Latest from GIFC

Friday, 31 August 2007

Islamic finance in Malaysia


Malaysia is well regarded by the international financial community as one of the leading Islamic financial centers. Concerted efforts by the Government and industry players are undertaken to enhance this position and continue developing and nurturing Islamic banking and finance. To further strengthen Malaysia's position as an international Islamic financial centre, the Malaysian Government has recognized the need to create a more vibrant, innovative and competitive international Islamic financial services industry in Malaysia. On 14 August 2006, the Malaysian Government launched an initiative known as the Malaysia International Islamic Financial Centre or MIFC. MIFC comprises a diversified range of financial institutions operating from anywhere in Malaysia which offer Islamic financial products and services in any currency to non-residents and residents. The MIFC initiative will be supported by high-caliber human capital, a world-class financial infrastructure and practices that meet the best international standards.
Under the MIFC initiative, Malaysia aims to be:
- Center for origination, distribution as well as trading of Islamic treasury and capital market instruments;
- Center for Islamic fund and wealth management services;
- Centre for international currency Islamic financial services (including deposits and financing);
- Center for takaful and retakaful;
- Center for Islamic finance education, training, consultancy and research.


(TCP, 31 Aug 07)

Asian Sukuk poised for fast growth, not only in Malaysia


HONG KONG: The prospects for the markets in Sukuk or Islamic bonds and Islamic financing in general are very encouraging in Asia and this outlook goes beyond predominantly Muslim countries, said Moody's Investors Service. "Globally, the Malaysian market now accounts for most outstanding Sukuk, but interest is growing in the rest of Asia, obviously in jurisdictions such as Indonesia and Pakistan, but also, for example, in Singapore and most recently Hong Kong," says Dominique Gribot-Carroz, Moody's assistant vice president. "By end-July 2007, outstanding Sukuk globally totalled US$82.36 billion (RM288.3 billion), of which close to 62% was denominated in Malaysian ringgit," she said. "Impressively, for what began as a conventional financial system, more than 70% of all Malaysian corporate borrowing was Islamic in 2005," she added. Gribot-Carroz's remarks coincided with the release of an introduction to Moody's rating of Sukuk in Asia, and in which she examines the market's key features and examples of rating assignments in the region. "From the perspective of market growth, the key lesson from the experience of Malaysia is the need for and effectiveness of coordination between the government and regulatory authorities," says Gribot-Carroz, who is based in Hong Kong. Sukuk are better described as "trust certificates" or "participation securities" that grant the investor a share of an asset along with the cash flows and risk commensurate with such ownership. Inherent to the definition is compliance with Syariah or Islamic law. "From Moody's viewpoint, the Sukuk and Islamic bond markets are relatively new and growing fast," said Gribot-Carroz. - (TDE, 29 Aug 07)

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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 Financial System Needs Proper Pricing Benchmark

KUALA LUMPUR, Aug 30 (Bernama) -- Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz says the Islamic financial system needs to have an appropriate pricing benchmark for Islamic securities so that they are efficiently priced and credible. Speaking at the INCEIF Global Forum today, she said a vital challenge for Islamic finance is to build a stronger, competitive and dynamic financial system that reflects the internalisation of Syariah principles. "While developing Islamic financial system with products and services mirroring conventional counterpart is acceptable as a pragmatic approach to integrate into the existing financial system, it needs to develop further on its own paths and merits so as to maximise the potential benefits of Islamic financial system." Giving an example, Dr Zeti said that if a sukuk is issued based on the Ijarah principle, and uses the property as its underlying asset, the rental rate may be explored to be used to determine the rate of return on the instrument. Price movements would then depend on the demand and supply for that property thus giving a true reflection of the price of the underlying asset, she added. Meanwhile, commenting on Malaysia's experience in the international Islamic financial integration, Dr Zeti said the country has shown positive results starting in 2002 with its first issuance of a global Sukuk to liberalise greater market access in Islamic banking and takaful initiatives, by permitting entry of foreign players. Malaysia has also opened retakaful licenses to qualified local and foreign players, she said. "In the sukuk market, foreign corporation, multinationals and multilateral agencies may raise ringgit and foreign currency denominated instruments in our market. "Our private debt securities market is the largest in South East Asia and Malaysia also has highly liberalised exchange administration rules that allow for the free inflow and outflow of funds," she said. To date, the total assets of global Islamic financial system are estimated to exceed US$1 trillion, and it is among the fastest growing financial segment in the international financial system with an estimated annual growth of 15-20 percent.

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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, 30 August 2007

Forge alliances, Islamic banking players told

ISLAMIC banking and financial players need to forge strategic alliances to boost the development of the industry in the country, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said. “We are encouraging strategic alliances because we want new players to come in to add value to the partnerships,” she told reporters after the INCEIF Global Forum in Kuala Lumpur today. She said the alliances were expected to bring synergy and would benefit the country’s financial system and economy. Zeti, who was one of the speakers at the forum, said this in response to a question whether the central bank planned to give out more licences to foreign Islamic banks. — (Bernama, 30 Aug 07)

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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

Local And Foreign Players Invited To Apply For Retakaful Licenses in Malaysia

KUALA LUMPUR, Aug 29 (Bernama) -- Qualified local and foreign players have been invited to apply for retakaful licenses in the country.Making the announcement, Bank Negara Malaysia Deputy Governor Datuk Zamani Abdul Ghani said the move was in line with the government's efforts to expand the retakaful (reinsurance under Islamic principles) sector to complement the growth of the takaful industry,He said besides fulfilling the need for retakaful support for takaful operators, the new retakaful licencees will assist in reducing the industry's dependency on conventional einsurance support.They will also ensure that the technical knowledge is made more readily available and enhanced in the market, particularly in takaful and retakaful underwriting.The move will also promote product development and innovation."Bank Negara is thus inviting strong and qualified applicants to make Malaysia as their centre for retakaful activities," Zamani said in his opening address at the third International Convention on Takaful and Retakaful here, Wednesday.Zamani also said that under the Malaysian International Islamic Financial Centre (MIFC) initiatives, ten financial institutions have so far been granted approval to set up international currency business units, and one institution has been granted approval to set up an International Islamic Bank. "The strong sukuk market in Malaysia that accounted for the two thirds of the global outstanding sukuk issued in 2007 would further provide a conducive environment for the MIFC activities," he added. Sukuk is increasingly becoming an important investment avenue for the takaful industry.

Tuesday, 28 August 2007

MIDF may focus on Islamic banking: report

(KUALA LUMPUR) State- owned fund manager Permodalan Nasional Bhd (PNB) is mulling the possibility of making Malaysian Industrial Development Finance Bhd (MIDF) a full-fledged Islamic bank, says a report in Malaysia's Business Times, citing sources. The idea is still preliminary, but it remains a likely option after the fund launched a RM1.5 billion (S$654 million) buyout bid for MIDF, an investment bank, it said. 'That's the thinking right now. You can give it to Maybank (Malayan Banking Bhd), but how will it fit and will it create value?' MBT quoted one of the sources as saying. There has been speculation that PNB may merge MIDF and Maybank, the country's top lender. However, that could distract Maybank's current management which is busy trying to beef up the lender's overseas operations. It is also unclear how the Islamic banking plan for MIDF would fit with Maybank's own strategy. In March this year, Maybank got approval in-principle from Bank Negara Malaysia to set up an Islamic banking subsidiary. Although it does not have this currently, it is already the biggest Islamic banking player in the Asia-Pacific region, according to a survey done by the Asian Banker in January. PNB officials could not be reached for comment. MIDF started its business 47 years ago as a development finance institution, helping to finance small- and medium-sized enterprises. Today, it is a much bigger firm offering services in four core areas: investment banking (IB), development finance, asset management and industrial property. - (TBT, 27 Aug 07)

First bank under Islamic law opens in Syria


Syria on Monday opened its first Islamic bank - one that operates exclusively on the basis of Shariah, or Islamic law - with a starting capital of 5 billion Syrian pounds (US$100 million). The opening of the Kuwaiti-owned Cham Islamic Bank in Damascus was attended by Syrian Finance Minister Mohammed al-Hussein and Adib Mayaleh, governor of the Central Bank. Adnan Mosallem, head of the Cham Islamic Bank's administrative council, said the bank would start business by offering various financial services in accord with Islamic law. The bank will work on the principle of sharing profits and losses, he said, adding that branches in other Syrian cities were planned. Islamic banks ban investments that pay interest - deemed usury in Islam - or sponsor alcohol, tobacco, pork, gambling or weapons. Banks make money using a system of profit-sharing from returns on approved investments. - (JP, 27 Aug 07)
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Alfalah Consulting - KL: www.alfalahconsulting.com 
Islamic finance consultant: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia seen as model for Islamic finance


KUALA LUMPUR: Malaysia is fast becoming recognised as the model for the successful development and establishment of an Islamic financial system alongside conventional banking in the Asia-Pacific [and globally]. “This is not surprising as Malaysia as a multicultural nation was quick to recognise and respond to the significance of cultural, religious and social dimensions of modern life in the mechanism for transactions,” Association of Business Executives (ABE), UK chairman Datuk Dr Tan Tiong Hong said. Knowledge and skills in Islamic financial systems will continue to grow. In order for us to be even more creative and innovative in contributing to this pool of knowledge, we will need Malaysians who can think out of thebox.” He was speaking at the seminar with the theme, “Malaysia’s role in Global Islamic Finance Leadership, Education and Value Innovation,” yesterday. The seminar, organised by ABE, was held in conjunction with the inaugural ABE-Edward de Bono International Gold Medal Award 2007. Deputy Prime Minister Datuk Seri Najib Tun Razak, who received the award from ABE president Edward de Bono, was its first recipient. He received it in recognition of his contribution to education nationally and internationally. The award is also known as the “The Educator” Award. A memorandum of understanding was also signed yesterday between ABE; The International Society of Business Administrators, UK; the Centre for Islamic Business Research, Malaysia; and Zheng He Education 1421 yesterday. Under the alliance, the parties will produce and conduct courses in Islamic banking at the diploma and degree levels. They will also jointly provide the syllabus, study modules, classroom and tutoring facilities and certification for the programmes.

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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

Monday, 27 August 2007

Indicators sign a bright future for Bahrain


The latest report from the Central Bank of Bahrain (CBB) has left the pessimists spluttering and bereft of ammunition for the slightest tale of woe. Oil revenues are up. Inflation is minimal (something Dubai and Qatar would love to be able to claim). Exports are up. The trade surplus is up. The heart and homeland of banking in the Gulf and beyond is riding the crest of a wave and - perhaps best of all - the vast majority of the new jobs that have been created in the past 12 months are in the private sector. The report, a first of its kind issued on August 16, showed that the kingdom's gross domestic product (GDP) increased by 7.1% in 2006, driven by strong local and foreign investment, a record high current accounts surplus and an expanding private sector. Though the rate of GDP growth was slightly down on the 2005 figure of 7.8%, it still compares well with other Gulf countries, most of which are much better supplied with energy resources. With inflation coming in at just 2.1% for the year, and price rises tipped by the bank to stay at around 3% for 2007, Bahrain is at the lower end of the scale on that front, rating well against the 10% predicted for nearby Qatar. For the 12 months ending December 31, Bahrain accumulated a current account surplus of $1.9bn for 2006, while the trade surplus increased from $2.5bn to $3.8bn year-on-year. "The current account surplus for 2006 is the highest surplus in the history of the Bahrain economy," the report said. Overall, exports rose by 15.3% for the year, with oil accounting for 77.7% of the total revenue of $11.4bn, with non-oil exports increasing by a more modest 4.6%. To some extent, the growth in export earnings was offset by a 12.6% increase in imports, with oil being the single biggest ticket item, accounting for $4.8bn of the $8.9bn spent overseas. Another sector that the government has pinned a lot of hopes on to drive the economy is banking, which had a boom year according to the CBB report. Bahrain's banks recorded a 33.5% increase on their consolidated balance sheets in 2006, rising to $187.4bn. There was also a strong flow of foreign direct investment into Bahrain in 2006, with $2.9bn of overseas capital entering the country's economy. According to Rasheed Al Maraj, CBB governor, this figure reflects the openness of the kingdom's economy and the success of the policies put in place by the state to attract foreign direct investments. According to the CBB's report, more than 15,300 new jobs were created in 2006, boosting employment levels by 4.6%, with the total number of people in the workforce rising to 351,862. Most satisfying for a government that has been actively encouraging the expansion of the Bahraini private sector is that only 1300 of these positions were added to the state's payroll. The 38,800 public servants accounted for 11% of the country's workforce in 2006, slightly down on the percentage for the previous year, in line with the government's policy of reducing the role of the state in the economy. By contrast, almost 14,000 of the jobs created were in the private sector, with the workforce growing from 299,080 in 2005 to 313,039 in 2006, representing 89% of those employed in the kingdom. Looking to the future, there are a few concerns for the government, most notably the fact that much of the success of last year was built on strong energy prices. Though there is no immediate prospect of these falling dramatically, fluctuations could eat into Bahrain's revenue in the coming years.Bahrain's financial sector is well-developed and diversified, consisting of a wide range of conventional and Islamic financial institutions and markets, including retail and wholesale banks, specialized banks, insurance companies, finance companies, investment advisors, money changers, insurance brokers, securities brokers and mutual funds. There is also a stock exchange, listing and trading both conventional and Islamic financial instruments. The sector is therefore well-positioned to offer a wide range of financial products and services, making it the leading financial centre in the Gulf region.The financial sector is the largest single employer in Bahrain, with Bahrainis representing over 80% of the work-force. Overall, the sector contributes 27% of Bahrain's Gross Domestic Product (GDP), making it one of the key drivers of growth in the country. The sector is regulated and supervised by the Central Bank of Bahrain (CBB) (formerly Bahrain Monetary Agency), which since 2002 has functioned as the single regulator for the entire financial system. The CBB's regulatory requirements are contained in the CBB Rulebook, divided into six Volumes, each covering a different segment of the financial system. Bahrain's banking system consists of both conventional and Islamic banks and is the largest component of the financial system, accounting for over 85% of total financial assets. The conventional segment includes 19 retail banks, 69 wholesale banks, 2 specialized banks as well as 36 representative offices of overseas banks. The Islamic segment, offering a host of Sharia compliant products and services include 6 retail banks and 18 wholesale banks. The banking sector has played a pivotal role in the emergence of Bahrain as a leading financial centre in the region. As at December 2006, banking sector assets stood at over US$180 billion, more than twelve times annual Gross Domestic Product. Industry growth has been supported by an open market economy; stable and prudent macro-economic and fiscal policies; a credible regulatory framework in line with international standards; and a notably strong and well qualified local workforce. All these factors have combined to cement Bahrain's position as a regional banking hub, successfully attracting numerous foreign banking organizations to establish a physical presence in the country.Recent growth in the sector has been backed by the good fortunes of the oil industry and the corresponding increases in liquidity. Banks are thus playing a central role in reinvesting surplus oil earnings as well as serving financing opportunities in other segments of the economy.In recent years, Bahrain has rapidly become a global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the Middle East. Presently, there are 24 Islamic banks and 11 Islamic insurance companies (takaful) operating in the Kingdom. In addition, Bahrain is at the forefront in the market for Islamic securities (sukuk), including short-term government sukuk as well as leasing securities. The Central Bank has played a leading role in the introduction of these innovative products. The growth of Islamic banking in particular has been remarkable, with total assets in this segment jumping from US$1.9 billion in 2000 to US$ 10.3 billion by July 2006, an increase of over 400%. The market share of Islamic banks correspondingly increased from 1.8% of total banking assets in 2000 to 6.2% in 2006. Islamic banks provide a variety of products, including murabaha, ijara, mudaraba, musharaka, al salam and istitsna'a, restricted and unrestricted investment accounts, syndications and other structures used in conventional finance, which have been appropriately modified to comply with Sharia principles. The Central Bank of Bahrain has installed a comprehensive prudential and reporting framework, tailor-made for the specific concepts and needs of Islamic banking and insurance. The rulebook for Islamic banks covers areas such as licensing requirements, capital adequacy, risk management, business conduct, financial crime and disclosure/reporting requirements. Similarly, the insurance rulebook addresses the specific features of takaful and re-takaful firms. Both rulebooks were the first comprehensive regulatory frameworks that dealt with the Islamic finance industry.In addition to the numerous Islamic financial institutions active in its financial sector, Bahrain also plays host to a number of organizations central to the development of Islamic finance, including: i) the Accounting and Auditing Organisation for Islamic Financial Institutions ('AAOIFI'); ii) Liquidity Management Centre ('LMC'); and iii) the International Islamic Financial Market ('IIFM').The Central Bank of Bahrain has also recently established a special fund to finance research, education and training in Islamic finance (the Waqf Fund); and is active in working with the industry and stakeholders in developing industry standards and the standardization of market practices.Bahrain's insurance industry consists of conventional and Islamic (takaful) companies which serve both the onshore and offshore insurance markets, primarily Saudi Arabia. The conventional onshore segment consists of 10 locally-incorporated firms, 8 full branches and 6 representative offices of foreign insurance companies. The takaful segment has 2 companies. In addition, there is a substantial number of firms with licenses limiting their business to the off-shore market, including 39 conventional firms and 9 takaful companies. These companies serve other regional markets in the Gulf, capitalizing on Bahrain's leadership role as a regional financial centre. The insurance industry is well served by a number of ancillary service providers such as brokers (33), actuaries (10), insurance consultants and loss adjusters, whose presence in the industry further supports Bahrain's position as a regional insurance centre.The industry has been growing steadily in recent years, mirroring the growth of Bahrain's financial sector - the increased access to financial services and products has led to demand for insurance services. A notable development in recent years has been international insurers developing their regional operations, many of whom have chosen Bahrain as their regional base.Industry growth has also been fostered by the presence of a robust framework for regulation and supervision of insurance. The Central Bank of Bahrain's predecessor organisation, the Bahrain Monetary Agency, undertook a major project during 2003-04 to develop a comprehensive insurance rulebook, in line with IAIS core principles, following the BMA's assumption of responsibility for regulating and supervising the insurance sector. This rulebook was launched in April 2005, and put in place the most comprehensive regulatory framework in the region for insurance activities.Capital MarketsThe Bahrain Stock Exchange (BSE) is the focus of capital market activities in Bahrain. The exchange has grown in the number of listed securities with 50 equities, 19 bonds (both conventional and Islamic) and 35 mutual funds currently listed. As at end December 2006, market capitalization stood at US$21.2 billion, representing roughly 160% of GDP. Trading is carried out through 14 securities brokers active in the market and day-to-day trading takes place through the Automated Trading System (ATS). There is also a Clearing, Settlement and Central Depository System (CDS), which is likewise automated. These two systems have combined to ensure a fast and efficient trading process, ensuring delivery versus payment on a T+2 basis.The capital market is under the regulatory and supervisory oversight of the Central Bank's Capital Market Supervision Directorate, which oversees both the primary and secondary markets. Following the enactment of the Central Bank of Bahrain and Financial Institutions Law 2006, a new and comprehensive set of regulations based on international best practices is being introduced. The capital markets rulebook (which will comprise Volume 6 of the CBB Rulebook) will provide a market and disclosure based system of regulation that promotes transparency and fairness in capital market transactions. It will upgrade and bring together into a single publication the various regulations that currently apply to capital markets activity.Bahrain is host to a thriving mutual funds industry. The first overseas mutual funds started being marketed in Bahrain during the 1980s, and the first Bahrain domiciled scheme was launched in 1984. Since 1992, when the first formal regulations were issued, the industry has grown exponentially.As of December 2006, over 2,100 funds (both off shore and locally domiciled) were registered in Bahrain, representing a 17% growth over the previous year. Of these, 97 were Bahrain domiciled schemes, and 80 were Islamic schemes (including both overseas and Bahrain domiciled schemes). Total assets under management were some $9.3bn (up nearly 40% on the previous year's total).Collective investment schemes are regulated and supervised by the Financial Institutions Directorate of the Central Bank. Regulatory frameworks have kept pace with the changes in the industry. In 2006, CBB initiated discussions to update the existing framework and allow for expert schemes (including hedge funds) aimed at expert investors. The new regulations were issued in May 2007.A key objective of the Central Bank of Bahrain (CBB) is to ensure the continued soundness and stability of financial institutions and markets.The CBB defines financial stability as a situation where there is continuous and prudent provision of financial services, even in the face of adverse shocks. It believes that financial stability is critical for maintaining Bahrain's position as an international financial center and for ensuring that the sector continues to contribute significantly to growth, employment and development in Bahrain.The pursuit of this objective is the primary responsibility of CBB's Financial Stability Directorate (FSD), which conducts regular surveillance of the financial system to identify areas of concern and undertakes research and analysis on issues relating to financial stability. The Directorate prepares Financial Stability Reports (FSRs) for CBB management, reviewing recent trends and identifying areas of concern which require supervisory and policy attention. FSD is also developing relevant Financial Soundness Indicators, with the aim of creating a "Dashboard" for monitoring financial sector risks on a continuous basis. - (AA, 26 Aug 07)



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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 Sukuk issue for Al Rajhi Cement Investment Company

Siraj Capital Ltd, Al-Aoun Capital Group S.A and Capital Investments - the investment banking arm of Capital Bank of Jordan - have announced the signing of an agreement with Al Rajhi Cement Investment Company, newly incorporated in the Dubai International Financial Centre. The agreement mandates Siraj Capital Ltd, Al-Aoun Capital Group and Capital Investments as co-arrangers for the issuance of US$595 million worth of Islamic bonds, or Sukuk, for Al-Rajhi Cement Investment Company. This Sukuk issuance, considered the first of its kind in the cement industry across the region, will finance Al Rajhi Cement’s investments in the region, with the incorporation of new cement plants and the expansion of one existing facility. The signing of the agreement took place on Wednesday in Amman, represented by Mr. Samer Berekdar, CEO of Al-Rajhi Cement, Mr. Ibrahim Mardam Bey, CEO of Siraj Capital Ltd, Mr. Maher Othman VP of Siraj Capital, Mr. Bassam Fadel Ali, CEO of Al-Aoun Capital and Mr. Haytham Kamhiyah, General Manager of Capital Bank / Deputy Chairman of Capital Investments. Commenting on the agreement, Mr. Ibrahim Mardam Bey stated: “We look forward to working on this asset backed transaction and hope it will be a benchmark for Sukuk structures in our region.” Mr. Bassam Fadel Ali said:” There has been growing interest in the Islamic Finance sector in the region and we are proud to be a contributing factor in developing these competencies” Haytham Kamhiyah added: “Al-Rajhi’s choice in our institutions is a testimony to our ability to support and lead financial development in the region. We welcome Al-Rajhi and look forward to strengthening our collaboration with them in their future endeavours.” Islamic Sukuk sales reached an unprecedented US$ 24.5 billion by the second quarter of this year. Meanwhile, Mr. Samer Berekdar from Al Rajhi Cement Investment said: "We are proud of working with such leading financial institutions. Their extensive knowledge in issuing financial securities will definitely encourage further cooperation. As Al Rajhi Cement Investment, we are confident of our future success based upon Al Rajhi’s reputable business standing, our continued investment in assets and human capital and the size of our operations under development.” Al-Rajhi Cement Investment Company is a subsidiary of Al Rajhi Group, which has more than 45 years of experience in the cement industry in Saudi Arabia and the region. Siraj Capital Ltd is a Middle East based investment firm, specializing in developing innovative Shariah compliant investment funds and opportunities focused on the region. Siraj has offices in Jeddah, Riyadh and Dubai. Al-Aoun Capital Group S.A.is an investment company with a diverse portfolio of international investments in, Financial services, Communications, and Real estate. Al-Aoun Capital Group has offices in Panama City, Amman, and Madrid.Capital Investments is the investment banking arm of Capital Bank, wholly-owned by the Bank. Capital Investments demonstrates broad experience in all areas of corporate finance, asset management and capital markets. - (AB, 26 Aug 07)

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Alfalah Consulting - KL: www.alfalahconsulting.com 
Islamic finance consultant: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance: from niche to mainstream

Islamic finance has moved from niche to mainstream in Europe with western banks and institutions increasingly recognising Islamic instruments as viable financing options. Within Europe, both the UK and Switzerland have become world centres for the development of Islamic finance in a global market conservatively estimated to be worth upward of half a trillion dollars. Islam is Europe's fastest growing religion with many countries recording a rapid rise in their Muslim populations. In some, notably the UK, this has led to an increasing demand for Islamically structured financial products. But increasing European interest in Islamic asset classes is not confined to Muslims. There was, for example, a massive jump in Sukuk (Islamic bond) issuance in the first-half of 2007 as more and more conventional European banks and institutions invested. The structural innovations of Sukuks, their growth in non-Islamic jurisdictions, and Sukuk risk and liquidity management are just some of the issues that will come under the spotlight at the International Islamic Finance Forum Europe, which takes place at the World Trade Centre, Zurich, Switzerland, 29 October-1 November 2007. The Sukuk market grew by a massive 75% to US$85 billion in total outstanding issues in the first half of 2007. The US$24.5 billion of funds raised in the first half nearly surpassed the total amount of new issuance in 2006 of US$26.8 billion, according to the Islamic Finance Information Service, online media partner of the forum. The Bank of London and the Middle East, London's second biggest wholesale Islamic bank and one of the new Islamic financial houses taking part in the Zurich forum, said the growth of the Sukuk market is a result of greater knowledge about Islamic finance and readier acceptance in Europe of Sukuk as an investment vehicle. Western investors make up about 70-80% of the buyers of Sukuks issued in the Middle East, against 20-40% last year. This was dramatically highlighted by two of the biggest Sukuk issues of the year – a US$1.5 billion issue from Dubai Ports World which allocated 60% of its paper to western buyers and a US$2.53 billion deal from Aldar Properties, the Abu Dhabi developer, which saw western institutions buy 80% of the paper. The Sukuk market has attracted wide interest from European banks, insurance and pension funds in the belief that the strength of the Arabian Gulf economies, where many Sukuks are issued, provides good returns on the back of big oil earnings and huge infrastructure developments. “The Sukuk market has grown dramatically since the inauguration of the first International Islamic Finance Forum in Dubai in early 2002,” said conference manager Swati Taneja of forum organisers IIR Middle East. “The value of new issuance at that time stood at less than US$500 million compared with a projected total of about US$50 billion in 2007.” “Most analysts believe that, medium term, the Sukuk market will continue to grow even in a more volatile credit environment,” Taneja added. “Unlike conventional bonds, a Sukuk confers a proportional ownership of the underlying asset - as well as the income that it generates.” In the meantime, however, there has been no avoiding the short term fallout of global credit market turmoil. United Arab Emirates based Dana Gas postponed placing its US$1 billion Sukuk until September due to credit market weakness. Earlier, First Gulf Bank of the UAE and Bahrain's Ithmar Bank announced deferment of their issues. The International Islamic Finance Forum will also be exploring the expansion of Islamic finance in Europe; the pressing issue of Islamic finance and rating agencies; new strategies in wealth management and private banking; and sustainability in Islamic financial products. With more than 40 speakers, over 20 sessions and two interactive workshops the Europe forum maintains its importance as the Islamic finance industry’s premier networking event. The Zurich event takes place in association with Dow Jones Indexes and with International Turnkey Systems as platinum sponsor and Path Solutions as gold sponsor. - (AB, 26 Aug 07)

Saturday, 25 August 2007

Using an Islamic mortgage - murabaha or Ijara


It is against Islamic law to pay or receive interest, or riba, which has made it difficult for Muslims living in Britain to buy a house. The Koran says: “O you who believe! Fear Allah and give up what remains of your demand for interest if you are indeed a believer.” The holy law of Islam that govern all aspects of a Muslim’s life, including banking is called Shariah law. When it comes to home buying it has only been the very rich who have been able to afford to buy a home outright. Fortunately however many banks and building societies are starting to recognise this as a problem and are offering an alternative. There is already a large market in the Middle East, and Islamic finance in both the residential and commercial sectors for the UK’s Muslim community. It came under FSA regulations in April 2006. There are two options available that correspond with Muslim law. The Murabaha Mortgage: This is really only an option for individuals/families who can draw on a fair amount of capital, because it is a condition of this Mortgage package that you are expected to pay around 20% of your home’s value on the day of purchase. From that day forth the house will be registered as your own. You are allowed to pay off any debt that is outstanding on your home at any point. This package offers a fixed repayment period that you agree with your lender, and the monthly repayment amount is fixed for the term of your mortgage. A Murabaha Mortgage works like this: when you find the house that you would like to buy, you arrange a sale price with the vendor as normal; however, the bank pays the purchase price, then sells the house to you at a higher price straight away (the higher price is determined by the original price of the property, and the repayment period that you will have agreed with the lender), minus the percentage you paid as deposit. The Ijara Mortgage: This is the slightly more popular mortgage of the two, as the requirement for a large amount of capital behind you to set up this mortgage is reduced, and it is also slightly more flexible than the Murabaha. This type of mortgage has the extra benefit in that it can even be taken out to replace an existing interest mortgage. The amount you pay each month is usually fixed every year. You are allowed to pay off the outstanding balance at any time (usually) without incurring any penalties. An Ijara Mortgage works like this: as with the Murabaha mortgage, you find a property that you would like to buy, and agree a purchase price with the vendor. The difference with the Ijara is that your lender will then purchase, and gain ownership of the property, and you will enter into a lease agreement with the lender. Each month you will be expected to pay rent to your lender and a contribution towards the purchase of your property. So, to summarise: The Murabaha Mortgage is deferred sale finance. The Ijara Mortgage is lease to own. It is interesting to ask whether Islamic mortgages have relevance beyond the UK’s Muslim community (1.6m at the 2001 Census). Amjid Ali, head of UK Amanah, the Shariah department at HSBC, says: “From our understanding of the Asian market, families like staying together and with our contracts you can have up to six people’s income taken into consideration. Although that may not apply to the wider market, if you look at the graduate schemes, as long as the applicants are living in that property together, we can support an application of up to six people’s income. We’re getting more enquiries about Islamic finance products. It’s become more appealing to the wider public due to its ethical nature.” Most Islamic home purchases are still geared towards professionals, and there are still some barriers preventing certain sections of the market, creating a niche within a niche. Work is progressing to make Islamic mortgages available to everyone. Housing associations cannot currently take part in shared ownership schemes with Islamic finance, but the government has been asked to review the scheme. Others say there has been no interest in Islamic financing beyond the Islamic market. There can be no additional advance after the original one, so Islamic mortgages cannot be used for additional financing of say home improvements. The only way to achieve that would be to move from one lender to another. Some non-Muslims like the idea of the flexibility of the Islamic system as lump sums can be paid off. However, even some Muslims are confused by the compliance aspects with Shariah law, so wider misunderstanding is not surprising. The market is young, and a lot of education and understanding is still needed. - (TTS, 24 Aug 07)

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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

Expansion in Sharia-compliant bonds in the UK have been welcomed

Government moves to expand the range of Sharia-compliant bonds in the UK have been welcomed by officials at the Tax Incentivised Savings Association (TISA).Under the recently announced Finance Act 2007, the total range of qualifying investments for recognising alternative investment bonds has been expanded, giving a better platform for Sharia-compliant bonds.This decision has been welcomed on the grounds that it helps reinforce the UK's position as a world leader in Islamic Finance. TISA director general Tony Vine-Lott highlights this fact in welcoming the aims of the Finance Act 2007."The latest developments … are only the latest in a series of constructive measures in this area and demonstrate the intent to make the UK an inclusive society at all levels," he commented.British Islamic Insurance Holdings is looking to become a leading player in Islamic insurance in the UK, according to Al Bawaba. - (LSE, 24 Aug 07)

Daiwa launches Japanese sharia compliant ETF


Daiwa Asset Management is to launch a sharia compliant Japanese equity ETF on the Singapore Stock Exchange. The ETF contains the 100 largest constituents by market cap from the FTSE Japan Universe. “This is the first product that Islamic investors to able to use to access the Japanese stock market,” says Seiichiro Iwai, Deputy General Manager, Daiwa. “The reason why we have chosen SGX is the fact that Singapore is aiming to be the centre for Islamic finance.” Compared to overseas stock exchanges, there are only 14 ETFs listed on the Tokyo and Osaka exchanges because of a strict regulatory regime. - (SP, 24 Aug 07)
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Alfalah Consulting-Kuala Lumpur: www.alfalahconsulting.com 
Islamic Consultant & Trainer: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Pakistan is encouraging Shariah compliant banking in the country


ISLAMABAD: Prime Minister Shaukat Aziz has said that Pakistan is encouraging Shariah compliant banking in the country, adding Islamic Banking has tremendous potential in the Muslim World. He was taking to the delegation headed by Mr. Yousif Taqi, Chief Executive Officer of Bank Alsalam, Bahrain who called on him at the Prime Minister’s House here on Friday. The Prime Minister said that Pakistan banking sector is expanding rapidly and is a major drivers for growth while meeting the needs of low, middle and high income people as well as small and medium enterprise, large scale manufacturers, traders and all other segments of society. The regulatory regime, he said, is strong and the Central Bank is effectively performing the banking regulatory function in the country. As a results banks in Pakistan are well capitalized, growing and meeting diverse customer needs. The Prime Minister said that Record Foreign Investment of 8.4 Billion US dollars in Pakistan during the year 2006-07 clearly demonstrates the benefits of sound economic structural reforms of the government. He said government’s consistent and transparent policies and substantive structural reforms have now placed Pakistan on a solid footing and its strong fundamentals guarantee continued growth in future. Pakistan is one of the faster growing economies in Asia, and major investments have been received from European Union, USA, Far East and Middle East, he added.Shaukat Aziz said that continuity and consistency of policies has given a further boost to the economic activities in the country. Several sectors represent attractive investment opportunities including telecom, IT, financial services, engineering, agribusiness and real estate, he added. The Prime Minister, while highlighting the incentives given to the banking sector, said that all banks being encouraged to undertake asset management, financial advisory services and brokerage business so as to expand and develop this product mix. He said Pakistan is benefiting from reforms and demographic dividends. Structural reforms in many sectors including banking, capital markets and telecom have attracted investment, created jobs and provided better quality services, he added. Out of the total population of 160 million, 100 million people are below the age of 25 thus creating future economic activity and opportunity and this feature is very attractive for long term investors. The middle class is growing and poverty is declining, he added. Mr Yousif Taqi, Chief Executive Officer of Al-salam Bank expressed confidence in government’s economic policies and reforms agenda and showed interest in establishing an Islamic Bank in Pakistan. He said his bank and other stakeholders are interested to invest in Pakistan particularly in the field of energy, power generation and real estate.He said that Alsalam Bank is committed to adopt internationally recognised standards and best practices in areas include corporate governance, compliance and risk management, operating with highest levels of integrity, transparency and trust. The meeting was also attended by Advisor to Prime Minister on Finance Dr. Salman Shah and other senior officials. - (SANA, 24 Aug 07)

Friday, 24 August 2007

Meeting to discuss possibility of establishing Islamic banks in India


New Delhi: If all goes as planned, India may soon have Islamic banks. According to Rajya Sabha Deputy Chairman K. Rahman Khan, nearly 50 per cent of India's 150 million Muslims are currently out of the banking system due to religious factors since earning interest on deposits are considered un-Islamic. "If we provide this opportunity, it will increase national savings greatly. The cash that devote Muslims keep at home will get invested meaningfully," Khan said.
Khan has lent his support to a two-day international conference getting underway in New Delhi form August 31 to discuss the possibility of establishing Islamic banks in the country. Talking about the conference, Khan said that it is going to be an effort to educate the masses and bring to the notice of the government that Islamic banks are a viable alternative system to the commercial banks. "I am sure the government would not be opposed to it since we stand a good chance of getting a good share of the $400 billion that Islamic banks manage globally to give a boost to the Indian economy. I am told the [federal] government has an open mind on the issue while the Reserve Bank of India is already looking into it," Khan said. Incidentally, for the first time ever, both chairman and the deputy chairman of Rajya Sabha are Muslims. While Khan has been holding the office of the deputy chairman since 2004, election of Mohammad Hamid Ansari as the new vice-president has created this unique record since the vice-president is also the ex-officio chairman of the Rajya Sabha. Talking about the viability of opening Islamic banks in India, Khan said that since India is home to such a large Muslim population, its introduction has already been delayed. "I guess it is because Islamic banks were thus far seen as a religious concept and not as an economic concept. He pointed out that the concept is already in vogue in a limited way as the Unit Trust of India runs a fund worth $250 million, especially for Muslim non-resident Indians in the Gulf. "Once Islamic banks are allowed, it will require only minor changes in the system and even non-Muslims would be able to park their funds and earn profits as participants or partners," Khan added. - (GN, 23 Aug 07)

Thursday, 23 August 2007

Towards Islamic Microfinance: A Primer

What are the basic principles of Islamic finance? Islamic finance, more precisely termed “Shariah-compliant” finance, refers to financial services conducted in accordance with Islamic legal principles. These include: Conventional interest is not allowed, on loans or savings, as a fixed return without sharing any risk, is considered unjust. Muslims cannot profit from activities considered immoral. For example, investing in casinos, pornography, or weapons of mass destruction is not allowed. Muslims are not allowed to sell what they do not own – therefore “short selling” is impermissible. In sales contracts, the product or service that is bought or sold, must be clear to both parties. Islamic finance, like the Shariah generally, emphasizes the process and structure of human interaction as well as the moral impact on society. It shares a great deal with the fields of “ethical investment” and “corporate social responsibility,” both of which are growing in popularity worldwide. People increasingly realize how important it is to be mindful of how their wealth is used and the sources of their returns. More fundamentally, Islam seeks to alleviate poverty and circulate wealth in the economy. One of the faith’s “five pillars” is Zakah, or almsgiving. Unlike a simple income tax, Zakah is calculated based on assets and therefore re-distributes wealth within the community. As Islamic scholars point out, even the rules of Zakah promote more active forms of investment and business activity – wealth from passive activities is subject to greater Zakah. Muslims are taught to have sympathy with the poor and recognize that the poor have rights over them. How do these principles apply to the development of the Islamic microfinance sector?Microfinance is an important next step for the Islamic finance industry to embrace the broad Muslim population, much of which is poor. Islamic finance stresses the importance of financing real, tangible economic activity (as opposed to financial speculation and other products which are further removed from reality). The basic moral vision, as I understand it, is to mobilize savings towards genuine economic activity which brings benefit to everyone. The Shariah promotes savings and investment, rather than excessive consumer debt. The focus on real assets fits very well with the goals of microfinance, as Islamic bankers like to fund productive assets like equipment or other capital goods. If the underlying asset has durable value and the business is viable, the current income of the business owner is less of a concern. Islamic finance integrates well with certain common microfinance practices: Islamic bankers seek to finance business activity which will lead to the economic empowerment of the poor, rather than merely lend to the poor for consumption.Can you describe several typical Islamic banking structures? Murabaha: One of the simplest and most commonly used instruments, Murabaha is a cost-plus sale structure in which a party buys something and sells it to someone else for a profit. Unlike conventional finance it links lending to the asset and involves ownership risk on the asset. Ijara: Another common structure, Ijara refers to leasing. The bank buys an asset and leases it out to clients under an installment plan. Mudaraba: The principle of Mudaraba (investment partnership) is very important as well. In this structure, investors provide capital to a manager who contributes his or her time and efforts in exchange for a portion of the return. Musharaka: The concept of Musharaka (profit and loss sharing partnership) is viewed by many as the purest form of finance – in this structure all parties share the underlying risk. On the investment side, products include equity investment, Murabaha-based instruments, and a structure called Sukuk which acts similarly to conventional bonds but involves the financing of an identifiable set of assets. What products are most relevant to microfinance? In the microfinance sector, there is huge potential for the use of Ijara (leasing) and Murabaha instruments to finance productive assets. The importance of savings should also be emphasized. Because many Muslims only have access to interest-based savings accounts which violate their principles, there has been less incentive for them to have bank accounts at all. Having Shariah-compliant savings accounts will help mobilize deposits and instill a culture of savings as well as contribute to economic development. There are two main types of Shariah-compliant savings accounts: Mudaraba-based accounts, wherein the customer deposits money in the bank and shares in the profits and risks of the bank’s use of that money. This type of account is the most liquid, but it is not insured. Murabaha-based term deposit accounts, wherein the customer deposits money in the bank and the bank conducts Murabaha transactions with the money, often on 30-day or 90-day terms. This type of account is much safer, but it is not as liquid as Mudaraba-based accounts. However, being less liquid could also be conceived as an advantage, encouraging clients to hold on to their assets. This may be the most appropriate tool to use in mobilizing savings with microfinance clients. How does Islamic finance view issues of gender?There is a misconception that Islamic finance is somehow disadvantageous or inaccessible to women. Nothing could be further from the truth. Islam recognized women’s independent property rights centuries before other legal systems. Women are encouraged to save, invest, and improve their condition just like men and are also able to access the products described above.How is the Islamic finance industry developing?Islamic finance has become popular in many countries, especially in the Arab world, with over 300 institutions offering Islamic banking. Since 2005, more than half of total banking assets in Saudi Arabia have been Shariah-compliant. Other Gulf countries such as the United Arab Emirates, Qatar and Kuwait also have Islamic assets projected to grow to about one-third of all banking assets soon. Malaysia is another important market for Islamic finance, and regulators are introducing laws to facilitate growth of the industry. In addition, HSBC Amanah introduced Islamic instruments in the UK and the US and other firms offer Islamic finance in a large number of Muslim-minority countries.Many Muslims worldwide prefer Shariah-compliant instruments when available because they feel a conflict between their belief systems and the conventional banking system. These people may today use conventional banking products reluctantly or not at all. How can Islamic finance and microfinance institutions collaborate?Microfinance is a fantastic opportunity for Islamic finance to reflect its core values and mission. At the same time, Shariah compliance can help microfinance institutions reach a large number of Muslims who prefer Shariah-compliant forms of financial activity. One possibility is to coordinate as donors, since Islamic financial institutions see poverty alleviation as central to corporate social responsibility. Collaborative partnerships in which Islamic bankers provide product structuring expertise and advice is another means of collaboration. In the future, perhaps Islamic bankers could work on securitization of Shariah-compliant microfinance portfolios as we are starting to see in conventional microfinance. What are some challenges Islamic microfinance faces as it continues to develop? First, there is a strong need to build bridges between the religious establishment and the microfinance sector. A common misconception is that the aims of the two are incompatible. The challenge is to recognize the common ground in human development to bring these two sectors together. Another challenge is to address the skepticism among Muslim consumers, especially in South Asia, about the Shariah authenticity of products. Finally, the Islamic finance industry needs to adapt its product set and operating models – not fundamentally, since the basic structures are already there – to meet the needs of the poor, the target clients of microfinance. -(by Rehman A, TMG)

S&P Hops On the Sharia Indexing Bandwagon

There's been a push lately among index providers to roll out new Shariah-compliant indexes, as they look to capitalize on growing wealth in the Gulf region. S&P recently introduced three: two covering the global property market and one covering the Pan-Arab region. Alka Banerjee, vice president of global index management, says that S&P took a different approach to the construction of its Shariah indexes than some index providers. Instead of screening their universe of stocks and creating new indexes, Banerjee says that S&P is building its Shariah family by creating indexes that are essentially subsets of its already established indexes, such as the S&P 500. "We started with existing indexes that are accepted in the market," Banerjee says. As a result, the indexes track fairly closely with the original indexes and investors have an added point of reference. "We will eventually cover all of our universe," she adds. The move echoes the socially responsible investing [SRI] universe, where many indexes start with familiar benchmarks and screen out offending companies. S&P said that customer demand led it to create Shariah versions of its property indexes. The S&P/Citigroup Global Property Shariah Index is derived from the S&P/Citigroup Global Property Index, which covers publicly traded property companies in 53 countries. The S&P/Citigroup World Property Shariah Index is derived from the S&P/Citigroup World Property Index, which covers only developed markets. Banerjee says the broad S&P/Citigroup Global Property Index includes roughly 500 components, while the Shariah version includes only about 130 components. The significant loss of components is due mainly to the fact that property companies are often highly leveraged, and as a result many did not meet the financial ratio requirements for the Shariah indexes, Banerjee explains. The global index holds securities from 26 countries and has a total adjusted market cap of about $231 billion. The developed markets index holds securities from 16 different markets and has a adjusted total market capitalization is around $191 billion. The United States, Australia, Hong Kong and Japan are among the top five countries for both indexes. S&P created its S&P Pan-Arab Shariah Index using its emerging markets indexes. The index covers roughly 130 companies from 11 different countries including Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and United Arab Emirates. Saudi Arabia represents nearly half of the index at a weighting of 48.24%, followed by Kuwait at 20.07%. The biggest sector is financials at 35.92% of the index, followed by materials at 26.67% and telecom services at 19.24%. (Most energy companies in the Gulf region are state-owned, and therefore, the energy weights in these indexes are small; however, the total economies in this region are tied closely to the energy sector, so the influence is significant). In addition to this new Shariah index, S&P also offers the S&P GCC Index Series, covering the six Arab states in the Gulf Cooperation Council [GCC]. All of the member countries are included in the Pan-Arab index; they are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. The S&P Shariah indexes exclude companies that operate businesses involving alcohol, tobacco, gambling, pork, pornography, and advertising and media. Companies involved in certain types of financial businesses are also excluded, as are those that engage in the trading of gold and silver as cash on a deferred basis. Potential components must also meet certain financial ratio requirements regarding such issues as debt and accounts receivable. The S&P Shariah family currently includes 16 indexes, and Banerjee says that more are in development. All of the major index providers now have Shariah indexes, although S&P is the first to launch Shariah-compliant property indexes. Dow Jones Indexes was the first to market with its Dow Jones Islamic Market Indexes, launched in February 1999, and now has a family of 70 indexes. FTSE calculates several regional indexes on its own and has partnered with exchanges in Singapore, Dubai and Malaysia to launch additional Shariah-based index series. Most recently it launched the FTSE Shariah Japan 100. MSCI launched its own family near the end of July this year; the new series covers 50 countries and 50 regions. - (SA, 23 Aug 07)
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Alfalah Consulting-Kuala Lumpur: www.alfalahconsulting.com 
Islamic Consultant & Trainer: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

As Oil Revenues Boom, Islamic Banking Goes Global


Caribou Coffee, the second-largest U.S. java seller, seems at first blush like a fairly ordinary American company. The chain was founded in 1992 in the small town of Edina, Minn., the brainchild of idealistic newlyweds, and has since expanded to over 400 coffeehouses in 18 states. Caribou's menu is muffins and lattes -- not an Arabic coffee in sight. It may come as a surprise, then, to know that Caribou Coffee is "Shariah compliant," one of the largest American businesses to run its operations in accordance with Islamic law. Caribou isn't alone. After decades on the economic backburner, flush oil revenues are giving Middle Eastern companies and investors new prominence on the global financial stage. As a result, rising demand for Islamic-friendly investments is forcing multinational corporations -- and not just in Muslim-majority countries -- to consider what the Quran has to say about their business practices. The boom carries over to the financial sector, where firms offering Shariah-compliant products or consulting services to companies that seek compliance have themselves seen explosive growth rates. Caribou went Shariah-compliant in 2000 after the Bahrain-based investment bank Arcapita purchased a controlling stake in the company. In terms of day-to-day operations, the Shariah-compliance designation primarily affects how the firm manages its finances. Under Islamic law, or Shariah, it is forbidden either to pay or receive interest. Interest -- the fee charged for the chance to borrow money -- is one of the central principles of modern economics, but Shariah-compliant companies structure their financial operations in a manner that bypasses interest altogether. Jawad Ali, a partner at the law firm King & Spalding who specializes in helping companies adjust their financial operations to attain Shariah-compliance, recently explained to me in an interview how this process works. In many cases, Ali says, firms and would-be lenders structure Shariah-compliant deals around the principle of leasing. Suppose a company wants to buy a property. Rather than granting a loan for the price of the property, a bank can instead buy the property and rent it to the firm. The arrangement is acceptable under Islamic law, Ali explains, because the bank has taken the risk of owning the property, and no interest is charged in the process of the transaction. Lease arrangements of this sort represent one of the most common types of Shariah-compliant contracts, but there are many others. The Web site Islamic-finance.com has a useful primer that takes a more thorough look at the technical workings of different types of Islam-compliant contracts.The financial nitty-gritty aside, though, the simple fact of Islamic banking's rapid growth within the financial services sector stands out as striking. The multinational accounting firm KPMG estimates in a prospectus that the global Islamic finance sector encompasses around 270 banks, $265 billion in assets, and over $400 billion in investments. Moreover, KPMG says the sector is growing at a clip of roughly 15 percent per year, and could serve 40 to 50 percent of the world's Muslim population within a decade. Ali, for his part, says King & Spalding's Shariah-compliance services have seen even faster growth, expanding at 35 to 40 percent per year. This growth comes in part as soaring oil wealth and simultaneous commercial development have contributed to the burgeoning political clout of Middle Eastern oil states. In 2006, when crude oil sold in the range of $55 to $65 a barrel, the Middle East's oil producing nations raked in roughly $320 billion in oil-based revenues. Now the price of crude has climbed higher yet, to around $70 a barrel. Jamil Hassan, an Islamic banking expert with the consulting firm i-flex solutions, explains in a podcast that cash-flush oil states seek out Shariah-compliant investments particularly as they try to diversify away from the energy industry. Hassan cites a "realization of Gulf States that there is a need to invest money so that dependency on oil revenue will become less." The influx of investment itself spurs further growth, Ali notes, particularly as competition within the Islamic banking sector drives firms to create more efficient Shariah-compliant investment products. Banks now provide Shariah-compliant mortgages and other products at little or no added expense over traditional interest-based loans. "The investors started to say, 'Well, it is possible, I don't really have to kill my return,'" Ali says. "That was the first push for growth in the industry, when people became aware that it is possible to do it and it is not as costly as people thought."Given the ripe market for Shariah-compliant investments, European and U.S. banks quickly joined in on the rush. Major international banks including Citigroup, Deutsche Bank, HSBC, and Lehman Brothers now offer Shariah-compliant financial products. In a recent article, the Wall Street Journal highlights a push among U.S. mutual fund managers to offer funds investing exclusively in Islamic-friendly equities. The article notes that Islam-friendly products also draw an enthusiastic response on a local, individual level, citing a Chicago bank that began offering Shariah-compliant loans in 2002. The bank's owner describes an outpouring of local enthusiasm in response to the venture: "People said, 'Can you do houses, cars, lines of credit, and how about my sister in Connecticut,'" he says.Both the Muslim car-buyer in Chicago and the Muslim Middle Eastern oil magnate play a role driving the Shariah finance boom. It over-simplifies the sector, however, to peg it as 100 percent Muslim-specific. When HSBC offered Shariah-compliant mortgages in Malaysia in 2004, over half the purchasers were non-Muslim. Ali says Islamic-friendly investments are best compared to "ethical" investment funds, or "green" funds, which consider aspects of a company's operations besides its spreadsheet before making an investment. Anyone can invest in a "green" fund, all ideology aside, if they think the fund is a good investment. Similarly, the Malaysia trend in Islamic banking may become increasingly common, with non-Muslims purchasing Shariah-compliant financial products simply because they are competitively priced. - (WPR, 22 Aug 07)
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Alfalah Consulting-Kuala Lumpur: www.alfalahconsulting.com 
Islamic Consultant & Trainer: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Wednesday, 22 August 2007

Malaysia is ready to help Thai Islamic banking


(Bernama, 22 Aug 07) -- Malaysia is ready to provide technical assistance in setting up an Islamic bank in Thailand, Datuk Seri Abdullah Ahmad Badawi said Wednesday."Malaysia will introduce Islamic banking in southern Thailand and Bangkok," the prime minister told reporters after the annual consultation between Malaysia and Thailand here.He said the effort would begin with the development of the Islamic windows in the existing banks."And this of course depends on how the government responds to the situation in southern Thailand. I understand that they have some kind of licence to set up an Islamic bank but that is not a problem," he said. Abdullah and his Thai counterpart, Surayud Chulanont, had an hour-long meeting.Abdullah said many areas of cooperation could be developed between the two countries, including economic and investment as well as education."I'm very happy with the outcome of yesterday's meeting and the annual consultation today," he said, adding that the meetings were centred on deepening bilateral relations between Malaysia and Thailand.Meanwhile, Surayud, told the joint press conference that there would be further discussions on the cooperation in Islamic banking in the near future."We will have discussions between banks of Thailand and Malaysia in the very near future," he said.There should not be any problem in establishing the Islamic Bank in Thailand, he added."Thanks to Abdullah for his keen interest in providing everything that we would like to do in the future. This is the most important way of working closely together in the next 50 years," he said.

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Note: There is already an Islamic bank in Thailand i.e Islamic Bank of Thailand (IBT) which was launched by the former Prime Minister Thaksin in 2003 (he is now residing in UK, the new owner of Manchester City football club). I had the opportunity to attend the opening ceremony of IBT held at BITEC in Bangkok. The Grand Mufti of Thailand was present also at the ceremony.- Editor

INCEIF Hopes To Get More "Donors" For Fisabilillah Fund

KUALA LUMPUR, Aug 22 (Bernama) -- The International Centre for Education in Islamic Finance (INCEIF) hopes to get more "donors" for its Fisabilillah Trust Fund, a fund created to provide financial assistance to selected students to pursue its Certified Islamic Finance Professional (CIFP) programme."With more publicity on this initiative we will be able to boost the Fisabillilah fund," its president/chief executive officer, Agil Natt, told reporters here today, after signing the agreement to appoint AmTrustee Bhd as the fund's trustee.He said the contributions would benefit the financial sector with regards to increasing the pool of professionals which could contribute greatly towards the development of the Islamic financial services industry.INCEIF was set up by Bank Negara Malaysia in March 2006 to develop and enhance human capital in Islamic finance to meet the growing needs of the global Islamic finance industry.The fund originates from zakat payables received from organisations and individuals.As of today, the first donor to the fund is EONCAP Islamic Bank, committing RM400,000 derived from its zakat payables.Agil said the fund would also provide financial assistance to students pursuing the masters and doctorate programmes.He said many students worldwide were interested to learn more about Islamic finance and some of them were in need of assistance."Currently, some of the students were studying on INCEIF scholarships and some were sponsored by their respective institutions. If we can give financial assistance, then more will be more interested to pursue our programme," he said.Agil said INCEIF gave financial assistance to Malaysian as well foreign students."There are countries which are developing their Islamic financial services such as Syria, Yemen, Egypt, Pakistan and Indonesia."If we can extend the assistance to more students, the number will certainly grow tremendously. Some hesitated to join the programme because of financial problem," he said.He said INCEIF currently has a total of 938 students from 45 countries pursuing its flagship CIFP programme and 34.2 percent came from outside Malaysia."Of this total, 26 percent are females and about 12 percent are non-Muslims."In terms of sponsorship, 40 percent are sponsored by their respective employers and seven percent are INCEIF-sponsored."The rest are self-sponsored. But if we include students who are sponsored on a post-reimbursement basis, the percentage of sponsored students goes up to about 65 percent," he said.Agil said the programme attracted tremendous response not only in Malaysia but throughout the world."Malaysia has the most number of students. From overseas, Pakistan's contingent is the biggest, followed by Indonesia, Sri Lanka, as well as places like central Asia, Russia, West Asia, North Africa and even North America."INCEIF is targeting some 1,000 students this year after slightly over a year of existence," he said.It has its first intake on June 1, 2006.In addition to the CIFP programme, Agil said, INCEIF would also be launching its post-graduate programmes as well as the continuous professional development programme specifically for players in the Islamic financial services industry.

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
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Introducing Islamic Banks into Conventional Banking Systems - IMF Report

Islamic financial institutions, despite their increasing popularity among Muslims as well as many non-Muslims, operate in an industry that is not very easily understood or regulated, according to a recent International Monetary Fund (IMF) working paper. "Islamic finance is still uncharted territory for most practitioners and policymakers," said the IMF in a recent report titled "Introducing Islamic Banks into Conventional Banking Systems." Islamic financial institutions must follow Islamic interpretations of the Quran. For example, an Islamic bank may not charge or pay interest and cannot invest in anything that is prohibited, such as investments related to gambling, alcohol or pork. It is imperative that Islamic banks follow standard procedures and guidelines to make for better oversight, especially because these banks have experienced an unprecedented annual growth rate of 10 to 15 percent, according to the IMF. Today there are more than 300 Islamic banks located in 51 countries. In addition, there are 250 mutual funds that adhere to Islamic banking principles. While the IMF claims that it is possible to establish a set of rules and guidelines that are specific only to the Islamic banking products, Mahmoud Amin El-Gamal, an employee of the U.S. Department of Treasury Office of International Affairs, does not quite agree with the IMF. El-Gamal explains that Islamic finance and the varying opinions and expressions are no more than a "prolonged reinvention of the financial wheel" in an August 2006 opinion. He continues that if one takes a closer look as to how Islamic products evolved, one recognizes that the products moved "closer to its conventional counterpart." What Are Islamic Sharia Laws? There is a myriad of divergent opinions concerning products that may or may not be compliant with Islamic Sharia laws, a.k.a Islamic laws, laws that come from the interpretations of the Quran. Scholars and those conversant in Sharia law interpret them differently, depending on how deeply they have studied such laws, how conservative they are in interpreting such laws and which particular group they belong to. Also, somehow, interpretation could vary from one country to another—although no one was able to clearly explain why, cultural roots and conservatism were some of the reasons brought forward. El-Gamal argues that one can find many different approaches and guidelines at Islamic Banks in a country, but even greater differences are found when one looks at the sector in another country. For example, Malaysia's Islamic financial sector has become increasingly more sophisticated than that of its Middle Eastern Arab countries. But, its Islamic banks rely heavily on the opinion of Islamic jurists instead of that of Sharia practitioners and thus its products offered may not be acceptable under Sharia laws of another country. Islamic Banking Compliance: An institution that offers Sharia compliant products must appoint a board with at least one Sharia counselor, who must be someone knowledgeable with Sharia law and generally is a Sharia scholar or Mullah (someone who was trained in Islamic laws). The UK-based Kleinwort Benson Private Bank Ltd. set up an Islamic investment fund in London in 1986 to attract Middle Eastern investors, but neglected to create a Sharia board. The fund did not take off until a Sharia board was appointed, according to IMF. Bahrain created the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in 1991, which launched an international professional Sharia law compliance program that teaches "technical subjects that are essential to Sharia compliance and review processes for the international Islamic banking and finance industry," according to an August press release. AAOIFI offers periodic training for regulators and others involved in overseeing the financial sector of countries adhering to Sharia laws. In 2002, Malaysia established the Islamic Financial Services Board, an international standard-setting body for Islamic financial regulatory and supervisory agencies. IMF advises that regulators should be transparent and state clearly their rules and regulations and that all should be applied across borders. Banking licenses should be restricted to those institutions that have a proven track record and clear understanding of Islamic financial principles. - (TET, 21 Aug 07)

Pakistan's Vision 2030 to create prosperous, just society imbibed with Islamic values

ISLAMABAD, Aug 21 (APP): The government on Tuesday launched Vision 2030 programme, a roadmap for the development of the key areas of national importance, aiming at creating a prosperous and just society imbibed with Islamic values. “Vision 2030 is focused on developed, industrialized, just and prosperous Pakistan through rapid and sustainable development in a resource constrained economy by deploying knowledge inputs,” Deputy Chairman Planning Commission Dr Akram Sheikh said while briefing participants about the salient features of Vision 2030 at its launching ceremony held at Aiwan-e-Sadr. Dr Sheikh said the Vision 2030 implied economically and industrially developed nation with self-reliance, dynamism and competitiveness in character. He said the prime objective of this effort would be to transform an economy characterized by low saving-investment ratio, low growth, low taxes, low productivity and low technology. He said Vision 2030 aimed into an economy of high saving-cum-investment, high technology cum productivity and high-cum-sustained growth rates, but without sacrificing considerations of compassion, equity and justice, he said. He said the programme is aimed at making Pakistan a major regional hub for industry, trade and education.
On achieving economic goals, Dr Sheikh said the objective was to enhance country’s GDP around US$ 1,000 billion with per capita income expected to quadruple from US$ 925 in 2007 to about US$ 4,000 in 2030. Dr Sheikh said focus would be laid on reducing population growth from 1.9 to one percent. On literacy rate, he said it would be increased upto hundred percent by 2015 according to the roadmap. Dr Sheikh said a necessary condition for the successful implementation of a visionary plan is the continuity for a long period of time, to translate it into reality. “Implementation of a series of five-year development frameworks formulated in the context of a 25 year Vision would restore confidence of the nation in its thinkers, planners and implementers to deliver the promises and demonstrate the practicality and usefulness of implementing medium-term goals.” He said to achieve this Vision, Pakistan will have to overcome the binding constraint of limited resources including financial, scientific, technical, technological and human resources. He said all energies would have to be devoted towards sustaining macroeconomic stability, reduction of poverty and unemployment, food security, social and regional harmony and the greatest good of the greatest numbers. Dr Sheikh said, “We missed many golden opportunities in the past and cannot afford the luxury to miss such opportunities anymore now or in future.” He said the current momentum of growth needed to be maintained and further improves by unflinching commitment to national vision and objectives and strict adherence to critical factors of success.
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Note: Malaysia has a similar vision called "Vision 2020", based on 9 challenges, to achieve a developed nation status. It was initiated by the Malaysian government about 16 years ago. - Editor

Bank Islam Malaysia To Focus On New Areas To Push Fee-based Income

SHAH ALAM, Aug 21 (Bernama) -- Bank Islam Malaysia Bhd, currently in the process of transformation under under its turnaround plans, wants to concentrate on the new core areas of corporate investment banking and treasury to grow its fee-based income from five percent currently."These are the areas that we want to push forward in making Bank Islam a global leader. We want to grow our fee-based income which is still small now," said Bank Islam's managing director Datuk Zukri Samat.To achieve this, the bank planned to issue one or two sukuk (Islamic bonds) by year-end and introduce new treasury products to the market soon, he said.He was speaking to reporters after the unveiling of the bank's remodelled branch here today.Bank Islam's turnaround plans include recapitalisation and balance sheet restructuring, an information technology (IT) revamp, organisational restructuring, cost rationalisation and human capital development.As part of the plan, the bank had identified several non-critical services to be outsourced to third parties, Zukri said."One area that we have identified is outsourcing the bank's non-critical services such as ATMs (automated teller machines) which can save millions every year," he said."Apart from that, we are also looking at other areas that make sense for us to outsource to third parties," he added.According to him, such exercises will provide savings for the bank moving forward.Zukri said the bank would allocate up to RM100 million to upgrade and overhaul of its 15-year-old IT system to serve its over one million customers more efficiently."Today, there are so many competitors, so we need to be as efficient as our competitors in order to remain competitive," he said.Bank Islam currently has 90 branches, 264 ATMs and more than 70 Syariah-compliant banking products and services.

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Kuwait's Zakat (Alms) House to lauch Iftar (breaking-fast) project in 24 countries

KUWAIT, Aug 18 (KUNA) -- Kuwait's Zakat (Alms) house announced Saturday that the Iftar (breaking-fast) campaign for the upcoming holy month of Ramadan would include 24 countries. Head Zakat House's management for activities abroad Abdullah Haidar told reporters that last year's Iftar campaign included 31 states with costs mounting at KD 78,698 for the 210,000 served meals. The Iftar project was supervised by several charity organizations which had strong cooperation with Zakat House, said Haidar who called all Kuwaitis wanting to contribute to charity to submit their donations to the House, pointing out that a meal cost only 500 Kuwaiti fils.
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