Islamic finance industry trends to be studied

(Gulf daily News, 29 April 2008)

MANAMA: Trends, opportunities and the future direction of the global Islamic finance industry will be highlighted at a strategic briefing being organised by the International Islamic Financial Market (IIFM).

The exclusive session, for senior executives of Islamic financial institutions, will also feature IIFM's Master Agreement for Treasury Placement (MATP), a benchmark document, which will be the world's first standardised Islamic finance contract when it comes to market in the near future.

Industry leaders attending the session, at Sheraton Hotel on May 8, will also be briefed about progress on two other benchmark initiatives being developed by the IIFM.

The event will be held under the patronage of the Central Bank of Bahrain (CBB).

"The CBB is delighted to support IIFM's ground-breaking initiatives, which will serve the Islamic banking and finance industry worldwide," said CBB executive director banking supervision and IIFM chairman Khalid Hamad.

Uniformity of documentation and products as well as harmonisation of market practices across geographic borders is a critical challenge, which the IIFM is addressing in partnership with market players from around the world, he said.

"The upcoming session is aimed at the industry's key market participants, who are either involved in IIFM projects through its working groups or those institutions with business activities relating to IIFM initiatives," said IIFM chief executive officer Ijlal Alvi.

The briefing session will open with a presentation on the prospects of the global industry for Islamic finance, as well as trends and opportunities by Kuwait Finance House (Malaysia) chief economist and head of research Baljeet Grewal.

The other panelists include senior executives from UBS, Linklaters, Clifford Chance, Standard Chartered, Al Salam Bank, Al Baraka Banking Group, United International Bank, Ernst & Young, JP Morgan, ABC Islamic Bank and prominent Sharia scholars, who are actively involved in driving IIFM's various initiatives.

A key highlight of the briefing session will be the MATP, which is in the final stages of review and which the IIFM expects to unveil in due course.

The MATP will significantly help the Islamic banking industry's commodity Murabaha transactions, which form the bulk of Islamic money market transactions.

Leading international legal firm Clifford Chance is the legal counsel for the project.

"We are delighted to be working with the IIFM on this important and exciting initiative. Together with the market participants the objective is to work towards standardised documents that can be adopted by all financial institutions, both Islamic and conventional, thereby enhancing the cost, time and operational efficiencies of Shari'a compliant deposit arrangements being effected," said Clifford Chance Islamic finance head Qudeer Latif.

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Islamic Finance Can Solve Global Crisis, Says Scholar

(Arab News)

MANAMA, 24 April 2008 — While the global economic system rattled by the US subprime mortgage crisis, a distinguished speaker has said that ‘Islamic finance model’ is the only answer to this persistent economic turmoil.
Dr Mohammed Mahmud Awan, a leading scholar and Dean at Malaysia-based International Center for Education in Islamic Finance (INCEIF), told the participants of a conference in Manama that the current global economic crisis has opened many windows of opportunities for Islamic finance.
“This crisis is seen as a big opportunity for Islamic finance as it has the capacity and capability to bring stability to the market.”
The current global crisis which caused colossal financial loses running in billions of dollars, he said, would have not occurred if the Islamic principles regarding collateralized debt obligations (CDOs) were in vogue in the international financial market.
“Islamic bonds, carrying unique structure features, cannot fall foul of a crisis such as subprime mortgage crisis. Subprime mortgages are backed by dubiously rated collateralized debt packages which subsequently precipitated a global credit crunch.”
Awan, who was a keynote speaker at the two-day conference on globalization organized by the University of Bahrain recently, said that it was the right time for Islamic banking industry to present solutions to the global economic community in the wake of the crisis.
The conference was attended by over 300 delegates representing various countries who share their expertise with a specific thrust globalization and opportunities and challenges.
Awan said: “Subprime mortgages are backed by dubiously rated collateralized debt packages which subsequently precipitated a global credit crunch
He added: “A crisis such as the mortgage one would technically be unthinkable in the Islamic capital markets sector because it would be against Shariah principles to sell a debt against a debt.”
There is a very simple rule in Islamic trade, he said, which clearly says that you can’t sell unless you posses.
He said: “In the present crisis we have seen trillions of dollars trading without backing of assets. If such transactions followed the Islamic finance model it would have easily prevented the current economic crisis.”

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic bonds help Indonesia beat Turkey in investment race

Today's Zaman, 20 April 08

Indonesia's latest step in reinforcing the legal foundation for sukuk -- also called Islamic bonds or participation certificates -- has further strengthened its global position in Islamic finance, while Turkey falls further behind.

Sukuk has risen as one of the fastest-growing asset classes in the modern financial industry. It is often used both by governments and corporations for project finance and large-scale real estate developments, sectors that are booming in Turkey, too.
Unlike conventional interest-based finance, this form of financing is interest averse and is derived from fundamental economic transactions, also referred to as the real economy.
After two years of preparation, on April 9 the Indonesian government endorsed the long awaited Sukuk Law, regulating this fast-growing form of finance. They aim to sell these new financial instruments this year in the domestic markets, and the government intends to issue up to $1.6 billion of sukuk in the second half of this year. Pension funds and insurance firms are expected to be interested.
It is no secret that the domestic Turkish market has for some time been longing for these instruments, and several large investor groups from the gulf are ready to inject more financial resources into the Turkish economy, provided the right regulatory and tax environment is set in place.
The Indonesian government has rightly noticed the growing sukuk market, largely fuelled by petrodollars, and has decided to use these instruments both in local Indonesian rupiah and US dollars. It wants to tap both local and international financial resources better in order to diversify the debt instruments available and lure international investment.
Worldwide, the sukuk market more than doubled in 2007 to exceed $60 billion, and is moving towards $100 billion by the end of 2008. It has maintained explosive growth since 2001, when it accounted for less than $500 million. Two-thirds of the total Islamic bonds outstanding worldwide last year were issued in Malaysia.
For the moment, sukuk are most typically "ijara" (lease financing) or "musharaka" (profit-sharing venture-capital financing), but the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), located in Bahrain, has already approved 14 different structures.
According to the Jakarta Post, two investors from the United Arab Emirates have announced to their intention to seek a second chance to finance the Jakarta Monorail (JM) project after learning about the new law.
JM Director Sukmawaty Syukur is reported to have said that several foreign investors previously withdrew when their financial schemes were found not to conform to the existing Indonesian regulations. The $480 million JM project was scheduled for completion in 2010, but has been delayed for years because of financial difficulties.
(by Paul Wouters, first published at Today's Zaman, Turkey)

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Takaful eyes new markets

(Daily News, 15 Apr 08)

MANAMA: The US and Europe are to become major new markets for Islamic insurance, according to the Bahrain-based Solidarity Group.

Speaking at the World Takaful Conference in Dubai yesterday, the firm's deputy chief executive Ashraf Adnan Bseisu argued Sharia-friendly insurance would appeal to Western consumers looking for "ethical" options.

The firm was looking at ways to export its products to the US, he said.

Sales of takaful in the US and Europe are expected to surge over the next decade, with the market share growing from just one per cent to 27pc by 2015. "There is no doubt the US and Europe have great potential. Takaful is not the sole prerogative of Muslims. The Western population are looking for morally sound products. We should not neglect the US," said Mr Bseisu.

Asia currently has a 53pc share and is expected to remain the dominant market.

But the importance of the Middle East market is expected to dwindle, with its share of global takaful premiums dropping from 46pc to 27pc.

But the Solidarity chief also pointed out that the difficulties of entering the tightly protected US market were considerable.

The lack of industry-wide standards and regulations would hinder development of the sector. Takaful firms hoping to list on the stock exchange would also need to bring their accounting standards up to scratch and improve transparency.

More work also needed to be done to improve information about the market, the sector is currently undermined by drastically differing figures.

Five different presentations at yesterday's conference produced five different sets of statistics, prompting calls for a dedicated body to produce more "credible" sums.

"Don't simply mimic traditional insurance," was the message from Abu Dhabi National Takaful Company general manager Ossama Kaissi.

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Indonesia: Tapping the Islamic bond

(Jakarta Post, 16 Apr 08)

The Islamic bond (sukuk) law enacted by the House of Representatives last week will give the Indonesian government a stronger legal basis for tapping the savings of Muslims within the country and overseas who prefer sharia-compliant financial products.

The Christian-oriented Prosperous Peace Party, the only faction at the House which opposed the approval of the law, had no legitimate grounds for its stance, because the legislation serves the interests of around 90 percent of the Indonesian people.

Moreover, the sukuk law is not the first legislation based on sharia or Islamic laws. We have long had several sharia-based laws such as those regarding the religious court, weddings and the management of alms and haj pilgrimage.

The sukuk law serves only to provide alternative financial services and products to the conventional ones to meet the increasing demand of people who prefer sharia-compliant financial products.

An important principle behind Islamic finance is the desire to maintain the moral purity of all transactions. The funds intended for sharia-compatible investments should therefore not be mixed with those of non-Islamic investments.

In fact, as the world's largest Muslim-population country, Indonesia was rather late in providing legal protection for Islamic financial products. Malaysia, for example, issued in early 2002 what it claimed to be the world's first sovereign sukuk according to the tenets of Islam which forbid interest and investment in such notorious activities as gambling and drinking alcohol.

Now Malaysia is the top global sukuk issuer with over US$52 billion or 62 percent of world's total. Malaysia also boasts of having the most comprehensive range of Islamic products and services from everyday banking and family needs such as deposits, credit cards and insurance to sukuk and other wholesale capital, all under the regulatory and supervisory regime called the Islamic Financial Services Board.

The sukuk law will enable the Indonesian government to raise part of the Rp 117 trillion ($12.8 billion) it plans to seek this year from the international and domestic debt market through the issuance of Islamic bonds in the rich Gulf countries.

The Islamic financial landscape has steadily expanded around the world and is supported by more than 300 Islamic financial institutions in more than 75 countries, with estimated assets of US$700 billion.

In the Middle East alone, according to the analysts of Standard & Poor rating agency, the market for Islamic financial products -- banking, mortgages, equity funds, fixed income, insurance, project finance, private equity and even derivatives -- was estimated at about $500 billion and set to expand further as the petro-dollar gush to the Gulf Cooperation Council countries, including Kuwait, Saudi Arabia and the United Arab Emirates, has continued to increase.

The director general of government debt management said the Finance Ministry would set up a special company (special purpose vehicle) to issue Islamic bonds.

Judging from the experiences of other countries with already well-developed sharia financial services, the first measure the government must undertake is to appoint a sharia board, a move that would provide advice on the instruments and services offered by the institutions in their jurisdiction.

This initial step is essential for the future operations of the institution (special purpose vehicle), as it will help minimize sharia risk -- the risk that the terms agreed to 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 must be consistent with those of the sharia boards of foreign supervisory agencies.

The government therefore must see to it that its sukuk conforms with the standards set by two multilateral institutions: the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which issues internationally recognized sharia 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.

Efforts needed to integrate Islamic finance with global financial markets, says Doha Bank chief

(The Peninsular, 16 Apr 08)

DOHA • “Islamic finance has attained key significance in the regional and international financial markets due to its growing demand on account of its strong and ethical fundamentals, however, to integrate Islamic finance with the global financial markets strong efforts to develop various standards, namely, legal, regulatory, accounting and corporate governance frameworks are required at a faster pace. Such integration would subsequently promote adapting to changes in international standards,” R Seetharaman, Group CEO-Doha Bank, said. He was delivering the keynote address on the five-day ‘The International Islamic Finance Forum’ due to conclude tomorrow in Jumeirah Beach Hotel, Dubai.

The conference focuses on ethical financing, micro-financing, review of issues pertaining to Islamic financing, exploring alternative Islamic asset classes, examining new ideas, challenges and opportunities to further develop the expanding Islamic finance industry, learning major strides that have been taking place in Islamic retail finance and understanding the role of regulators, exchanges, and industry organizations from a practitioner’s perspective. The conference is being attended by renowned bankers, analysts, economists, regulators and legislators across the globe.

R. Seetharaman, Group Chief Executive Officer – Doha Bank delivered the keynote address for the forum on Monday, on “Seamless integration of Islamic Finance with the International Financial Markets”. The forum included sessions on Sukuk – growth and development, Takaful – growth potentials, Islamic Accounting Standards – challenges and implementation, Islamic Treasury management – liquidity and management, Shariah standards review, Islamic social responsibility, focus on Islamic alternative asset classes – scope, challenges and opportunities, Islamic Hedge funds, and Islamic retail banking. The conference also featured detailed presentation by Nobel Laureate Professor Muhammad Yunus on micro-financing.

Seetharaman explained the reforms taking place across the globe and highlighted the changes in the economic profile of countries and blocs. The world dynamics being radically redefined with significant events such as the sub-prime market turmoil in the West, strengthening of economies and bilateral trade ties among countries in Middle East and developing Asia were highlighted. Further, he analyzed the financial leverage that had taken place in the West resulting in growth of hybrid products, like derivatives, the creative accounting practices evolved on account of these hybrid-products. Seetharaman said, though estimated loss on account of these are still debated, only 0.4% of the total bank assets in Middle East and developing Asian region represents holdings in these sub-prime securities. He elucidated on the principles forming the basis for Islamic Finance that helped in countering situations like sub-prime currently disturbing these financial markets. Thereby, he highlighted the fact that Islamic Finance in all respects is the only solution to the current Global Financial Crisis as well as making it the ethical solution preventing future financial crisis.

Seetharaman continued to highlight the transition of Islamic Finance since 1970, capturing in specific the key developments that have taken place in Islamic Finance from just being operating as Commercial Islamic Banks in 1970s, to Takaful and Islamic Investment Companies in 1980s, to Brokers/dealers in 1990s, to Islamic Investment Banks, Asset Management Companies and E-Commerce in 2000s. He also emphasized that Islamic Finance from being centric to Middle East region in 1970s has spread its wings to Asia Pacific, European and American region by 2000s, thereby rightly fitting itself into the “globalization-era”.

Seetharaman continued highlighting the growth of Islamic finance within the GCC region, Asia Pacific region and the globe as a whole. Further, he drew attention on the multiple models and forms by which Islamic finance operate currently.

Explaining the innovations that had taken place in Islamic Finance, Seetharaman showcased the significant products structuring under Murabaha, Diminishing Musharaka, Islamic credit cards structured under Murabaha and Musawama, Tawarruq to address liquidity needs of the customers through commodity trade, leveraging Ijarah towards financing education, medical treatment etc., Murabaha based back-to-back financing, Commodity Murabaha placements and Takaful. He also dealt in detail on Sukuks, being the Islamic finance mode for funding “big-ticket” infrastructure projects, structuring of Sukuks and underscored the growth of Islamic finance based Equity funds, real estate funds etc. Dwelling on the opportunities existing for Islamic Finance, Seetharaman said more Islamic products with high liquidity along with product diversification are the need of the hour.

Seetharaman explained the judicious utilization of Islamic finance based sovereign wealth funds. He underlined that these Islamic based sovereign wealth funds helped global financial institutions to tide the current sub-prime crisis to the tune of not less than US Dollars 30 billion. Further, he also said that these sovereign wealth funds have well diversified investment portfolios towards high yielding equities, alternative investments and emerging markets. When talking on the challenges, Seetharaman said responsive time, high end technological deployment, processing standards, regulatory framework compatibility to Basel II, need for viable and alternate solutions and evolving risk management standards for Islamic Finance are being now addressed on a progressive basis.

Seetharaman also stressed the importance of Green-culture and went on to explain the concept of “ECO-nomics”. Further, he explained how Islamic Finance principles and Green-culture go hand-in-hand and how natural integration can be brought between Islamic Finance and “Eco-nomics”. He also explained how through Islamic finance significant contributions can be made towards promotion of Green-culture.
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Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
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Islamic Banking In East Asia Growing But Faces Challenges, Says Moody's

KUALA LUMPUR, April 14 (Bernama) -- Islamic banking in East Asia is growing but needs more action by regulators to establish legal and regulatory frameworks in order to emerge as a significant segment across the region, according to Moody's Investors Service.

Other than Malaysia, where the industry's assets accounted for 15.4 percent (about US$62 billion) of its banking system assets, its market penetration across the region has been slightly patchy, the firm said in a new report titled "Islamic Banking in East Asia -- Growing But Not Without Challenges".

"For example, while Islamic banking has achieved relatively high market penetration in Brunei and asset growth in Indonesia has been rapid, Islamic banking services available in the Philippines, Singapore and Thailand remain very small in terms of asset size," Moody's said.

"There exists a natural business potential for Islamic banking services in Malaysia as approximately 60 percent of its population is Muslim, but it is government reforms during the past 20 to 30 years which have really helped develop the necessary legal and regulatory framework and institutions for the industry to flourish," said the report's analyst and author Christine Kuo.

The adoption of various incentives, including tax breaks, has also proven critical to nourishing the business, Kuo said.

"We believe the Malaysian experience over the last three decades demonstrates how instrumental regulators can and need to be in order to grow the Islamic banking sector," she said.

This compares to Indonesia, where the industry's market share is still less than two percent (about US$3 billion) despite rapid growth in recent years.

The low penetration, in Moody's opinion, can largely be attributed to the slow pace of change to related regulations and institutions though a few important changes seem to be gathering momentum, the report said.

Indonesia has huge long-term potential as it is home to more than 200 million Muslims, the largest Muslim population in the world, Kuo said.

She said the growing acceptance of Islamic banking even among non-Muslims, combined with announcements from Singapore, Tokyo and Hong Kong that they are to increase their participation in Islamic finance, has also underlined the industry's potential.

However, as Islamic banks expand they will need to deal with the twin challenges of managing their rapid growth while competing against conventional banks, the report said.

These included addressing risk issues specific to Islamic financial institutions, such as concentration risk due to a limited scope of eligible asset classes, higher costs for managing liquidity and concentration of liabilities.

However, these can be dealt with if the banks are not under undue pressure to grow assets too quickly, according to Moody's.

"We think that the average bank financial strength ratings (BFSRs) of Islamic banks in East Asia are likely to be lower that their conventional banking peers in the same country because of higher syariah law-related compliance costs and lack of economies of scale," Kuo said.

"Nonetheless, deposit and debt ratings of Islamic banks could be significantly higher than the levels indicated by their BFSRs, thanks to support from parents and regulators," she said.

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Kuwait Finance House offers financing international real estate for over 7 years

The Domestic Real Estate Manager at Kuwait Finance House (KFH) Salah Al-Khamees said that financing real estate acquisition abroad has top priority in KFH's real estate

He added that it has expanded its business to cover most of the world, especially the ones that have high demand on real estate in the Gulf, Europe, Asia, the Middle East, and the States.

KFH can now provide the necessary finance for corporate, individuals, and institutions, in addition to its clients, whether Kuwaitis or expatriates, provided that their salaries are transferred to the bank. These clients can acquire residential units and pay installments for as long as 7 years, adhering to the banks policy in offering the best service for its clients.

Global real estate finance

He mentioned in a press release on the occasion of KFH's participation in the International Real Estate Exhibition from 14-18 April that KFH has started to offer the service of financing the acquisition of international real estate in 8 countries that include Makkah, Al-Madeenah, Bahrain, Oman, Egypt, UAE, Lebanon, Britain, Malaysia, and soon Turkey. Due to the growing trust of clients, whether corporate or individuals, and their desire to benefit from KFH's services, the management worked on expanding the field of service to cover most parts of the world, especially the important markets and countries that witness an active, safe and stable investing environment.

Al - Khamees added that KFH deals in some countries with trusted authorities that assist the client in arranging some matters related to the real estate he wants to acquire. Moreover, KFH is considering signing a contract with one of the authorities specialized in evaluating real estate in international markets, where it will offer an added value, an exceptional service and counseling to its clients who desire to acquire real estate in a country, before offering the finance needed by the client.

He said that KFH understands that acquiring a real estate or the desire to make a real estate investment is not an easy matter, it can be one of the most important decisions that a man can make in his life. Based on KFH long experience in the real estate market, KFH has put basic criteria that form a bouquet of quality services and consultation that has to be given to the client before any real estate investment, so that this investment can be fruitful and Shariah compliant. Al-Khamees mentioned that the real estate experiences that KFH offered during its participation in previous exhibitions have greatly succeeded, where many real estates were marketed in Pavilion Tower in Malaysia, and offered 2 real estate projects in Malaysia in Pening and Way Sun areas. The third project is a number of classy flats in Singapore.

New service

He stated that clients greatly benefit from the real estate financing abroad for its many benefits and flexibility in catering to their needs. He added that KFH will offer a new service during the exhibition called 'Murabaha'. This service allows clients to acquire real estate they want in any part of the world, financed by KFH with great facilities.

Al-Khamees stressed that Murabaha is still the best choice for acquisition and that it offers the best benefits for clients, like stable prices with competitive profits among several scenarios regarding the future updates in the real estate market in Kuwait and the area. He also clarified that the business strategy that the Domestic Real Estate Department follows is maintaining the income and achieving returns on the invested money by increasing sales, offering new products and services in the Kuwaiti market, entering the Gulf market, and some global and Islamic markets.

Financing projects abroad

Al-khamees announced that the construction projects financing services for common individuals, Kuwaiti investors and Kuwaiti corporate abroad will be available during the exhibition, where whoever is interested in financing his project abroad can show the details of his project to experts who will be attending the exhibition. These experts can decide whether to finance the project or not, whether this project was real estate, industrial, or other.

The financing will be Shariah compliant like Istisnaa, Ijarah, Murabaha, and others. He mentioned that these important roles are services that KFH offers to his clients, Kuwaiti investors and national corporate, which will broaden its business scope and reinforce its projects abroad.

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More Islamic securities on the way in Malaysia

KUALA LUMPUR: Global audit and advisory firm Deloitte Touche Tohmatsu said the market for Islamic securities in Malaysia still has room for growth due to interest from Gulf Cooperation Council (GCC) countries as well as a supportive framework for Islamic financial products.

Deloitte partner Ng Meng Kwai said there was still a lot of liquidity in the GCC countries and interest in investing in syariah-compliant securities, especially those with underlying assets backed by plantations or property leases.

Ng said Malaysia's position as the largest issuer of sukuk (Islamic bond) would make it the primary market for more securitisation of certain asset classes that were syariah-compliant. Malaysia has to date issued two-thirds of the US$80bil worth of sukuk worldwide.

Meanwhile, Deloitte managing director for Asia Pacific Securitisation David Pulido said funds were still available for loans although operating in the backdrop of the subprime crisis there might be some caution even in the region.

“It defers from jurisdiction to jurisdiction and is sector-specific, it depends on who's borrowing as well. If you're a well-known name and an easy customer to underwrite then it’s not a problem,” he said.

Pulido said the securities market in the region was still at a stage where only the more basic products were being offered.

“The region's governments only started to enact legislation to support the market between the late 1990s and 2003. So in most countries there's nothing like the complex securities that are offered in the US,” he said.

He said the securities market in Malaysia was very basic, with no fancy structures such as the structured investment vehicles that had been the cause of so much trouble in the US.

He said there had been a significant drop in securitisation from last year. “There's still a lot of interest in certain papers that have not been affected by the subprime crisis,” he said.

International Islamic Financial Market finalizing first-ever standardized agreement in Islamic finance

(Albawaba, 7 Apr 08)

International Islamic Financial Market finalizing first-ever standardized agreement in Islamic finance.

The International Islamic Financial Market (IIFM) is in the final stages of developing the first-ever standardized Master Agreement, which can be used by Islamic financial institutions across the globe.

The Master Agreement for Treasury Placement (MATP) is a benchmark document, which is currently undergoing a final review by leading Islamic financial institutions and conventional institutions offering Islamic finance, to be followed shortly by a final Sharia’h review by prominent scholars.

The MATP will significantly facilitate the Islamic banking industry’s commodity Murabaha transactions, which form the bulk of Islamic market transactions, said Mr. Ijlal Alvi, Chief Executive Officer of the IIFM, an international market development institution focused on the development of the global Islamic capital and money markets.

According to some market estimates, the commodity Murabaha market is worth about US$100 billion at present. Due to the shortage of other Sharia’h compliant instruments, commodity Murabaha is the main and most widely used Islamic money market product for liquidity management purposes by Islamic financial institutions.

“The IIFM is delighted to have spearheaded such a project to develop a contract which will cover over 90% of commodity Murabaha transactions in numerous jurisdictions across the world. In addition, the utilization of a standardized agreement will enable more transparency, robustness and consistency in Islamic financial transactions,” said Mr. Khalid Hamad, IIFM Chairman and Executive Director, Banking Supervision, at the Central Bank of Bahrain (CBB).

“The standardization of such a contract will have significant positive ramifications for the Islamic banking industry worldwide.”

The MATP will carry wide acceptability, given the active involvement of many prominent market players and prominent Sharia’h scholars throughout the process of developing the agreement.

The development process has benefited considerably from the regulatory expertise provided by IIFM’s founding and permanent members, namely Bahrain, Brunei, Indonesia, Malaysia, Pakistan and Sudan, besides the Islamic Development Bank.

A leading global legal firm and accounting and auditing firm have also been involved in the development of the Master Agreement.

“The MATP, once it comes to market in a short while, will be the first Islamic finance contract to be harmonized across the different geographic regions where Islamic banking is practiced,” said Mr. Alvi.

The IIFM is also working on several other market development initiatives, which are aimed at the development of a truly globalised Islamic finance industry and Islamic capital markets.

All of the IIFM projects are being undertaken following detailed consultations with Islamic financial institutions, to identify the needs of the industry.

“We are gratified by the support we have received from Islamic financial institutions and other market players, especially IIFM members and Sharia’h scholars, in developing the MATP and for their active participation throughout the development process,” said Mr. Alvi.

“We are also grateful to the Central Bank of Bahrain for its strong support and continued guidance.”

About International Islamic Financial Market

Bahrain-based International Islamic Financial Market (IIFM) was founded with the collective efforts of the central banks of Bahrain, Indonesia, Malaysia, Pakistan, Sudan, the Brunei Finance Ministry and Saudi Arabian based Islamic Development Bank; as an infrastructure institution with the mandate to take part in the establishment, development, self-regulation and promotion of the Islamic Capital and Money Market.

IIFM’s primary focus lies in the advancement and standardization of Islamic financial instrument structures, contracts, product development and infrastructure; and the issuance of guidelines and recommendations for the enhancement of Islamic Capital and Money Market globally. In addition, development of the global primary and secondary capital market, short term financial market and the creation of a market for Islamic financial instruments are key areas for IIFM.

Ghana Welcomes Islamic Bank

(Modern Ghana, 10 April 2008)

An Islamic bank is set to take-off in Ghana by the end of the year.

The bank, which is to provide universal banking services to both Muslims and non-Muslims in the country, would offer an opportunity for its customers to access funding without having to provide landed property as collateral, and also without paying fixed interest on credits, but rather share profits on pre-arranged terms.

“The bank would be offering corporate banking, housing finance, car finance, retail banking products as well as other services that conform with the tenets of Islam, which are available to any individual or outfit seeking an alternative banking solution,” Professor Thomas Kubi, a promoter of the bank told CITY&BUSINESS GUIDE in an interview in Accra.

He said the Ministry of Finance and the Bank of Ghana, which is the regulator of the country’s banking industry, had agreed in principle for the setting up of the bank in the country.

He further disclosed that an international Shariah advisory firm, Dar Al Istithmar, in collaboration with his outfit, MCA International Consult, had already prepared a proposal outlining the strategy to introduce Islamic banking to the country.

“There is a huge market niche in Islamic banking that needs to be filled and we are looking forward to meeting this market’s needs,” Prof Kubi noted.

He said anyone who would open an account with the bank would automatically become a shareholder and be covered by insurance.

Islamic banking, practiced in a growing number of countries including Turkey, United Kingdom (UK), Qatar and Iran, is founded on the Shariah principles including the fundamental principle that the receipt of interest is prohibited.

UK Chancellor, Gordon Brown, had said his intention was to make London the gateway to Islamic finance and trade.

The rise of Islamic banking is the most striking feature of the new wave of development in the Arab and developing world.

According to statistics, the global value of the Islamic financial industry presently stands approximately at $850 billion.

From a humble beginning in the 1970s, the Islamic financial services industry has grown in size in 75 countries and spread across four regions namely North America, Europe, Middle-East, Africa and South-East Asia.

Analysts say the multi-dollar sector is poised to register unprecedented growth, averaging 15 percent annually over the next decades.

This, according to them, represents attractive opportunities for regional and international bankers to tap rich deposits and structured project finance businesses in the Islamic world.

Prof. Kubi said the setting up of an Islamic Bank in Ghana would give the country a head-start over other potential competitors such as South Africa.

In Africa, Islamic banks are established in the Gambia, Morocco, Tunisia and Sudan.

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Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 

Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic banking grows by leaps and bounds

8 April 08

(MENAFN - Bahrain Tribune) While the development of Islamic banking in the GCC markets will continue to lead the way, industry specialists predicted significant growth for Islamic banking in the United Kingdom, France, Eastern Europe, North Africa, North America and even Latin America, as it embraces the true globalisation path.

However, the passage into the Eastern European nations, where there were no Islamic banking regulations in place would be a big challenge.

"We need to have the right set of regulations, as is the case in Bahrain. A healthy environment is the key to the growth of Islamic banking not to forget creating new products, structures and creative instruments," said Ahmed Jawhry, Chief Investment Officer, Bahrain-based Venture Capital Bank.
He was speaking on 'The role of Islamic banking in the world investment towards eastern European new economies' at the Crans Montana Forum's meet on Central Europe and Eastern New Economies strategies with Gulf States here yesterday.

"More and more countries and global financial institutions are having Islamic windows and rolling out Islamic products and services. Investor awareness is growing and the essence of Islamic banking building up in many parts of the globe. The buffet of products is wide," said Ahmed Abbas, CEO, Liquidity Management Centre, Bahrain. The global industry has trebled in the past decade and is now reportedly worth around $531 billion.

Islamic banking in the GCC has been expanding at double-digit annual growth rates over the past decade. Today, Islamic banks in the Gulf control a market share close to 15 per cent of the regional banking system's assets, and have become part of mainstream financial intermediation in this part of the world.
"Islamic banking needs to be given more credit than what has been given. It has witnessed an exponential growth in the last eight years at a pace that far outstrips that of conventional banking in the last one decade," Abbas said. More over, it remained immune to global economic turbulences over the past several years thanks to its formidable asset-based strengths.

Competition has been heating up, forcing Islamic banks to enhance their commercial entrenchment, develop relevant business models, strengthen their brands and reputation and provide innovative solutions to a growing number of clients attracted by the concept of interest-free banking. "If big players of conventional banking enter the fray, Islamic banking is bound to a long way."

Sukuk was gaining big time momentum. The existing size of the sukuk market was projected to cross $200 billion in the next year, especially as more corporate issuances, both rated and unrated, hit the market and sukuk increasingly becomes an internationally acceptable Islamic capital market's instrument akin to the Murabaha and the Ijarah contracts.

Sukuk were also becoming a global phenomenon, attracting more issuers from a larger pool of countries than ever before, including those in the West. Sovereigns such as the UK Treasury and the Japanese Ministry of Finance were exploring the potential use of sukuk as a debt management tool in the wholesale sterling and yen markets.

Bahrain, a pioneer of Islamic bonds and also the first to launch sovereign sukuks, sought to hasten the inflow of foreign funds for sukuk instruments in the near future with the launch of the new set of regulations.

"While harmonisation of Shariah standards and acute shortage of human resources were issues facing Islamic banking, we need to ensure standards keep pace with the rapid pace and changes in the Islamic finance industry. Growth has superceded the industry regulations."

Indonesian government to issue 15 trillion rupiah worth of sharia bonds

(8 Apr 08)

JAKARTA (Thomson Financial) - The Indonesian government is planning to issue later this year its first sharia bonds, or bonds that comply with Islamic law, to help cover the state budget deficit, a finance ministry official said Tuesday.

"The value of sharia bonds to be issued will be around 15 trillion rupiah ($1.63 billion), in line with underlying assets that have been set aside by the government," said Rahmat Waluyanto, the ministry's director-general of debt management.

Waluyanto said half of the sharia bonds would be issued domestically and the rest offered in the form of sovereign Islamic bonds, known as sukuk, in the international market.

The government said earlier that the bond issue was meant to meet growing demand for sukuk, particularly from Middle East investors.

The lower house of parliament is scheduled to pass a bill on sharia bonds Thursday. The enactment of the law will provide a legal basis for the government to issue such instruments.

Finance Minister Sri Mulyani Indrawati has said his ministry will shortly issue follow-up regulations that will govern the technical aspects of issuing sharia bonds.

Credit crunch costs '$1 trillion'

(BBC, 8 Apr 08)

The International Monetary Fund (IMF) has warned that potential losses from the credit crunch will reach $945bn (£472bn) and could be even higher.

The IMF says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt.

It says that there was a "collective failure" to appreciate the risky borrowing by financial institutions.

And it warns that tough measures and government intervention may be needed.

The IMF's Global Stability Report warns that "despite unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalised institutions, and broad-based deleveraging."

The IMF, which oversees the global economy, says that the effects of the credit crunch are likely to be "broader, deeper and more protracted" than in previous downturns, due to the "degree of securitisation and leverage in the financial system".

"Leading indicators point to a tightening of credit conditions across many economic activities," said Jaime Caruana, head of the IMF's Monetary and Capital Markets Department, and author of the report.

The report has been released ahead of a gathering of world financial leaders at the IMF's spring meeting in Washington D.C. this weekend.

On Wednesday the IMF is also expected to downgrade its forecast for the world economy, and accept that a sharp slowdown is likely in the US.

Who's to blame?

The report blames lax regulation by governments and poor supervision by banks for allowing the situation to develop.

And it warns that national governments must prepare contingency plans "for dealing with large stocks of impaired assets" if "writedowns lead to significant negative effects on the real economy".

The report is sharply critical of banks and other financial institutions, which it accuses of "excessive risk-taking" and "weak underwriting" .

It says they were "too complacent" about liquidity risks - the problems that would happen if they ran out of ready cash - and too ready to rely on wholesale money markets and central banks to help them if they got into trouble.

And its says that there was a failure of banks' risk management systems to appreciate that the new "structured finance vehicles" that they used to offload their risky sub-prime investments were not really viable.

It says that the new instruments increased the danger of a "liquidity spiral" in which markets and institutions' funding problems reinforced each other.

And it warns that banks will have to concentrate on rebuilding their balance sheets by raising additional funds and limiting future lending.

Tougher regulation

The IMF says that financial sector supervision and regulation "lagged behind the rapid innovation and shifts in business models, leaving scope for excessive risk-taking" and says more fundamental changes are needed in the medium term.

But it warns against "a rush to regulate" which could stifle innovation and make the credit crunch worse.

However, it says that there should be tougher rules to stop banks putting assets off the balance sheet, and requiring banks to put aside more capital to protect against losses.

It points out that it is not securitisation itself, but "lax underwriting standards in the US mortgage market, the extension of securitisation into increasingly complex and difficult to understand structures based on increasingly lower quality assets", and low interest rates which led to a situation where "risks were insufficiently appreciated".

And it suggests that central banks will have to take into account worries about excessive asset prices, such as house price bubbles, when setting interest rates.

Government intervention

In recent days, both the US Treasury Secretary Hank Paulson and IMF boss Dominique Strauss-Kahn have both urged major changes in international and national financial regulation.

Last week, Mr Paulson proposed a major shake-up of the US system of financial regulation, giving more power to the central bank, the Fed, to intervene to rescue stricken banks and other financial institutions.

And on Monday, Mr Strauss-Kahn said that the need for public intervention to tackle the credit crunch at the global level was "becoming more evident" every day.

This, along with more intervention in the banking sector, would offer a "third line of defence", Mr Strauss-Kahn said.

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Alfalah Consulting-Kuala Lumpur: www.alfalahconsulting.com 
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Pakistan: Six banks short listed for rupee sukuk

(Daily Times, 8 Apr 08)

KARACHI: Pakistan has shortlisted six banks to manage a local currency Islamic bond, or sukuk, and a mandate for the transaction is likely to be awarded soon, government and banking sources said on Monday.

This will be the first sukuk issue by the government in the domestic market, though it raised $600 million through an Islamic bond in the international market in 2005.

“We have shortlisted six banks for this local issuance, and a mandate for that should be awarded in a week to 10 days,” a senior government official told Reuters.

The sukuk would be issued in the fiscal year ending June 30, but no decision had been taken on the size and tenure of the issue, former Finance Minister Salman Shah had told Reuters last month.

Banking sources said the banks shortlisted were ABN Amro Pakistan, Dubai Islamic Bank, Meezan Bank, MCB Bank, Standard Chartered Bank Pakistan and United Bank Ltd.

A banker familiar with development said that the issue was estimated to be of at least 20 billion Pakistani rupees ($318 million).

“The official position is that the size would be determined by the prevailing market conditions, but we were indicated that the size should be at least 20 billion rupees,” he said.

Analysts said the government should not face any trouble attracting investors to the sukuk, as Pakistan’s market for Islamic finance is growing.

In calendar 2007, assets of Islamic banks grew by about 74 percent to 205 billion rupees—from 118 billion rupees in December 2006—which equates to a 4.2 percent share of Pakistani banks’ total assets, State Bank of Pakistan data showed.

Pakistan plans to issue a US dollar bond, likely to be exchangeable in stocks of a state-owned company, in the international market before the end of fiscal 2007/08.

Our staff reporter adds: An official at one of the short listed banks told Daily Times that the State Bank has expressed its reservations about giving the mandate for managing the bond issue to banks.

The bond’s tenure may be three or five years, said the official. He said the government would pledge some asset to sell the bond. “Its coupon rate will be linked to either six-month kibor or six-month treasury bill,” he said. “The government might raise Rs 10-20 billion through the auction.” He said more such bonds would be coming in the future in quick succession.

The Islamic Bank of Asia taps into GCC’s double digit growth

(Albawaba, 8 Apr 08)

The Islamic Bank of Asia (IB Asia) is poised to capitalize on the predicted double digit growth in the GCC’s Islamic banking sector. It will officially launch its first office at the Bahrain Financial Harbour in May to develop IB Asia’s wholesale, commercial and investment banking businesses and strengthen relationships with clients and investors in the GCC.

The bank was established in 2007 as a joint venture between DBS, one of the largest financial services groups in Asia, and 34 investors from prominent families and industrial groups based in the GCC, a unique parentage that affords IB Asia enhanced visibility and intellectual insight across the two leading global Islamic banking hubs.

IB Asia’s strength and expertise are further bolstered by its Shariah Board and its Board of Directors. The former consists of four of the world’s most prominent Islamic scholars – Shaikh Dr. Mohamed Ali Elgari, Dr. Abdul Sattar Abu Ghuddah and Dr. Mohd Daud Bakar – and is chaired by Shaikh Nizam Yaqouby, based in Bahrain. The latter is chaired by His Excellency Abdulla Hasan Saif, advisor on economic affairs to His Highness the Prime Minister of Bahrain, and includes prominent bankers such as Mr. Khalid Abdulla Al-Bassam, Chairman of the Bahrain Islamic Bank.

In less than a year, IB Asia – regarded within Asia as the spearhead of Singapore’s nascent Islamic banking sector – has focused on cross-border transactions securing a range of significant business with a series of prominent GCC companies, including three Kuwait-based companies – the International Leasing & Investment Company, the National Industries Group and the AREF Investment Group – and Barwa Real Estate Company based in Qatar.

Mr. Vince Cook, Chief Executive Officer of IB Asia, said that the bank’s unique shareholding structure offers refreshing insights and expertise that will help clients maximize opportunities in the twin financial hubs of the GCC and Asia. “Establishing a presence in the GCC has always been a priority because it allows us to stay abreast of the latest developments in the Middle-eastern Islamic financial industry so that we can better serve our clients.

“Furthermore, as a bank based in Asia, we serve as a gateway for GCC-based investors looking to invest in the region. Our office in Bahrain will augment our ability to help such GCC clients realize Asia’s opportunities,” he said.

Mr. Cook said: “The Islamic finance industry is experiencing phenomenal growth driven by a fast-emerging awareness of Shariah-compliant instruments, the philosophy that underpins them and their strong returns for investors. Against this backdrop, IB Asia is poised to grow its business by focusing our efforts in the key hubs of Asia and the GCC.”

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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

PUBLIC ISLAMIC OPTIMAL GROWTH FUND TO CAPITALISE ON DIVIDEND AND GROWTH STOCKS IN THE DOMESTIC MARKET

Kuala Lumpur, 3 April 2008-- Public Bank’s Wholly-owned Subsidiary, Public Mutual Will Launch A Domestic Islamic Fund, Public Islamic Optimal Growth Fund (PIOGF) On 8 April 2008 (Tuesday). Investors Who Wish To Achieve An Optimal Combination Of Capital Appreciation And Income Growth Over The Long-term Can Invest In The PIOGF. PIOGF Is Open For EPF Members Investment Scheme.

Public Mutual’s Chairman Tan Sri Dato’ Sri Dr. Teh Hong Piow said PIOGF is an Islamic equity fund that seeks to provide income and capital growth by investing in Shariah-compliant stocks which offer attractive dividend yields and growth stocks in the domestic market. “PIOGF invests 50% of its equity investment in Shariah-compliant growth stocks in the domestic market while the remaining 50% of its equity investment is invested in Shariah-compliant stocks which offer attractive dividend yields,” he added.

Tan Sri Teh explains that PIOGF is a capital growth and income fund that is suitable for medium to long-term investors with aggressive risk-reward temperaments. The equity exposure of PIOGF will generally range from 75% to 95% of its net asset value (NAV). PIOGF distributes annual income to the investors on a best effort basis.

The Initial Offer Price of PIOGF is at RM0.2500 per unit during the 21-day initial offer period of 8 April 2008 to 28 April 2008. The minimum initial investment is RM1,000.

PIOGF is distributed by Public Mutual unit trust consultants. Interested investors can contact any Public Mutual unit trust consultant.

Public Mutual is the largest private unit trust company in Malaysia, and it manages 61 funds for more than 1,650,000 accountholders. As at 31 December 2007, the total NAV of the funds managed by the company was RM28.4 billion.---(BERNAMA)



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

Gulf banks set sights on Kenya

Gulf conventional and Islamic banks are looking to set up operations in Kenya to capitalise on the huge untapped Muslim population in the Africa region, said a senior Kenyan central bank official.
“We are getting a lot of inquiries from Gulf banks, some of them from the UAE, which are keen to open up branches in Kenya,” Central Bank of Kenya Governor Prof Njuguna Ndung’u told Emirates Business. He didn’t identify the regional banks. “We are keen to make Kenya the region’s banking hub. Nairobi’s strategic location makes it an ideal place for Islamic banks to easily access the Muslim-populated Eastern and Central African regions,” he said.

The Governor visited the UAE over the past two days to attract investment into the banking and financial sector. He will also visit Oman and Bahrain.

“I see strong growth in the Kenyan banking sector – particularly Islamic banking. There is a huge market niche in Islamic banking that needs to be filled… and it provides great opportunity for the Gulf banks to fill that gap,” said Ndung’u.

Kenya’s first Islamic bank – Gulf African Bank – was launched last month by Middle Eastern investors with a capital base of $27 million (Dh99m). UAE-based investment firm GulfCap, Dubai-based private equity firm Istithmar World, BankMuscat International, PTA Bank and other Kenyan and foreign investors are the major shareholders of the Islamic bank.

Gulf African plans to offer corporate banking, housing finance, car finance, retail banking products as well as other services that conform with the tenets of Islam.

The Kenyan Central Bank has also approved a second licence for an Islamic bank that will launch operations soon. Ndung’u said Kenyan banks lack innovative and diverse Shariah-compliant products and the entry of foreign banks will expand this segment.

“Gulf banks are very matured compared to their Kenyan counterparts. The entry of Gulf Islamic banks into Kenya will see new innovative products.”
In fact, the banking sector was the largest contributor to the GDP growth in Kenya last year.

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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

Saudi Arabia: Cash waqf for welfare projects mooted

(MENAFN - Arab News) Professor M.A. Mannan, founder chairman of Social Investment Bank (SIB) in Bangladesh, yesterday urged Muslim countries and organizations to promote "cash waqf" (endowment in cash) as a new product to collect funds required for their educational, social and charitable projects."The main attraction of this product is that it enables every Muslim to participate in it by contributing any amount he or she can afford," Mannan told Arab News while attending the 7th International Conference on Islamic Economics at the King Abdul Aziz University.

Mannan, former chief economist at the Islamic Development Bank in Jeddah, said contributions to cash waqf could be collected through banks. "We have introduced cash waqf at SIB and have received encouraging response from the public," he said. Bank Muamalat and other Islamic banks in Indonesia have also adopted the system. "We don't use cash waqf funds directly to finance projects. The fund will be invested in viable ventures and the returns from projects will be used to finance projects. This will help organizations to maintain funds for their projects without resorting to contributions," he explained.Mannan said SIB had made 300 percent growth during the past 10 years. "I hope SIB would pave the way for the establishment of a world social bank in order to finance social infrastructure projects for the Ummah."

The conference was officially opened on Tuesday by acting Higher Education Minister Dr. Matlab Al-Nafeesa. He said the economic problems facing the humanity today were the results of its distancing itself from Islamic teachings and values. He hoped that the conference would open a new chapter in Islamic economics research. The minister honored eminent economists who had contributed to the development of Islamic Economics Research Center at the university. Dr. Osama Tayyeb, president of KAU, stressed the conference's significance in exchanging expertise and making use of research works.

Speaking to Arab News, Dr. Najatullah Siddiqui, winner of King Faisal International Prize for Islamic Studies, called for more efforts to promote Islamic endowment and Zakah systems and fight poverty in Muslim countries. Siddiqui emphasized the need for narrowing the gap between the rich and poor and reminded the wealthy of their duty toward the less fortunate. He presented a paper on "Obstacles to Research in Islamic Economics."

Dr. Mehmet Asutay, lecturer in political economy at School of Government and International Affairs, Durham University, was one of the nearly 1,000 delegates attending the conference. His school, which offers training in Islamic finance, has a pavilion at the conference along with other major players in the industry including Harvard Law School and the Islamic Development Bank."There is a lot of demand for our Ph.D and master degree programs in Islamic finance," Asutay told Arab News. 

He also disclosed the university's plan to open a center for Islamic finance studies. "We provide short-term courses for employees of Islamic banks and other financial institutions. Last year we provided training to more than 40 people from different countries including Australia, Germany, Italy and Switzerland. Half of them were non-Muslims." Asutay said Islamic economics was making "impressive" progress over the past years. 

However, he emphasized the importance of developing authentic Islamic finance products to meet the needs of different societies. "Islamic banking has to move from commercial banking to social and retail banking. It should also get involved in social issues such as environment protection." He called for concrete efforts to establish transparency.

Professor Mohamed Aslam Haneef of International Islamic University in Malaysia was one of the speakers yesterday. He called for the establishment of an international fund for research in Islamic economics. "Students of Islamic universities should become agents of change, not changed agents," Haneef said. "We should also chart a clear agenda for the future," he told the delegates who came from all over the world including the US, UK, Egypt, Pakistan, India, Indonesia, Malaysia, Australia and New Zealand.

Malaysia's Affin Islamic unveils new financing facility

KUALA LUMPUR, April 1 (Reuters) - Malaysian lender Affin Islamic Bank Bhd launched on Tuesday an Islamic financing strategy to help small firms raise funds and increase the industry's share of domestic banking assets.

Under the new strategy, banks will be partners instead of just lenders in the development of projects such as the construction of homes.

In its pioneer project, Affin Islamic will team up with small Malaysian property firm Mutiara Goodyear Development to develop a 180 million ringgit ($56.30 million) apartment project in northern Penang state.

Under the deal, the two companies will form a special purpose vehicle that will buy land to be used for the development and jointly undertake the project. Profits and losses from the project would be shared equally between the parties.

Mostly Muslim Malaysia is prodding its Islamic lenders to develop products to draw more investors as part of a plan to make the country a global hub for the $300 billion Islamic finance sector.

Record crude oil prices have fuelled a surge of petrodollars into Asia, with cash-rich Gulf investors hungry for investments that comply with the sharia or Islamic law.

Malaysian Islamic assets such as property and bonds are popular with investors who want exposure to Asia's growth story while complying with the sharia, which forbids interest-bearing loans and investments in alcohol and gambling.

Mutiara Goodyear Chief Executive Kee Cheng Teik said Affin Islamic's financial backing would boost investor confidence in the development.

"Purchasers do not only look at the strength of the development and design, they also look at the strength of the financials, that we can carry through all the project, " Kee told reporters.

Affin Islamic is the Islamic banking arm of AffiN Bank, a subsidiary of Malaysia's second-smallest lender Affin Holdings. Islamic banking assets make up over 12 percent of total Malaysian bank assets and the government wants to increase this to 20 percent by 2010.

Malaysia is home to 12 Islamic banks with almost $46 billion in assets and has the largest Islamic bond market. Malaysia, Singapore and Dubai are all vying to become Islamic banking hubs.

Small Malaysian companies often say it is hard to raise funds to expand their businesses. They say banks are sometimes reluctant to lend to small firms while the lack of strong credit ratings make it difficult for them to tap the capital markets. ($1=3.197 Malaysian Ringgit)

(Reporting by Liau Y-Sing; Editing by Tomasz Janowski)

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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