Latest from GIFC

Saturday, 30 May 2009

Iraq Islamic banks urge law reform to boost growth

BAGHDAD, May 29 (Reuters) - There is huge potential for Islamic finance in Iraq, banking officials said, and the country's central bank said it was looking at ways to encourage the sector's growth in response to demands from Islamic banks.
Islamic banks first opened in Iraq in the 1990s and seven of the country's 42 banks are now Islamic, meaning they comply with Islamic laws prohibiting interest, the trading of debt and investment in some sectors, such as pornography and alcohol.
"There is a great demand for Islamic banks in Iraq. The problem is Iraqi banking law does not differentiate between regular and Islamic banks," Iraqi central bank senior advisor Mudher Kasim said in an interview this week.
"The central bank at the moment is studying a new law for Islamic banks," he added, giving no timeline.
Iraqi society has become more religious since the 1990s, and clerics and Islamist groups wield great influence.
Demand from the world's 1.3 billion Muslims for investments that comply with their beliefs has soared and assets that comply with Islamic law are estimated to be worth up to $1 trillion.
The central bank's move is in response to Islamic banks' requests to loosen broader banking rules on the size and type of investments they can make relative to capital and cash reserves.
The rules are meant to ensure banks are solvent, but Islamic banks derive much of their profits from investments, which are distributed among account holders in place of interest.
Iraqi law restricts investment in real estate, where Islamic banks in the Middle East have concentrated much of their cash in recent years, to no more than 15 percent of capital, Kasim said. He said that was one area of Iraqi banking law under review.
Abdul-Hussein al-Rabaie, of Iraq's Al-Bilad Islamic Bank for Investment and Finance, said business had soared since it opened in 2006, but legal constraints have hampered further growth.
Another law restricts total investments to less than 20 percent of capital and cash reserves.
"We have problems with the central bank. I want to take part in development and investment in Iraq, but I cannot have a ceiling on investment," he said, adding that Iraq's Islamic banks were pushing for a cap of 50 percent.
They are also pushing for a cut in the reserve requirement for Islamic banks to 15 percent of capital and cash reserves, from 25 percent now, and for looser capital adequacy rules.
Basel II international banking guidance says an institution's total regulatory capital must be at least 8 percent of its risk weighted assets, based on measures of its credit risk, market risk and operational risk.
Rabaie said the equivalent figure in Iraq was 12 percent, and argued that Islamic banks should be given more leeway because they took less risk than non-Islamic banks.
Islamic laws have largely shielded Islamic banks from investments that have crippled other banks, such as collateralised debt obligations, by requiring deals to be backed by tangible assets and shunning the trading of debt.
But some analysts argue that the sector's focus on real estate and the relative shortage of assets that comply with Islamic law means Islamic banks face other risks.
Bilad has about 7,000 account holders, whose deposits rose to about 358 billion Iraqi dinars ($306 million) by the end of 2008 compared to 58 billion dinars a year earlier.
Its capital had quadrupled to 100 billion dinars since its foundation, and it expects to hit 200 billion dinars in 2010.
Although the figures are tiny by global standards, private Iraqi banks are beginning from a low base after years of war.
Private banks also face an uphill task competing with Iraq's much bigger and better funded state banks, Rafidain and Rasheed.
Last month Boston Consulting Group, which advises financial institutions providing Islamic services, said banks in the Middle East and Asia were looking at opportunities in Iraq. ($1 = 1170 Iraqi dinars)
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Friday, 29 May 2009

Pakistan: Islamic banks find alternative to KIBOR

KARACHI: Islamic banks have recently achieved a major milestone towards development of an interbank market for Islamic banks.

Meezan Bank recently hosted a meeting of Shariah advisors and product development experts of all full-fledged Islamic banks to decide upon the mechanism for inter-bank placement amongst Islamic banks and to move towards the development of an Islamic inter-bank market.

After careful deliberation, standardized agreements – namely Interbank Musharaka and Interbank Wakala Agreements – were finalized and it was agreed that henceforth only these standard contracts would be used by the Islamic banking industry.

This achievement is an important milestone towards development of inter-bank market for Islamic banks and will pave the way for the long awaited Islamic benchmark rate as an alternative to KIBOR. The meeting was attended by Shariah advisors / product development heads of Meezan Bank, BankIslami, Dubai Islamic Bank, Emirates Global Islamic Bank and First Dawood Islamic Bank. staff report.

(Daily Times)


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Thursday, 28 May 2009

Financial crisis presents opportunity for Islamic banks

The financial crisis presents an opportunity for Islamic banks based in some of the Gulf States according to a new report from the London School of Economics and Political Science (LSE) released today (Thursday 28 May).

The report The development of Islamic finance in the GCC, authored by Professor Rodney Wilson (1), points out that the Islamic banks have been less adversely affected than the major international banks by the 2008-9 crisis, making them more attractive to investors.

Gulf Cooperation Council(2)-based investors in conventional banks have seen the value of their investments plummet. These include Prince Waleed's Kingdom Holdings in Saudi Arabia, which holds five per cent of Citibank, and the Abu Dhabi and Qatar Investment Authorities, which hold significant stakes in Barclays. In contrast, the value of the Saudi Al Rajhi Bank and Kuwait Finance House (KFH) investments in retail Islamic banking affiliates in Asia has been much more resilient.

Professor Wilson, who wrote the report for LSE's Kuwait Programme on Development, Governance and Globalisation in the Gulf States, said: 'There has been much questioning of the values underpinning the conventional financial system, and the search for alternatives means that Islamic banks are likely to receive more attention, especially as their raison d'ĂȘtre is morality in financial transactions, based on religious teachings.

'The increasing international respect for Islamic finance has been noted in the GCC, and this should encourage local acceptance by both governments and bank customers, not least because no Islamic bank has failed in the crisis and required a substantial government bail-out'.

Islamic banks have been somewhat insulated from the current financial crisis because, in contrast to their conventional counterparts, they do not borrow in interbank markets, their funds coming instead from their own deposits. They also did not hold toxic collateralized debt obligations because they are not allowed to hold interest bearing securities.

According to the report the GCC is well positioned at the heart of the Muslim world to serve as an Islamic finance hub linking Europe, Asia and Africa. The spread of subsidiaries of GCC-based Islamic banks illustrates that this is starting to happen.

Furthermore a global economic recovery is likely to benefit the GCC as oil and gas prices rebound, resulting in fresh liquidity being pumped into Islamic banks to fuel further expansion.

Despite being a reluctant supporter of Islamic banking to date, the report argues that Saudi Arabia could become the global leader in the Islamic finance industry worldwide if the Saudi Arabian Monetary Agency (SAMA) and the Capital Markets Authority become more proactive in promoting the industry. This would bring significant benefits to its economy including employment creation in the King Abdullah Financial District where, for example, although a grand mosque is included in the plans, there is no mention of Islamic finance in the vision.

The value of shariah-compliant assets in the GCC is over US$262.6 billion when the figures for Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain and Qatar are aggregated. With total shariah-compliant assets worldwide amounting to around $640 billion at the end of 2007, this implies that the GCC countries accounted for around 41 per cent of the total.

The Islamic finance industry encompasses retail and investment banking, insurance, fund management and the issuance and trading of shariah (consistent with the principles of Islamic law) compliant securities. Shariah prohibits the payment of interest on loans (Riba or usury), as well as investing in businesses that provide goods or services considered contrary to its principles (Haram or forbidden) such as pork, alcohol or gambling.


The London School of Economics and Political Science (LSE) studies the social sciences in their broadest sense, with an academic profile spanning a wide range of disciplines, from economics, politics and law, to sociology, information systems and accounting and finance.

The School has an outstanding reputation for academic excellence and is one of the most international universities in the world. Its study of social, economic and political problems focuses on the different perspectives and experiences of most countries. From its foundation LSE has aimed to be a laboratory of the social sciences, a place where ideas are developed, analysed, evaluated and disseminated around the globe. Visit for more information.

(1) Professor Rodney Wilson, Faculty of Islamic Studies, Qatar Foundation and Durham University School of Government and International Affairs.

(2) The Gulf Cooperation Council (GCC) member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates

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Canada: Jovian to Partner with UM Financial to Launch Shariah-Compliant Product

TORONTO, May 27 /CNW/ - Jovian Capital Corporation ("Jovian") (TSX: JOV)
is pleased to announce an agreement with UM Financial Inc. ("UM"), Canada's
premier Islamic financial services company, to explore the launch of a
co-branded, Shariah-compliant investment product (the "Shariah Product"). The
Shariah Product would be geared toward Canada's approximately 1 million strong
Muslim population, as well as foreign investors looking for a uniquely
Canadian, Shariah-compliant investment.
Toronto-based UM was founded by Omar Kalair in 2004 and is the only
Canadian entry on The Banker magazine's Top 500 Islamic Financial
Institutions. Among other things, UM has previously secured a $120 million
Shariah-compliant residential mortgage investment facility from a regulated
Canadian financial institution, and has developed Shariah-compliant investment
and deposit products with other financial institutions in Canada.
"We are very excited to be partnering with Jovian on a product that would
provide Muslims in Canada with a much-needed, Canadian-based and
Shariah-compliant investment product which avoids such industries as gambling,
alcohol and tobacco, and enables active review of financial ratios and
leveraging," said Omar Kalair, President and C.E.O. of UM. "Canada is well
regarded internationally and the introduction of a Canadian-based,
Shariah-compliant product would provide a vehicle through which overseas
investors can gain Shariah-compliant exposure to Canada's markets," he added.
"We are very pleased to partner with UM Financial on this exciting new
venture," said Philip Armstrong, C.E.O. of Jovian. "We feel that a product
designed for Muslim investors will have broad appeal in Canada and elsewhere,"
he added.
Shariah is Islamic religious law, which observant Muslims adhere to in
their daily lives. Shariah has certain restraints regarding finance and
commercial activities permitted for Muslims.

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Canadian index allows investors to follow Shariah law

Standard & Poor's is launching a Shariah compliant version of the S&P/TSX 60 that will exclude companies that don't meet criteria outlined within Islamic law.

Shariah law, based on the teachings of the Koran, does not allow for investment into companies that deal in pork, alcohol, gambling or pornography.

Banks are also excluded because investors are not allowed to earn profit from interest.

"Companies which have high levels of debt or high levels of interest earnings are also screened out," Alka Banerjee, Vice President of Standard & Poor's Index Services, told in an interview from New York on Wednesday.

At present, companies which have debt less than 33 per cent of their market capitalization are allowed within the index.

A Shariah Supervisory Board, comprised of Islamic scholars, determines if a company qualifies.

Banerjee said Shariah-compliant indexes are still in their infancy but interest is growing.

"A lot of Islamic investors would like to invest along their religious beliefs as well as the rise of petro-dollars in the Middle East, as well as the prosperity in southeast Asian has all led to a demand for Shariah indices and other kinds of products," Banerjee said.

Including the Canadian launch, S&P now has Shariah compliant indices in 52 markets.

Other markets include the S&P 500 Shariah, S&P Europe 350 Shariah, S&P Japan 500 Shariah and S&P CNX Nifty Shariah to name just a few.

The S&P/TSX 60 Shariah Index currently has 25 companies that meet the board's requirements.

"This number can change month-to-month," Banerjee said.

Some of the companies that made the cut include EnCana Corp, Research in Motion, Potash Corp. of Saskatchewan, Barrick Gold Corp., Suncor Energy Inc., Goldcorp Inc. and Petro-Canada.
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Wednesday, 27 May 2009

Qatar: QIB affiliate EFH projects 34% return on sukuk fund

Qatar Islamic Bank (QIB) and its affiliate European Finance House (EFH), which has launched the $30mn open-ended Global Sukuk Plus fund, have projected 34% returns in the first three years.

“The expected total return is 34% over the first three years of the fund, based on our projections of spreads returning to the average of the last five years,” Mark Watts, EFH head of asset management, told a private gathering on Sunday.

Regulated by the UK’s Financial Services Authority, EFH - which 60% owned by QIB - is a Shariah-compliant financial institution in Europe and a leading force in the growing Islamic banking market.

Although the EFH Global Sukuk Plus Fund is London-based, QIB CEO Salah Jaidah said “it employs its access to the GCC markets to diversify the asset class risk”.

The fund is a weekly dealing mutual fund that is invested predominantly in sukuk markets comprising sovereign, quasi-sovereign and corporate issuers, and looking forward to exceed three-month Libor (London Inter-bank Offered Rate) plus 200 basis point returns over the business cycle.

Value could be added through investment in Shariah-compliant debt of credit investments such as syndicated Murabaha, trade finance and structured investments, EFH said. “Eventually, additional new investment products will be introduced,” EFH said.

The minimum initial subscription to the dollar-denominated fund, which is registered in Luxembourg, is dollar equivalent of 125,000 euros and the minimum additional subscription/redemption is $10,000.

However, there will be an annual management fee of 1%, placement fee of 2% and an estimated administration fee of 0.30% for the fund, whose custodian is Bank of New York Mellon.

The fund, which has low/medium risk, is suitable for investors seeking an enhanced income level and diversification from cash or equity holdings, according to EFH.

There has been a growing amount of interest in Islamic finance and sukuk as a direct result of the problems of the conventional banking system, Watts said.

The advantages with the fund, according to him, were greater liquidity (pricing and availability on weekly basis) and active management (ensuring ongoing credit of both new and existing issues with the aim of minimising or removing the loss from default or losses from credit deterioration).

Other benefits include better diversification (greater number of holdings and broader geographic allocation), wider market access and ease of use.

On the timing of the launch, Jaidah said the negative impact of the global economic crisis has been “filtered” through in the financial market.

(Gulf Times)
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Malaysia: People Need To Know How Zakat Collection Is Spent - Jamil

KUALA LUMPUR, May 19 (Bernama)-- The people, especially Muslims, need to know how the zakat (tithe) collection is spent to raise their confidence in the institutions managing the fund.

Minister in the Prime Minister's Department Datuk Jamil Khir Baharom said he would study how the information could be disseminated through the media, especially television.

"There must be transparency in how the zakat collection is spent to raise public confidence, so that more will feel encouraged to pay zakat," he said after witnessing the signing of a memorandum of understanding between the Wakaf (Endowment Land), Zakat and Haj Department (JAWHAR) and UKM Holdings Sdn Bhd, here, Tuesday.

He said those who had become successful through assistance from the zakat fund must be highlighted in the media so that they became role models for society.

"We should show how from being zakat recipients, they have become successful and are now paying zakat, hence creating public understanding how zakat can contribute to the community's socio-economic development."

In another development, Jamil Khir also chaired the National Baitulmal Coordinating Committee meeting organised by JAWHAR today.

Among the matters discussed, he said, was coordinating the tasks and responsibilities of the state Islamic religious councils and related bodies to avoid overlapping and confusion.

"Six working papers containing proposals to improve the socio-economic status of Muslims in Malaysia, especially in relation to wakaf, zakat and mal (property) were also presented."

Jamil Khir said the meeting also decided that a Zakat Awareness Month be organised to encourage Muslims to pay zakat other than zakat fitrah, which Muslims pay during Ramadan.

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Islamic banking in Brunei: BIBD aims to be bank of first choice

The oil-rich sultanate of Brunei Darussalam entered the Islamic finance sector around 1993. But despite the fact that it has only two major Islamic banks, Bank Islam Brunei Darussalam (BIBD) and TAIB, and three Takaful (Islamic Insurance companies), the Islamic banking sector accounts for an encouraging 40 percent of the total banking market in the country. This is probably the largest market penetration of Islamic banking in any single country in the world. Here Javed Ahmad, acting managing director, Bank Islam Brunei Darussalam (BIBD), formerly with IICG (Gulf) and HSBC Amanah, and seconded from Fajr Capital, discusses the state of the Islamic banking market in Brunei and the prospects and challenges that lie ahead.

What is your assessment of BIBD’s current involvement in Islamic finance?

BIBD has a full-fledged banking license in Brunei. It’s main focus is retail banking services. It has about 27 percent of the market share of the total banking market in Brunei. The total banking market in Brunei is about $12 billion, of which about $5 billion or 40 percent of the market is Islamic. Considering that Brunei started in the Islamic banking sector a decade after Malaysia, this is not a bad achievement. In fact we have a bigger Islamic banking market penetration than Malaysia.

This is a very high market share compared to most countries including Malaysia?

Yes, it is primarily as a result of the merger between Islamic Bank of Brunei and the Islamic Development Bank of Brunei in 2006 into this new entity BIBD; and also because of our corporate banking activities, which is the largest in the market. But even here, although we are the largest provider of corporate finance, the potential business in the country is even bigger. We are keen to broaden the scope of our activities into investment banking and private equity over the next few years. The idea being that a financial institution such as ours should be a catalyst for economic growth in the country, and we want to look at good sensible business ideas coming into Brunei and thus to expand our business.

What is the capital structure of BIBD?

BIBD has a capital of 900 million Brunei dollars ($650 million). This is a decent sized capital base and we are very highly capitalized. Our capital adequacy is around 20 percent. Effectively, if we wanted to we could go and expand the business based on the capital we have.

Can you expand on the share ownership structure of BIBD?

About 60 percent of the shares are held by the Brunei Ministry of Finance. Another 25 percent of the equity is held by The Sultan of Brunei’s Charitable Foundation. Some 6 percent of the equity is owned by Mizuho Bank of Japan, which has been in Brunei historically for the last quarter of a century. The remaining 9 percent of the shares are held by truly retail investors in Brunei totaling about 6,000 shareholders.

Brunei itself is not a big market. So how do you position BIBD especially in terms of cross-border regional activities?

Our activities have traditionally been to gather deposits and to provide financing. We are in the process of going through a major business re-focusing exercise. The focus will not be merely on transactions but also to get closer to our customers and offer them the appropriate advice and a wider range of activities. As such, we want to be bank that provides them with their home financing needs; with their investment requirements and so on. The aim is to help change the financial culture in Brunei from a borrowing or debt culture to a savings culture.

What about capital markets products and potential especially Islamic equity funds and the issuance of Sukuk?

We have a Shariah-compliant ASEAN Fund. But we want to provide the full spectrum of investment products — the “best of breed” products. We will come up with the ideas and launch these funds, but will get an external third party fund manager who will provide the asset management capability.

What are the cross-border ambitions of BIBD?

We do invest internationally, for instance into commodity Murabaha syndications; Sukuk subscriptions and in equities markets. We are also interested in decent-sized buyouts not necessarily in terms of being a lead but being a participant. We do have quite a high level of liquidity and that liquidity gets invested outside purely because we do have fairly limited opportunities domestically. IBB Takaful and IBD Takaful are merging soon to create a decent size Takaful company which will explore opportunities both in the domestic and regional markets.

In which sectors in Brunei do you see opportunities for growth in your business?

Most of the opportunities in Brunei in terms of financing the corporate sector are in the oil and gas industry. Not only in terms of the major players but also a huge opportunity serving the companies associated with the oil and gas industry. The other is the construction sector. But the sector in which we have the largest exposure is the transport industry.

(Mushtak Parker | Arab News)

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Amcapital's Launch Shows Brunei's Financial Strength

Bandar Seri Begawan - Ambank Group has made its entry into Brunei Darussalam with the opening of its subsidiary called AmCapital (B) Sdn Bhd, which is in line with its regional expansion plans to bring its expertise in funds management, Islamic finance and investment advisory to the Sultanate.

The ceremony was held yesterday at the DAR Takaful IBB Utama building, Jalan Pemancha in the capital.

YAM Pengiran Anak Haji Abdul Wadood Bolkiah, Pehin Orang Kaya Laila Setia Dato Seri Setia Awang Haji Abd Rahman bin Haji Ibrahim, Brunei's Minister of Finance II, Tan Sri Dato' Azman Hashim, Chairman AmBank Group, Board of Directors from AmCapital, and guests comprising captains of the industries in Brunei and also the diplomatic community were present.

Pehin Dato Abd Rahman said, as one of the leading financial service providers in Malaysia, AmCapital's presence here is a testimony to their
high level of confidence in Brunei as a capable and competitive jurisdiction.

"It shows a strong support for our aspiration and vision to develop Brunei as an international financial centre, in particular our noble pursuit to create a vibrant and favourable capital market.

"I am certain that your presence here will add to the vitality of our financial community in Brunei Darussalam in the provision of asset and fund management business into the country," said the minister adding that AmCapital has the opportunity to explore various opportunities in the investment management of retirees fund, mutual funds or insurance to help promote savings and investment culture in the country.

He further reiterated that Brunei is committed to providing a favourable business environment that supports the asset and fund management industry. "With many lessons learnt from the current global financial crisis, continuous efforts and great care have been undertaken to facilitate the development of a sound capital market industry," he added.

Pehin Dato Abd Rahman said His Majesty's government is working towards establishing and improving the essential infrastructure through regular reviews of the legal and regulatory framework.

"Coupled with its political stability and strong economic fundamentals, Brunei Darussalam has the potential to become one of the preferred and credible regional fund management centres."

Global and regional fund managers that set up their operations in Brunei jurisdiction can enjoy a flexible regime which permits sourcing funds, both from outside and within the country, said Pehin Dato Abd Rahman.

"In addition, several incentive packages have been introduced that are designed to attract market players to establish their local presence here, in particular fund managers and investment advisers. Incentives, such as tax exemption, are intended to facilitate and expedite the growth and strengthen the local fund and asset management industry," he added.

Brunei Darussalam aspires as well as welcomes those who are venturing into sectors in the Islamic finance market such as takaful and sukuk in line with our efforts to promote this country as another Islamic financial centre, said the minister and added that the commitment to introduce products and services of highest quality and diversity may create a more vibrant environment and sustain the growth of Brunei Darussalam.

Tan Sri Date' Azman said that despite the current economic uncertainty, AmBank has noted that the financial markets in Brunei have maintained a steady momentum and external market participants are setting up operations or expanding their franchises in the country. He viewed the strategic entry into the Brunei market as timely as well as significant.

"We see Brunei as an excellent market for more Syariah compliant product development, especially in the areas of wealth management for individuals or private equity investments. It is also well recognised that Islamic products offer excellent potential, therefore adding depth and breadth to the banking infrastructure in Brunei," he added.

AmCapital (B) Sdn Bhd was incorporated in Brunei on November 27, 2007 as an International Business Company. It received its licence in September 2008 and began operations on December 9, 2008.

"In fuelling the growth of financial markets in Brunei, AmCapital is pleased to work closely with Brunei International Financial Centre's (BIFC) initiatives," Tan Sri Dato' Azman said.

With the launching of the AmCapital in Brunei Darussalam, there are now altogether 14 investment advisors licensed by the Brunei International Financial Centre under the Securities Order 2001.

It also marks the expansion of AmBank Group's regional network as it currently operates in Jakarta and Singapore, providing stock broking services and corporate advisory.

AmCapital (B) Sdn Bhd is located on the ground floor of DAR Takaful IBB Utama building Jalan Pemancha.

Established in 1975, AmBank is the fifth largest financial services group in Malaysia (by assets, as of December 31, 2008) and comprises AMMB Holdings Berhad and its subsidiaries Amlnvestment Bank Group, AmBank, Amlslamic Bank and Amlnsurance.

The group provides a wide range of investment banking, commercial banking, retail financing and related financial services, which also include Islamic banking, underwriting of general and life insurance, stock, share and futures broking, investment advisory as well as asset, property and unit trust management.

(Courtesy of Borneo Bulletin)
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Tuesday, 26 May 2009

Outlook for sukuk remains healthy

PETALING JAYA: The outlook for Islamic finance remains strong despite the deepening economic slowdown, scarce liquidity, pronounced stock market declines and plummeting real estate prices.

Standard & Poor’s Rating Services (S&P) credit analyst Mohamed Damak said in a recent report that “the outlook for asset-backed sukuk is positive despite the doubts raised by the disruption in global financial markets and in structured finance.”

However, he said the knock-on effects of the economic slowdown was pressuring Islamic financial institutions and “creating new obstacles for their development”.

AmResearch Sdn Bhd credit research director Fu Yew Sun said for Malaysia, where most bonds issued by the Government and the private sector were sukuk, the concerns in the short-term were over credit quality.

He added that the issuance of government-guaranteed bonds to finance pump-priming measures had also put pressure on private debt securities (PDS) or sukuk issued by companies.

“Investors are still concerned about credit quality and hence they’re unwilling to invest in anything with less than AAA-rating,” Fu told StarBiz, adding that the Government’s issuance of more Malaysian Government Securities and other government-guaranteed bonds had absorbed most investors’ funds.

“The preference for government-guaranteed bonds has pushed demand to the higher end of the market,” he said.

Fu said for this year, if government-guaranteed bonds from Cagamas Bhd, financial guarantee institution Danajamin Nasional Bhd, Khazanah Nasional Bhd and the newly set-up state investment fund Terengganu Investment Authority were included, there would be easily RM40bil to RM45bil in bonds to be issued (note: the figures here include PDS issuance).

“Rating Agency Malaysia and Malaysia Rating Corp Bhd (MARC) estimate that around RM30bil to RM35bil in PDS will be issued this year,” he said.

Fu said for the sukuk market to improve next year, sentiment on credit had first to improve on the back of a sustained recovery in the economy, which could happen towards the end of 2009 or early 2010.

Meanwhile, MARC fixed income research head Wan Murezani Wan Mohamad said as the credit crunch spilled into the real economy, issuers were likely to put their expansion plans on hold.

He said the “fragile” confidence among investors was also reflected in the elevated corporate spreads prevailing. “In a globalised world, any instrument, conventional or Islamic, will be affected,” Wan Murezani said.

According to the S&P report, total global sukuk issuance was halved to US$14.9bil last year compared with US$34bil in 2007.

The report noted that syariah-compliant assets totalled about US$700bil “after growth exceeding 10% annually during the past decade”.

S&P’s Mohamed said the rating agency had taken some negative actions on several Islamic banks over the past six months to reflect the adverse changes.

(The Star)

Training & Consulting on Islamic Finance & Management

Monday, 25 May 2009

Shariah-compliant finance is the best choice

In these times of financial turbulence, Shariah-compliant banking and finance is being endorsed for its stability and is evolving as the best choice on the road to economic recovery.

According to Imtiazz Sarfaraz Khan, Head of Retail Banking and Finance Department at Abu Dhabi National Islamic Finance, Shariah-compliant finance has always been an appropriate and relatively risk-free route for financial dealings but was downplayed for quite some time mainly due to political considerations across the globe.

Khan said the definitions of Shariah-compliant or Islamic banking were endless.

"Some non-Shariah-compliant banks and financial institutions may choose to call it 'interest-free banking', while others are comfortable with 'zero interest on asset-backed finance'," Khan added.

"If one looks from the customers' point of view, the key attributes that drive consumer confidence are trust and transparency – not just quick-fix solutions."

He added that these positive attributes are considered "honesty of purpose" or "neeyah" in Arabic.

"Recently, there has been a very visible trend in Shariah-compliant banking and finance, which is here to stay – somewhat like a revolution of sorts, with a strong social message and a positive contribution to the individual and the economy as a whole. Shariah-compliant finance helps in filtering funds away from non-social, non-ethical areas, while promoting thrift," he said.

Khan said easy access to money through personal loans and a variety of credit products such as conventional credit cards and overdrafts have tempted the common man. People leveraged on their accounts and borrowed more than what they were eligible during the economic boom. In the downturn, it has been difficult for them to arrange their payment installments and has backfired on their saving plans. In traditional financial services, this short-term benefit has opened a Pandora's box.

This is due to the fact that money is not treated as a commodity in Islamic finance, but as a means of exchange to facilitate the flow of goods and services. A sharp eye on trust and transparency is maintained by the Shariah controllers of each bank, but implemented by the entire team – policymakers, managers and front-end sales and service personnel.

(Emirates Business)
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Sunday, 24 May 2009

Malaysia: Panel To Study Use Of IFRS For Islamic Finance

KUALA LUMPUR, May 22 (Bernama) -- A committee should be set up to study whether the International Financial Reporting Standards (IFRS) could also be used for Islamic finance.

Malaysian Institute of Accountants (MIA) president, Nik Mohd Hasyudeen Yusoff, said the proposed committee could identify gaps between the IFRS and the characteristics of Islamic finance and share them with the International Accounting Standards Board (IASB).

"The consolidation of resources between standard-setting bodies and those of the education and research institutions can further enhance the understanding of the proposal," he said at the International Centre for Education in Islamic Finance (INCEIF) intellectual discourse series here Friday.

He said Malaysia could play a role in further facilitating this suggestion and influence the acceptance of the values and principles promoted by Islamic finance into the IFRS.

"Malaysia should position itself as one of the key stakeholders in the IASB when dealing with Islamic finance matters," he said.

IASB is the developer of the IFRS, a single set of high quality and internationally-recognised financial reporting standards, mandatory for all domestic entities in 85 countries and encouraged in 113 countries.

It was recently reported that the proponents of the IFRS would hold talks with Islamic finance authorities to modify the existing system to accommodate the Islamic financial services industry.

He said as one of the leaders in Islamic banking and finance in the world, Malaysia should take the opportunity to be involved to ensure proper standards were adopted.

Nik Mohd said the IFRS concept and operational model demonstrated the ability of syariah-compliant structures to co-exist with the conventional framework.

He is one of the three speakers at the INCEIF series.

They discussed the issues of the applicability of the IFRS on Islamic financial institutions.

Nik Mohd also talked on efforts by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) to develop an alternative set of financial reporting standards to accommodate the needs of the Islamic financial services industry.

To date, the AAOIFI standards merely cover the standards and transactions which IFRS does not.

However, IASB's refusal to recognise the AAOIFI standards has resulted in Islamic financial institutions in countries such as Bahrain, which adopted the latter's standard, having to have their financial statements qualified by auditors who are affiliated to IASB.

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Asian Currency Sukuk Sales to Jump on Risk Appetite, CIMB Says

May 22 (Bloomberg) -- Islamic bond sales in Asian currencies may jump in the next six months as companies compare borrowing costs and investors become more willing to accept risk, according to the top underwriter of the securities since 2007.

“The supply pipeline looks pretty good and momentum is very strong,” Lee Kok Kwan, CIMB Investment Bank Bhd.’s head of treasury, said in phone interview from Kuala Lumpur. “People are beginning to regain their risk appetite and issuers are looking at dollar credit spreads versus local-currency credit spreads and seeing the local-currency space is much cheaper.”

Sales of Islamic bonds, known as sukuk, plunged to $13.9 billion last year amid the global credit crisis after soaring to a record $31 billion in 2007 as oil earnings boosted Arab wealth. Sales by Asian nations including Singapore and Indonesia are bringing “vitality” to an otherwise dormant market as governments seek to position themselves to win business when volumes recover, Moody’s Investors Service said last month.

Indonesia’s first international sale of dollar sukuk drew orders for $4.7 billion, seven times the $650 million of securities on offer, debt management office Director General Rahmat Waluyanto said April 17. The Monetary Authority of Singapore in January sold Shariah-compliant bonds as the city seeks to attract a larger pool of international investors.

Yield Spread

Indonesia’s sukuk due 2014 were priced to yield 8.8 percent, or 705.3 basis points more than the yield on similar- maturity U.S. Treasuries, according to data compiled by Bloomberg. State-owned aircraft lessor Penerbangan Malaysia Bhd. in March sold 1.5 billion ringgit ($426 million) of five-year sukuk priced to yield 3.85 percent, or 49 basis more than Malaysian government debt, the data show. A basis point is 0.01 percentage point.

Sukuk use asset returns to pay investors instead of interest, which is prohibited by Shariah law.

“The ringgit market has had a very good start, the rupiah market is coming along quite nicely and even the baht market for corporates is reasonably strong,” Lee said. “Governments in the region have been doing quite a bit, especially Singapore, but it helps to have a core Muslim population large enough because at least there is always that base to work from.”

The Monetary Authority of Singapore on May 7 issued rules to boost the city-state’s share of Islamic banking assets, including giving incentives for banks to offer Shariah-compliant services and equalizing tax, regulatory and liquidity treatment of Singapore-dollar Islamic bonds with government securities.

Top Underwriter

CIMB Investment, a unit of Malaysia’s third-largest financial services company, is the biggest sukuk underwriter this year after helping clients including Penerbangan, Cagamas Bhd. and Danga Capital Bhd. sell $794 million of sukuk, Bloomberg data show. The bank arranged $2.91 billion of sales last year, ahead of HSBC Holdings Plc with $1.42 billion.

Issuers that have said they plan to sell sukuk include Terengganu Investment Authority Bhd., the first wealth fund set up by a Malaysian state, and PLUS Expressways Bhd., Malaysia’s biggest toll-road operator.

“Transactions that were shelved at the end of last year are coming through now, so I expect this market to be very active for a while,” Lee said.

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Australia: Shariah compliant mortgage lender MCCA gets AFSL

Mortgage lender Muslim Community Co-operative Australia (MCCA) has been granted an Australian Financial Services Licence (AFSL), marking its first steps towards building a wealth management practice that offers financial planning services.

MCCA, which until now has been limited to home finance and various forms of investment, is now licensed to deal in “shariah compliant” mortgage funds and property trust schemes – meaning they will be run in accordance with Islamic law.

According to managing director Chaaban Omran, the shariah compliant funds are set to eventually become the key investment mandate for Australia's first shariah-compliant Islamic superannuation fund.

In addition, the wealth management practice will in due course apply for a dealer’s licence and offer financial planning services to the Australian community “as an alternative to conventional products”, repackaged to offer a “more sophisticated version of ethical investment”, Omran said.

He added that under the supervision of the Australian Securities and Investments Commission (ASIC), MCCA has a new mix of staff to prepare for a stricter compliance regime.

“We have appointed new staff of different faiths from major financial services companies to enable us to deliver quality customer service and greater levels of professionalism.”

MCCA has also appointed former MLC practice manager Mohamed Elbotaty to head up the division as a financial planner and work across the licensing requirements.

“MCCA has made good progress in the right direction and has been selective about its partners,” said Dr Akhtar Kalam, chairman of MCCA.

“MCCA has faired well given the global financial crisis and has curbed costs and maintained a steady revenue base even in the face of adversity.”

Omran said MCCA’s new structure is expected to come into effect on July 1 this year, subject to regulatory approval.

“We should be ready to roll out the Product Disclosure Statement in mid-June, where we will offer investors applications to apply for units in the MCCA Income Fund,” he said.

Omran noted that when he joined MCCA as managing director 12 months ago, the board of directors made it clear that MCCA had to move towards an Islamic banking path.

“This meant that MCCA had to undergo a transformation from co-operative to corporatisation,” he said, adding that it required a great deal of organisational restructuring and the demutualisation of the co-operative.

“The unlisted public company together with the AFSL is certainly on the right track to corporatisation.”

Omran said the AFSL will not only allow MCCA to embark on a wealth management path, but also assist them in the establishment of Australia’s first Islamic bank.

He noted that local and international banks have approached MCCA as interest in Islamic finance and banking is increasing.

(Money Management)

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Sunday, 17 May 2009

Aggressive strategy with strong balance sheet is way forward for Islamic funds

Conflicting views are emerging about whether the global financial downturn is deepening or easing, but Eric Meyer, CEO of Shariah Capital, says the crisis – even at its worst – will help him attract talent.

The US-based company has formed a joint venture with the Dubai Multi Commodities Centre Authority (DMCC) and launched four hedge funds that comply with Shariah principles early this year.

The DMCC, a Dubai Government agency, seeded $50 million (Dh184m) into each of the four funds, making the launch worth a total of $200 million.

The products are DSAM Kauthar Gold Fund, DSAM Kauthar Energy Fund, DSAM Global Resources and Mining Fund and DSAM Kauthar Natural Resources Fund.

The gold fund has shown exceptional resilience and has in the four months since its launch offered returns that match the best financial products in the world. And it may perform even better in days to come, says Meyer.

How is Shariah Capital faring in the crisis? What's your strategy for survival?

We at Shariah Capital have an advantage over other Shariah-compliant organisations in that we have a very strong balance sheet and a very strong and improving cash flow. We have millions in the bank and are not burdened by debt. Most firms are now playing defence and letting people go. Most firms are now cautious. We are the opposite. Now is the time to be hiring the best and the brightest. Based on the present environment we can now hire world-class talent that hitherto might have been beyond our pocket. Moreover, most large institutions looking to build suites of Shariah-compliant products are now insisting on working only with organisations with strong balance sheets. We seem to fit that bill. As a result we are busier than ever with interesting new product offerings that should help us keep innovating with marquee organisations for years.


Are you satisfied with the performance of the four funds that you launched in Dubai this year?

We encountered some scepticism when we launched our funds during one of the most difficult investment periods since the 1930s depression. As it turns out, our managers' well-timed investments into the market lows earned two of our funds, as well as our fund-of-funds, absolute or near-top performance against competing Shariah-compliant and conventional fund managers. For example, the DSAM Kauthar Gold Fund is up over 15 per cent since the beginning of the year through end-March. I'm sure this performance puts it in the top decile of hedge fund managers this year. And the Natural Resources and Global Resources and Mining funds are both above their benchmarks. Together – as components of our fund-of-funds, the DSAM Kauthar Commodity Fund – the DSAM funds are net positive year-to-date. I am excited that we've come out of the box with strong performance.

What made you choose Dubai to launch your funds when you had the option of other financial centres? Why did you not choose Riyadh or Qatar where Shariah compliance could have attracted more capital?

The DMCC and its Executive Chairman, Ahmed bin Sulayem, shared my vision. They more than anyone else had the foresight and fortitude during these turbulent markets to build an asset management company with Shariah Capital that is committed to developing Shariah-compliant alternative investments for Islamic investors.

Our driving force has always been innovation – and through this to establish ourselves as a leader in Islamic finance. We looked to establish our Middle East presence in an environment that encourages positive change.

The board of Shariah Capital consists of scholars from across the world. Do you see conflicts of opinions?

Shariah scholars are dedicated to their roles of upholding Shariah. But they also are practical men. I have seen them work together through difficult issues to devise practical solutions that bridge the differences between Shariah and non-Shariah legal and financial systems. As much as possible they want to give Islamic investors a level-playing field with conventional investors. They genuinely collaborate among themselves to resolve differences. And when they don't we accept their reservations about an investment strategy or a particular investment instrument and move on.

What's a level-playing field?

Early on our Shariah scholars impressed upon me the need for Islamic investors to enjoy access to the same investment opportunities as conventional investors. They insisted we built products with the capability of achieving the same returns as conventional investment products – without compromising Shariah and with the same fees as conventional products. In other words, bring Islamic investors competitively-priced products without charging the sort of premium that characterises so many Shariah-compliant funds in the past. I have achieved my objective and established a level-playing field.

Does the good performance of the DSAM Kauthar Gold Fund have more to do with it being a gold fund, or is it because it is Shariah-compliant?

Shariah compliance, when done correctly by using the methodologies we deploy on our Al Safi Trust platform, does not impair manager performance. Al Safi enables a manager to direct his portfolio with the same investment strategy he follows for his conventional portfolio. Except for following guidelines issued by his Shariah board, a manager's strategy is the same for Islamic investors as for conventional investors. As a result, the performance of both is very similar. Our funds allow Islamic investors access to the same investments available to conventional investors at the same level of fees. So it's not why the gold fund is outperforming. It's the fact that it is performing in line with, if not above, its conventional counterpart, that's significant for Islamic investors.

What steps do you adopt to ensure that your funds actually comply with Shariah principles?

We screen the manager's strategy and investment focus and the trading universe of companies before admitting him to the Al Safi Trust platform. Then each month we issue him with an updated list of companies approved by the Shariah board. Finally, along with Barclays, we check every trade every day, along with every settled position in the portfolio, to insure all the names are approved. The scholars on the Al Safi Shariah board also are able to spot-check the portfolio at any time.

Several hedge funds have closed down recently. Do you see that happening to any of your funds? In particular, your energy and mining resources funds have had negative returns in their initial months.

We had two individual funds up and two funds down through end-March 2009, with our fund-of-funds delivering a positive net return year-to-date through the first quarter of 2009. Given that it's difficult to project which strategies will do better than others, a typical investor may find our fund-of-funds solution the best way to invest – unless he's a specialist who specifically wants equity exposure to gold or oil. The Energy Fund likewise recovered in March, a trend we hope continues as the upturn in the global economy moves oil prices higher. The volatility of these funds is an opportunity for investors to come in at attractive levels – not an excuse to close them.

How do you expect your funds to perform during the rest of this year?

Solidly positive all around. Once again, for investors unsure of which of the four to choose, the DSAM Kauthar Commodity Fund, the equally-weighted fund comprising all four strategies, is ideal.

How do you rate the performance of Islamic products during the crisis? Do you think they have exhibited higher levels of resilience than their conventional counterparts?

I can't speak for all Islamic products but those invested in equities generally have not suffered as much as conventional funds because they were not invested in banks and insurance companies, the two sectors that were the most volatile during this period.

We keep reading that Barclays continues to increase its Middle East presence? Do you see this benefiting the Al Safi Trust platform?

I see Barclays continuing to have a wonderful strategic relationship with Shariah Capital in support of the Islamic solutions they've created with us. From my perspective, Barclays has always had very strong sales teams in its Emea sales and Barclays wealth divisions. With recent appointments, they have only grown stronger. Both groups are now actively engaged in supporting Al Safi's present and future offerings. A client can just as easily access the Al Safi–DSAM Kauthar Funds through the Emea sales team or Barclays wealth as it can through Dubai Shariah Asset Management's distribution channel, DCAM.

All your funds invest in commodities. How do you see the commodities markets performing?

Commodity stocks historically have outperformed the market every time central banks have grossly overburdened their balance sheets and deflated their currencies. And commodity stocks historically have outperformed the market coming out of a recession. I've heard some people call today's global stimulus packages "the mother of overburdened balance sheets" and the current recession "the worst since the 1920s". If history is any guide, what they're really telling me is that commodity stocks are poised for a significant rebound as the world moves beyond these two "perfect storms".

Where are your funds investing?

The managers we have hired are tasked with finding cheap stocks to buy and the most expensive stocks to sell. Their mandate has no bounds by country or continent. So our portfolios are full of commodity stocks from all over the world. We may own a copper stock in Australia, a gold exploration company in Egypt, or a fertiliser company in Norway. Equally the portfolios may counterbalance with an arboon (a tool for hedging and managing risk) sale of a stock in a company that supplies oil drilling rigs worldwide, or natural gas in America.

(Emirates Business)

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SFS Group, KFHL plan syariah-compliant shipping fund

KUALA LUMPUR: SFS Group Public Co Ltd and Kuwait Finance House Labuan (KFHL) will jointly establish a syariah-compliant shipping fund with a target fund size of US$150mil by year-end.

SFS Group and KFHL, a wholly owned subsidiary of Kuwait Finance House (M) Bhd (KFHMB), signed a joint venture agreement to set up the fund via a limited partnership in the Cayman Islands.

The companies said in a joint statement on Tuesday that the fund would be “managed by an equally-owned company acting as the general partner based there.”

The shipping fund’s objective “will be to invest directly in shipping assets and primarily in vessels to be chartered out on a long-term basis to top league charterers,” it said.

KFHMB deputy chief executive officer Ab Jabar Ab Rahman said: “This collaboration is in line with our commitment to share our experiences from the Middle East in industries such as shipping, aviation, healthcare and real estate.”

SFS Group is the leading non-banking financial institution in Cyprus involved in financial services, capital markets and alternative investments.

Listed on the main market of Cyprus Stock Exchange, It had total assets of 303 million euros as at end 2008.

(The Star MY)

Training & Consulting on Islamic Finance & Management

Friday, 15 May 2009

Malaysia: MAA Takaful gets syariah expert to stay ahead of competition

MAA Takaful Bhd aims to edge ahead of others in the Islamic insurance market through initiatives such as being the first local takaful player to have a syariah expert on its board.

Chief executive officer Salim Majid Zain says having an expert syariah adviser on board will help the company make informed strategic decisions and help it face growing competition in the industry.

“We are serious in ensuring that all aspects of our operations are syariah-compliant and certainly will have an edge over other players with the presence of our syariah adviser to provide us with relevant expert advice on syariah principles.

“Having an expert on the board will also enhance our expertise in Islamic finance, corporate governance as well as give more confidence to our target market customers,’’ Salim says in an interview.

As one of the latest entrants into the takaful market, the company has aggressive plans to grow its market share, he says, adding that the company is recruiting talented agents.

At present the company has about 15,000 agents, of which 30% are active.

The company has also introduced customer-centric financial planning and sales-automation software in an effort to enhance service.

Investment-linked funds is also one of the areas of focus for the group.

To this end, Salim says MAA Takaful will also be hiring a top fund manager to assist in the development and management of these funds.

Investment-linked funds will continue to be the main contributor to family takaful business, he adds.

The company’s market share in investment-linked takaful business last year for regular new business was 13% and about 10% for single contribution (premium).

It is targeting a 35% growth in regular investment-linked new business by the end of the year.

There are eight players in the takaful market currently and the granting of up to two new family takaful licences this year under the Government’s liberalisation of the financial sector is expected to further heat up competition.

Asked on how it would compete with other new players coming on board, Salim says: “The new players will certainly increase competition and this would also pave the way for greater acceptance of takaful as an alternative to insurance and traditional invesment products.

“MAA Takaful inherits the MAA brandname which has been long established in Malaysia. It is known and well represented in the multi-ethnic population which provide the cutting edge in growing our business and retaining our customers.”

MAA Takaful is a 75:25 joint venture between MAA Holdings Bhd and Bahrain’s Solidarity Company BSC.

(The Star MY)

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Bahrain Banks' Islamic Finance Assets Grow 50% to $24.6bn

The total value of Bahraini banks' Islamic banking assets increased by 50% in 2008 to $24.6bn (2007: $16.4bn), according to figures issued by the Central Bank of Bahrain (CBB).

This increase, at a time when traditional banking institutions worldwide saw widespread depreciation in their assets, is a testament to the ongoing success and resilience of the Islamic banking system. By its very nature it precludes some of the riskier practices that have led conventional banks into their current situation. The sound basis provided by Shari'a principles, and the asset based business model have jointly provided a firm platform for the strong performance in the sector.

Such has been the growth of Islamic finance in Bahrain that since 2000 the Islamic banking sector has seen assets increase by 1280%, (2000: $1.7bn), and the number of Islamic finance institutions continues to grow.

The CBB has approved more than 33 licenses for Islamic finance institutions since 2005.

Bahrain is widely recognised as a global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the world. Presently, there are 36 specialist Islamic banks operating in the Kingdom whilst many conventional banks, recognising the growing importance of Islamic banking, have successfully integrated Islamic windows within their operations.

Khalid Hamad, Executive Director-Banking Supervision, CBB, said:

"Whilst the underlying principles of Islamic finance have safeguarded it against the worst of the economic downturn, it is Bahrain's tried and trusted world-class regulatory standards that have helped attract institutions to the country and led to the rapid growth of Islamic finance assets."

Rasheed Al-Maraj, Governor, CBB, said:

"In recent months as the global financial crisis has deepened, many commentators have pointed out that Islamic financial institutions have escaped relatively unscathed from the severe downturn which is affecting most conventional financial institutions. The continuing implementation of sound business principles should allow the industry to continue its rapid and successful growth of recent decades, and Bahrain is well-positioned to remain at the forefront of developments through the application of prudent regulatory standards."

Shaikh Mohammed bin Essa Al Khalifa, Chief Executive of the Economic Development Board (EDB), said:

"The remarkable increase in Islamic finance is fresh evidence that Bahrain's national economic strategy is paying off, in terms of creating business, revenue and employment. Fund managers, like many other businesses, are setting up in Bahrain because they know they will benefit from the region's most educated workforce, an ample supply of support services and infrastructure, and systems of regulation and taxation designed to make it safer, easier and more profitable to do business.

"At a time when so many financial systems around the world are in trouble- these results show that our culture of conservative regulation, based on ethical values and public/private partnership, is now more than ever the way forward."


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USA: Closing on a Dream the Islamic Way

IN 2003, a Bangladeshi Muslim named Zia Hashem took out a loan to buy a condominium apartment in Parkchester, in the Bronx. During the two years he lived there with his wife and young son, he was perpetually uneasy about having borrowed the money.

“There was definitely a guilt,” Mr. Hashem, a 33-year-old systems engineer, said one recent evening after the sunset prayers at Baitul Islam Masjid, a small mosque in University Heights.

Many Muslims believe that paying or receiving interest violates Shariah, or Islamic law. Thus, for Muslims, buying a home in the United States often means violating religious principles.

“The banking system we have here, with the interest, that’s something I don’t believe,” said Mr. Hashem, who that night prayed on the mosque’s green carpet wearing a blue Hawaiian shirt covered with images of palm trees.

Mr. Hashem is now in the market for another house, but this time he plans to use what is called a “Shariah-compliant” system of home financing, an increasingly popular approach that uses various financing methods to sidestep practices Muslims object to.

As the nation’s Muslim population has grown, so has the number of banks and finance companies offering Shariah-compliant home financing options. The practice is less common in New York, due in part to the high cost of housing and the often hefty down payments required. Nevertheless, especially in the boroughs beyond Manhattan, Muslims are increasingly using faith-based financing options to buy houses.

A company called Guidance Residential began to offer these options in New York in 2003 and has served 200 customers in the city. Despite the sluggish housing market, the number of new clients in New York continues to grow, according to Hussam Qutub, a company spokesman.

In one commonly used method for Shariah-compliant financing, a company like Guidance Residential takes an ownership stake in the home, along with the customer. The customer then pays a rental fee to the company while making payments to buy the bank’s portion of the house. “The end result is the same,” Mr. Qutub said. “You’re just getting there differently."

Advertisements for various Shariah-compliant financing offers can be found in magazines distributed in the city’s mosques. One recent ad, touting a “cash-out mortgage conversion,” featured the image of a smiling couple in a lush green garden, the wife wearing a maroon headscarf.

“It was our dream to perform hajj for our anniversary,” reads the ad. That dream came true, says the couple, without their having to resort to an interest-based loan to finance their pilgrimage to Mecca, in Saudi Arabia.

Such approaches are popular in University Heights, a West Bronx neighborhood that is home to both the Baitul Islam mosque and a growing number of Bangladeshi immigrants.

A few members of the mosque used Shariah-compliant financing to buy the three-story brick building where the mosque now occupies the ground floor.

Using a similar approach, Kamal Ahmed, a city bus driver who emigrated from Bangladesh in 1995, plans to soon close on a red-brick, two-family home in Parkchester, where he would live with his wife and three children.

And last year a 26-year-old member of the congregation named Abdullah al Mamun, and members of his extended family, used this method to purchase a three-family house a few doors from the mosque, where he now lives with his wife and year-and-a-half-old son.

“Muslims are exactly like other Americans,” Mr. Mamun said. “We have that American dream of owning our own house and practicing our beliefs.”

(New York Times)

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Middle East leading region for Islamic Banking & Finance

A recent research conducted by Shariah-Fortune screened around 810 companies in 50 countries worldwide offering Shariah compliant financial services. The Middle East covers more than half (around 56 %) of the Islamic Finance market. Around 450 companies are located in this region. Leading countries are the UAE, Bahrain, Kuwait, Iran and Saudi Arabia.

Asian companies compound to a market share of about 20 %. In particular. Malaysia is one of the key players, not only in Asia, but also globally.

114 companies have been screened in Europe, which accounts for around 14 % of the global market share. On top position in Europe is the UK, boosted by the FSA´s regulatory initiatives.

Compared to its global importance North America takes only a small part in the listing for Islamic Finance. Around 44 companies (ca. 5 %) are located in the USA and Canada. Africa, Australia and South America are hardly represented in the Islamic Finance world and have only a marginal market share.

(Mena Report)

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Thursday, 14 May 2009

Islamic finance must boost professional staff: experts

Monday, May 11, 2009

Islamic finance must strengthen regulation, boost its professional staff and diversify as it takes on a bigger global role in the aftermath of the worldwide financial crisis, experts said.

Financial products compliant with Islamic Shariah law are likely to gain in popularity as investors seek safer havens after the ruin caused by toxic derivatives sold globally by mainstream Western banks, they said.

However, experts warn that Islamic financial institutions must be on their guard against falling into the same unbridled excesses that jolted Wall Street and snowballed into a global economic downturn.

“Islamic finance is not immune from such pitfalls. Hence we must be careful to avoid this error in the Islamic financial industry,” said Muhammad Sulaiman Al-Jasser, governor of the Saudi Arabian Monetary Agency.

“Islamic financial institutions are continuing to invest time and effort to improve corporate governance and risk management and I expect that they will continue to avoid mistakes made in designing over-complicated securities,” he said.

He and other experts were speaking at a recent meeting of the Islamic Financial Services Board held in Singapore, which is aiming to be a key player in Islamic finance.


Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.

Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.


Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.

Al-Jasser and other speakers told the Singapore conference that Islamic finance was likely to gather momentum in the aftermath of the downturn.

“It is my belief that Islamic finance has moved on to a new stage in the last few years. In the past, it was an individual decision based on faith, now it is competing on its own very strong merits in the global marketplace,” he said.

Islamic finance is now established in 47 countries with more than 600 institutions managing “balance-sheet assets” worth over US$630 billion, with another US$200 billion to US$300 billion managed as investment funds, he said.

Heng Swee Keat, managing director of the Monetary Authority of Singapore, said more Asian countries were using Islamic finance to fund infrastructure projects.


Issuance of Islamic bonds, called sukuk, in Asian currencies totaled US$64.3 billion last year, down 1.5 percent from 2007 when it expanded by 50 percent over the year before, Moody’s Investor Service said this month.

But the industry has much room for growth as Islamic finance represents only 1 percent of the total assets held by the global financial markets, experts said.

Ahmad Mohamed Ali, president of the Islamic Development Bank, urged the industry to offer a wider range of financial services, noting that commercial banking accounts for more than 70 percent of Shariah-compliant assets.

“There is a need for major investment banks that provide a different model of investment banking, a model that is able to have positive impact on economic growth without compromising stability and resilience,” he told the meeting.

“We also need varieties of venture capital institutions, small and medium financing institutions specialized in financing, leasing, etc,” he said.

As global regulatory bodies revise financial regulations to prevent future financial crises, Islamic regulatory and accounting standards must also improve, Ahmad said.

While the previous approach focused on regulating individual Islamic financial institutions, regulatory bodies should now adopt a comprehensive strategy to address both macro and micro-economic issues.

Muliaman Hadad, deputy governor of the Bank of Indonesia, said one of the key challenges was producing much-needed professional staff to deal with Shariah-compliant financial products.


Indonesia, the world’s most populous Muslim nation, will also launch an education campaign across the country to help people — including bankers, bureaucrats, students and religious leaders — understand Islamic finance better.

Tunc Tahsin Uyanic, a sector manager for the World Bank in the East Asia and Pacific region, offered the bank’s assistance in personnel training, education, policy direction, development of new financial instruments and regulation.

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