consolidated profit of Rs 43.6 million is reported to which the Maldives Takaful operation contributed substantially among the other subsidiaries.

Amana Takaful Maldives (ATM), now in its first year of operation as a PLC, recorded a GWP of MRF 29.7 million Rs 252.3 million) posting a growth of 31 % over 2011.

http://www.dailynews.lk/2012/09/03/bus02.asp

Bloomberg Launches New Corporate Sukuk Index for Islamic Finance

Bloomberg today announced further commitment to the Islamic finance market with the launch of a Malaysian Ringgit (MYR) corporate sukuk index, developed with the Association of Islamic Banking Institutions Malaysia (AIBIM) and Bursa Malaysia. The Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index will serve as a benchmark for investors of ringgit- denominated Islamic bonds in Malaysia, the world’s biggest sukuk market.

Global demand for corporate and sovereign sukuk has grown over the last decade and in Malaysia, as low borrowing costs continue to drive issuance. Malaysia is having a record year for sales of corporate sukuk, with potentially about 20 billion ringgit of Shariah-compliant debt in the pipeline, according to data compiled by Bloomberg.

The new corporate sukuk index will track and measure the performance of the most liquid and credit-worthy Islamic corporate bonds in Malaysia. Bloomberg will calculate the Index daily, with rates and prices contributed by member banks of AIBIM.

“Bloomberg has been investing in Islamic finance globally and this announcement reaffirms our commitment to Malaysia’s development as a global Islamic financial centre,” said Kamel Hajri, Bloomberg’s Business Manager for Islamic Finance. “This collaboration means we now have a complete portfolio of Islamic finance indices and tools for Malaysia. We look forward to expanding our joint efforts with key industry players to further enhance market transparency and liquidity, with the goal of fulfilling investor demand for more robust Shariah-compliant solutions.”

Dato’ Mohd Redza Shah Abdul Wahid, President of AIBIM, said, “With the diversification of the Islamic finance market, there is a growing need for access to accurate, timely and comprehensive data. Strategic collaboration to develop localized financial products will help stimulate the long-term growth, competitiveness and sustainability of Islamic finance services.”

“As a top global sukuk underwriter, we see domestic and foreign issuers actively tapping the Malaysian sukuk market,” said Dato’ Mohamad Zabidi Ahmad, CIMB Malaysia’s Head of Islamic Treasury. “By providing accurate pricing and benchmarking, this index will improve portfolio management and contribute to a more robust bond market.”

Deputy Governor Muhammad Ibrahim said, “Malaysia continues to develop and strengthen Islamic finance with increasingly sophisticated products and supportive infrastructure. The launch of the Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index is timely as it will contribute to better price transparency that enables investors to make informed investment decisions.”

This is the third sukuk index Bloomberg, in collaboration with Bank Negara, AIBIM and Bursa Malaysia, has developed for the Malaysian market. In 2011, Bloomberg launched the AIBIM Bursa Malaysia Sovereign Index (BMSSITR) and the Malaysia Sukuk Ex-MYR Index (BMSSUTR), as part of its Islamic Finance Platform (ISLM), a broad set of data, analytics and news dedicated to Shariah- compliant products and services.

This latest index was announced at the third Global Islamic Finance Forum (GIFF) in Kuala Lumpur held from 18-20 September, where global industry practitioners, regulators, Shariah scholars and business communities discuss prospects for the Islamic finance industry.

For more information on Bloomberg’s Islamic Finance Platform visit www.bloomberg.com/professional or go to ISLM on the Bloomberg Professional service. Customers and prospects can get more details from Bloomberg’s Head of ASEAN Sales, Nitin Jaiswal at njaiswal@bloomberg.net or             +65-6212-1520      .

Need to enhance and harmonise disclosure requirements in the Islamic capital market

The growing recognition of the increasing significance of the Islamic capital market, especially in view of rising cross-border transactions, has triggered the need for stronger oversight, greater transparency and more robust disclosure requirements, global standard-setters and senior regulators acknowledged today.

The Islamic Financial Services Board (IFSB) and the International Organisation of Securities Commissions (IOSCO), two global standard-setters in their respective fields, collaborated with the Securities Commission Malaysia (SC) to organise a high-level roundtable in Kuala Lumpur, themed “Disclosure Requirements for Islamic Capital Market Products”.

The roundtable represents a significant step towards the development of international regulatory standards and best practices relating to disclosure requirements for Islamic capital market products. 

“As the Islamic capital market expands and becomes more global, it is increasingly important that issues surrounding investor protection and market integrity are addressed from a cross-jurisdictional perspective.  It is therefore critical for regulators and standard-setters such as the IFSB and IOSCO to further examine disclosure regimes for Islamic capital market products, with a view to allowing more informed investment decision-making and to promote the further growth of the Islamic capital market,” said Datuk Ranjit Ajit Singh, Chairman of the SC, who is also an IOSCO Board member and the Vice-Chair of the IOSCO Emerging Markets Committee.

Jaseem Ahmed, Secretary General of IFSB, emphasised that promoting cross-border financing and investment through Islamic finance is critical to attaining the depth and scale in Islamic capital markets needed to be competitive. “This will require the adoption of robust regulatory and disclosure practices that give confidence to investors and consumers alike.  IFSB hopes that this collaboration with IOSCO will facilitate a process leading to a set of practices that could be harmonised or mutually agreed upon,” he said.

David Wright, Secretary General of IOSCO said, “The recent financial crises highlighted the importance of sound disclosure regimes in mitigating systemic risk and building confidence in the financial markets. Given the tremendous growth of the Islamic Finance industry - an increasingly important segment of the global financial markets – it is essential to achieve greater harmonisation in disclosure requirements across jurisdictions where Islamic capital market products are offered.” 

Participants of the closed-door roundtable also discussed the importance of effective disclosure requirements in facilitating greater cross–border Islamic capital market activities, analysed the risks and challenges arising from inadequate disclosures in the area of Sukuk and Islamic Collective Investment Schemes and identified potential approaches which can be adopted by standard-setters, regulators and market participants alike.

The roundtable, held at the Securities Commission today, was attended by senior regulators, international institutions, academia and leading market practitioners from 16 jurisdictions.

http://www.cpifinancial.net/news/post/15748/need-to-enhance-and-harmonise-disclosure-requirements-in-the-islamic-capital-market

AMANIE OPENS OFFICE IN OMAN, PLANS SHARIA MEET

Meethaq, as part of its long standing commitment to Islamic finance, will be welcoming global leaders to Muscat to discuss the way forward for the industry's further development, both within Oman and the wider region.

The two-day gathering will bring senior industry figures, global investors, takaful operators, and bankers, as well as top Sharia scholars. The topics will focus on the newly created opportunities in Oman and other countries in the wider region new to Islamic finance.

Specifically, the forum will discuss the current state of the sukuk market, new opportunities for takaful providers, winning strategies for distributing funds; and the issues faced by new Islamic banks in Oman, such as asset-liability management, treasury and interbank money markets.

Giving the keynote address will be Dr Mahathir Mohamad, former Prime Minister of Malaysia. Throughout his tenure as Prime Minister, between 1981 and 2003, Mahathir was a strong supporter of the global development of the Islamic finance Industry.

Dr Baker said, "Hosting informative events is an ideal way to greet a new market. With so much education required in our field, we felt that bringing many of our industry friends together and hosting a conference would help us to meet many new friends and help get people talking about new possibilities and collaborations."

http://www.muscatdaily.com/Archive/Business/Amanie-opens-office-in-Oman-plans-Sharia-meet-1p17

Islamic Banking feasible in Ghana - Zenith MD

The Managing Director of Zenith Bank Ghana, Mr. Daniel Asiedu, has revealed Islamic banking (Interest-Free banking) may be introduced to the Ghanaian banking public in future.

There have been calls by some stakeholders for the bank of Ghana to consider introducing Islamic banking just like in Nigeria. 

Under Islamic banking, a borrower only needs to pay back the amount owed to the bank, and the borrower can also choose to pay the lender a small amount of money to serve as a gratuity.

Speaking to Citi Business News, Mr. Asiedu said, “If it is a product that has done well in other economies, why not, maybe it could do well.”

According to the Zenith Bank MD, they will not discriminate and are here to serve the banking public hence any product that they see as useful will be deployed in Ghana.

He, however, said if it becomes possible Zenith Bank will introduce the interest-free banking in Ghana.

Meanwhile, the bank in celebrating seven years in the Ghanaian banking industry and as a socially responsible financial institution organised a health walk over the weekend for staff and clients. The walk saw both staff and customers of the bank walk within the East Legon environs.

The MD said “our focus remains to make you our customers, the reason for our existence. We will continue to keep abreast with business trends, introduce unique products, branch out to increase accessibility and price our services competitively to delight our customers.” 

http://www.citifmonline.com/index.php?id=1.1064104

Islamic banking regulation expected at any time: CBO

The much-awaited regulation for Islamic banks and window operations of conventional banks will be announced through a Royal Decree at any time.

"It can come at any time. The Majlis A'Shura and Cabinet have already cleared the new regulation and now we are waiting for a Royal Decree, which can come at any time,- Central Bank of Oman Executive President Hamoud Sangour Al Zadjali, told Times of Oman over phone. It appears that the Royal Decree is for amending certain clauses to incorporate Islamic banking business.

In fact, Bank Nizwa -” the first Islamic bank in the country -” and several other conventional banks are ready for starting Islamic banking business. Bank Nizwa, which has a paid-up capital of RO150 million, has been ready with its key officials for starting its operations, while alizz islamic bank is raising RO40 million from investors for forming the bank.

Among conventional banks, bank muscat, ahlibank, Bank Sohar and National Bank of Oman are expected to be the first ones to enter the market with their Islamic banking products. 

ahli bank is fully geared up start window operations through four branches. "We are 100 per cent ready for starting window operations. We have our Sharia board, accounting and auditing standards and risk management are in place and have already recruited staff. Also, we have established core banking system and devised Islamic banking products,- Abdul Aziz Al Balushi, CEO of ahlibank, told Times of Oman. 

A five-member Sharia board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 per cent capital adequacy ratio were the main highlights of the Islamic Banking Draft Framework (IBRF), when it was prepared by international audit firm Ernst and Young. Ernst & Young advised the Central Bank of Oman for framing the set of new regulation.

However, top-level officials in the banking sector are not clear whether the banking regulator has made changes in the draft report, after receiving their feedbacks. "We are waiting for the regulation to come for allocating funds for Islamic banking window operation,- added Al Balushi. The bank would like to see the capital requirement for different types of Islamic banking products for taking a final decision on allocating capital. ahlibank recently mobilised RO25 million through a rights issue, which took the paid up capital to RO120 million. 

"We are prepared for starting window operations,- added Dr. Mohammed Abdulazz Kalmoor, chief executive officer of Bank Sohar. The bank is looking at opening five exclusive branches -” two in capital area and three in interior regions -” for offering Islamic banking services. Like other commercial banks, Bank Sohar has done enormous amount of work in terms of ground work for launching Islamic banking services. 

According to the draft Islamic banking framework, of the Sharia board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting. 

CBO's draft regulation also stipulated on separate branches for Islamic banking window operation of conventional banks. The draft regulation also insisted on a 12 per cent capital adequacy, with a minimum paid up capital of RO10 million for starting window operations.

Another major suggestion for window operation is that funds can be pumped into Islamic line of business by a conventional parent bank, but Islamic banking operation can not transfer money for using it in conventional banking.

http://www.timesofoman.com/innercat.aspx?detail=12223