Islamic banks outdo conventional rivals in the UAE

Islamic banks in the UAE are outperforming their conventional rivals in terms of profitability, liquidity and earnings per share, according to a new report.

And the study said the Shariah-compliant banks have not been seriously affected by the fallout from the global financial crisis as they operate to different standards in terms of loans and investment tools.

The study was compiled by Dr Mohammed Naeem Shaker, Professor at the Finance Department of the College of Business Administration at Ajman University of Science and Technology, and Dr Abdalla Salih, Assistant Professor at the college’s Accounting Department. It was discussed at the fourth Forum for Accounting and Auditing Bureaus and Companies in GCC countries which was held in the capital. The report said the number of Islamic banks in the UAE and the world rose during the worst period of the crisis when demand for Shariah-compliant banking services and products increased. Three of them opened in the UAE alone during 2008 – Noor, Al Hilal and Ajman. And the number in European countries is expected to increase over the next few years.

Dr Salih told Emirates Business that the study compared the financial situation of three Islamic banks, Dubai, Abu Dhabi and Sharjah, with three traditional banks, NBD, NBAD and ADCB over the years 2006 to 2009 and concluded that the Islamic banks performed better in terms of profitability, liquidity and earnings per share.

“The study has proved that the performance of the three Islamic banks was good and they were not basically affected by the fallout from the crisis,” he said. “They maintained their profitability level and their liquidity level went up. Also, there was an increase in the ratio of shareholders equity to total liabilities and equity.

“And the ratio of liabilities to the value of assets remained steady or varied only slightly. And there was a clear rise in earnings per share.”

In contrast, the study said the profitability of the conventional banks was greatly affected over the same period, especially as a result of the financial crisis in 2008 and 2009. Also the level of liquidity went down.

However, the conventional banks maintained their level of earnings per share or experienced only a slight difference. The ratio of liabilities to the value of assets was steady or changed only slightly and the ratio of shareholders’ equity to total liabilities and equity rose.

Dr Salih said the profits of the four Islamic banks listed on the Abu Dhabi and Dubai financial markets – Dubai, Abu Dhabi, Sharjah and Emirates – increased in the first quarter of 2009 compared with the last quarter of 2008.

Sharjah Islamic Bank and Emirates Islamic Bank made profits after recording losses in the fourth quarter of 2008. And Abu Dhabi Islamic Bank’s profits grew by 134 per cent in comparison with the last quarter of 2008 after it drew on the liquidity offered by the federal government. At the height of the global crisis Dubai Islamic Bank occupied third place in Meed’s list of the largest 20 Islamic banks in the Gulf in terms of assets, and June 30, 2009, these topped $23.9 billion (Dh87.78bn).

Abu Dhabi Islamic Bank came fourth with $15bn, Emirates Islamic Bank was eighth ($6.8bn) and Noor Islamic Bank was 10th ($6bn). During the crisis the Islamic banks’ profits rose, especially those of Dubai Islamic Bank whose profits went up by 31 per cent in the first quarter of 2009.

Mohamed Albeltagi, Head of the Shariah Department at the former National Bank for Development in Egypt, now known as the Abu Dhabi Islamic Bank – Egypt Branch, said Islamic banks in the UAE were among the best in the world in terms of growth, performance and compliance with Shariah regulations. The UAE was the first country to establish an Islamic bank – Dubai Islamic Bank.

“The number of Islamic banks is increasing greatly around the world and the rate of increase during the global financial crisis reached some 28 per cent. The assets of the the 700 Islamic banks went up to $822bn this year from $650bn in 2008. And the assets are expected to rise to $1.3 trillion in 2010. The figure is based on an annual growth rate of 15 per cent to 20 per cent.

“Islamic banks have survived the global financial crisis since no Islamic bank has announced bankruptcy, unlike banks that pay interest in America and elsewhere in the West where the number of bankrupt banks has reached 100. Islamic banks have financial tools that are totally different from those used by traditional banks and they have not been involved in charging interest on loans. Also Islam forbids the sale of debts and the issue of bonds with interest as well as margin selling. They do not give credit without carrying out detailed studies.”

Albeltagi said Islamic banks had set financial tools and Shariah alternatives including sukuks. Islamic finance prohibits bonds with interest and instead allows approved investment sukuks. Dubai and Malaysia are the world leaders in sukuks, which are issued against fixed assets and real rather than bogus transactions.

“Also the amount of finance given to customers should not exceed the investment assets held by the banks, and this is called the real economy. In this way the supply of cash and commodities and products in the market is even,” he said.

Munther Dajani, a partner at KPMG, said: “Islamic banks have come out of the global financial crisis stronger than ever. The healthy position of Islamic banks in the UAE and around the world is the result of commitment to the principles of Islamic finance that prohibit speculation. The banks make sure that sold and rented assets are real rather than bogus.”

Dajani said Islamic banking principles stressed that the seller had to own the assets and there should be good intentions behind the exchange of assets. Islam does not allow the sale of credit resulting from the sale of financial assets, and risk should be the responsibility of the seller.

Shaker said Islamic banks had a promising future in both the UAE and the rest of the world. “There is an increase in demand for their products and services in both Islamic countries – because most nationals and residents follow the Islamic faith – and non-Islamic countries, because of the impact of the international financial crisis,” he added.

“There is a belief among many Western politicians and economists that Islamic banks are a rescue belt, especially after they demonstrated their ability to avoid the direct impact of the crisis and in fact managed to grow noticeably during it. There is an almost daily increase in the number of Islamic banks being set up or traditional banks that establish Islamic branches.”

The impact of the crisis on the traditional banks and the banking sector around the world was very great as they cut back on lending. In addition the recession that accompanied the crisis forced poorly performing companies to go bankrupt and leave the market.

Shaker agreed with experts who said the Islamic banks in the UAE and elsewhere were not badly affected by the crisis.

“This is basically a result of their excellence as an industry,” he said. “Islamic banking expresses the convictions of many Islamic people. In addition these banks stick to the regulations of Islamic Shariah. So it is not surprising that while leading Western banks go bankrupt Islamic banks, whether large or small, become stronger.

“The crisis stemmed from the fact that the West allowed practices that were forbidden by God. For example, one of the main causes of the crisis was the selling of debts, which is prohibited in Islamic finance. In addition Islam prohibits the rescheduling of debts, which means the extension of a loan period in return for an increase in the interest rate.”

Shaker said the strong performance of Islamic banks during the crisis confirmed that Muslims had a lot to give to the world. The expansion in the number of Islamic banks globally and in the UAE was necessary so that Muslims’ money could be invested in their home countries and banks.

Albeltagi said: “State intervention is an important factor in the regulation of financial markets. The state can play an important role in the state of recession through financing some investment projects to push forward the wheel of production.”

Link: http://www.business24-7.ae/Articles/2009/11/Pages/IslamicbanksoutdoconventionalrivalsintheUAE.aspx

Top forum to probe Islamic banking

As cautious optimism returns to the global economy more than 1,200 industry decision-makers from over 50 countries are preparing to meet in Bahrain for a top Islamic banking conference.

The 16th Annual World Islamic Banking Conference (WIBC 2009), to be held from December 6 to 8, will focus on "New Strategies for New Economic Realities".

WIBC 2009 has set the stage for discussions that will shape the post-crisis landscape as Islamic banks grapple with the need to manage risk, seek new growth markets, deliver on market expectations as well as remain competitive.

The theme of WIBC 2009 reflects this fresh outlook that the leading Islamic financial institutions are currently adopting as they compete in an increasingly challenging landscape.

"It is heartening to experience the vibrancy and sustained growth that our industry, Islamic banking, has seen over the last few years," said Abu Dhabi Islamic Bank chief executive officer Tirad Mahmoud.

"I am impressed most by the upbeat stance of the entire industry in face of the global economic situation in general and that of the banking sector in particular. I am also pleased that we are a Platinum Strategic Partner of the WIBC 2009 as it is one of the few global platforms where leading industry players converge."

"At Gulf Finance House (GFH), we believe Islamic banking has a big future and not just in traditional markets but on the global stage," said GFH chief executive officer Ahmed Fahour. "The annual WIBC is a key player in stimulating debate and tackling the issues the industry will face in the years ahead."

A panel of industry experts will lead discussions on controversies in Islamic finance with emphasis on lessons learnt from the global financial crisis.

A roundtable panel representing UK institutions will offer insights on the UK's perspective on Islamic finance.

In addition, the launch of the 2009-2010 edition of the WIBC Competitiveness Report, a critical reference source for industry decision makers, providing strategic insights from McKinsey & Company, will also provide a powerful research platform for discussing key trends, challenges and opportunities in Islamic banking.

Link: http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=264311

Outsourcing in Islamic finance

Is Malaysia set to become the global centre of a new breed of Islamic finance outsourcing services? Recent research from ValueNotes, a Pune, India-based research firm suggests that this is the case.

Otherwise known as Shari’ah banking, Islamic finance is a system of banking consistent with the principles of Islamic law (or Sharia), which prohibit the payment or acceptance of interest fees for the lending and accepting of money, as well as investing in businesses that provide goods or services contrary to Islamic principles.

In its recent research, ValueNotes points out that the rapid growth of Islamic finance in the past 30 years has sent global banking giants, such as HSBC and Standard Chartered, scrambling to develop their own offerings for Muslim clients. The result is that Islamic finance is now offered in more than 75 countries worldwide. Total assets invested in this way, meanwhile, totalled between $750 billion and $800 billion in July 2009, according to a study conducted by the Federal Reserve Bank of San Francisco. By 2010, they should reach a staggering $1 trillion.

ValueNotes analysts think Malaysia is well-positioned to tap into the outsourcing needs of banks that offer Islamic finance services. Along with Iran and Saudi Arabia, Malaysia is one of the leading players in Islamic finance. The country currently has 17 registered Islamic banks, so there are plenty of people there with skills and experience to offer.

There are other positive signs, too. Maveric Systems, a software testing service provider, recently launched its own Malaysian operations in order to offer services in the Islamic finance domain. Along with setting up a center in Malaysia, the company has also partnered with Malaysia University of Science and Technology (MUST) to roll out courses and training modules in line with Islamic finance and software testing.

Overall, the Malaysian outsourcing industry has been growing 15% annually and will reach $1.1 billion for 2009, growing to $1.9 billion by 2013. Apart from a few small research companies offering services such as data collection and data processing to Islamic banks, Islamic finance is one of the niche segments in Malaysia that, as yet, remains untapped, say ValueNotes’ researchers.

Link: http://www.sourcingfocus.com/index.php/site/editorsblogentry/1926/

New strategies for new economic realities

As cautious optimism returns to the global economy and financial markets begin to move towards stabilisation and economic recovery, more than 1,200 industry decision-makers from over 50 countries are preparing to meet in Bahrain at the 16th Annual World Islamic Banking Conference (WIBC 2009).

This year's conference, to be held on the 6th, 7th and 8th of December 2009, will focus on New Strategies for New Economic Realities and WIBC 2009 has set the stage for discussions that will shape the post-crisis landscape as Islamic banks grapple with the need to manage risk, seek new growth markets, deliver on market expectations as well as remain competitive. The theme of WIBC 2009 reflects this fresh outlook that the leading Islamic financial institutions are currently adopting as they compete in an increasingly challenging landscape.

Speaking ahead of the conference, Tirad Mahmoud, the Chief Executive Officer of Abu Dhabi Islamic Bank was bullish about the long-terms prospects for the Islamic banking industry:

"It is heartening to experience the vibrancy and sustained growth that our industry, Islamic Banking, has seen over the last few years. I am impressed most by the upbeat stance of the entire industry in face of the global economic situation in general and that of the banking sector in particular. I am also pleased that we are a Platinum Strategic Partner of the 16th Annual World Islamic Banking Conference (WIBC 2009) as it is one of the few global platforms where leading industry players converge. We expect this year's event to be a resounding success and contribute to the industry's dynamism; and to rebrand Islamic banking as the true universal banking model which promotes mutual benefit as the basis of growth and a financial eco balance as the basis of planning."

Similar views were expressed by Ahmed Fahour, the Chief Executive Officer of Gulf Finance House, who noted that:

"At GFH, we believe Islamic banking has a big future and not just in traditional markets but on the global stage. The Annual World Islamic Banking Conference is a key player in stimulating debate and tackling the issues the industry will face in the years ahead."

The inaugural plenary session of WIBC 2009 will feature a series of prominent keynote addresses from H.E. Rasheed M. Al Maraj, Governor of The Central Bank of Bahrain; H.E. Heng Swee Keat, Governor of the Monetary Authority of Singapore; H.E. Aset O. Issekeshev, Minister of Industry and Trade of the Republic of Kazakhstan; and H.E. Khalid M. Al-Aboodi, The CEO & General Manager of The Islamic Corporation for the Development of the Private Sector, the private sector arm of the IDB Group.

In addition, the launch of the 2009/2010 edition of the WIBC Competitiveness Report, a critical reference source for industry decision makers, providing strategic insights from McKinsey & Company, will also provide a powerful research platform for discussing key trends, challenges and opportunities in the Islamic banking industry.

A panel of industry experts will lead discussions on controversies in Islamic finance with emphasis on lessons learnt from the global financial crisis. Other key discussions will focus on ways in which the industry will evolve in terms of product innovation, global connectivity and business models. A roundtable panel representing UK institutions will offer insights on the UK's perspective on development, growth and the future outlook for Islamic finance.

A unique feature for the second day of the conference will be the keynote address and Q&A session with Nassim Nicholas Taleb, the renowned thinker and author of the international bestseller "The Black Swan: The Impact of the Highly Improbable".

More than 1,200 delegates are expected to attend the 16th Annual World Islamic Banking Conference.
Link: http://www.ameinfo.com/216355.html

Two reasons for Islamic finance’s move into world financial system

The accelerated development of Islamic financial markets and increased liberalization are the two important trends which have increased the integration of Islamic finance into the international financial system, according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.

In her keynote address entitled “Islamic Finance: A Central Bank’s Perspective” at a seminar on Islamic finance in Rome on Nov 11th, 2009, she said: “The development in the Islamic financial markets has contributed to the availability of a wide spectrum of Islamic financial instruments that ranged from instruments to manage liquidity, to structures for financing of mega investments.”

Her speech text was released to news organizations on Nov 12th, 2009.

“The higher level of foreign participation in the Islamic financial markets has resulted in the increase in cross border flows in the international Islamic financial system thereby, enhancing international financial linkages between financial systems,” she said.

Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=5842&Cat=0

Liberalization, Zeti added, had also brought greater foreign institutional presence in Islamic financial systems, resulting in greater diversity of players and strengthening further international financial linkages.

Malaysia had very much been part of this process, she noted.

In 2003, the Islamic financial system was liberalized to allow for increased foreign presence. In 2007, the sukuk market was liberalized to allow the raising of funds by eligible corporates from any part of the world in any currency.

In 2009, the first foreign currency sukuk of US$1.5bil was successfully issued by Petronas, which was significantly oversubscribed by investors from Europe, the Middle East and Asia.

As part of an international collaborative effort, Zeti said a Task Force on Liquidity Management was set up by the the Islamic Financial Services Board and the Islamic Development Bank early in 2009 to develop solutions to enhance the efficiency of Islamic financial institutions in managing liquidity at both the national and international levels.

Another area of international collaboration is in the promotion of value-added investments in human capital to ensure the sustainable growth of the Islamic financial industry.

The International Centre for Education in Islamic Finance (INCEIF) in Malaysia was set up by the central bank with programs for practitioners and post-graduate studies to ensure the continuous supply of talent in Islamic finance.

At present, INCEIF students come from more than 60 countries, including Britain, Canada, France and Japan, South Korea and the Middle East.

“Equally important to innovative development is a deeper understanding of syariah and knowledge of Islamic finance and for a greater convergence in the theoretical understanding and practical considerations in resolving the contemporary issues faced by Islamic financial industry players,” Zeti said.

Islamic bank pledges one billion dollars for farmers: FAO

The Islamic Development Bank announced on Nov 15th, 2009 an extra one billion dollars (670 million euros) to support farmers in developing countries in a project with the UN food agency, the agency said.

The Islamic Development Bank announced on Nov 15th, 2009 an extra one billion dollars (670 million euros) to support farmers in developing countries in a project with the UN food agency, the agency said. The Food and Agriculture Organization (FAO) announced the move ahead of a food security summit on Nov 16th, 2009 in Rome which will bring together 60 world leaders. "This agreement comes at a critical moment, when the international community recognizes it has neglected agriculture for many years," the FAO said in a statement. "Sustained investment in agriculture -- especially smallholder agriculture -- is acknowledged as the key to food security."

The money will be distributed over the next three years to finance projects in IDB members states and the UN agency will provide technical support for work. The new money from the IDB will bring total investment in joint projects between the bank and the UN agency to five billion dollars, the FAO said. The agreement was reached on Nov 15th, 2009 in Rome between IDB President Dr Ahmad Mohamed Ali and FAO chief Jacques Diouf. Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=5836&Cat=0

Luxembourg advised of more involvement in Islamic finance

THE Luxembourg office of PricewaterhouseCoopers (PWC) in a report on Islamic finance published at the end of October 2009, has urged greater involvement and visibility from the Luxembourg government and regulators if it is serious about establishing the principality as a European Islamic finance hub especially for Islamic funds and sukuk.

Compared to regulators in the UK, Ireland and France, the Luxembourg regulators have never approached their counterparties in target countries such as Saudi Arabia, the UAE, Kuwait, Bahrain and Malaysia to seek cooperation on Islamic finance.

PWC, the international auditors and consultancy, has based its report on the recommendations and conclusions drawn from an Islamic finance meeting. The report suggests that Islamic finance is an important niche business for Luxembourg. Some 16 sukuks are already listed on the Luxembourg Stock Exchange. For instance, the $1.5bn Petronas EMAS sukuk issuance in August 2009 was listed in Luxembourg in preference to the London Stock Exchange.

In addition, there are more than 31 Islamic investment funds, mainly global equity and real estate funds, registered and domiciled in Luxembourg. The PWC report stressed that the future target of Luxembourg Islamic funds should be investors in Europe, although this will require an educational process to attract investors amongst Europe’s Muslim population of around 20-25 million. The report also stressed that Luxembourg should leverage its strong private banking industry, its good reputation and its cost-competitiveness as a financial center. As such, there is a potential for cross selling Shariah-compliant products to these investors.

In a rare foray into Islamic finance, Yves Mersch, governor of the Central Bank of Luxembourg, in a speech at the Islamic Financial Services Board (IFSB) in Kuala Lumpur earlier this year, stressed that “despite the current turbulences, the market practitioners of Islamic finance in Luxembourg remain optimistic that Islamic finance is likely to grow steadily in the next few years based on investors’ appetite for financial products based on sound ethical principles.”

Mersch warned that numerous challenges remain, however, including regulatory changes, legal certainty, illiquidity issues, liquidity management risk concerns, the need for harmonized regulation, regulatory disparity amongst national supervisors and a lack of level playing field. It is crucial to ensure that Shariah principles are able to accommodate the innovative products which would allow the integration of Islamic finance into the international financial system.

Mersch confirmed that market players in Luxembourg want formal recognition of Islamic financial products and accounting standards. “Our authorities have proved pragmatic, innovative and adaptive to the financial landscape. According to discussions currently being held at the national level, this will also be the case with regard to Islamic finance,” he declared.

Although the Luxembourg authorities have set up an Islamic finance Taskforce, bringing in various regulators, professional associations and market players, actual progress in the facilitation of Islamic financial products in Luxembourg remains slow and bureaucratic.

It would be difficult to have full fledged Islamic banking operations in Luxembourg due to a legal and regulatory framework. For example, it is not possible for Luxembourg banks to provide bank accounts without any risk cap, which is typical for an Islamic bank. In addition, Islamic banking requires banks to have partnership accounts.

The PWC report also highlighted concerns from market players in Luxembourg about various risks associated with various Islamic financial products and practices, although some of these concerns betray some ignorance about Islamic finance.

Islamic funds are almost all done through manual transactions. This leads to higher risk, for example accounting of revenues and purification of interest. Compliance issues such as eligible assets and investment restrictions are not monitored, as these are dealt typically by Shariah boards. There is also a perception of a lack of information sharing in relation to cleansing and eligible charitable organizations. The report calls for rules of charities should be demystified. However, the total amount of money purified is insignificant and money laundering risk is therefore limited as most of the Shariah compliant funds in Luxembourg are equity funds.

These latter points are unimaginable in markets such as Malaysia and even Turkey. Perhaps it reflects more on the inability of the fund managers and their lack of engagement in navigating through these issues. Sharing of information is a requisite in Islamic finance otherwise the transaction could be non-permissible because of Gharar (deception or non-disclosure), which is proscribed by the Shariah. Such concerns are not new and typical of some jurisdictions new to Islamic finance.

Fiduciary risk is not much different than for conventional funds with respect to OTC (over the counter) products. A large portion of sukuk is listed and managers have not yet invested in sukuk privately placed, thus mitigating risk to a certain extend. Assets are generally held by sub-custodians implying settlement and custody risk.

The report also stresses that default risk must also be taken into account since the emergence of the first occurrences of sukuk defaults earlier this year, which include East Cameron Gas Sukuk, the Investment Dar Sukuk, and the SAAD/Al-Gosaibi Sukuk.

In terms of valuation risk, the report stressed that there is no clarity on valuation parameter for investments to be obtained by counterparties or the Shariah board.

The report also identified a number of compliance risks. Participants, for instance, mentioned that no Shariah compliance checks are made as it is not a market practice and it is the responsibility of the Shariah board.

A service fund administration can send a report to the board of directors but will not check if investments are Shariah-compliant. Shariah compliance is part of the investment policy and should be checked by the manager from an eligibility an d risk spreading point of view. The question remains, however, if asset managers have the knowledge to check such compliance issues.

It is, however, difficult to put the compliance checks in a system in comparison with conventional funds as compliance rules might be non-standard (changing) and are somehow based on judgment. This requires more flexibility than for a conventional fund.

Link: http://www.arabnews.com/?page=6&section=0&article=128520&d=16&m=11&y=2009

Abu Dhabi Islamic Bank signs MoU with Emirates Institute for Banking and Financial Studies to develop new Islamic banking programs

Abu Dhabi Islamic Bank (ADIB), one of the leading Islamic banks in the region, has signed a three-year memorandum of understanding (MoU) with Emirates Institute for Banking and Financial Studies (EIBFS) to increase co-operation between the two organizations and to provide structured training and development initiatives for UAE Nationals working in the Islamic finance industry.

The MoU, signed by Abdullah Al-Shahi, Executive Vice President, Human Resources & Emiratization Division at ADIB, and Jamal Al-Jassmi, General Manager of EIBFS, aims to develop new Islamic banking programs and prepare a strong UAE national workforce for the Islamic Banking Industry.

As part of the MoU, the two parties will exchange students, training programs, and expertise and will develop new Islamic banking programs at both diploma and Bachelor levels.

"We are witnessing a big shift in the Islamic banking sector therefore it is imperative to build a solid workforce to lead the growth of Islamic finance industry," said Abdullah Al-Shahi, EVP, Human Resources & Emiratization Division at ADIB. "This partnership with EIBFS presents an enormous range of benefits for ADIB's employees and it marks our on-going commitment to develop local talent. According to the MoU, ADIB will train and hire UAE Nationals enrolled in the EIBFS's program."

Jamal Al-Jassmi, General Manager of EIBFS, said, "The signing of the agreement is in line with our strategy to partner with major banking institutions in the UAE in order to develop the industry and to provide additional support to the workforce in the banking field."

The MoU outlines specific areas of co-operation between ADIB and EIBFS that include the development of an educational program credit units transfer between both parties in addition providing training for students and exchange of information and knowledge.

Islamic Banking Bucks the Trend

Islamic banking continues to see strong growth while conventional banking has stagnated, according to the 2009 Top 500 Islamic Financial Institutions in The Banker magazine's November issue.

The assets held by fully sharia-compliant banks or Islamic banking windows of conventional banks rose by 28.6% to $822bn in 2009, from $639bn in 2008. This is a striking contrast to The Banker's 2009 Top 1000 World Banks survey in July, which showed annual asset growth of just 6.8% at conventional banks. Islamic finance as an industry is building a solid track record: the compound annual growth rate for 2006-2009 is 27.86%, with assets forecast to hit $1033bn in 2010.

"A conservative approach to risk and close links between the financial sector and real assets has helped shield the sector from the worst of the credit crisis. Finding improved ways to manage liquidity at Islamic banks, as well harmonising sharia and prudential compliance between institutions and markets, remain significant hurdles, but transparency and financial reporting remain challenges for the Islamic banking industry," said Brian Caplen, editor of The Banker.

The Gulf Cooperation Council (GCC) states remained the dominant segment of Islamic finance, with $353.2bn or 42.9% of the total global aggregate. Iran remains the largest single market for sharia-compliant assets, accounting for 35.6% of the global aggregate. Outside the Middle East, Malaysia remains by far the largest player, accounting for 10.5% of the global aggregate, but other markets are expanding rapidly. The UK now accounts for just under 2.5% of global sharia-compliant assets, and the Syrian Islamic finance market expanded an eye-catching 500%.

Now in its third year, The Banker's Top 500 Islamic Financial Institutions ranks retail, commercial and investment banks, insurance companies and asset managers according to their sharia-compliant assets.

Delegates at this year's Islamic Financial Intelligence Summit, the physical event of the Top 500 Report, received copies of the report and industry professionals discussed the findings of the rankings and research report. In addition to the published report, The Banker's Top 500 Islamic Financial Institution rankings data is also available online as a research tool.

Link: http://www.chinastakes.com/2009/11/islamic-banking-bucks-the-trend.html

First Takaful Insurance Company founded in Russia

First Takaful insurance company, based on the Islamic Laws, is established in Russia, reports the Kommersant newspaper. The company is going to offer its clients to participate in profits in order to enter into the segment of Islamic insurance in Russia. The potential market size is estimated at $2.6 billion.

The Russian Takaful Insurance company, established by Safinat and Al'ans Kapital investment groups, will open offices in Moscow and Kazan.

Among the first services the company announces motor insurance, property insurance and pilgrim insurance. The clients willing to participate in profits will get a discount for the next year insurance period; in case of termination of the contract the clients will get a compensation payment.

Link:http://www.russia-ic.com/news/show/9199/

Central Bank pushes for Islamic banking

Bank of Uganda is urging the government to pass the regulatory requirement for the establishment of the country’s first Islamic Bank which is expected to attract an infusion of millions of dollars into the banking system

“We have seen that Islamic financing is doing well in the United States, United Kingdom and other non-Islamic countries. There is no reason why it shouldn’t come here,” said Juma Walusimbi, the Communications Director at BoU.

“We are pursuing the question of the law. We have already discussed with the minister who is supposed to table our recommendations to amend the Act in cabinet and thereafter it will go to Parliament,” Walusimbi said, before adding: “Given our commitment, we believe that government will also respond positively.”

Islamic banking is bound to revolutionalise Uganda’s financial market. Premised on the Muslim Sharia Law, Islamic banking bars the charging of interest on loans. Islamic banking also prohibits a bank from investing money in a venture that is against Muslim principles as set by the Sharia Law. For example, a beer company may not be able to access funds from an Islamic bank.

Walusimbi said that the money that comes with Islamic banking would make a big difference in Uganda’s financial market.
“Initially about $10 million are available from one institution. There is another one that has indicated to invest $100 million. Normally we don't discuss this, but we are saying there is a lot of good money and this is the time we need this kind of money to come into the economy,” he said.

Nevertheless it would be interesting to see how other banks react to the establishment of an Islamic bank that does not charge interest on loans. Interest on loans is one of the largest sources of profit for ordinary commercial banks.

Link: http://www.observer.ug/index.php?option=com_content&view=article&id=5940:central-bank-pushes-for-islamic-banking&catid=38:business&Itemid=68

Iran, biggest Shariah-compliant market: The Banker

TEHRAN - Iran is the largest market for Shariah-compliant assets, accounting for 35.6 percent of the global aggregate, The Banker magazine's ""Top 500 Islamic Financial Institutions"" ranking shows, reported ISNA news agency.

Islamic banking assets continued with double-digit growth this year, even as conventional bank growth stagnated, The Banker's survey said.

The report is the only annual benchmark of its kind, which ranks over 600 retail, commercial and investment banks, insurance companies and asset managers according to their Shariah-compliant assets.

Assets held by fully Shariah-compliant banks or Islamic banking windows of conventional banks, rose by 28.6 percent, to $822b from $639b in 2008.

The Islamic finance industry continues to build a solid track record: the compound annual growth rate for 2006-2009 is 27.86 percent, with assets forecast to hit $1,033b in 2010.

Link: http://www.tehrantimes.com/index_View.asp?code=207744
Outside the Middle East, Malaysia remains by far the largest player, accounting for 10.5 percent of the global aggregate, but other markets are expanding rapidly. The UK now accounts for just under 2.5 percent of global Shariah-compliant assets, and the Syrian Islamic finance market expanded an eye-catching 500 percent.

The Banker is the world's premier banking and finance magazine. Read in 150 countries around the world, The Banker is the key source of data and analysis for the industry. The Banker has been providing global financial intelligence since 1926 and has built a reputation for objective and incisive reporting on major events.

Every month the magazine combines in-depth regional and country coverage with reports on capital markets and structured finance, risk management, working capital management and securities services, environmental finance, trade and project finance, trading, technology and management and governance issues.

Sharia refers to the wide body of Islamic religious law. Used thus, it refers to the legal framework within which the public and private aspects of life are regulated for those living in a legal system based on Islamic principles of jurisprudence and for Muslims living outside the domain. Sharia deals with many aspects of day-to-day life, including politics, economics, banking, business, contracts, family, and social issues

Hong Kong to seize Islamic finance opportunity

The huge market potential of the Islamic finance sector as shown by double-digit growth for Shariah compliant assets over the past decade had driven Islamic financers to look beyond historical boundaries to explore new territories, both within and outside the Muslim world, the Secretary for Financial Services and the Treasury, Professor K C Chan, said in Tokyo today (November 11). Speaking at the Islamic Finance Symposium 2009 hosted by Nikkei Inc, Professor Chan said that Hong Kong, being an international financial centre, was movingahead to put in place a conducive platform for the development of Islamic finance. "We believe Hong Kong is well placed to become a centre for Islamic finance in Asia.

Our sound financial services infrastructure and well-established legal system make Hong Kong an attractive location for such investments," he said. Professor Chan said many conventional and reputable financial institutions had entered the market and offering products such as sukuk as well as offering asset management service driven by the accumulation of wealth of both individuals and institutions, in particular in the Gulf and emerging Asia. A unique advantage for Hong Kong, Professor Chan said, was its unrivalled role in bridging the Mainland, the world's fastest growing economic giant, to the international market.

He said by bridging the investment needs from the Middle East and the capital needs in the Mainland, Hong Kong could be the trusted platform in linking the East and West - the new Silk Road. Professor Chan briefed his audience that the Hong Kong Government was preparing legislative amendments to the tax regime with a view to levelling the playing field for sukuk vis-a-vis conventional bonds. Before concluding his visit in Tokyo, Professor Chan visited the Tokyo Stock Exchange where he was briefed by President and CEO Mr Atsushi Saito on the latest development of Japan's equities market.

Professor Chan will return to Hong Kong tonight.

Source: HKSAR Government

Guideline out for Islamic banking

The Bangladesh Bank (BB) yesterday set guidelines for Islamic banking.

Under the guidelines, the board of directors of Islamic banks have now been empowered more, instead of the Shariah Council.

The central bank had been trying to issue the guidelines for years to establish proper control on the Islamic banking system, but it did not take place because of political interests.

The Central Shariah Council is working as the parallel regulator of the central bank for the Islamic banks.

In line with the guidelines, an Islamic bank can form an optional Shariah supervisory committee, but there will be no central council.

Islamic banking was first introduced in Bangladesh in 1983. Now, a total of seven banks operate as full-fledged Islamic banks. Another dozen commercial banks have Islamic banking wings to cater to the growing market.

Link: http://www.thedailystar.net/newDesign/news-details.php?nid=113545

Malaysia committed to becoming a leading Islamic financial hub: Mashitah

The government is committed to its plan to make Malaysia a world leading Islamic financial hub, Deputy Minister in the Prime Minister’s Department, Datuk Dr Mashitah Ibrahim said yesterday.She said the plan was part of the country’s international agenda, and its success in developing the Islamic financial system to the level of global acknowledgement was important.

Malaysia must continue to develop and expand the Islamic financial system which with its compliance to the syariah principles gives a renewed confidence and a tool in overcoming financial crises, Mashitah said in her speech during the awarding of certificates for Islamic financial planners (IFPs) and a special book on Islamic financial planning here yesterday.

She said that the government, through agencies like Jakim, and Jabatan Wakaf, Zakat dan Haji (Jawhar), has also put in place an Islamic financial system that has been realised as planned.

Through its research division, Jakim has played its role in coming out with programmes and discussions that have brought Islamic financial system to its present commendable level.

She said the government had realised the need for a specialists like IFPs and a strong professional Islamic financial organisation to provide the support for Malaysia’s aspiration to be a leading country in Islamic finance and banking.

The IFP programme, which is fully certified by the Securities Commission and Bank Negara Malaysia was developed through the first such capital model development fund (CMDF) in the region and the world.

Through, IFPs, there will be a greater awareness and understanding for individuals on the importance and management of assets via the Islamic way, she said.

Mashitah also hoped with the emergence of IFPs, issues like unclaimed estates worth billions of ringgit, the division of properties without following syariah as well as unguided investments will be resolved.

She also said that along with the increase in the number of graduates in the conventional financial sector, it should be just as possible for the number of IFPs to increase as well.

Meanwhile, Datuk Dr Adnan Alias, chief executive officer and managing director of Islamic Banking and Finance Institute of Malaysia (IBFIM) said that there were more than 100 qualified Islamic financial planners in the country while another 200 students undergoing their studies.— Bernama

Link: http://www.theborneopost.com/?p=61689

Axiata converts RM2.8b to Islamic financing

Axiata Group Bhd (formerly known as TM International Bhd), has converted RM2.8 billion of its conventional term loans to Islamic term financing based on Commodity Murabahah structure.

Axiata Group Bhd (formerly known as TM International Bhd), has converted RM2.8 billion of its conventional term loans to Islamic term financing based on Commodity Murabahah structure.

This is in line with the Government’s efforts to promote the country as an international Islamic hub, it said in a statement.

Its President and Group Chief Executive Officer Datuk Seri Jamaludin Ibrahim said the conversion is part of a wider streamlining initiative of the group’s debt structure to put it on a stronger financial footing moving forward as well as Bank Negara’s efforts to promote Islamic financing in Malaysia.

The facility allows the two parties -- Axiata and participating banks, to use tradable shariah-compliant commodities as underlying assets.

The structure, approved by Bank Negara Malaysia’s Shariah Advisory Council, adopts the Murabahah concept as applied by the Gulf Cooperation Council.

Axiata is one of the largest Asian telecommunication companies focused in high growth low penetration emerging markets, with over 90 million subscribers.

It has controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia, with significant strategic stakes in India, Singapore and Iran.

Link: http://www.cibafi.org/NewsCenter/English/Details.aspx?Id=5771&Cat=0

Islamic banks' conservatism wins

Banks that comply with Islamic Sharia law are thriving despite the global financial crisis, thanks largely to a "conservative approach to risk," according to a new listing published on Thursday.

The latest research by The Banker magazine reveals that assets held by fully Sharia-compliant banks or the Islamic units of conventional banks rose by 28.6% to $822bn (€550bn) in 2009, up from $639bn (€430bn) in 2008.

This contrasts sharply with the stagnation in the conventional banking sector. The Banker's survey of the top 1 000 world banks published in July showed annual asset growth of just 6.8%.

"A conservative approach to risk and close links between the financial sector and real assets has helped shield the sector from the worst of the credit crisis," said the magazine's editor, Brian Caplen.

The Banker said the Islamic finance industry was building a "solid track record," with a compound annual growth rate for 2006-2009 of 27.86%, and forecast assets would hit $1 033bn in 2010.

But Caplen warned that work remained in managing liquidity at Islamic banks, and transparency and financial reporting "remain challenges" for the industry.

The 2009 Top 500 Islamic Financial Institutions appears in November's edition of The Banker.

Link: http://www.fin24.com/articles/default/display_article.aspx?Channel=News_International&ArticleId=1518-1783_2560214&IsColumnistStory=False

Islamic banking law in offing

By Sylvia Juuko

FINANCIAL sector regulators are taking lessons in Islamic finance to prepare for the review of existing laws that will pave way for the introduction of Islamic banking in the country.

Islamic banking refers to a system of banking that is consistent with the principles of Islamic law (Shar’iah).

Patrick Kagolo, the central bank acting deputy governor, explained last week that Islamic banking prohibits the payment of interest fees (Riba) for the lending of money.

“Islamic finance encourages business trade and trade activities that generate fair and legitimate profit.
Link: http://www.newvision.co.ug/D/8/220/700492

“In addition, Islamic banking prohibits speculative activity, which also helps ensure that there is a close link between cash flow and productive activities,” he said at a workshop organised by the central bank at the Imperial Royale Hotel, Kampala.

He noted that this insulates it from potential risks resulting from excess leverage and speculative activities.

It is the only type of banking that has weathered the global economic downturn.

“Financial analysts say that as a global economic crisis deepened, Islamic financial institutions escaped relatively unscathed from the severe downturn which affected most conventional financial institutions,” Kagoro said.

Muddassir Siddiqui, a partner with the Dubai-based Denton Wilde Sapte, highlighted the principles of Islamic finance emphasising that it did not allow the enrichment by harming others through the sale of drugs, arms, alcohol, pornography and stocks of conventional banks.

Female investors hold $40bn of Gulf’s wealth

Female investors in the Gulf hold USD 40 billion of the region’s wealth, according to Reuters, having traded more than 18 million stocks last year. In line with its commitment to empowering women from the region towards achieving financial independence, Mayfair Wealth Management (MWM), one of the leading offshore financial and investment advisory services providers based in the Cayman Islands, is offering investment advice on Shariah compliant products, appropriate investment vehicles and investment strategies through ‘Ameerah’, the first truly bespoke wealth management service targeting female investors in the Middle East.

At present, the market is witnessing the emergence of a specific type of female financial investors — the traditional holder of inherited capital — whose quest for financial sophistication is motivating them to use their wealth and take control of their finances. Backed by a world class team of professionals with extensive knowledge in Global markets, ‘Ameerah’ is being offered to meet the specific requirements of women clients. In addition, ‘Ameerah’ assists clients with administrative issues such as setting up an International bank account, offshore company formation and trust structuring, dealing with international lawyers, and arranging yacht leasing and finance.

“We are seeing a growing number of Gulf ‘traderettes’, who are a new breed of female traders seeking high-level investments to help them pave a legitimate path to increasing their portfolios,” said Amani Choudhry, CEO, Mayfair Wealth Management. “With the burgeoning number of female investors controlling a significant percentage of the region’s wealth, we are focusing on addressing their needs by offering them a range of core advisory services, as well as a wide range of global products from different asset classes including bonds, equities, FX and real estate.”

With programs that are designed to allow investors to ‘hedge’ cash with investing in hard assets such as shares, commodities, bonds, properties, currencies in developed and emerging markets, ‘Ameerah’ gives female investors an opportunity to achieve strong capital gains while protecting them from currency devaluation and inflation. It also allows clients to manage their own portfolios via an extensive range of Shariah-compliant services, including development of Islamic products and services, financial analysis and modelling, and Shariah-compliant trade and project financing, among others, some of which are 100 per cent capital guaranteed.

“By helping these women invest their assets wisely and cultivating the potential of this new market, we aim to support the growth of the real estate and financial sectors in the region. At present we are receiving an astounding amount of interest from many women investors based in the region, and we are anticipating this to heighten as they acclimatise themselves further with various investment markets. We are confident that it will not be long before we see more women boasting of sizeable investments that they have managed in the region,” concluded Choudhry.

Link: http://www.arabtimesonline.com/kuwaitnews/pagesdetails.asp?nid=39102&ccid=12

Shariah has ‘priority’ in Islamic finance cases

Islamic law should prevail over secular law when a Malaysian court hears Shariah finance matters, a religious scholar said, responding to uncertainty in the industry about how to deal with legal disputes. Dispute resolution is expected to be a key area for the $1 trillion Islamic finance sector as a fragmented regulatory framework and untested court systems push legal wranglings into unchartered territory.

The ability of civil court judges to adjudicate on Shariah matters and possible contradictions between secular and Islamic law are some issues that the industry is grappling with.

Shariah adviser Engku Rabiah Adawiah Engku Ali said a Malaysian law requiring judges to refer Islamic law issues to national level Shariah advisers “should be indicative that the Shariah principle should prevail.” But Malaysian law does not make it clear that the Shariah should prevail in the event of a conflict with secular law, resulting in some uncertainty, she said. “That should be clarified by the legislative,” she said on the sidelines of a Shariah scholars conference recently.

Malaysia has the world’s largest Islamic bond market and is seen as a leading center for Shariah banking, alongside the Middle East.

The relationship between Islamic and secular law is unclear. This is reflected in a 2004 case involving Shamil Bank of Bahrain where an English court refused to apply Islamic law to a murabaha contract, reasoning that two systems of law cannot govern one contract.

Kuwait’s Investment Dar said in May it had defaulted on a $100 million sukuk registered in Bahrain and in the United States a court case is ongoing involving the sukuk issued by oil firm East Cameron.

Link: http://www.arabnews.com/?page=6&section=0&article=128269&d=9&m=11&y=2009