Latest from GIFC

Sunday, 30 September 2007

Kuwait Finance House to establish US$357 million Sukouk company

KUWAIT. The Kuwait Finance House (KFH), Kuwait's leading Islamic banking operator, announced an initiative to set up a KWD100 million (US$357 million) company aimed at the development of financial investment instruments in accordance with the Islamic Sharia, especially Sukouk, the Islamic financial tool. KFH Director General Mohammad Sulaiman al Omar said in a press release that the initiative would paves the way for the establishment of a market for the dealing of Sukouk issued by world Islamic financial institutions. The move would strengthen the role of KFH, or Baitak, as a market maker by helping issuance, buying and sale of Sukouk, a tool widely needed in the Islamic finance industry, said the top banker, noting that there is no room for Sukouk holders (companies and individuals) to liquidate and obtain quick cash dividend through a market with a fair assessment. The total world Sukouk value amounted to US$24.5 billion, and Baitak's share was valued at US$4 billion, during the first half of 2007, a 75% increase over the previous year, al Omar said. Al Omar anticipated that a US$16 billion worth of Sokouk would be placed in the market by the end of the year. Gulf Cooperation Council (GCC) financial institutions have issued a total US$6.3 billion worth of company Sukouk during the first half of 2007 compared to US$9 billion worth of Sukouk in 2006, he said, anticipating that unpaid value of sovereign and company international Sukouk volume would hit US$70 billion in mid 2008 and US$225 billion by the year 2010. The average Sukouk dealing at present stands at US$100-200 million a month, with Malaysia representing 36% of the issued Sukouk and 30% for the GCC countries, he said. Al Omar added that the volume of projects to be funded in the Gulf region alone either by the private sector or government during the next ten years amounts to US$800 billion. He said that Sukouk may be the most important instrument of financing that can contribute to providing liquidity for these projects and thus contribute to development efforts in the Gulf states. The Kuwait Finance House was established in the State of Kuwait in 1977, as the first bank operating in accordance with the Islamic Sharia. KFH is listed in the Kuwait Stock Exchange , with a market capitalization of KWD3.133 billion as of 31 December 2006. -(BIME, 28 Sep 07)

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BNM Syariah Council Yes To Distribution Of Surplus In Takaful Scheme

KUALA LUMPUR, Sept 25 (Bernama) -- Bank Negara Malaysia's (BNM) Syariah Advisory Council has ruled that the distribution of surplus from tabarru' fund in takaful scheme and the application of wakalah contract in deposit instrument are permissible from the syariah perspective.In a statement here today, BNM said the council's resolution would allow the distribution of surplus from tabarru' fund (for both family and general takaful plans) to the certificate holders."This is based on the premise that takaful contract is generally established on the syariah principles of tabarru' (donation) and ta'awun (mutual cooperation), apart from the agreement among the contracting parties," it said.BNM said in the formulation of takaful product, the principle of tabarru' has been the main underlying syariah principle, although the application of other principles such as wakalah and mudharabah also complemented the takaful operational structure.It said the council's resolution was also based on the permissibility of performance fee for the takaful company."Such a method of distribution is practised by several takaful companies in the Middle East," it said.On the application of wakalah bi al-istithmar (agency for investment) contract in deposit account, BNM said the council wanted the implementation of such contract to be carried out prudently to avoid any element of guarantee by the agent of investment returns.Wakalah bi al-istithmar, a syariah contract, was recently approved by BNM to be applied in deposit instruments.

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
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Friday, 28 September 2007

Gulf’s $13 bln Islamic bond sales overtake Malaysia

MANAMA - Gulf Arab sales of Islamic bonds overtook those in Malaysia for the first time, Moody’s Investors Service said, rising to $13.2 billion so far this year as the two regions vie for primacy in the Islamic finance industry. Sales by governments and companies in the United Arab Emirates, Bahrain and four other Gulf Arab oil producers accounted for 55 percent of the global total for bonds that comply with Islamic law to the end of August. That compared with $9.7 billion sold in Malaysia, Moody’s Middle East and Islamic Finance analyst Faisal Hijazi told Reuters. “The Middle East, mainly the Gulf, is progressing quickly to become the global leader in the provision of sharia compliant sukuk structures and products,” Hijazi said. Malaysia, with a majority Muslim population of 26 million, has traditionally led the global Islamic finance industry in sales, regulation and standardisation. Outstanding Islamic bonds, or sukuk as they are also known, totalled more than $80 billion to the end of June, with over two-thirds unlisted, according to Standard & Poor’s. Sukuk are typically backed by assets that pay a dividend or rent to holders, but are generally still priced against interest rate benchmarks such as the London Interbank Offered Rate. Islam, the religion of about 1.3 billion people, forbids the receipt of interest, equating it with usury. Ringgit versus dollar: Though Malaysia has fallen behind in sales of sukuk, it still leads in total sales. More than 60 percent of the world’s outstanding Islamic bonds were denominated in Malaysian ringgit at the end of July, according to Moody’s. “The Malaysian regulatory authorities are actively addressing ... issues to maintain their lead,” Hijazi said. Malaysia, Bahrain and Dubai are vying to be centres for Islamic finance.
Bahrain says its central bank was the first in the world to develop and sell sukuk, while the Dubai International Financial Exchange says it lists sukuk worth more than $13 billion. Dubai government-owned property developer Nakheel Group last year sold $3.52 billion of sukuk, the biggest Islamic bond sale ever. “One factor that is limiting sukuk issuance in Malaysia from growing substantially and acquiring a global investor base is the fact that most issues out of Malaysia are denominated in Malaysian ringgit due to tax incentives,” Hijazi said. While Malaysia’s sukuk market is mainly domestic, foreign investors have bought as much as 80 percent of recent Gulf sales which are generally denominated in dollars. Global sales of sukuk have surged during the past year on greater demand from Muslims seeking investments that comply with their beliefs, and Western and Asian investors looking to tap Gulf economies that are booming due to a quadrupling in oil prices in the last six years. Also holding back Gulf investors from buying more Malaysian sukuk is the perception that the principles used to structure their products are not as stringent as in the Gulf. “Some sukuk structures are popularly accepted in Malaysia but not necessarily in other jurisdictions, due to different schools of theology,” Hijazi said. - (Reuters, 27 Sep 07)
Editor: Malaysia should not feel too alarmed on this statistics because in this case a country (Malaysia) is being compared to a region (Gulf )....

Thursday, 27 September 2007

First Islamic bank in Italy to open in 2008


Rome- The first Islamic bank in Italy to operate according to the laws of the Koran is due to open in 2008, the presidents of the Association of Italian Banks and the Union of Arab Banks announced jointly Wednesday, according to Italian press agency adnkronos. "The next step should be the creation of a real Italian-Arab banking federation, which in perspective could represent a model to follow for other countries in the European Union," said Corrado Faissola, president of the Association of Italian Banks. Islamic law forbids the payment and collection of interest and the investment in businesses that are considered unlawful such as activities involving the sale of alcohol and pork products. The Union of Arab Banks, based in Beirut, comprises more than 300 Arab financial and banking institutions, representing the largest Arab banks in the region, the report said. "The consolidation of dialogue and cooperation opens important opportunities for growth and development not only for the banking sector and for Italy, but for all of Europe, and looking further ahead for the stabilization of the entire Mediterranean area and the Middle East," Faissola added. - (ET, 26 Sep 07)

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Tuesday, 25 September 2007

'More to be done' to promote Islamic finance

The government has done a great deal to promote Islamic finance in the UK but a lot more needs to be done to ensure a "level playing field", an expert has said.Product manager with Lloyds TSB Aktar Ahmed said the reclassification of profits made through Islamic contracts into alternative finance income was a "fantastic milestone" which allowed Sharia compliant finance to compete in the open market.He said the government is currently examining sukuks, and probably considering issuing government sukuks. "One of the issues with the Sukuk is the tax situation around it - a Sukuk effectively is a bond, and there are issues around the tax on the income on a Sukuk specifically. That's something that's being looked at," Mr Ahmed said.Sharia law forbids making money using money and so charging interest is prohibited. It also outlaws investing in alcohol, pornography, cigarettes and gambling.As chancellor, Gordon Brown said he wanted to make London a "gateway" for Islamic financial products. - (London SE, 24 Sep 07

Monday, 24 September 2007

Ottawa has received its first applications to start up Canadian banks operating within the strictures of Islamic religious law


OTTAWA and TORONTO -- Ottawa has received its first applications to start up Canadian banks operating within the strictures of Islamic religious law - financial institutions that, if approved, would be among the first in the West. Canada's bank regulator, the Office of the Superintendent of Financial Institutions, is studying two proposals for banks that offer services in keeping with Islamic laws that forbid speculation and interest but are in favour of transactions where profit and loss is shared. The applications came to light in government documents obtained by The Globe and Mail under access to information laws, files that show Ottawa believes there are four other possible applicants keen to start banks operating under Islamic religious law, or sharia. While some banks in the West offer sharia-compliant products, few aside from the Islamic Bank of Britain are standalone institutions set up expressly for this purpose. The applications have triggered a slew of concerns among regulators, documents show, including whether these institutions could be reliably audited, governed by directors or monitored. "Are the deposits insurable?" one OSFI paper asks, suggesting the banks may have higher liquidity risks and suffer from a "lack of knowledgeable external auditors." The applications are taking Canadian regulators into largely uncharted territory as they puzzle over what sort of regulatory treatment would apply. Regulators say the challenge is trying to discern exactly what types of financial transactions are being proposed and whether they could conceivably fit what's allowed under the Bank Act. "For most Canadian banks so far the products are somewhat straightforward and a deposit is a deposit," said Normand Bergevin, managing director at OSFI's approvals and precedents division. "When you have an applicant that comes to you with nothing but new products, that makes the process a little bit more difficult." Products the banks propose to offer, from term deposits to mortgages, are structured to avoid the explicit payment or collection of interest. OSFI won't divulge the identities of the two applicants, citing confidentiality rules. But decision-makers throughout the federal government are quietly mulling the broader question of how to handle a banking trend that's worth hundreds of millions of dollars annually in the Islamic world and may be attractive to Canadian Muslims, a group one June government memo calls "the fastest growing immigrant population." The federal Finance department established an Islamic financial services working group in June to study the issue. The 20-person group, including staff from OSFI, Canada Deposit Insurance Corp. and the Bank of Canada, hopes to deliver recommendations within months. "There's been quite a bit of growth in Islamic finance worldwide and it's definitely a developing trend. And we need to be aware of those trends," a Finance official said. Ultimately it would be up to federal Finance Minister Jim Flaherty to approve Islamic banks if OSFI recommends it. Walied Soliman, a lawyer at Ogilvy Renault LLP, says he's confident that Islamic financial products and banks can be structured in such a way that they find a home in Canada's regulatory framework. He said there's no one set of rules for how Islamic financial transactions should be set up and believes they can be designed to pass muster with Canadian regulators, just as products such as "ethical" funds that avoid certain industries gained approval.
He said an Islamic bank can be set up that wins approval from both regulators and religious experts. "The scholars that practise in this area are very practical people ... and [believe] the most expedient and practical way to get there is to offer products that are as Islamic-compliant as possible" while also complying with government standards, he says. Today, however, demand for sharia-compliant products in Canada remains unclear and several Islamic finance companies have folded.Demographics are favourable for growth, though, said Stuart Carruthers, a partner at Stikeman Elliott LLP who has been studying the issue. Income levels are rising in Canada's rapidly expanding Muslim population, a group that is relatively young - meaning opportunities for long-term customers. "I think there will be more demand if the product is there," he said. He's seen continued interest in the area, both from regulated financial institutions such as banks and insurance companies, as well as from unregulated players such as mortgage or consumer lending firms. In the shorter term, funding may be a challenge, given the credit crunch hitting some financial services. "I suspect over the past month or so, the big financial institutions may have become more focused on the other shorter-term issues around credit availability."A primer: Under sharia law, making money from money, such as charging interest, is usury and therefore not permitted. The Islamic financial model works on the basis of risk-sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits between them. Sharia-compliant products must meet three criteria: no explicit interest is paid; transactions cannot be in areas such as gambling, alcohol, pork or pornography; and a transaction can't be deemed as a gambling contract, or one that assumes a high level of risk. - (reportonbusness)




Editor: Riba (interest) is prohibited in all forms either explicit interest or implicit interest. To say Islam prohibits "explicit interest" is to wrongly imply that we can get away by changing the term "interest" to something else e.g. "profit" or "divident" without changing the structure of the products to comply with Shariah rulings. Islamic finance is not a business of changing the names....

Sukuk: New buzzword for Islamic finance

The market for Sukuk (Islamic bonds) is booming, and the Gulf region is a big part of it. According to an Islamic finance expert, interest in Sukuk issuance is growing even more in the region. “Statistics show that Islamic Sukuk issuance in the Gulf and other Arab countries have reached $14 billion by the first quarter of 2006. While the Sukuk's average growth rate in the Gulf has reached almost 45 per cent from 2001 till 2005," said Dr Abdulaziz Al-Qassar, Shariah Advisor, Real Estate Bank of Kuwait in a seminar organised by the Institute of Banking Studies on Monday night. "Sukuk issuance is expected to reach $100 billion in the next five years," he added. The seminar shed light on the definition of Sukuk, its different types and future challenges facing the market. Sukuk represents a new development in global capital market; it is one of the fastest growing sectors in Islamic financing. According to market reports, Islamic finance market has grown over the last decade by more than 20 per cent per year, while as of February 2007, it is worth from $200 billion to $400 billion worldwide. "The importance of Sukuk lies in its ability to transfer assets into liquidity without the need to go into long legal complications for the investor," said Al-Tawari. "(Sukuk) are also a source of cashflow and finance for the originator," he added. Any assets can be transferred into sukuk, with the condition that at least 51 per cent of the underpinning assets must be leased-back as 'real assets' (ie not debt instruments). However, it is important to note that Islamic finance is governed by Islamic jurisprudence (Fiqh Al-Muamalat), which explains the contracts and trading deals that are halal (permissible) or haram (invalid). The assets that will be converted into Sukuk must be obtained from an Islamically acceptable deals, meaning not investing in any transactions against the Islamic Sharia principles (ie no riba or interest, pork, alcohol, or gambling). Talking about the humble beginnings of modern Islamic finance back in the 1970s - the first Islamic bank was established in Egypt in 1971 - Al-Tawari tracked the development of the industry which has grown significantly in size in almost 75 countries across four different continents. "The market needs to be aware with the importance and structure of Sukuk," said Al-Tawari. "There are still no legal principles to govern the Sukuk issuance," he concluded. - (Kuwait Times)

ISLAMIC FINANCE - The New Face of Gulf Banking

THE GLITTERING CITYSCAPE OF DUBAI STANDS as a bold declaration of the emirate's seemingly boundless ambition. The Burj Dubai, a planned office, hotel and residential high-rise, towers over a sea of skyscrapers and developers' cranes downtown; standing 116 stories high in late March and climbing by three stories a week, it is on its way to becoming the world's tallest building. International City, a residential district for 60,000 people that draws on architectural styles from nine countries, sprouts in the desert on the edge of the city. The World, a collection of luxury residences and resorts on 300 man-made islands, is rapidly taking shape just off the coast in the Gulf. Amid this feverish development, Dubai Islamic Bank is easy to miss. Headquartered in a modest low-rise building on the road to Dubai International Airport, the bank sits next to an auto dealership and a kitchenware shop. Unprepossessing appearances aside, it is shaking up the local banking industry by offering a broad range of financial services that comply with shari'a, or Islamic law, the region's hottest financial sector. Its ambitions are as grand as anything on the skyline. "We have the intention to be the leading Islamic commercial bank in the world," says Sohail Zubairi, vice president and head of the bank's Shari'a Coordination Unit. "There is a huge political resolve on behalf of the government of Dubai to support Islamic finance. DIB is in an enviable position." DIB has financed some of the emirate's most audacious megadeals with multibillion-dollar issues of sukuks, or Islamic bonds, attracting Western investors as well as locals. Last year the bank co-led a $3.5 billion sukuk to help finance Dubai Ports World's $6.8 billion acquisition of the U.K.'s Peninsular and Oriental Steam Navigation Co., as well as a $3.5 billion offering by Nakheel Group, the construction company that is building many of Dubai's development projects. The bank's retail arm, meanwhile, is also grabbing market share, with an array of new shari'a-compliant products, such as fee-based credit cards and mortgages structured as sale-leaseback arrangements. "DIB has been very innovative in introducing new products into the market," says Khalid Yousaf, managing director of Islamic finance at International Holdings Group, a Dubai-based private equity and investment advisory firm. "They are pioneers in retail and investment banking." The results are impressive. DIB, which was founded in 1975 and is the world's oldest Islamic bank, operated largely in obscurity for its first 20 years before nearly collapsing because of an embezzlement scandal in the late 1990s. Today it is Dubai's fastest-growing bank. Net income rose 47 percent in 2006, to 1.56 billion dirhams. - (II)

Islamic Finance On The Upswing

Islamic finance is on the upswing in the Middle East-Gulf-Pakistan-Asia region, a two-day Asia Finance Conference observed, and industry sources say the future potential is massive. They said that though Islamic financing sprang out of the Gulf region, Pakistan, Asian countries and the rest of the world are catching up. M.A. Mannan, deputy CEO of Dubai Islamic Bank, said “80% of Pakistanis prefer Islamic products if all things are equal.” If an Islamic product has the same world standard, same return on the product and the same facility like a competitive conventional banking product has, people will get Islamic product instead of the conventional product,” he said. Shamshad Akhtar, governor, State Bank of Pakistan (SBP), said “the global interest in Islamic finance and Pakistan’s success in laying the basic foundation and core infrastructure for the industry has lent confidence that the country has a good growth potential.” But still a cautious, calibrated and coordinated approach and strategy for development of the sector is required. Pakistan, she said, will conform to standards being promoted by the Islamic Financial Services Board (IFSB). “Islamic banks should grow annually at the rate of 40% to 50% to raise its share from the existing 3.5% to around 15% over the next few years,” she advised delegates to Asia-Finance Conference at Karachi, the third conference devoted to Islamic financial services. Leading international conventional banks like Citibank and Deutsche Bank have also started Islamic banking which is 100% based on Shariah. The two big segments that need to be tapped for Islamic banking are the masses and the rural clients. Nadeem Hussain, president and CEO of Tameer Micro Finance Bank, said “there is a huge gap in banking in the rural areas. The rural population needs credit for seeds, fertilizers, land, tractors and other farm inputs. Islamic banks should provide finance for all such requirements.” At the same time, some 53% of rural population which is engaged in non-form activities, like cottage industry, also need small advances. The participants also focused on Islamic insurance or Takaful, and its growth potential in the area. Takaful is still new in Pakistan but has a good potential if it targets the countryside where farmers want insurance to cover for their crops and cattle and other requirements. There are two Takaful companies currently operating in Pakistan, while more are getting ready to start their business. The two companies offer General Takaful and Family Takaful. SBP has fixed paid-up capital requirement for General Takaful at Rs.300 million, and for Family Takaful at Rs.500 million. The paid-up capital is just Rs.120 million for General Takaful until Dec. 31, 2007. Waqaruddin, CEO of Pak-Qatar General Takaful, said “serious efforts have been made to popularize Takaful as an Islamic alternate insurance but a number of issues are still under research to find out solutions.” Takaful has better growth chance compared even to Islamic banking. Insurance companies get re-insurance in the existing financial system. Islamic insurance will follow the same re-insurance for Takaful. Islamic re-insurance companies are already working in Dubai and Malaysia. “The interest in this industry stems from its strong economic, financial and social considerations, backed by its unique features, dominant among which is its appeal to tap oil revenues of Islamic countries and savings of nearly 1.6 billion Muslims around the globe,” Akhtar said. Mohammad Imaran, Gulf-based Bank Islami’s country head of consumer banking, said “Islamic bankers are targeting those who are already the target of conventional banking. There is a need to target those who are not accessed by the banking industry.” Akhtar is confident that conventional banking, as a whole, has been “growing at a substantially fast pace which means “the level of efforts required for Islamic banks will have to be steeper to clinch its share.” The bankers will need to chart out a strategy with a major forward thrust to offer an attractive and alternative financial intermediation. It will have to promote an efficient allocation of resources in an equitable way. Above all, it will have to be competitive. The central banks and Islamic bankers will have to coordinate strategies and join hands in some key fields. These include an aggressive deposit mobilization in order to raise the domestic saving rates, besides diversification and providing innovative financial structures. The central banks and the Islamic bankers should launch combined efforts for capacity building to cope with the potential growth of the sector. The growth in Malaysia has been much faster where Islamic banking has a 12% market share. The Islamic banks’ total assets in Pakistan at the moment are Rs.159 billion or 3.4% of the market share. Their deposits are 3.1%, and financing is 3.3%. After SBP launched its Islamic Banking Policy (IBP) in December 2001, Pakistan now has six full-fledged Islamic banks. Thirteen existing conventional banks operate Islamic windows. Two hundred branches of various banks now offer Islamic banking. - (Arab News, 24 Sep 07)

Sunday, 23 September 2007

Islamic securities set to grow on Mideast boom


DOHA: Doha Bank chief executive officer, R Seetharaman has said Islamic securities are fast emerging as an essential source of financing and liquidity management in view of the huge demand for project financing.In five years of their existence the sukus have grown and are estimated at $50bn globally, he said at a seminar organised by Doha Bank on “GCC Economic Trends and Business Opportunities” in Tokyo at the weekend.The Islamic securities market is set to grow exponentially, as the project financing requirements for the Gulf region alone is exceeding $1tn.Seetharaman said “Islamic banking is an ethical and equitable mode of financial services, based on Sharia, whose main features are prohibition of interest, gambling or speculation. It is based on the principle of profit sharing. Islamic banking is a young industry witnessing around 20% growth. Today we have globally more than 300 Islamic financial institutions, with total estimated size of $700bn. Islamic Banking products and services are available for all activities in different stages of life cycle of an individual as well as a corporate entity.”On how the GCC economies have transformed over a period of time, he said, “Economies all over the world are attempting to leverage through collaborations, free trade agreements, efficiency building and reforms to improve the investment attractiveness of their countries. In this environment, GCC has emerged as a role model for transformation on economic and social fronts. GCC countries have been able to generate considerable fiscal surplus consistently, making it the fastest growing bloc in terms of GDP with national income averaging about 20% growth. “The per capita income of GCC countries is amongst the highest today witnessing 15% overall growth. GCC has been prudently deploying the surpluses towards multi sector development that has changed the face of GCC completely during last two decades. With increasing degree of openness in investment, trade and commerce policies, rapid pace of development, private sector role enlargement, the project financing requirement exceeds $1.2tn in next five years. GCC provides tremendous opportunities for investment.”About developments in Qatar, one of the fastest growing economies in world, Seetharaman said it was making incredible strides in energy, tourism, infrastructure, education, health and sports. Some of the topics discussed at the seminar were “GCC economic trends and business opportunities”, “Islamic finance prospects” and “Global warming and climatic changes”. It was attended by diplomats, government dignitaries, and others. - (GT, 23 Sep 07)

Amsterdam wants halal mortgage

21 September 2007 - Amsterdam is going to urge Finance Minister Wouter Bos to make it possible for banks to offer Islamic mortgages, Mayor Job Cohen announced in response to questions asked by council member Hetti Willemse (PvdA). Amsterdam wants to promote house ownership. Willemse argues that the lack of mortgages that conform to Islamic rules is keeping Muslim Amsterdammers from buying a house. According Cohen, some 2.4% of Amsterdammers may be interested in Islamic mortgages, but he emphasises that this is a very rough estimate. Islam prohibits interest, although some hold that the prohibition only applies to usury. A controversial issue is whether Islamic mortgages should have fiscal advantages comparable to the tax deduction of interest that applies to normal mortgages. In July, minister Bos said that the development of Islamic banking is an opportunity for the Dutch financial sector. As an example, he pointed to Dubai and London developing into international centres of Islamic banking. - (NA, 21 Sep o7)

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Sukuk market set to top $150bn in 3 years: study

DOHA: Debt raising, especially by the GCC countries and their corporate segments, through ‘sukuk’ jumped four-fold to $27bn during 2004-06, indicating diversified investor base and deepening domestic capital markets, according to a study.Governments and corporate houses are expected to issue in excess of $30bn in sukuk annually over the next three years to lift the market size to more than $150bn, said an International Monetary Fund (IMF) working paper.However, harmonisation of standards is imperative as the current level of sukuk remained a fraction of either conventional bonds or asset-backed securities in emerging markets, said the study.Islamic financial institutions are increasingly eyeing investments that comply with Islamic law to accommodate their excess capital. Similarly, hedge funds and conventional institutional investors have largely been drawn to Islamic securities in search for yield pickup and diversification, the study said.“This has resulted in a flurry of Islamic securitisation transactions, with issuance of sukuk (non-interest-bearing securities based on Islamic principles) quadrupling to over $27bn in 2006 from $7.2bn in 2004,” the study said.Sukuk has been concentrated in parts of Asia and the GCC countries, where its development has been facilitated by sovereign benchmark issues that have been growing strongly at 40% in the first six months of 2007 compared with 2006 as a whole. “In value terms, about half of these issues originate in Asia (primarily Malaysia and Brunei) and the other half in the GCC,” the IMF study said. Corporate issuance - both public and private — had expanded rapidly, doubling between 2004-05 (from $5.7bn to $11.3bn) and 2005-06 (from $11.3bn to $24.8bn).While Asia (specifically Malaysia) accounted for the bulk of Shariah-compliant corporate issues in 2004 (close to 90%), issuance in the GCC picked up rapidly and “now accounts for close to half of all issues in the marketplace,” the study said.The study said many corporate issuances – particularly larger ones – were quasi-sovereign and were seen to benefit from an implicit state guarantee.Although these issuances may be linked to an underlying asset, investor appetite may be driven primarily by the sovereign nature of the risk, it added.While there may be a cyclical element of current demand from high oil revenues in the GCC, the demand supplemented a long-term upswing in demand for Shariah-compliant securities from Islamic institutional investors, the study highlighted.In the absence of conventional securitisation in many Islamic nations, sukuk will remain a favoured structured finance funding option, the study said.“Outside Asia and the GCC, the demand for sukuk has been limited, but they are beginning to gain popularity,” it said, observing that the World Bank had issued its first local currency-denominated 760mn Malaysian ringgit ($200mn) sukuk in 2005.However, the current level of sukuk issuance remain a fraction of the issuance of either conventional bonds or asset-backed securities in emerging markets. “But a growing number of countries are considering tapping the sukuk market to diversify their investor base and deepen domestic capital markets,” the study said, adding the increase in demand, along with the standardisation of Islamic securities, is expected to fuel further growth of the sukuk market.Despite strong potential in the sukuk market, a number of economic, legal, and regulatory challenges remain, irrespective of Shariah compliance. The impediments include the substitution of standard structural features in conventional securities, such as credit enhancements, which are not normally contractually permissible in the Islamic context; legal uncertainty as transaction structure needs to satisfy commercial as well as Islamic law, in particular in non-Islamic countries and the regulatory differences between national regulators.“The ongoing efforts by Islamic regulators – notably the Accounting and Auditing Organisation for Islamic Financial Institutions, the International Islamic Financial Market, and the Islamic Financial Services Board – to facilitate harmonisation of standards and practices should help overcome some of these teething pains,” the study said. - (GT, 21 Sep 07)

S&P introduces stability ratings for Islamic banks with profit-sharing investment accounts

Standard & Poor's Ratings Services today launched a new service: stability ratings for Islamic banks with profit-sharing investment accounts. "We're pleased to be the only rating agency to offer this innovative service to Islamic banks, which gives their customers a useful opinion about their profit-sharing investment accounts," said Standard & Poor's credit analyst Anouar Hassoune. In a report published today, "S&P Launches Stability Ratings For Islamic Banks Offering Profit-Sharing Investment Accounts," Mr. Hassoune explains how these financial instruments are to be rated. PSIAs are an important source of funding for Islamic financial institutions (IFIs), much like savings and checking accounts are a main funding tool for conventional banks. But unlike conventional time deposits, PSIAs comply with Sharia law, which bans the payment of interest. Instead of interest, PSIA depositors are entitled to receive a share of the bank's profits, but also obliged to bear all potential losses on their investment. This profit-sharing principle is core to Islamic finance, according to which investors and entrepreneurs must share the risks and rewards of a given venture. As PSIAs are loss absorbing, our classic credit ratings are not applicable to this class of instruments. We have decided, however, that our stability ratings are applicable and could provide PSIA depositors and the wider financial community with a useful opinion about these instruments. Stability ratings represent Standard & Poor's opinion about the expected stability of cash flow distributable to PSIA holders of an Islamic financial institution on a scale running from 'SR-1' (highest) to 'SR-7' (lowest). By stability, we specifically mean the relative sustainability and variability of distributable cash flow, which underpin cash distributions. A stability rating incorporates analyses of three aspects of the issuer: structure and governance, business risk profile, and financial risk profile. "Investors may find that stability ratings help them understand and compare the expected volatility of the yield served on PSIAs of different banks," said Mr. Hassoune, "particularly as stability ratings are subject more to changes in the characteristics of the institution than to the ebb and flow of market valuations or sentiments." Stability ratings are neither opinions about an IFI's overall creditworthiness or profitability; nor recommendations to buy, sell, or hold a particular PSIA. Furthermore, they do not comment on the suitability of any investment for a given investor. - (AB, 22 Sep 07)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
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Islamic Banking and Social Responsibility

By Lahem al Nasser

Each year, with the advent of the month of Ramadan, the Saudi Dallah Al Baraka group holds a jurisprudential seminar that brings together all the personnel and those concerned in the field of Islamic banking from all over the world. Held under the auspices of the Saudi Dallah Al Baraka group, this year’s seminar marks the 28th anniversary. Twenty-eight years of achievements in the field of Islamic banking, the Dallah Al Baraka group has hosted scholars, researchers and economists, among others, over numerous pertinent and emerging issues related to the subject. Additionally, contentious matters that the legitimate bodies of Islamic financial institutions have disagreed upon are discussed with the intention of resolution. The seminar lasts between two-to-three days in which a number of issues are brought to the table and debated. At the end of the seminar, recommendations are made and are the outcome of the scholars’ consensus following consultations over issues. They make recommendations that give the jurisprudential view of the issue at stake. These recommendations have had an impact to the point that they have been adopted by the jurisprudential bodies, which examine them closely and issue various decisions based on them. Perhaps the most important of these recommendations were the ones that prohibited systematic ‘tawaruq’* banking and tampering with Shariah, issues that were discussed in the Dallah Al Baraka seminars before they were officially studied by the jurisprudential authorities. Undoubtedly the credit goes to Dallah Al Baraka group, especially the businessman Salah Abdullah Kamel who is the chairman of Dallah Al Baraka group, for organizing the seminars every year since their inception, in addition to the group’s moral, financial and media support. This proves the group’s awareness and dedication to fulfilling its social responsibility towards society, whilst paving the way for the dissemination of an outlook that values social responsibility among financial institutions and private sector companies in the Islamic world. The majority of these entities neglect their social responsibilities despite the fact that it is a crucial aspect of Islamic Shariah, which calls upon the community to unite and collaborate. The Prophet (PBUH) said: You may liken the faithful having mercy for one another and in their love and kindness towards one another to the body; when one member of it ails, the entire body ails, one part calling out to the others with feverish sleeplessness. How many of our major companies have made social responsibility part of their policies and targeted goals?! How many of our companies have programs dedicated to social responsibility?! Without a doubt, social responsibility among companies is no longer a social aspect; rather, it has become an unwritten ethical code that companies must abide by and allocate a portion of their budget for. This approach aims to share the benefits with our societies, which would especially benefit the economies that do not impose taxes on companies, such as most of the economies in the Gulf States. Consider the number of Gulf companies that have devoted part of their budgets to nurture the gifted or grant scholarship opportunities to those who excel academically and for medical and academic research, in addition to environmental awareness programs, among others. Social responsibility, or what is known as Corporate Social Responsibility (CSR), has become a basic component in major Western companies. However, this responsibility is not limited to financial donations for charity projects and institutions, but rather surpasses that to cover ethical management. Since everyone can reap the benefits when this approach is implemented, it follows that it serves all the different segments of society, which in turn serves the company through increased loyalty among the workers, thus resulting in more stability and productivity. The United Nations (UN) has exerted practical efforts to set a universal code of standards for CSR, while some governments have established standards which they adhere to, such as Britain. Within this context of international efforts to establish CSR codes, I would like to take this opportunity to call upon the general council for Islamic banks and Islamic financial institutions to adopt a CSR code based on the Quran and Sunnah while benefiting from international experiences in the field. * Lahem al Nasser is a Saudi Islamic banking expert.
Tawaruq Finance
1) This form of Shariah-compliant finance helps businesses with their need for cash required to finance their operating capital and is based on the Tawaruq sale principles.
2) Tawaruq is a Shariah-compliant finance method, with which you can raise loan finance through buying installments in a local commodity, owned by the bank.
3) The customer buys a share in local or international commodity the bank owns. The customer then authorizes the bank to sell his share in this commodity, on his behalf, to a third party for cash and then deposit the proceeds into his account. (Source Riyad Bank) - (AA, 22 Sep 07)
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Saturday, 22 September 2007

Islamic Banking Makes Headway Says IMF

Islamic banking is steadily moving into an increasing number of conventional financial systems.
It is expanding not only in nations with majority Muslim populations, but also in other countries where Muslims are a minority, such as the United Kingdom and Japan. Similarly, countries such as India, the Kyrgyz Republic, and Syria have recently granted, or are considering granting, licenses for Islamic banking activities. In fact, there are currently more than 300 Islamic financial institutions spread over 51 countries, plus well over 250 mutual funds that comply with Islamic principles. And, over the past decade, the Islamic banking industry has experienced growth rates of 10-15 percent per year—a trend that is expected to continue. Despite the rapid growth, many practitioners and supervisory authorities are unfamiliar with the process by which Islamic banks are introduced into a conventional system, or with the gamut of principles governing Islamic banking. While an understanding of both process and the principles is important for succeeding in the industry, this article focuses on the latter. More information on the process to be followed can be found in the IMF Working Paper "Introducing Islamic Banks into Conventional Banking Systems." Four main principles: Besides the well-known Quran admonishment against riba (interest), gharar and maisir (contractual uncertainty and gambling), and haram industries (prohibited industries such as those related to pork products, pornography, or alcoholic beverages), practitioners and supervisors must observe other principles to comply with Islamic jurisprudence. Paramount among these are: compliance with the Shariah (Islamic law), segregation of Islamic and conventional funds, accounting standards, and awareness campaigns (see Yaquby, N., "Sharia Requirements for Conventional Banks," Journal of Islamic Banking and Finance, Vol. 22, July-Sept. 2005, No. 3, for a similar discussion). Shariah compliance. Islamic finance in based on the principles established by the Shariah as well as other jurisprudence or rulings, known as fatwa, issued by qualified Muslim scholars. Some of the issues covered by these rulings can be quite complex, forcing the institutions involved to often seek the assistance of experts in interpreting them. As a result, it has become a common practice for Islamic banks to appoint their own board of Shariah scholars. Nevertheless, since expertise in these matters is still relatively scarce in some countries, different Islamic banks often share the same scholars. This phenomenon has the beneficial side effect that it promotes consistency across the services and products offered by these institutions. Therefore, the first measure that an institution wishing to offer Islamic products must undertake is to appoint a Shariah board or, at a very minimum, a Shariah counselor. This initial step is essential for the future operations of the institution, as it will help minimize Shariah risk—the risk that the terms agreed in a contract do not effectively comply with Islamic jurisprudence and thus are not valid under Islamic law. "Another important aspect for the regulator is that its rulings and decisions are consistent with those of the Shariah boards of foreign supervisory agencies." Financial regulators should also appoint their own Shariah experts, a move that would provide advice on the instruments and services offered by the institutions in their jurisdiction. Consultation with these experts would be crucial to ascertain whether the regulations issued by the supervisor with regard to Islamic institutions, as well as the licensing of different activities, are compatible with Islamic principles. Another important aspect for the regulator is that its rulings and decisions are consistent with those of the Shariah boards of foreign supervisory agencies. An important effort toward achieving international consistency was the creation of two multilateral institutions: the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which issues internationally recognized Shariah standards on accounting, auditing, and governance issues; and the Islamic Financial Services Board (IFSB), which issues standards for the effective supervision and regulation of Islamic financial institutions. Segregation of funds. An important principle behind Islamic finance is the desire to maintain the moral purity of all transactions. The funds intended for Shariah-compatible investments should therefore not be mixed with those of non-Islamic investments. The rationale behind this principle is rather one of prudence, in the sense of taking all the necessary precautions to ensure that Islamic funds do not become mixed with other funds that may be involved with riba, gharar, or haram activities. Therefore, to ensure compliance with Islamic principles, conventional banks wishing to offer Islamic products must guarantee and publicize that the funds devoted to conventional activities will not be commingled with those destined for Islamic activities. In operational terms, this requires that banks establish different capital funds, accounts, and reporting systems for each type of activity. Accounting and auditing standards. The rapid expansion of the Islamic financial industry that started in the 1970s was not initially accompanied by the creation of a set of internationally recognized accounting rules. Islamic institutions around the globe, therefore, had to resort to developing their own accounting solutions for their new products, rendering comparisons across institutions difficult, and sometimes even giving the impression of lack of transparency. The need for a body of accounting standards purposely designed to reflect the specificities of Islamic products became even more pressing as new and more complex instruments were being marketed. To close this widening gap, the AAOIFI was created in 1990. One of the main goals of this organization is to design and disseminate accounting and auditing standards that can be applied internationally by all Islamic institutions. The AAOIFI also plays a crucial role in pursuing the harmonization of Shariah-based rulings across jurisdictions. In those jurisdictions where Islamic finance is still nascent, regulators and financial institutions should familiarize themselves with the standards set by the AAOIFI, and apply them to the maximum extent possible. The pursuit of international consistency not only eases the task of supervising internationally active institutions, but it would also ultimately favor the regulated institutions, as Islamic transactions would become better understood, and thus more attractive for Muslim and non-Muslim investors across the world. In addition, it would foster the integration of Islamic institutions into the international financial community. Awareness campaigns. The speed and degree of success with which Islamic banking will emerge in conventional systems will largely depend on whether potential depositors and investors are well informed about the opportunities and risks at hand, and on whether Islamic banking is perceived as a transparent and well-regulated activity. From a prudential standpoint, regulators should communicate to the public what types of Islamic institutions and products will be supervised. They should also require institutions offering Islamic products to actively pursue awareness campaigns. For instance, commercial banks should inform investment (mudarabah) depositors of the profit-and-loss nature of their deposits. In practice, these tasks can be easily accomplished by simply providing an explanatory prospectus to interested customers.Source of support: A number of multilateral institutions have been recently created to provide assistance to governments and supervisory agencies to help them understand Islamic banking and to issue standards and best-practice guidelines for this industry. These organizations are the best places for governments to turn to initially for advice. They include the IMF, IFSB, AAOIFI, and the Islamic Development Bank. In addition, the authorities should engage in dialogue with the local interlocutors of this industry, to promote an open and fluid exchange of information and ideas. - (IMF, 11 Sep 07)

Friday, 21 September 2007

Competition for private bankers in Dubai

DUBAI: Private bankers in tax-free Dubai are earning 25 per cent more than peers in Geneva and almost 40 per cent more than colleagues in London, a survey by Dubai-based headhunter Dunn Consultancy FZ-LLC found. Dubai’s private bankers with at least 10 years experience are paid an average US$276,500 (US$1 = RM3.45) in salary and allowances, compared with pretax earnings of US$221,900 in Geneva and US$199,100 in London, the Dunn Consultancy study, which excludes bonuses, showed. From June to August it surveyed 474 bankers from 20 lenders that have wealth-management units in all three cities.“There’s fierce competition for private bankers in the Gulf as banks hire locally and move teams from traditional hubs in Geneva and London,” Matthew Dunn, chief executive officer of Dunn Consultancy, said in an interview. “Pay is rising as more banks enter the region, but it’s completely unsustainable and has to slow down in the next two to three years.”The private banks of Citigroup Inc, HSBC Holdings plc and UBS AG are among the personal-wealth managers competing to look after the finances of Middle Eastern clients with at least US$1 million of assets. Personal wealth in the oil-rich Middle East may rise to US$2.2 trillion by 2011 from US$1.4 trillion in 2006, Merrill Lynch & Co and Capgemini SA said in their 2007 world wealth report.The number of US dollar millionaires in the region rose 12 per cent to more than 300,000 last year, the report showed.“It’s definitely a competitive market,” Ramzi Abukhadra, a managing director in the Gulf for JPMorgan Chase & Co’s private-banking unit, said in an interview from Bahrain. “Over the past 12 to 18 months, institutions have been coming to the region at a much faster pace, and all are looking for talent.”Dubai in 2004 opened the Dubai International Financial Centre, a self-regulated 45ha business park designed to attract financial institutions to the Gulf sheikhdom. The centre has since opened its own stock, bond, fund and derivatives exchange, and given licences to banks including ABN AMRO Holding NV, Credit Suisse Group and Deutsche Bank AG.Dunn Consultancy included results from some Zurich-based bankers within the Geneva figures after finding no pay discrepancy between the Swiss cities, according to Matthew Dunn.Sums paid to bankers for school fees, housing, club memberships and personal travel were included within the allowances tally. Bonuses were excluded because they vary “enormously” depending on performance, Dunn said.Gulf bankers received the biggest pay rises in their industry last year as a regional skills shortage pushed up salaries and bonuses, UK-based headhunter Napier Scott Executive Search Ltd said in a survey earlier this year.Demand for bankers with private equity, merger and acquisition, Islamic finance and structured finance experience fuelled pay increases of as much as 30 per cent, senior consultant Bill Allum said in a March 27 interview. Salaries in Asia rose as much as 25 per cent in the period, while UK and US gains were 22 per cent and 15 per cent respectively, Napier Scott said, after surveying 10 global banks and 20 regional lenders.“Many banks are building private-banking teams in Dubai to get closer to clients and to test the waters before bringing in a larger investment-banking presence,” Dunn said.Families own 92 per cent of closely-held companies in the United Arab Emirates (UAE), the second-biggest Arab economy after Saudi Arabia, according to the Dubai Chamber of Commerce & Industry.Of 93 publicly-traded UAE companies surveyed earlier this year by The National Investor, an Abu Dhabi-based investment bank, 10 clans including the al-Qassimis, al-Dhahirys, al-Mazroueis and al-Ghurairs hold 25 per cent of all the seats on their boards of directors. – (Bloomberg, 21 Sep 07)

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Lloyds TSB 'focussed' on Islamic finance

Lloyds TSB has outlined its commitment to Islamic finance in the UK.The government has taken steps to promote finances that comply with Sharia law, such as the abolition of double stamp duty, Lloyds TSB said.And with Muslims providing a spending power in excess of £20.5 billion in the UK, according to JWT Finance, the bank is keen on catering for the market.A spokesperson for the bank claimed it has one of the biggest ranges on the high street for Islamic financial products, ranging from current accounts and student accounts to investment funds and mortgages."Our focus is on making sure that Muslims in this country, whether they are individual customers or businesses, can manage their money according to their faith."Under Sharia law, it is not permitted to charge interest, nor is it allowed to invest in products such as alcohol, gambling, cigarettes or pornography. - (MN, 20 Sep 07)

Thursday, 20 September 2007

BNM Eyes Islamic Financing Products For Construction Sector

KUALA LUMPUR, Sept 19 (Bernama) -- Bank Negara Malaysia (BNM), in consultation with the Master Builders Association Malaysia (MBAM), aims to come up a guideline on Islamic financing products for the construction sector.MBAM president, Patrick Wong, said BNM's move to promote Islamic financing for the construction sector was good and would give the industry a boost."The association is expected to hold further discussions with BNM today," he told reporters at the International Construction Conference 2007 here Wednesday.Early this month, BNM said international Islamic banks under the Malaysian International Islamic Financial Centre initiative, would be allowed to offer Islamic banking services for non-residents in local and foreign currencies."The advantage of Islamic financing to the industry players is that the cost of fund is capped and it offers easier repayment as it is not an interest-centred funding. It is more a profit-sharing funding," he said.Wong said Islamic banking was good for the construction players because it capped the cost and the risks were much lower."We are optimistic of the move because BNM invited us to get our views and feedback on how it can formulate certain Islamic financing products to be introduced to the construction sector," Wong said, when asked on the association's expectations at the meeting today.On whether the financing was for both local and overseas projects, Wong said: "We don't know whether we will talk about overseas or not, but I think it is more local at this moment. But once BNM takes the lead, then this can be recognised everywhere in the world." - (Bernama, 19 Sep 07)

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Bank Niaga Syariah wins best syariah unit award

Jakarta (ANTARA News) - Bank Niaga Syariah (BNS), the sharia unit of publicly-listed Bank Niaga, has won `The Best Syariah Unit 2007 Award` from Investor Magazine for the category of assets worth more than Rp500 billion.Catherine Hadiman, Bank Niaga`s corporate and business banking director, said in a press statement issued on Wednesday she was happy with the award and expressed gratitude to customers and stakeholders for their trust in and support for BNS.BNS had assets totaling Rp604.1 billion as per June 30, 2007, up 32.3 percent from a year earlier. It now has eight sharia outlets located in Jakarta, Surabaya and Bandung, in addition to 43 office channeling units. The sharia unit is expected to open 64 more office channeling units at the bank`s branches in Jakarta, Bandung and Surabaya in the first semester of 2007. Earlier, BNS also won the Islamic Financial Award in 2006 for the category of assets worth more than Rp100 billion. - (AN, 19 Sep 07)

Pak-Qatar Family Takaful issues Pakistan’s First Ever Family Takaful Policy

KARACHI: Pak-Qatar Family Takaful has issued Pakistan’s first ever-Family Takaful policy to Sidat Hyder Morshed Associates (SHMA). In this regard a formal signing was held where representatives of Pak-Qatar Family Takaful and Sidat Hyder Morshed Associates signed the policy. Having received their license from the Securities and Exchange Commission of Pakistan, Pak-Qatar Family Takaful limited has commenced Family Takaful business in Pakistan. This makes Pak-Qatar Family Takaful the first every Family Takaful operator in Pakistan. Pak-Qatar Family Takaful will offer products providing financial protection and long term savings such as death/disability Takaful, health Takaful, Education Plans, retirement income plans and other savings schemes. It is run by a strong and professional management team which is keen to make Takaful a successful concept in Pakistan. Pak-Qatar Family Takaful Limited, working together with its sister concern, Pak-Qatar General Takaful Limited, will offer Family and General Takaful under one umbrella. Pak-Qatar Family Takaful has issued first family takaful policy to Sidat Hyder Morshed Associates (SHMA) which is a management consulting, technology services and outsourcing practice established and operating since 1986. Their core specialty areas include actuarial & insurance consulting, human resources consulting, Business Systems Consulting, information solutions & services. - (ON, 19 Sep 07)

Malaysia's Affin Islamic keen to expand Islamic banking operations

KUALA LUMPUR (Thomson Financial) - Affin Islamic Bank Bhd is looking for an acquisition in line with its objective of expanding its Islamic banking operations in the country, the official Bernama news agency reported, citing chief executive officer Kamarul Ariffin Mohd Jamil. Affin Islamic Bank is a subsidiary of banking group Affin Holdings Bhd. 'Since Bank Negara Malaysia has liberalised the foreign equity ruling in existing Islamic banks, we are always open to any suitable and interesting proposition towards the acquisition or collaboration,' he said. 'But, at the moment, we have not talked with any parties,' Kamarul Ariffin said. Separately, Malaysia's sole private free-to-air television group Media Prima Bhd has signed a 70 million ringgit term refinancing facility with Affin Islamic Bank today for its capital management initiative to generate lower cost of funds and savings over the medium term. 'The total debt and capital exercise that we took will give us a cost saving of about 5-6 million ringgit per annum,' Media Prima's managing director and chief executive officer Abdul Rahman Ahmad said. The company currently has a total debt facility of up to 450 million ringgit. (1 US dollar = 3.45 ringgit) - (19 Sep 07)

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Tuesday, 18 September 2007

Sukuk surge sparks alternative ways of funding

MANAMA: An unprecedented surge in sukuk issuance during the past three years has provided issuers with an alternative way to structure their funding, says a leading global financial monitor. In a report published yesterday, Standard & Poor's Ratings Services explained how it addresses the various factors involved in rating these Sharia-compliant instruments.The report Standard & Poor's Approach To Rating Sukuk estimates sukuk outstanding worldwide to be in excess of $80 billion at June 30, this year. Standard & Poor's believes new laws that encourage both home ownership and mortgage borrowing are likely to provide a platform for a securitisation market in the Middle East. The firm now rates more than $12 billion of listed sukuk worldwide, including landmark issues from DP World and Saad Trading in 2007. Standard & Poor's announced the appointment of a new regional manager for the firm in the Middle East. Jan Willem Plantagie will be based in Standard & Poor's new office in Dubai from November and will lead efforts to further strengthen the company's presence across the region's rapidly evolving capital markets. Mr Plantagie, who joined the company in 1998, has been coordinator of Standard & Poor's Middle East Taskforce since 2005, and was most recently managing director and head of the project finance, PPP and transport infrastructure team at Standard & Poor's Ratings Services. "With Jan's extensive knowledge of the Middle East market generally and Islamic finance specifically, he will contribute significantly to championing Standard & Poor's strengths and capabilities in this dynamic growth region," said Standard & Poor's Europe managing director Torsten Hinrichs. "Already the largest provider of credit ratings in the Gulf, Standard & Poor's has built a very strong platform from which to expand. - (GDN, 18 Sep 07)

Saudi trader offers to help Mindanao in halal market

DAVAO CITY, Philippines -- A Saudi businessman engaged in import and export of food products has pledged to help Mindanao poultry and meat industry players to resolve the long-standing problem on halal certification, Vicente Lao, chair of the Mindanao Business Council (MinBC), told reporters here Monday. Lao said that Shiek Faeyez Hamed Zainy, who owns the Abbar & Zainy Corp., also pledged to bring in halal process experts from Saudi Arabia in November who were also involved in the issuance of halal certificates in the oil-rich kingdom. "The said personalities are the ones who are issuing halal certification in KSA. If they approve the halal certification procedure in the Autonomous Region in Muslim Mindanao (ARMM), Abbar & Zainy Corp. will buy halal products from there," Lao said. Lao said Zainy would talk with the Saudi ambassador in connection with his plan to bring the halal experts to the Philippines. Zainy also assured that the halal certification problem would be solved in three months, Lao added. Mindanao businessmen engaged in poultry and cattle processing have long been faced with the lack of a worldwide-accepted halal certification body in the Philippines. There were efforts in the past to tap the Brunei halal certification body so that they could crack the halal market, which is touted to be in the billions of dollar, but these failed to materialize. Member-countries of the East Asean Growth Area (EAGA) also tried to forge an agreement to help the Philippines get a worldwide-accepted halal process but Indonesia’s insistence to supply the feeds to animal growers in Mindanao led to a stand still. Lao said Zainy’s efforts in helping Mindanao animal growers resolve the halal certification problem could help boost the island’s poultry and meat industry. He said the absence of bird flu cases in Mindanao would also help the island’s poultry and meat industries to crack the Saudi halal market. Currently, Saudi sources its poultry products from Brazil and France to meet growing demands after bird flu cases hit Indonesia, Malaysia and other Asian countries. "This is a window of opportunity for Mindanao," Lao said. Halal, according to Wikipedia, is an Arabic term meaning "permissible." In the English language, it most frequently refers to food that is permissible according to Islamic law. In the Arabic language, it refers to anything that is permissible under Islam. - (BI, 18 Sep 07)

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Sewa planning to raise $3bn for power project

DUBAI: State-owned Sharjah Electricity & Water Authority (Sewa) plans to raise at least 10 billion dirhams ($2.72bn) to finance a power project in the UAE, the authority's director-general said yesterday. Sewa, which provides services in the UAE's third-largest member, could raise the funds by selling bonds or bonds that comply with an Islamic ban on the receipt of interest, Al Waleed Khaleed bin Khadem said. Demand for power and water in the Gulf region is surging as the population grows and businesses expand, spurred by a quadrupling in oil prices since 2002 that has fuelled economic growth. In Sharjah's neighbouring emirate, state-owned Dubai Electricity & Water Authority is planning to sell as much as $2.5bn of Islamic bonds to finance expansion, two people familiar with the matter said. "There is a lot of growth," bin Khadem said.
"We have to prepare now to meet the demand."Sewa plans to expand a 400mw power plant more than six-fold to 2,580mw by 2014 to meet demand surging as much as 9 percent a year, Bin Khadem said. "We will go to the banks and need above 10bn dirhams ... it could be through bonds or sukuk," he said. Sukuk are asset-backed Islamic bonds that pay holders a dividend rather than interest, which Islam equates with usury. Companies have until November 18 to bid for the contract to expand the power plant over several phases, a project which includes adding 120 million gallons per day of water desalination capacity, bin Khadem said. - (GD, 18 Sep 07)
Editor: Interestingly, "Sewa" means leasing (ijarah) in Malaysian language... perhap Sewa should consider ijarah sukuk.

Monday, 17 September 2007

Bank of Japan an observer of IFSB

The Bank of Japan (BOJ) has been invited to become an observer member of the Kuala Lumpur-based Islamic Financial Services Board (IFSB.) Japan's central bank was permitted to join IFSB "to enhance its understanding of the latest movements in Islamic finance, which has increasingly become influential," BOJ announced on Friday. IFSB is a standard-setting body for transactions consistent with Islamic jurisprudence, which promotes and enhances the soundness and stability of the Islamic financial services industry. The supervisory body consists of 20 full members, 14 associates, and 101 observers. - (PT, 14 Sep 07)

Hong Leong Islamic gears up for currency trading

Hong Leong Islamic Bank (HLIB) managing director Khalid Bhamia said the bank received the licence to set up the International Currency Business Unit (ICBU) a few months ago and is now ironing out the technicality issues before it can begin dealing in foreign currencies. The ICBU, which is one of the measures under the Malaysia International Islamic Financial Centre (MIFC) initiative, is a dedicated division to conduct a full range of Islamic banking activities with non-residents and residents. Khalid told Business Times that the bank is now looking at the right markets and businesses to go into using this licence. “Licence is one part, but we must also ensure commercial viability before we decide on what to do next,” he said. Khalid however believes that there are a lot of opportunities for HLIB to do international business. “We will take advantage of this licence, but we must also be mindful of our pricing because it has to be competitive especially in the international market,” he said. He has no timeframe on when the international business of the ICBU will take off as the bank is now focusing on turning itself into a lean organisation in terms of cost structure. Khalid also said that HLIB is developing new Islamic products that meet the standards of the Gulf Cooperation Council (GCC) countries. “It is easier to sell Islamic products in the GCC market and it is equally liquid there too.” He added that the GCC market is one that HLIB is looking at keenly but it does not rule out the possibility of expanding its Islamic banking presence via business deals in Singapore, Hong Kong and China.
“We are already a regional player through the presence of Hong Leong Bank in Singapore and Hong Kong,” he said, adding that it is just the matter of tapping this platform. Khalid, a Pakistani with 17 years of Islamic banking experience in Europe, said the challenge for the local Islamic banks is to stay in pace with the government’s policies which are “ahead of the industry.” He added that the support given by the Malaysian Government to promote Islamic finance growth has been more than sufficient and it is now up to the players to take advantage of it. - (BT, 17 Sep 07)
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Malaysia's Bank Islam, EIIB to jointly sell products in Europe

KUALA LUMPUR, Sept 17 (Reuters) - Bank Islam Malaysia Bhd, Malaysia's oldest Islamic lender, has agreed with European Islamic Investment Bank (EIIB) on Monday to jointly offer sharia-compliant financial products in Europe. To meet strong demand among high net worth private clients in the Middle East, Asia and Europe, EIIB is launching five different funds to raise as much as $600 million. "From now on, as far as possible, Bank Islam and EIIB will jointly originate, structure and distribute a range of innovative Islamic products, in particular in fee-income generating areas such as capital markets, treasury and wealth management," Bank Islam Managing Director Zukri Samat said. "In tandem with our strategy to boost fee-based income to sustain earnings growth in the long run, we are also keen to tap EIIB's expertise and capabilities in corporate finance and advisory services," he said in a statement. Malaysia is a gateway to Asia and offers the infrastructure for Islamic finance, EIIB Managing Director John Weguelin said. "EIIB gains a footprint in Malaysia with access to the infrastructure to originate and distribute in this market and Bank Islam conversely gains the access we can provide to Islamic finance markets in Europe and the Gulf, as well as our structuring and capital markets skills," Weguelin said. Islamic finance caters to devout Muslims by banning interest and generally avoid investments in alcohol, gambling and other activities barred in the Muslim faith. Countries from Bahrain to Malaysia are racing to create Islamic banking hubs to serve the world's 1.2 billion Muslims. Including subsidiaries of conventional banks, there are roughly 270 Islamic banks worldwide, holding assets estimated at roughly $270 million, according to consulting firm McKinsey. Bank Islam said it was not seeking equity from joint venture partner EIIB, but was looking for one or two more joint venture partners in its Middle East expansion plans. "We already have a big foreign shareholder, so we are not thinking of having any new foreign shareholders for the time being. This is more of a strategic collaboration rather than equity participation," Zukri said. Bank Islam, 40 percent owned by Dubai Investment Group, planned to sell around 2 billion ringgit ($573.5 million) in non-performing loans, he added. "Bank Islam faces a legacy of non-performing loans and when I came on board one of the initiatives that I took on was to carve out these non-performing loans. "We've been talking to some parties and we have selected one which is currently doing a due diligence on the books." ($1=3.487 Malaysian Ringgit) - (Reuters, 17 Sep 07)
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: A Destination of Choice for Foreign Investors


MANAMA, 17 September 2007 — Malaysia, which had issued the world’s first global sovereign $600 million Malaysian global Sukuk, ranks first in Sukuk issuance with 67 percent of global outstanding Islamic bond market, said Ambassador Naimun Mohammed Ashkali on the occasion of 50 independence day here, adding that Malaysia would continue to build its reputation as one of the most sophisticated and advanced country as part of a long term strategy. Highlighting the salient features of Malaysian economy, the ambassador said that Malaysia has emerged as a destination of choice for foreign investors. Malaysia had attracted over BD2 billion in foreign direct investment (FDIs) in 2006 in the first half of this year, with total volume of FDIs crossing BD1.4 billion mark, indicating a surge in this segment by the end of the year. Malaysia’s services sector is the largest sector in the economy, contributing 52.4 percent to GDP and 48.6 percent to total employment in 2000. The government views the services sector as a catalyst for growth and national development. “Last year, the national GDP was at $313.8 billion with a growth of 5.9 percent, of which $10.3 billion came from the tourism sector — making it as the second economic contributor for 2006. The services sector accounts about 54 percent of the national GDP. The ambassador said the tourism industry has experienced a rapid growth and gained an importance in the Malaysian economy. “It is the second largest foreign exchange earner after manufacturing. This is in line with the government’s objective to accelerate the domestic private sector and stimulate the services sector to spearhead economic growth.” He said the government has redefined priorities aimed at enhancing the role of vital sectors in the national development such as tourism. He said: “Malaysian tourism authority has undertaken efforts to position Malaysia as a leading international shopping destination. The mega sales carnivals held on a nationwide basis were successful in attracting more shoppers. Each mega sale has managed to attract additional half a million foreign visitors from the neighboring countries on top of the normal tourist arrivals. For instance, in 2003, the retail sector made up just over 13 percent of Malaysia’s GDP and employed about 730,000 workers, or 7 percent of the total work force. The retail sector made a 10.2 percent growth in sales over the same period in 2004. Its relations to other sectors of the economy, such as wholesaling, advertisement and promotions, info technology and logistics, ensure it that it has a pivotal role to play. “Education tourism has become popular as reflected by the demand for tours to visit schools to enable students from other countries to gain knowledge of the school education system as well as experience the Malaysian school atmosphere, which is unique with the social interaction of the various ethnic groups besides contributing to the national economy.” - (AN, 17 Sep 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

Sunday, 16 September 2007

Maybank to grow Islamic banking with new products

KUALA LUMPUR: Malayan Banking Bhd (Maybank) is confident of growing its Islamic finance business despite not having an Islamic banking subsidiary by launching more innovative products, its head of Islamic banking Ibrahim Hassan said. He said the bank, which had been offering Islamic products through its Islamic banking window since 1993, would continue to diversify its product base in order to become more competitive. “We have been able to grow the business over the years based on the window concept and we will continue to grow. There is no hindrance to grow the business via the window concept,” Ibrahim told reporters after the launch of three new Islamic banking products and the Riang Ria Raya campaign here yesterday. The three new products are net Current Account-i, HomeEquity-i and Shophouse Equity-i. Ibrahim said the net Current Account-i was the first Syariah-compliant current account in the country that is Internet-based. It offers customers the convenience of a checking facility with a combination of online features and takaful cover while giving them dividends at the same time. He said HomeEquity-i and ShophouseEquity-i were based on the diminishing co-ownership or Musyarakah Mutanaqisah (MM) concept that would allow customers and the bank to form a partnership to jointly own the underlying property. Under MM, each party would obtain its respective shares based on the ratio equivalent to the capital raised, he added. The bank will then lease its share of the property to the customer and the latter will gain ownership of the bank’s share by making monthly payments over an agreed duration of time. “The customer will ultimately become the sole owner of the property as the bank’s share gradually diminishes,” he added. Ibrahim said MM was different from what was currently in the market today as the main product offering by financial institutions for the financing portfolio was generally Bai Bitham an Ajil (BBA). “However, to meet the requirements of compliance in other regions especially the Middle East, the globally accepted concept of MM was introduced,” he added. Conceptually, BBA was a sale-and-purchase transaction as the bank purchases an asset for cash and sells it to the customer on a deferred payment basis, Ibrahim said, adding that the sale price included the bank’s profit margin as agreed upon by both parties. MM, however, was a partnership to jointly purchase and own an asset as both the bank and customers take up equity in the partnership, he added. Maybank is the largest Islamic banking operator in Malaysia with assets of RM23.9 billion. Its outstanding Islamic loans reached RM19.14 billion in its previous financial year ended June 30, 2007, comprising 23.5% of the market share. - (TE, 13 Sep 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

Syria Islamic International Bank Opens for Business


Damascus, (SANA) - Syria Islamic International Bank opened for business on Saturday in its temporary headquarters at the Meridian hotel, providing banking services and advanced financing and investment according to Islamic law. The bank provides a variety of services including deposits, attracting investment and Islamic financing that caters to all social and economic sectors of the Syrian society. The bank's general director Abdelkader Dwaik stated that the bank is keen on fulfilling the requirements of clients, both companies and individuals, starting from the level of house, car and home appliances insurance for individuals, financing small and medium-sized development projects, and finally financing major development projects. Dwaik also pointed out to the importance of recent developments in the financial investment environment in Syria, which encouraged the expansion of investment in this vital sector. - (SANA, 15 Sep 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
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