Latest from GIFC

Friday, 30 November 2007

Malaysia To Build On Leading Edge In Islamic Banking


HONG KONG, Nov 30 (Bernama) -- Malaysia will build on its leading position as an Islamic banking leader in the wake of an increasing interest by many countries to tap into the wealthy Islamic capital market, Second Finance Minister Tan Sri Nor Mohamed Yakcop said today.More and more international financial centres are keenly eyeing the global Islamic finance industry estimated between US$700 billion to US$1 trillion (US$1=RM3.36).Hong Kong is among the latest to join financial centres, including Singapore and Bahrain, to tap the Islamic market."Malaysia started its Islamic banking system about 25 years ago, and we now have a comprehensive and sophisticated model that is unrivalled by other countries," said Nor Mohamed who is accompanying Deputy Prime Minister Datuk Seri Najib Tun Razak on a three-day investment mission to Hong Kong beginning today."Islamic banking is certainly a niche for us and a new growth centre. We have the competitive edge and we have to make full use of it," he told Malaysian newsmen.He said an increasing number of countries including financial hubs like London, New York and closer to home, China, Hong Kong and Japan, were interested in tapping Islamic capital."We have a good Islamic bond market in Malaysia, they can come and issue Islamic bonds in Malaysia and we can coordinate to help them given our experience," said Nor Mohamed.Hong Kong's securities regulators in the international financial hub approved its first Syariah-based retail fund by Hang Seng Bank, a unit of global banking group HSBC.Chief Executive Donald Tsang had said earlier this month that Hong Kong was working to develop an Islamic bond market and would send a mission to the Middle East next year.Nor Mohamed said the growing interest in Islamic banking was positive for Malaysia which had a wide array of Syariah-compliant products and services from bonds to pawn broking."We want to work with other countries, we can contribute in this regard because of our experience, we are up the curve," he said.The Survey Magazine published by the International Monetary Fund said Malaysia is the world's largest Islamic bond market with an estimated value of US$47 billion, accounting for two-thirds of the global total.Malaysia issued its first sovereign five-year Islamic bond or sukuk of US$600 million in 2002.

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Wednesday, 28 November 2007

Sukuk - new bonds that are Islamic-friendly

The financial needs of Britain's 1.6m Muslims have been given a boost after the Government announced that it is looking to launch Islamic-compliant bonds.
Products that meet Muslim religious requirements include those that do not pay or receive interest, and that only invest in suitable companies or prohibit dealing with industries such as gambling or alcohol.
Many Islamic financial products already exist, including Islamic bank accounts, mortgages and Child Trust Funds (CTFs). But this is the first time that the Government has considered offering Shariah-compliant investment certificates or "sukuk".
Sukuk, which are often referred to as Islamic bonds, make similar types of payments to investors as conventional bonds but the payments are not interest-based.
The precise way a sukuk works depends on the type of contract used, but one common way is to use a lease - or Ijara - contract.
In this instance, the money from investors is used to buy an asset, which must be compatible with Shariah law.
Once the asset is purchased, it can be leased to generate a rental income, which is paid to investors. At the maturity of the sukuk, the underlying assets are sold, allowing investors to get back their original investment.
Mr Abdul Rahman Al Baker, executive director, financial institutions supervision, at the Central Bank of Bahrain, said: "As an ethical form of finance, Islamic finance epitomizes the creation of value, productivity and development, as opposed to pure profit making.
"In the area of personal finance, loans taken on Shariah-compliant basis are more likely be used to purchase an asset, such as a house or car, rather than for non-productive consumer spending, such as financing a holiday."
The Government sees Islamic finance as a high-growth area. The global market for Islamic financial products is currently worth £40 billion and could reach as much as £250 billion in the years to come.
Kitty Ussher, the Government's economic secretary, said: "This is the first time that a G7 country has considered issuing sukuk and so we want to make sure that we get it right.
"The potential benefits are enormous and it would be great news for the City of London, sending a very strong signal that if you want to issue sukuk you should come here to do it."
The ban on interest under Shariah law means that Muslims cannot put money into a traditional current account.
As an alternative, Lloyds TSB offers an Islamic Account which does not pay any credit interest or offer an overdraft facility – although it does provide a debit card.
The funds within Lloyds TSB Islamic current accounts are held in accordance with Islamic law and are not invested in industries which are forbidden under Islam.
Catherine McGrath, Lloyds TSB director of transaction banking, said: "Britain is home to a large and fast growing Muslim community, but many have found that their financial needs have been left wanting.
"We have brought Islamic banking into the mainstream and we are giving the Muslim community access to financial services that meet their needs without compromising their religion."
Lloyds TSB also offers an Islamic mortgage known as Islamic Home Finance. But instead of lending money for a property, the bank buys the home on behalf of the customer, contributing up to 90 per cent of the purchase price. The customer provides the remaining percentage upfront and then pays the outstanding sum over an agreed term, together with a rental payment.
Shariah law also dictates that Muslims cannot invest money in companies that are involved in areas such as tobacco or alcohol, which can limit the choice of CTFs for Muslim families.
CTFs are available to all children born on or after September 1, 2002. Parents of these children are given £250 in vouchers to open accounts, although those from less well-off homes receive £500.
A second payment of £250 or £500 is sent out when children reach the age of seven, and Gordon Brown has raised the prospect of a third payment during secondary school years. Parents, grandparents, relatives and friends can then top up the government vouchers with up to £1,200 per child per year.
To cater to the Muslim market, The Children's Mutual offers the the Shariah Baby Bond as a stakeholder CTF, with charges capped at 1.5 per cent a year.
This ethical fund invests in the shares of companies around the world that are not involved in activities banned under Shariah law.
David White, chief executive of The Children's Mutual, said: "It is vital for families to act now so that their child isn't allocated an account that is not Shariah compliant.
"The CTF allows families to start saving for their children's futures in a way they prefer."
Factfile
Products that meet Muslim religious requirements do not pay or receive interest, and only invest in certain companies or prohibit dealings in industries such as gambling
Sukuk, which are often referred to as Islamic bonds, make similar types of payments to investors as conventional bonds but these are not interest-based
The precise way a sukuk works depends on the type of contract used, but a common way is to use a lease - or Ijara - contract
Consumers can now find financial products compliant with Shariah law ranging from current accounts and mortgages to Child Trust Funds (CTFS)
Case study: Sitting pretty with shariah-compliant accountBy Michelle de Klerk
When Sana Ayub-Shah, 26, and her husband Sajib Shah, 30 - pictured above- from Ilford, Essex, found out they could open Islamic current accounts through their bank, Lloyd's TSB, they jumped at the opportunity of having the "peace of mind" that their money would be handled in a Shariah-compliant way.
The couple have held the accounts since their wedding in April this year. Mrs Shah, an investment banker, said she had been very satisfied with the product and would advocate its use to other Muslim families.
She said having an Islamic bank account meant their money was being handled in a way that did not breach their beliefs: "It offers features, like no interest received, that allow me to follow my religion through my bank account."
The couple also have money invested in Premium Bonds, but would be willing to move their money across if further Islamic product options came on to the market.
Mrs Shah said the couple was more than happy to forgo the small amounts of interest paid on normal bank accounts in favour of being "better Muslims" by holding an Islamic account. - (Telegraph, 28 ov 07)

Public Mutual is Most Outstanding Islamic Fund Manager

PETALING JAYA: Public Bank Bhd’s unit, Public Mutual won the Most Outstanding Islamic Fund Manager award at the recent Kuala Lumpur Islamic Finance Forum’s Islamic Finance Awards 2007 ceremony.

The award was presented by Second Finance Minister Tan Sri Nor Mohamed Yakcop to Public Mutual’s chairman Tan Sri Dr Teh Hong Piow during the award presentation ceremony on Nov 20, 2007 at the Nikko Hotel Kuala Lumpur.

Public Mutual said yesterday the objective of the awards was to honour and appreciate efforts of the institutions and organisations that have given significant contribution in developing the industry.

“Winning this award not only reinforces our leadership position in the industry but also affirms our commitment to excellence. This achievement is a testimony of Public Mutual’s collective dedication and commitment to continuously deliver value to our investors,” Teh said.

The Kuala Lumpur Islamic Finance Forum was organised by the Centre for Research and Training together with Halal Industry Development Corporation (HDC), and in collaboration with Dow Jones Islamic Market Indexes, the International Institute of Islamic Finance and Messrs Hisham, Sobri & Kadir.

Public Mutual said the Islamic fund industry in Malaysia had grown rapidly and remained highly competitive. - (TE, 27 Nov 07)

Tuesday, 27 November 2007

Mainstream banking bows to the Koran

Rising oil wealth is lifting Islamic banking — banking that adheres to the laws of the Koran and its prohibition on charging interest — into the financial mainstream.
Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals such as London, Tokyo and Hong Kong, are all going into the Islamic banking business.
An estimated 300 Islamic financial institutions hold at least 500billion in assets, and deposits are increasing more than 10% a year.
In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives.
Loans and bonds that conform to the Koran are already available in the U S. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.
In Islamic banking, financiers are required to share borrowers’ risks, meaning that depositors are treated more like shareholders, earning a portion of profits.
“This is an industry on its way from a niche industry to becoming a truly global industry,” said Khawaja Mohammad Salman Younis, managing director for operations at Kuwait Finance House in Malaysia, the world’s second-largest Islamic bank after Al-Rajhi Bank.
“In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world,” Younis said.
The stampede into Islamic finance is mostly an effort to tap an estimated 1.5-trillion of funds sloshing around the Middle East, largely from higher oil prices.
While a lot of this oil money was parked in the U S, the UK and Switzerland before September 11 2001, bankers say many wealthy Arabs are investing closer to home, in part to avoid increased scrutiny.
By some estimates, as much as 800-billion of Arab money has moved from the U S and Europe to other regions.
The result is expanding demand for financial services that adhere to Islamic law, or Shariah. — © (2007) New York Times

KFH Bahrain launches Sharia-compliant credit card

MANAMA: Kuwait Finance House - Bahrain (KFH-Bahrain) announced the launch of the first Islamic EMV compliant credit card with Visa. EMV is an internationally recognised standard. The credit card is a Sharia-compliant offering that has been developed by KFH-Bahrain to provide greater convenience and advantages to its customers. Holders of the new credit cards can enjoy a revolving credit facility without incurring any interest costs, just a low transparent service charge. "The Sharia-compliant credit card will offer all the advantages of today's credit cards, while remaining true to the values of Sharia and the principles of Riba-free Islamic banking that KFH-Bahrain proudly represents," KFH-Bahrain consumer banking head Khalid Rafie said. "It is the first Islamic EMV-compliant credit card, providing ultimate security to our customers. The new card will create a marked difference to the value proposition that is currently available in the market. "The introduction of this new card reinforces the message that KFH-Bahrain is continually developing its products and services to suit the needs of its customers,' he added. "It is available in a choice of Gold and Classic. The credit card has no joining fee, is free from interest, and comes at a lower cost for revolving credit users."

Sunday, 25 November 2007

The Growth of Shariah Compliant Funds to be addressed at GAIM

Over the past year, Shariah-compliant assets have grown almost 30 percent, to more than $500.5 billion, according to analysis of the industry on a global scale, published this month by The Banker magazine. The news comes as GAIM conference is about to start on Monday, 26 November 2007 at the Jumeirah Beach Hotel, Dubai. The Middle East’s inaugural Global Alternative Investment Management Conference was launched in this region to focus on the needs of the Gulf investment community. The three day conference will deal with key issues such as the structuring of Islamic Hedge Funds, the importance of the Middle East as a part of a Global Emerging Markets portfolio and the evolution of the regional market.
The evidence from The Banker magazine is supported by another survey by financial research giants Standard & Poor’s, which estimates that the market for Islamic financial products, which include retail banking services, mortgages, equity funds, fixed income, insurance, private equity, and derivatives, is currently worth $400 billion.
Commenting upon the findings, Ziad Makkawi, Chairman and CEO of Algebra Capital said: “The demand for Shariah compliant investing will continue to grow at a rapid pace. Shariah investing is in fact ethical investing. Most people believe that Islamic Finance is about - not charging interest, in reality it is considered with a regulatory and legal environment that aims to establish social harmony, the avoidance of usury and the proper sharing of risk. When given the choice, all things being equal regarding the costs and quality of investment opportunities, Muslim investors choose the Shariah compliant product over the conventional one”.
“In fact as the sophistication and diversity of Shariah compliant products increases we already see a cross-over where non-Muslims investors will also be targeted and offered Shariah compliant products, and this is where the biggest opportunity lies for practitioners of Shariah compliant and finance.” added Makkawi.
Meanwhile, the ‘pioneer of Islamic finance’, Eric Meyer, CEO, Shariah Capital will focus on the global demand for Shariah compliant Hedge Funds in his final day address at the conference.
“Witnessing this tremendous appetite by investors for Shariah Compliant funds, we have gathered the world’s renowned investors in Islamic Finance to share their knowledge and expertise with the delegates,” said Jeremy Butcher, Co-Event Director, IIR Middle East.
The event is expected to draw international attention and the conference’s impact has been bolstered by high level sponsorship from a number of leading organizations including Algebra Capital, Baer Capital Partners, W.P. Stewart, Gulf Investment Corporation, Argent Financial Group International, National Investments Company and Path solutions, while the official event partner is Dubai International Financial Centre.
There are also numerous networking opportunities at the conference with a Dhow Cruise on Dubai’s Creek and a Gala Welcome Dinner hosted by the Event Partner, Dubai International Financial Centre.
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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

Asian Finance Bank targets Indonesia

KUALA LUMPUR: Asian Finance Bank should next week get the licence to set up a representative office in Jakarta, in a first step to setting up a fully fledged bank there in 2009 or 2010, a top executive at the Kuala Lumpur-based bank said. “We see Indonesia with its big Muslim population as a big market for us,” chief executive officer Faisal Alshowaikh told Dow Jones Newswires in an interview on Friday. The operation in Indonesia will initially target government and quasi-government projects. Then it will look to work with selected corporates and only later on, retail customers. “We believe there are going to be a lot of projects: infrastructure, agriculture ... that will come on stream in the next five years and we want to get ahead of the curve,” he said. Asian Finance Bank – a joint venture between Qatar Islamic Bank, RUSD Investment Bank of Saudi Arabia and Kuwait-based Global Investment House – officially opened for business in Malaysia in March and is concentrating primarily on corporate rather than retail Islamic banking. It is one of only three foreign Islamic banks in Malaysia. The bank had hoped to break even in the current financial year ending December 31 but may now not do so because some transactions that it had expected to emerge this year may be delayed until 2008. “There are a lot of transactions in the pipeline, we might still do it (break even),” Alshowaikh said. “We are looking at a positive return in 2008.” In the nine months to end-September, the bank made a pre-tax loss of 2.7mn ringgits. Asian Finance Bank aims to set up representative offices in Brunei and Singapore too. It is also looking at doing business in China, which is a focal point for Middle Eastern investors. China also needs funds to finance numerous infrastructure projects, he said. Among new products in the pipeline are several funds. The bank is looking to launch a 1bn ringgits Islamic shipping fund by the end of the year, the first such fund in southeast Asia. It has already identified 700mn ringgits in vessels that it will buy next month and in early 2008. The fund is based 30% on equity and 70% on debt. Asian Finance Bank and its fund partner, Malaysia’s AmanahRaya Investment Bank Ltd, will take half of the equity stake with the other half coming from Gulf and Malaysia-based investors. Asian Finance Bank is also talking to three banks, Singapore’s Islamic Bank of Asia and two Malaysian Islamic banks, to take up some of the debt portion of the fund. The bank is also working with AmanahRaya on a 1bn ringgits so-called “green fund” that will focus on environmentally friendly assets, also the first in the Islamic finance world. “We are going to set this fund up in the second quarter of 2008,” Alshowaikh said. Asian Finance Bank will open a new branch in Johor Bahru, in southern Malaysia, in March next year and two more elsewhere in the country in 2008 - bringing its branch number to four. – Dow Jones Newswires

Saturday, 24 November 2007

Adapting Finance to Islam

KUALA LUMPUR, Malaysia — Rising oil wealth is lifting Islamic banking — banking that adheres to the laws of the Koran and its prohibition against charging interest — into the financial mainstream.

Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business. An estimated 300 Islamic financial institutions hold at least $500 billion in assets, an amount that is increasing more than 10 percent a year.

In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives. Loans and bonds that conform to the Koran are already available in the United States. Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.

In Islamic banking, financiers are required to share borrowers’ risks, meaning that depositors are treated more like shareholders, earning a portion of profits. Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

“This is an industry on its way from a niche industry to becoming a truly global industry,” said Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, the world’s second-largest Islamic bank, after Al-Rajhi Bank. “In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world.”

The stampede into Islamic finance is mostly an effort to tap an estimated $1.5 trillion of funds sloshing around the Middle East, largely from higher oil prices. While a lot of this oil money was parked in the United States, Britain and Switzerland before Sept. 11, 2001, bankers say many wealthy Arabs are investing closer to home, in part to avoid the hassle of increased scrutiny. At the same time, many Middle Eastern investors are eager to capitalize on Asia’s breakneck growth.

By some estimates, as much as $800 billion of Arab money has moved from the United States and Europe to other regions. Those investments have helped ignite an economic revival throughout the Muslim world at a time of increasing religious conservatism among Islam’s 1.6 billion faithful.

A result is expanding demand for financial services that adhere to Islamic law, or Shariah. “The middle class have the luxury of making these Islamic versus non-Islamic decisions,” said Nordin Abdullah, who runs KasehDia, a firm in Kuala Lumpur that advises companies on how to comply with Shariah. “They’re educated and have money.”

Last year, Saudi Arabia’s largest lender, National Commercial Bank, overhauled its entire retail business to make it Shariah-compliant. Tunisia and Morocco authorized their first Islamic banks this year.

And while the biggest Islamic banks are in the wealthy gulf states, the most attractive potential markets are in Turkey and North Africa and among Europe’s Muslims. Indonesia, the most populous Muslim nation, with more than 190 million Muslims, is the mother lode.

Malaysia, a predominantly Muslim nation with a secular government and a fast-growing, export-driven economy, has emerged as a center for the industry’s development. Here, even non-Muslims are taking advantage of a growing range of Islamic products offering competitive returns.

For instance, David Ong-Yeoh, a public relations executive tired of fretting over the rising interest rate on his adjustable-rate mortgage, refinanced to a 30-year fixed loan from an Islamic financial institution. Now, he pays regular installments that include a predetermined profit margin for the bank.

“The terms are better than on conventional loans,” Mr. Ong-Yeoh, 41, said.

Islamic finance also avoids practices prohibited under Shariah: Islamic bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Proponents of Islamic banking say these are limits any socially conscious investor can support, Muslim or not. They also envision wider appeal for Islamic banking’s ban on interest, which stems from the Koran’s prohibition against usury.

That’s a view that has a long religious and historical tradition. Charging high interest rates to lend money is repeatedly condemned in the Bible. The Greek philosopher Aristotle denounced it, the Romans limited it, and the early Christian church prohibited it.

Western theologians eventually distinguished interest from usury, and it was reintroduced to Christians and Muslims around the time of the Renaissance.

But when Britain took advantage of Egypt’s mounting foreign debt in 1875 to buy Egypt’s stake in the Suez Canal and occupy the country, it generated a backlash against traditional banking in the Muslim world. The belief that all interest charges are unjust now underpins Islamic finance.

“It’s about respecting the interests of the different parties, avoiding taking advantage of any situation of any counterparty and putting in place fair treatment,” said Rasheed Mohammed al-Maraj, governor of the central bank of Bahrain.

Hoarding is frowned on in the Koran, so savings earn no return unless put to productive use. “Money should be used for creating better value in the country or the economy,” Mr. Maraj said. “Money cannot generate money.”

Islamic banks cannot simply trade money either. “In the Islamic finance model, the banks are supposed to mobilize funds through a fund management concept,” said Rafe Haneef, head of Islamic banking in Asia for Citigroup.

Indeed, Islamic banking is supposed to function more like private equity firms than conventional banking. “Private equity is an Islamic concept,” Mr. Haneef said.

Industry proponents say this risk-sharing requirement helps reduce the kind of abuses that led to the subprime mortgage mess. Scholars consider it un-Islamic to overload a customer with debt or invest in a company with excessive debt.

But this approach has inherent problems. Because Islamic financial transactions must have an underlying asset, Islamic bankers tend to have high exposure to real estate and construction projects. Hedging that exposure is difficult — though Islamic derivatives exist, scholars differ on whether they are permissible under the Koran.

“There’s a general acceptance that risk needs to be managed and therefore some form of financial instrument needs to be developed,” said Zeti Akhtar Aziz, governor of Malaysia’s central bank. But “in Islamic finance you can’t have such securities,” he added. “We need to be able to look at some of the issues that revolve around this.”

Islamic financial institutions have to depend on their own boards of Shariah scholars to approve every product. Shariah scholars are rare, and those with financial understanding even rarer, so many scholars sit on several boards, earning up to $100,000 in retainers.

“If they’re complaining there is a shortage, what are they doing to solve this problem?” asked Sheikh Nizam Yaquby, a scholar based in Bahrain who sits on the boards of Citigroup, A.I.G. and HSBC, among others. He noted that Shariah scholars still earn less than accountants or corporate lawyers.

As part of longstanding efforts to develop the industry, Malaysia has created scholarships and training programs. Governor Zeti’s father, Ungku Abdul Aziz, established the first modern Islamic financial institution, Tabung Haji, in 1962 to help poor Malays finance pilgrimages to Mecca and to mobilize rural savings.

Later, the Malaysian government set up Islamic banks as part of a reformist platform to promote national development and blunt the appeal of fundamentalist Islamic political rivals.

In early 2001, the government began offering tax incentives aimed at converting at least a fifth of the nation’s assets to Islamic finance by 2010. (Currently, they make up roughly 12 percent.) With China siphoning away some economic opportunities from Malaysia, Islamic finance has become part of a broader effort to lure tourism, trade and investment from the Middle East.

“We are trying to position ourselves as being acceptable to the Middle East, to petrodollars,” said Wong Fook-Wah, chief executive of RAM Rating Services in Kuala Lumpur. “Hopefully they’ll fund economic growth in Malaysia.”

In the early 1990s, Malaysia devised the first Islamic bond, or sukuk (suh-KOOK), an accomplishment it expanded on in 2002 by issuing the first global sukuk, raising $600 million. Now the global sukuk market totals $82.2 billion, with Malaysia accounting for two-thirds of it.

But as the price of oil has rebounded, Islamic finance has boomed elsewhere.

Sukuk issuance in the gulf is set to overtake Malaysia. Britain, which licensed its first Islamic bank in 2004, plans to issue its own sukuk. The Bank for International Cooperation in Japan is planning a $300 million sukuk. And in July, a Texas-based oil firm, East Cameron Partners, issued the first American sukuk, raising $165.7 million.

Clearly, faith is not the only thing driving the market. At Kuwait Finance House’s Malaysian unit, Mr. Younis said, 40 percent of its depositors and 60 percent of its borrowers are non-Muslims.

“We look at these things just like Apple or Berkshire Hathaway,” said E-lene Kee, a Buddhist corporate lawyer here who advises clients to use Islamic loans to finance construction projects.

Mr. Ong-Yeoh feels the same. “It’s just taking advantage of the system,” he said. After taking out an Islamic loan for his home, he took another for his car. - BRN, 22 Nov 07)

Friday, 23 November 2007

Hang Seng bank launches Hong Kong's first Islamic fund


HONG KONG (AFP, 23 Nov 07) — Hang Seng Bank said Thursday it has launched Hong Kong's first Islamic fund, as part of a move by the financial centre to compete with Singapore and Malaysia as a hub for Muslim investment.

The new retail fund was authorised by Hong Kong's market regulator after Chief Executive Donald Tsang last month said the government would push to develop products that comply with Islamic law.

Hang Seng Bank, a subsidiary of global banking giant HSBC, said the Hang Seng Islamic China Index Fund, will allow Islamic and other investors to gain exposure to mainland China and Hong Kong markets.

"Islamic finance is one of the fastest growing sectors in the global financial industry," said William Leung, general manager of Hang Seng's personal financial services and wealth management.

"The Fund will help investors capture the potential investment returns generated by growing international interest in these markets," he said.

Leung said global Islamic financial assets are worth about one trillion US dollars and he expects this to grow by 15 percent per year.

The Fund will invest primarily in the constituent stocks of the so-called Dow Jones Islamic Market China/Hong Kong Titans Index.

The index comprises the 30 largest Shariah-compliant stocks of companies whose primary operations are on mainland China and in Hong Kong and are traded on the Hong Kong stock exchange.

Islamic finance fuses principles of shariah or Islamic law and modern banking. Funds are banned from investing in companies associated with tobacco, alcohol or gambling, considered taboo by Muslims.

The system also bans the earning of interest.

Malaysia has "effectively established itself as the regional, if not global, hub for Islamic finance," said a report by Financial Insights, a company under market research and analysis firm International Data Corp.

Indonesia, Pakistan, Thailand and Singapore are also promoting Islamic finance.

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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

Thursday, 22 November 2007

Oil wealth takes Islamic banking mainstream


KUALA LUMPUR, Malaysia: Rising oil wealth is lifting Islamic banking - banking that adheres to the laws of the Koran and its prohibition against charging interest - into the financial mainstream.
Big banks like Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business. Today, an estimated 300 Islamic financial institutions hold at least $500 billion in assets, and deposits are increasing more than 10 percent each year.
In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives. Loans and bonds that conform to the Koran are already available in the United States. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.
In Islamic banking, financiers are required to share borrowers' risks, meaning that depositors are treated more like shareholders, earning a portion of profits. Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
"This is an industry on its way from a niche industry to becoming a truly global industry," said Khawaja Mohammad Salman Younis, managing director of operations in Malaysia for Kuwait Finance House, one of the world's largest Islamic banks. "In the next three to five years you'll see Islamic banks coming out in Australia, China, Japan and other parts of the world."
The stampede into Islamic finance is mostly an effort to tap an estimated $1.5 trillion of funds sloshing around the Middle East, largely because of higher oil prices. While a lot of these petrodollars were parked in the United States, Britain and Switzerland before 9/11, bankers say many wealthy Arabs are investing closer to home, in part to avoid increased scrutiny. At the same time, many Middle Eastern investors are eager to get in on Asia's breakneck growth.
By some estimates, as much as $800 billion of Arab funds have moved from the United States and Europe to other regions. Those investments have helped spark an economic revival throughout the Muslim world at a time of increasing religious conservatism among Islam's 1.6 billion faithful.
The result is burgeoning demand for financial services that adhere to Islamic law, or Shariah.
"The middle class have the luxury of making these Islamic versus non-Islamic decisions," said Nordin Abdullah, who runs KasehDia, a firm in Kuala Lumpur that advises companies on how to comply with Shariah. "They're educated and have money."
Last year, Saudi Arabia's largest lender, National Commercial Bank, overhauled its entire retail business to make it Shariah-compliant. Tunisia and Morocco authorized their first Islamic banks this year.
And while the biggest Islamic banks are in the wealthy Gulf states, the most attractive potential markets are in Turkey and North Africa and among European Muslims. Indonesia, the most populous Muslim nation, with more than 190 million Muslims, is the mother lode.
Malaysia, a predominantly Muslim nation with a secular government and a fast-growing, export-driven economy, has emerged as a center for the industry's development. Here, even non-Muslims are taking advantage of a growing range of Islamic products offering competitive returns.
For instance, David Ong-Yeoh, a public relations executive tired of fretting over his adjustable rate mortgage's rising interest rate, refinanced to a 30-year fixed loan from an Islamic financial institution. Now, he pays regular installments that include a pre-determined profit margin for the bank.
"The terms are better than on conventional loans," Ong-Yeoh, 41, said.
Islamic finance also avoids practices prohibited under Shariah: Islamic bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Proponents of Islamic banking say that these are limits any socially conscious investor can support, Muslim or not. They also envision wider appeal for Islamic banking's ban on interest, which stems from a prohibition in the Koran against usury.
That is a view that has a long religious tradition. Charging high interest rates to lend money is repeatedly condemned in the Bible. The Greek philosopher Aristotle denounced it, the Romans limited it, and the early Christian church prohibited it.
Western theologians eventually distinguished interest from usury, and it was reintroduced to Christians and Muslims around the time of the Renaissance. But when Britain took advantage of Egypt's mounting foreign debt in 1875 to buy its stake in the Suez Canal and occupy the country, it generated a backlash against traditional banking in the Muslim world. The belief that all interest charges are unjust now underpins Islamic finance.
"It's about respecting the interests of the different parties, avoiding taking advantage of any situation of any counter-party and putting in place fair treatment," said Rasheed Mohammed Al-Maraj, governor of the central bank of Bahrain.

Hoarding is frowned on in the Koran, so savings earn no return unless put to productive use. "Money should be used for creating better value in the country or the economy," explained Rasheed. "Money cannot generate money."
Islamic banks cannot simply trade money either. "In the Islamic finance model, the banks are supposed to mobilize funds through a fund management concept," said Rafe Haneef, head of Islamic banking in Asia for Citigroup.
Indeed, Islamic banking is supposed to function more like private equity firms than conventional banking. "Private equity is an Islamic concept," Rafe said.
Industry proponents say that this risk-sharing requirement helps reduce the kind of abuses that led to the subprime mortgage mess. Scholars consider it un-Islamic to overload a customer with debt or invest in a company with excessive debt.
But this approach has inherent problems. Because Islamic financial transactions must have an underlying asset, Islamic bankers tend to have high exposure to real estate and construction projects. Hedging that exposure is difficult - though Islamic derivatives exist, scholars differ on whether they are permissible under the Koran.
"There's a general acceptance that risk needs to be managed and therefore some form of financial instrument needs to be developed," said Zeti Akhtar Aziz, governor of the Malaysian central bank. But "in Islamic finance you can't have such securities," he added. "We need to be able to look at some of the issues that revolve around this."
Islamic financial institutions have to depend on their own boards of Shariah scholars to approve every product. Shariah scholars are rare, and those with financial understanding even rarer, so many scholars sit on several boards, earning up to $100,000 in retainers.
"If they're complaining there is a shortage, what are they doing to solve this problem?" asked Sheikh Nizam Yaquby, a scholar based in Bahrain who sits on the boards of Citigroup, AIG and HSBC, among others. He noted that Shariah scholars still earn less than accountants or corporate lawyers.
As part of longstanding efforts to develop the industry, Malaysia has created scholarships and training programs. The father of governor Zeti, Ungku Abdul Aziz, established the first modern Islamic financial institution, Tabung Haji, in 1962 to help poor Malays finance pilgrimages to Mecca and to mobilize rural savings.
Later, the Malaysian government set up Islamic banks as part of a platform to promote national development and blunt the appeal of fundamentalist Islamic political rivals.
In early 2001, the government began offering tax incentives aimed at converting at least a fifth of the nation's assets to Islamic finance by 2010. (Currently, they comprise about 12 percent.)
With China siphoning away some economic opportunities from Malaysia, Islamic finance has become part of a broader effort to lure tourism, trade and investment from the Middle East.
"We are trying to position ourselves as being acceptable to the Middle East, to petrodollars," said Wong Fook-Wah, chief executive of RAM Rating Services in Kuala Lumpur. "Hopefully they'll fund economic growth in Malaysia."
Clearly, faith is not the only thing driving the market. At Kuwait Finance House's Malaysian unit, Younis said that 40 percent of the depositors and 60 percent of the borrowers are non-Muslims.
"We look at these things just like Apple or Berkshire Hathaway," said Elene Kee, a Buddhist corporate lawyer in Kuala Lumpur who advises clients to use Islamic loans to finance construction projects.
Ong-Yeoh feels the same. "It's just taking advantage of the system," he said. After taking out an Islamic loan for his home, he took another for his car. - (IHT, 21 Nov 07)


Wednesday, 21 November 2007

Isamic bonds (sukuk) to debut in South Korea


Goodmorning Shinhan Securities launched a private equity fund (PEF) investing in the palm oil business in Malaysia. It also plans to issue Sukuk, an Islamic bond, which would help Korean companies raise money at lower borrowing costs. ``Malaysia's palm oil takes 46 percent of the edible oil production around the world. Palm trees are around 10 times more productive than beans in oil production, and its high productivity makes it eco-friendly,'' said Jung Yoo-shin, vice president of Goodmorning Shinhan SecuritiesManaged by KIBB Securities of Malaysia, the fund aims at an annual 18 percent investment return. KIBB Securities has investor relations scheduled in London, New York, Dubai and Beijing for the 270 billion won fund. Seoul is its first destination for the investor relations tour. Palm oil is used not only for food but also for soap and cosmetics. It could be used as bio diesel, though this has been less attractive due to recent price hikes, according to Jung. The fund would be managed flexibly, investing in either uncultivated farmland or in small or poorly operated farms where there is room to enhance effectiveness. ``They have know-how in palm cultivation. International palm price has been rising on surging demand especially in China and India,'' Jung said. The fund is open to both institutional and individual investors, but the minimum investment is to be around 5.5 billion won. Although it is a 10-year investment, one can sell the stake before the due date. The brokerage house also issues Sukuk. Sukuk works like a bond in terms of cash flow, but it pays dividend not interest for the investors, to comply with the Islamic law that prohibits charging of interest. ``Malaysia is the financial hub in the Islamic world, issuing 56 percent of the $57 billion Sukuk in the global market,'' said Tunku Afwida, CEO of KIBB Securities. She said it doesn't invest in industries related with alcohol, weapons, pork, gambling or involving excessive risk, all banned in the Islamic law. Sukuk has been surging thanks to the abundant oil money in the Islamic world. ``There would be a gap of least 150 basis points between Sukuk and the interest rate. It will help Korean businesses raise money at lower borrowing costs, and build reputation in the Islamic world by issuing Sukuk,'' said Lee Dong-girl, CEO of Goodmorning Shinhan Securities. He said it would be especially attractive for the ones doing business in Southeast Asia or the Middle East. Bank of Korea advised that the government and businesses prepare to advance into Islamic financing, which has been growing over 15 percent annually. ``The Islam financing involves no cost in the beginning as the user doesn't have to pay for it until it makes an earning. Islamic countries are also giving tax benefits on the Islamic bonds,'' the central bank said. Non-Islam countries such as the United Kingdom and Singapore are actively looking for ways to make use of the Islamic money, it added.

Tuesday, 20 November 2007

HDC Proposes Halal Act To Better Regulate Industry

KUALA LUMPUR, Nov 20 (Bernama) -- The Halal Industry Development Corporation Sdn Bhd (HDC) Tuesday called on the government to introduce a Halal Act that will better regulate the halal industry and ensure activities are carried out properly.Its chief executive officer Datuk Jamil Bidin said working together with several law firms, HDC expects to complete a draft on the proposed Act by early next year before submitting it to the government."No matter how good the halal industry is, but if people start messing around (abusing the halal certificate and logo), it is Malaysia's image that will be tarnished," he told rpeorters after the opening of the Kuala Lumpur Islamic Finance Forum 2007 here.Jamil said the process of drawing up an Act was long and tedious and once the draft was submitted, there was a need to wait for feedback from the Attorney-General's Office."When you have an Act, you need to know who will be doing the enforcement and how it will be placed under a specific ministry. These are the issues that we need to address and it is a long process," he said.On another development, Jamil said HDC expects to finalise its Halal Industry Master Plan draft early next month before submitting it to the government for approval."This master plan is important as it will show the direction of the country's halal industry which involves many components, including capacity building, branding and promotion and regulatory framework," he said.

Japan Developing Yen For Islamic Finance

HONG KONG - Japan may find Western-style buyouts repellent, but Islamic finance seems to be another story. On Monday, the first real estate transaction compliant with Islamic law was struck in Japan, with the asset manager Atlas Partners Japan partnering with Kuwait’s Boubyan Bank to buy three office buildings in Tokyo for 4.38 billion yen ($40 million).
The transaction follows a decision in September by the country’s central bank, the Bank of Japan, to deepen its knowledge about Islamic finance by joining the Islamic Financial Services Board, an international standard-setting body, as an observer. Another government agency, the Japan Bank for International Cooperation, also sits on the board as an observer.
Japan may not be the most hospitable destination for Islamic products, with its relatively homogeneous society and penchant for such un-Islamic activities as drinking. It could, however, make up aplenty with abundant business opportunities for the vast amounts of petrodollars that Middle Eastern countries are seeking to invest.
An executive with Boubyan Bank, Abdulla Mulaifi, told reporters in Tokyo that the deal commits nearly 5% of its $350 million open-ended global real estate investment fund to Japan, with more investments planned for other Asian countries.
The buildings that Atlas and Boubyan bought on Monday were vetted thoroughly according to the standards of Islamic finance, which bars tenants such as interest-taking financial institutions, restaurants that serve alcohol or pork, hotels, cinemas and record companies, and businesses that deal with arms, animal genetic engineering or pornography.
The deal was designed to avoid loans involving interest payments, which are forbidden under Islamic law, or Sharia.
Japanese financial institutions are making a late entry into the Islamic financial world compared with Western counterparts such as HSBC and Citigroup. Nonetheless, they appear to be warming up rapidly to what is believed to be a $400 billion market.
At the end of last year, Japan’s largest bank, Mitsubishi UFJ, forged an alliance with Malaysia's CIMB Group to provide Islamic financial investment banking services, such as issuing Islamic bonds to Japanese companies operating in Malaysia.
Daiwa, Japan’s second-largest securities broker announced in August that it would list a Sharia-compliant exchange-traded fund in Singapore based on an index benchmarked to the equities of the 100 largest Japanese companies by market capitalization.
Expect more to come. - (Forbes, 20 Nov 07)

Call to regulate Sharia advisory to prevent chaos in services

Dubai: It's high time that Sharia advisory be regulated to overcome the continuing vacuum and to avoid chaos in the wider advisory services sector, said Humayon Dar, CEO of BMB Islamic.

"Codification and standardisation of sharia opinions are mere academic exercises if not backed by governmental or regulatory authorities," he said.

Although some initiatives have been taken in this regard, such as the creation of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in Bahrain, most regulators, he pointed out, have "shied away from the Sharia domain and have not shown any serious interest in codification or standardisation related to Islamic finance, either because of no inherent interest or because they don't feel competent to have some kind of involvement."

Dar further added that there should be a separation of roles between those scholars who develop new sharia structures and instruments and those who approve specific products issued by banks and institutions.

Four steps

He suggested four steps to ensure such regulation. First, a code of best practices in sharia advisory should be developed; second, detailed prudential guidelines must be delineated and implemented by a regulator such as the Dubai Financial Services Authority (DFSA); third, the regulator must either have a centralised sharia council (as in Malaysia or Sudan) or at least sponsor one such independent body; and finally, all the regulators can then contribute to a Global Sharia Council.

In this regard, he said AAOIFI's role should be redefined by providing guidance to Sharia advisors and Islamic Financial Services Board (IFSB) in Malaysia would provide regulatory services - ideal arrangement would be some kind of a collaboration between the two.
To ensure more transparency in the advisory sector, the two categories of Sharia scholars should be independent of each other, Dar said. - (GN, 19 Nov 07)

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Monday, 19 November 2007

Balancing ethics and finance

The Islamic financial community must embrace the needs of the common man while adhering strictly to the moral and ethical values set out by the Koran if it is to succeed in the marketplace of tomorrow, according to one leading expert speaking at this year's Dubai International Financial Centre (DIFC) Week.While the core skills mastered by "conventional" bankers must be observed, success depends on a implementation of a system that is "ethics- and morality-oriented, based on a value system that only comes from Islam," Professor Dr Malik Muhammad Mahmud Al-Awan told the audience on the second day of the conference.The Professor slammed the "colonial" financial powers that had manipulated the Islamic model in the past, saying that success in the future will be measured by the industry's ability to reach the "common man." "If by some event lightening strikes us tonight and this industry disappears tomorrow, would anyone other than high net-worth individuals miss it? Ultimately the future of anything on this planet depends on the interests of the common man." The professor, who serves as Chief Academic Officer of INCEIF University, warned of the lures that conventional banking methods present the burgeoning Islamic financial market. "While there's nothing wrong with profits, it's the profiteering that we need to be conscious of," he said. DIFC Week runs until November 23 with presentations from some of the leading financial figures in the world including Steven Levitt, Jeffrey Sachs, Larry Summers and Chief Economist of the DIFC, Dr. Nasser Saidi. - (AB, 19 Nov 07)
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Islamic finance consultant:www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysian Government Takes 5 Steps To Make Islamic Financial Bodies More Dynamic


KUALA LUMPUR, Nov 19 (Bernama) -- The government today outlined five measures to put more vigour into the development of Islamic finance in the country.One is for Islamic finance institutions to have fulltime syariah experts so that matters can be readily referred to them and to ensure that their advice is in line with an organisation's vision and thinking, said Deputy Finance Minister Datuk Dr Awang Adek Husin."They cannot come once a month to discuss what can or cannot be done. They must think about the issue everyday," he told reporters after opening the Kuala Lumpur Islamic Finance Forum discussion on Islamic Finance Advisers here.Another measure is for the advisers to be accorded proper standing in an institution, "if not chief executive then at least deputy chief executive."The third measure, Awang Adek said, is for Islamic finance institutions to promote research and development on a full-time basis so that they are always at the forefront in creating a diverse range of banking products.Malaysia, he explained, needs to preserve its position as one of the global drivers of Islamic finance but this cannot be achieved if the players are slack.The government has also directed that the make-up of syariah panels should be of both Malaysian and international advisers. "This is important not only in terms of expertise but also in the expansion of the system we use to other places," he said."This will create an impact in terms of understanding and openness. We must encourage this and I think our banks are big enough to pay for foreign experts," Awang Adek said.The fifth measure, according to him, is for these institutions to have more programmes like today's discussion which take on an international profile so that Malaysia can become a global referral centre for Islamic finance.

Dubai’s Noor buying EU, Asian banks from 2008


DUBAI (RTRS): Noor Islamic Bank, set up by Dubai’s government, plans to buy lenders in Europe and Asia from next year to tap demand among Muslims for financial services that comply with their beliefs, its chief executive said. Dubai created Noor last year with a capital of 4 billion dirhams ($1.1 billion) and says the bank could be part of its plan to create two of the world’s 10 largest financial institutions by 2015. The government owns half its stock. The fifth Islamic bank in the United Arab Emirates starts operations on Jan 2 with 10 branches, Chief Executive Officer Hussain al-Qemzi told Reuters on Sunday.

Acquisitions
“We aim to be global in nature,” he said. “We will be on the look out for mergers and acquisitions overseas.” Noor intends to make its first acquisitions next year, he said, declining to say how much he was looking to spend. “We will be opportunistic in our approach, looking to expand quickly.” Noor’s initial investments will come from its capital and the bank could sell shares to the public in three years, Qemzi said. Acquisition targets could be either Islamic banks or conventional lenders, which would be converted into operations that comply with sharia, or Islamic law, he said. Sharia bans lending on interest and investments in prohibited industries such as alcohol, gambling and pork. Islamic banks give depositors a share of profits. With demand for such services growing among the world’s 1.2 billion Muslims, assets managed by Islamic financial institutions were worth $800 billion by the end of 2006, according to the Islamic Development Bank.

In the United Arab Emirates and its oil-exporting Gulf neighbours, the growth of Islamic banking has been driven by a five-fold increase in crude prices since 2002. Noor could consider expansion into Kuwait and Saudi Arabia, although growing competition made regional markets less attractive, Qemzi said. “There are limited opportunities in the Gulf,” he said. Other Gulf banks are expanding abroad as competition from overseas lenders intensifies. Dubai’s government combined two of its banks to create Emirates NBD, the Gulf’s largest bank by assets, to help it compete with foreign rivals.

Noor would target foreign markets including western Europe, eastern Europe and southeast Asia, Qemzi said. Saudi Arabia’s Al-Rajhi Bank, the world’s largest sharia-compliant lender by market value, has operations in the Asian Islamic finance hub of Malaysia, while Kuwait Finance House, the Gulf’s second-largest Islamic bank, is in talks to buy branches from a bank there. Other Gulf Islamic banks are looking to cater to the more than 12 million Muslims living in western Europe. Qatar Islamic Bank and Investment Dar, the Kuwaiti investor that bought into sports car maker Aston Martin, have said they want operations in Britain, which plans to turn London into global centre for Islamic finance. Dubai’s government has similar ambitions for its Dubai International Financial Centre (DIFC), a self-regulating zone set up to capture the financial services business in the world’s biggest oil-exporting region.

Build
Dubai, which has bought into Deutsche Bank AG and HSBC Holding Plc this year, intends to build two of the world’s 10 largest financial institutions by 2015, DIFC Governor Omar bin Sulaiman said in March. Noor could be part of that plan, said Sulaiman, who leads the financial services strategy of the emirate, which has turned state-owned companies into the world’s eighth largest airline, Emirates, and fourth largest container port business, DP World. - (AT, 19 Nov 07)

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Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Japanese firm makes first Islamic property deal

TOKYO (Thomson Financial) - A Japanese company Monday completed a property deal with a Kuwait-based firm seen as the first in Japan in compliance with Islamic law, in a bid to bring in more money from the oil-rich Gulf.
Atlas Partners Japan, a fund and asset management company, said it worked with Kuwait's Boubyan Global Real Estate Fund to buy three office properties in Tokyo worth a total of 4.38 billion yen.
The deal was tailored to avoid any loans involving interest payments, which are forbidden under Islamic law, or Sharia.
'What we completed is the first real estate transaction in Japan that complies with Sharia, which potentially will mean more investment in Japan from the Middle East,' Mikihisa Hirai, president of Atlas Partners Japan, told Agence France-Presse.
Real estate has long been seen as a lucrative investment in Japan, the world's second largest economy which has a miniscule Muslim population.
The investment framework was provided by a Japanese subsidiary of Hypo Real Estate Bank International AG of Germany, company officials said.
'Our collaboration with Boubyan Bank over this innovative investment will be important for investors seeking Sharia-compliant investment opportunities in the Japanese real estate market,' Hirai said.
Sharia-compliant financing can be found in Europe and the United States, along with Asian countries with large Muslim populations such as Malaysia.
Last year, Japan's Bank of Tokyo-Mitsubishi UFJ -- the world's largest bank by assets -- broke into Islamic finance by tying up with Malaysia's largest banking group, Commerce International Merchant Bankers. - (Forbes, 19 Nov 07)

New research insights focus on growth & performance in the global Islamic banking industry

The much awaited Annual World Islamic Banking Competitiveness Report 2007/08 compiling the research findings of the WIBC Competitiveness Report will be released on the 9th of December 2007. The report will be released during the plenary sessions of the 14th Annual World Islamic Banking Conference (WIBC) to be held in the Kingdom of Bahrain. A team of McKinsey partners from key international centres will release the report highlighting strategic trends, analysis of the growth and performance of the leading industry players. Now in its fourth year, the Competitiveness Report has rapidly evolved into the strategic reference point for market leaders as they seek to raise the bar on the challenges of competitive excellence, strategic leadership and performance improvement. Standard Chartered Saadiq, the Islamic Banking arm of Standard Chartered Bank, this year partners with WIBC as the Competitiveness Report Sponsor. Ozgur Tanrikulu, Partner at McKinsey & Company in Dubai, said about the report: 'Besides the annual overview of the Islamic banking sector, this year's Competitiveness Report dives into selected business and operational areas which are of increasing relevance to the leaders in the sector. It explores the latest developments in Asia, in terms of general market trends as well as government and regulator initiatives to boost the sector. It also highlights the imperative for Islamic banks to upgrade their internal capabilities and, towards this end, specifically goes over the challenges and opportunities in risk management as well as the competitive edge that can be gained from best practice processes and operation by Islamic banks. And, finally, keeping in mind the flourishing economy of the GCC and the excess of liquidity in the hands of both wealthy individuals and government funds, it has a special look at the untapped opportunities for Islamic banks in asset management.' The launch of the 4th Annual WIBC McKinsey Competitiveness Report 2007/08, as every year, will look back at the evolution of the Islamic banking sector and of specific players: Their growth and performance, the winners and the losers. In addition to this overview of competitive performance, the Report will also focus on critical issues that the leaders of Islamic banks need to address in order to continue delivering exciting growth in the future. The Report will also pose critical questions on the size and attractiveness of the market and the key success factors to effectively compete in the rapidly changing international landscape. In addition, this year's Report will also examine key trends in the Islamic asset management space and the latest approaches to risk management in the context of specific Islamic financial products. The Competitive Report Sponsor, Standard Chartered Saadiq, will provide comprehensive, international banking services and a wide range of Shari'ah compliant financial products. Standard Chartered Saadiq has been at the forefront of many leading transactions in the Islamic finance industry in the last twelve months; many of them are 'industry firsts'. Afaq Khan, CEO of Standard Chartered Saadiq said 'The Islamic finance industry has grown from strength-to-strength in recent years, and Standard Chartered Saadiq's business continues to grow rapidly and has more than doubled since 2005. 'The growth in the industry is well diversified across wealth management, corporate and investment banking and private equity. We are also witnessing the development of several global Islamic Banking megatrends - especially the exponential growth in the Sukuk market, envisaged to reach a potential of $150bn by 2010. The next wave is the entire Islamic area of treasury risk management - Islamic hedging.' 'As the report will elaborate, the industry is now at the point of rapid expansion, with Islamic banking making the transition from niche business segment to becoming a parallel financial system to drive growth through financial alternative and innovation.' In addition, the closed-door CEO Strategy Session at the 14th Annual World Islamic Banking Conference will be facilitated by McKinsey & Company on December 9, where CEOs representing the world's leading Islamic financial institutions will discuss the findings of the Report in an environment conducive to candid and interactive debate.

Sunday, 18 November 2007

Thani Investments Announce US$ 100,000,000 Musharaka Sukuk

Thani Investments LLC – Dubai, a private company with business interests in mining, gold, and property (including Dubai Golf City) today announced the successful closure of the US$ 100 million Musharaka Sukuk Issue, arranged by UAE Emirates Islamic Bank PJSC and Liquidity Management Centre BSC, Bahrain (the Joint Lead Mandated Arrangers). With this issuance, Thani Investments becomes one of the first privately owned businesses in the GCC to issue a sukuk; driving strong growth in the coming financial year by harnessing sophisticated financial engineering techniques.
Launched in September 2007, the debut issue from Thani Investments raised significant interest from regional and international institutional investors, and was significantly over collateralized at the close. Emirates Islamic Bank and Liquidity Management Centre acted as Joint Mandated Lead Arrangers; Commercial Bank of Dubai as Senior Lead Manager; Dubai Islamic Bank and The Arab Investment Company as Lead Managers; Bahrain Islamic Bank and Khaleeji Commercial Bank as Co Lead Managers and Sharjah Islamic Bank as Manager. The Sukuk has a tenor of five years, with an average life of approximately 3.5 years.
“Thani Investments is delighted with the response that this debut sukuk issue has received,” commented Mr. Abdulla Saeed Al Thani, Chairman, Thani Investments. “As one of the first private companies in the region to issue a sukuk, we are proud to once again be leaders in our field. The success of this debut issue demonstrates the market’s confidence in Thani Investment’s business model and success to date, and we are confident that the team will continue to deliver sound results across our business divisions. The team effort of both Emirates Islamic Bank and Liquidity Management Centre was integral to the successful close of this issue, and we look forward to working with them in the future.”
Mr. Abdulla Showaiter, General Manager, Corporate Banking of Emirates Islamic Bank said; “Emirates Islamic Bank proudly and successfully closes this Sukuk issue once again alongside its strategic partners. We are pleased to be associated with Thani Investments, with their well-focused strategic investment growth in the region.”
Mr. Ahmed Abbas, Liquidity Management Center’s Chief Executive Officer added his thanks to Thani Investments, and strategic partners Emirates Islamic Bank, as well as all other participating banks.
The transaction legal counsels representing the Joint Lead Mandated Arrangers and Managers were Vinson & Elkins on matters relating to English Law and Khasawneh & Associates for matters relating to UAE law. Transaction legal counsels representing Thani Investments were Herbert Smith and Afridi & Angell.

Information on the Sukuk:
Issuer: Thani Investments Sukuk Company Ltd.
Amount: US$100,000,000
Maturity: October 2012
Issue Type: Sukuk al-Musharaka
Listing: Optional

About Thani Investments:Thani Investments is a large privately owned business in the United Arab Emirates. Established in 1997 and operating in 8 countries, Thani has 4 diversified business units:
• Oil and Gas
• Property Development
• Mining
• Commercial.

Thani is focused on building long term growth and profits through developing leading relationships in the Middle East. Founded on the values of integrity, passion and energy, Thani has over 1000 employees working to build a long term growth story for Dubai. Thani’s Oil and Gas interests include Sudan Mauritania, Tunisia, Algeria and Senegal. The Company is exploring in the emerging markets of Yemen, Libya, and Indonesia. BENAA, the property development subsidiary of Thani Investments include the Dubai Golf City, Al Bustan Centre and Residence, Arabian Heights and the Dubai Wholesale Plaza. Thani’s mining interests include gold exploration and production in the Yemen. Thani commercial encompasses power and utilities, marine and shipping and other corporate partnerships. - (AB, 18 Nov 07)

Islamic banking in need of guidelines

Due to the diverse understandings of Shariah among Muslims many of Islamic banks today are finding it increasingly difficult to make decisions. 'Everyday we have scholars disputing over aspects of Shariah and how they should be interpreted that's why there is a dire need for standardization of Shariah opinions,' said Humayon Dar, CEO of BMB Islamic at the Dubai International Financial Centre (DIFC) conference. Dar added that the initiative has to be taken by Islamic banks as governments and financial service authorities have showed 'lack of interest' in taking part in the codification and standardization process. 'Either that or they are not competent enough to do it,' said Dar. As a first step to resolve this issue Dar suggested that DIFC would set up a code of best practices in Shariah advisory, which would be implemented by the regulators. 'Also the regulator must have a centralized Shariah council,' he added. Another aspect that has to be tackled is giving scholars an incentive to make fatwas. 'These days the scholars don't have enough time to make fatwas on Islamic banking so we have to give them incentive to allocate more of their time to the sector,' said Dar. - (AME, 18 Nov 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

Saturday, 17 November 2007

Short Talk - How The Quran Discusses The Issue Of Riba



Short Talk - How The Quran Discusses The Issue Of Riba

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Islamic finance consultant: www.ahmad-sanusi-husain.com 
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Thursday, 15 November 2007

DEWA sets Islamic bond price guidance


Dubai Electricity and Water Authority (Dewa) has set initial price guidance for its Islamic bond at around 120 basis points over the three-month London Interbank Offered Rate, a banker familiar with the deal said.The state-owned utility is planning to sell up to $2.5 billion of conventional and Islamic bonds, or sukuk. The pricing and other terms of the sukuk are being closely watched because it is one of only three public Islamic bond sales from the Gulf since a global credit crunch in July triggered by U.S. mortgage defaults largely killed the market. Sukuk comply with Islam's ban on lending on interest, and returns derived from underlying physical assets are paid to bondholders instead.Spreads for more than $15 billion of Islamic bonds that are part of a sukuk index started by HSBC and the Dubai International Financial Exchange have more than doubled since the end of June to 125 basis points over the London Interbank Offered Rate compared with 65 basis points, according to HSBC.The banker, who declined to be identified, said on Thursday Dewa would decide how much it would raise from each type of bond, conventional and Islamic, on Sunday.The sukuk would likely have a maturity of five years, he said.Moody's Investors Service has given the company an A1 credit rating and Fitch Ratings an AA- rating, citing links to the Dubai government.Dewa, Dubai's sole provider of power and water, is expected to invest more than $16 billion by 2012 to expand its networks and plants, Moody's said.Electricity consumption in the desert emirate, where day-time summer temperatures hover around 42 degrees centigrade, soared almost 30% to 21,475 gigawatt-hours last year, and water consumption climbed 11.3 percent to 64.9 billion gallons, according to Dewa's Web site. (Reuters, 15 Nov 07)

Wednesday, 14 November 2007

Britain to launch sukuk consultation - officials

LONDON, Nov 13 (Reuters) - Britain will pave the way on Wednesday to become the first Western government to launch Islamic bonds early next year, government officials told Reuters on Tuesday.
Treasury minister Kitty Ussher will launch a three-month consultation into issuing the so-called sukuk bonds, which are compliant with Islam's sharia law with the goal of introducing them in the budget next year.
As paying of interest is forbidden under Islamic law, the sukuk bonds pay profits or rent from an underlying asset with the securities representing part ownership of the asset.
The government has been keen to get sukuk bonds started and make the capital a centre for Islamic finance given the huge growth in this area in recent years, particularly as Middle East investors recycle huge oil profits.

Tuesday, 13 November 2007

Bank Islam Malaysia to improve service, It will use UUM survey results as benchmark

KUALA LUMPUR: Bank Islam Malaysia Bhd expects to improve customer service standards for its existing 1.5 million clients besides drawing in new customers based on a Customer Satisfaction Index (CSI) benchmark established by Universiti Utara Malaysia (UUM).

According to corporate affairs and business development general manager Datuk Wan Ismail Wan Yusoh, Bank Islam appointed UUM to carry out surveys at all its 90 branches to obtain customer feedback from April this year before launching its new corporate identity on Aug 21.

“The survey results have assisted Bank Islam tremendously in building the framework and establishing the direction of its corporate rebranding exercise,” Wan Ismail told reporters after signing the memorandum of understanding with UUM Deputy Vice-Chancellor (Academic and International Affairs) Assoc Prof Dr Abdul Razak Chik.

The first phase of the project, involving more than 5,000 respondents, mainly Bank Islam customers, asked customers a standard set of questions on the bank’s products and level of service. It was completed in June.

“As part our efforts to stay competitive after 24 years in operation, we are the pioneers in establishing our own CSI in Malaysia,” Wan Ismail said, adding that Bank Islam had to date spent RM300,000 on the project.
He said the survey results were used to remodel its branch in Shah Alam, which was Bank Islam’s first to be provide electronic banking facilities such as cash and cheque deposit machines and Internet banking.
The other Bank Islam branches are due to be remodelled in stages.
Wan Ismail added that UUM stood to benefit from the joint venture as the institution of higher learning would be have the opportunity to apply its research theories commercially, particularly in the banking sector.

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The Securities Commission of Malaysia was named the "Best Regulator for Islamic Funds"

KUALA LUMPUR, Nov 13 (Bernama) -- The Securities Commission of Malaysia was named the "Best Regulator for Islamic Funds" at the inaugural Master of Islamic Funds Awards held in Dubai Tuesday.The recognition comes at a time when Malaysia is growing in importance as a centre of innovation for the Islamic capital market.The award is an important recognition of the SC's efforts to develop the Islamic investment management industry and Malaysia's Islamic financial market, said SC Chairman Datuk Zarinah Anwar in a statement issued by the SC here Tuesday.Among Malaysia's feats and list of "world firsts" include the issuance of the first global sovereign sukuk of US$600 million and the first rated Islamic residential mortgage-backed securities, first exchangeable sukuk of US$750 million and the first listed Islamic Real Estate Investment Trust (REIT).In the first six months of this year, half of the world's sukuk amounting to US$5.9 billion were issued out of Malaysia.The Islamic capital market in Malaysia is sizeable with 86 percent of all listed companies on Bursa Malaysia being Syariah-compliant, SC said."Additionally, Malaysia's Islamic unit trust industry is the world's largest with a net asset value of US$3.8 billion," Zarinah said.She however added that markets and intermediaries can only grow faster if there are increasing cross border transactions and investments."Our track record in pioneering and commercialising new products, the depth and breadth of our markets and our robust regulatory framework will enable us to strengthen our linkages with other market," she said.The co-winner of the "Best Regulator for Islamic Funds" award was the Dubai Financial Services Authority with which the SC inked a mutual recognition agreement in March this year, opening the gateway for cross border distribution and marketing of Islamic funds between Malaysia and the Dubai Financial Centre.

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Monday, 12 November 2007

Experts discuss the future of Islamic finance in Zurich

Two important locations in Europe are not forgotten by the Islamic market players: London for the stock exchange and Switzerland for their notorious banking system as the interest-free Islamic banking and finance instruments continue their rapid growth. The International Islamic Finance Forum (IIFF) therefore organized a Forum for Europe from Oct. 29 till Nov. 1 in Zurich.
European investors are slowly getting interested in Islamic finance products. This can, for instance, be measured at the present readiness to subscribe to “sukuk” offerings -- best described as Islamic bonds -- during these last few months.
Of course, good investment managers always want to diversify their risks and spread them over various investment products, but more is needed. Besides expected return and the rating, product knowledge must also be at hand.
As usual, the IIFF lined up important keynote speakers to start off every forum day. The first day was opened by Dr. Abbas Mirakhor, an executive director of the International Monetary Fund (IMF). Dr. Mirakhor argued that finance aims to put financial means at the disposal of the producers/manufacturers. “Whatever the nature of the finance contract is, the first objective of finance is to make business happen.” On this primary goal, both conventional and Islamic finance are identical.
His position at the IMF allowed him to see convergence grow. Both finance industries are slowly growing toward each other. And this is not a one-sided movement from Islamic finance to the conventional world. Critics often only focus on the fact that the relative young Islamic finance industry borrows techniques and instruments from the traditional finance markets and adapts them to Islamic standards. He argued that this also happens the other way around.
The conventional financial markets indeed mostly stick to the pure lending of money. For one, this is due to a lack of information and transparency of the market. Bankers therefore only used to make a fast credit search, combine this with guarantees for repayment and linked a relative low, predetermined profit in the form of interest to the loan agreement.
For the last 15 years however, much effort has been exerted worldwide on market reporting and transparency, corporate governance, disclosure rules, supervision and regulation standards and so on. The investors have more and better information at their disposal that allows them to have a better insight regarding the companies to whom they want to make funds available.
Educated investors who want to optimize their earnings are therefore more prepared for the profit and loss sharing model of Islamic finance. They not only tend to use those instruments, but they also adapt the principles and knowledge within their own conventional frameworks. More fairness will be the result.
Iran has offered a 100 percent Islamic banking environment for some years now. The experience there learns that the industry is more than only sustainable and a considerable banking industry with sizeable Islamic finance institutions and a variety of products has developed.
The keynote speaker of the second day of the forum -- Dr. Seyed Mohammad Hossein Adeli, former governor of the Central Bank of Iran -- therefore had no problem whatsoever in keeping the attention of his audience.
Dr. Adeli also emphasized that Islamic finance in the first place is a facilitator of transactions. The market participants therefore really should concentrate primarily on doing business. We see a lot of transactions slowed down while waiting for the necessary approvals by the scholars. This time-consuming process costs business opportunities. Whilst staying within the accepted framework, the financial industry should try not to become a passive hostage of the theoretical framework and the “nitty gritty.” Tradition is very important but should be combined with a well balanced innovative approach.
The Iranian experience may help in the assessment of certain topics likely to create problems in the longer run. Dr. Adeli informed us that Iranian scholars are at the moment amongst others evaluating the role of “riba” (interest).
In general from an Islamic finance perspective interest is regarded as an “excess” and “predetermined profit.” The question has been raised in Iran whether or not staying in line with inflation really can be considered as an excess or predetermined profit. Is it rather not just staying at the same level? When the addition or charging of such amount -- not predetermined but afterwards against an accepted benchmark -- only aims to keep the same value of money, to safeguard the same purchasing power and therefore is not a before agreed upon fixed “profit,” can this be considered excessive and something that should be shunned? When money does not keep up with inflation, its value goes down over time. People will lose the incentive to save money. This may lead to devaluation and impoverishment. No position has yet been taken, but the issue is the subject of much debate.
The sale of debt at a discount is also a sensitive issue. Dr. Adeli reminded us that this has been practiced since traditional times. Both debtors and creditors have traded in claims and debts. Iranian scholars are evaluating this practice to see if it is acceptable today. It became clear that the Iranian model will be based upon strict adherence to existing principles, but re-evaluated upon their true timeless merits and linked to real contemporary needs and situations. Dr. Adeli invited the audience to better the education of sufficient numbers scholars and bankers and to set up think tanks to stimulate innovation and progress.
The forum saw the active participation of some big conventional market players that already offer Islamic finance products, such as Deutsche Bank and ABN Amro. The Swiss financial industry appeared to largely be staying out of the picture for the moment. The Swiss government does not appear to be eager to promote this kind of banking and Swiss bankers probably prefer to offer discrete services tailor-made to the needs and wishes of their wealthy clients. Looking at the present interest of the London financial markets, one might expect changes in that position soon if Switzerland does not want to miss out on the market. - (by Paul Wouters, Today's Zaman)

Sunday, 11 November 2007

Win-Win Strategy For Malaysia & Gulf States In Islamic Finance

DUBAI, Nov 4 (Bernama) -- Malaysia's aspiration to be a reputable international Islamic financial centre should not be seen as a threat to Dubai's aspiration of itself becoming one, an investment conference was told here.The Financial Ambassador for the Malaysia International Islamic Financial Centre (MIFC), Raja Nazrin Shah, said the market for Islamic products is still in its infancy and should not be limited to a few financial institutions and products."If we have only a limited number of financial institutions and products - whether in Kuala Lumpur or Dubai - we risk affecting the development of the infant."By allowing the market to grow and by allowing issuers and investors choice of quality, services and products, both countries will in fact be working in complementary ways towards a common goal," the Raja Muda of Perak said in his keynote address at an investment conference "Why Invest in Malaysia?"The conference is part of the programme of a mission to Dubai and Abu Dhabi organised by the Kuala Lumpur Business Club (KLBC) from Nov 3 to 7. The mission is aimed at encouraging investment, capital raising and cooperation with the Gulf region.The KLBC delegation members include Securities Commission chairman Datuk Zarinah Anwar, Bank Negara deputy governor Datuk Mohd Razif Abdul Kadir and KLBC chairman and MAS chairman Datuk Munir Majid.Malaysia offers to serve as an investment gateway to Asean whose economic integration opens a market of some 600 million people, with the early bird obviously having first-mover advantages, said Raja Nazrin.Malaysia, he added, has the advantage of being close to both potential issuers of syariah-compliant products and investors."Our institutions are closer to the ground and can work with those seeking capital, as well as potential investors. This opens up more natural opportunities for the two financial centres to lead, manage and place financial products."All this means that it is in Dubai's interest to see the MIFC grow and vice versa. This is not a zero sum proposition. It is a win-win outcome."Raja Nazrin said there are vast potential areas for cooperation and investment between the two countries and regions."One possible area is to tap the Islamic capital markets to finance infrastructure development in the less developed countries."Malaysia will certainly welcome the opportunity to collaborate with you to use both our Islamic capital markets to recycle global wealth into corporate formation and economic development," he told the conference participants.He also pointed out that Malaysia has a dynamic Islamic capital market with active participation by domestic and international conventional players."For example, US dollar-denominated sukuk sold out of Malaysia are always over-subscribed by both conventional and Muslim investors, and conventional issuers also tap the Islamic capital market for funding."He also told the conference participants that Malaysia is undertaking several projects to bring development to all regions in the country.The Iskandar Development Region is one such ambitious project which has already attracted investment commitments, for example, from Dubai World."Other economic development regions have been, and are being, launched throughout the country, offering opportunities in tourism, modern and technologically-driven agriculture, oil & gas, and many other fields. The property and real estate opportunities on offer are outstanding."He added that there are other opportunities "which will only become apparent when one looks at them first-hand and does the hard number-crunching."If we are able to forge strong bonds of relationships, this will facilitate information to flow freely between us and for the benefits of investments to be understood."
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