Latest from GIFC

Thursday, 31 July 2008

Islamic Financial Planning and Asset Management - Kuala Lumpur, Malaysia

Islamic financial planning and asset management are important components of Islamic financial and economic system.

In the current recessionary economic situation due largely to the sharp increase in energy price, proper Islamic financial planning and asset management are becoming necessary to individuals and corporations.

Certified Islamic financial planners are being produced to meet this increasing demand for professional Islamic financial planning and asset management services in Malaysia and other countries.

Islamic financial planning process involves creation of wealth, accumulation of wealth, protection of wealth, purification of wealth and distribution of wealth. The entire process must be Shariah compliant based on the Quran, Sunnah and other accepted sources. We are asked by God not only to gain wealth in the halal ways but also to purify it by paying zakat and distribute it through wasiat, hibah, wakaf and faraid. (in one's wealth there is a portion belongs to others)

Islamic financial planners should not only be able to identify halal portfolio but also to narrow the choice to the one that should give better returns (halalal toryiban). According to various reports, some Islamic investment products provide better returns than the conventional products (Islamic mutual funds/unit trusts for example).

Currently, fund and asset managers are more incline to enter into Islamic products and instruments to meet the ever increasing demand among public, Muslims and non Muslims.

In order to promote the understanding and development of Islamic financial planning and asset management, a conference on "Islamic Financial Planning and Asset Management" is being organised by GlobalPro Consulting in Kuala Lumpur on 14-15 August 2008.

For more information on the event, visit the organiser's web site:

UK: Islamic finance makes a move into the mainstream

Sharia-compliant financial products are starting to develop a universal appeal, says Kate Hughes

Saturday, 26 July 2008 (The Independent)

There has been a substantial Muslim community in the UK for at least 300 years, so UK financial companies may have been a little slow to cater for their monetary needs. But mainstream financial groups are quickly waking up to the fact that there are some 2 million Muslims in the UK whose financial needs must be met, as well as many more non-Muslims who agree with the ethics promoted by Islamic law, or sharia.

Sharia governs, among other things, a Muslim's economic and social life, dictating how believers should conduct themselves. It forbids certain activities and transactions: those involving alcohol and pork-related products, but also armaments, gambling, pornography and other activities deemed socially detrimental.

Crucially, Islam places no intrinsic value on money, so earning or paying interest (riba) is prohibited – ruling out the majority of traditional mortgages, investments, savings and insurance products. So financial providers have had to do some creative thinking. The result, however, has been the launch of a wealth of new interesting and innovative products - some of which are now starting to capture the attention of non-muslims as well.


Buying a home under sharia usually involves one of two types of Home Purchase Plan. Under an ijara or lease option, the bank buys the property and the client pays rent to the bank. At the end of the term, the bank hands the ownership of the property over to the client. Alternatively, a murabha or partnership approach means the bank buys the property with the client who then makes regular payments to gradually assume ownership. In both cases, the bank simply adds its costs to the price of the property which the client pays back as part of the whole.

Both options could prove interesting propositions in an uncertain economic climate, regardless of your religious inclination, says Peter McGahan of the independent financial adviser Worldwide Financial Planning. "These approaches could mean that a home owner may not have to worry about the uncertainty of interest rates. You know exactly how much you will need to regularly budget and how much your property will cost you in the end." But, he adds, there are potential pitfalls. "Bear in mind that, particularly with murabha, you are paying a higher price for a property in a falling market. You are increasing your risk of negative equity, and this could mean you will be unable to move again in the short term." Sharia-compliant mortgages are available from a number of providers, including Lloyds TSB ( HSBC ( and the Islamic Bank of Britain (

Current accounts & savings

An Islamic current account will give you the same benefits as a standard account when it comes to cheque books, debit cards, access to ATMs, online banking and regular statements. But no interest is paid on balances or charged on overdrafts, so banks will go after you on borrowing fees. You will often have to keep a significant amount in the account to avoid being charged. The minimum input for savings accounts can be far higher than other products and the "profit" rate – generated from sale and lease schemes rather than interest-based borrowing – is rarely market-leading. Once again, providers include Lloyds TSB, HSBC and IBB, but The Children's Mutual ( also offers a sharia-compliant child trust fund.


Islamic investment products are booming and even the UK Government is rumoured to be considering a sukuk, or sharia-compliant bond. Conventional Western-style bonds offer investors interest payments on the sums invested. Sukuk bonds represent partial ownership of the underlying asset. Because the focus is on real assets, sukuk bonds protect investors from gearing or leverage – when the bond provider borrows against it to try to boost returns.

Meanwhile, Islamic-oriented equities seem to be weathering the economic storm far better than their mainstream counterparts, according to Standard & Poor's. "Equity markets around the world have experienced a turbulent start to 2008, with the S&P World BMI Index falling by 1.49 per cent in the second quarter of 2008," says Alka Banerjee of S&P. "But the S&P BMI Global Shariah Index delivered positive returns of 3.61 per cent over the same period. Financial stocks, whose poor performance has affected other indices, are largely excluded from sharia indices as they do not comply with Islamic law, so sharia investors have benefited."

Other products

New sharia-compliant products are now appearing in other areas of the market, too. This month has seen the official launch of Britain's first Islamic insurance company. Salaam Insurance (, 0800 980 2445) offers sharia-compliant motor insurance policies by sharing the risk between policy holders. The takaful insurance allows participants to pay their contribution into a pooled fund which is then invested in sharia-compliant investments, with any profits put back into the fund. Claims are paid from the fund, and if there is any extra cash at the end of the year, it is distributed as a discount for the next year's premium. It has a more positive spin than the majority of insurance products on the market, as you may get something back for your money, rather than parting with your cash in the "hope" that you never have to claim it back. Salaam will offer home insurance, too, later this year.

There is also Cordoba Gold, a sharia-compliant prepaid card that is to be launched in mid-August. Targeting frequent travellers or those who often transfer money overseas, the card will have no interest payments, and will offer a credit-builder facility to help boost the client's credit rating by adding positive information to their credit file, using a gradually repaid loan rather than a monthly fee. More information will be available starting next month at

If you are looking for an easy list of what sharia does and does not mean for your finances, there is no straightforward answer. For most Muslims, the Koran and Sunna, the holy books, are open to interpretation by everyone. Although UK domiciled financial companies are regulated in their business dealings by the Financial Services Authority, they are guided in their sharia compliance by various scholars. This means that there is no absolute definition of what is and what is not considered sharia-compliant personal finance. So it's important to check each providers' processes before signing up.

Related link on Islamic finance:

South Africa: Race is on for Shariah market

Dispatch Online-2008/07/30
Business Correspondent
ISLAMIC money is moving to centre stage in South Africa as conventional banks and investment houses vie for the global Shariah-compliant market.
Absa Capital yesterday said it would be launching a Shariah Top 40 exchange traded fund (ETF) in a bid to bolster its Islamic investment product offering.
This follows the launch of the Shariah Top 40 Index by the Johannesburg Stock Exchange (JSE) – in partnership with the FTSE Group – on Monday.
There are currently eight Shariah funds in South Africa, with a net asset value of R5.93 billion, from only two in 2003 valued at R492m.
In March Absa launched SA’s first Shariah- compliant exchange traded fund, NewGold ETF, which attracted a lot of interest from the country’s 850000-strong Muslim community.
Absa’s head of ETFs and index products, Vladimir Nedeljkovic, said the bank has already lodged an application with the Financial Services Board to launch the Shariah Top 40 ETF.
Nedeljkovic said: “We believe there is quite a strong local interest in Shariah-compliant investments. We are committed to bring more Islamic products to the market.”
The FTSE/JSE Shariah Top 40 Index is a selection of Shariah-compliant companies from the FTSE/JSE Shariah All-Share Index (launched last November), with the calculation of the index and the treatment of corporate actions being similar to the FTSE/JSE Top 40.
“Internationally the market for Islamic investment products is growing exponentially, at an estimated 15% to 20% per annum,” said JSE information product sales senior general manager Ana Forssman. She said the index gave Muslim investors access to the top performing listed companies in South Africa without compromising religious beliefs.
She said the Top 40 Index was suitable for the creation of financial products, such as index funds, warrants, certificates and exchange traded funds.
Imogen Dillon Hatcher, FTSE Group’s Europe, Middle East and Africa managing director, said that with about 1.5 billion Muslims worldwide, there was huge growth potential for investment vehicles with a faith-based mandate. According to Islamic economic principles, to be Shariah-compliant, financial products must not charge interest or invest in gambling, pork or alcohol beverage industries.
Risk is shared between the customer and the investment company on agreed terms, and profit is then divided between them.
Globally the market for Shariah-compliant investment and banking is estimated at about 75bn, and growing.
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Shariah-compliant credit cards become more common

Issuers expanding options for those who wish to follow Islamic law

By Lisa Rogak

As credit card companies reach out to specific groups by offering credit cards with ties to everything from charities to pro sports teams, they are also actively pursuing a group of people who have traditionally shunned credit cards for religious reasons.

Muslims are required to follow strict Islamic standards known as Shariah. Generally, these principles state that Muslims are forbidden to participate in any financial practices or do business with any money-lending entity that charges interest, known as riba; invokes gharar, or uncertainty, most commonly in the form of variable interest rates; or uses funds for maysir, or gambling.

While Muslims in the past have typically relied on cash or debit cards, in recent years, many customers have demanded more flexibility and options from their banks. According to Brian Riley, a research director at TowerGroup, a financial services research firm based in Needham, Mass., Muslims constitute almost 24 percent of the world's population, and he estimates that total assets in Shariah-compliant banks will hit $1 trillion by 2011.
Three different cards
Generally, there are three groups of Shariah-compliant credit card arrangements:
  • A bank provides a line of credit to the cardholder and charges a monthly or yearly usage fee tied to the outstanding balance of the line of credit.
  • A customer is allowed to buy an item with a card, but in the instant that the card goes through, the bank purchases the item before selling it to the cardholder at a higher price.
  • A lease-purchase agreement where the bank holds title to the purchased item until the cardholder makes the final payment.
With these cards, terms and fees can vary depending upon the financial institution as well as the region and the local competition, according to Abdi Shayesteh, an associate with the Islamic Finance Practice Group of Atlanta-based law firm King & Spalding. "In general, with line-of-credit cards, a customer can expect to pay usage fees equal to 5 percent to 10 percent of the outstanding balance," he says. "With the others, a cardholder will usually be required to pay a third of the outstanding balance and have a deposit account with the bank."
The bank must also follow certain restrictions. "To qualify as Shariah-compliant, a financial institution must have an internal review board of experts in Islamic law to certify that its banking products and practices conform with Shariah principles," says Riley.
Despite their complexity, experts maintain that Shariah-compliant credit cards have more in common with their non-Islamic counterparts than not. "These cards require no assets of ownership. They're easy to use. And the limit is set on the basis of creditworthiness of the person," says Niket Patankar, CEO of Adventity, a financial services research firm with offices in New York, India, and Dubai. "They follow the same models that Visa and MasterCard use and also offer value-added benefits, co-branding, and different type of cards."
They also may offer rewards. The First Gulf Bank's Makkah Visa, for instance, allows users to build up points that can be redeemed with a trip to the holy city of Mecca during the last 10 days of Ramadan, a Muslim holy season.
Other Shariah-compliant financial products offered by banks and finance companies include mortgages, car loans and personal loans, which most often follow the lease-to-own format, but they can also be in the form of a partnership. "In this case, the bank and the customer acquire the property together, and the customer increases his equity or ownership position in the property by purchasing the bank's entire equity interest over time through installment payments," says Shayesteh.

Not just for Muslims
You don't necessarily have to be Muslim to get a Shariah-compliant card. Since Islamic banks are forbidden from investing in companies that profit from alcohol, tobacco, pornography, gambling or pork, many non-Muslims who object to these practices on personal grounds are also attracted to the programs. Not surprisingly, however, the majority of banks issuing Shariah-compliant credit cards are located in countries in the Persian Gulf region, the Middle East, and Southeast Asia. But since the majority of the cards are processed through Visa or MasterCard, retailers take them wherever credit cards are accepted.
In recent years, a growing number of U.S. financial institutions have gotten on board. University Bank in Ann Arbor, Mich., launched a line of Shariah-compliant mortgage and home refinancing programs, profit-sharing deposit accounts, and shares in Islamic mutual funds in 2003, while Chicago-based Devon Bank offers Shariah-compliant home, construction, and small-business financing products. Finance companies LARIBA American Finance House and Guidance Residential also provide customers with a variety of home, automobile and business finance products.
According to Patankar, this full-service financial approach is the wave of the future. "In the retail finance space, Shariah-compliant finance offers almost all the same products as conventional banks do, including Islamic insurance," he says. "The only difference is that they are structured to align the product with Shariah principles."


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Islamic Banking in Numbers


Riyadh, Asharq Al-Awsat- Today Islamic banking is in its golden age since it is attracting the attention of some of the largest financial consultants, law firms and research and publishing institutions that frequently issue reports on the developments taking place in the industry. These include McKinsey & Company’s report on competition in Islamic banking, reports by Moody’s and Standard & Poor’s, which are amongst the most reputable credit rating institutions in the world as well as analyses by Bloomberg and the Financial Times.

The reason that Islamic banking is receiving so much attention is due to its increasing activity; the estimated number of Islamic banks around the world has reached 396 throughout 53 countries and the estimated volume of funds within the Islamic banking sector stands at US $442 billion, according to a report by the General Council for Islamic Banks and Financial Institutions [GCIBFI] in 2008.

The truth is that these figures, similar to what is mentioned in Moody’s report, indicate that the volume of funds managed by the Islamic banking industry stands at approximately US $700 billion globally with an average annual growth rate of 15 per cent.

According to the Moody’s report, sukuk is considered the fastest growing Islamic banking product and is estimated to increase annually at an average of 35 per cent. By the end of 2007, the volume of Islamic bonds reached US $97.3 billion, 26 per cent of which account for the issuance of sovereign sukuk whilst the remainder were issued by corporates. According to Standard & Poor’s, between 20 and 25 percent of all sukuk around the world are available for circulation in secondary markets.

The Moody’s report observed that the Arab Gulf states have become key players in the sukuk market and the total issuance of sukuk in 2007 was estimated at US$19 billion; 58 per cent of which came from the UAE, 30 per cent from Saudi Arabia, and the remainder from Kuwait, Bahrain and Qatar.

There has been an increase in investment funds in Islamic banking at an average annual growth of 22% with an estimated 700 Islamic investment funds around the world.

With regards to takaful insurance, in 2007, its premiums reached close to US $2.5 billion and are expected to reach $7.4 billion by 2015. Ninety percent of the takaful insurance market is in Malaysia, whilst the Kingdom of Saudi Arabia is expected to become more active in this field in light of new organization of the insurance sector.

Speaking of Saudi Arabia, I read a report on Islamic banking in Saudi that stated that the rate of Islamic finance in Saudi banks is estimated at 58 per cent of financial banking whilst the rate of Islamic investment funds stands at 77 per cent of all assets of investment funds. It is estimated that out of all active bank branches, 75 per cent are Islamic branches.

The growth of Islamic finance in Saudi Arabia over the last seven years is estimated at 430% and continues to increase since all banks in the Saudi market are seeking to provide Islamic banking services in order to stay in the race as many people see that there is no room for those who do not offer Islamic banking products.

* Lahem al Nasser is an Islamic banking adviser.

Related link on Islamic finance:

Monday, 28 July 2008

The Fifth Generation Warfare? - Islamiphobia hits Islamic finance

Islamiphobia of the highest order....

Islamic finance has been described as the "fifth-generation warfare (5GW)"....according to
[Armed Groups: Studies in National Security, Counterterrorism, and Counterinsurgency; Edited by Jeffrey Norwitz; U.S. Naval War College, June 2008, chapter 28.]

This as excerpt from the report:

"The United States and the West cannot win the war against radical Islam merely with the most sophisticated military strategies. Winning requires understanding the role of shari'a and the Muslim Brotherhood in developing a global ideological and political movement supported by a parallel "Islamic" financial system to exploit and undermine Western economies and markets. This movement is the foundation and the major funding source for the political, economic, and military initiatives of the global Islamic movement.

Shari'a finance is a new weapon in the arsenal of what might be termed fifth-generation warfare (5GW). The perpetrators include both states and organizations, advancing a global totalitarian ideology disguised as a religion. The end goal is to impose that ideology worldwide, making the Islamic "nation," or ummah, supreme.

Rising oil prices and the West's dependency on Middle East oil, combined with willful blindness and political correctness, provide a surge of petrodollars, making financial and economic jihad so much easier to carry out. Moreover, according to shari'a, Muslims hold all property in trust for Allah. Therefore, under the shari'a, all current and historic Muslim acquisitions everywhere, including the United States, belong to the ummah, in trust for Allah.

Shari'a is the crucial source and ultimate authority dictating the actions of practicing individuals and radical Muslim states and movements alike. Failing to understand the political use of shari'a hampers the U.S. ability to mount effective policies, plans, and strategies to successfully counter this fast-growing totalitarian threat."

This is simply an Islamiphobic and bigotry statement of the highest order. Islamic finance has been well accepted by Muslims and non-Muslims in the East and the West and supported by governments in Muslim-majority nations (Malaysia, UAE, Bahrain, Kuwait etc) and Muslim-minority nations (UK, Japan, Singapore, Thailand etc). Several Islamic banks are owned by non-Muslims. Some Muslim-minority countries promoting Islamic finance more vigorously than Muslim-majority countries. Islamic financial system brings together and even unite Muslims & non-Muslims, the East & the West, rich & poor....nobody feels threaten or harmed in anyway. In fact Islamic finance could have saved the US economy from the current sub-prime crisis and the misery it brings along to millions of people, businesses and financial institutions.

I think this misguided group of people who believe that Islamic banking is a threat to US/the West security need urgent help from psychiatrists (it appears that they are suffering from Great Depression.....). If the "super power" would react based on this "intelligent" report, all Islamic bankers and customers would be potential inmates in Guantanamo Bay detention unforgettable experience in the orange jumpsuit.

Britain's first sharia-compliant insurance firm launched

LONDON (AFP) — Britain's first sharia-compliant insurance company was launched Monday, offering motoring policies in line with the Islamic legal code.
Salaam Halal insurance uses Takaful principles, whereby the risk is spread between all policy holders. In contrast, conventional insurance policies shift the risk from the policy holder to the insurance firm.
People taking out a policy with Salaam Halal pay contributions into a pool, with that money then put into sharia-compliant investments -- avoiding companies that are involved in alcohol or pay interest.
The central pool of funds is used to pay any claims that arise, and at the end of the year, if the pool is over-funded, the excess will be distributed back to policyholders through a discount on their next premium.
The policies are aimed at Britain's 1.6 million Muslims, who constitute 2.7 percent of the total population, according to the 2001 census.
"The launch of Salaam insurance -- the first independent, fully sharia-compliant Takaful operator available in this country -- is a significant step for the growth of Islamic finance in the UK," said Abdulaziz Hamad Aljomaih, the chairman of Salaam insurance.
The group, authorised and regulated by the Financial Services Authority, an independent watchdog, hopes to launch home insurance policies later this year.
Their call centres in Britain can take calls in English, Arabic, Bengali, Gujarati or Urdu.
In 2004, Britain authorised a 100 percent Islamic bank, the Islamic Bank of Britain. And the traditional bank Lloyds TSB last year launched Islamic finance products targeted at businesses, and offered sharia-compliant bank accounts.
Alfalah Consulting - Kuala Lumpur:
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West eyes Islamic finance market share

Source: Emirates Business
by Shuchita Kapur
An increasing number of Western financial institutions and non-Muslim countries are aiming to become thriving entities or markets for Islamic finance.

The numbers are supporting the trend. According to Kuwait Finance House, Islamic finance industry is expected to hit $1 trillion by 2010 because of an increased global demand for Shariah-compliant financial products and services. Islamic banking assets are currently estimated at $750bn in value.

Industry experts from the region are also voicing their support towards Islamic financing that is gaining grounds all over the world, including the European continent. "Different people have different figures but Islamic banking is expected to grow to take 30-40 per cent of the total banking market in this part of the world [the Gulf region]. We've seen a huge increase in the number of pure Islamic banks and it will be interesting to see how it compares with banks that combine conventional and Islamic models," David Proctor, CEO of Al Khaliji Bank, told this paper. Given such huge stakes, western financial institutions are in the fray to get a slice of this capital and are foraying into Islamic banking and finance.

"Islamic finance has made rapid strides and there are several factors for this. Firstly, it is no longer a mystery and is allowing Western institutions to achieve the same objectives as a conventional bank would do, which is raising capital. Western institutions want to broaden their base capital and they are using an instrument to broaden their target market. This attraction is compounded by large pools of capital," Imran Ahmed, Managing Director, Asset Management at Mashreq, explained to Emirates Business.

International banks are setting up Shariah-compliant products and are promoting them in the European market also. HSBC has an Islamic Financial Solutions wing, HSBC Amanah, that has been very well received in Islamic nations. Barclays Capital, on the other hand, has partnered with Dubai Islamic Bank for the world's largest sukuk issuances. Not to be outdone, Standard Chartered is trying to get it share through its network in the Gulf, Pakistan and Malaysia. Moreover, Deutsche Bank is pioneering capital protected funds in the Gulf while UBS is developing Shariah-complaint wealth management services. These are just some of the many examples that illustrate the growing interest of western institutions in Islamic finance.

"Many people are investing in Islamic products but for them, it's just a product, with similar economics but differently formulated. In the current [high] oil price environment and due to the large asset transfer to the Gulf, it is hard to imagine any Gulf country going bankrupt," Laurent Dambly, Managing Director and Head of Capital Markets at Arqaam Capital, said while talking of the increasing acceptability of Islamic finance products by big international conventional banks. Rodney Wilson in his research paper Islamic finance in Europe for European University Institute said: "Islamic finance is thriving in Europe, and many major banks perceive it as a profitable opportunity to generate new business rather than a threat to existing business."

As Muslims are no different from non-Muslims in their needs and demands for financial services, Islamic banks and conventional banks offer Shariah-compliant retail products that mirror those provided to ordinary clients, argues Wilson.

Hani Kablawi, Managing Director, Head of Middle East & Africa at The Bank of New York Mellon, is amazed at the pace at which Islamic finance has grown internationally.

"That is certainly a testament to the size and pace of demand for Shariah-compliant products. Islamic finance is likely to grow even faster if standardisation is achieved. Western countries and their FIs invest in Islamic products merely for economic reasons, and the fineprint to them, is tangential. The more pertinent question is, why have western financial institutions taken the lead in developing Islamic banking products and when will the banks of the region catch up as innovators in the field?" he asks.
Fiscal interest by banks and other financial institutes in Shariah-compliant products and services was recently highlighted in a report titled "Islamic Finance In France: Paris Tries To Reduce The Gap With London."
In Europe, the UK is the leading centre for Islamic banking, which was integrated into the country's legislation. But now France may give it tough competition as recently the French government signalled a change in attitude. It is set to adjust its fiscal and legal framework to render it friendlier to the development of Islamic finance, according to Standard & Poor. However, till date, Britain sees itself as the European leader in providing Shariah-compliant financial services, aiming to serve both domestic Muslim markets as well as tapping into the vast wealth of Gulf investors.

Recently, the City of London hosted the first Annual World Islamic Banking Conference, where the British government repeated its intention to issue its own Sukuk, or Islamic sovereign debt, in future.
Alfalah Consulting - Kuala Lumpur:
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Sunday, 27 July 2008

The future of rapidly-growing sharia banking in Indonesia

Source: Jakarta Post
by Elvira Tjandrawinata and Dimas Angga Negoro
, Analysts
Sharia banking is gaining popularity in many parts of the world. The key driver of the growth has been the increasing wealth in the oil-rich countries in the Middle East.
But what exactly is meant by sharia banking? And what are its prospects in Indonesia?
Well, in a nutshell, sharia banking simply adopts the principals of sharia law. Payments and receipts of interest are not permitted. Instead, returns on funds that are lent out must be based on the actual profits generated and not on pre-set interest rates.
The provider of capital and the user of capital will equally share the risk of business ventures. In short, the depositor, the bank and the borrower should all share the risks and the rewards of financing business.
Another key point is that investments should only support practices or products that are not forbidden or even discouraged by Islam. Financing cannot be provided to businesses engaged in alcoholic beverages, for example.
The major difference between a conventional bank and a sharia bank is on the liabilities side (i.e. the deposits taken by the bank). This is because of the presence of unrestrictive accounts, including mudharabah savings and time deposit accounts, since under the mudharabah contract, funds placed in these accounts are deemed to be investments and therefore there are no guarantees on either the principal or the return.
As such, returns are dependent on the profits of the banks' debtors under a profit-sharing scheme. However, in practice, the principal (up to Rp 100 million) is guaranteed by the Deposit Insurance Agency (as is the case for conventional banks).
On the assets side (i.e. the financing provided by the bank), there are basically two types of financing: trade-like accounts and profit sharing accounts. The key contracts are murabahah, mudharabah, and musyarakah.
Murabahah basically uses a "mark up" sale mechanism. Based on the "interest-free" principle, the bank changes the transaction from a purely monetary transaction into a trade-like one.
The sharing principle applies to mudharabah and musyarakah contracts. The significant difference between these two contracts is that under musyarakah, the borrower also agrees to put some of its capital at risk.
Admittedly, sharia banking is still small relative to the size of the Indonesian banking sector as a whole. Yet growth in recent years has been strong (the industry's assets have grown a brisk 29 percent per annum over the last 3 years), with sharia banking proving to have been much more resilient to the financial crisis that erupted in 1997 than commercial banking was.
Indeed, one of the attractions of sharia banking is that it is based on risk-sharing rather than on pre-determined interest rates. It is then naturally more resilient during hard times.
Against this backdrop, the central bank appears keen to promote further expansion of sharia banking in Indonesia. It hopes the sharia banking business shall account for as much as 5 percent of the banking industry's assets by the end of 2008. It has its reasons.
First of all, despite being the world's most populous Muslim country, Indonesia's sharia banking sector is still far behind that of its smaller neighbor Malaysia (in Malaysia, sharia assets already total some US$62 billion).
Second, more and more companies from the Middle East are now keen to invest in Indonesia.
And third, regulations are supportive. The presence of many SOE sharia banks in Indonesia is testament to the commitment of the government that has just issued a regulation on sharia government bonds (sukuk).
All is not plain sailing, however, and some issues still need to be addressed.
First is the need for greater public awareness of sharia banking. But, sharia banks are relatively small in size, and therefore have limited capability to launch marketing campaigns. The government and the central bank will therefore need to take a role in the campaigns.
Second, the industry is relatively new here. This means that policies and procedures are still evolving. There may also be a lack of talented staff and expertise in the business.
Moreover, since most of the shariah banks' assets are dominated by murabahah contracts -- which are similar to a sale and lease back transaction -- the issue of double taxation surfaces. However, this should be resolved when a regulation on sharia banking is eventually issued.
Still, many conventional banks are keen to enter the sharia banking industry given its strong growth potential. Some banks have opted to acquire a small bank and then convert it into a sharia business unit. This was the strategy adopted by Bank Rakyat Indonesia (BRI) when it acquired Bank Jasa Arta for example.
Three banks -- Bank Mandiri, BNI and Niaga -- are particularly well placed to enjoy the rapid growth within the sharia banking industry.
Their sharia businesses have significant market share. Whether they will remain the dominant players remains to be seen. But one thing seems clear: the prospects for sharia banking are bright indeed.
The writers are economists at Danareksa Sekuritas
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Friday, 25 July 2008

China: Over 2,000 Muslim Outlets During Olympics

BEIJING, July 24 (Bernama) - Beijing will have over 2,000 Muslim restaurants and food shops to cater to visitors coming for next month's Olympic Games.

The host city had set aside 32 million yuan (RM15 million) to open 'halal' restaurants and upgrade major Muslim catering businesses, Xinhua News Agency said, citing a city official.

Muslim outlets are also available at the Beijing Capital Internatioal Airport and the Beijing West Railway Station.

Xinhua said up to 10,000 Muslim athletes, coaches and tourists are expected to visit Beijing's Muslim quarters in Niujie Street where the city's oldest mosque is located.

The report said 12 of Beijing's 70 mosques have been selected to be the main centres to welcome Muslim visitors and they have been fitted with Arabic signs and barrier-free facilities.

The Games Village will also have Muslim food and religious facilities for athletes and officials.

China has a Muslim population of about 20 million, the majority of which are in the nothwestern Xinjiang and Ningxia autonomous regions.


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Islamic finance seen as safe -UK Islamic bank

* Conservative Islamic finance attracts investors
* Gatehouse is 5th Islamic bank to open in UK
* International sukuk market needs kick-start

By Carolyn Cohn

LONDON, July 25 (Reuters) - Stable and conservative Islamic finance is attracting investors scared off by the global credit crisis, the chief executive of new UK Islamic bank Gatehouse said.
Islamic finance, which bans the payment of interest and restricts the use of some derivative instruments, has been growing rapidly in the past few years.
Islamic assets total around $1 trillion, the Asian Development Bank estimates, with annual growth of 10 to 15 percent a year.
Islamic bonds, or sukuk, are structured as profit-sharing or rental agreements which are underpinned by physical assets.
The lack of exposure to some of the riskier markets of which investors have fallen foul in the past year makes Islamic finance attractive, and not just to those investors requiring Islamic sharia-compliant transactions, Gatehouse CEO David Testa told Reuters in an interview.
"It's actually quite old-fashioned banking. It's asset-backed and asset-based, it's not the infinitely leveraged model. It's a good story in these stricken times."
Gatehouse, a subsidiary of the Securities House of Kuwait, started operating in April and says it is the fifth Islamic bank to open in the UK, which market participants say has taken the lead in Europe in welcoming Islamic banking.
The bank has paid-in capital of 50 million pounds so far, and authorised capital of 225 million pounds.
It has a staff of 30, with plans to reach close to 40 by the end of the year, and has a global reach, Testa said, concentrating on capital markets, private equity, wealth management and real estate deals.
Testa, who joined the bank after 10 years with WestLB as executive director in its capital markets group, said Gatehouse would look for a public listing by 2012.
Gatehouse is targeting Islamic borrowers in the Gulf looking to raise money internationally, international borrowers tapping into Gulf investors, and Gulf investors looking to make acquisitions outside the local region.
There is also interest in Islamic finance from the UK, the United States and Europe including Turkey, as well as the Gulf, Testa said.
"Growth is coming out of a booming emerging market in the Gulf and very strong Southeast Asian markets. The opportunities are tremendous."
Nearly two-thirds of the $100 billion worldwide sukuk market is based in Malaysia where the industry first took off.
But Testa said Malaysian sukuk deals were largely denominated in Malaysian ringgit and the global credit crisis, resulting in a weak dollar, had dented demand for hard currency sukuk deals.
"At the moment, the appetite for sukuk instruments is very much for local currency."
The sukuk market is encountering further difficulties after a major scholar last year said 85 percent of sukuk were not really Islamic, which caused many issuers to hold off debt sales.
Market participants are hoping for government sukuk issues to attract more international interest for sukuk from both borrowers and investors and to breathe life into the relatively illiquid secondary market.
Britain intends to issue its own sovereign sukuk debt in a rolling programme worth around 2 billion pounds, although it has said legal barriers still remain and a final decision will be made later in the year.
Japan, Thailand, Hong Kong and Singapore have also expressed interest in issuing sukuk.
"It is always helpful if we see government sukuk issuers come into the market. They are very eye-catching and bring some new investors in," Gatehouse's head of capital markets Anthony Saint said.
The extra documentation and oversight from Islamic scholars required to ensure sukuk issues follow Islamic law is a deterrent for some investors.
"There is a small premium to pay in terms of international structuring to make a deal sharia-compliant. If you are a very cost-sensitive borrower, it is not likely to be an ideal market for you," Saint said, adding however that:
"The premium will continue to reduce over time as the markets get more commoditised." (Additional reporting by Mohammad Abbas; editing by Stephen Nisbet)

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Thursday, 24 July 2008

Malaysian centre to train manpower for banking

ABU DHABI - The Abu Dhabi University (ADU) has signed a memorandum of understanding with the International Centre for Education in Islamic Finance of Malaysia (INCIEF),for academic and professional development. The key objective of the collaboration is to offer training and development programmes aimed at producing competent human resources in the Finance and Islamic Banking sector in the the GCC region in general and in the UAE, in particular.
The arrangement also takes care of scientific seminars and practical workshops for this fast growing sector.
Ali Saeed bin Harmal Al Dhaheri, ADU Chairman of the Executive Board, stressed the importance of the collaboration which represents a new cornerstone for the university in offering specialised professional qualifications that meet the demands of the banking an Islamic finance sector in the region.

(Khaleej Times)

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Wednesday, 23 July 2008

Uganda’s Islamic bank to start operations soon

By David Malingha Doya
The EastAfrican
The National Islamic Bank of Uganda, formed recently following a merger between International Investment House (IIH) of Abu Dhabi and the local National Bank of Commerce (NBC), expects to begin operations in five months’ time.
Officials from Abu Dhabi said that the bank will serve as a conduit for equity investments, including bits of sovereign wealth funds from the Middle East, as it prepares to provide capital for big-ticket infrastructure projects in the country.
Ahmed al Marar, head of IIH who chairs the boards of both the Islamic bank and Hits Telecom Uganda, said, “Our business model is a unique opportunity of being able to fully access capacity as well as distribution network of IIH associated with Hits Uganda.”
Hits Telecom, one of the newly licensed telecommunication operators in the country, is months behind schedule in rolling out its services.
He said that the strategy is to strongly focus on innovation to access the unbanked part of the bankable population which, studies estimate to be about six million people, while the banked are between one and two million.
The bank is also not keen on rolling out a physical branch network like the existing players have, but rather use cheaper means of banking such as mobile phones using Hits Telecom as the distributor here.
On the retail side, the bank will join the bandwagon of existing commercial banks in searching for the unbanked and small account holders, but employing information communication technologies for distribution rather than rolling out a physical branch network.

This is the first Islamic bank in Uganda basing service delivery on Sharia compliance and the second in East Africa after Gulf Africa Bank — set up in Kenya in 2007 — with a vision to expand within the East and Central Africa regions.
Uganda has been the preferred frontier in the region for foreign direct investment in the financial sector over the past two years with prior arrivals including Kenya Commercial Bank, Fina Bank and Equity Bank all from Kenya and United Bank of Africa from Nigeria.
Under the arrangement, IIH is expected to invest $50 million in the new institution as its first capital contribution, said the investors. The share-structure features 76 per cent stake to IIH while the rest will be held by shareholders of NBC.
NBC is a small bank given the scale of commercial banks in Uganda today. In 2007 it made Ush752 million ($429,714) in profit before tax up from Ush218 million ($124,571) in 2006.
Its assets totalled Ush15.6 billion ($8.9 million), while the liabilities are about Ush9.3 billion ($5.3 million) as of December 2007.
At the same time, the bank has mobilised Ush8.9 billion ($5 million) in customer deposits, while its loans and advances stood at Ush2.9 billion ($1.6 million) only.
IIH, on the other hand, is one of the prominent private investment firms from the Middle East with equity investments in emerging markets in the form of private public partnerships involved mainly in infrastructure projects in sectors such as energy, telecommunication, transport, oil and real estate.
Explaining the banking philosophy based on Sharia, Mr Al Marar said, “In Islamic banking, we share risk with whoever is seeking our financial services. It is a safe financial tool and guards any economy because of the fair share of the up and down size.”
He added that their optimism is premised on predictions that Uganda’s economy will continue to steadily grow at rates of 8-9 per cent, yet infrastructure where they intend to capitalise has a number of projects still on the drawing board such as airports, roads, energy, oil and tourism.

Uganda Investment Authority has said the financial sector is most profitable in the country, with its growth attributed to general macroeconomics, favourable terms of trade with neighbours in the region and changing public attitudes towards banking and credit.
An official from the Uganda Bankers Association said bank deposits were increasing because there is a realisation that the economy is growing.

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France Eyes Islamic Finance

PARIS — France's recently-announced readiness to clear hurdles to Islamic finance reflects a desire to jump on the wagon of the globally-booming industry, analysts believe.
"It's a strong signal and the players are listening," analyst Emmanuel Volland of the ratings agency Standard and Poor's told Agence France Presse (AFP) on Tuesday, July 22.
France has recently announced plans to adjust its economic and legal frameworks to accommodate Islamic banking activities.
Economy Minister Christine Lagarde has briefed Gulf investors on steps "to make (their) activities as welcome in Paris as they are in London and elsewhere."
The government is expected to announce fiscal and legal adjustments to accommodate the Shari`ah-compliant industry before the end of July.
The modifications will facilitate the issuance of Islamic bonds (Sukuk) and structured real estate transactions.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
France, home to seven million Muslims, the biggest Muslim minority in Europe, currently does not offer Islamic banking services.
Volland noted that Lagarde's address to the Gulf businessmen was "the first time that a representative of the state has said publicly that she is favorable to the development of Islamic finance."
Islamic finance is one of the fastest growing sectors in the global financial industry.
In defiance of the credit crunch, the global Islamic finance market has grown about 15 percent in each of the past three years, and is now worth about $700 billion worldwide. Its assets are predicted to grow to $1 trillion by 2013.
Renowned world 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.
Analysts believe France wants a main share of the Islamic finance cake by attracting some of the Gulf-based investments currently flowing to London and other European capitals.
They maintain that France's road to establish a leading position in the Islamic finance industry would need more than fiscal and legal adjustments.
The government pronouncements "are not in themselves sufficient to ensure the blossoming of Islamic finance here," Anwar Hassan from the US credit rating agency Moody's told AFP.
He explained that Paris should not be content simply to reduce "legal or fiscal irritants" but should, for example, issue sukuk just as Britain plans to do next year.
Experts also believe that the challenge is not purely technical or limited to establishing an infrastructure receptive to Islamic finance.
Hassan says that convincing the French public of the soundness of Islamic finance would be a real test.
But he believes that offering Islamic banking would provide an attractive alterative to French companies currently penalized by increasingly costly bank credit.
The task, contends the expert, will be to show that Islamic finance offers "an ethical, modern finance alternative."

( & News Agencies)
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Sunday, 20 July 2008

Making the difficult transition

Most of the concerns expressed about the Islamic finance industry reflect the shortage of qualified professionals and Shari'ah scholars necessary to keep up with the rapid growth seen in the last five to10 years. This should be of great concern to the industry because without enough experienced people staffing the industry, there are significant limits to the rate of growth that can be sustained. In particular, the necessity of Islamic financial institutions to maintain Shari'ah supervisory boards to review and regulate the institutions practice from a Shari'ah standpoint makes qualified scholars one of the most valuable commodities in the industry.
However, Shari'ah scholars do not grow on trees and it takes a long time for new scholars to be widely accepted as authorities in the needed fields including Fiqh as well as familiarity with the finance industry. International conventional financial institutions entering the Islamic financial industry typically will look for the scholars with the broadest and longest reputation, which due to their deep pockets, creates upwards pressure on the cost of maintaining a Shari'ah board.
The shortage of scholars creates the need for some standardisation of the most commonly-used products to reduce the time Shari'ah scholars need to approve common products like Murabaha. Anecdotal evidence suggests that many top scholars are asked to review and approve over 100 Murabaha transactions per year. A regulatory environment that creates standardised requirements and mandatory disclosure could provide a way to ease the demand for Shari'ah scholars to review relatively simple products.
In order to make this transition from review of every contract to set Shari'ah and disclosure standards, there will have to be far more transparency in Islamic finance than there is currently. Approved generic contracts used in products should be available publicly from standards setting bodies like AAOIFI and IFSB. Currently, one of the only sources of contract templates is provided by the State Bank of Pakistan. The greater availability of contract templates will likely lead to greater discussion outside of individual financial institutions about these contracts, making consumers more savvy when they are deciding whether a given product conforms with their beliefs.
Wider debate about whether or not certain aspects of contracts conform to widely-accepted interpretations of Fiqh will lead to greater acceptance of some contracts that are now viewed sceptically by consumers as well as the scrapping of some contracts that are controversial. Although it is important that scholars with the greatest experience in Shari'ah and Fiqh decide the Shari'ah compliance of a given contract, increasing the understanding of Shari'ah-compliance among the public will create consumers with a greater understanding of the industry, boosting it in the long run.
This article originally appeared in The Institute of Halal Investing's monthly newsletter (volume 2 issue 5), Blake Goud is the executive director of the Institute of Halal Investing

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Malaysia to Give Islamic Bank, Fund Manager Licenses

June 20 (Bloomberg) -- Malaysia will allow more lenders to set up Islamic bank units and plans to issue licenses for overseas Islamic fund management companies to woo investments as it faces competition from Singapore, Hong Kong and Japan.
The central bank has given licenses to banks such as HSBC Holdings Plc, Oversea-Chinese Banking Corp. and Standard Chartered Plc to set up ``standalone Islamic subsidiaries,'' Mohd Razif Abd Kadir, Malaysia's deputy central bank governor, said in an interview in Kuala Lumpur yesterday.
``More are in the pipeline,'' he said, declining to name the banks. ``Investors' appetite for Islamic papers is huge'' and they are ``unaffected by the subprime issue.''
Malaysia is giving licenses and offering incentives to help cement its role as Asia's Islamic finance hub. The Asian country, which accounted for two-thirds of global Islamic bond sales last year, has also offered tax breaks to stay ahead of the newcomers vying for a piece of the market estimated to expand to $2.8 trillion by 2015.
Japan plans to sell as much as $500 million of Sukuk this year, according to Moody's Investors Service in February. Hong Kong raised its first Islamic fund last year, fetching $45 million by December. Singapore, which started offering investors incentives in the past few years, said May 13 it plans to develop a facility to start a domestic Islamic bond market.
Huge Potential
Malaysia, where 60 percent of the 27 million people is Muslim, also faces competition from other countries where a majority of citizens share the same faith. Indonesia, which has the world's biggest Muslim population, passed its first Islamic banking law this week to allow foreign and domestic investors to buy stakes of Shariah-compliant banks in the country.
``The potential for growth is huge because it's an underserved market,'' said Fiona Leong Wai, an analyst at AmSecurities Sdn. in Kuala Lumpur. ``That's why you see everyone going in, wanting to have a slice of that market.''
It makes sense for the nation to go after more investments in Islamic products because ``Malaysia is ahead of some of the other countries'' in terms of Islamic finance, she said.
The government said yesterday the stock exchange will introduce two new Islamic products in the first quarter of 2009. The first, called Commodity Murabahah, will use palm oil as the underlying asset for Islamic finance and capital market products, and the other will be a Shariah-compliant instrument that allows borrowing and lending of securities, using the Islamic concept of ``waad.''
New Licenses
In January, it also rolled out an 840 million ringgit ($257 million) Shariah-compliant exchange-traded fund, the first of its type in Asia.
Malaysia will issue new licenses for companies planning to set up an Islamic fund management business in Malaysia, said Mohd Razif, who oversees the development of an initiative called the Malaysia International Islamic Financial Centre, aimed at promoting Islamic finance.
The new licenses mean the funds, which will invest in ringgit and non-ringgit denominated assets, will be exempted from paying taxes until 2016, according to the central bank. The funds won't be restricted to investments in Malaysia, though they need to have experts operating in the country to enjoy the benefits, the central bank said.
`Quite Compelling'
Malaysia has five pure Islamic banks in the country, Mohd Razif said, including Kuwait Finance House KSC, the world's second-largest Islamic bank, and Saudi Arabia's Al-Rajhi Bank. There are nine local banks and 14 overseas banks in the country that already offer Islamic financial services, including HSBC, Oversea-Chinese and Standard Chartered, helping to make country a base for Middle Ease investors amid record oil revenue.
``The flow of capital from the Gulf, with the oil boom,'' will need to find a destination, Mohd Razif said. ``In terms of incentives, it's quite compelling for the banks to consider Malaysia as a gateway to this region.''
Islam's Shariah law bans the payment and receipt of interest, and investments in businesses such as gambling. Sales of Sukuks, or Islamic bonds, are expected to increase more than 22 percent a year in Malaysia, Mohd Razif said.

(By Soraya Permatasari and Ranjeetha Pakiam)
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Maldives: Islamic banking to commence within months

Islamic Banking will commence in the next three to four months, Finance Minister Qasim Ibrahim has said. Minister made the statement speaking at the press briefing held after the signing of the agreement with Maldivian government, Dubai Noor Islamic Bank and Islamic Cooperation for the Development of the Private Sector to launch the Islamic banking in Maldives.

The bank to be opened under the name of Noor Islamic Maldives Pvt. Ltd is owned 34% by the government of Maldives, 33% by Noor Islamic Bank of Dubai and 33% by Islamic Cooperation for Development of Private Sector.

Speaking on the delay in the introduction of Islamic banking service Finance Minister said “the delay in providing the service is due to First Dhawood Bank of Pakistan, but now our share holders are leading institutions in Islamic banking, we are working to open this bank within 3 to 4 months”.

Finance Minister said when the Noor Maldives Islamic Bank opens it will introduce new banking principles to Maldives. Minister emphasized that bank will provide interest free loans to develop various sectors of the economy.

“Unlike commercial banks, loans will be given interest free, Islamic banking is being taken on by many countries” Finance Minister said.

The agreement on behalf of Maldives was signed by Minister Qasim Ibrahim, on behalf of Nooru Islamic Bank by Deputy Group CEO Ahmed Al Janahi and on behalf of Islamic Cooperation Development by Fund Manager Baseel Al Hagg Easa.

(Miadhu News)

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