Latest from GIFC

Monday, 31 December 2007

Unicorn gets Islamic banking licence to set up Unicorn International Islamic Bank Malaysia Berhad under MIFC initiative

KUALA LUMPUR: Unicorn Investment Bank of Bahrain has received an Islamic banking licence from the Finance Minstry to establish a wholly-owned subsidiary, Unicorn International Islamic Bank Malaysia Bhd, under the Malaysian International Islamic Financial Centre (MIFC) initiative.
In a statement on Dec 31, Unicorn said it had appointed Datuk Vaseehar Hassan Abdul Razack, — who is a banker with extensive experience in investment banking, commercial and Islamic banking — as the chairman of the Malaysian entity with effect from Jan 1, 2008.
Vaseehar has relinquished his position as the chairman of RHB Islamic Bank Bhd, RHB Bank Bhd and RHB Capital Bhd on Dec 31, 2007, to assume the new psoition.
Unicorn is believed to be the first foreign bank to obtain a licence to establish an Islamic bank under the MIFC initiative. --(DE, 31 Dec 07)

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Sunday, 30 December 2007

Islamic banking and finance in Sri Lanka: A paradigm of success

By Riyazi Farook

Sri Lanka is one of the few non-Islamic countries to have legislation for the Islamic banking sector. Following amendments to the Banking Act No 30 of 1988 in March 2005, there is now adequate flexibility for conventional banks to establish Islamic banking windows and launch Islamic financial products. However, efforts in strategic marketing communication to promote and raise awareness of these products are still in the infancy stage.

The Central Bank (CB) already authorized Islamic banking to be carried out in licensed commercial banks as a regulated and legal activity. However it is studying the Islamic banking concepts and once the requirements are legislated in the Banking Act, Sri Lanka would have increasing opportunity to establish a full-fledged bank. Senior Muslim ministers are also backing an initiative to allow full-fledged Islamic banks to operate in the country.

Sri Lankan Muslims have long awaited the entry of a full-fledged Islamic financial institution that can provide them the opportunity to invest or deposit their money in a Shariah compliant manner. Islamic microfinance institutions in the rural areas are also keen to capitalize on this need, but most are offering limited service in small communities with a high density of Muslims.

The country has the potential to become an Islamic banking hub for the South Asian region. Nevertheless, only if CB expresses its interest and development initiatives does Sri Lanka stand a chance of competing and establishing itself in the market. Thereore, government organizations, monetary authorities and the private sector must work with Islamic banking institutions to achieve this objective.

In this context it is high time that Sri Lanka came up with a strategic framework on the Islamic financial sector in order to address the needs of all segments of the community. There are specialized local and overseas institutions and professionals, some of whom are experts in Islamic banking; others may have good managerial skills to contribute to the promotion of Islamic banking and its concepts. Therefore, it is paramount to include such specialists in a discussion on building a conceptual framework for Islamic banking and finance in Sri Lanka.

Players in Islamic finance
The market value of the Islamic banking sector in Sri Lanka is estimated at Rs 70 billion to Rs 100 billion. Islamic financial services providers currently active include Amana Investments Ltd, Ceylinco Islamic Investment Corporation (CIIC), Muslim Commercial Bank (MCB), National Asset Management Limited (NAMAL), First Global Investments Group and ABC Investments.

Amana Investments, established in 1997, leads the country’s Islamic financial services market. Its subsidiary Amana Takaful Ltd (ATL) began operations in June 1999 and is acknowledged as the market leader for Takaful services (commonly perceived as the Islamic alternative to conventional insurance). ATL was listed on the Colombo Stock Exchange in late 2006.

CIIC made its entry in 2003 and is fully backed by Ceylinco Insurance, one of the leading conventional insurance providers in Sri Lanka. CIIC offers both selected Shariah compliant and Takaful products.

The new kid on the block MCB — owned by MCB Pakistan — commenced operations early this year. It offers both Islamic and conventional financial products.

NAMAL is the first fund management company in Sri Lanka licensed to manage unit trusts. Together with Amana Capital (a subsidiary of Amana Investments), it launched the NAMAL Amana Equity Fund early this month. The objective of the equity fund is to achieve significant growth over the medium to long term by primarily investing in equity securities that are Shariah compliant.

First Global Group is a public limited finance investment company that deals with Shariah compliant investments and financing products and services. Domestically, it is the first institution to promote training and career development programmes related to Islamic banking and finance.

Finally, there’s ABC Investments, a relatively new Islamic investment group that claims to have strong funding backing from different countries. It has a memorandum of understanding with the Central Bank of Sudan in which the latter’s experts will provide assistance on training and development to ABC — especially in its Takaful segment — and will be working closely with leading Islamic financial countries for the funding in Takaful as they plan to start off with general insurance.

The Takaful concept is steadily gaining acceptance in Sri Lanka, where there are now 13 licensed insurance companies.
Takaful was introduced in 2002 with the entry of ATL, which recently created history in Sri Lanka and the Islamic financial services industry worldwide when it was ranked 203rd in the world’s first comprehensive “Top 500 Islamic Financial Institutions” published by The Banker, the global finance magazine of the Financial Times Group, in its November issue. ATL accounted for US$5.55 million worth of Shariah compliant assets.

A second Takaful operator, Ceylinco Takaful Limited, made its debut in mid-2006. Sri Lanka Insurance Corporation — the country’s largest and strongest composite insurance provider with Rs 50 billion worth of assets under management — has also announced its intended foray into Takaful. Two of the country’s largest insurance operators (Ceylinco Life and Sri Lanka Insurance Corporation) also plan to offer Takaful products.

The Sri Lankan market, including that for Takaful, faces several challenges, however. One is the current legal environment, which is deemed unfavourable to Takaful operations. Other hurdles are reluctance on the part of regulators to introduce the necessary changes in law to encourage the development of Takaful, a lack of investment opportunities that are Shariah compliant and acceptable to the insurance regulators, a high capital requirement, severe competition, consumer resistance to a new form of insurance based on religious principles and the fact that Muslims represent only about 9% of Sri Lanka’s population.
Overcoming these barriers is more crucial for the Takaful industry in Sri Lanka. Its operators should make a concerted effort to convince insurance regulators to accept the salient features of Takaful and treat it as a new business model. They could also form strategic alliances to promote their products.

Human resource needs
Sri Lanka should aim to produce highly skilled practitioners and professionals as well as specialists and researchers to develop human capital needs for its Islamic banking and financial services industry, both at local and international level. Shariah scholars are scarce but they are highly critical to the success of the republic’s Islamic banking industry and its growth.

The International Centre for Education in Islamic Finance recently established the faculty of Islamic banking and finance, the first in Sri Lanka. It is hoped that the faculty will fulfill the need to produce a pool of Islamic professionals for the fast-growing global Islamic banking and financial services industry.

The writer is a Master’s student at Middlesex University London and has a postgraduate diploma in marketing from the Chartered Institute of Marketing, UK and postgraduate diplomas in Islamic banking and insurance from the Institute of Islamic Banking and Insurance, UK. He can be reached via email at --(FT, 30 Dec 07)

Dubai Islamic unit to take over Sudan bank

DUBAI, Dec 27 (Reuters) - Dubai Islamic Bank DISB.DU unit Bank of Khartoum plans to buy smaller Sudanese rival Emirates and Sudan Bank, Dubai-based daily Emirates Business reported on Thursday.
Dubai Islamic, the third-biggest Gulf Islamic lender by market value, would own 28 percent of the enlarged lender after the deal closes next month, the paper reported, citing Dubai Islamic spokesman Abu Baker al-Amin.
Sudan's government will own 10 percent of the bank, while Abu Dhabi Islamic Bank ADIB.AD and Sharjah Islamic Bank SIB.AD would also own stakes, the paper said.
Bank of Khartoum planned to raise 1.1 billion dirhams ($299.6 million) in a private placement to fund expansion, Emirates Business said.
"The merger will strengthen the Bank of Khartoum's regional and international presence," Amin was quoted as saying.
Dubai Islamic currently owns 55 percent of Bank of Khartoum, the paper said.

New Middle East sukuk market hits $19bn in ’07

DUBAI: The Middle East’s primary market for Islamic bonds is expected to close at $19bn in 2007 as further deals are delayed amid concerns over a weakening dollar, bankers say.
“It’s the year end, no issues are likely to hit the market now,” said Nader al-Salim, a banker at Citi Islamic Investment Bank.
As of December 10, new sukuks issued in the Middle East were close to $18.65bn, compared to a global market of $27bn, according to data.
Better global market conditions could boost the Mideast primary market by another $10bn in the first quarter of 2008 after some issues were delayed by the global liquidity crunch that affected debt markets in 2007, Geert Bossuyt, managing director and regional head of Middle East structuring at Deutsche Bank, said in November.
Dubai mortgage firm Amlak Finance plans to sell its delayed asset-backed Islamic bonds worth about $260mn to finance expansion.
UAE’s Ras Al Khaimah Properties could sell up to $2bn worth of sukuk to fund its real estate projects, whereas Kuwait’s Abyaar Real Estate Development Co plans a $1bn Islamic bond in 2008 to finance projects.
Qatar’s Barwa Real Estate Co had also lined up for an $800mn sukuk issue (but reduced it to $700mn due to what it said was “a lack of response in view of the global credit crunch”.
Doha Bank said it would raise close to $1bn by September 2008 to invest in green technology.
Kuwait’s Gulf Holding Company was to raise a ‘substantial’ amount in an Islamic bond issue to finance a $620mn real estate project in Bahrain.
Saudi Arabia’s Al Rajhi Cement Investment Co said it planned to sell $600mn of Islamic bonds by the end of February to finance construction of plants in Syria and Jordan.
Bahrain Islamic Bank was planning a $1bn acquisition next year and said it would finance most of the purchase by selling Islamic bonds.
Kuwait’s Al Ahlia Real Estate Projects Co, or Arepco’s sukuk issuance which was on a roadshow in November was still open, according to the lead arranger, Liquidity Management Center. The two-year sukuk is a pre-IPO equity-linked sukuk, with an 8% profit rate payable semiannually.
Qatar’s Salam Bounian Development Co is marketing its $150mn The Gate Sukuk. The musharaka bond has maturity of 10 years and can be called after five years. Qatar Islamic Bank, Qatar National Bank and Commercialbank are the arrangers.
Bahrain’s Albaraka Banking Group plans to sell up to $250mn Islamic bond in the first quarter of 2008 to fund its expansion plans. The bond will be dollar denominated and will be available to regional and international investors.
Among other reports doing the rounds were UAE-based National Central Cooling Company, or Tabreed, was said to be in advanced talks with banks to raise 1bn dirhams through bank funding and Islamic bonds to finance its expansion in the Gulf. --( Zawya Dow Jones, 28 Dec 07)

Saturday, 29 December 2007

Malaysia Maybank sees 15 pct rise in Islamic finance

KUALA LUMPUR, Dec 28 (Reuters) - Malaysia's top lender, Malayan Banking Bhd (Profile, Research), said on Friday it expects its Islamic financing and deposits to grow 15 percent for the financial year to June 30, 2008.
Most of the growth would come from Islamic term loans to businesses and hire purchase and mortgages, the bank said as it unveiled its new Islamic banking subsidiary.
State-controlled Maybank has total assets of 255.8 billion ringgit ($76.8 billion) as of end-September, of which 23 billion were Islamic assets.
"Growth in Islamic financing has been phenomenal, largely due to the strong support of the government," Maybank Chief Executive Amirsham Aziz said in a statement.
"It is also well within our plans in the short- to medium-term to see our Islamic banking business expand in terms of geographic frontiers."
Maybank operates in Asian countries such as Brunei, China, Singapore, Vietnam, Indonesia and the Philippines.
"We see our growth path to be both organic and inorganic, meaning we continue to be on the lookout for value creation opportunities whether by way of strategic alliances or through mergers and acquisitions," he said.
Maybank said its Islamic unit, Maybank Islamic Bhd, aims to focus on international currency business, Islamic investment banking, and Islamic wealth management.
It will start off with 12 branches.

Friday, 28 December 2007

Qatari banks have a lot to be cheerful about

QATARI banks have a lot to cheer about this year not only from the financial numbers point of view but also their successful forays abroad picking up stakes in reputable institutions.Buoyed by the economic boom from high oil prices, the Qatar-based banks are now increasingly looking outside, mainly through acquisitions because of limited growth opportunities within their home turf.In insurance, 2007 has seen some new entrants through the Qatar Financial Centre (QFC). The national insurance firms have also consolidated their underwriting portfolios thanks to a surge in economic activities – especially in the hydrocarbon sector, aviation and real estate.Qatari banks and financial institution have registered a 35% growth in their cumulative net profits to QR3.86bn in the first half of this year. The year has also seen all Qatari banks complying with the Basel-II requirements to revise the international standards for measuring the adequacy of a bank’s capital. Basel-II was framed to promote greater consistency in the way banks and banking regulators approached risk management across national borders. They have also consolidated their local presence through many new branches, some of them fully electronic, and ATMs and kiosks across Qatar.While Qatar’s largest lender QNB has raised its stake in Jordan’s Housing Bank for Trade and Finance to 30% in September, the state’s largest private bank Commercialbank recently picked up a 34.7% stake in the UAE-based United Arab Bank.Commercialbank has completed acquisition of 246,908,462 shares in the Sharjah-based bank with which it has also signed a Management Services Agreement. QNB already owns specialised bank Ansbacher which operates from Qatar, Dubai and other places. Its joint venture bank in Syria has also started operations. QNB has a 49% stake in the Syrian bank.During the year, new branches were opened in Yemen and Oman along with representative offices in Libya and Singapore. Already QNB has full-fledged branches in Paris and London.Commercialbank picked up a 35% stake in National Bank of Oman some two years ago. Commercialbank said early this year its investment in NBO had been very profitable. NBO has had two consecutive years of record profits and two credit rating upgrades since the strategic partnership with Commercialbank.Doha Bank also increased its focus on developed and merging markets this year and got into many countries including India, China, Turkey and Singapore besides Dubai, where it is the only Qatari bank to have a full-fledged branch licence.Doha Bank is also the only Qatari bank with a full-fledged branch presence in the US (New York).This year, the bank picked up a 49% stake in Select Securities, a Kochi-based brokerage.Al Khaliji Bank set up this year. The latest entrant on Qatar’s banking landscape is in the process of building its retail presence. Besides Qatar its target markets include the UAE, Oman, Bahrain and Kuwait, from where it has shareholders. QIB, which is Qatar’s first Islamic bank, is now all set to open the European Finance House in London. Qatar’s largest Islamic lender is also currently among the world’s five largest Islamic banks.The bank recently signed up with Standard Chartered Bank and ABN Amro for a $300mn Murabaha bridge loan which it said is part of its asset and liability management strategy.QIB had also mandated the two banks to arrange for an Islamic bond (sukuk) which is meant to pay for the Murabaha loan. The sukuk will be issued next year.In 2004, QIB established the Arab Finance House in Lebanon which now has six branches in the country. In March this year, QIB inaugurated the Asian Finance Bank in Kuala Lumpur. QIB has also established real estate investment funds in the UK, the US and France. Another premier Shariah lender - International Islamic is exploring the prospects of getting into Morocco where Shariah-compliant banking still remains underdeveloped.The Qatar-based bank’s joint venture is all set to open many branches in Syria in Q1, 2008, where it has only a nominal presence now through a Damascus branch.The bank recently said its joint venture in Syria – SIIB, will expand into the country in a big way in Q1, 2008 by opening many branches across the country. International Islamic has a 30% stake in Syrian International Islamic Bank while some Qatari investors hold 19% in SIIB. The remaining 51% stake is with Syrian investors.International Islamic also played a key role in establishing Pak – Qatar Family Takaful and Pak – Qatar General Takaful companies in Pakistan.This year also witnessed another major Islamic bank Masraf Al Rayan picking up a 20% stake in SR1.2bn Kirnaf Installment Company, a consumer finance firm based in Riyadh.This, the bank said, was part of its strategy to develop in the Gulf region and beyond. Doha Bank has received authorisation from Qatar Financial Centre Regulatory Authority to do insurance business from the Qatar Financial Centre.The QR100mn firm, a 100% Doha Bank subsidiary, will be known as the Doha Bank Assurance Company.As part of its strategy to become a key international player, Qatar’s biggest underwriter Qatar Insurance Company (QIC) is establishing a holding company with subsidiaries specialising in Islamic insurance, real estate and assets management among other portfolios.The holding company will be registered in Qatar and based in Doha, QIC said recently. The establishment of the holding company formed part of a three-year QIC development strategy from 2008. Doha Insurance said earlier this year it planned to develop a dedicated Islamic insurance arm – Doha Takaful offering products that are Shariah-compliant. Doha Takaful is expected to become functional by Q4 this year.Doha Insurance had earlier ended its management agreement with the Bahrain-based Solidarity which was offering Shariah-based insurance products.The other three national insurance firms – Qatar Islamic Insurance, Qatar General Insurance and Al Khaleej Insurance – have considerably improved their profitability in 2007. --(GT, 28 Dec 07)

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Thursday, 27 December 2007

Hong Kong steps up effort to target trillion-dollar Islamic finance market

HONG KONG, Dec. 26, 2007 (Thomson Financial) -- Hong Kong has already cemented its reputation as an international finance hub in Asia, where investors go to buy or sell bonds, currencies and stocks. But the island is not resting on its laurels.With an increasing threat from Singapore and other emerging finance centers in the region, Hong Kong is going after the 1 trillion US-dollar Islamic finance market to enhance its image and thwart the ambitions of its rivals.Analysts applaud the move.'As far as further promoting Hong Kong's role as a key financial intermediary in the region, the move towards Islamic finance is a step in the right direction,' said Vincent Ho, associate director of Asian sovereign ratings at Fitch Ratings.With escalating oil prices, cash-rich Middle Eastern investors have become a force to reckon with in the global financial world.Last month, Abu Dhabi rescued Citigroup Inc (NYSE:C) , the biggest bank in the US, from financial disaster by infusing 7.5 billion dollars in fresh capital in exchange for a 4.9 percent stake in the bank.The market is abuzz with speculation that more wealthy investors from the Middle East will invest in other cash-strapped financial institutions, which have been battered by losses from unpaid housing mortgages in the US. The crisis that began in the US subprime sector, where borrowers have poor or no credit history, has spread into Europe and some parts of Asia thanks to the popular practice of securitizing those mortgages.'Hong Kong is in a good position to attract petrodollars from the Middle East. This money has to go somewhere else. With the US and Europe still battling the subprime crisis, Asia is considered a safe haven for investors,' said Kelvin Lau, an economist at Standard Chartered Bank.The China syndromeHong Kong's proximity to China, an emerging global powerhouse that is slowly eclipsing Japan in the region, is its natural advantage.While Japan is struggling to boost growth, China is under pressure to slow its rapidly-expanding economy, which has grown at a pace of more than 11 percent in the last two quarters, causing inflation to climb to the highest level in 11 years.Already, Hong Kong has outlined broad strategies to establish an Islamic bond market, the first step in its bid to challenge Malaysia's dominance in the market.The Hong Kong government, led by Financial Secretary John Tsang, has visited Malaysia to get a glimpse into how Islamic finance works. Early next year, the government is bound for the Middle East, India and other parts of Asia.'Although Islamic financing is a relatively new venture for Hong Kong, we are actually ideally positioned as a platform for investors looking to capitalize on the mainland's rapid economic growth,' Tsang said during a UK visit in November.Tsang described Hong Kong's decision to lure Middle Eastern investors as 'another exciting prospect.''Our stable and freely convertible currency, flexible regulatory regime and world class financial infrastructure and settlement systems make Hong Kong an attractive choice for investors from all over the world, including the Middle East. The Islamic financial sector is worth an estimated 700 billion to 1 trillion dollars, and is expected to grow by 15 percent annually,' Tsang said.The government has also created a working group with the local treasury market group to help in laying out the foundation for Islamic finance, a spokesman for the de facto central bank said in an e-mailed statement.The group will study whether the present taxation, legal and regulatory systems may affect the development of Islamic bond market in Hong Kong, he said.'We hope the Islamic bonds can be issued in Hong Kong as soon as possible,' he said but declined to provide a more specific timetable.Meeting the challengeBut creating a financial haven presents challenges.Islamic finance is a unique concept. And therein lies the problem.First, Islamic finance has to conform with the Islamic Law, or Shariah, which forbids the payment of interest and stipulates that income must be derived as a return from entrepreneurial investment.Second, any investments in companies directly or indirectly associated with alcohol, pork products, firearms, tobacco and adult entertainment are prohibited.These stipulations may make it hard for Hong Kong, with a small Islamic community, to become a key player in Islamic finance, Fitch's Ho said.'Islamic finance requires a lot of technical knowhow. The observance of Islamic law will be a major obstacle that Hong Kong will have to hurdle,' said Ho. 'It will take some time before Hong Kong can do it successfully.'HSBC unit Hang Seng Bank, the first bank (OTCBB:FRBA) in Hong Kong to launch an Islamic fund, is naturally more optimistic than Ho.'Hong Kong is a late comer of Islamic finance as compared to other Asian countries,' said Rosita Lee, director and head of investment products of Hang Seng Investment Management Ltd.'With Hong Kong's well-established financial and legal infrastructure, and the joint effort of the HK government and market participants to accelerate the pace of development, we are confident that Hong Kong will gradually take up a key role in the global Islamic financial market,' Lee said in a reply to e-mailed questions.Checking it twiceLaunched in November, the Hang Seng Islamic fund totaled 56.4 million US dollars as of Dec 18, a tiny fraction of the overall market.Hang Seng is targeting not only the Islamic community but also other investors who 'are conscious about social responsibilities,' Lee said.The bank is also exploring ways to market the product to Middle East investors, both institutional and retail.Currently, the fund invests primarily in a vehicle with a rather complicated name: the constituent stocks of the Dow Jones Islamic Market China/Hong Kong Titan's Index.Simply put, the index represents the 30 largest companies whose operations are in mainland China and Hong Kong and are traded in the local stock exchange.Given the strict conditions under Shariah, Hang Seng's Islamic fund has two levels of screening as far as investments are concerned.'Firstly, sectoral screening will qualitatively preclude certain kinds of business such as alcohol, pork-related products, gambling, pornography, tobacco, conventional financial services. Then, financial screening will quantitatively remove companies that have high levels of of debt or are sensitive to interest rate changes from the potential investment universe,' Lee said.So far, the most popular Islamic credit instrument is Sukuk, derived from the Arabic word Sakk, which means certificate, reflecting ownership in an underlying asset.According to the IMF, the market for Sukuk or Islamic bonds has grown from less than 8 billion dollars in 2003 to 50 billion in mid-2007.'Sukuk provide sovereign governments and corporations with access to a huge and growing Islamic liquidity pool, in addition to the conventional investor base. The structure of Sukuk is now well established in several corporate and sovereign issues,' the IMF said.Malaysia and the Gulf region are the main hubs for Sukuk issuance, though there are a growing number of issuers from the US, Europe and Asia, it said.While they don't pay conventional interest like bonds and other commercial papers, Sukuk offer returns, fixed or floating, from the underlying assets. The IMF said like ordinary bonds, Sukuk are also traded in the secondary market.In the end, despite its unique characteristics, Islamic funds are expected to prosper in Hong Kong, where investors are always looking for new types of instruments that they can add into their portfolio.Hang Seng's Lee expects Sukuk to start appearing in the vocabulary of local investors as early as the first half of 2008.Hopefully, creating a market for Islamic finance in Hong Kong won't be as hard as building the Great Wall of China, which took decades to complete and caused the death of thousands of workers, thus, earning the nickname, 'the longest cemetery on earth.''The foundations for building the Islamic fund is already established. It may take time. But experience has shown that Hong Kong is very adept at pushing new products,' StanChart's Lau said.

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Wednesday, 26 December 2007

New UAE Islamic insurance company to capitalise on 30% annual growth

(MENAFN - Arab News, 25 Dec 07) Mithaq Lil-Takful, a new Islamic insurance company has been launched in Abu Dhabi with a paid up capital of Dh150 million to capitalise on business growing by 30 per cent annually.The Shariah-compliant company has got the approval of the Abu Dhabi Executive Council (ADEC) to start its operations in the country."The ADEC has given its approval for the establishment of the Abu Dhabi-based Islamic insurance company with an initial capital of Dh150 million. The company's 45 per cent shares have been subscribed by the founding members, well-known businessmen, while the remaining will be floated to through an IPO," said Abdullah Saeed Al Qubaisi, chairman of the founding committee of Mithaq Liability Insurance Company.Al Qubaisi said: "Getting the approval of the Abu Dhabi Executive Council after similar approval from the Emirates Securities and Commodities Authority is another very important step in the incorporation process of the company, which will be followed by an IPO.This development is happening at a time when the UAE is witnessing a very rapid economic growth which gave birth to a sharp growth of the insurance market, particularly Shariah-compliant liability insurance products. This has created the need for more new liability insurance companies to meet the growing demand for this type of insurance product.He pointed out that the UAE insurance market is witnessing a rapid growth rate currently at about 30 per cent per annum, while the annual premiums of insurance firms in the UAE is estimated at about Dh480 million, according to the feasibility study.He said: "Mithaq" will be offering a comprehensive, high quality and Shariah-compliant insurance services. It will provide a low-risk investment opportunity and would be supervised by a committee of competent Islamic scholars of high reputation to strictly follow the principles of Islamic finance. Mithaq Liability Insurance Company will offer its IPO in early 2008.

Monday, 24 December 2007

Malaysia emerging as halal food hub

Greater awareness by the world Muslim communities for halal foods and government vision to make Malaysia as the halal food hub of the world are providing opportunities for major players such as Prima Agri Products to establish a niche market for their products.
Prima Agri-Products Sdn.Bhd., established in 1987, is a true blue local venture to make it into the big league of food manufacturers. From a modest beginning, today, Prima is the proud owner of several modern processing plants equipped with state-of-the-art equipment and machines.
A serious approach towards the use of these latest equipment, facilities and production technologies account for the company being a major force in the processing and manufacturing of meat and meat-based products. The interplay of a sound customer-oriented outlook and other factors have all attributed to the company’s emergence as a premier food company within a short time, says Dr. Mohamad Nordin Bin Mohamad Nor, advisor, based in Malaysia. Major factors
The major factors that make Prima stand out in the crowd include an impressive range of quality halal products, a focussed approach to its marketing operations and its employment of superior techniques, including its conformity to a central butchering concept .
The Bandar Baru Bangi headquartered food processing company manufactures over 500 tested and proven halal food products, of which about 100 are propriety items belonging to international fast food chains and restaurants.
The company, he claims, has managed to restructure and substitute non-halal raw materials without sacrificing taste and texture.
Seeing the international competition, Prima has stabled specific strategies. It is ready to take on the huge business conglomerates with excellent networking towards consumer market and is also well prepared to handle the international brand owners, aggressively marketing their brands but lack authentic credible halal certification. Dr. Nor agrees that due to competitive pricing and high production cost, food quality of products has reduced. Market player
The MNCs are also using “ border barriers” restrictions, for example, higher import duty, protocols and established networking.
Prima is a niche market player focused on institutional and food service markets. It is capitalising on successful brand owners by contract manufacturing in a halal accredited environment, offers opportunities for the company to access new markets . It is countering competitive pricing with low production cost and yet offering better food quality products. It has in-depth knowledge, understanding and innovativeness on “under the lines” protocols, he says.
Prima is developing a 40-hectare land in Gambang near Kuantan, Pahang, Malaysia into Prima Halal Food Park to increase production from 25 metric tonne per day to 230 mt per day. The food park is one of the halal food parks endorsed by the Ministry of Agriculture in Malaysia. --(TH, 24 Dec 07)

Scotland leads way in offering Shariah compliant funds

BARCLAYS Wealth has launched a number of Shariah-compliant products to compliment the range it already offers.
The drive for the company to offer products and services to help Muslims in the UK manage their money is being led by Barclays Wealth in Scotland.It said the global demand for Shariah investment products is on the increase and growth projections of the Islamic investment management industry are now estimated at between 15 per cent to 20 per cent per annum. Three index tracking exchange traded funds (ETFs) have been launched this month. These have lower charges than actively managed funds – many of which have under-performed in recent times despite their cost.The three new ETFs provide instant access to a range of investments compliant with Shariah law. They are intended to let people maximise diversification and take advantage of the growth opportunities offered by world equities, emerging markets and the USA, all in a single trade. The ETFs are certified by Islamic scholars, are transparent investments and have been stringently screened to ensure they are Shariah-compliant. Saftar Sarwar, manager in private banking at Barclays Wealth in Edinburgh, said: "These ETFs have a unique structure as they let the investor decide where to distribute the non-Shariah part of any dividend. With other products the decision is made for them.
"Theseare excellent ways to take exposure to global, emerging markets and US equities in a Shariah-compliant manner."
Sarwar said that further developments are planned for 2008, for example the launch of hedge funds and mortgages.Muslims consider interest on sums borrowed or loaned as haram – money for nothing, without entailing any risk – which has to be avoided. Returns have to be structured under different rules, perhaps linked to commodities or rental or lease payments, rather than interest.There is also an ethical element to consider. Muslims must not invest in companies they believe are harmful to society or make profits from immoral means. Companies involved in alcohol, tobacco, defence and pornography are strictly prohibited.There is a large Asian wealth market in Scotland worth at least £300 million.And estimates put the Shariah-compliant market at about £ 150m. -- (UP, 23 Dec 07)
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Saturday, 22 December 2007

Malaysian global sukuk can match GCC requirements

KUALA LUMPUR: Malaysian global sukuk, which is based on the Ijarah principle, can meet varying expectations and compliance of Syariah boards in Gulf Cooperation Council (GCC) countries, International Institute of Islamic Finance Inc president Dr Mohd Daud Bakar said.
According to recent reports, Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) had announced that about 85% of Gulf Islamic bonds did not fully comply with Islamic laws.
Most bonds were sold with a repurchase undertaking where the borrower will pay their face value at maturity, or when it is defaulted, mirroring the conventional bonds structure.
However, Mohd Daud said the bonds highlighted referred to equity-based Sukuk Mudarabah and Sukuk Musharakah, an equity sharing principle where a partnership was established to provide financing with its participants where profits would be borne by all musyarakah investors.
“Malaysia’s global sukuk is not affected by the pronouncement because its structure is different,” he said. Malaysian global sukuk, or Sukuk al-Ijarah is based on a “sale and lease back”concept where the issuer sells its asset to investors for a financing amount.
“I am confident that our global sukuks can meet requirements of the Syariah boards in the Middle East as we can customise (the sukuk) to suit the regulatory body there.
“However sukuk issuers in Malaysia have to take serious note of investors’ sentiments and continue to comply and keep up with Syariah requirements globally,” Mohd Daud told The Edge Financial Daily.
He was speaking on Islamic fixed income instruments at a forum titled “Exploring the Global Potential of Islamic Fixed Income Securities: Syariah Requirements & Market Practice”, which was organised by Malaysian Rating Corporation Bhd here on Wednesday.
On the progress of the convergence of Syariah principles in Malaysia and GCC countries, Mohd Daud said: “Convergence is not easy because even within the Gulf countries itself, certain sukuk was not accepted.”
He said sukuk issued here was moving towards a hybrid of securitisation, or taskeek, to issue bonds based on assets and receivables combined.
“Following recent AAOIFI standards, we can now combine receivables up to 70% and 30% assets to issue sukuk. This would allow investors to trade in the market without facing a debt trading problem,” Mohd Daud added.
On whether this form of sukuk would be accepted in the Middle Eastern markets, he said: “Some (Syariah) scholars might debate on this, but generally this would be accepted.” --(TED, 21 Dec 2007)

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Malaysia way ahead in Islamic finance

KUALA LUMPUR: Malaysia has the capacity to retain its leadership in global Islamic finance despite the emergence of competition from centres such as Hong Kong and Dubai, CIMB Islamic chief executive officer Badlisyah Abdul Ghani said.
He said despite the stiff competition that Malaysia was facing, it was way ahead of other countries in terms of product offerings and its sophistication, having been developing the market for the last 40 years.
Britain, Singapore, Dubai have recently joined the race to offer Islamic banking and investment products to investors, each vying to become the international hub for Islamic finance. Japan recently also expressed interest in launching a government sukuk.
In October, Hong Kong chief executive Donald Tsang had said the city would emulate Malaysia and Singapore as a centre for Islamic finance, in an effort to grab a slice of the thriving market.
It is believed that Hong Kong will be the biggest beneficiary being the gateway to the sought-after market in China.
Badlisyah said, however, the rise of new Islamic markets did not signify that Malaysia would be at the losing end.
“The launch of the Malaysian International Islamic Financial Centre (MIFC) encapsulates all the competitive edge Malaysia has in the Islamic financial market into one brand entity.
“MIFC is second to none as a global hub for Islamic finance as it is still the only country in the world that has the most comprehensive regulatory, legal and Syariah framework for the business. All these other financial centres are effectively new kids on the block,” he told The Edge Financial Daily in an email interview recently.
Badlisyah said: “There is a lot of development being reported on Islamic finance in Hong Kong and Singapore. However, it is still early days for them. Providing double stamp duty exemptions, as being done in the UK, and allowing Murabahah in Singapore is very good progress, but still insufficient to facilitate a robust Islamic finance industry.”
He said Malaysia boasted some of the largest Islamic financial instruments globally, besides being the largest sukuk issuer in the world. Malaysia retains the world’s largest Islamic bond market, accounting for about US$47 billion (RM157.54 billion), representing two-thirds of total Islamic bonds outstanding worldwide.
“The Islamic banking sector in Malaysia is the largest in Asia, and remains the only one in the world that has an active and effective Islamic money market.
“Bursa Malaysia is the largest Islamic stock exchange in the world, with about 86% of shares listed being Syariah-compliant stocks,” he said, adding that Malaysia also had the largest takaful market globally, in which, the biggest Takaful operators were Malaysians.
He, however, said Malaysia needed to develop and grow its brand, to keep its competitiveness as a pioneer and leader in Islamic finance.
“Malaysia needs to continuously and effectively market itself as the hub for investment flows from the Middle East to the Far East, (as it) is the epicentre of the Old Silk Route, and now for the New Silk Route,” he said. Badlisyah added that Malaysia needed to develop MIFC as a global brand.
Additionally, Badlisyah said a lot more needed to be done as Islamic finance had much potential that was still untapped. He said: “There is room for a lot of financial centres in the global Islamic financial market, just as the conventional market has many financial centres.”
“As a global player in the Islamic financial market, we are excited with the advent of the UK, Hong Kong and Singapore as effective financial centres or platforms in undertaking Islamic banking and finance. We hope they would become as successful as Malaysia so that the market can grow globally,” he added. --(TE, 21 Dec 07)

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Thursday, 20 December 2007

BMB Wants To Place Brunei In Global Islamic Finance Map

By Azaraimy HH
Bandar Seri Begawan - BMB Group, one of the world's leading Islamic financial institutions, hopes to place Brunei on the map of Islamic banking and financial market in a significant way, BMB Islamic UK chief executive officer, Dr Humayon Dar, announced yesterday at BMB Group's new office at the Empire Hotel & Country Club during a media meet.
"To realise this vision, BMB will bring together major players in the global scene to converge in Brunei for an international conference on Islamic finance to be held here at the Empire Hotel & Country Club next May."
BMB focuses on the Islamic investment management and financial advisory needs of some of the most significant ruling families, high net worth individuals, governments and institutions of the Islamic world, providing these exclusive investors with an unsurpassed investment advisory platform, combining the resources of the world's most significant powerhouse.
"Why this is important for them and how is it possible for Brunei to go up to that level, given the inadequacy of infrastructure and legislation here?" the media asked.
"The possibility of that happening in Brunei is beyond permissible, it is huge and that would benefit greatly the global market and for BMB, its aim, that down the road, there is business for them and their vision is to play a major role in Islamic banking and finance here," Dr Dar explained.
He continued, "When we look at the global centres of excellence in the Islamic finance, we find Bahrain, Kuala Lumpur, and increasingly, Dubai and London are trying to compete for centres of excellence in the Muslim world".
"Brunei is a rich country with an abundance of wealth. The Sultanate can play a major role in the Islamic financial market," he concluded.
If there is enough commitment, Dr Dar predicted that Brunei is able to achieve such level within four to five years. -- Courtesy of Borneo Bulletin
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Islamic banking: Race is on to provide shariah products

By Andrew Wood
About 350m Muslims live in the rapidly-expanding economies of India, Indonesia and Malaysia, and there are many more in other countries such as Singapore, the Philippines and Thailand. Dealing with their financial needs in a way that complies with their religion is becoming a mainstream business.
The choice of investments is widening. Index compilers such as Dow Jones work with religious scholars to produce lists of companies that have been screened to make sure their activities comply with shariah (Islamic law). Businesses that make alcohol or pork-related products, are not suitable. Nor are companies that are highly leveraged, as shariah forbids the paying or receiving of interest. Traditionally non-Muslim countries are joining the race to attract Islamic capital. Britain has started consultations on issuing the first western government Islamic bond or sukuk. [A sukuk is a security giving regular income, and is structured to avoid the prohibition on interest.]
Japan also has ambitions to launch a government sukuk. Meanwhile, Donald Tsang, Hong Kong’s chief executive, said in October that the territory, one of Asia’s main locations for private banks, needed to offer more Islamic products to consolidate its position as a global financial centre.
Most of the focus on providing shariah-friendly services to high net worth individuals is further south. CIMB Private Bank in Malaysia is one of pioneers in this segment. In April, it unveiled plans for services for customers with M$1m ($300,000) or more of investable assets that would meet religious requirements.
Interest in Islamic financial products in general looks promising. Muslims will choose Islamic products if they are available. Surveys by McKinsey, the business consultants, suggest that, in Malaysia, Indonesia and the Gulf states, 25 per cent of investors are committed to seeking out and using financial services that compatible with shariah principles.
Another 50 per cent say they prefer to put their money into Islamic funds where possible, as long as they do not have poorer returns than conventional products. And that may be a problem. McKinsey concludes that Islamic banks in general rely too much on their religious credentials when attracting customers, and do not pay attention to providing a good service. That may mean that Islamic banks need to try harder if they want to start private banking arms. It is a competitive segment.
Already some traditional western wealth managers are preparing to enter the market, hoping to extend their reputation for good service. Furthermore, many rich investors in the west already shun investments in “sinful” industries such as brewing or gambling, so these banks may be able to extend that experience in tailoring services to fit ethical considerations – and make good returns – into the spiritual field too.
“The Islamic banking segment will be a growth area for our Middle East and Asian offices,” says Joachim Straehle, chief executive of Bank Sarasin, the Swiss-based institution owned by Rabobank of the Netherlands. “We quite like the investment principles prescribed by shariah. It forbids investment into asset classes that could be potentially harmful to human beings like tobacco, alcohol [and] gambling. By the very nature of these principles, these products carry a universal appeal.”
Sarasin has already launched shariah-compliant and capital-protected products based on agricultural commodities and baskets of metals. It is talking to Islamic scholars about extending the range.
Mr Straehle says new products will be launched within six months, although he declines to provide details. “We want to surprise the market,” he says. The potential in south and south-east Asia is more complicated than the simple population figures may suggest.
The number of rich people in India grew by 20.5 per cent from 2005 to 2006, according to the latest World Wealth Report by Capgemini and Merrill Lynch. But that rate of growth is an average for the population of the whole country and may not apply to the 150m-strong Muslim community.
In Indonesia, the report says, the number of high net worth individuals rose by 16 per cent over the same period. But much of the country’s wealth is concentrated in the Chinese minority who are not Muslims. Figures from the central bank estimate that, last year, shariah banks accounted for just 1.7 per cent of the country’s total of $153bn in banking assets.
Malaysia may look more promising. The government has ambitions to make the capital, Kuala Lumpur, one of the world’s biggest centres of Islamic finance and expertise. Sixty per cent of its population are Muslim but the government estimates just 15 per cent of assets are being managed Islamically. “We have been in Islamic finance for years,” says Nicolas Pictet, managing partner of the Swiss private bank Pictet. “To be blunt with you, the interest has been very mild.”
Other bankers say there is plenty of demand for private wealth management from Muslims in south and south-east Asia, but little interest in shariah principles.
“Many of our clients who are Muslim are – how shall I put it – not always that devout,” says one European banker. “They are more interested in returns than religion.”
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Wednesday, 19 December 2007

Asset managers eyeing fast-growing Islamic banking

SINGAPORE: Amid the push to strengthen Singapore as a financial hub, private banking saw strong growth here in 2007. That was partly due to the rising number of high net worth individuals in the region. But the nouveau riche aside, asset managers are also eyeing the fast-growing multi-billion-dollar Islamic banking sector. The "US sub-prime credit crisis" may well be the most commonly bandied-about term in the markets in 2007. But other key trends in Singapore - in mergers and acquisitions (M&A), private banking and Islamic banking - have not gone unnoticed. PricewaterhouseCoopers Singapore's Asia financial services leader, Dominic Nixon, said: "2007 is going to be remembered primarily for the credit crunch and the liquidity crisis that followed that, along with the volatility that took place within all the markets, particularly in Asia. 2007 will also be remembered as M&A activity continuing in financial services, growth of Asian banks and the development of the wealth management sector as the whole population in Asia and Singapore gets more sophisticated." Analysts said emerging markets in Asia have continued to attract foreign funds and thrived, despite tighter credit. PwC Singapore's Mr Nixon said: "The liquidity and credit crunch will affect some short term issues, but there are still a lot of emerging economies here - Vietnam, Taiwan, India, China. There will be consolidation taking place in those countries. There will be people who want to invest in those countries and they want to do it inorganically, buy assets in those countries as well. M&A activity won't fall off, because Asia is exciting and people want to be a part of that." Private bankers have flocked to Asia, including Singapore, to tap into the rising numbers of the new rich. Standard Chartered Private Bank's global head for sales and business development, Rajesh Malkini, said: "The rate of growth in this part of the world is higher, at a little over 9 percent as compared to other parts of world.... Singapore and India have added significant numbers of high net worth individuals over the last couple of years, more so in 2007. It made a lot of sense for us to locate our private banking headquarters in Singapore.....proximity to growth markets in Asia and Mideast." Industry players say Singapore's stability and infrastructure has even attracted money intended for North Asia. More funds may be headed this way as the city-state eyes a bigger role in the fast-growing Islamic banking market, said to be worth at least US$500 billion. Earlier this year, DBS joined hands with Middle Eastern investors to set up Singapore's very first Islamic bank. Vince Cook, CEO of The Islamic Bank of Asia, said that with the combined reserves of the Gulf Cooperation Council greater than that of China, the Islamic banking market can easily grow to one trillion dollars in the next few years. "The combined free reserves of the GCC countries are actually greater than those in China. While everyone focuses on China as a huge prize, the Gulf is very interesting too. And with oil prices staying at these levels, we'll see that continue for some time," he said. The Islamic Bank of Asia already plans to grow its presence in the Gulf. Mr Cook said: "We're still at a relatively early stage of growth of the industry. What's happening is the players are more engaged in developing the market than fighting each other for market share. The first thing we have to do is to get a clear view of our geographical priorities, like where do we need to be to get close to our customers. The early parts of the new year will see us spending lots of time sorting out our first office overseas in Bahrain." And even before that is open, the Singapore bank already has plans for a third office elsewhere. As the financial industry in Singapore gears up for an aggressive 2008, players are pausing to give the government due credit for minimizing operational risks. PwC Singapore's Mr Nixon said: "Singapore needs to continue doing what it has already been doing - developing a robust infrastructure with a cost base to attract players to the region to operate their hubs. That's always been Singapore's key strength. Islamic banking is a good example of creating the right environment for people to operate in." Assets managed by fund managers based in Singapore grew by 24 percent in 2006 to reach S$891 billion. - CNA/ir
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Islamic investment instruments

By Salman Siddiqui

KARACHI: Many countries in the world are promoting Islamic finance, including Islamic investment instruments (3Is), to cater to the growing demand for Islamic modes of financing and banking.

“Introducing innovative Islamic products in the financial sector has become necessary, as there is increasing demand for Shariah-compliant products, especially the 3Is, in both developed and developing countries,” said Joseph Tan, an economist at Global Research, Standard Chartered Bank.

There is now growing demand for the 3Is in the United States, the United Kingdom, Malaysia, Singapore, Pakistan, many of the Middle Eastern countries and India for the 3Is. The current world market for Islamic financial products is estimated around 300 billion US dollars

Experts say Islamic investment products are Shariah compliant. The 3Is are attractive for investors who want a handsome return on their investment or want to acquire loans in cash or kind without the string of Riba (interest) attached to transactions.

Riba has no place in Islamic banking and other Islamic modes of financing. With a Muslim population of almost 95 per cent, according to the 1998 census, Pakistan introduced Islamic Banking Policy in December 2001. In Pakistan, the banking spread of Islamic banks is higher than that of the conventional banks. The banking spread in conventional banking on an average is 7.2 per cent, and in Islamic banking it is 8.7 per cent.

The major products being offered by Islamic banks in Pakistan are cars and housing finance.

Officials of Islamic banks say that clientele of Islamic banks mainly comprise three categories of corporate and individuals. First, the Shariah-sensitive people, both depositors and borrowers, whose primary concern is Riba-free transaction; second, those in search of more competitive products; and third, companies and individuals who want high return on their investment without the involvement of Riba, a section of the press reported.

Dr Muhammad Imran Ashraf Usmani, who holds a doctorate in Islamic Finance and has authored Meezan Bank’s Guide to Islamic Banking, says: “There are nine modes of financing under Islamic banking: Musharaka, Modaraba, Diminishing Musharaka, Morabaha, Salam, Istisna, Istijrar, Ijarah and Ijarah Wa Iqtina.”

Islamic banks are offering their products in one of the above-mentioned modes of financing, besides operating depositors’ accounts.

“As a matter of fact, Islamic banks offer the same line of products in Pakistan as are being offered by the conventional banks with minor alterations to make them Shariah compliant,” experts said.

Islamic banks are marketing products that are no different from those of the conventional banks. They use Arabic terminologies to attract Muslims. According to the Meezan Bank’s Guide to Islamic Banking, Sukuk is for bond, Takaful for insurance, Ijara for leasing, Musharaka for joint sharing, Modaraba for venture capital and Salam for future trading.

Some of the mutual fund management companies also have introduced Islamic funds in the equity market. Funds are constituted in compliance with Shariah.

Given the growing interest in Islamic investment instruments in the country, the Securities and Exchange Commission of Pakistan (SECP) is considering introducing an Islamic index on the local stock exchanges, SECP chairman Razi-ur-Rehman said recently.

SBP Governor Dr Shamshad Akhtar sees a 40-50 per cent annual growth potential in the Islamic finance industry of the country raising its share from 3.5 per cent in the banking system to about 15-20 per cent by 2010.

Tuesday, 18 December 2007

Banking with Emirates Islamic Bank is always a unique experience!

Banking with Emirates Islamic Bank always had its fair share of advantages, thanks to the unique range of innovative products and services offered. And recently, customers of the bank found out that Emirates Islamic Bank is never short of ideas to delight its customers. The Bank announced the results of its successful Bank & Win campaign. Over 500 winners were selected through a raffle draw held under the supervision of Dubai Economic Department. The biggest winner of them all was Mr. Mohammad Alrafayah, a Credit Card holder, who won AED 350,000.
“I still can’t believe that I am the winner. This prize will change my life for ever. I was always happy to deal with Emirates Islamic Bank but this surprise is one that will embed the bank’s name in my memory for ever. I am very excited to provide a better future for my family and fulfill all their dreams as well”. Said Mohammad Al Rafayah on the ceremony held in the bank premises to hand him the prize.
“We are extremely pleased with the response to the Mega Promotion’ said Mr. Faisal Aqil, General Manager Retail Banking at Emirates Islamic Bank. “It gave us a chance to reward our customers, and ensure that they had a chance to make banking with us even more exciting and rewarding. Besides rewarding our existing customers, the promotion also helped us target a new, diverse audience from different nationalities, who got a chance to begin a relationship with us on a high note” he added.

The Mega Promotion took place between September 15 and November 14, 2007All Emirates Islamic Bank customers purchasing EIB products or increasing their deposit balances during this time were entitled to an automatic entry into the draw. EIB’s product portfolio is extensive and includes Credit Cards, Manzili Home Finance, Intaleq Car Finance, Time Deposit, Saving accounts, SME Facilities and Goods Murabaha…etc
About Emirates Islamic Bank:Emirates Islamic Bank opened its doors in October 2004 with a mission to provide consumers in the UAE with effective and innovative Shari’a-compliant financial solutions.The Bank offers a range of Shari'a compliant products and services conforming to the highest standards of Islamic finance and all its activities are overseen by a Shari'a board comprising several prestigious scholars of Islamic law.On the retail side, the bank has an array of products, such as a full range of credit cards including Visa Infinite Card; Manzili Home Finance, Intaleq Car Finance, and many other products. The bank has also launched Al Reem Ladies Banking, a specialized banking service designed to cater to the banking and financial needs of women in the region.The bank also offers Ethmar Priority banking to suit the demands of the high-net-worth clients.Emirates Islamic Bank is very active on the Corporate Banking level, seeking exceptional investment opportunities in the local as well as the regional market. Within almost three years of its inception Emirates Islamic Bank has managed to position itself as one of leading financial players in the UAE’s banking sector. The bank’s rapid growth and success is mainly due to its continued successful launch of Shari’a compliant products, services and other key business initiatives.EIB is headquartered in Dubai and employs more than 800 staff.

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HSBC and KFH arrange US$50m ijarah facility for India's SREI

KUALA LUMPUR: HSBC Ltd and Kuwait Finance House Bhd (KFH) have teamed up to arrange the first Islamic financing to originate out of India, a US$50 million (RM167.5 million) ijarah facility for SREI Infrastructure Finance Ltd (SREI).

SREI, a leading non-banking financial institution in India, would use the facility to purchase machinery and equipment for its leasing business, the banks said in a joint statement.

HSBC Amanah Malaysia managing director Yakub Bobat said the syariah-compliant facility would tap the liquidity available in the Middle East.

“This is the third cross-border transaction that HSBC Amanah Malaysia, as HSBC’s regional Islamic centre of excellence, has completed in Asia in 2007. This is a reflection of our commitment to support the drive to make Malaysia a regional Islamic financial centre,” he said.

Meanwhile, KFH managing director Datuk Salman Younis said: “We are pleased to be involved in this arrangement as we can make a strong presence in India, given its prominence as an emerging market.”

India is the second fastest growing economy in the world, expanding an average of 8.6% annually for the past four years.

SREI is the first Indian infrastructure financing company to be listed on the London Stock Exchange. --(TE, 17 Dec 07)

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Monday, 17 December 2007

Sukuk market set to see rise in subordinated debt

SINGAPORE: The Islamic bond market is likely to see a surge in subordinated debt in 2008 as Shariah-compliant banks seek capital to match their fast-growing assets. This blossoming in bank-capital sukuk issuance should add a higher-yielding dimension to the senior unsecured paper that now dominates the Islamic market. “I think the next level for the sukuk market will be hybrid, or sub-debt, instruments which will help Islamic financial institutions establish efficient capital structures,” said Arshad Ismail, head of global sukuk at HSBC Amanah. The Islamic banking division of the Hong Kong-and London-listed HSBC Holdings was the leading bookrunner for sukuk issuance in the third quarter, according to the London-based Islamic Finance Information Service. Regulators require the growing number of Islamic banks to set aside a minimum amount of capital, like their conventional counterparts, as a cushion against adverse events. Subordinated bonds, which rank below senior bonds, are the cheapest form of bank capital. Subordinated bonds are commonplace in developed bond markets around the world, but the Islamic bond market has so far seen only one internationally acceptable bank-capital deal. Malaysia’s Malayan Banking Bhd raised $300mn in April for its new Islamic bank. Islamic banks conduct their activities in line with the Qur’an. In addition, sukuk are structured to comply with Islamic law, which, for example, bars interest. Instead, such bonds make coupon-style payments derived from underlying assets. Maybank’s deal – seven times subscribed by investors from Asia, Europe, and the Middle East – was backed by Shariah-compliant hire-purchase contracts for goods such as cars. Arshad forecast upcoming deals could mimic that structure. Behind the expected blossoming in bank-capital sukuk is a dramatic expansion in balance sheets at Islamic banks as more of the world’s 1.2bn Muslims turn to banks that conduct business in compliance with their faith. Reliable numbers are hard to come by, but the General Council of Islamic Banks and Financial Institutions estimated assets at Islamic banks and in Islamic windows of conventional banks at $450bn in 2005 and most agree that growth has been dramatic since then. Banks have been set up in both Islamic and non-Islamic jurisdictions and existing Shariah-compliant banks are broadening their range of products. The growth should continue. In Malaysia, Islamic banks now account for around 12% of total banking assets and the central bank aims to boost that to 20% by 2010. As assets expand, capital efficiency becomes increasingly important. Bank capital – typically set at a minimum of 8% of risk-weighted assets – is traditionally made up largely of shareholder equity. Under current Bank for International Settlements rules followed by most countries, Islamic and conventional banks can issue a limited amount of cheaper Tier 2 and hybrid Tier 1 subordinated debt, which is faster to issue than equity. In the conventional market, investors tend to like such paper because the subordination means they get an additional yield pickup with relatively little extra risk. Bankers say it is possible conventional banks could also start tapping the subordinated-sukuk market to diversify their investor base and, potentially, gain cheaper funding than they might in the conventional bond market. Either way, subordinated sukuk will add a fresh dimension to a market that is expected to expand again next year. In the third quarter, there were $37.3bn in new sukuk issues, more than double that of the same period last year and up from virtually nothing at the start of the decade, IFIS said. As with the standard bond market, the extent of the growth will depend on how quickly markets recover from worries over the future of the US economy, Arshad said. “We expect to see a lot of growth in the Saudi market simply because it is the largest market in the Gulf Co-operation Council and its need for capital in the next few years is large,” he added. In Asia, Malaysia – currently the source of around 62% of outstanding sukuk but being fast chased by the Gulf – will continue to be important, and 2008 could see the Indonesia government sell its first international sukuk. A number of non-Muslim majority nations including the UK, Japan, and Thailand could also throw their hats into the ring. All three are working on the relevant paperwork to sell sukuk. Issuance from the US – where only one company has tapped the sukuk market – is likely to be virtually nonexistent largely because the highly liquid local market provides no incentive to look elsewhere. Convertible and exchangeable sukuk will also remain rare despite the good reception to multibillion-dollar deals from borrowers such as Dubai’s Ports Customs and Free Zone Corp and property developer Nakheel in 2005 and 2006. It will take a few more years for Shariah-compliant exchangeables and convertibles to become mainstream, Arshad said, “because businesses in the GCC need to mature to enable the owners to extract the most value from any such transaction.” – Dow Jones Newswires

Sunday, 16 December 2007

IFSB issues new draft standards for consultation

KUALA LUMPUR: The Islamic Financial Services Board (IFSB) yesterday issued two new exposure drafts (ED) for a five-month public consultation until May 10.
They were the Capital Adequacy Requirements for Sukuk Securisations & Real Estate Investment and the Guiding Principles on Governance for Islamic Collective Investment Schemes, IFSB said in a statement.
The Capital Adequacy Requirements for Sukuk Securisations & Real Estate Investment deals with aspects of regulatory capital requirements for institutions offering Islamic financial services.
All IFSB standards, guidelines and EDs are available at
– Bernama

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Saturday, 15 December 2007

Unicorn chief wins top Islamic finance award

MANAMA: Unicorn Investment Bank founder and chief executive Majid Al Sayed Bader Al Refai has won a top award. He was recognised for his 'Outstanding Contribution to the Industry' as part of the 2007 Islamic Business and Finance Awards. The awards are based on peer recommendations and are designed to recognise and reward excellence throughout the global Islamic finance community.
"Mr Al Refai is well-known throughout the Islamic finance industry as a pioneer, a leader and an innovator," said organiser of the awards, CPI Financial chief operating officer Nigel Rodrigues.
"He has dedicated his career to promoting Islamic finance, which is clearly his passion and a deeply held belief - and not simply another way of doing business. It is a most deserved award."
Mr Al Refai is considered to be one of the pioneers of Islamic finance and has been an active proponent of the industry for over 20 years.
He has a wealth of experience in Islamic product development and has established several Islamic finance institutions throughout his career, including Commerce MGI in Malaysia and First Islamic Investment Bank, now Arcapita, in Bahrain.
He established Unicorn Investment Bank in Bahrain in 2004.
To date, Unicorn has advised, structured and successfully placed deals with a total value of over $3 billion.
It was a good night for Bahrain at the awards ceremony in Dubai as Gulf Finance House won the Best Islamic Investment Bank award and Kuwait Finance House in Bahrain received recognition as for creating the Best New Product.
"With all eyes now on the Islamic finance industry due its constant solid performance and its promise of stability and success, it has become vital to have performance benchmarks for this industry," CPI Financial managing editor Paul McNamara said.
"This year's response to the Awards is an excellent example of what has become an increasingly vibrant, mainstream and global industry with a lot of clout and even greater potential."
The Islamic Business & Finance Awards were launched in response to the phenomenal growth of the Islamic finance industry, currently estimated at $500 billion.
Readers of Islamic Business & Finance magazine from across the world cast their votes for winners from a shortlist created by a judging panel of rating and consulting organisations. --(GD, 14 Dec 07)

Thursday, 13 December 2007

Halal Financial Products In Demand In Brunei

Brunei-Muara - Bruneians have clearly shown a healthy appetite for Islamic investment products as can be gleaned from the recent issuance of sukuk or Islamic bonds, which generated strong demand from buyers, a banking expert at Universiti Brunei Darussalam said yesterday.
More and more Bruneians are gaining confidence in investing their money in Syariah-compliant financial products such as sukuk, said Hjh Salma Latiff, director of the Centre for Islamic Banking Finance and Management (CIBFM).
Although sukuk are generally not capital-secured, many favour them due to their tradeable feature in the secondary market and the fact that they offer investors an entitlement to any profits made. Also, due to certain caps in the market allowed by the Syariah law for investments, Islamic investments are not as volatile as conventional investments, she added.
Sukuk issuances by the government and Islamic financial institutions in Brunei have been received very well by the general public, said Hjh Salma.
"The recent issuance of government sukuk was oversubscribed," she told The Brunei Times, citing the sultanate's healthy appetite for Islamic investment products.
"This is probably why most conventional banks are expressing interest to venture into sukuk," she explained, adding that Brunei is indeed capable of becoming host to more Islamic financial institutions as - it already has the infrastructure in place. "All the acts are already in place," Hjh Salma said.
However, the Ministry of Finance is currently revising the guidelines on the establishment of Islamic banks in Brunei. The ministry is reviewing the existing Syariah law which governs the area of banking. Although it remains unclear when the order would be finalised, the CIBFM director is upbeat that this will encourage the entry of more Islamic financial institutions which in turn would provide local consumers with more Syariah-compliant investment products.
Already, the Hong Kong and Shanghai Banking Corporation (HSBC) and Standard Chartered Bank have expressed interest in establishing a separate Syariah-compliant banking operations once the Islamic Banking Order `has been finalised.
In an earlier interview with The Brunei Times, Tareq Muhmood, HSBC CEO lauded the review as it will act as a catalyst to attract more Islamic financial institutions.
"Once it's approved we'll look into whether to apply for an Islamic banking licence... It'll definitely attract more competition (in the local Islamic banking environment), which is good," he said.
In general, Islamic banking in accordance with the Syariah law is permitted to trade and invest in halal (acceptable by Islam) markets and must strictly shy away from prohibited matters (haram). Hence, investing in areas related to alcohol and gambling is forbidden. Unlike conventional banking, Syariah law prohibits interest charges or funds which are termed as riba. --(Brunei Times, 12 Dec 07)

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Muslim commerce is ages old

By Farish A. Noor

It has become ever so fashionable to talk about Islam and commerce of late. Yet a cursory look at the references to Islam and economics, business, banking, finance and made-for Muslims products and services on offer on the internet would point to the fact that Muslim commerce is booming, and what's more, has been doing so for the past two decades with scarcely anyone noticing.
Since the 1960s, the Muslim world has experienced a renaissance of sorts: practically every Muslim-majority country on the planet has experienced a crisis of post-colonial governance as Muslim economies realised that they had to develop beyond the import-substitution model that was the norm during the colonial era.
The colonial developmental model was therefore hastily abandoned, and by the 1960s the governments of many Muslim countries realised that they had to adapt to the demands of the international commercial sector, as well as the demands of the new urban constituencies in their midst.
Accompanying this process of economic, institutional and structural change was the rise of a new and potent force: political Islam. From Morocco to Indonesia, Muslims were organising themselves politically as a new constituency under the banner of Islam. While some countries were capable of adapting to these new political realities, other Muslim countries — notably Iran under the Shah — tried their best to open up new avenues for change while holding back demands for radical reforms in the political system, but to no avail.
Political Islam peaked in the late 1970s and 1980s with the Islamic revolution in Iran and the Islamisation that took place in countries like Pakistan, Sudan and Nigeria. Across the Arab world, the demands of political Islamic activists were difficult to avoid considering their popularity among the urban classes in more developed parts of countries like Egypt, Morocco and Tunisia. In Asian Muslim countries, the situation was no less different, with Islamisation developing in earnest in Pakistan, Malaysia and Indonesia. The 1980s, for instance, witnessed the rapid re-structuring of the Malaysian political economy when proponents of political Islam were courted by the state and co-opted into the governmental apparatus.
Today, countries like Malaysia and Indonesia are breaking new ground in areas such as Islamic banking and finance. Furthermore, the popularity of consumer goods that carry a distinct "Made for Muslims" brand is striking. A visit to shopping centres and supermarkets in Muslim countries today would reveal a plethora of goods ranging from "Muslim cola", such as Zam-Zam or Mecca Cola, to "Muslim jeans", such as Al Quds jeans, clearly made with Muslim tastes and preferences in mind.
Malaysia is now in the process of developing what may be the first-ever Muslim car, with a compass pointing to Mecca and a special compartment for the Qur'an. In areas such as popular entertainment and plastic arts, Muslim popular culture has become a major business, with giant conglomerates like EMI signing up Muslim pop groups as part of their stable of entertainers.
It has to be remembered, however, that what we are witnessing in the Muslim world today is hardly revolutionary or radical. To that end, it is important to stress a number of salient points.
First, it has to be stated again and again that Islam is not a religion and belief-system that is anti-commerce. The ethical tenets of Islam do not deter one from engaging in commerce, for the Prophet Muhammad himself hailed from a family that was involved in commercial and trading enterprises. Islam defends, and indeed promotes, free enterprise, private property and the accumulation of capital.
Second, what is happening today in the Muslim world is not a novel departure or the invention of something new. All Muslims are doing is appropriating the tools and norms of commerce to serve their own communitarian ends.
Third, the development of a Muslim business sector is good news for all. It serves as a means of developing societies, generating and distributing new wealth, and also as a bridge-building mechanism in times of crisis when the relationship between the West and the Muslim world is not as rosy as it could be. The development of things, like Muslim colas, jeans or cars, testifies to the fact that Muslims actually enjoy goods and services that have for a long time been produced by Western industrial society.
The emergence of Muslim commerce should therefore be seen not as an obstacle, but rather as the opening of a new terrain of commercial possibilities and opportunities for business communities to come together across the world, to explore, develop and service a vital consumer market that is aware of its economic clout and opportunity. At a time when the media constantly bombard us with images of societies in turmoil and instances of inter-cultural conflict and violence, the entrepreneurs of the West and the Muslim world may well have another role to play, namely as cultural bridge-builders and cultural entrepreneurs who can help to create that vital "bridging-capital" that brings societies together instead of tearing them apart.

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Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain