Islamic finance looks to be viable alternative amid uncertainty

 In light of increasing financial regulation and a consumer backlash against volatile and complex financial products, Islamic finance looks to be a viable alternative.

But Islamic bankers said there's still some way to go before Islamic banking products go mainstream.

Over 450 Islamic bankers and regulators are in town for the third World Islamic Banking Conference (WIBC) Asia. 

The conference focused on how Islamic banks can boost liquidity through cross border transactions.

Managing Director of Monetary Authority of Singapore, Ravi Menon, said: "Cross-border investment flows are also constrained by differing interpretations of permissible transactions under Shariah principles. The isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across consumers, industries and jurisdictions."

As of last year, the Islamic finance industry is estimated to have reached US$1.3 trillion in total assets. 

That's an annual growth rate of 20 per cent over the last five years.

But it accounts for less than 1 per cent of the global financial system.

That's according to Mr Menon, who delivered the opening address at the two-day conference.

Wasim Saifi, Global Head of Consumer Banking, Standard Chartered Saadiq, said: "(The) challenge really is how does Islamic banking convert most of the people who believe in Islamic banking to start practising Islamic banking. Because if you look at the Muslim world - it is only one in eight of bank-able muslims who currently bank Islamic.

"Seven of eight still bank conventional. The real challenge is to reach that stage where we can convert the balance seven (out of eight). The liquidity pool then becomes far far greater in the hands of these Islamic banks."

Bankers said the lack of regulatory and product standards make it hard for the industry to achieve economies of scale.

But that is changing, thanks to regulatory changes such as Indonesia's move to streamline withholding tax in 2010.

Muzaffar Hisham, CEO, Maybank Islamic Berhad, said: "Last year alone, we saw a spike in the Islamic fundraising to Indonesia. Between US$400 to 500 million out of 4 or 5 transactions. That is from zero a year ago."

Following the Lehman crisis in 2008 and MF Global's bankruptcy last year, many ordinary investors have been burnt by complex structured finance products.

Industry leaders at the conference agree that Islamic finance, with its focus on transparency, price certainty and risk-sharing can offer a viable alternative to both muslims and non-Muslims.

One such example is Singapore-listed Sabana Shari'ah Compliant REIT, which counts three-quarters of its investors as conventional investors.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1205753/1/.html

Closing the gap: The next big step for Islamic banking — Wasim Saifi

Fifteen years ago, Muslims wishing to take out a mortgage, use a credit card or deposit money into a current account would have been hard pushed to do so and stay compliant with Shariah law.

With few Islamic banks around — and a limited range of Shariah products — banking as a Muslim invariably involved compromising either your faith or your financial needs.

Today, in many markets, such compromise is no longer necessary. Islamic banking is becoming a part of the mainstream, widely available across financial products and geographies. In 2012, Islamic banking assets are expected to reach US$1.1 trillion (RM3.3 trillion) globally, up 33 per cent on 2010, according to Ernst & Young. Within just a few years, Islamic banking has transformed into a global industry.

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

First, increased competition has resulted in a widening of the Islamic product offering, bringing it within the scope of larger numbers of Muslims. In the early 2000s, a move by Islamic banks to make Shariah-compliant products more commercially compelling was a real game-changer in the industry. For the first time, Islamic banks were reaching customers for whom the commercial aspects of banking were just as important as Shariah compliance. Conventional banks, keen to retain their Muslim customers and make the most of the opportunity, have subsequently joined the fray, helping to grow the total market around the world.

Second, as the Islamic banking proposition has become more attractive. Muslims have converted from conventional banking at a rapid pace, spurring the industry to make products offered even more sophisticated. Muslims accustomed to using credit cards, for example, will not want to lose this benefit when switching to Islamic banking. Whether in terms of access, technology, products or services, they expect nothing less than they have been getting from conventional banks, and Islamic banks are responding. Muslims now have a choice: to bank in a Sharia-compliant way, they no longer need to sacrifice the convenience, products and services they have been used to.

Third, the industry is receiving increasing regulatory support with governments in many markets actively encouraging the development of a healthy Islamic banking ecosystem. In the UAE, all new local banking licences granted in the last 15 years have been for Islamic banks. Countries such as Oman, Uganda and Nigeria are opening up their markets. Issuance of Sukuk, or Islamic bonds, has become widespread, and Islamic finance is used increasingly for government support programmes. In Bahrain for example, Standard Chartered Saadiq now works with independent employment authority Tamkeen to provide Shariah-compliant financing for small and medium-sized enterprises (SMEs).

Malaysia — probably the world’s most successful Islamic banking market — shows what can be achieved. Here, concerted government action has pushed Islamic banking past the tipping point to represent around a quarter of total banking assets.

The next big step for the global Islamic banking industry will be to close the gap with conventional banking when it comes to the range of products and services on offer. Islamic wealth management, for example, is clearly lagging behind, with Shariah-compliant funds comprising less than 0.25 per cent of total assets under management. It is a classic chicken-and-egg story. To attract wealthy Muslim clients, you need a competitive range of products and services, but to get this, you need scale. However, with the strong growth in Islamic assets, and Islamic banking providers putting increased pressure on fund managers to respond, there is a good chance Islamic wealth management will catch up within the next few years.

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

Regulatory barriers also persist in some countries. While different markets will develop at different speeds, support from governments and regulators will help keep up the pace of change. Opening markets to international Islamic banks will help, too. International providers tend to accelerate development in individual markets with their ability to migrate best practice, product sophistication and banking expertise between geographies. At Standard Chartered, for example, we work with regulators in a number of countries to help develop their framework for Islamic banking, using our experience from other markets.

Clearly, by tapping into their global networks, international Islamic banks also play a role in facilitating cross-border banking for Islamic customers. This is essential if the industry is to attract more fast-growing SME customers as well as high net-worth individuals who wish to stay Shariah-compliant without missing out on growth opportunities in foreign markets.

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

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

* Wasim Saifi works for Standard Chartered Bank.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.

http://www.themalaysianinsider.com/sideviews/article/closing-the-gap-the-next-big-step-for-islamic-banking-wasim-saifi

Takaful growth potential 'tremendous'

Takaful, the Shariah-compliant form of insurance, holds tremendous potential but continues to be challenged by multiple factors such as a limited product range and non-competitive pricing, a report said.

The report, Opportunities and Challenges in the Middle East Takaful Industry, is released by Zawya and it summarizes and examines panelist commentaries made during the 2012 Takaful Roundtable discussion.

Organized by Zawya in partnership with Emirates NBD and FWU Group, the roundtable provided an opportunity for industry leaders and decision makers to convene and participate in an open dialogue on the Takaful industry.

"The Takaful industry has come a long way, paving the way for a distinctive bancassurance offering within the GCC,” said Shekhar Krishnamurthy, head of retail assets and liabilities, consumer banking and wealth management at Emirates NBD.

“Having said that, the success of the Takaful industry is dependent on the active participation of the providers in creating general awareness of the product value. It also requires engagement with distributors to deliver on innovative products matching client demand and market requirements,” he said.

In spite of a high growth rate in demand for such products in the UAE, for instance, takaful remains a small segment of the insurance pie. In 2011, the overall UAE insurance market grew by 10 per cent, whereas the takaful segment is expected to have grown by 30 per cent. Takaful remains a very small segment of the market, at about 7.5 per cent, the report said.

Sohail Jaffer, deputy CEO, FWU Global Takaful Solutions, said: "Key drivers for takaful include full transparency of product terms and conditions, surplus sharing and a sustainable customer value proposition. Increasingly major banks in the region have widened individual customer choice by offering suitable long term takaful savings plans and financial protection." –TradeArabia News Service

Islamic banks have golden opportunity to grab larger share of global banking market

The Eurozone crisis, combined with public anger over the excesses of conventional banks, has presented Islamic banks with a golden opportunity to take a greater share of the world’s banking industry, according to Hussain AlQemzi, GCEO of Noor Investment Group and CEO of Noor Islamic Bank.

Speaking at the World Islamic Banking Conference Asia Summit, in Singapore, AlQemzi said Islamic banking has the potential to overtake conventional banking, and establish itself as the world’s preferred banking system. However, to do so, he said, Islamic banking must offer a real alternative to the conventional banks.

“The world is crying out for a better, more ethical way of doing business. Now is the time to position our industry as a global alternative financial system; one which can safeguard against the excesses and perceived greed of conventional banks and bankers,” Al Qemzi told delegates.

‘But it is simply not enough to say to people that Islamic finance offers a better way of banking. Nor should our appeal be just to Muslims.  We need to offer a real alternative to both Muslims and non-Muslims.

“At present the differentiation between Islamic and conventional banking isn’t very visible. A major contributor to this perception is the fact that the Islamic finance industry has been slow to move beyond replicating products and services offered by conventional banks,” Al Qemzi added.

“For the Islamic finance industry to reach its full potential, there needs to be a greater diversity of products and services. But where are these new products?  We have to face up to one simple fact; the pace of innovation is too slow.”

In order to ensure an orderly evolution of Islamic finance from a niche segment into the mainstream international financial markets, Al Qemzi told delegates it is vital to further enhance the industry’s capabilities for cross-border activities, which in turn will encourage innovative product development, robust and standardised regulatory frameworks and the long term stability of the industry.

”What the industry lacks at the moment is the breadth and depth that investors enjoy in the conventional market. An inter-linkage between the key Islamic financial centres, especially the Gulf and South East Asia, will facilitate investor access to a wider range of Shari’a-compliant products beyond those available in domestic markets,” Al Qemzi said.

According to AlQemzi, the retreat of European banks from project financing, in the Middle East, opens the door to the region’s Islamic banks to provide the estimated US $800 million that will be invested in GCC infrastructure projects over the next five years. But in order to take advantage of the opportunities that are emerging, Al Qemzi added, Islamic banks must cooperate more, and compete less, to build the scale necessary to drive the industry forward.

“Noor believes Islamic banks can expand  internationally through utilizing their intellectual talent. For example, at Noor we are facilitating and bridging capital and funding requirements across continents using our unique know-how of markets, which we have acquired, along with flexible Sharia'a legal documentary structures, thereby enabling cross-border utilization of capital to fund various private and public funding,” Al Qemzi told delegates.

“Similarly, we believe in the huge opportunity of adopting the digital, mobile and social media opportunities unfolding across the globe. These behavioural changes across markets and social stratosphere, provide a unique opportunity to connect with people, gauge instant feedback, customize the experience clients expect, based on segments, and a truly client centric business model.

“And our efforts on mobile and now social media, both internally and externally, are a step towards engaging our clients in what we do, and for them to share with us what they are looking for from a next generation bank,” Al Qemzi concluded.

About Noor Islamic Bank

Established in 2008 in Dubai, Noor Islamic Bank is a full service bank delivering the broadest range of products for its customers, with an emphasis on unique and personalized services. Noor Islamic Bank’s products and services are governed by a Shari’a Board, comprising leading Islamic scholars with extensive experience and expertise in legal, financial and banking-related matters.

Noor Islamic Bank has locations across the UAE in the Emirates of Abu Dhabi, Dubai, and Sharjah. Noor Islamic Bank is 50% owned by the Dubai government and 5% owned by the Emirates Investment Authority; the remaining 45% is held high net worth individuals in the UAE. 

http://www.bi-me.com/main.php?id=58084&t=1&c=33&cg=4&mset=

Risk management

The first session of the second day of the Oman Islamic Banking and Finance Conference 2012 saw experienced speakers touch upon issues of a slightly different nature, related to Islamic Banking.

Jamsheed Hamza, Senior Manager-Branch Network Expansion in the Islamic Banking Division, Bank Dhofar, spoke on the topic, ‘Customer Care and Understanding: Key to success Islamic Banking’.

He said: “How do we care for our customers? Your clients will stay with you if you can PRAISE them. PRAISE stands for Purpose, Relationship building, Appreciation, Intelligence, Service and Empathy. You need to understand the purpose of the customers coming to you.

If the customer is coming to the bank with a Halal need, the bank must genuinely take it upon itself to meet their needs. A bank is not here to sell but to develop awareness and build relationships.

By focusing on relationships you can turn a dynamic customer into a delightful customer, where one must invest in long term relationship building. You need to appreciate your customers.”

He urged Islamic bankers to “go the extra mile” in appreciating the client’s success and helping him make appreciative investment choices. “Apply your intelligence by educating your clients and developing awareness. Ask the question WHY?

Every decision based on the question WHY that we make in our lives, is attached to an emotion. You must serve your customers. Give your customers perfection, inculcate an attitude to serve and you will generate loyalty.

Empathise with your customers. Think in the shoes of your customers and you will win their trust and loyalty. Remember in short to always PRAISE your customers,” he said.

Arsalan Ahmed Qureshi, AVP - Senior. Manager, Operational Risk-Risk Management Department, Al Baraka Islamic Bank, spoke on ‘Operational Risk Management Strategies and Best practices in Islamic Banking’.

He said: “The principles of Islamic Banking are based on Prohibition of dealing with interest — Riba, Clearing of Financial Contracts from contractual uncertainty — Gharar, Exclusion of gambling (Maysir) in any financial activity, Non-Origination of profit from Haram economic and financial activities, reference of a Financial Transaction to a tangible, identifiable underlying asset and sharing of risks and rewards by all parties to a financial transaction.”

Banks, he explained, face a number of risks – Business, Financial, Event and Operational risks. “Risks specific to Islamic banks are Commodities and inventory risk, Rate of return risks, Sharia non-compliance risk, Equality position risk and Displaced commercial risk. Operational risks include Shariah compliance risk, fiduciary risk, people risk, technology risk and legal risk.

In short people, processes, systems and external events may trigger Operational risks. The reasons could be fraud, trade, input error, system failure etc.

The consequences could be Monetary Loss, and Reputation damage.”

Qureshi listed two approaches for assessing operational risks: Top-Down Approach which takes the product into consideration, and the Bottom-Down Approach which takes events into consideration.

“Nowadays banks use a combination of both these approaches. Operational Risk Management Framework compromises of a governance structure, Operational Risk Guiding Principles and Role & Responsibilities of Operational Risk Management Function and Business Units. 

To overcome operational risks we should have strong corporate governance and strong operational policies and mitigation and downsizing through each and every part of the organization.

Any operational tool kit program should consist of a Risk Register, Internal Loss Database, External Loss Database, KRI-Key Risk Indicators, RCSA-Risk Control Self Assessment and Risk Mitigation programme,” he added.

http://main.omanobserver.om/node/98111

Saudi- Islamic finance must widen global links

Islamic Development Bank Group President Ahmad Muhammad Ali yesterday called for integrating Islamic finance with real economic activities of trade and industrial production. 

Through such integration, finance could be directed toward real activities rather than used for the build-up of unbearable debt or harmful speculation. 
"From this perspective, international connectivity will help nations build their economies and diversify their investments," Ali said at the 3rd Annual World Islamic Banking Conference (AWIBC) Asia Summit in Singapore.

The Jeddah-based IDB Group is a global multilateral development institution with 56-member countries from Asia, Africa, Europe and America.

The two-day event featured an inaugural address by Ravi Menon, governor of the Monetary Authority of Singapore, followed by a keynote session addressed by Ali and Halim Alamsyah, deputy governor, Bank Indonesia.

More than 450 key players and thought leaders in the international Islamic finance industry attended the summit including Jaseem Ahmed, secretary-general, Islamic Financial Services Board.

The AWIBC: Asia Summit is one of unique platforms which aim to foster greater connectivity between Asia and the Middle East thus providing an opportunity for key industry players in these high-growth markets to develop the capacity to structure large-scale multi-currency and cross-border Shariah-compliant transactions.

In his presentation on "Strengthening International Connectivity to Enable Further Growth of the Islamic Financial Industry," Ali said the conference organizers have chosen an important topic of "Strengthening International Connectivity; Islamic Finance: Capturing Cross-Border Opportunities."

The subject is relevant at a time when countries worldwide are facing the repercussions of the continuing global financial crisis. "I thank the organizers for this vital opportunity to discuss these critical issues at a global level," he said, adding: "I am confident that, with the prominent participants in this event, valuable contributions will be made that will guide the Islamic financial industry through the coming decade."

Menon said in his inaugural speech that Islamic finance had shown remarkable resilience during the last five years - perhaps the most challenging economic environment in the post-war era. 

The industry has grown by an estimated 20 percent annually in the last five years to reach $1.3 trillion in total assets in 2011. Islamic banks have grown both in number and scope. But the sustained growth of Islamic finance is in no way guaranteed. 

For Islamic finance to continue thriving, the industry has to overcome a few key challenges. But in every challenge, there is also opportunity.

Talking on Islamic finance in the era of deleveraging, Menon explained that the clear and present danger to all financial activity, including Islamic finance, is the risk of contagion from an escalation of the euro zone crisis. 

Islamic finance is closely intertwined with underlying economic activity and will be affected by the impact of slower global growth. Contagion from the euro zone has already curtailed economic growth and capital inflows to many emerging economies where Islamic finance has taken root.

But Islamic finance, he continued has a window of opportunity in the current climate of deleveraging in the global financial system. 

With its strict prohibition on excessive leverage, Islamic finance has been spared the worst of the financial crisis. Islamic banks are well positioned to reach out to new customers who are in need of financing as many global institutions pull back on their lending due to the need to repair their balance sheets, he said.

Islamic finance should diversify into growth areas such as trade and infrastructure financing, where demand is still strong, especially in emerging economies. 

With a focus on supporting real productive activities, Islamic finance is naturally compatible with trade and infrastructure development. 

Tapping these sectors also brings about greater diversification benefits, especially for Islamic institutions, which have been hurt by their significant lending exposure to the real estate sector, he added.


http://www.menafn.com/menafn/1093520451/Saudi-Islamic-finance-must-widen-global-links?src=RSS

Brunei Islamic Finance Has Potential To Go Global

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

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

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

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

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

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

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

Another reason is that Islamic finance bans short selling.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--Courtesy of Borneo Bulletin


http://www.brudirect.com/index.php/Local-News/brunei-islamic-finance-has-potential-to-go-global.html

Malaysia c.bank to expand new Islamic facility

Malaysia's central bank will eventually expand its new Islamic money market funding facility to allow trades of the instrument between commercial banks, while introducing longer tenors, the central bank said on Thursday.

The central bank announced last week that it was launching a collateralised murabaha facility through which Islamic banks could obtain funds from the central bank by pledging high investment grade sukuk as collateral. The new facility aims to aid Islamic banks' liquidity management.

The central bank told Reuters in an email on Thursday that use of the collateralised murabaha instrument would later be expanded so that banks could trade it between themselves in the interbank market. It did not give a time frame.

Currently, the facility is for overnight funding but it will be extended to longer tenors in the near future, the central bank said without giving a precise date.

Funding is only in ringgit but collateral can be denominated in other currencies, which could encourage the participation of foreign banks, many of whose sukuk holdings are mostly U.S. dollar-denominated.

Currently, Islamic banks can obtain funds from the Malaysian central bank through a deferred-payment sale agreement, but this structure is not considered permissible by some sharia scholars outside Malaysia so banks from the Gulf have been reluctant to use it. The new facility is likely to be more acceptable to banks from the Gulf, bankers believe.

http://in.reuters.com/article/2012/06/07/malaysia-islamic-finance-idINL5E8H72CB20120607

ISLAMIC BANKING TO SPUR CAPITAL MARKET ACTIVITIES, SAYS MSM

Following the huge response to the initial public offering (IPO) of Bank Nizwa, the Muscat Securities Market (MSM) expects the launch of Islamic banking and the listing of banks and their products to add value to the bourse and boost activity in Oman's capital market.

Speaking to Muscat Daily on the sidelines of the Oman Islamic Banking and Finance Conference on Tuesday, Ahmed Saleh al Marhoon, MSM director general, said a large segment of Omanis would prefer to deal with Sharia-compliant banks rather than conventional banks.

He said, “The success of Bank Nizwa's initial public offering (IPO), which was oversubscribed by more than 11 times, is an indication of the good demand for Sharia-compliant market activity in the country. The launch of Islamic banking will add value to the economy as well as to Oman's banking sector and capital market.”

Marhoon added that the CMA has 'appointed a professional company' to 'draft the appropriate regulations for Islamic instruments.'

He said, “We expect Islamic instruments such as sukuk to be listed on the MSM in the near future, whichwill spur activity in the capital market. Some local companies had shown interest in issuing sukuk even before Islamic banking was cleared."

The MSM director general said that Al Izz International Bank and Oman Arab Bank are likely to float their much-anticipated IPOs in the third quarter of this year, with the possibility of two further companies floating stakes on the bourse before the end of 2012.

“However, there is no specific date for these IPOs as of now, but they are finalising the process for the offerings. Apart from these banks, we expect up to two more companies to come with IPOs by the end of this year,” he added.

CMA gives approval for Bank Nizwa share allocation 

Muscat - The Capital Market Authority (CMA) has approved the allocation of Bank Nizwa shares which were offered for subscription. In the first category, which represents small subscribers who signed up for up to 100,000 shares, each subscriber was allocated 2,000 shares.

The second category of subscribers, those who subscribed for more than 100,000 shares, was allocated 4.8 per cent of the shares.

The issue manager had announced that the Bank Nizwa issue was 11 times oversubscribed, raising more than RO600mn.

http://www.muscatdaily.com/Archive/Business/Islamic-banking-to-spur-capital-market-activities-says-MSM

Islamic Financing Facility To Be Tested By US Courts-financing-facility-to-be-tested-by-us-courts.html#ixzz1xABCK9j3 Under Creative Commons License: Attribution Share Alike Get a FREE subscription to Global Finance magazine : http://www.gfmag.com/subscribe.html

The ability of US bankruptcy law to handle shariah-compliant structures is being tested after Bahraini firm Arcapita Bank’s decision in March to file for bankruptcy protection in the US.

Business as usual during restructuring for Manama-based Arcapita Photo Credit: MEUNIERD/ Shutterstock.com

The bank filed for Chapter 11 after negotiations to refinance a $1.1 billion murabaha facility broke down. A murabaha involves the sale of an item on a deferred basis, often connected to a commodity.

Manama’s Arcapita Bank and several of its affiliates, including Arcapita Investment Holdings, filed for bankruptcy in March. Insolvency proceedings are also taking place in other jurisdictions, such as the Cayman Islands. It may have been a strategic move to safeguard the interests of the bank’s stakeholders, but some Gulf investors may be loath to put Islamic investment structures to a similar test.

Although shariah-compliant investment structures such as sukuk have formed part of US bankruptcy court proceedings before, this is the first time that the US bankruptcy code will be applied to a murabaha facility. The question now is whether US bankruptcy law will be sufficient for dealing with Islamic structures such as murabaha.

Most users of Islamic investment structures might think twice before placing such structures under the scrutiny of a US bankruptcy court, but Arcapita filed for Chapter 11 protection to give it time to reorganize. Arcapita says it expects to operate its businesses as usual throughout the process.

The move is unusual by Gulf standards, given that most refinancings since 2009 have been resolved privately—or, in the case of Dubai, with Abu Dhabi intervening to avoid a sukuk default. Arcapita’s Board of Directors stated that filing for Chapter 11 was viewed as the most effective way to protect its business and assets and implement a comprehensive restructuring. Arcapita had been in discussions with participants to refinance the $1.1 billion murabaha facility before it matured on March 28, but it was unsuccessful.

Law firm Milbank, Tweed, Hadley & McCloy is advising Arcapita’s Official Creditors’ Committee, which includes Barclays and Commerzbank, several hedge funds and Gulf-based banks and regulatory bodies. Creditors are expected to assert billions of dollars in claims.

Read more: http://www.gfmag.com/archives/154-june-2012/11781-islamic-financing-facility-to-be-tested-by-us-courts.html#ixzz1xABO7kNp 

Best Islamic Financial Firms 2012

Last year was a landmark year for Islamic finance—innovative new products were launched and new markets opened up that few would have considered likely candidates just a few years ago.

These trends look set to continue in 2012. In May 2011, Oman permitted the establishment of Islamic banks in the kingdom, which will see a number of Islamic windows and fully-fledged Islamic banks roll out services in the coming months. Although the religious divide in Nigeria was exacerbated by recent attacks in the country, Jaiz Bank braved the hostile political climate to become the first licensed Islamic bank in Nigeria. In Germany, WestLB launched an Islamic Strategy Index Certificate based on the value of the WestLB Islamic Deutschland Index. While there is no Islamic credit or deposit business in Germany, Turkish Islamic banking provider Kuveyt Türk plans to develop a fully fledged Islamic bank in the country. Currently it maintains a representative office in Mannheim but does not offer any Islamic products directly to the German market. France continues to flirt with Islamic banking, with Morocco's Chaabi Bank reportedly providing a shariah-compliant deposit account for small and medium-size enterprises. Chaabi aims to provide a full suite of Islamic banking products by the end of this year.

In India the Reserve Bank does not permit Islamic banks. However, a landmark judgment by the country's high court upheld the Keralan government's decision to develop an interest-free nonbanking financial institution that will invest in infrastructure projects in the region.

The Arab Spring has also had an effect on consumers' interest in Islamic financial services. Egypt is a good example, where the ousted Mubarak regime did not encourage Islamic financial services. Now, with the Muslim Brotherhood looking to establish a political foothold in the country, newspaper reports suggest that there is greater advertising of Islamic investments and financial products.

Still it is clear that a lot remains to be done in a number of countries with significant Muslim populations to ensure that the regulatory infrastructure does not put Islamic financial institutions at a disadvantage to their conventional counterparts. A number of banks that have won in this year's awards are pioneers in the countries in which they operate, and as their markets open up, they are likely to blaze an important trail for the development of Islamic financial services in these countries.

Talk of a Mega Islamic Bank, which was first mooted in 2009 at the height of the global financial crisis, has also resurfaced. The Mega Bank, which has the support of the Islamic Development Bank, will be established in Doha, Qatar in the not-too-distant future with start-up capital of $1 billion.

On the transaction side, 2011 saw increasing sophistication and maturity in the development of innovative Islamic financing structures. One of the highlights of the year has to be Malaysia's $2 billion Wakala Global Sukuk, which not only uses the innovative wakala structure—using an agency model for financing—but is also expected to provide a much-needed boost for sovereign sukuk issuance.

According to Asian credit market analyst RAM Ratings, sukuk issuance saw a resurgence in 2011, with a total of $85.1 billion issued—a 78% increase over the $47.8 billion raised in 2010. However, the Arab Spring uprisings that spread across the Middle East saw Gulf Cooperation Council sukuk issuance fall, compared with 2010. RAM Ratings pointed to Bahrain, where it said the absence of both corporate and sovereign sukuk was particularly noticeable. In the GCC countries Islamic financing is starting to make its presence felt in the area of project financing, with a number of deals seeing Islamic structures complementing conventional structures to help realize significant infrastructure investments in the region. Given Islamic finance's focus on asset-based financing, some Islamic banks took that a step further beyond the usual assets used, such as commodities or real estate, to include airtime sold by mobile phone companies to subscribers. Arguably, innovation is alive and well in Islamic finance, and innovative structures are being developed to meet companies' and investors' needs.

The fifth annual Global Finance Islamic Financial Institutions Awards honors the leading shariah-compliant institutions in the regions, countries and product areas in which Islamic banking has an established or growing presence. The awards criteria incorporate a range of subjective and objective factors, including customer service, growth in assets, profitability, geographic reach, strategic relationships, new business development, innovation in products and the bank's financial stability.

Read more: http://www.gfmag.com/archives/154-june-2012/11774-best-islamic-financial-firms-2012.html#ixzz1xAAdlG7t 

Asian companies should seek opportunities in Middle East

Asian companies should look at opportunities in developing a vibrant capital market in the Middle East.

This was the hot topic discussed by some 450 leaders at the Asia-Middle East Investment Summit and the 3rd Annual World Islamic Banking Conference.

And Qatar, with a population less than two million people, is drawing much attention for its efforts.

Korean construction firms earn about a third of their total revenues from the Middle East while Bahrain exports one third of its oil production to Singapore.

While these trade and business linkages between Asia and the Middle East are well established, synergies between its financial markets remain largely untapped. 

Wasim Saifi, global head of consumer banking at Standard Chartered Saadiq, said: "One issue is that there are still regulatory constraints in some of the markets which don't permit import and export of capital that easily. The second reason being in the Islamic finance area, you still have mostly banks being primarily the investors. You have very little of non-bank investment happening."

As a result, the capital markets are not liquid enough and do not draw many equity issuers.

But some others said as more domestic firms come up, it will help to spur capital market activity.

The Islamic Bank of Asia's CEO Toby O'Connor, said: "The Middle East is a competitive environment. There are a number of Gulf Cooperation Circle countries that are trying to develop their own standalone financial expertise and create their own hub."

One Gulf nation that has its sights firmly set on becoming a financial centre is Qatar.

The oil and gas industry accounts for over 50 per cent of its GDP, and Qatar wants to develop other industries to secure sustainable long term growth.

"Most of the markets are still classified as frontier markets in our part of the world," said Qatar Financial's acting CEO and chief strategic development officer Shashank Srivastava. 

"A number of things need to be done for them to be classified and we're all working towards that. Qatar is very well advanced in its approach to developing its capital markets. The Qatar exchange has tied up with NYSE Euronext. It's going about developing its bonds trading platform in which the government is going to be issuing local currency bonds which sets the new pricing in the market."

Besides finance, sectors like education and healthcare also hold opportunities for Asian companies in Qatar.

http://www.channelnewsasia.com/stories/corporatenews/view/1206226/1/.html

Closing the gap: the next big step for Islamic banking

Fifteen years ago, Muslims wishing to take out a mortgage, use a credit card or deposit money into a current account would have been hard pushed to do so and stay compliant with Shariah law.

With few Islamic banks around - and a limited range of Shariah products - banking as a Muslim invariably involved compromising either your faith or your financial needs.

Today, in many markets, such compromise is no longer necessary. Islamic banking is becoming a part of the mainstream, widely available across financial products and geographies. In 2012, Islamic banking assets are expected to reach US$1.1 trillion (Bt34.7 trillion) globally, up 33 per cent on 2010, according to Ernst & Young. Within just a few years, Islamic banking has transformed into a global industry.

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

First, increased competition has resulted in a widening of the Islamic product offering, bringing it within the scope of larger numbers of Muslims. In the early 2000s, a move by Islamic banks to make Shariah-compliant products more commercially compelling was a real game-changer in the industry. For the first time, Islamic banks were reaching customers for whom the commercial aspects of banking were just as important as Shariah compliance. Conventional banks, keen to retain their Muslim customers and make the most of the opportunity, have subsequently joined the fray, helping to grow the total market around the world.

Second, as the Islamic banking proposition has become more attractive. Muslims have converted from conventional banking at a rapid pace, spurring the industry to make products offered even more sophisticated. Muslims accustomed to using credit cards, for example, will not want to lose this benefit when switching to Islamic banking. Whether in terms of access, technology, products or services, they expect nothing less than they have been getting from conventional banks, and Islamic banks are responding. Muslims now have a choice: to bank in a Sharia-compliant way, they no longer need to sacrifice the convenience, products and services they have been used to.

Third, the industry is receiving increasing regulatory support with governments in many markets actively encouraging the development of a healthy Islamic banking ecosystem. In the UAE, all new local banking licences granted in the last 15 years have been for Islamic banks. Countries such as Oman, Uganda and Nigeria are opening up their markets. Issuance of Sukuk, or Islamic bonds, has become widespread, and Islamic finance is used increasingly for government support programmes. In Bahrain for example, Standard Chartered Saadiq now works with independent employment authority Tamkeen to provide Shariah-compliant financing for small and medium-sized enterprises (SMEs).

Malaysia - probably the world's most successful Islamic banking market - shows what can be achieved. Here, concerted government action has pushed Islamic banking past the tipping point to represent around a quarter of total banking assets.

The next big step for the global Islamic banking industry will be to close the gap with conventional banking when it comes to the range of products and services on offer. Islamic wealth management, for example, is clearly lagging behind, with Shariah-compliant funds comprising less than 0.25 per cent of total assets under management. It is a classic chicken-and-egg story. To attract wealthy Muslim clients, you need a competitive range of products and services, but to get this, you need scale. However, with the strong growth in Islamic assets, and Islamic banking providers putting increased pressure on fund managers to respond, there is a good chance Islamic wealth management will catch up within the next few years.

For all the industry's recent growth, Islamic banking still represents a fraction of total banking assets globally, and the great majority (roughly only one in every eight Muslim with a bank account, banks Islamic) of Muslims still bank conventionally. Penetration remains low in some of the world's largest Muslim countries, such as Pakistan and Indonesia at 9 and 4 per cent respectively. There are several reasons for this, the most obvious being a simple lack of awareness of what Shariah banking has to offer.

Regulatory barriers also persist in some countries. While different markets will develop at different speeds, support from governments and regulators will help keep up the pace of change. Opening markets to international Islamic banks will help, too. International providers tend to accelerate development in individual markets with their ability to migrate best practice, product sophistication and banking expertise between geographies. At Standard Chartered, for example, we work with regulators in a number of countries to help develop their framework for Islamic banking, using our experience from other markets.

Clearly, by tapping into their global networks, international Islamic banks also play a role in facilitating cross-border banking for Islamic customers. This is essential if the industry is to attract more fast-growing SME customers as well as high net-worth individuals who wish to stay Shariah-compliant without missing out on growth opportunities in foreign markets.

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

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

Wasim Saifi, Standard Chartered Bank.

http://www.nationmultimedia.com/opinion/Closing-the-gap-the-next-big-step-for-Islamic-bank-30183459.html