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Saturday, 29 May 2010

Tunisia launches its first Islamic Bank

TUNIS, May 28 (Reuters) - The son-in-law of Tunisia's president launched the country's first Islamic bank on Friday to tap into growing demand for alternative finance and investment products in the secular-leaning country.
North Africa has begun to embrace Islamic finance after years watching from the sidelines, partly to channel more Arab Gulf petrodollars into the region.
Sharia-compliant finance bans the receipt of interest and investments in companies dealing in alcohol and gambling. The global industry is estimated to be worth around $1 trillion, according to sector analysts.
Azzitouna Bank, set up with capital of $30 million, will develop Islamic loan and saving products for businesses and individuals, said Sakher Materi, who is married to the daughter of 73-year-old President Zine al-Abidine Ben Ali.
"Azzitouna Bank will develop a comprehensive and innovative range of banking products and services ... in accordance with the principles of Islamic finance," Materi said.
Materi leads Princesse Holding, which contributed 51 percent of the capital with the rest shared by local partners. Capital is expected to grow to $71 million in 2011, he said.
The bank is starting with nine branches and managers want to grow to 20 next year.
State news agency TAP said Azzitouna would have a mission to promote commerce across the Maghreb. North Africa has one of the weakest levels of cross-border trade in the world.
Tunisia has one of the most open economies in the region and attracts substantial investment from the European Union, something that is expected to accelerate after 2014, when the government has said it will make the currency fully convertible.
Tunisia and Morocco authorised Islamic finance in 2007, partly to channel more investment into their fast-growing tourism and real estate industries.
Several Moroccan banks now offer Islamic finance products but they have been slow to catch on, with some consumers complaining of uncompetitive commercial terms. Islamists have blamed the government for deliberately hindering their growth.

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Tuesday, 25 May 2010

Islamic finance in desperate need of high-quality scholars

Dubai: The Islamic Finance market is in desperate need of high-quality scholars who will help to grow the industry, Islamic banking industry specialists said yesterday at the Menasa Forum in Dubai.
Conventional banking has strict regulations, and Islamic banking has its Sharia scholars.
Harris Irfan, head of Islamic Products for Barclays Capital and Barclays Wealth, said there were only 15 very well-known names, leaving a gaping hole, with Islamic banks searching for solutions in a $1 trillion market.
Sabic Corporate Finance Executive Vice-President Mutlaq Al Murished said that in order for the industry to grow, research must be carried out to devise new products.
One of the challenges was the diversity of opinion among Sharia boards, especially in Saudi Arabia where the number of boards equalled the number of banks, he said.
"If one board says a product is Islamic, the other will say it isn't. That's very confusing," Al Murished said.
"Meanwhile, as scholars reject a product, they fail to advise on possibilities."
Irfan said scholars need to think commercially.
"We need their help to structure products," Irfan said.
He said the view that when one door closed in Sharia, a hundred others opened, was not being realised.
While the global view was that changing or varying standards in Sharia compliance was hampering banks' ability to do deals, the industry was converging, he said.
Rushdi Siddiqui, global head of Islamic Finance for Thompson Reuters, said it took many years for the Islamic finance industry to hit the $1 trillion mark.
And if it was to cross the $3 trillion mark in three to five years, three things would play a key role: authenticity, innovation and reach, he said.
"We are at the age of Sharia compliance," Siddiqui said.
A main challenge faced by the industry, he said, was the lack of connectivity between Islamic banks around the world.
"If we can bring all stakeholders on one platform…this will facilitate transactions. There is very little cross-polarisation of ideas," Siddiqui said.
He said Islamic finance is now where FX was in 1971. "Technology is the next stage," he said.
Al Murished also said the emerging trend was a growing sukuk market, but the framework needed to be worked on.
It has to be practical and flexible and not "too pure."
"Islamic financing, at the end of the day, has to be competitive, to position itself as a viable alternative [to conventional banking]," Al Murished said.

(Gulf News, 25 May 2010)

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Sunday, 23 May 2010

Qatar Islamic Bank to Sell $750 Million Sukuk in 2010

May 19 (Bloomberg) -- Qatar Islamic Bank SAQ, the Gulf state’s biggest Shariah-compliant lender, plans to sell as much as $750 million of bonds in its first Islamic debt offering, according to the company’s chief executive.
Talks with rating service providers have been completed and the bonds, known as sukuk, are likely to be sold in the second half of this year, Chief Executive Officer Salah Mohammed Jaidah said in an interview today in Kuala Lumpur.
“It’s not the liquidity need as much as it is positioning Qatar Islamic Bank into the sukuk market and becoming part of it,” Salah said. “We will make the right call at the right time.”
Islamic bond sales are growing at the fastest pace in three years as yields on securities complying with the religion’s ban on interest fall more than those on emerging-market notes even as Europe’s debt crisis worsens. Qatar Islamic’s announcement follows plans by Malaysia and Indonesia to sell sukuk this year.
Malaysia today started a roadshow to market its five-year dollar-denominated sukuk, its first global sovereign issuance in eight years. Indonesia said last week it plans a benchmark offering, which is typically around $500 million.
Sukuk sales climbed 24 percent to $4.6 billion so far in 2010, the most since a 50 percent increase in the same period three years ago, according to data compiled by Bloomberg. The spread between the average yield for the debt and the three- month London interbank offered rate narrowed 301 basis points, or 3.01 percentage point, to 437 basis points in the past year, according to HSBC/NASDAQ Dubai US Dollar Sukuk Index. A similar measure for emerging-market debt shrank 133 basis points.
Qatar Islamic hired HSBC Holdings Plc and Credit Suisse Group AG to sell Islamic bonds, two bankers familiar with the transaction said in February.

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Prince Andrew: London can play major role in Islamic financial sector

KUALA LUMPUR: London can play a major role in the growth and the further progress of the Islamic financial sector due to vast exposure to the sector, said HRH Prince Andrew, Duke of York.
United Kingdom, the largest centre of Islamic finance in the Western world, has established a new Islamic Finance Secretariat in March, the first Islamic finance trade body in the country with the aim of coordinating and promoting the services.
“It is looking to build upon, for example, the 22 Islamic banks already in operations in London. About 20 sukuk have been issued on the London Stock Exchange which have raised over US$11bil and there are 20 law firms in London which provide specialist services in Islamic finance,” he said at a luncheon talk at the 6th World Islamic Economic Forum yesterday.
Prince Andrew said Islamic finance was also an important instrument to strike a balance between risk taking and the requirement to provide capital to stimulate business in this difficult economy.
“This is relevant because, by whatever measures you apply, the Islamic world constitutes a major and growing part of global population – which includes over two million people in the UK alone.
“And Islamic finance will play its part in getting global finance environment back on track and will continue to be used in businesses in the future,” he said, adding that syariah-compliant asset had reached US$400bil as of end of last year.
Prince Andrew, who is also UK Special Representative for International Trade and Investment, said London as the leading financial centre services in the world, had its doors open for all to work with to innovate and drive forward Islamic financial services instruments as increasingly important tools in years to come.
(The Star, 21 May 2010)

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Saturday, 22 May 2010

New instruments for Islamic banking to facilitate cross-border transactions, improve liquidity

KUALA LUMPUR: Bank Negara is in the final stages of developing instruments that will facilitate cross- border transactions by financial institutions to improve liquidity in the Islamic banking system, said its governor Tan Sri Zeti Akhtar Aziz at the 6th World Islamic Economic Forum (WIEF).
While not wanting to pre-empt the market, she said that this was something that the central bank had been working on in the last two years.
During her keynote speech, Zeti said the relatively better performance and the sustained momentum of the growth in Islamic finance during the global financial turmoil exemplified its strong linkage to productive economic activity, accountability, disclosure and transparency.
'While the amount of funds managed in the Islamic financial system is still only a fraction of the total assets of the international financial system, it represents that portion of financial activities that is truly supported by underlying productive capacity that generates growth of economies across continents,” she said.
Bahrain's Ithmaar Bank executive vice-chairman Khaled Abdulla-Janahi said regulators must be careful not to over regulate to the point of making players uncompetitive.
“Everytime something happens, new rules are put in place. When Enron happened, we had new regulations. The smaller countries always ask for more rules, and they get bashed down. Many times these rules are just pushed down the throats of the bankers,” he said.
For Islamic finance to thrive, Khaled said it was time to take the bull by its horns.
“We need to think of how to take this to the next level. So many times we have big ideas, but when it comes to implementation, we put it on the shelf. We should not compromise anymore,” he said.
Bank of London and the Middle East, UK chief executive officer Humphrey Percy said that while Islamic finance was no longer a nebulous concept, and was seen as something very alive and well in Europe, key challenges remained.
“First, there's the issue of education. Many people still don't understand Islamic finance. In Europe, we don't have enough skills to regulate. The issue of documentation and standardisation of terms have to be resolved,”
“In terms of products, Islamic finance still offers a very narrow range of products, although progress has been made. Liquidity is also patchy and short term. In the UK for example, the tax treatment of sukuk is still not certain,” said Percy.
The number of Islamic institutions was relatively small compared to conventional players, he added.
“We would welcome more competition. Availability and accessibility is key,” he said.
Switzerland's Islamic Wealth & Asset Management specialist John A Sandwick said the area of concern for Islamic finance was asset management.
“Out of some total global wealth of US$65 trillion, only about US$2.5 trillion is owned by Muslims. In 2010, 50% of total managed wealth is in bonds. Now, there is barely US$60bil in sukuk bonds, with only another US$10bil to US$15bil in the pipeline,”
“There is no hope of meeting our minimum demands (targets) with the way we are moving now. In Saudi Arabia for instance, asset management is seen as something very elitist, it is only for the top tier. We need to change that,” he said.
Maybank MEACP Pte Ltd Singapore chief executive officer Mumtaz Khan observed that only three Muslim countries were in the G20 - Indonesia, Turkey and Saudi Arabia.
“I would recommend forming a G3 + 3, which is the combination of those three countries together with WIEF, The World Islam Development Bank and Malaysia to work together and develop tangible results for the Muslim world,” he said.
Malaysia had exhibited exemplary leadership skills apart from having strong ties with the Muslim nations, the West, China and India, he added

(The Star, 21 May 2010)

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Thursday, 13 May 2010

Malaysia needs to attract more international investors in line with its aspiration to become Islamic finance hub

Malaysia needs lure more international investors in line with its aspiration to become Islamic finance hub.
PricewaterhouseCoopers (PwC) global Islamic finance leader Mohammad Faiz Azmi said the country currently had all the infrastructures in place, but it still had not realised to its full potential as it could entice more “foreign” money.
“We already have a strong domestic market but if we only bank on that, there will be a limitation. And international investors for Islamic finance does not necessarily come from the Middle East only but from other countries as well.
“For example, a Thai investor that wants to build a building in Abu Dhabi could fund the project via Sukuk or Islamic bonds issuance here.
“Nevertheless, we also have high possibility to be the gateway to Asia and Middle East markets to support global economic growth.
“The bottomline is we must make the country more attractive for decision makers likewise in London where it has become a hub for investors and finance service provides,” he told the press after a briefing on a booklet titled Gateway to Asia: Malaysia, International Islamic Finance Hub, a PwC's publication yesterday.
He added that the country must be conducive the for investors to identify opportunities especially around the region where it could structure the funding products for the investors.
Mohammad Faiz said the country's Islamic finance infrastructure was strong in all aspects in terms of sound regulatory, accounting, Shariah framework and the critical mass of practitioners.
“Our Government, Bank Negara and Securities Commission are very friendly when it comes to Islamic finance. For instance, realising the need for Islamic finance to be backed by underlying assets, Malaysia was among the first countries to accord tax neutrality to its instruments and transactions.
“This is to reduce cost of transferring assets in Islamic finance. On top of that, the country also provides incentives for Islamic finance,” he said.
Mohammad Faiz said Malaysia, compared to the other countries in the Asean region, would be the most suitable to become Islamic financial hub.
In terms of equity market, he said the country's shariah-compliant stocks were interesting particularly for Middle East investors.
Of the effect of the global economic crisis on the industry, Mohammad Faiz said the tightening of banking regulations from the West especially in terms of higher capital requirement was not fair to the Islamic finance industry.
“It will be difficult for Islamic banks to comply as it is not easy for smaller banks to even increase 2% to 3% of their capital.
“And after all, the crisis was due to their failure and not us where the root cause is greed.
“But, of course the crisis proved that Islamic finance is safer haven than conventional finance system,” he said.
Malaysia's Islamic banking industry has recorded significant growth over the last five years, with assets doubling to RM233.7bil as at end 2009 from RM111.8bil in 2005.
Malaysia is also on top of the list with a total of US$19bil or 54% of the global sukuk issuance last year.
According to the booklet, which is the third publication by PwC on Islamic finance, Malaysia ranks at the top of the sukuk market, Islamic equity market, Islamic fund management whilst the second in the takaful and the third in Islamic banking categories.

(The Star)

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Sunday, 2 May 2010

Australia to overhaul tax laws to assist Islamic finance growth

Australia will overhaul sections of its taxation laws to ensure they don't hamper the growth of Islamic banking, finance, and insurance products. Islamic finance is a boom industry, it prohibits the act of making money from money and conforms with Sharia law. It's also sometimes seen as based on a more sound set of fundamental principles than Western practices.

Presenter: Scott Alle
Speakers: Senator Nick Sherry, Australia Assistant Treasurer
ALLE: Islamic financing is one of the fastest growing sub-sectors of world banking.

Last year it was estimated the global value of Islamic financial assets was more than 800 billion US dollars- and that could double by 2012.

So it's hardly surprising, Australia, which enjoys a good reputation throughout Asia for funds management, wants to tap into the potential market..

SHERRY: Some other countries have changed tax and legal regimes. One is the UK, another is Malaysia, so we do have to deal with these legal issues to hopefully draw levels and go past some of these other countries.

ALLE: Senator Nick Sherry, Australia's Assistant Treasurer, is on a four day tour of Gulf countries, to sell the credentials of Australian financial services companies. The reality is Australia is lagging far behind other Asian countries which have for some time facilitated financial products based on sharia law.

Senator Sherry has been consulting experts in Abu Dhabi, Qatar, and Bahrain, on changes needed to Australia's taxation and financial regulation laws to accommodate greater Islamic investment.

SHERRY: I'd be hopeful we can identify where the law needs to be changed bu the end of this year and hopefully have some and well we need to have legislative change by next year.

ALLE: Along with a disdain for excessive risk and outright speculation, Islamic finance doesn't charge interest, and that's one main area that needs to be addressed in any Australian legislative overhaul.

Instead Islamic banks buy an asset, a home or business, on behalf of the borrower. A fee is paid, usually in the form of rent, until the amount is fully repaid, then ownership is transferred to the borrower.

The system's supporters, and there's a growing number of banks which have sharia compliant arms, say it's better method of linking the financial system to the real economy.

Senator Sherry is confident as Australian banks and investment funds develop their expertise and understanding of Islamic finance, Indonesia, for one, will welcome their services.

SHERRY: For Australia it's not just about the attraction of investment flowing into Australia it's to assist using Australia as a base to provide products and investments into Indonesia.

ALLE: In the wash-up of the global financial crisis, created by complex debt instruments which were embraced mainly by the big European and US banks, the more conservative tenets of Islamic lending would seem prudent and wise.

But there are critics who question how Islamic transactions will hold-up when a deal goes sour. Later this month a 980 US million dollar bond or sukuk is due.

It's held by a company owned by Dubai World, the debt-riddled state investment vehicle. Just how its Islamic creditors respond to the debt restructuring situation will be very closely watched.

(Radio Australia)

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Saturday, 1 May 2010

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How Islamic banks fund projects

ISLAMIC finance uses both debt and equity to fund transactions.

Some experts see equity financing as being closer to the syariah's original aim of promoting equality in sharing risks and rewards, but others say debt instruments play a similarly important role.
The global financial crisis has prompted debate about the use of excessive debt and speculation to fuel growth.
It has also renewed calls for Islamic finance to use more equity- based structures such as musharaka and mudaraba to reduce its reliance on debt funding.

A partnership where profits are shared as per an agreed ratio, whereas the losses are shared in proportion to the capital/investment of each partner.
All partners to a business undertaking contribute funds and have the right, but not the obligation, to exercise executive powers in that project, which is similar to a conventional partnership structure and the holding of voting stock in a limited company.
It is often used in investment projects, letters of credit and the purchase of real estate.

A limited partnership where thebank appoints the obligor as its limited partner to invest money in specific or general activities.
The losses are borne solely by the bank in the absence of fraud or negligence by the obligor, but profits are shared in an agreed ratio.
Customers can use mudaraba financing for overdraft requirements, short-term financing and bridge or project financing needs.

An investment agency where the bank appoints the obligor as its investment agent to invest the finance money in specific or general activities.
Any losses are borne solely by the bank in the absence of fraud or negligence by the obligor and the rates of return are variable.

The bank acquires assets from a vendor at cost and on-sells the assets to the obligor at a mark- up and on deferred payment terms. The economics of this product are similar to a fixed-term loan and the mark-up is almost invariably benchmarked against a conventional index such as Libor.
Because of its fixed-price nature, it is seen as more suitable for short tenures.
The assets are usually charged as security for the obligor's payment obligations under the murabaha contract.
Used to purchase goods, for working capital and share finance.

A leasing structure where the bank acquires assets from a vendor at cost and leases the assets to the obligor for the duration of the financing.
Part of the rent payable is benchmarked as per the murabaha contract and the amount of rent due can be altered by the use of periodic notices.
The obligor usually undertakes to buy the assets back from the bank at maturity or on default, and the value to be paid for the assets is equal to the outstanding amount of the financing at the date of such purchase.
The structure is suitable for longer tenures and may be offered with floating rates of rent.
The assets are typically charged as security for the obligor's payment obligations under the ijara contract.
Used to buy ships, aircraft, industrial equipment and real estate.

A diminishing partnership where the bank acquires assets jointly with the obligor from a vendor.
Their shares in the assets are proportionate to their capital contributions.
The bank leases its share in the assets to the obligor and the rent payable is benchmarked.
The obligor undertakes to purchase the bank's share in the asset over time or as a bullet at the end of the financing.
This is the most flexible product as the principal payments (pursuant to the purchase undertaking) may be amortised and the rates may be floating.
Used to finance the purchase of houses, plants and machinery.


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