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Wednesday, 30 December 2009

Malaysia Needs New Strategies To Remain Asia's Islamic Finance Centre

KUALA LUMPUR, Dec 30 (Bernama) -- New initiatives and strategies must be put in place by the Malaysian government and regulators if the country wants to remain the investors choice for the banking business, says a senior economist.

Chairman of the Russian Centre For Islamic Economic and Finance (RCIEF) International Advisory Panel Professor Datuk Dr Sudin Haron said despite Malaysia's supremacy as the leading Islamic financial centre, other countries in the Asia were also capable of providing Islamic financial services and ultimately becoming the leading Islamic financial centre.

" Hong Kong for example, is trying to become a leader in capital market.

Hong Kong's financial regulators believe China's booming economy will attract investors and fund managers to place their money in China, thus Hong Hong is the better place and choice for them.

" Singapore, on the other hand, is trying to establish itself as the Islamic financial centre for the wealthiest.

Therefore, they are now trying to focus themselves in the area of Islamic wealth management," he told Bernama in an interview.

However, he said any new policy and incentives introduced by the government can be emulated by other countries.

In most cases, these countries would introduce more attractive incentives compared with incentives introduced earlier by the Malaysian government.

" Besides providing incentives to players in the Islamic financial system, the government must also be susceptible to the needs of those who use the products and services of the Islamic financial system.

" Therefore, a good market intelligence system should be introduced as this would provide a true picture of the market, hence, appropriate strategies and action must be implemented," he proposed.

Sudin, a scholar with vast experience in the field of banking and finance, management and business management is also the President of the Kuala Lumpur Business School and Executive Chairman of Vision Bridge Sdn Bhd.

Currently, products and services of the Islamic financial system are used by domestic customers, as such, efforts should be made to lure international customers to use Malaysian Islamic banks.

He said Islamic local banks could only be attractive to the foreign customers if the level of service was at par if not better than those offered by international Islamic banks.

Saying that local banks should focus on productivity and efficiency, he added that another important element that needed to be carefully structured is the transaction cost related to the products and services of Islamic banks.

" The regulator must ensure the cost incurred by players and the users of Islamic banking products are much cheaper than the transaction cost of conventional banks," he pointed.

Beside Malaysia, Sudin said there were many other countries and cities which want to be known as the leading Islamic financial centre.

" New York, London, Dubai, Manama, Doha are already in the race, whereas, Moscow, Frankfurt, Paris, Hongkong, Singapore and Bandar Sri Bengawan are starting to equip themselves with the infrastructure prior to entering this new alternative financial structure," he disclosed.

He explained the Islamic financial industry was no longer a privilege to a certain group of people or to a specific country.

" The Islamic financial system is seen as a viable alternative to the conventional system. Therefore more countries will try and introduce this into their financial system.

" Any country which wishes to become the industry leader must offer better products and services to meet users demand," he said.

Sudin said Malaysia is seen by many as a leader in propagating the Islamic financial system and there were several reasons why Malaysia managed to position itself as the front runner.

The government's commitment in implementing the Islamic financial system as an alternative to the conventional system was the main reason why Malaysia emerged as the leader in this area.

Secondly, Sudin said the regulator of the financial system was able to formulate well coordinated short and long term plans for the development of an Islamic financial system in Malaysia.

He said the Financial Sector Master Plan, introduced by the Central Bank, laid out strategies toward strengthening the Malaysian financial system in line with the globalisation and liberalisation of the world financial system.

Islamic financial institutions are efficiently managed and they are seen by customers as better banks than their conventional counterparts judging from the stream of non-Muslims customers who have begun to patronise these banks.

Sudin served Bank Negara Malaysia between 2005 and 2006 as an expert in the Islamic Banking and Takaful Division.

In 2006, he was appointed the Deputy Chief Executive for his brainchild project, the International Centre for Education in Islamic Finance.

Before joining the central bank, he served with Universiti Utara Malaysia as an academician and administrator and was also involved in the banking sector.
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Monday, 21 December 2009

Islamic deposit insurance to create level playing field among banks

KUALA LUMPUR: The role of Islamic deposit insurance is to create a level playing field between Islamic and conventional banks apart from maintaining a foundation for public confidence to the banks, says Malaysia Deposit Insurance Corp (MDIC) chief executive officer Jean Pierre Sabourin.

“Apart from that, the role of Islamic deposit insurance is to reinforce the consumer protection aspects that are inherent in Islam,” he said at the 3rd Islamic Financial Services Board (IFSB) Public Lecture on Financial Policy and Stability yesterday.

In his lecture on the Role of Islamic Deposit Insurance in Providing Stability to the Islamic Financial System, Sabourin said the Islamic deposit insurance system in Malaysia, established in September 2005, was to provide equivalent protection for insurable Islamic deposits.

“Endorsed by the Syariah Advisory Council of Bank Negara and administered by MDIC, fund reserves under Islamic deposit insurance is invested only in syariah-compliant instruments and syariah-compliant activities,” he said.

Earlier, the Council of IFSB admitted eight new organisations into its membership after being approved at its 15th meeting. IFSB is an international standard-setting organisation to promote and enhance the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry.

The council also appointed governor of the Central Bank of Sudan Dr Sabir Mohamed Hassan and governor of the Central Bank of Jordan Dr Umayya Toukan as chairman and deputy chairman of the council respectively for 2010.

The meeting was chaired by the governor of the Saudi Arabian Monetary Agency and attended by the president of Islamic Development Bank, central bank governors and representatives of the IFSB 21-member council.

Bank Negara hosted both the council meeting and the subsequent IFSB public lecture.

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Friday, 11 December 2009

Islamic Finance Still Profitable - aside from the Dubai debt debacle, Islamic finance continues to thrive

Prior to the current financial crisis in Dubai, sukuk issuance had started to revive following two difficult years since the August 2007 peak. New issuance for the year to November 2009 exceeded $17.5 billion with 69 separate offerings. Confidence was demonstrated by the announcement on November 19 by General Electric that it was to raise $500 million through a five-year sukuk--the first Western industrial company to raise such financing.

Liquidity. There are many varieties of sukuk, some--such as the short-term sukuk issued by the Government of Bahrain--being a substitute for treasury bills with a three-month maturity. Such sukuk are attractive for Islamic banks to hold, as they cannot hold conventional treasury bills paying interest, and the alternative of holding cash means they receive no return. Bahrain's regular sukuk bill issuance continued throughout the credit crisis, but the amounts raised are modest--$40 million on average.

Still profitable. Although Islamic capital market activity was negatively affected by the global financial crisis, the impact on Islamic banks has been limited, largely because most are focused on retail business:

--Dubai Islamic Bank, for example, has reported a decline in third quarter earnings for 2009 of 33% compared to the same quarter of 2008, but this was 8% above market expectations.

--Trade financing through murabaha--in which a bank buys a good on behalf of a buyer, and sells it on to them in installments at a marked-up cost--has remained buoyant, as has personal financing for vehicles and household goods.

Real estate has been the most troublesome, with mortgage lending reduced. In many instances, the value of property has fallen below the amount of credit outstanding. This only becomes an issue in the case of defaults and the bank acquiring the property, which has rarely arisen in the case of Dubai Islamic Bank, or indeed Al Rajhi Bank in Saudi Arabia or Kuwait Finance House. As Islamic banks in the GCC had more conservative housing finance policies than their conventional competitors, they have been less affected by the fall in real estate prices.

Takaful insurance. One sector which has continued to expand throughout the crisis is takaful insurance based on the principle of mutual risk sharing rather than risk transfer:

--Dubai Islamic Bank has developed Al Islami Takaful products, which it has cross-sold to its clients since May.

--Savings plans are offered with either regular or lump sum contributions made to an endowment fund from which family members can receive compensation in the event of the death of the policyholder.

--If the policyholder lives to the maturity of the policy, they receive a substantial lump sum plus a terminal bonus.

Outlook. Most sukuk issuance is concentrated in Malaysia, which is not likely to be directly affected by the Dubai crisis. Moreover, if the Dubai case is tested in the courts, this could clarify the legal position of sukuk investors with regard to their rights to the underlying assets backing the issuance. Although this may be painful for Dubai World subsidiary Nakheel in the short run, a court ruling in favor of investors would increase confidence in sukuk in the longer term. Overall, the global Islamic finance industry seems well positioned for recovery in the longer term with further sukuk issuance, a widening of products to include takaful and the continuing buoyancy of Islamic retail banking.

Source: Oxford Analytica

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Thursday, 10 December 2009

Australia ripe for Islamic finance

SYDNEY, Dec 10 — Australia’s wealth of natural resources and financial landscape provide a natural platform for Islamic finance, with potential to attract a new type of global investors, an official with Malaysia’s stock exchange said.

Trailing Muslim neighbours such as Malaysia and Indonesia, Australia is looking at developing Islamic finance to attract wealth and create jobs.

The Australian and Malaysian governments held talks this week to cooperate in syariah finance to help Australia crack into the US$1 trillion (RM3.39 trillion) Islamic finance industry.

“Infrastructure funds and a lot of leasing funds are by nature attracted to acceptable syariah principles and real estate investment trusts (Reits) can be quite easily converted as well,” said Raja Teh Maimunah, global head of Islamic markets at stock exchange operator Bursa Malaysia.

Islamic finance, derived from syariah, or Islamic law, forbids charging interest and favours profit-sharing arrangements or structures that resemble rental agreements. Islamic financing is usually underpinned by physical assets.

More countries have been exploring Islamic banking since the global financial crisis, which was fuelled largely by poor asset quality and complex financial derivatives.

But there is also some scepticism about the system, with critics dismissing it as conventional banking cloaked in religious language.

Raja Teh said in an interview yesterday, during a visit to Australia, that there were syariah finance opportunities in Australia’s mature asset-backed securitisation market.

Australia’s residential mortgage-backed securities is the third largest in the world with A$176 billion (RM544 billion) on issue.

Moreover, Australia’s abundance of natural resources, such as gold, iron ore, copper, gas would also provide a suitable fit to syariah commodity sale contracts, called murabaha.

“Australia has a lot of supply of natural resources which can quite easily be used for the concept of commodity murabaha,” Raja Teh said.

Under a murabaha deal, an Islamic bank buys an asset from a third party and sells it to its customer at a cost-plus profit. This allows the bank to extend financing without charging interest, which the religion forbids.

The Australian government has expressed interest in Islamic finance but so far it is limited to small entities such as the Muslim Community Cooperative (Australia) Ltd and Iskan Finance which offer home loans.

One of the biggest obstacles to the development of Australia’s Islamic finance market is tax law.

“Anything from (capital) gain tax, stamp duty, withholding taxes (would need to be changed) because typically an Islamic transaction would involve, say, a sale-and-lease-back and that would attract gain tax and stamp duty,” said Raja Teh.

She sees potential demand from global investors keen on syariah compliant products to diversify their portfolios.

“For emerging Asian investors, this is an opportunity to get into a first world market within Asia-Pacific,” Raja Teh said. — Reuters

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Friday, 4 December 2009

Asian Finance Bank eyes Islamic fundraising in Brunei

ASIAN FINANCE BANK (AFB) is looking into the possibility of establishing a representative office in Brunei Darussalam by 2010, its chief executive based in Malaysia told The Brunei Times by phone yesterday.

AFB hopes to work with Islamic banks in the Sultanate to develop and specialise in fundraising facilities for the shipping of oil and gas, aviation and environment projects, as well as in establishing sovereign funds, said Datuk Mohamed Azahari Kamil, the Islamic bank's CEO.

"There is so much development of oil and gas in Brunei, hence there is a demand for shipping vessels and bunkering services. The fund, named Safeena, is to raise money from the general public to finance vessels which will be acquired by oil and gas companies for a long-term contract of 10 years and is expected to achieve a net return of 10 per cent yield per annum," Datuk Mohamed Azahari said.

The bank also sees the possibility of raising funds to finance investments in the aviation sector, including the purchase of commercial aircraft.

AFB's green fund will raise money for carbon credit, for example, manufacturing of solar panels, as it is important for the development of "green" projects in Brunei.

Datuk Mohamed Azahari said by the end of 2010, the bank will be able to see a clear direction of its planned presence in the Sultanate but its entry and activities here are subject to the relevant authorities' approval, feasibility studies and other factors.

Even though Brunei's market is small, its sovereign wealth is huge, making it attractive to the bank.

"We hope to work with government-linked agencies like the Brunei Investment Agency ," said Datuk Mohamed Azahari. "Besides Brunei, we are also looking to Indonesia, Singapore and other parts of Malaysia," he said.

AFB said in a statement the Safeena Fund is structured as a syariah-compliant 10-year closed-end fund constituted via an incorporated entity namely Safeena (L) Ltd domiciled in the tax haven of Labuan.

"The Fund is a private fund and is to be offered only to select sophisticated investors. It aims at raising US$300,00,000 ($41 million) through equity and debt participation to invest in structures and/or acquire a portfolio of good quality yielding vessels that will provide a stable income stream to investors. The Fund is jointly managed by AFB and AmanahRaya Investment Limited," the bank said.

It stated that the Safeena Fund successfully completed its first investment on November 26 this year through "istisna" (construction contract) and "ijarah mawsufah fi dzimmah" (forward lease) with Jimbaran AS, a Norwegian entity that owns and manages chemical tankers. The bank is one of the three foreign Islamic banks that has been granted a licence by Malaysia's central bank to undertake Islamic banking business.

AFB is a full-fledged Islamic bank incorporated in November 2005 and backed by a consortium of shareholders from leading Middle Eastern financial institutions: Qatar Islamic Bank and associates, RUSD Investment Bank Inc of Saudi Arabia and Financial Assets Bahrain WLL

(Fri, Dec 04, 2009 /The Brunei Times/Asia News Network)

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