Latest from GIFC

Sunday, 27 July 2014

Islamic finance & management events in Kuala Lumpur Malaysia in 2014


Date: 26-27 August 2014
Event: KL Conference on Islamic Finance
Event site: www.islamic-finance-conference.net


To register or reserve a seat online, please go to:

Organizer: Alfalah Consulting
www.alfalahconsulting.com

Filipino Muslims prepare zakat for less fortunate at home

ABU DHABI // Filipino Muslims preparing to celebrate Eid Al Fitr have been asked to give generously to those less fortunate back home.


“Every year we finance the Eid celebrations of our less-privileged Muslim brothers and sisters in the Philippines,” said Dr Nasser Raciles, the administrator of the New Muslim Centre in Abu Dhabi.

“Prophet Mohammed has commanded that we break our fast and celebrate Eid at the end of the holy month of Ramadan, but many families do not have the means to do so.”

Of the nearly 3,000 Muslim converts at the centre, 2,307 are Filipino. Seventy-three have embraced Islam since the start of Ramadan, with the help of the centre.

The facility opened in June 2004 under the patronage of the late Ali bin Ghanem bin Hamoodah. The mosque next to the centre was named in his honour.

Zakat Al Fitr is an obligatory deed required of all Muslims who have the food or provisions to sustain themselves, and those who they are obligated to support.

“It is equivalent to one full meal or the cash equivalent to the cost of one full meal,” Dr Raciles said. “At a meeting it has been decided that one full meal costs Dh25. Those who can afford to give more are encouraged to give more.”
Zakat Al Fitr is given directly to the needy before Eid prayers. Arrangements for payment should be made ahead of time so that recipients receive the funds in time to make use of them at Eid.

“Many of our Muslim brothers and sisters had been affected by Typhoon Glenda [Rammasun] which damaged their crops and livestock,” Dr Raciles said. “We need to ensure they receive the money ahead of the first day of Eid Al Fitr.”
Funds from Abu Dhabi will be used to buy 100 goats, five cows, rice, sugar and other ingredients for the Eid feast for Muslims in Manila and in several provinces in the Philippines.

One of those sending zakat is Rosie Cabalbag, who converted to Islam from Christianity in 2011. The 36-year-old housemaid earns Dh1,100 a month and gave Dh25 as Zakat Al Fitr.

“I feel good about being able to help our compatriots back home,” said Ms Cabalbag, who chose Sajah as her Muslim name.

She will be among the 200 Filipino Muslims who are expected to visit the Ghanem bin Hamoodah mosque, near the New Medical Centre on Electra Street, for early-morning prayers. They will later have an elaborate feast featuring Filipino delicacies.

For Jocelyn Domingo, 42, the arrival of Eid is cause for great joy and a chance to bond with family and friends. She converted to Islam from Christianity in 2005. Her Muslim name is Janah.
“After a month of fasting, Eid Al Fitr is a day of thanksgiving and jubilation,” she said. “At this centre, Filipinos from different parts of the country are united by our faith. Eid is also an occasion of generosity as we give Zakat Al Fitr to the needy.”

Roberto Alvarez, 42, an office assistant who is now known as Omar, became a Muslim in 2006.
“Eid is the culmination of the fasting month but it is also important to continue the good deeds practiced during Ramadan,” he said. “I look forward to the early-morning prayers and the prospect of celebrating it with my Muslim brothers and sisters.”

(The National / 27 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Arab Saudi: New Issuances In Global Sukuk Record Strong Growth In 1H14

A newly released report “Global Sukuk Report 1H2014”, by Kuwait Finance House Research Limited (KFHR), analyses the developments and key drivers of the sukuk market in the first half of this year. To date, the volume of sukuk issuances has increased significantly, supported by traditional jurisdictions and a resurgence of issuances from the corporate sector. In addition, 1H14 saw the launch of several landmark sukuks, which augurs well for the development of a diverse global sukuk market.


New issuances in global primary sukuk market recorded strong growth in 1H14, expanding by 8.2% to reach $66.2bln (1H13: $61.2bln). After a moderate 1Q14, issuances surged towards the end of 2Q14, just prior to the Ramadhan period. During 2Q14, a total of $35.1bln of new sukuks were issued (1Q14: $31.1bln; 2Q13: 26.7bln), which is the third highest quarterly figure on record since the 2Q12. Apart from the traditional Islamic finance hubs of the Gulf Cooperation Council (GCC) and Malaysia, the surge in sukuk volumes were also driven by noteworthy sukuk deals in other domiciles including Turkey, Pakistan and the United Kingdom. Among the most prolific issuance in 2Q14 is the debut GBP200mln sovereign sukuk issuance by the United Kingdom, making it the world’s first non-Organisation of Islamic Cooperation (OIC) jurisdiction to issue a sovereign sukuk.
Overall, sukuk issuances were geographically-diverse, with obligors based in a total of 11 jurisdictions tapping the primary market in 2Q14 (1Q14: 13 jurisdictions). Malaysia continued to account for the largest market share, accounting for 63% or $41.7bln of the total global new sukuk issuances in 1H14. A rebound in sukuk issuances during 2Q14 has enabled the GCC primary market to now account for an increased 26.7% market share or $17.7bln of the total global new sukuk issuances in 1H14 (1H13: 23% or $14.1bln).
Amidst these high volumes, the sukuk market was tapped by an increasingly diverse range of issuers, with a total of 244 sukuk tranches in 1H14. In terms of issuer type, sovereign issuers continued to lead the market in 2Q14 with an issuance volume of $20.6bln (1Q14: $21.37bln). Nevertheless, improved performance was recorded in the corporate sukuk sector which accounted for a sizeable 27.1% ($9.5bln) share of the primary market in 2Q14, compared to 18.4% ($5.7bln) in the previous quarter. As a result, corporate sukuk issuances recorded their second highest quarterly performance in 2Q14, in the last two years since 1Q12. 
By sector, the government issuers continue to account for the majority of sukuk issuances, although its share has relatively declined in 1H14, accounting for a 58% share compared to the above 60% shares annually in the last few years (2013: 62%; 2012: 61.8%). Excluding the sovereign and related entities, corporate issuances were mainly from the financial services, real estate and power and utilities sectors. Issuances by the financial services sector has expanded significantly, with a 21.4% contribution in 1H14 (2013: 10%; 2012: 11.4%), underpinned by Islamic banks’ need to raise capitalisation funds in order to comply with the Basel III standards. During the 2Q14, Malaysia’s largest takaful company (in terms of contributions) issued the world’s first takaful sukuk worth RM300mln. The issuance was a unique offering, as typically insurance companies and takaful operators are investors in bonds and sukuk market instruments, while in this case a takaful company acted as an issuer. In addition, Malaysia’s AAA-rated entity KLCC REIT, issued a rare real estate and investment trust (REIT) sukuk raising MYR1.55bln. Furthermore, at least six Basel III compliant sukuk instruments were issued by Malaysian Islamic banks collectively raising MYR3.25bln. 
In the secondary market, global sukuk outstanding expanded by 5% q-o-q to reach $286.41bln as at 1H14 (1Q14: $272.96bln and a 1.3% growth q-o-q). This represents a 6.3% growth in outstanding volume in 1H14 (end-2013: $269.4bln outstanding) and a 16.8% growth y-o-y since 1H13 (1Q14: 15.96% growth y-o-y). The three leading domiciles are Malaysia, Saudi Arabia and the United Arab Emirates (UAE). Of these, Malaysia remains as the sole secondary market with sukuk outstanding volume over $100bln. As of 1H14, Malaysian sukuk outstanding amounted to almost $164bln, a 4% increase compared to the $158.3bln outstanding as at end-2013. Saudi Arabia’s sukuk outstanding volume amounts to $47.8bln (2013: $38.6bln), a notable 24% growth in volume in 1H14. Elsewhere, sukuk outstanding in the UAE had increased by 15% since end-2013 and its outstanding amounts to $25.7bln in 1H14 (2013: $22.3bln). Overall, the GCC market experienced a 9% increase in outstanding value since end-2013, totalling $92.9bln in 1H14 (2013: $85.3bln).
In terms of returns on sukuk papers, secondary market yields were partly driven by expectations of interest rates and quantitative easing in the advanced economies. Yields on sukuk instruments had generally eased across the main sukuk markets (GCC, Malaysia, Turkey) in the first two months of 2Q14 before experiencing upward volatile movements in June, ahead of the US Federal Reserve’s Federal Open Market Committee Meeting (FOMC) on the 17th and 18th of June. A slew of positive US economic data released ahead of the FOMC meeting led many market participants to believe that the Federal Reserve is likely to be more confident in adopting a hawkish tone during its June meeting.
However, following assurances by the US Federal Reserve that the US interest rates is likely to remain unchanged for a considerable time after the quantitative easing programme ends this year, the markets calmed and yields generally eased. Overall since end-2013, sukuk yields have eased across the main markets. This is a positive development as it points to a return in investor confidence in the markets, following the emerging market funds outflow crisis which had sent yields spiralling on fixed income instruments in these countries. 
Overall, the robust expansion in the primary market during 2Q14 has supported expectations that the annual new issuance volume for 2014 is on track to overtake last year’s volume of $119.7bln. The outlook for the global sukuk market remains positive as the number of jurisdictions, multilateral bodies as well as categories/sectors of issuers tapping the Islamic debt market continues expanding. In the second half of 2014, debut sovereign issuances are expected from Luxembourg, Hong Kong, Senegal and the Emirate of Sharjah. Future debut sovereign issuers based on announced plans include Tunisia, South Africa, Oman, Jordan, Egypt and Mauritania. The geographical expansion was augmented by sector-based expansions, lending further credence to a healthy and vibrant global sukuk market.
In 1H14, Malaysia’s Etiqa Takaful issued the world’s first takaful sukuk while the Saudi fashion retailer, Fawaz Alhokair Group, also issued its maiden sukuk. Similarly, sukuks are also increasingly being utilised by the financial sector as tools for satisfying regulatory requirements — for example by issuing Basel III compliant AT1 and Tier 2 sukuk instruments. This year has also witnessed substantial efforts being directed by global multilateral entities, such as the World Bank and the Asian Development Bank, towards enabling sukuk to serve as viable tools for meeting diverse global liquidity needs. Going forward, it is expected that 2014 will be another record-breaking year for primary market issuances.

(Arab Times / 27 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saturday, 26 July 2014

Luxembourg Sukuk Bill Adopted

On 9 July 2014, the Luxembourg Parliament has adopted the bill of law 6631 on the sale and buy back of real estate assets compulsory for the issuance of a sovereign Sukuk in an amount of Euro 200 million.


To this end, a Luxembourg SPV will be created and will be fully owned by the Luxembourg State. Such SPV will purchase three main buildings located in Luxembourg and will benefit from a guarantee from the Luxembourg State.

The SPV will issue Sukuk and lease back to the Luxembourg government the underlying real estate assets for a duration of 5 years corresponding to the duration of the Sukuk. The rental income to be received by the SPV, equivalent to the periodic amount to be paid to the Sukuk holders, will be used for such purpose in compliance with Sharia.

The enactment of such law by the Luxembourg legislator demonstrates a strong and clear political will to diversify and develop alternative markets such as Islamic Finance within the financial services industry in the Grand-Duchy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

(Mondaq / 24 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic financing to overtake conventional banking in Kuwait Finance House (KFH)

An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Sharia-compliant financial products in the region -- a move that could soon see Islamic financing overtake conventional banking in the Gulf state.

Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. CBK announced in July that it had received regulatory approval to issue up to KD120m ($425.16m) in bonds in preparation for the transition, which received the approval of 85% of its shareholders in April. The move by CBK, to be completed by the end of 2014, will help Kuwait cement its position as a provider of Sharia-compliant products and services. There are already five other Kuwaiti Islamic banks; Kuwait Finance House ( KFH ), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks.Kuwait's Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period, reported in The Banker in April. This exceeded the growth rates in the overall banking sector, which saw a 7.1% growth in assets and a 7.5% growth in loans between January and September. 

This move toward Islamic banking follows a broader regional and indeed global trend. Islamic finance industry's assets worldwide are estimated to have grown 18.6% annually to reach $1.8trn at the end of 2013, according to KFH Research, which projects that total Islamic financial assets will reach $2.1trn globally by 2015. The Sharia compliant sector has expanded rapidly within Southeast Asia and the Gulf Cooperation Council (GCC), whose assets accounts for more than a third of the worldwide total according to KFH . Other banks in this region are also looking to make the switch to Islamic banking. Malaysia's Agro Bank plans to convert to Islamic banking by 2015 while the country's SME Bank is planning a full conversion by 2018 according to Reuters. In Pakistan, Faysal Bank and Summit Bank are mulling similar plans. 

LargestIn Kuwait, the sector's history goes back to 1977 with the establishment of KFH Group, Kuwait's largest Islamic bank. For the last three years to end-2013, KFH total assets grew at a compounded annual growth (CAGR) rate of 8.8% to reach KD16.1bn ($57.2bn).CBK, the state's fifth-largest lender by assets, is following in the footsteps of both Boubyan Bank and Ahli United Bank (AUB) Kuwait in converting from a conventional lender, drawn by the sector's rapidly rising popularity and promising outlook for growth, which continues to outpace that of conventional lenders. According to Reuters, CBK's conversion will increase Islamic banks' market share in Kuwait above an estimated 40%. AUB Kuwait, (formerly known as the Bank of Kuwait and the Middle East) posted a record $579.4m in net profit in 2013, a 72.6% increase over 2012's $335.7m, which Deputy CEO Ahmed Zulficar attributed to the switch to Islamic Banking: "Since the bank's conversion to Islamic banking, our performance has improved". 


(Zawya / 24 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Thursday, 24 July 2014

Takaful Insurance Vs Conventional Insurance

From the onset Takaful insurance is like mutual insurance, the only difference is that there is investment condition and Shariah compliance in Takaful operation whereas there is none in mutual insurance. The whole idea of Takaful operation is borne out of the objective of Shariah (Maqasid al Shariah) which suggest that a Takaful participant is consciously fulfilling a moral obligation for the betterment of the society in order to achieve public good (Maslaha) regardless of the religious backgrounds of participants in the scheme. This idea also means that Takaful operation has some basic attributes that are at variance with conventional insurance practice. Therefore, the main differences between conventional insurance and Takaful practice are described as follows: (1) Contract difference: Takaful operation is based on mutual assistance agreement and a combination of donation (Tabarru), agency (Wakala) and or profit sharing (Mudaraba) contract between the operator and participants which is unlike the conventional insurance operation that is entirely based on sale and purchase contract between the insurer and the insured. However, a typical Takaful contract is determined by the chosen business model as described below. (2) Mutual Contribution and Donation (Tabarru): Takaful is also a contract based on mutual contribution by the participants rather than the conventional idea of sale or purchase contract between policyholders and insurers. The aspect of donation is treated in the Takaful contract agreement where each participant willfully relinquishes a certain proportion of his contribution to assist others in the scheme. (3) Ownership of Contribution by the Participants: Takaful operators make use of participants contribution only for the intended purpose of “joint guarantee” while in conventional insurance the operator use the premium paid by policyholders in investments in order to suit his shareholders needs. (4) Share in Profit and Surplus: Takaful participants have a share in the surplus and profits of the risk and investment funds respectively based on a pre agreed ratio between the operator and the participants while in conventional insurance policyholders have no share in the business of the company. (5) Moral obligation to the society: Takaful participants contribute to the scheme as part of fulfilling or adhering to the injunctions drawn from the Qur’an that says “Help one another in goodness and piety but help not in sin and transgression” (Holy Quran 5:2) while in conventional insurance the insurer is driven by the desire to make profit for his company without any moral restrictions. (6) Investment of Funds: Takaful operator is strictly guided to invest his funds in accordance with the provisions of Shariah and that of prudential requirements whereas the conventional insurance operator is guided by prudential requirements only. This further indicates the existence of multiple regulatory layers. Hence, a Takaful Operator is both regulated by the appropriate government authority in the country of its operation in terms of technical soundness and also the advisory council of experts (ACE) to ensure or guide its operation towards adhering to the business ethics of Islamic law (Shariah), while a conventional insurer is only regulated by the laws of the country of its operation without adhering to any divine laws. (7) Treatment of Risk: Risk is always shared by the participants of Takaful contract as opposed to the idea of risk transfer practiced by the conventional insurance. This makes it even difficult to differentiate between an insurer and the insured in Takaful scheme since the risk fund is owned by the participants whereas the operator is only a fund manager and not a risk bearer. (8) Classification of Business: The classification of Takaful business is on Family and General rather than Life and General Businesses as practiced in the conventional type. The idea of applying the concept of Family class of Takaful business as opposed to the Life business is to inculcate family solidarity investment strictly in line with the Shariah provisions on inheritance. Therefore, the beneficiaries of family Takaful scheme should only be the rightful inheritors of the participant in accordance with Islamic law. This rule is only applied to Muslim participants whereas non Muslim participants are free to appoint their chosen recipient(s).

Takaful Business Models
It is interesting to note that this year marks the 30th anniversary of the advent of the pioneering Malaysian Takaful Act which gave credence to the emergence of the first full pledged Takaful operator Syarikat Takaful Malaysia (STMB) in 1984. Since then Takaful is increasingly taking the center stage of the interdependency circle of global financial market players. It is on record that by the end of 2013, the global Takaful market players have rapidly grown to constitute more than 200 operators.
Takaful operations are widely centered on four business models as follows: (1) Mudharaba Model (Profit sharing business): According to Maulana Taqi Usmani “Mudaraba is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called Rabb-ul-mal (owner of fund or asset) while the management and work is an inclusive responsibility of the other, who is called Mudarib (fund or asset manager)” However, in Takaful business operation, the entire investment is provided by the participants as contribution from the owners of fund (Rabb-ul-mal), while the Takaful operator manages the investment as fund managers (Mudarib) in a Shariah complaint manner. In this model profit is shared among the two partners (both Takaful contributor and operator) while loss is only borne by the contributors alone. If there is deficit in the risk fund, the Takaful operator is expected to inject money through an interest free loan (Qard Hasan) arrangement to settle claims. (2) Wakala Model (fee based agency): This model is somewhat similar with Mudaraba only that in wakala the investor (Rab-ul-mal) pays a performance fee to the Takaful operator without sharing in profit nor loss in the Takaful business. This means that the operator is only acting as agent to the contributors for a fixed fee. Similarly, in Wakala model the operator also provides interest free (Qard Hasan) loan to the deficit in the participants fund but only receives administrative charges for the loan (3) Wakala-Mudharaba Model (Hybrid Takaful business): This is also referred to as the mixed model where the operator receives a moderately low agency fee from contributors for managing underwriting operations and also acts as the fund manager for investing participants Takaful Fund where he shares in the profit gained from the investment. (4) Waqf Model (Endowment trust business):
This is a type of model where both the operators and the contributors are totally not expecting any profit because the idea of Waqf is same with public foundation directed and targeted for a particular purpose or segment of the society. However, the participants in the endowment have to employ the expertise of the operator for a fee on the basis of agency (Wakala). The participants in this type of model are entitled to share in the surplus from the risk fund and the profits derived from the investment fund. However, this is depended upon the initial agreement reached between the operator and the participants. It is worthy to note that the hybrid (Mudaraba-Wakala) type of model is the most preferred because it encourages the operator to exert all his energy in executing his role for the betterment of all participants and the investments of the business.
It also encourages participants from contributing to the business, unlike in Wakala where the operator knows exactly what he earns whether the investment yields profit or not or in pure Mudaraba where the operators sees the other contributors as “sleeping partners” in the business. But in the hybrid model because of the double role of the operator and of course double share in terms of receiving agency fee and sharing in the profit gained from the investment fund. Naturally, this arrangement gives encouragement for the Takaful operator to put his best into action in order to protect and safeguard the business interest of all participants.
(Leadership / 21 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

India: Hyderabad trust uses zakat to promote education

A Muslim trust here is showing the way how a collective system of 'zakat', an obligatory system of charity in Islam, can lift the community out of poverty and illiteracy. 


Though many organisations collect zakat and use it for the poor and needy, the Hyderabad Zakat and Charitable Trust is delivering tangible results in the area of education.

 More than 25,000 students are studying in educational institutions run by the trust in Telangana, Andhra Pradesh, Karnataka and Maharashtra. Started in 1990, the trust, headed by philanthropist Giasuddin Babu Khan, has so far helped over 400,000 students graduate. Many of them are now engineers, doctors, lawyers and chartered accountants. 

"The trust has done a lot of work in education. We have so far spent Rs.110 crore on our activities," Mohammed Ziauddin Nayyar, trustee, Foundation for Economic and Educational Development (FEED), a part of Zakat Trust, told IANS. 

Zakat, one of the five pillars of Islam, is a mandatory charity for every well-to-do Muslim as a measure to remove economic inequality.

According to Islamic scholars, every Muslim whose assets reached 'anisab' or minimum value (current market price of 60.65 tolas of silver) has to pay 2.5 percent Islamic annual tax on his wealth. Most Muslims pay this during the holy month of Ramadan. 

For want of a collective system of zakat, the money gets scattered among individuals and charity groups. The Hyderabad trust is trying to show how zakat, if properly channelled, can achieve its purpose of eradicating poverty and backwardness. 

The trust, which believes that education is the most powerful weapon to battle poverty, has adopted 105 government-run Urdu medium schools. Over 3,000 students also study in its five English-medium high schools in Telangana.

 Focussing on excellence in education, the trust last year set up the Hyderabad Institute of Excellence (HIE) to hone the skills of 10th standard toppers from poor and needy families. More than 250 students are studying in 11th and 12th standards at its sprawling 120-acre campus near Hyderabad. 

They are also receiving coaching for entrance exams for professional courses. HIE will also have a high school from next year. "HIE is in line with the vision of Giasuddin Babu Khan to provide world-class facilities to poor but bright students so that they can excel and become assets," said Nayyar. The trust also helps the poor and needy with financial assistance to make a living. This Ramadan it distributed ration and clothes to 3,000 widows to help them celebrate Eid. 

The young widows were given packets worth Rs.950 to Rs.2,000. The trust also motivates young widows to re-marry and provides an assistance of Rs.25,000 each. It has helped in re-marriage of 120 widows. Last year, the trust received over Rs.9 crore zakat. 

It has a network of 60 employees to identify the deserving. The families of Babu Khan and Abdul Aleem Khan, who heads FEED, contribute the maximum for the trust. Hyderabadi Muslims settled in the US and the Gulf also make a sizable contribution. "After seeing our activities and the transparency, more NRIs are coming forward to contribute," Nayyar said. The trustees, however, feel that what the trust receives is not even one percent of the zakat Muslims can pay in Hyderabad and other parts of Telangana.

 According to Babu Khan, the potential of zakat collection in Telangana is Rs.1,000 crore but the actual collection and distribution is only Rs.100 crore. Community elders say only 10 percent Muslims pay zakat to institutions, mainly madarsas, while 90 percent pay to individuals who approach them. "They don't even check whether those seeking zakat are really poor and needy. Thus the really deserving who don't beg are deprived," said a member of Jamaat-e-Islami, which is active in distributing zakat. Activists also rue the fact that many wealthy Muslims don't pay total zakat. "If all Muslims pay zakat in full and it is channelled properly, the community can overcome the problem of poverty," said Nayyar.

(One India News / 23 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Wednesday, 23 July 2014

Saudi Market Surprise Sparks Speculation of Sukuk Access

Saudi Arabia’s plan to open its $531 billion stock market to foreigners is prompting speculation that Islamic bonds will be next.


The government’s approval of overseas financial institutions to trade equities may herald a similar relaxation of rules in the local-currency primary debt market, according to Mashreq Capital DIFC Ltd. and Rasmala Investment Bank Ltd. The nation’s Capital Market Authority said yesterday that the stock-market change would take place in the first half of next year.
“Capital markets are a package, you can’t have one part without the other,” John Sfakianakis, chief investment strategist at Riyadh-based investment company MASIC, said by phone yesterday. “The fact is that Saudi sukuk eventually should also be open to everyone.”
Opening the local-currency sukuk market would give foreign investors access to companies that sold 42 billion riyals ($11.2 billion) through a dozen sales in the past year. That’s more than three times the amount of dollar Islamic bond sales, which are open to overseas buyers.
In the 12 months through yesterday, only four dollar-denominated sukuk have been sold in Saudi Arabia. Those came from two issuers, Dar Al Arkan Real Estate Development Co. and Saudi Electricity Co., according to data compiled by Bloomberg. Twelve different borrowers, including National Commercial Bank and Almarai Co. (ALMARAI), each issued a riyal-denominated Islamic security in the period.

PRICING TIGHTLY

“It’s a step in the opening up of Saudi capital markets overall, and that benefits sukuk investors because there will be more potential product if we can get access,” Abdul Kadir Hussain, who oversees about $700 million as chief executive officer at Mashreq Capital in Dubai, said in a phone interview yesterday. It will also make it easier for domestic borrowers to issue Islamic bonds, he said.
Access to the kingdom’s debt market may appeal more to investors wanting to broaden their exposure than to those seeking yield, according to Doug Bitcon, a Dubai-based fund manager at Rasmala.
“Lots of Saudi debt prices very tightly,” Bitcon said by phone yesterday. “I’m not sure how attractive that will be to international investors beyond portfolio diversification.”
The average profit rate, equal to a bond’s interest rate, of 41 outstanding sukuk from Saudi Arabia is 3.11 percent, according to data compiled by Bloomberg. That compares with 5.06 percent for 44 Islamic bonds outstanding from the neighboring United Arab Emirates, the data show.

SAUDI GROWTH

Gross domestic product in Saudi Arabia will probably expand by 4.15 percent in 2014, versus 3.8 percent last year, economist estimates compiled by Bloomberg show.
The world’s biggest exporter of oil and de facto leader of OPEC is removing barriers to one of the most restricted major stock exchanges as the government pursues a $130 billion spending plan to boost non-energy industries. The move may lead to the country’s inclusion in MSCI Inc.’s indexes, which are used to measure performance by money managers with an estimated $9 trillion of assets.
“Opening the debt market would be part of the openness and all inclusiveness that the policy makers want to demonstrate,” Sfakianakis said.
(Bloomberg / 23 July 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

H Abdur Raqeeb on The Need for Islamic Banking in India

India's central bank is reviewing regulations on Islamic banking in Asia's third-largest economy.


The Reserve Bank of India has set up an internal committee to examine the matter, unnamed sources told Firstbiz.com.

The RBI has reportedly set up a three-member panel comprising senior RBI officials Rajesh Verma, a deputy general manager with the Department of Banking Operations, Archana Mangalagiri, general manager, Non-banking Supervision and Bindu Vasu, joint legal adviser.
Islamic banking is practiced in several countries, including in the UK, which in June issued an Islamic bond that attracted orders in excess of £2bn ($3.4bn, €2.5bn) from global investors.
What is Islamic Banking?
Islamic banking follows the Shariah law. The model differs from conventional banking in that it does not accept deposits, only investments, which essentially make banking a venture capital activity. The model also encourages interest free loans in a bid to boost financial inclusion.
Islamic banking is also based on profit and loss-sharing; the model forbids the payment and receipt of interest and prohibits investment in businesses that are considered sinful – such as adult entertainment or the production of alcohol.
Speaking to IBTimes UK, H Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance (ICIF) told us how India stands to benefit from the roll out of Islamic banking.
Q: Do you think that India is a key place for growing the Islamic banking market and why?
AR: The misconception among many Indians is that Islamic banking caters to only the Muslim population. The model promotes financial inclusion. India's small farmers and petty traders for instance are still not part of the banking system despite over 40 years of nationalisation of the country's major banks. They cannot go to the capital markets to raise money. Islamic banking can cater to [the millions] outside the commercial banking system.
In addition, Muslims' savings are not being ploughed back into the Indian economy as a large section of the Muslim population here does not bank with commercial lenders.
Q: What needs to be done in terms of rolling out Islamic finance in India?
AR: Political will is necessary. The government has to take a decision on Islamic banking and the RBI has to regulate it. The central bank has to look into it.
We have been pleading with the government and have met Finance Ministry officials in the previous [Congress Party-led] regime.
Moreover, we don't have to use the term 'Islamic banking' in India. We can refer to it as alternate banking, which is what the UK calls it. Or, we could call it participatory banking, which is what they call it in Turkey.
Q: But, if India adopts Islamic finance on a broader scale, will this mean that a lot of the legal framework will have to change?
AR: Not much actually. We in India can borrow and benefit from examples of Islamic banking in the UK or in Singapore.
India Reforms
The question about whether India should allow Islamic banking has been debated for long.
In 2008, India's Planning Commission roped in Raghuram Rajan, the present RBI governor and a former Professor at the University of Chicago, to head its High Level Committee on Financial Sector Reforms (CFSR).
The CFSR, tasked to identify 'real sector reforms', recommended that New Delhi 'permit the delivery of interest free finance on a larger scale, including through the banking system.
(International Business Times / 22 July 2014)
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Tuesday, 22 July 2014

Saudi Arabia tightens control on zakat

The Saudi Ministry of Social Affairs is warning Saudis seeking to fulfil their zakat duty during the holy month of Ramadan against donating funds to those who solicit money via social networking tools.


There is an inherent risk in using social networking tools such as Twitter and WhatsApp to make donations, the ministry said, as true identities can be concealed and well-intentioned donations can fall into the hands of terrorist organisations which sometimes use charitable organisations as a cover.
Those who wish to donate money are encouraged to give to the more than 700 licensed charitable organisations in the kingdom, to social security offices or to organisations involved in the Al-Khair al-Shamel (Global Goodness) project, the ministry said.
These groups document donations in a transparent fashion under the state's auspices, it added.
Before Ramadan began, the Ministry of Interior warned it would impose the penalty of precautionary sequestration on bank accounts found to be involved in the unregulated collection of donations.
Al-Qassim University lecturer Yasser al-Muhanna said the issue of zakat funds and charitable donations is of paramount importance in Saudi Arabia as some "proponents of deviant ideology" exploited people's religious sentiments to obtain money through duplicitous methods.
One of these methods involves shaming stock brokers and traders into donating money to dubious organisations by telling them large portions of their profits are "usury".
"This is aside from the phantom organisations that used to roam the towns and villages to collect donations, alms and zakat funds under the pretext of supporting the mujahideen," he said.
Saudi authorities have since taken measures to cut off this flow of funds, al-Muhanna said.
The task of monitoring the collection of zakat funds and donations has been brought under the auspices of the counter-terrorism strategy which has been in place since the 1990s, he said.
In 1995, the Ministry of Interior, the Saudi Arabian Monetary Agency and commercial banks formed special units to monitor and combat money laundering.
"In 2011, [authorities] began strict monitoring of the work of charitable organisations and legal amendments were made concerning the operation of banking and financial [institutions] to close any loopholes that may be exploited to raise funds for these groups," he said. "Additionally, banks insist on knowing the identity of their customers, their financial and commercial activities and nature of the transactions they conduct."
The government also made legal amendments to the zakat collection system in order to monitor investment activities that were not previously covered, particularly transactions involving goods, commodities, buildings, land and real estate, he said.

MONITORING MECHANISMS

"Zakat collection in Saudi Arabia is undertaken by the Department of Zakat, and the funds are distributed by the General Organisation for Social Security," Shamel Humaidan of the Department of Zakat and Income in Riyadh told Al-Shorfa.
The Ministry of Labour and Social Affairs also monitors charitable organisations through its Department of Organisations -- a group of chartered accountants who audit their accounts -- and via 400 social development committees across the nation which report on the organisations' work.
Last year, the ministry distributed 25 billion Saudi riyals ($6.7 billion), the total amount of collected zakat funds, in addition to 1.5 billion riyals ($400 million) paid out monthly by the General Organisation for Social Security to about 700,000 families, Humaidan said.
Saudi Arabia monitors the financial activity of charitable organisations by limiting them to one bank account administered by two members of their board of directors and by requiring they first obtain approval from the security authorities and the Saudi Arabian Monetary Agency to open the account.
These accounts are used for deposit only, not disbursement, Humaidan said, and no cash withdrawals or transfers abroad are allowed.
Meanwhile, the Ministry of Islamic Affairs continuously monitors the performance of imams, preachers and workers at mosques and intervenes immediately if any of them comes under suspicion, Adel al-Usaimi, imam of al-Khair mosque in Riyadh told Al-Shorfa.
"Several fatwas were issued by the supreme religious authorities prohibiting the payment of zakat and donations to misguided groups, most recently by the Grand Mufti of Saudi Arabia, Sheikh Abdul Aziz Al al-Sheikh, who warned against paying zakat or making donations to non-deserving recipients, especially terrorist groups that were included on the official list," he said.
In Saudi Arabia, cash donation boxes are not allowed in mosques, markets and malls, as cash donations are accepted only at banks, al-Usaimi said.
(Al-Shorfa.Com / 21 July 2014)
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Turkiye Finans raises $252 mln from first sukuk issuance in Malaysia

Turkish lender Turkiye Finans Katilim Bankasi has raised 800 million ringgit ($252.21 million) from an Islamic bond in Malaysia, its first issuance from a 3 billion ringgit programme announced last month.

The issuance by Turkiye Finans, in which Saudi Arabia's National Commercial Bank is the largest shareholder, is the first ringgit-sukuk done in Malaysia by a Turkish issuer.
Proceeds from the five-year sukuk will fund general corporate purposes and working capital requirements, according to HSBC Amanah Malaysia Bhd. HSBC Amanah and Standard Chartered Saadiq Bhd are jointly advising the Turkish bank.
"Following this debut issuance, we hope to see more cross-border sukuk issuances by Turkish issuers in Malaysia, giving the Malaysian investor community an opportunity to diversify their investments," said Wasim Saifi, chief executive of Standard Chartered Saadiq, in the statement.

Turkey Finance is one of four Islamic banks in the country, with a sole focus on loans to corporate clients. The bank in June established a 3 billion ringgit programme, with sukuk of one to 20 years. 
(Reuters / 21 July 2014)
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Monday, 21 July 2014

Islamic banking: growing fast but can it be more than a niche market?

For years, Islamic banks have been growing at a double digit pace.


Ernst and Young (E&Y), in their latest World Islamic Banking Competitiveness report, shows the assets of Islamic banks grew at an average rate of 17% per year between 2008 and 2012.
This is two to three times faster than the rate at which conventional banks grew over the same period, due in part to the global financial crisis.
Islamic banks differ because they have to run their operations in a way that is consistent with the principles of Islamic law or sharia.
This prohibits banks from dealing with businesses that are considered sinful or haraam such as pork, alcohol and gambling. Admittedly, this is not much of a constraint.
However, usury or riba is also prohibited under sharia law so in principle banks cannot charge fees or interest for money lending.
How it works
Given this is how banks generally make their money, you may ask how Islamic banks prosper?
The answer is they still make money by lending out their capital but do so in ways where interest and fees are not explicit.
For instance, Mudharabah is a profit sharing arrangement like a venture capital deal where the bank provides the finance and the borrower the labour and entrepreneurship.
If the business were to fail, the lender loses their money and the borrower the time and effort committed to the enterprise.
Similarly, Musharakah describes a joint venture between a bank and business where the profits are divided according to their relative capital inputs.
In this way, bank returns are tied to company profits and the partnership ends when the loan is repaid.
This approach could be used to provide mortgage financing to buy a property. The property earns rent from the occupier which is paid to the buyer and the bank in relation to their share of the equity.
At the same time, the buyer agrees to buy the bank's share in instalment payments, so over time their equity increases and the bank's falls, until the mortgage principal is paid off.
Another way of profiting from providing credit is a simple form of sale and buy-back agreement known as Murubahah.
Here, the bank buys the house, car or other commodity and sells it to the buyer at a profit but allows them to pay in instalments.
In this case, the profit margin should be clear, agreed upfront and be reflect the bank's costs in providing the service.
Fast growth explained
It is partly because economic growth has been strong in several emerging market countries with a large Muslim population.
E&Y identify 25 "rapid growth market" countries which they predict will account for half of global GDP by 2020. Of these, 10 have a high Muslim population.
Iran accounts for nearly half of the banking assets in Islamic banks worldwide.
Three-quarters of the rest is in the QISMUT nations [Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey] where growth has averaged 6.5% per year for the last five years.
The rapid expansion of Islamic banking has been mainly through Islamic windows in conventional banks rather than in pure Islamic banks.
This has allowed existing banks to easily enter the Islamic banking market and is likely to continue being a mechanism for growth for the foreseeable future.
'Huge untapped Muslim populations'
There is certainly space for E&Y's estimate of 20% growth for each of the next five years.
Even in countries where Islamic banking has a strong foothold, such as the Gulf states and in South East Asia, its share rarely accounts for more than one third of the market.
In Indonesia, the world's most populous Muslim country, Islamic banking currently has less than 5% market share.
There are also huge untapped Muslim populations around the world including India, Pakistan and Bangladesh in South Asia; Egypt, Nigeria, Morocco and Nigeria in Africa; and a number of the former Soviet Republics.
It is also expected that growth will not just be limited to regions with a high Muslim population.
Last month, the UK issued a £200 million sovereign sukuk or Islamic bond.
Although the amount is small, a fraction of the value issued by Malaysia each year, it was a clear signal of intent.
It comes on the back of the Islamic Finance Task Force launched last year by the British government with the aim of making London a western hub for Islamic finance.
Challenges ahead
Many of the rapid growth market countries face ongoing economic and political instability.
As the era of cheap money ends and the huge monetary stimuli from central banks is withdrawn, growth in these regions may slow down, especially in the banking sectors.
Islamic finance is also less profitable than conventional banking.
The E&Y report finds that shareholder returns are 20% lower as a result of higher costs and operational inefficiencies.
Islamic banks tend to be much smaller than their conventional counterparts, making it hard to achieve economies of scale.
There is also far less standardisation in the products available because of different interpretations between banks and jurisdictions of what is acceptable under sharia law.
Islamic banking products are also more complex which adds to their cost.
The importance of face-to-face relationships means the branch network is important, but has resulted in an under-development of phone and internet banking.
And, Islamic banks are relatively poor at cross-selling with an average of 2.1 products per customer compared to 4.9 products per customer in conventional banks.
When regulators in Qatar acted to prevent banks from offering both Islamic and conventional banking products forcing a choice between the two, many decided to close their Islamic banking operations in the country.
Islamic banks have tremendous scope to keep growing within the niches, compatible with sharia law and in certain parts of the world. But, unless they face up to these challenges, they might struggle to take the conventional banks head on.
(BBC News Business/18 July 2014)
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