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Saturday, 30 August 2008

Malaysian mortgage firm eyes Gulf Islamic market

By Liau Y-Sing
KUALA LUMPUR, Aug 26 (Reuters) - Malaysian mortgage firm Cagamas Bhd may help set up secondary Islamic mortgage companies in the Middle East and securitise loans from Gulf banks to tap rising demand for Islamic products in the region, its chief executive said on Tuesday.
Islamic banking players in mostly Muslim Malaysia are seeking overseas markets as a growing number of institutions compete for a modest market of 27 million people at home.
Malaysian firms are especially eager to court an estimated $300 billion of petrodollars from the Middle East, but some Gulf investors have shunned Malaysian Islamic products, saying they do not fully meet sharia, or Islamic law, standards.
The $1 trillion Islamic banking industry has built a sizeable following worldwide on its premise of social and ethical investments that avoid interest-based banking, conventional insurance and sectors such as gaming, weapons and pornography.
Cagamas chief Steven Choy said the firm is exploring ways to create Islamic products that are acceptable to Middle East investors, including purchasing loans from Gulf banks and then issuing bonds backed by those loans.
"If I could buy some assets from the Middle East that are globally or Gulf sharia-compliant and if I issue (bonds) out of here, there's no reason why they can't buy it back there," Choy told Reuters in an interview.
Cagamas, which was among the world's 10 largest issuers of Islamic bonds last year, is studying the markets in Saudi Arabia, United Arab Emirates and Kuwait for this, he added.
Some Malaysian Islamic financing structures, including the deferred payment system, are rejected in the Middle East.
Gulf investors object to the deferred payment model, saying it resembles another structure where an asset is sold to a buyer at one price with a deal to buy it back at a higher price. Some Middle Eastern bankers say that is little more than a conventional interest-based loan.
Cagamas recently issued 2.02 billion ringgit ($598.9 million) of Islamic bonds under the murabaha principle, where a financier buys a commodity and sells it to the customer at a higher price. The bonds met the Gulf's standards on sharia-compliance.
Another avenue for Cagamas to tap the Middle East market is to help create secondary Islamic mortgage firms in the region under a similar model to its own, Choy said. The Malaysian firm is considering creating such agencies in Saudi Arabia, United Arab Emirates and Kuwait, Choy said. "We have been talking with quite a number of players out there," he said, but declined to elaborate.
He said the Middle East lacked major secondary mortgage market firms, with such companies existing in the United States, Canada, Hong Kong and South Korea.
Cagamas issues debt and uses the funds to buy housing loans from financial institutions and the government, enabling the lenders to give out more loans. It is the second-largest issuer of debt instruments after the Malaysian government, having sold 218.4 billion ringgit of bonds since it was set up in 1987.
In the domestic market, Cagamas plans to sell about 1.5 billion ringgit of Islamic bonds by year-end, Choy said.
The company was expected to issue 12 billion ringgit of bonds this year, slightly slower than the 14 billion ringgit sold in 2007, he said. It has sold over 7 billion of the targeted 12 billion so far this year.
"We are a regular issuer," Choy said. "Our business is such that regardless of market conditions, we are always out there. We don't sit it out and wait in that regard."
Cagamas also planned to launch more synthetic securitisation deals to help smaller business raise funds when global credit markets become calmer, Choy said.
A synthetic securitisation uses credit derivatives to transfer the credit risk of assets to a special purpose vehicle. The vehicle issues bonds that are backed by its assets and proceeds from the sale are used to pay any claims made.
Cagamas had launched a 600 million ringgit synthetic securitisation deal last year.
But Cagamas was unlikely to issue more bonds backed by housing loans to government employees this year, Choy said.
The mortgage agency has been selling such bonds as part of a plan to securitise about 25 billion ringgit in civil servant housing loans over 4 years as the government cuts debt to finance new projects.
About 13 percent of total Malaysian banking assets fulfil sharia conditions, and the industry ranges from banking, insurance, stockbroking to fund management and pawnbroking.
For more Reuters stories on Islamic finance, click ($1=3.373 Malaysian Ringgit)

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Islamic banking expanding rapidly in Malaysia

Islamic banking continues to grow with total assets expanding by 12.6 percent to RM177 billion as at June 30 compared with RM157.2 billion as at end of last year, the Finance Ministry said.

Deposits increased by 17 percent to RM142.7 billion as at end of June, it said in the 2008/2009 Economic Report.

It said financing grew 8.5 percent to RM97.5 billion and accounted for 14.2 percent of total banking system loans.

Lending remained concentrated on the household sector, with loans amounting to RM58.5 billion or 60 percent of total outstanding loans.

On takaful industry, it said the industry grew strongly in the first six months of this year, with combined takaful contribution income increasing 23 percent to RM1.4 billion compared with RM1.1 billion in the same period last year.

In the family takaful sector, it said new business contributions recorded a stronger growth of 98.1 percent to RM1 billion, driven by the expansion in investment-linked products following new product launches in early 2008, and high growth in endowment products recorded by new takaful operators.

The ministry however said the general takaful net contributions declined 6.7 percent on account of the decrease in fire insurance by 34.2 percent to RM97.6 million and marine, aviation and transport insurance by 46 percent to RM13.8 million.

Takaful assets expanded 25.1 percent to RM9.6 billion as at June 30 and accounted for 6.9 percent of the total assets of the insurance industry.

(Source: NST)

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Friday, 29 August 2008

As Islamic finance booms globally, Egypt needs to play catch-up

Source: Daily News-Egypt
By Pascale Nader

First Published: August 27, 2008

CAIRO: A convergence between two systems of finance is taking place in the global arena: The world is looking to modern Islamic finance as an alternative to what are now considered “conventional” Western systems.

Islam and the West may clash on socio-political fronts, but economic goals and financial innovation are where they meet. This is most vividly expressed as the global credit market turns to Islamic finance for liquidity.

No longer a niche industry, Islamic finance is quickly becoming a confident participant in the global scene of profit-and-loss sharing, venture capital and ethical investment.

The Islamic finance industry was nearly non-existent 30 years ago, but in 2006, Islamic financial institutions’ (IFIs) assets worldwide were estimated at more than $300 billion, with another $400 billion in financial investments, according to a study by accounting firm KPMG.

Islamic finance is growing at a rate of about 15 percent annually, the study found. Consulting firm McKinsey & Co. predicts at least a 20 percent growth over the next five years.

Egypt began experimenting with Islamic finance in 1963 in the form of the Mit Ghamr Savings Bank, but that’s as far as the country’s pioneering spirit on Islamic banking went.

Market players say Islamic banking has been in a “deep freezer” since the 1980s. The number of Islamic financial institutions is estimated at about 396 in 53 countries. Egypt has only two: Faisal Islamic Bank of Egypt and the Egyptian Saudi Finance Bank.

There are 13 conventional banks with Islamic windows, and although they have thousands of branches nationwide, Islamic finance products are offered at no more than 128 of these branches.

Mahmoud Rashwan, senior corporate sales for Islamic products at the National Bank of Egypt, said “With only two fully operational Islamic banks working in a monopolizing environment — mainly one institution, the Faisal Islamic Bank — there is low incentive for development because there is no competition.”

Meanwhile, the market is booming elsewhere. Record high oil prices, an emerging Muslim middle class and liquidity returning to Muslim markets following September 11 have all led to the rapid development of Islamic finance in Gulf and European markets.

Earlier this month, Reuters reported that “the global credit crisis presents the $1 trillion Islamic finance industry with an opportunity to expand its appeal beyond devout Muslim investors as a haven from speculative excess.”

While conventional banks are suffering losses of more than $400 billion from the credit crisis, Islamic banks are nearly unaffected. This is showing shareholders, bondholders, borrowers and depositors that Islamic banks may present “comfort [because of] the stricter rules imposed on lending by Islamic law.”

Islamic finance is built on the premise that while “commerce had always been central to Islamic tradition, profits from pure finance [are] viewed with suspicion. Profits from commerce are fundamentally different from those generated by money-lending.”

Islam prohibits riba (“extra” or interest) and usury (excessive interest), because fixed, pre-determined interest-based lending casts an inherent risk of lender exploiting borrower. Islamic banking differs in the relationships between borrower and lender, favoring profit-and-loss sharing or partnership finance.

This links the fate of the financier with the firm being invested in — much the same as modern venture capital does today. Also, banks take on the role to manage and contribute to zakat (charity) funds for social purposes.

Most large western financial institutions have Islamic subsidiaries or at least Islamic products. In the US, a Dow Jones Islamic market index (DJIM) was launched in 1999 to benchmark Sharia-compliant portfolios, even employing a board of Sharia scholars.

London firms have successfully catered to this nascent market, and the city bills itself as the “gateway to Islamic finance and trade.” With a large Muslim community, Paris is looking to overtake London as the European hub for Islamic finance, according to a Moody’s report.

The wave has touched Asia, with state-owned Japan Bank for International Cooperation (JBIC) saying it would sell $100 million of Islamic bonds in the first quarter of 2007.

In Egypt, Islamic banks are looking to the Central Bank of Egypt (CBE) for support, regulation and governance so the industry can flourish. With minimal regulation and disclosure of Islamic services offered by conventional banks, sizing Islamic financial assets, deposits or loans (tawzifat in Islamic terms) is a challenge for the CBE.

Industry experts agree that while the Islamic banking market was estimated at 3 percent of Egypt’s banking sector two years ago, the potential is so much greater.

Mohamed El Dakdouki, deputy general manger of Islamic services at Al Watany Bank, said, “Following September 11, we have seen increasing proportions of money returning to Egypt’s economy. Customers would like Islamic products similar to what they were used to in the Gulf, for example.”

Islamic finance can also add much needed diversity by providing “at least 11 different financial instruments next to traditional banking options of just one tool, being loans,” Rashwan said.

Despite its current popularity, consultants have criticized the Islamic finance industry’s weaknesses. Daily Banking News said, “Modern Islamic banking is just three decades old and certain products, such as sukuk (Islamic bonds) product, may be less than 10 years old. This fact combined with the general location of Islamic banking in the developing world means that corporate governance and risk management are facets of the business model that require further development.”

Another weakness is the lack of professionals skilled in both the financial world and fully aware of Sharia. However, analysts agree that this should not greatly hinder the expected 20 percent growth rate, saying that the expansion of the industry will lead to further diversification.

Ashraf Mohamed Talaat, head of the Islamic desk at the National Bank of Egypt (NBE), is working with his team to reengineer retail products for the local Islamic financial market. A panelist in the Islamic Finance News Forum held in Cairo this past June, he said the main obstacle to the development of Islamic finance in Egypt “is the lack of available money market instruments in which to investment surplus cash. “

“We are currently working on a blueprint to launch an ijara sukuk (leasing bond), to present and convince the Central Bank of Egypt and the Ministry of Finance to channel money into Sharia-compliant offers.

“For now, 70 percent of the Islamic retail market is Murabaha (cost-plus financing), a relatively simple and widely understood instrument in the industry. However, more complex tools like ijara (leasing facility) or salam (deferred delivery sale) have more sophisticated legal, economic and philosophical dimensions.”

The National Bank of Egypt has a formal association with educational institutions and advisors such as Dr Hussein Hamed Hassan (a prominent Sharia scholar who chairs a number of Sharia boards at leading IFIs in the Emirates).

Talaat believes knowledge sharing with GCC markets, particularly Dubai, is key to development. He points to the Abu Dhabi Islamic Bank Egypt (ADIB), which recently entered the Egyptian market, as a positive example.

Training employees with the required skills is also essential. A number of NBE staff obtained Certified Islamic Professional Accountant degrees.

“If the CBE provided a network to unify Islamic banking investments and information, this would give a helpful push to the industry,” Rashwan said.

Echoing similar sentiments, Talaat said, “We are aware that the CBE is busy with standardization and best practice implementation, and that the Islamic banks are next on the agenda. [However], a deadline or time-frame is still unclear.”

Once the systems are in place, El Dakdouki said, “We don’t even need to market Islamic banking, the customers are at our door.”

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Tuesday, 26 August 2008

Malaysia: Maybank To Strengthen Islamic Banking Domestically

KUALA LUMPUR, Aug 25 (Bernama) -- Maybank Bhd will focus on strengthening its Islamic banking domestically first before looking abroad, said its president and chief executive officer, Datuk Seri Abdul Wahid Omar Monday.

"It (however) depends on how we progress," he told reporters after launching Maybank Islamic's first gold and platinum series Islamic credit cards - Ikhwan -- here Monday.

He was asked whether Maybank could expand its Islamic banking operation through its 20 percent stake in Pakistan's MCB Bank Ltd and 96.83 percent in Indonesia's PT Bank Maybank Indocorp.

"To have Islamic banking operation there, you are required to have separate banking license in Pakistan and Indonesia. They are both conventional banks," he added.

Maybank said it would continue to maintain its leadership in Islamic banking domestically as today it commands a 27 percent market share in asset, 23 percent in financing and 18.2 percent in deposits as at June 2008.

"We hope we will be able to maintain while at the same time working together with other players to increase total size of the Islamic banking assets. That would be good for us," he said.

Islamic banking total assets currently stand at about RM100 billion.

To date Maybank Islamic, the Islamic banking subsidiary of Maybank has introduced 15 new products since commencing operations as a full-fledged Islamic bank in January.

Abdul Wahid said Maybank Islamic planned to introduce 13 innovative products in the current financial year ending June 30, 2009, by leveraging on wide reach of the conventional distribution networks.

On the new gold and platinum series Islamic credit cards, Abdul Wahid said the bank was targeting to issue 100,000 cards in the first year.

"It will boost our credit card base which currently stands at 5.6 million debit cards and over 1.6 million credit cards," he said.

The cards will carry either the international cards franchise of American Express or VISA International.

The Ikhwan Card series is offered in Platinum or Gold, each with its distinctive feature of exclusivity and class but sharing a common Islamic character.

The cards operate based on the Syariah principle of Bay Al Inah that governs the fixed credit facility and repayment period.

Its unique proposition is that there is no compounding interest and [it sets] a maximum ceiling amount that can be charged to a customer for late repayments.

To underscore the Islamic elements of Ikhwan, the card incorporates five values, that is, Savings (Al-Tawfir), Sharing (Musharakah), Protection (Takaful), Charity (Sadaqah) and Travelling (Ziarah).

Ikhwan will also enjoy the many privileges available to the cardholders such as payment convenience via to over 500 corporations, instant redemption of TreatsPoints, Travel Treats and partnership with Malaysia Airlines Enrich Frequent Flyer Program, among others.

For the first year, there is no annual fee and for subsequent years, the cardholder is only required to perform only 12 transactions per year on the card to have the annual fee waived.

The income application requirement for an Ikhwan Gold is RM30,000 per year while for the Ikhwan Platinum, it is RM120,000 per year.


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Islamic Banking in Egypt


Riyadh, Asharq Al-Awsat- Egypt, the land of the Kinana Tribe, is the country that paved the way for Islamic banking through Dr. Ahmed El Najjar (may God rest his soul). It is the country in which this idea first practically came into existence in the form of Mit Ghamr Savings Bank in 1963, which at one point had 53 branches.
The Islamic banking experience then shifted from Egypt to other parts of the Islamic world by the early founding fathers such as Dr. Ahmed El Najjar and Dr. Isa Abdu whose efforts were combined with those of businessmen interested in Islamic values.
Private Islamic banks such as the Dubai Islamic Bank (DIB) in 1975, the Kuwait Finance House [KFH] in 1977 and the Faisal Islamic Bank of Egypt in 1979 were established. Today, the number of Islamic financial institutions is estimated at approximately 396 throughout 53 countries with a growth rate that ranges between ten and 15 per cent.
But let us look at Egypt’s input since it is the pioneer of Islamic banking. One would expect that the number [of Islamic banking institutions] in Egypt would reflect this fact however the truth is that Egypt abandoned this field a long time ago. There are only two Islamic banks in Egypt: Faisal Islamic Bank of Egypt and the Egyptian Saudi Finance Bank, in addition to some of the Islamic outlets of conventional banks.
Moreover, there are no more than 128 Islamic branches out of thousands of active branches meaning that only 28 divisions have been opened since 1981.
In Egypt, Islamic banking is on the decline since the first merger took place between an Islamic bank (the Islamic International Bank for Investment and Development) and two conventional banks (the United Bank of Egypt and the Nile Bank). Together they constitute one financial structure working conventionally under the United Bank, of which 99.9 per cent is owned by the Central Bank of Egypt.
Perhaps some pardon the state for this merger since it aims to protect the rights of depositors by not announcing bankruptcy. However, the government could have acquired the bank without merging with conventional banks in order to preserve the identity of the Islamic institution in the same way that Dubai’s government dealt with the Dubai Islamic Bank crisis.
Through its behaviour, the Egyptian government gives off the impression that it does not encourage this kind of investment in contrast to the government of Dubai that sought and continues to seek to transform Dubai into the most important financial centre of the Islamic banking industry since it sees the opportunity in this industry to diversify its sources of income and to attract investment. It has been very successful in this endeavour so far.
Today, Dubai is considered one of the most important financial centres of the Islamic banking industry and home to international financial institutions that seek to profit from the gigantic leap that the industry has taken in this region. A number of Western and Asian cities and countries are also pushing to gain a foothold in this industry including London, Hong Kong, Singapore, Malaysia and last and not least, Japan.
So what is preventing Egypt from becoming one of the most important financial centres of this industry and the pioneer that it once was, especially that it has the potential to do so considering its professional competencies and human capacity in addition to genuine economic diversity?
There is no doubt that the funds of this industry that pour into Egypt as a result of its encouragement towards investment through enacting laws, facilitating procedures and creating supportive institutions, would contribute to solving many of the country’s financial and social problems, most notably, unemployment.
Furthermore, it would provide microfinance, leading to an improvement in the level of income per capita. In addition the nature of Islamic investment means that it accepts high risks; therefore, large amounts of capital would be available to Egypt to invest in technology and micro-industries that are in need of this kind of investment, helping to accommodate technology and reduce the flight of human capital to developed countries.
Will the decision makers in Egypt take the opportunities that this industry offers and that the Egyptian economy is in dire need of into account? I certainly hope so.
* Lahem al Nasser is an Islamic banking adviser.
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Monday, 25 August 2008

Kenya: Islamic Bank Seeks Market Dominance

Source: The Nation (Nairobi)/by Amina Kibirige

A second Islamic bank has opened a branch in Mombasa in as many months setting the stage for fierce competition between the institutions which carry out business according to the Shariah law and the mainstream conventional bankers.
Gulf African Bank opened its branch today along Nkurumah Road following in the footsteps of First Community Bank whose offices are along Digo Road.

Speaking during the launch, Gulf African Bank chairman Suleiman Shahbal promised the Muslim community that the institution will stick to the Islamic Shariah principles in its transactions.
"We are coming to the market faced with a huge challenge ahead of us and accountability before God but we are committed and if we do not keep out promise in five years time, then we would have failed," he said.
Mr Shahbal promised that the bank was not out to do business in the name of religion "but live up to its principles".
Speaking during the same ceremony, the bank's Shariah Board Chairman Professor Mohammed Badamana urged employees to take customers' complaints seriously as they settle on the new market" in order to build credibility and ward off competition".
"Nairobi's challenges are different from those in Mombasa so take complaints on anything that is deemed not Shariah complaint seriously and work on it to build credibility as well as fight competition," he said.
Gulf African Bank was the first bank to open its doors to the Islamic shariah of doing business in January this year and now has five branches in Nairobi and Mombasa.
Besides being rooted in ethics, transparency and fairness, the bank would follow religious teachings of eliminating interest from financial transactions as well as keeping off investments in prohibited sectors such as alcohol, gambling, and pork industry.
According to the bank's CEO Mr Najmul Hassan, it will make its profit from pay transactions, renting products and services like accounts and ATMs.
"In any product, sharing of risks is the integral part of business and unlike in conventional banking where the risk is entirely on the customer, in Islamic banking, the risk is only subjected to your part of investment," said Mr Hassan.
He said the Islamic mortgage is centered on the bank buying a house and renting it to customers while they pay for it as opposed to loaning money on interest.

He said that the bank was accessible to both Muslims and non-Muslims adding that it planned to role out more branches regionally to Uganda, Mozambique, Tanzania and Djibouti in the near future.
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$1.7m in wakaf given out to Muslim community in Singapore

WAKAF, or endowment funds, totalling $1.7 million were disbursed to over 300 Muslim beneficiaries including mosques, madrasahs and needy families on Tuesday morning.
The Islamic Religious Council of Singapore (Muis) said this is the highest amount that has been given out so far.
The funds come from property, valued at $350 million, that were donated by Muslim philanthropists upon their death.
A significant wakaf contribition will be allocated to the Islamic education sector such as full-time education at the six madrasahs, as well as part-time religious classes held in mosques.
Since 1999, it is mandatory for all wakaf land to be registered with Muis.
Wakaf land is trust property that has been dedicated for pious, religious and charitable purposes.

(Source: The Straits Times)
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Zakat offers helping helping hand to poor

Charity and Ramadan go hand in hand

ABU DHABI // Hoarding wealth and withholding charity is a sin so grave that ungenerous societies are punished, worshippers were told on Friday as they were reminded to pay their Zakat, Islam’s equivalent of a charity tax.

“The Prophet explained that one of the consequences of withholding Zakat is that people will be deprived of rain,” said the government-issued sermon.

The reminder comes as the holy month of Ramadan nears – a traditional time for charity.

“God has commanded Zakat from his worshippers and made it one of the pillars of our religion, equivalent to prayer. It is the right of the poor and disenfranchised,” said the sermon, issued by the General Authority of Islamic Affairs and Endowments.

“God has warned us against not taking it seriously and not upholding it with integrity, as it has many benefits for the individual and society.

“Zakat purifies from miserliness and stinginess the souls of those who do it and makes them accustomed to generosity and giving.”

Zakat, the third of five pillars of Islam, is akin to a charity tax that is the duty of any Muslim – individuals or businesses – who can afford it.

Some scholars refer to it as an underlying socialist element of Islam, a dynamic that prevents the disparity between rich and poor becoming too large.

The UAE has a Zakat Fund that collects voluntary payments sent by Muslims every year and identifies families in need of financial help.

This week it announced that 250 Emirati families, mainly retired military and families with special needs, had qualified for full financial support for one year, at a total cost of Dh6 million (US$1.63m).

Next year, a new law will require businesses that market themselves as Islamic, such as banks and insurance companies, to submit audited statements and pay an annual Zakat to the fund.

Most Islamic businesses currently distribute their own Zakat directly to the poor and charities of their choosing.

For a Muslim to be liable to Zakat, he or she must have had a minimum amount of wealth for at least one year, equivalent to the value of 85g of gold (approximately Dh8,260, or US$2,250) or 560g of silver. Zakat is then calculated as 2.5 per cent of annual net assets.

Charity and Ramadan go hand in hand and in many Muslim countries the wealthy join businesses, charities and the government in providing free iftar meals every day for the poor to break their fast.

The UAE’s Red Crescent Authority (RCA) yesterday said preparations for charity work during Ramadan are underway nationwide.

“This coming Ramadan season will see extensive charity programmes by the RCA at home as well as overseas”, said the charity’s secretary general, Saleh Musa al Tayee.

Ramadan iftar tents are being put up at 75 locations in the country, offering 67,8000 iftar meals.

In Abu Dhabi, 13 locations will offer 117,000 iftar meals, while in Al Ain, eight locations will offer 72,000 meals. In Dubai, three locations will provide 30,000 meals.
In 50 countries overseas, the charity’s iftar programmes will offer meals to 50,000 Muslims.

There is a tradition of hosting such meals in tents that are visible to people going about their business. No questions are asked and there is a sense of community as people join the feast.

Even mosques in many Western countries continue this tradition. One of Manhattan’s mosques sponsors free iftar meals daily in outdoor tents on its premises. Pedestrians lured by the aroma of food join in the feast, which includes curries, biryani rice, salads and appetisers. Many

restaurants take this as an opportunity to pay their own Zakat.

The fatwa centre that belongs to the General Authority of Islamic Affairs and Endowments in the Emirates regularly receives queries from devout Muslims concerned about whether or not they have fulfilled their duty of Zakat.

“I am an employee with a monthly salary of Dh15,700 and I have Dh140,000 in debt. So how much Zakat do I have to pay? And does the Dh300 monthly stipend I pay to my sister... count as charity?” asked one man.

The mufti explained that the duty to pay off personal debt overrode the duty to pay Zakat, so that the amount of money on which this man would be required to pay Zakat was the remainder of his income after he had paid off his entire debt. The monthly stipend to his sister is charity and encouraged, but not a requirement.

There are more complex questions from people with modern financial assets, such as equities: “I owned stock in the telecommunications company du and I sold them all. Do I owe Zakat on this transaction?

“And do I calculate Zakat based on the initial purchase price or the sale price or the current market price?”

The mufti explained that if the man purchased these stocks with the intention of selling them for profit, then he owed Zakat. The amount owed would be Dh2.5 for each Dh100 at the time of sale, but only if he had owned the stocks for at least one year.

(Source The National/by Rasha Elass)
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GCC to drive global sukuk market to $200b by 2010

Source: Khaleej Times

DUBAI - Led by the UAE, the GCC is poised to play a key role in driving the global Islamic bond or sukuk market to a two-fold growth to an estimated $200 billion by 2010, banking industry sources said.

Sukuk issuance in the UAE is predicted by analysts to grow to Dh25-Dh30 billion this year as the market gained momentum after the uncertainty about dollar peg ended. The first half already registered Dh17 billion worth of new issues.

Islamic banking sources said with several new issues in the offing, about 70 per cent of the GCC's sukuks will be from UAE alone by next year. Malaysia currently accounts for almost 60 per cent of sukuk issue year to date. 'With the UAE driving the GCC sukuk market, there might be a shift in the ratio of sukuks between Malaysia and Middle East, in favour of this region,' they said.

According to a study done for the International Monetary Fund (IMF), a strong demand from Muslim countries and conventional global institutions for Shariah-principled bonds would boost the potential for sukuk despite the global credit crises. The total value of issued sukuks is likely to exceed $200 billion by 2010 from the current $100 billion said the IMF study titled 'Islamic Bond Issuance - What Sovereign Debt Managers Need to Know.' However, some critical constraints relating to continued legal uncertainty and regulatory divergences ought to be addressed, it said.

Although sukuk issuance slowed to $2.3 billion in first quarter 2008, the prevailing market uncertainty and the retrenchment of real estate exposures worldwide has created a significant backlog of planned issues, which could see a restoration over the course of this year, the report said.

Islamic finance experts in Dubai said GCC's fast growing Sukuk market is drawing global investors keener on less risky investment tool as well as an exposure to the region's currencies and equities markets.

'There is also the increasing prospects of Gulf-based pension funds and insurance industry looking at investing in sukuks as part of their investment strategy,' they said.

Sukuks issued worldwide totalled $47 billion in 2007, up 73 per cent, compared with about $25 billion in 2006 and $10 billion in 2005. The volume of sukuks issued in the Middle East, particularly the GCC countries, rose to 53 from 38 in 2007, industry watchers said. Worldwide, the total number of Sukuk issued was 207, compared with 199 in 2006 and 89 in 2005, according to the Islamic Finance Information Service (IFIS).

Despite fears that GCC also would be hit by the global credit crunch, Sukuks issued in the Gulf surged 17 per cent in 2007 to $17 billion. 'For international institutions, which account for more than 60 per cent of Sukuk investors, these Shariah-based bonds have been better than conventional bonds in terms of returns. They are also less risky investment vehicles as they offer a key advantage over conventional bonds because of the Islamic condition that all issues must have underlying physical collateral, a true asset-backed security. In addition, there has not been a single Sukuk default so far,' experts explained.

Experts said the UAE and the GCC will see more dollar sukuks in the coming months because the dollar link is no longer an issue after central bank governors maintained they will not revalue or depeg.

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Saturday, 23 August 2008

Malaysia poised to be global Islamic capital market centre

KUALA LUMPUR (The Star): Malaysia can become the centre for the global Islamic capital market due to its favourable regulatory environment, says Prudential Corp Asia funds management chief executive Arne Lindman.

“The support from the Securities Commission (SC), for example, has helped Malaysia become the leader in Islamic bond issues or sukuk. The country issues more than 69% of the world’s sukuk estimated to be worth about US$62bil.” he said yesterday after the signing of a memorandum of understanding (MoU) between Prudential Fund Management Bhd (PFMB) and Dubai-based Prudential Asset Management Ltd (PAMD).

Also present at the ceremony was SC chairman Datuk Zarinah Anwar.

Under the MoU, both corporations will work closely to distribute Prudential-managed syariah funds in Malaysia and the Middle East.

Lindman said the MoU would help Malaysia and Dubai cooperate, instead of compete, with each other, and this would spur business development.

PFMB chief executive officer Mark Toh said this was the first time that two Asian countries were promoting the cross-marketing and distribution of Islamic funds. Recently the SC and the Dubai Financial Services Authority signed an agreement to allow such activities.

“Instead of setting up a company in Dubai, we will be able to sell funds directly to the country. It will also allow each country to promote and sell funds between jurisdictions without hassle,” he said.

PAMD chief executive officer Suraj Mishra said this would create synergy between the two countries.

“Instead of getting additional fund managers to sell the funds, the two countries can rely on each other as both have expertise in this sector,” he said.

In Asia, Prudential’s asset management business is one of the region’s largest, operating in 10 markets with funds under management of US$68bil as at end of June 2008.

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Wednesday, 20 August 2008

Malaysia's HLB opens 1st Islamic banking business window in Hong Kong

Aug. 20, 2008 (China Knowledge) - Malaysia-based Hong Leong Bank (HLB) announced that its Hong Kong branch has launched the first Islamic banking business window in Hong Kong, a platform for the lender to expand its international Islamic financial business.
HLB's Hong Kong branch said it has won regulatory approval earlier from the Hong Kong Monetary Authority (HKMA) and Malaysia's central bank to open the business window providing innovative Syariah-compliant wholesale and investment banking solutions. The bank said in a statement that the newly opened business window will enable the bank to tap the West and North East regions and Mainland markets.
HLB will initially provide clients with commodity murabahah deposit (CMD) service, a trade-related transaction with mark-up price element that serves as liquidity management instruments, thus paving the way for Islamic money market transactions in Hong Kong.
HLB said it is able to customize Islamic financial solutions that are designed to help maximize investors' returns within Syariah-accepted tenets.

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Qatar Islamic eyes $300m sukuk

Qatar Islamic Bank, the country’s second-largest lender by market value, is considering selling Islamic bonds worth $300 million to refinance existing debt, two bankers said.
The bank has mandated ABN Amro and Standard Chartered Bank to arrange the Islamic bonds, or sukuk, two bankers familiar with the transaction told Reuters, declining to be identified due to privacy regulations.
The bonds would be issued depending on market conditions, although the lender is looking to borrow funds before the end of the year, the bankers said.
Qatar Islamic would denominate the sukuk in US dollars and come to the market in the next few weeks, London-based Meed said in an unsourced report on its website.
The ongoing global credit crunch triggered by defaults on U.S. home loans has prompted several Gulf borrowers to postpone issuances. - Reuters
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Efficient Use Of Waqaf The Best Way To Eradicate Poverty Among Muslims, Says PM

JOHOR BAHARU, Aug 11 (Bernama) -- The efficient use of waqaf (endowment) assets is one of the best ways to eradicate poverty and develop the socio-economic standing of the ummah, Datuk Seri Abdullah Ahmad Badawi said Monday.

"Efficient use of waqaf is one of the best ways to achieve these objectives as it will help to reduce the gap between rich and poor communities as well as to ensure a fairer distribution of wealth," the prime minister said.

His speech was delivered by Minister in the Prime Ministers Department Datuk Seri Dr Ahmad Zahid Hamidi who represented him in opening the International Seminar on Awqaf 2008, entitled "Awqaf: The Social and Economic Empowerment of The Ummah" here.

The two-day seminar is organised by Kumpulan Waqaf An-Nur Berhad and the Johor Corporation Cooperation in collaboration with the Institute of Islamic Understanding Malaysia, Department of Awqaf, Zakat and Hajj (Jawhar) and the Prime Ministers Department.

Abdullah said that through the seminar, the Johor Corporation had on its own volition placed significant effort in promoting the waqaf institution.

"In this respect, I am pleased to report that the Johor Corporations corporate waqaf should serve as an inspiration for other organisations to develop waqaf assets that help eradicate poverty, provide job opportunities and reduce the government's expenditure," he said.

He said the development of waqaf assets by the private sector would help educate the more fortunate within the community in understanding the concept of asset ownership and utilisation the Islamic way.

Abdullah said that from an Islamic perspective, social obligations should not be the sole responsibility of the government but was something that ought to be shared with all parties interested in being part of the community-building process.

This, he said, included the private sector and non-governmental organisations which are willing to help nurture a progressive Muslim society through measures, including waqaf, which are in accordance with Islamic teachings.

In addition, he said, the mass media could also play a role by promoting waqaf social programmes so that the public would be able to fulfil their social responsibilities by investing their wealth in a blessed way.


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Tuesday, 19 August 2008

Milestones of Bank Islam Malaysia Berhad

  • Officially launched on 1 July 1983 by former Prime Minister Tun Dr Mahathir Mohamad, Bank Islam was incorporated with an authorized capital of RM500 million and a paid-up capital of RM79.9 million
  • First Islamic bank in Malaysia to cater to the specific financial needs of Muslims
  • Bank Islam is ultimately the flag-bearer for the country’s Islamic financial services industry
  • Lead arranger for Shell MDS Sdn. Bhd., Malaysia’s first ringgit-denominated Islamic corporate bond issuance
  • The first Islamic financial institution to be listed on Bursa Malaysia Securities Berhad
  • The first bank in Malaysia to introduce the chip-based ATM card (Smart Card)
  • Launched its website:
  • Developed its Total Islamic Banking Solutions under its MIS Upgrade Program
  • BIMB Holdings Berhad was formed to replace Bank Islam as the Group’s holding company and to assume the Group’s listing status
  • Awarded ISO 9001:2000 Certification by SIRIM for its Trade Financing and Bills operations
  • Excellence Performance Award by Association of Islamic Banking Institutions Malaysia (AIBIM)
  • Lead arranger for First Global Sukuk Inc, the world’s first Islamic global corporate Sukuk
  • Rated “A” by Malaysia Rating Corporation (MARC)
  • First bank in the Asia-Pacific region to introduce EMV-compliant credit cards with chip-based system following the launch of Bank Islam MasterCard
  • Co-manager for Malaysia Global Sukuk Inc, the world’s first Islamic sovereign Sukuk
  • Launched its Internet banking
  • First bank to offer zakat (tithe) payment facilities via ATM and credit card
  • First bank in Malaysia to offer SMS banking service (bankislam.sms) using any mobile operators
  • Awarded ISO BS7799 Certification by SIRIM for IT related services covering planning, software development, operations and user support services and data center services
  • Voted Best Provider of Islamic Finance in Malaysia by Finance News’ Best Islamic Banks Poll 2005
  • First bank in South East Asia to introduce an Islamic Platinum MasterCard
  • Awarded Platinum Award for Best e-commerce Related Initiative in Asia-Pacific by MasterCard Worldwide
  • Introduced Wiqa’ Forward Rate Agreement, a Shariah-based financial hedging tool to facilitate in-house risk management
  • Dubai Islamic Investment Group (DIG) and Lembaga Tabung Haji (LTH) purchased a 40 per cent and 9 per cent stake each in Bank Islam.
  • Entered into its first Islamic cross-currency swap agreement
  • Launch of the new corporate identity of Bank Islam, officiated by a Minister at the Prime Minister’s Office, YB Dato’ Dr. Abdullah Md Zin
  • Embarked on Branch Remodeling exercise
  • Announcement of a profit before zakat and tax (PBZT) of RM255.49 million for the financial year ended 30 June 2007 (FY2007), its highest ever in 24 years
  • Signing of a strategic collaboration deal with the European Islamic Investment Bank plc (EIIB), a gateway for Bank Islam to make inroads into the European market
  • Celebrates its 25th anniversary

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Monday, 18 August 2008

Basel II - A Powerful Tool To Enhance Long-term Resilience & Competitive Advantage

KUALA LUMPUR, Aug 18 (Bernama) -- The implementation of Basel II, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, is a powerful tool for banks to significantly enhance both long-term resilience and competitive advantage, said Bank Negara Malaysia Governor, Tan Sri Dr Zeti Akhtar Aziz.

Basel II, promises greater financial stability through the closer alignment of risk with capital, she said in her keynote address at the Fourth SEACEN /ABAC/ABA/PECC Public-Private Dialogue for the Asia Pacific Region here.

"To realise the full benefits from the implementation of Basel II, its multi-faceted dimensions need to be well understood and integrated with the financial structures, institutional practices, and supervisory systems," she added.

She also said emerging markets in particular would need to ensure that supervisory interpretations of the framework are contextualised to local conditions, and the pre-conditions for its effective implementation are adequately developed to avoid potential market distortions.

"At the institutional level, Basel II provides a unique opportunity for banks to integrate risk considerations with their business strategies.

"Indeed, several leading financial institutions have successfully taken Basel II beyond the narrow and mechanistic risk applications to a more strategic implementation of the framework across the organisation," she highlighted.

According to Zeti, such institutions have leveraged on the upgraded risk infrastructures that have been established for Basel II to create competitive advantages through the application of new business and management tools.

"This enables the risk function to have a central role in forming strategic moves into new markets or products. In the process, this will ensure that the strategies are aligned with the banks risk appetite and policies," she said.

She however added that the benefits of Basel II could not be achieved with just a strict regulatory compliance approach.

"While Basel II serves as a powerful catalyst to reposition the role of, and the attention to of risk management in banking institutions, significant efforts too need to be directed at strengthening the financial structure, corporate governance, risk management and data capabilities," she said.

In the Asia Pacific region, thirteen countries have adopted the standardised approaches under Basel II for credit and operational risks.

A number of countries have either already adopted or announced plans to embrace the more advanced approaches by 2010 or earlier.

Malaysia adopted the standardised approach this year and recently issued a concept paper detailing the parameters for the implementation of the more advanced approach in 2010.

Zeti said in the wake of the sub-prime mortgage crisis in the United States, several aspects of Basel II have attracted attention such as the use of ratings in the regulatory framework and whether this has unintentionally discouraged investors from performing their own due diligence.

"The underestimation of risk for structured credit securitisations has now come under greater scrutiny.

There has also been increased debate over the cyclicality impact of Basel II," she added.

For emerging economies, Basel II has arguably a more far reaching impact as the economies continue to depend heavily on the banking system to finance economic activity.

Zeti explained that with a few exceptions,commercial banks are the main providers of credit in most emerging economies, accounting for an average of 90 percent of total credit.

"This produces a higher correlation to the economic sectors where the implications on the banking system could result in significant disruptions to credit supply which could in turn affect economic activity," she pointed out.

In Malaysia, Zeti said the financial reforms undertaken were to strengthen the underpinnings of the banking system which are instrumental in facilitating the smooth transition to the adoption of Basel II without adverse market outcomes.


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Upcoming Indonesia sukuk to spur local Islamic finance mart

JAKARTA: The Indonesian government’s first-ever Islamic bond sale later this month will administer a long-awaited jolt to the moribund Shariah financing sector in the world’s most populous Muslim nation.
After years of planning, the Ministry of Finance on Wednesday held meetings with institutional investors in the East Javanese capital of Surabaya and the resort city of Bandung and will kick off the main public roadshow Thursday in Jakarta.
The rupiah-denominated bond, set to price on August 26, is likely to be for around $1bn and will be followed by a similarly sized US dollar-denominated offering by mid November.
Sanctioned only in April, the government sukuk will provide another vital funding source for the government’s burgeoning budget deficit and should spur other borrowers to tap the local Islamic market more aggressively.
Islamic bonds, or sukuk, are structured to comply with Muslim law and so, for example, avoid interest payments which are deemed to be usury. Instead, they make coupon-style payouts derived from profits or tangible underlying assets.
The government’s upcoming deals will use the ijarah, or lease, structure backed by 18.37tn rupiahs (US$2bn) worth of land and buildings that the government has set aside.
Islamic bond issuance has soared in recent years in neighbouring Malaysia and the Gulf, while governments in non-majority Muslim nations like the UK are also mulling sukuk.
But companies in Indonesia - home to over 220mn, most Muslim, people - have been slow to follow suit in large part because there has been no government sukuk issuance to provide a pricing yardstick. That, in turn, has stymied the development of Islamic banking, Islamic funds and other Shariah-compliant products.
“If there is a better benchmark more companies will issue sukuk and then in effect there will be more supply in the market and, hopefully, the market will be more liquid,” said Erisa Habsjah, a debt analyst with PT Danareksa Securities in Jakarta.
A successful deal could even prompt the government to tap the sukuk market regularly in the same way as Malaysia and some Middle Eastern nations.
As of July 31, there were 4.18tn rupiah in outstanding rupiah-denominated sukuk from companies like cellular provider PT Indosat, energy firm PT Aneka Gas and Bank Muamalat, comprising only about 5% of the overall corporate bond market.
Moreover, most are small in size, typically making up 15%-20% of a fund-raising comprising largely conventional debt.
Sukuk in Malaysia, by contrast, made up nearly 40% of all bonds issued in Malaysia last year and account for a third of all bonds outstanding.
Final details of the Indonesian government sukuk are likely to emerge as the government gets feedback from potential investors during its marketing.
The deal size needs to be chunky if it is to provide a liquid pricing benchmark and put a dent in the country’s budget deficit which is officially forecast at 1.8% of gross domestic product this year, a figure some analysts say is optimistic.
A person familiar with the deal has said the government will issue paper with seven-and 10-year tenors that are in short supply on the conventional market.
Currently, seven-year government bonds are offering a yield of around 11.42% while 10-year notes are yielding around 11.50%. But bankers say the upcoming sukuk could offer a bit of a premium over conventional paper in part because of the hefty size on offer and partly to make absolutely sure that the sale goes well at a time of global market uncertainty.
That should help spur what is likely to be solid demand for the sukuk.
“There’s a lot of interest and a lot of players. Everybody has been looking forward (to the deal) for a long time” Rachana Mehta, head fund manager for Asia and emerging markets at DBS in Singapore.
Within Indonesia, Islamic banks like Bank Shariah Mandiri and Bank Muamalat are rapidly expanding while mutual funds and insurers are also on the hunt for assets.
Ricky Dahlan, president director of PT Batasa Capital, Indonesia’s only exclusively Shariah mutual fund, says a lack of sukuk is hampering his firm and others from offering new Islamic funds and he will almost certainly snap up some of the government paper when it is up for grabs.
There should also be strong demand from offshore investors for this and future deals that it should usher in.
A previous sukuk sale from Indosat attracted attention from a Malaysian mutual fund which complained of the dearth of Indonesian sukuk. Middle Eastern investors could also look to diversify their portfolios with Indonesian assets. – Dow Jones Newswires

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UK: Salaam Halal Insurance provides Sharia car insurance

Muslim drivers are, for the first time, being offered insurance that obeys the teachings of the Koran.

Salaam Halal Insurance provides the same services as conventional companies but it is compliant with Islamic law. This means it cannot invest in any organisation associated with gambling, alcohol or pork. It is also not allowed to take financial risks or speculate with revenue.

Halal insurance – known as takaful – differs from standard British products because the risk is shared between policyholders. Drivers pay into a fund, which is then invested in sharia-compliant ventures and any profits are put back into the fund.

Claims are paid from the pooled sum and any surplus cash is distributed in the form of a discount for the following year’s premium. This is in addition to any conventional no-claims bonus.

A committee of three independent Muslim scholars monitors the activities of the firm, which says its premiums are in line with the industry average and that it is able to match its bigger rivals because it is so confident of repeat business from Britain’s 600,000 Muslim car owners.

One of its first customers is father-of-two Abdul Khalisadar of Leyton, East London. The 35-year-old pharmacist, who drives a BMW, says his conscience made him pick Salaam Halal’s policy. But he added: ‘It is competitive as well.’

Peter Staddon, of the British Insurance Brokers’ Association, agrees that reaction to the cover is broadly positive.

He said: ‘It’s exciting to see a completely new product on the market.

'And I think there will be many people – Muslim and non-Muslim – who will want to switch to a company that does not invest in weapons, alcohol or gambling.’

Salaam Halal Insurance – which has a shareholder-owned parent company – is the latest firm in Britain to offer a service designed to appeal to Muslims. Some McDonald’s outlets now serve halal chicken, while larger branches of Tesco offer a range of halal foods, including chocolate.

So far, it has targeted the Muslim community through Islamic publications and on billboards. But it hopes to attract customers of all religious backgrounds.

Company headquarters are in London, and it operates a call centre in Greater Manchester where customers can speak to operators in English, Arabic, Bengali, Gujarati or Urdu.

Chief executive Bradley Brandon-Cross said: ‘The face of Britain is changing and it is the responsibility of British institutions to cater for such changes and welcome diversity.’

Source: Mail Online

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Islamic banking is in its golden period of growth

Dr Jasim Ali (Gulf News)

Last week Moody's Investors Services published an exceptional report about Islamic banking industry. Entitled, "Frequently Asked Questions: Notable Trends in Global Islamic Finance", the report revealed some valuable insights into the potential of Islamic banking. Yet, one could disagree with some of the arguments made by the report's author, Anouar Hassoune, vice-president and senior credit officer at the company.

Amongst others, the report claims that the Gulf Cooperation Council (GCC) countries do not want the private sector dominating the realm of Islamic banking. Accordingly, the GCC governments are increasingly entering as strategic investors in Islamic financial institutions (IFIs). Cases in point are Dubai government owning a controlling stake at Noor Islamic Bank (NIB). Set up 2007, NIB aims at becoming the largest IFI in the world within the next five years. Also, state pension funds own 30 per cent of Alinma Bank in Saudi Arabia. Set up in 2006, Alinma sold 70 per cent of shares through initial public offers earlier in the year. Likewise, the Qatari government partly owns Masraf Al Rayan.

The report suggests that government ownership should help making IFIs only more acceptable. "If governments have an increasing share of ownership in IFIs, the risk of consumers perceiving an IFI as insufficiently compliant with sharia is somewhat mitigated," it said. However, existing IFIs are not suffering from a reputation of being overtly commercial.

In reality what makes existing IFIs acceptable is endorsement granted by Islamic scholars. Some IFIs publish paid interviews with scholars if deemed necessary to win public acceptance for innovative products. Nevertheless, ensuring the availability of sharia scholars with knowledge of conventional and Islamic finance is a key challenge facing Islamic banking.

Yet, it is probable that authorities want to have a piece of profitability pie of IFIs, which are not known for reporting sustained growth in net income. For instance, Bahrain-based Ithmaar Bank saw its profit for the first half of this year surging 115 per cent to a record $141.9 million, up from $65.9 million for the same period last year.

One such additional evidence that Islamic banking has extraordinary potential relates to rivalry between London and Paris in dominating the industry in Europe. To be sure, the UK is relatively ahead of France in embracing the concept. In fact, the UK has modified its financial regulations to accommodate Islamic sharia. In fact, it is suggested that the UK government is contemplating issuing sukuk (Islamic bonds).

Yet, France is eagerly attempting to entice Islamic banking by virtue of hosting the largest Muslim community in Western Europe. Chances are that France could score some success through President Nicolas Sarkozy, who has developed a reputation of crisscrossing the world ever since assuming power in 2007.

The report put a sizable figure on the monetary value of Islamic banking. The suggested amount of $700 billion is considerably higher than previously assumed. Still, the report asserts that the figure could reach as high as $4 trillion in the too distant future. Other researches have put value of total assets of some 300 IFIs at $500 billion.

I agree with the report in stressing that expansion of the Islamic financial industry should lead to further diversification. In essence, benefits are expected to be extracted from increasing sophistication and further innovation as well as from growing operating and geographic diversification. Undoubtedly, Islamic banking is growing through its golden period.

- The writer is a Member of Parliament in Bahrain.

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Saturday, 16 August 2008

Global Islamic finance industry is now a business driven industry for all

Islamic finance has become the buzzword in the financial sector pretty much as e-commerce is for in the Internet, creating a similar impact in the world. Analysts estimate that Islamic assets are set for 25% growth by 2010 to hit USD 1.4 trillion. However are these like bubbles of the 1990s? Saudi Arabia, Malaysia and UAE are leading in terms of assets by 20%, 19%, and 18% market growth respectively. Countries like Bahrain, Qatar and Turkey are well positioned with 9%, 4% and 3% respectively.

For sure, the race is all about capturing the fast growing Sukuk Market (Islamic Bonds). The exponential growth of sukuk issuances, from just US$0.3 billion (2000) to US$47 billion (2007) is forecasted to be USD 100 billion by the end of 2008. With the price of crude oil over USD 100, GCC petrodollars will be driving new products, services, players and Islamic Capital Market.

Where do we stand in Mauritius? According to Mckinsey’s Development and Trends grid in Islamic Finance, Mauritius is placed in the 1st cluster “Wait and See and Explore Market Potential”.

Move towards a knowledge economy

The global Islamic finance industry has evolved from a faith-based to a business driven industry for all. One of the underlying strengths inherent in Islamic finance is that it brings together those parts of the world with surplus funds in search of investment opportunities and those with financing requirements creating tremendous new opportunities. Personal wealth in the Middle East is estimated to rise to US$2.2 trillion by 2011.

Mauritius Financial Sectors could well be positioned to capture the Islamic Financial Services growing markets. Additionally and potentially, takaful (Islamic insurance) has yet to takeoff. Takaful’s penetration rate amongst OIC countries is only 5%. In the long run, potential Islamic Finance Services may target the health, construction, energy and agriculture sectors in Mauritius under real estate investment trust (REIT). Recently Malaysia was the first to introduce two REIT, Al Aqar and Al Hadharah, which targeted the health and plantation sectors. Others products include Islamic Wealth and Fund Management and Human Capital Development which are in line with the Mauritius Financial Services Commission’s objectives and the Minstry of Finance’s strategy to move towards a knowledge economy.

Development in the ifs sector

While there are several challenges which may inhibit growth globally and locally, such as the Shariah compliant, Accounting and Auditing Orgnisation for Islamic Financial Institutions Standard (AAOIFI), regulatory and tax framework, and shallow depth of know-ledge and inexperienced talent of Islamic Finance Services, less risky and common Islamic financial schemes such as Ijarah (leasing), Musharakah (partnership) and Credit Sale (Bai `Mu’ajjal) could be sporadic development in the IFS sector in Mauritius and benefit the SMEs and small entrepreneurs in the short run. A recent survey shows that «only 14% of assets within the SMEs are on loan/lease, the equity based is high».

It is believed that the opera-ting environment of Islamic Finance in Mauritius will initially depend on how the commercial banks will explore these opportunities in the region, taking into consideration that a quarter of the 19 commercial banks established here are already offering Islamic Finance Services abroad.

(by Muniruddeen LALLMAHAMOOD in iExpress)

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