Latest from GIFC

Thursday, 29 January 2009

Indonesia: Government to Issue Retail Sukuk Ahead of Schedule

Indonesia will issue its first Islamic bonds, or sukuk, for local retail investors ahead of schedule to take advantage of declining bank interest rates, so the debt papers can compete with bank deposits, a senior official at the Finance Ministry said on Wednesday.

Rahmat Waluyanto, director general of debt management at the ministry, moved the offering dates for the bonds to the period between Jan. 30 and Feb. 20. The offering dates were initially scheduled for the period between Feb. 6 and Feb. 20.

Bank Indonesia’s key interest rate, the BI rate, currently stands at 8.75 percent. Commercial banks have lowered their deposit rates in response to the central bank’s BI rate, to between 7 percent and 9.5 percent.

Sukuk are Islamic financial securities designed to meet the requirements of Shariah law, which prohibits the payment of interest. Instead, they use a mechanism in which the coupons, or interest paid on a bond, are replaced by another form of income derived from assets, such as rental fees from property or other commercial transactions.

Rahmat said the government has set coupon rates for retail sukuk at 12 percent, higher than premium-grade bank deposit rates of about 10 percent for preferred customers.

“There is a huge amount of liquidity in banks sitting in deposits now,” Rahmat told a news conference on Wednesday, adding the government was confident the public would invest in the bonds because of the attractive rates.

Beny Witjaksono, president director of PT Bank Mega Syariah, said the retail sukuk will present tough competition for Shariah banks, which are also trying to attract deposits.

“Retail sukuk offer attractive returns and the bonds are less likely to default,” Beny said.

The new sukuk will be sold at par, or face value, at Rp 1 million ($88) per unit, with a minimum purchase amount of Rp 5 million. It will pay a fixed coupon on the 25th of each month. The debt papers will mature on Feb. 25, 2012.

The ministry expects to list debt papers on the Indonesia Stock Exchange on Feb. 26.

The government has appointed 13 sales agencies for the bonds, including four conventional banks, one Shariah bank and eight securities firms. The conventional banks are PT Bank Mandiri Tbk, PT Bank Internasional Indonesia Tbk, Citibank and HSBC. The Shariah bank is Bank Syariah Mandiri.

(Jakarta Globe)

To learn about sukuk, you are invted to attend the Global Sukuk Conference to be held in Kuala Lumpur on 25-26 February 2009.

Sunday, 25 January 2009

Bahrain Islamic Bank continue to achieve strong financial results in spite of the international financial and economic crisis

21 January 2009

Bahrain Islamic Bank continue to achieve strong financial results in spite of the international financial and economic crisis which has intensified its grip in the final quarter of last year, an indication of the Bank's ability to continue providing the best banking services and to utilize an optimal mix of financial products and services to attain best profitability for shareholders and depositors alike.

The Bank distributed a press release on Wednesday in which it announced its financial results for the year 2008, where it achieved BD 22.3 million net income compared to BD 25 million for the year 2007, after making adequate provisions against contingences that may arise in case the current international financial and economic crisis continues further.

Speaking on the occasion, Mr. Khalid Abdullah Al-Bassam - Chairman of the Board of Directors, stated that: "This good result and balanced performance which is well known for BisBBisBLoading... is attributed, after Allah Almighty's support, to the continued growth and development in the Bank's products and services through its carefully selected financing operations with equitable returns. This has resulted in a sizeable increase in the total income of the Bank from all Bank's activities amounting to an increase of 50% compared to last year, in spite of the difficulties and instability currently plaguing the international and regional financial markets". Mr. Al-Bassam added that the Bank has chosen to enhance its financial position further as a precautionary measure against any unexpected negative developments during 2009 as a result of the continuing International financial and economic crisis.

Mr. Al-Bassam added that in light of these good results, the board of Directors has decided to propose to the Bank's AGM the distribution of 20% of dividends of paid up capital as of 31st December 2008 as 10% cash and another 10% bonus shares.

Mr. Al-Bassam emphasized that the Bank 2008 results are a clear message to its shareholders, investors and clients in which we ensure our commitment to adhering in offering the best banking and financial services and to be close to them, and the care that the Bank takes in making sure that the financial results are always published early.

Mr. Khalid A. Al-Bassam, Chairman of the Board of Directors, concluded that " These results are attributable to the efforts and dedication of the executive management and our outstanding staff in all departments of the Bank, and we look forward , insha-Allah, to the year 2009 to continue enhancing the Bank overall performance and at the same time be vigilant to what the development in the international and regional financial markets and to set the appropriate strategies to pass this difficult period" He also pointed to the fact that this is the fifth consecutive year in which the Bank continued to distribute cash dividends and bonus shares to its shareholders reflecting the strong financial and operational standing the Bank continues to build .

On his part, Mr. Mohammed Ebrahim Mohammed - CEO of the Bank commented that operating income of the Bank increased by 52% compared to last year, attributing this to the continuance growth in Islamic finances and different investment activities plus the achievement of good returns on the Bank equity investments.

Mr. Mohammed Ebrahim added: " The increase in total income has contributed to the increase in return to investment accounts by 13% compared to last year, which reflects the Bank's management continued commitment to distribute best returns to the investors which in turn will lead to acquiring a larger share of the local market where there is strong and fierce competition, since the bank management is keen in meeting liquidity standards in spite of the financial crisis which proved that Islamic Banks are a source of confidence and strength for investors".

Mr. Mohammed Ebrahim continued to say: "As far as the financial position of the Bank is concerned, total assets registered an increase of 33% during 2008 as compared to 2007 to reach BD 874 million, this increase was mainly due to the increase in Islamic finances and in refraining from investing in all high risk instruments"

The CEO then referred to the Bank deposits which registered an increase of 78%, and current accounts which increased by 15% and noted that this reflects investor confidence being the pioneer bank in the Kingdom, which consolidate its financial position as it enjoys the required level of liquidity and has a successful investment portfolio.

On the other side, Islamic finances registered an increase of 82% compared to last year highlighting the fact that the Bank is granting finances to various economic sectors and actively contributing to the current development and growth in the Kingdom of Bahrain.

The CEO concluded: "We, by achieving these results during the difficult environment currently prevailing in the international financial markets, ensure our shareholders and depositors that we are careful in providing them with the best of services and to invest their deposits with equitable returns and with the minimum risks depending on our long experience which spans three decades and on our track record".

The CEO then thanked the Chairman and members of the Board of Directors for their support and guidance, and all staff members for their continued cooperation and sincere efforts put forward to achieve Bank development and success.
- Ends -
© Press Release 2009

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Financial system: Consider the Islamic option

"Consider the Islamic option"

The financial crisis has shown us the downside of many conventional financial instruments, but Islamic banking products are believed to have emerged relatively unscathed and investors in these products are believed to have done better than those investing in more traditional products.

Experts say the prohibition on charging interest and the lack of structured Islamic banking products may have prevented the sector from investing in assets that turned fatal for conventional banks.

Moinuddin Malim, Head of Corporate and Investment Banking in Badr Al-Islami Bank, says: "Islamic finance and investment is about value creation. An asset always backs the underlying product in addition to the track record of the investment manager, the true valuation of the asset and its performance.

"Investors' interests are safeguarded by the fund manager or trustee, known as the Mudarib. And while the Mudarib may not avoid market risk, it is his responsibility to develop the investor funds into selected asset category."

No Islamic financial institution has acknowledged investing in Bernard Madoff's $50 billion (Dh183bn) Ponzi scheme, and Saleh Al Tayar, Secretary General of the Franco-Arab Chamber of Commerce, says the $4.9bn hit taken by Societe Generale as a result of Jerome Kerviel's actions couldn't have happened in an Islamic institution.

"If global banking practices were based on Islamic practices then we wouldn't be seeing this kind of crisis," he says.

Islamic financial institutions work on a philosophy of prohibiting transactions considered immoral and promoting greater social justice by sharing risk and reward. Investing in casinos, pornography, arms or anything to do with pork is out: Long-term investments in projects beneficial to society are in.

Interest payments, short selling and contracts considered excessively risky are also prohibited. That rules out products that got Western finance into trouble, such as subprime mortgages, collateralised debt obligations or credit default swaps.

Fewer retail options

However, mass retail products available for Islamic customers are very limited in the UAE market. UAE bank assets that comply with Islamic law now account for less than 20 per cent of total bank assets, according to Tirad Mahmoud, Chief Executive of the Abu Dhabi Islamic Bank.

More often than not, Islamic retail customers are forced to keep their funds in current, savings or Mudaraba Time Deposits, which yield returns based on how well the underlying institution has performed. Investors in the UAE can invest Dh100 or multiples thereof in the National Bonds scheme, which work on Mudaraba concept as well and has a gift scheme through which investors can win up to Dh1 million in prize money.

At the premium retail level where investors have the appetite to opt for savings around Dh100,000 or more, there are several options, most based on mutual fund structures with various flavours and targeting various geographic territories and market segments from local, regional to international.

"Islamic banking and finance has not reached the sophistication attained by conventional banking to provide complex and highly complicated investment product structures," says Malim. "However, every Islamic banking product, its structure, implementation and documentation is vetted by Shariah scholars who are guided by international law firms and industry experts. This is one reason why such products have a better chance of attaining investors' interest in today's challenging times."

Muneer Khan, a partner in a law firm Simmons & Simmons, has invested in Mudarabah term deposit, saying: "I have received a profit rate broadly equivalent to the prevailing interest rate for conventional savings accounts.

"I am happy to invest in such products as statistics show Islamic equities funds tracking Islamic indices ( provided by FTSE and Dow Jones) have performed better during the financial crisis than conventional index trackers, as the Islamic indices do not include conventional financial institutions."

Growth ahead

And the Islamic finance sector is growing, even as the global financial industry shrinks. In 2008 alone, Noor Islamic Bank and Ajman Bank started operations. Abu Dhabi Islamic Bank plans to open six new branches in the UAE before April and is actively seeking acquisitions and branch expansion in Middle East countries.

Says Mahmoud: "The bank's liquidity position is strong and we have not slowed lending; but we will be prudent and selective. The market is tougher, but opportunities are there and we will capitalise on those. In the UAE, Islamic banking's share [of the pie] is growing and it will surpass 50 per cent in 10 years."

Risk factors

However, a recent Moody's report says Islamic financial institutions are not immune to risk as there is a shortage of liquid instruments and the lack of an Islamic inter-bank market. The agency expects growth in Islamic banking assets to slow in 2009, to 10 to 15 per cent compared to 20 to 30 per cent this year.

Islamic banks now stand in the same firing line as non-Islamic counterparts, facing a slump in equities valuations and slowed growth in regional real estate, to which they are heavily exposed.

Even though Islamic banks avoided the speculative investments and complex financial instruments that derailed Western banks, their balance sheets still show a mismatch between assets and liabilities, and they depend more on short-term maturity liabilities than conventional banks.

The sukuk market faced many challenges last year – the global credit crisis, rising borrowing costs, lack of investor commitment to capital market securities and debates over the Shariah compliance of some sukuk structures.

"By the end of 2008, global sukuk issuance had declined by more than 50 per cent," says Moody's Faisal Hijazi.

But experts say products like sukuks do not reflect the value of the underlying assets and only show the supply and demand situation.

"Investors holding these assets till maturity have better prospects of getting the face value back rather than taking a trading loss on mark to market loss for such instrument. This needs to be qualified on the ability of the underlying issuer to be able to refinance the assets at maturity or pay back the investment to the investors," says Badr Al-Islami's Malim.

Term paper

Islamic Finance refers to a system based on the principles of Islamic or Shariah law. Shariah prohibits the payment of fees for the renting of money (Riba) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles – or Haraam. The principle of Islamic banking is sharing profit and loss and the prohibition of Riba.


An Islamic mortgage transaction where instead of giving a loan to the buyer to purchase the item, a bank buys the item from the seller, and re-sells it to the buyer at a profit, while allowing the buyer to pay the bank in installments. From the start the item is registered in the name of the buyer.


Equivalent to a bond, these securities comply with Islamic laws on interest and are not fixed-income or interest-bearing.


Islamic insurance against losses. The idea is, what is uncertain for an individual may cease to be uncertain to a large number of similar individuals. This is insurance by combining the risks of many, thus enabling each individual to enjoy the advantage provided.

Musharaka Al Tanaqisa

A home loan that allows for a floating rate in the form of rent. The bank and borrower form a partnership, providing capital at an agreed percentage to purchase the property. The partnership entity rents out the property to the borrower, who buys the bank's share on the property at agreed installments until the full equity is transferred to the borrower.

(Emirates Business)

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Saturday, 24 January 2009

The world's largest Islamic bank set for launch by June in Bahrain

KUALA LUMPUR, Jan 23 (Reuters) - The world's largest sharia lender will be launched by June, an industry body said on Friday, as the sector tries to address a shortage of large lenders it needs to become a global alternative to conventional banking.

The Bahrain-based bank would have a paid-up capital of $11 billion, with the Islamic Development Bank (IDB) as its largest shareholder, said Sheikh Saleh Abdullah Kamel, chairman of the General Council of Islamic Banks and Financial Institutions.
Sheikh Saleh said the Organisation of Islamic Conference (OIC) countries would also invest in the bank, adding that it was the right time to set up the bank despite tough financial market conditions worldwide.

"I think it is the best time to push and to encourage people to invest in the real economy ... industry, agriculture, but not to invest in markets and derivatives and these blow-up things," Sheikh Saleh told Reuters on the sidelines of briefing in the Malaysian capital.
Islamic finance is based on the sharia, or Islamic law. It avoids the interest-based formula of conventional banking and argues that gains must be derived from ethical investing and for profits and losses to be shared between venture partners.

Once a niche market serving devout Muslims, Islamic finance has gained in popularity as the global financial crisis has prompted some investors to rethink the merits of conventional banking.
The bank, which has yet to be formally named, has been in the pipeline for several years and is currently undergoing final review by IDB on its capital input.

"I hope minimum they will contribute $300 million," Sheik Saleh said.
While a total of $1 billion will be raised by private investors, including IDB, the other $10 billion is expected to come from an IPO on the Bahrain stock exchange, he said.

Sheikh Saleh said the bank aims to fund economic development in Muslim countries and increase liquidity in the Islamic financial sector, a weakness in the Islamic financial system.
"The third, and very important, goal is to create an Islamic financial paper market. Now there is no real Islamic market. As a secondary market, there is none because there is no good financial Islamic paper market," he said.

This is a role that has been undertaken by other development banks in emerging economies such as the European Bank for Reconstruction and Development, a body set up to finance the reconstruction of ex-communist eastern Europe.

It undertakes issuance in debt markets in domestic currencies so as to set benchmarks and boost trading.

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Debate over commodity murabahah (tawarruq)

Some Islamic scholars think commodity murabahah should be avoided as much as possible, saying it closely resembles an interest-bearing transaction. Is there a better alternative financing structure?
THE concept of commodity murabahah (or tawarruq in some jurisdictions) has only recently been widely applied in Islamic finance, along with other syariah contracts such as mudarabah, musharaka and bai murabahah.
The application of this trade-related structure with a pre-determined profit rate (or pre-agreed “margin” or “mark-up”) is possible in syariah-compliant financing and deposit products as well as in liquidity management/treasury instruments and other investment products/securities.
However, resistance still exists on the ground from some critics who say that commodity murabahah-based financial products bear a striking resemblance to interest-based products.
For instance, the Islamic Fiqh Academy of Rabbitah ‘Alam Islami, Makkah ruled in 2003 that any product structure based on the commodity murabahah or tawarruq munazzam concept should be considered as haram, or forbidden by Islamic law.
By and large, it is not unusual for both Islamic finance and its conventional counterpart to mirror each other given the identical nature of their business of receiving funds, usually by way of deposits, which subsequently will be re-directed towards productive use in various economic activities.
Indeed, in undertaking financial intermediation functions, both Islamic and conventional finance serve as a medium to mobilise funds from savings surplus economic units, which will be channelled subsequently to savings deficit economic units.
The commodity murabahah debate entered the fray in Malaysia following Bank Negara’s favourable ruling in 2005 on the permissibility of such a concept.
As a rule of thumb, a financial contract does not contravene syariah rules as long as its application complies with the essential elements/tenets of any syariah contracts such as cost-plus sale (bai murabaha) and agency (wakalah), as practised in a commodity murabahah structure.
To clearly draw the lines between Islamic and conventional finance, the application of the commodity murabahah concept is restricted to a handful of financing products such as working capital, personal financing and credit cards whereby the financing is solely for the purpose of providing cash to customers.
Does the commodity murabahah violate Islamic principles?
The answer is, no. Not only is it permissible in Malaysia based on a ruling by the Syariah Advisory Council (SAC), it is in fact a globally acceptable syariah compliant structure in particular in the Gulf Cooperation Council (GCC) region, being sanctioned by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
Still, the AAOIFI is of the view that the commodity murabahah structure is only acceptable if it involves four parties (a buyer, a seller, the buyer’s commodity broker and the seller’s commodity broker) instead of a tripartite transaction.
Is there a better alternative financing structure?
For certain types of financing products such as personal financing and credit cards, commodity murabahah appears as the most ideal structure.
However, for working capital, Islamic banks may consider a profit-sharing structure such as mudarabah and musharaka although the risks associated with this kind of structure could be relatively higher.
Indeed, Islamic banks are encouraged to consider this profit-sharing structure for their financing products, deemed as the most acceptable by the majority of syariah scholars.
Nonetheless, it is of utmost importance that Islamic banks are equipped with appropriate risk mitigation mechanisms, backed by risk officers with the right expertise. — Reuters
*Comment by Dato' Zukri Samat - the managing director of Bank Islam, Malaysia’s second biggest Islamic bank by assets. The views expressed in this article are those of the author

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Wednesday, 21 January 2009

Malaysia has proposed a meeting be held on setting up global standards for Islamic banking and finance

DOHA: Malaysia has proposed a meeting be held on setting up global standards for Islamic banking and finance.
Prime Minister Datuk Seri Abdullah Ahmad Badawi said he had discussed this with Qatar Prime Minister Sheikh Hamad Jassem Jabor Al-Thani during the Malaysian delegation’s meetings on Wednesday and had proposed the first meeting be held in Kuala Lumpur.
“We had asked that more attention be given to Islamic banking considering its acceptance in the world now.
“The first meeting would be held among experts from countries that have Islamic banking sectors,” he said.
Abdullah said that global standards would resolve problems with a common approach and also eliminate confusion.
“There could be confusion when Islamic banks in different countries have different principles or practices,” he said.
The Malaysian delegation also discussed with Qatari officials the possibility of both countries making joint investments in other countries in their agricultural and halal product industries.
Abdullah said that both countries agreed it was important to work together to increase trade. Malaysia’s trade volume with Qatar stood at US$503.8mil (RM1.8bil) as of November 2008.
Later during his keynote speech at a business forum organised by the Malaysia External Trade Development Corporation, Abdullah invited Qatari businessmen to invest in Malaysia, citing opportunities in the economic corridors such as Iskandar Malaysia.
He also noted that he was happy with the strong presence of Malaysian companies in Qatar with projects totalling more than US$3bil. These include projects being carried out by Sime Darby Engineering, UEMBuilders, Gamuda Berhad, Muhibbah Engineering and the Holiday Villa HotelGroup.
(The Star Malaysia)
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Monday, 19 January 2009

Nigeria: Huge Capital Base Hinders Growth Of Islamic Banking – Expert

A financial expert, Professor Monzer Kahf has blamed the failure to establish Islamic Banking in the country on the huge capital base introduced by the Central Bank of Nigeria (CBN) in 2004.

Speaking to financial correspondents in a recent break fast forum organised by Lotus Capital, the pioneer of ethical investment company in Nigeria, a consultant in Islamic banking, finance and economy, Professor Monzer Kahf said there is no regulatory hindrance to the establishment of Islamic banking in Nigeria but the major problem has been the apex bank’s new capitalisation benchmark for banks.

In his words, "there is no regulatory hindrance against the establishment of Islamic banking in Nigeria but the major problem is the CBN huge capital base."

Kahf posited that no investors would like to invest in such huge venture in a country like Nigeria, stressing that the nation's banks capital base should have been between the range of $25million and $50 million because the country is not very rich.

He explained that the Islamic banking which operate under ethical and moral value does not give out loans to investors to start up business, but it provides equipment and other requirement for transactions.

However, the representative from Securities and Exchange Commission, SEC, Mr I.B Bello, who was one of the panel discussants, maintained that Nigeria was ready for Islamic finance, saying the only challenge was lack of awareness.

He said that Lotus Capital which planned to raise N1 billion through its Halal fund realises N2.78 billion at the end of its public offering.

He reasoned that some christians who are interested in investing in stocks that have ethical and moral values should be given the opportunity do so.

Managing Director of Nigeria Pension Commission (PENCOM), Mr Mohammed Kabir Ahmed said that regulators needed to come together to see how to make descernible progress in the introduction of Islamic Banking in the country.

Meanwhile, he noted that the country lacked skilled professionals to work in that sector, stressing that for such institution to function effectively, the first step is for the country to develop its human capacity.

(Leadership Nigeria)

Sunday, 18 January 2009

Good Prospects For Global Sukuk Issuance

KUALA LUMPUR, Jan 16 (Bernama) -- Prospects for global sukuk issuance remain good despite a dramatic decline in volume last year, says Standard & Poor's Ratings Services.

In a recently published report, "Sukuk Market Declined Sharply in 2008, But Long Term Prospects Remain Strong", it said the decline in sukuk issuance last year was a result of global market turmoil, drying up of liquidity, widening of credit spreads as well as investors' wait-and-see attitude.

"Although difficult to measure, part of this decline could also have been due to comments about the Syariah compliance of some sukuk by the Accounting and Auditing Organisation for Islamic financial institutions," Standard & Poor's credit analyst Mohamed Damak said in a statement here today.

According to Damak, more than 45 percent of sukuk issued last year were 'ijara' (lease financing), most probably as a direct consequence of the debate about Syariah compliance among some scholars.

The value of sukuk issued last year dropped by more than 56 percent compared with the previous year, to US$14.9 billion.

The market is not expected to see a revival before the second half of this year or early 2010, Damak said.

Although volumes dropped dramatically last year, the sukuk market attracted about the same number of issuers. Conservative estimates of the pipeline of sukuk that have been talked about are in excess of US$45 billion.

The report said several factors support sustainable growth in this market, including increasing popularity of Syariah-compliant products and government openness to Islamic finance, massive investment and financing needs in the Gulf, and issuers' desire to tap investors from the Middle East and Muslim Asia.

At the same time, the US dollar lost its place as the currency of choice for sukuk, with only about 10 percent of issues raised in this currency.

Standard & Poor's expects the sukuk market to continue being skewed toward issuances in local currencies, at least in the foreseeable future. However, once global market return to normal, dollar-denominated sukuk issuance is expected to pick up again.

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Saturday, 17 January 2009

Egypt’s Grand Mufti Ali Gomaa said that the money Muslims donate to the victims in Gaza can be considered zakat, the obligatory alms to the poor

CAIRO: Egypt’s Grand Mufti Ali Gomaa said that the money Muslims donate to the victims in Gaza can be considered zakat, the obligatory alms to the poor.
"The citizens of the Occupied Territories are the top priority and are in the most need of money," Gomaa said in a statement sent to Daily News Egypt.
Gomaa also said that Islamic scholars have stated that zakat money can be given to those involved in such struggle even if they were rich.
The Grand Mufti also called on oil-rich Islamic and Arab countries to donate zakat in the form of petroleum to "our fellow Palestinians who are now homeless and trapped in Gaza."
The Palestinians fighting for their land in Palestine are fighting for the sake of God, in defense of their country, and should be supported by all possible means, he added.
Zakat is the “social pillar” which requires financially capable Muslims to donate 2.5 percent of their annual income to the poor.
(Daily News Egypt)

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Malaysia: Gold Dinars As Trading Currency Among Resolutions Passed

KUALA LUMPUR, Jan 15 (Bernama) -- Initiatives to expedite the use of gold dinars as an alternative main trading currency is among 29 resolutions adopted at the Third Islamic Economic Congress.

The just concluded four-day congress on Thursday was attended by some 1,000 participants and observers who also wanted the move to integrate Islamic finance system among Islamic nations at regional and global levels be speeded up.

It was also suggested Malaysia take the lead in the Economic Chapter of the 57-member of the Organisation of the Islamic Conference (OIC) in paving the way for restriction-free investment and trade inflow to Islamic countries.

Earlier, the Raja Muda of Perak, Raja Dr Nazrin Shah, in his closing address asked the congress committee to present the resolutions passed as an "information paper" to the Conference of Rulers.

To pursue economic system growth, syariah-based business and entrepreneurship, the congress proposed to the government to set up Islamic Economic Research Institute Malaysia to conduct macro and micro studies.

The congress also passed a resolution to pursue the "business holy war" for Muslim traders to strengthen their socio-economic status by promoting entrepreneurial skills.

It also urged the government to set an economic attainment target including for equity and asset ownership by Muslims in the country.

The government was also urged to fix new Key Performance Indicators for government agencies and government-linked companies (GLCs) to empower small-and medium-scale industries run by Muslim entrepreneurs.

To support the effort, the congress suggested the establishment of an Islamic SMI Consultative Council to provide the participative avenue for representatives from all sectors.

A corporate endowment body by government trust bodies and GLCs must be initiated in line with the corporate social responsibility, it said.

In tandem with plans to set up entrepreneur-friendly financial institutions, the congress suggested the formation of Bank Pembangunan Islam Malaysia, Bank Al Qardhul Hassan, Bank Permodalan dan Pelaburan Wakaf Antarabangsa.

It also proposed the formation of a Islamic Religious Affairs Coordination Ministry to smoothen coordination and administration of the nation's economic issues and Malaysian Muslims economic activities.

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Good Prospects For Global Sukuk Issuance

KUALA LUMPUR, Jan 16 (Bernama) -- Prospects for global sukuk issuance remain good despite a dramatic decline in volume last year, says Standard & Poor's Ratings Services.

In a recently published report, "Sukuk Market Declined Sharply in 2008, But Long Term Prospects Remain Strong", it said the decline in sukuk issuance last year was a result of global market turmoil, drying up of liquidity, widening of credit spreads as well as investors' wait-and-see attitude.

"Although difficult to measure, part of this decline could also have been due to comments about the Syariah compliance of some sukuk by the Accounting and Auditing Organisation for Islamic financial institutions," Standard & Poor's credit analyst Mohamed Damak said in a statement here today.

According to Damak, more than 45 percent of sukuk issued last year were 'ijara' (lease financing), most probably as a direct consequence of the debate about Syariah compliance among some scholars.

The value of sukuk issued last year dropped by more than 56 percent compared with the previous year, to US$14.9 billion.

The market is not expected to see a revival before the second half of this year or early 2010, Damak said.

Although volumes dropped dramatically last year, the sukuk market attracted about the same number of issuers. Conservative estimates of the pipeline of sukuk that have been talked about are in excess of US$45 billion.

The report said several factors support sustainable growth in this market, including increasing popularity of Syariah-compliant products and government openness to Islamic finance, massive investment and financing needs in the Gulf, and issuers' desire to tap investors from the Middle East and Muslim Asia.

At the same time, the US dollar lost its place as the currency of choice for sukuk, with only about 10 percent of issues raised in this currency.

Standard & Poor's expects the sukuk market to continue being skewed toward issuances in local currencies, at least in the foreseeable future. However, once global market return to normal, dollar-denominated sukuk issuance is expected to pick up again.
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Kenya: Muslim scholars discuss Islamic banking

Leading Muslim scholars held a seminar on Friday to discuss emerging issues in Islamic Banking in view of new developments in the sector.
The conference held at the Nomad Hotel in Garissa, was organised by Barclays Bank of Kenya Ltd. under its Islamic Banking Division, La Riba.
Led by the Chief Kadhi, Sheikh Hammad Kassim, the scholars deliberated on Islamic banking issues. Sheikh Kassim, who sits on the Barclays Shariah Advisory Board, said the bank strives to be 100 percent Shariah-compliant in its Islamic banking products.
"In the annual reviews conducted by the board, I would like to confirm that the Barclays Islamic Banking Division is in line with the requirements of the Muslim faith,'' noted the Chief Kadhi.
Barclays Head of Islamic Banking, Omar Sheikh, gave an overview on one of the fastest-growing financial product in the market, noting that Barclays set the pace in Kenya when it pioneered the country's first Shariah-compliant financial product in 2006.
Barclays Bank Regional Managing Director, Adan Mohamed, said the bank launched La Riba in response to the needs of the bank's growing Muslim customer base.
"We are continuously looking at ways to enhance our products and services to ensure we anticipate and meet the evolving needs of all customers - this is key to our sustainability strategy."
The launch of La Riba was facilitated with the guidance of a team of highly respected Islamic scholars. The bank has since introduced three Islamic banking suites and plans to expand its footprint this year.
To ensure compliance with Shariah law, the bank is guided by a robust process and governance framework, in addition to the annual reviews conducted by the Advisory Board.
Other advisory board members include: Sheikh Khalfan Khamis, Chairman - National Council of Muslim Scholars of Kenya; Sheikh Muhammad Alasow, renowned Islamic jurist; Sheikh Abdirizak Yakub, renowned Islamic jurist and Sheikh Ahmad Msallam, Director - Muslim World League.
Barclays customers, regardless of their faith, can benefit from La Riba account features including interest-free banking; free cash handling; access to funds at more than 117 Barclays branches and 220 ATMs countrywide; and worldwide access at ATMs displaying the VISA logo.
(Kenya Broadcasting Corp)
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Friday, 16 January 2009

Shariah-compliant hedge funds hit the spot

Shariah-compliant hedge funds could outperform their traditional hedge fund counterparts this year, predicts Aureliano Gentilini, global head of hedge fund research at Thomson Reuters Lipper.

Gentilini said that Shariah-compliant hedge funds stand to benefit from emerging trends in the investments industry and developments in the Gulf Cooperative Countries namely the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

"Although the economic slowdown across the world does not portray a very optimistic picture for oil prices, we believe plans by some emirates in the Gulf Cooperation Council (GCC) region to boost budget expenditure and run a budget deficit to better manage a scenario of global market recession may act as a catalyst for insulating, to some extent, stock markets in the GCC region from market disturbances."

Gentilini added that while Dubai and Saudi Arabia have adjusted their GDP growth estimates following the global financial crisis, both states still project a robust non-oil GDP growth this year.

But even with lower numbers after the GFC, statistics show that economic growth in the region is roughly three to four per cent, or as high as six per cent higher than in other developed markets, a trend that should continue for the next seven years, according to fund manager Schroders.

For example, Qatar is predicted to replace Luxembourg this year as the country with the highest GDP (nominal) per capita in the world.

Finally, Gentilini said the funds stand to benefit from the region's investment liquidity profile. The United Arab Emirates investment arms, including the Abu Dhabi Investment Authority, have more than US$900 billion in assets to invest and manage. The figure will keep rising as the region prepares to become less reliant on oil and gas-related revenues.

Shariah-compliant hedge funds are likely to ride on the back of "strong liquidity drivers existing in the GCC region and increasing demand from institutions for absolute return investment vehicles that could provide returns uncorrelated from major market trends," he said.

Michelle Baltazar (Financial standards)

Thursday, 15 January 2009

Executive Overview on Islamic Banking and Finance - Kuala Lumpur - 23-24 February '09

Executive Overview on Islamic Banking and Finance is a specially designed program for beginner and intermediate levels. It is designed for executives and professionals who want or need to learn the basic principles of Islamic banking and finance as well as common and latest Islamic financial instruments. Related issues such as legal aspect will also be discussed by a panel of experts and practitioners. It will be held in Kuala Lumpur, Malaysia on 23-24 February 2009.

Following immediately after the 2-day Executive Overview will be Global Sukuk Conference, a program designed for advanced level to talk about "Islamic bond". The Executive Overview would be an ideal preparation for sukuk program.

The fees are very reasonable and affordable....the global economic crisis fee.

To find out more about these and other programs, please visit the organiser's web site:

Zakah grows with Allah, but Riba diminishes

This is an excerpt from Lesson 185 of al Tajrid al Sarih (The Abridged Saheeh al Bukhari) by Shaykh Abu Yusuf Riyadh ul Haq. Delivered on Friday 22th February 2008 at Al Kawthar Academy, Leicester, UK. ---
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USA: Finance the Islamic way at Michigan bank

DETROIT (AP) — Big financial institutions have been battered by mortgages gone bad. But a tiny Michigan bank is getting attention in the industry by turning a profit on loans without even charging interest.
Its specialty: financial products that comply with Islamic law. That means no collecting interest, no short selling and no contracts that are considered exceedingly risky.
It also rules out some of the activity that got Western finance in trouble — subprime mortgages, credit default swaps and the like.
"When you look at the economic crisis we're in, if you were to follow Islamic or Sharia financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp. in Ann Arbor.
Islamic finance operations aren't prohibited from making a profit. Far from it. Instead, banks that comply with Islamic law, or Sharia, earn money from fees that are part of the cost of the loan, some paid up front and some over time.
University Islamic Financial has two types of financing, one called a marked-up installment sale and the other a lease-to-purchase sale. Fees in both cases are comparable to interest payments in traditional loans, bank officials say.
For example: A seller who bought a house for $100,000 could sell it for $120,000 or even $300,000, provided the buyer agrees it's a fair deal. The home could be sold on an installment plan negotiated by buyer and seller.
The bank is a subsidiary of Michigan-based University Bank, and its leaders say they have talked recently with executives from two national banks hoping to learn more about the business.
Islamic law says money cannot grow by itself, the way it does with compounding interest. Trade is acceptable as long as the equal amounts of money are traded or two different things are swapped with a fairly negotiated price.
So a dime for an apple would be considered "halal," or religiously acceptable, while one apple for two apples would be "harem," or unacceptable.
Even at University, not everyone is on board. Some customers have closed their accounts when they learned it was engaging in Islamic finance. Some employees who objected to the move quit. The bank also stopped having a Christmas party and no longer serves alcohol at after-hours events.
The Michigan bank focuses on contracts that clearly spell out the risk and reward between lender and borrower. University Islamic Financial says it's the nation's first to offer Sharia-compliant, federally insured deposits.
Islamic banking is more common overseas, but some U.S. banks and credit card companies are exploring the idea of branching out into Sharia products to reach out to the growing Muslim population.
So Islamic banking is only expected to increase in coming years. Already, Citigroup offers Sharia products and services to clients overseas, and Visa says it has worked with banks around the world to offer Islamic-compliant products.
The conventional banking system could learn a lot from the idea, said Jawad Ali, a finance lawyer based in Dubai and London who specializes in structuring Sharia-compliant deals.
"We haven't made as much money as the conventional banks because we can't, for example, sell what we don't own," he said. "We have to own it before we sell it. We may have missed out on gains in good times ... but we haven't suffered any losses."
Of course, there's no guarantee that banks will find immunity in Islamic finance from a severe global downturn.
"I am not doing banking on Mars," said Afaq Khan, the head of Saadiq, the Islamic banking arm of Standard Chartered Bank, based in London. "If real economic activity slows down significantly, the Islamic banking industry will also be affected."
A Sharia-compliant mortgage is like rent-to-own: There is no note, or mortgage, but typically part of each month's payment is held toward the ultimate purchase. The property is titled to an individual trust, or limited liability corporation.
Deutsche Bank estimates total assets in the Islamic finance market at $1 trillion — a tiny fraction of global financial assets, but the bank said in a recent report that the sector been growing at a clip of 15 to 20 percent per year.
Most big international banks already have Islamic banking arms, and a November report by Moody's Investors Service shows that Islamic banks have been fairly resilient to the global economic downturn.
The U.S. banking industry has not embraced Sharia banking. Wachovia, Wells Fargo and JPMorgan Chase said they have not adopted Sharia practices and declined to comment about what they may do in the future.
"As far as the future, we are always looking for opportunities to better serve our customers, but our specific strategy is proprietary," Wells Fargo spokeswoman Lisa Westermann said.
University Bank President Stephen Ranzini declined to name the U.S. banks that University Islamic has talked to. But he said his bank soon plans to offer its services such as residential lending to other banks and credit unions nationwide.
Sharia banking is an idea "that is long overdue in this country," said Amal Berry-Brown, vice president at Comerica, a Dallas regional bank that has talked with Ranzini. "At the same time, there really is quite a bit of work to be done."
Comerica has a strong customer base around Detroit, home to the nation's most concentrated Muslim population.
One issue: There is "a big variance" within Sharia law about exactly which financial practices are considered good and bad, said Mustafa Gultekin, a finance professor at the University of North Carolina at Chapel Hill.
For University Islamic, the niche appears to be paying off. Ranzini said he expects it to generate more than 25 percent of the overall bank's revenue this year, up from about 20 percent last year.
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Monday, 12 January 2009

Malaysia: Islamic Capital Market To See Product Innovation

KUALA LUMPUR, Jan 9 (Bernama) -- The Malaysian Islamic Capital Market will continue to see product innovation, moving away from the adaption of conventional products.

With the introduction of new market participants, such as multilateral development banks, multilateral financial institutions and local and foreign multinational corporations, the market has witnessed product innovation, said RAM Rating Services Bhd in its "Malaysian Sukuk Market Handbook".

Furthermore, Islamic products will increasingly be structured on Islamic principles that are widely accepted in global markets, it said.

Malaysia has a facilitative regulatory framework, for Islamic investment product and services, including the issue of sukuk, it added.

RAM chairman Tan Sri Siti Norma Yaakob said in the handbook that the current stage of evolution for Islamic finance features innovations in various Islamic capital-market products, which are becoming increasingly more complex and sophisticated.

"With the expanding scope of activities in Islamic finance, the Islamic bond or sukuk market is fast becoming an essential platform for fund-raising and investment activities," she said.

Initiatives and added measures under the Malaysia International Islamic Financial Centre (MIFC) platform will encourage both domestic and international financial market participants to become MIFC service providers, RAM said.

By making Malaysia as the regional hub in the process, service providers will greatly enhance their market reach and expand their customer bases in this part of the world, it said.

The Malaysian government launched the MIFC initiative in August 2006 to maintain the country's edge in the area of Islamic finance.

The foundations for the sustainable development of Islamic finance in general and sukuk market in particular have now been put in place, according to RAM.

The development of the sukuk market in Malaysia has entailed extensive and wide-ranging measures, which include creating an efficient issuance process, enhancing the price-discovery process and settlement system, establishing a benchmark yield, broadening the investor base, promoting liquidity in the secondary market and fortifying the legal, regulatory and Syariah frameworks, it said.

Kuwait Finance House said in the handbook that having expanded by leaps and bounds in the past few years, Islamic markets seem to be entering a mature phase.

The debate, according to Kuwait Finance House, is whether the Islamic finance industry wants to set itself as a unique and innovative form of financing or to replicate what have already been established by the conventional markets.

Thursday, 8 January 2009

Islamic Banking To Reduce Impact Of Global Financial Crisis – Expert

As global financial crisis lingers, Islamic banking is fast gaining grounds as a possible means of alleviating its impact because of its departure from pure capitalist approach to investment, a financial expert has said.
Managing Director of Lotus Capital Limited, Mrs. Hajara Adeola who made this remark while addressing newsmen, noted that most Sharia compliant investments were insulated from the financial crisis because they were not exposed to the vagaries of conventional interest-based investments.
She also noted that based on the success of Islamic financing during the world financial crisis, even the UN is discussing the possibility of such investment option.
According to her, Islamic financing presents huge investment options and opportunities to Nigeria with a population of over 140 million and approximately 90 million with an interest in the non-interest, ethical financial products, and services.
She said following the success recorded by Lotus Capital within a short period of choosing the Islamic financing option suggests a burgeoning market prospect in Nigeria .
Adeola further stated that, the Halal Fund the company offered for public subscription, is the first Shari'ah Compliant Mutual Fund registered by the Securities and Exchange Commission
The company she said recorded 31 per cent and 38.9 per cent growth levels in 2006 and 2007 respectively and promises more growth in the future based on the level of acceptance of the product.
To further promote the concept of Islamic financing, Lotus Capital, she said has finalised arrangement for organising seminars on how best to use Islamic banking for infrastructural development.
The theme of the seminar which would be held on January 15, 2009 is tagged "Islamic finance, an alternative approach to project finance and infrastructure development" and will feature renowned Islamic finance experts like Professor Monzer Kahf and Neilm D. Miller.
The seminar holding at the Muson Centre she also noted is designed to provide would be practitioners of Islamic finance - government, bankers, lawyers, capital market operators, regulators, insurers and the general public, with an understanding of the great potential that Islamic finance represents for infrastructure development meanwhile the company last year offered for subscription, 1,000,000,000 units of funds of N1.00 at the rate of N1.00 each.
The fund was an open-ended unit trust scheme designed for investors that wish to invest in a shari'ah compliant fund committed to the adherence to the strict code of ethics of the Islamic laws.
The key objective of the fund, according to the company was to achieve long term capital growth with steady income targeted at 20 per cent per annum.
The funds assets, according to the offer prospectus, shall be invested in other assets including equities, non interest government and corporate bonds and real estate.
It does not guarantee a minimum return but the manager would employ its expertise and knowledge of the financial market to ensure that the funds assets are invested in quality instruments which would provide attractive returns.
However, the minimum amount that could be invested in the fund is N20, 000 and subsequent multiples of N10,000.
The Lotus Capital Halal Investment fund, offer recorded the highest level of subscription to mutual fund in Nigeria as it recorded 278 per cent over subscription.

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Tuesday, 6 January 2009

2008 historical year for Islamic Banking in Pakistan

Lahore—The year 2008 was the best and a landmark year for the Islamic Banking in Pakistan during which the Islamic Banking industry grew far more rapidly as compared to the previous year. During the year with an addition of 217 Islamic Banking Branches, the number of branches went from 289 to 506 expanding the network to various cities. At the end of December 2007, Islamic Banking deposits and assets were estimated at Rs. 147 billion Rs. 206 billion respectively, whereas there was a drastic increase of 30% to 40% in the reserves during the year 2008. New Islamic Financial products were introduced during the year. The state bank of Pakistan also issued guidelines for Agricultural Finance and Islamic Micro Finance which have been the milestones for introducing the Islamic Financial products at the Micro level.

These thoughts were expressed by Muhammad Zubair Mughal, CEO, AlHuda centre of Islamic Banking in a seminar on Islamic Banking.

He said that besides 6 complete Islamic Banks in Pakistan, there are 506 Islamic branches of 12 conventional banks operating throughout Pakistan which includes 161 branches of Meezan Bank, 25 of Dubai Islamic Bank, 40 of Emirates Global, 102 of Bank Islami, 5 of Soneri Bank, 4 of Habib Metropolitan Bank, 16 of Bank of Khyber, 18 of Askari Bank, 3 of Royal Bank of Scotland, 4 Bank-al-Habib, 5 of UBL, 11 of SCB, 40 of Alfalah, 1 of Habib Bank, 30 of Al-Baraka, 21 of Dawud Islamic Bank, MCB 8 and 5 branches of NBP. He further said that currently there is worldwide global financial crisis which has been a major reason for the bankruptcy of various Banks and Financial institutes but in spite of the fact the Islamic Banking system is gaining momentum globally which is evident through the facts & figures for Islamic banking in Pakistan.

(Pakistan Observer)

Saturday, 3 January 2009

India’s first Shariah-compliant mutual fund plan cleared

BANGALORE: The Securities and Exchange Board of India has given the long-awaited nod to Taurus Mutual Fund and its joint venture partner Parsoli Corporation to set up India’s first Shariah-compliant mutual fund.
“We got Sebi’s approval for the fund in November,” Zafar Sareshwala, CEO and MD, Parsoli, told DNA Money.
However, the open-ended fund’s launch is subject to the current economic and political climate. “It could be either later in January after Muharram or in April after the general elections,” Sareshwala said.
Taurus had filed the offer document for this fund in October 2007 in collaboration with Parsoli.
However, the regulator reportedly had some reservations on the grounds that it targeted a particular community.
The new fund will make investments only in the shares of companies that are compliant with the dictates of the Shariah, which forbids ties with companies involved in banking, alcohol, tobacco, gambling, non-halal meat or pornography.
As interest cannot be earned on investments made as per Shariah laws, the fund will not invest in debt either, explained Shariq Nisar, CEO of Bangalore-based Bearys Amanah Investments.
“We target to have assets under management of Rs 100 crores. We have set up a three-member Shariah advisory board to guide the investments,” Sareshwala said.
The Sebi decision has evoked mixed response from other mutual fund players.
According to an investment banker who did not wish to be named, some fund houses have shown an inclination to enter into the fray, there are others who aren’t.
For instance, Reliance Capital Asset Management Ltd recently got approval in Malaysia to launch a Shariah fund there. “But we have not taken a call on launching the services in India as yet,” said Sandeep Sikka who was recently appointed as the CEO of Reliance Capital Asset Management.
The biggest markets for Shariah linked financial products are the US, UK and the Middle East.
According to industry insiders, the size of the market world over for Shariah financial products is valued at around $2.5 trillion.
Independent estimates for the size of the opportunity in India is not available but there are more than 154 million Muslims in India and their savings are well into thousands of crore.
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