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Saturday, 30 June 2012

Islamic finance industry to probe growth chances

MANAMA: As the Islamic finance industry continues to be one of the fastest growing components of the global financial system, with an estimated growth rate of 15 per cent to 20pc, international markets are witnessing a growing demand for Islamic financial products and services - even beyond the traditional markets of South East Asia and the Middle East.
The Islamic funds and investments industry has seen steady growth over the past decade due to the growing global demand for Sharia-compliant financial products and services and a significant increase in the number of institutions structuring Islamic investment products. According to Ernst and Young the Islamic funds industry grew to $58 billion, achieving a growth of 7.6pc in 2010.
Held under the theme "New Growth Horizons: Expanding The Global Footprint of Islamic Funds and Investments", the 8th Annual World Islamic Funds and Financial Markets Conference (WIFFMC 2012), opens today at the Gulf Hotel.
Leading players, industry thought leaders and key regulators in the international Islamic funds and investments industry will lead the discussions that will seek to capitalise on the new opportunities and chart the future direction of the global Sharia-compliant funds and investments industry.
The two-day event, under the patronage of the Central Bank of Bahrain, will be officially inaugurated with an opening keynote address by executive director - financial institutions supervision Abdul Rahman Mohammed Al Baker.
Speaking ahead of the event, Mr Al Baker said that as with other forms of Islamic finance, the Islamic funds industry has grown to become an increasingly substantial segment within the global financial markets and has gained significant interest as a viable and efficient alternative model of financial intermediation.
"Growing awareness and increasing demand for investing in accordance with Sharia principles on a global scale have been the catalyst towards making the Islamic financial services industry a flourishing industry.
"This is also a reflection of the increasing wealth and capacity of investors, both Muslim and non-Muslim, to seek and invest in new investment products that serve their needs."
He said with Islamic finance having considerable capacity to meet large investment requirements, opportunities therein lie in the more effective and efficient channelling of the sizeable surplus funds towards the vast productive investment opportunities within and across various key markets for Islamic finance."
World Islamic Funds and Financial Markets Conference chief executive David McLean said with an addressable universe in excess of $500bn for Islamic fund managers, which is still growing by at least 10pc to 15pc annually, it is essential that the industry players seize this opportunity and innovate new Islamic instruments and encourage more spending in research and development, in order to widen the contribution of Islamic investments in the global financial market.
"With sukuk emerging as a new asset class for global investors, it is essential to see that the demands of sophisticated investors are met in order to maintain the current growth levels that the Islamic funds industry has achieved.
"This calls for co-ordinated efforts in order to further improve the market for both issuers and investors," he said.
Irish Funds Industry Association chairman Ken Owens said that he was honoured to be asked to speak at the conference and "we very much look forward to our participation at this very prestigious event".
"As an international fund jurisdiction we very much look forward to our participation amongst this impressive gathering of senior industry representatives to discuss the different industry issues and how we in Ireland can assist the asset management community to respond to the challenges.
"It is also an excellent showcase for Ireland to demonstrate our capabilities and our determination to be the leading European centre for Islamic Finance."
(Gulf Daily NEWS / 20 May 2012)
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Islamic investments foresee immense opportunity for international growth

JEDDAH – In spite of the recent credit crunch and widespread global economic slowdown, the prospects for growth in Islamic securities markets are likely to be positive, said Abdul Rahman Al Baker, Executive Director of Financial Institutions Supervision, Central Bank of Bahrain, in his address before the Annual World Islamic Funds and Capital Markets Conference held at Gulf Hotel, Manama, Bahrain Sunday.

In his remarks on the "Regulatory Initiatives to Strengthen and Enable Growth in the Islamic Funds & Investments Industry 2012", he said "this positive trend can be attributed to the rapid expansion and increasing sophistication of the GCC financial markets, as well as the geographical spread of Islamic securities products and services that record remarkable growth in Europe, Asia Pacific countries, North Africa and the energy rich Central Asian states."

Islamic financial products represent a class of investment which appeals to those looking for socially responsible or ethical investments, as these products comply with strict Shariah rules that have religious as well as ethical underpinnings. It is estimated that investors globally hold more than $1.5 trillion in Shariah-compliant assets. These include equities that are in line with Islamic principles, sukuk and Islamic funds, he said in his opening remarks.

In order to further enhance the growth of the Islamic investment industry and create deep and vibrant Islamic capital markets, Al Baker said legal and several factors need to be taken into consideration.

First, there is a need to build a system that would be able to facilitate effective and efficient capital and trading flows. 

This requires further development of an Islamic financial system which has the entire required infrastructure that includes Islamic financial institutions ranging from banking, takaful, capital market, fund and wealth management entities Shariah framework; and then a financial system that has a comprehensive range of Islamic financial products and services.
Currently, there are more than 500 funds globally that comply with Islamic principles, of which one third of these funds were launched during the past seven years. 

Sukuk is another Islamic financial instrument that shows a significant growth during the past five years. It was estimated that the global Sukuk market exceed$200 billion as of the end of the first quarter of this year. 

Moreover, he said this year saw a revival in the global sukuk markets due mainly to gradual recovery of global economy and investors’ sentiment which drives the demand for sukuk. "It is clear that sukuk issuance in the first quarter of 2012 exceeded all expectations reaching a record $43 billion globally. This is almost double the average amount of sukuk issued in any given quarter in the past year, and represents half the total amounts of sukuk issued throughout 2011," Al Baker noted.

In Bahrain, he said, the mutual funds industry is one of the fastest growing segments of the overall financial sector. 

With around $9 billion in assets under management, through more than 2,700 funds, the industry has been growing at an annual average of about 15 percent in recent years, he added. 

Overall, there are 100 Islamic funds incorporated and registered in Bahrain with total assets of $1.7 billion as of March 2012. 

The CBB, through its enabling legislation, promotes the development of new products for investors in both Islamic and traditional finance, while at the same time providing credible regulation in both areas, Al Baker pointed out. 

(Saudi Gazette / 21 May 2012)

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Pakistan: Islamic banks advised to simplify prodedures

KARACHI: Islamic banks to distribute the profit among shareholders and depositors alike and on the basis of Islamic principle of justice.

Speakers at the 1st Islamic Finance Expo and Conference said depositors hand over their savings to Islamic banks and it was their duty to give a fair return to depositors on their saving.

They advised Islamic banks to simplify housing loans to attract people who want to buy houses on the basis of Shariah financing. They warned the banks to avoid using ‘haram funds’ (forbidden money) for Islamic banking transactions. Forbidden funds cannot be converted into halal (permissible) funds through Islamic banking, they observed. Publicity Channel, State Bank of Pakistan (SBP) and Ernst and Young organized the event at Karachi Expo Centre on Saturday. 

Islamic banking expert and Shariah advisor Mufti Rafi Usmaninoted said rate of return by the Islamic banks should be equal to inflation rate so that the value of their savings should not eroded.

He asked Islamic banks to simplify the procedures for housing loans, as the current process was very complicated. We are receiving scores of complaints as people are facing hardship in obtaining housing loans, he added. 

Mufti Usmani said government should take steps to eliminate interest bearing banking system in the country and also advised business community to come towards Islamic banking. He lauded the role of SBP for the growth of Islamic banking in Pakistan. 

Vice Chancellor Ripha International University Islamabad, Dr Anis Ahmad suggested Islamic banks to give equal return to shareholders and depositors. It should be based on the principle of justice, he noted. He warned Islamic banks not to use illegal funds in Shariah banking as this money could not be used in the Islamic mode of financing.

Additional director Islamic Banking Department, SBP Zulfiqar Ali Khokhhar said Islamic banking industry was growing an average rate of 30 percent since last 12 years. He said the share of Islamic banking in overall banking industry in Pakistan would rise from 8 percent to 12 percent in next two years.

CEO of Bank Islami, Hasan A Bilgrami said at least one Islamic bank would make its position among top five in Pakistan in next 5 to 10 years. My bank would double its branch network from 100 in next two years, he noted.

Chairman NBFI and Modaraba Association of Pakistan, Basheer Chowdhry said modarabas have maintained their profitability, assets and equity base despite liquidity crunch after global economic meltdown. He said 11 out of 26 modarabas have declared cash dividends last year ranging between 2 to 73 percent.

(Daily Times / 20 May 2012)
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Sukuk yields high on treasury demand

Islamic bond yields rose to a two- month high in their worst weekly performance since January, as Europe’s deficit crisis and China’s slowing economy boosted demand for the relative safety of U.S. debt.

Global sukuk yields climbed nine basis points to 3.76 percent, a level last surpassed on March 1, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The premium over U.S. benchmark interest rates widened for a fifth week, the longest stretch since February 2010. Ten-year U.S. Treasury yields reached 1.74 percent, the least in seven months.

Investors in the $1 trillion Islamic finance industry say the risk of contagion in Europe may force potential sukuk issuers to delay sales as borrowing costs rise. A stalemate in Greece over forming a united government that backs austerity measures has raised concern the nation will exit the euro, shaving $2.2 trillion off global stock markets since a May 6 election failed.

“It’s a confidence issue,” Chan Cheh Shin, who manages 850 million ringgit ($273 million) as head of sukuk at OSK-UOB Islamic Fund Management Bhd. in Kuala Lumpur, said in an interview yesterday. “There’s concern that new sukuk issuances won’t be taken up in such a negative environment.”

The difference between average yields on sukuk and the London interbank offered rate, or Libor, increased seven basis points this week to 257 basis points, the highest since March 12, the HSBC/Nasdaq index shows. The spread was 241 basis points five weeks ago.

$2.5 Billion Pipeline

Sukuk issuers have announced plans to sell $2.5 billion of Shariah-compliant debt this month, according to data compiled by Bloomberg. Emirates Islamic Bank may issue $500 million, Al Khaleej reported on May 7, citing Chief Executive Officer Jamal bin Ghalaita. Qatar could raise about $2 billion through an offering, bankers familiar with the deal said on May 10, declining to be identified because the information is private.

An 11 percent decline in crude oil prices this month may slow new sukuk sales from the Middle East because of the risk revenue will decrease, said Chan.

All 36 of the global Islamic bonds listed in the HSBC index fell this week, with sukuk in Dubai seeing some of the biggest losses. The yield on the emirates 6.396 percent dollar notes due in November 2014 rose 32 basis points, or 0.32 percentage point, to 4.25 percent, according to data compiled by Bloomberg.

Higher Premiums

“The Greek situation is among the major global factors leading to risk-off trades and is undoubtedly spooking capital markets in the Gulf Cooperation Council,” Shehzad Janab, head of asset management at Daman Investments in Dubai, said in an interview yesterday. “Investors are asking for higher premiums in factoring in the global risk-off environment, coupled with a huge potential pipeline.”

Indonesia’s and Malaysia’s dollar-denominated Islamic bonds, which pay returns on assets to comply with the religion’s ban on interest, declined as the average cost to protect Asian sovereign debt from default increased.

Yields on Malaysia’s 3.928 percent sukuk maturing in 2015 rose 10 basis points this week to 1.97 percent, the highest level since April 12, according to data compiled by Bloomberg. The yield on Indonesia’s 8.8 percent notes climbed 11 basis points to 2.91 percent. The difference in yields between Dubai’s 6.396 percent securities due in November 2014 and Malaysia’s debt widened 19 basis points to 222 basis points.

Raise Cash Holdings

Five-year credit default swaps for 13 Asian sovereigns increased to an average of 221 basis points, the highest since January, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market.

The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements. A basis point equals $1,000 annually in a contract protecting $10 million of debt.

“Events out of Europe definitely dented confidence among investors, who became more risk-averse,” Johar Amat, head of treasury at Kuala Lumpur-based OCBC Al Amin Bank Bhd., the Islamic unit of Singapore’s Oversea-Chinese Banking Corp., said in an interview yesterday. “Many decided to increase cash holdings vis-à-vis sukuk.”

The possibility of an exit by Greece from the single- European currency also damped demand at a Malaysian auction of ringgit-denominated sukuk this week. Investors bid for 1.94 times the 4.5 billion ringgit of the 10-year notes on offer May 14, the smallest bid-to-cover ratio in a year.

‘Flight to Safety’

Central bank Governor Zeti Akhtar Aziz said this week that a withdrawal from the euro by Greece could cause contagion comparable with the Asian financial crisis of 1997-1998.

“When one economy collapses, then the market usually moves on to focus on the next one, then there will be a contagion that will affect different countries that probably don’t deserve those kinds of consequences,” Zeti said in a Bloomberg Television interview from Istanbul, Turkey, on May 16.

China reported in the past week that growth in exports, factory output and new loans fell short of economists’ estimates in April. Shipments in Indonesia, Southeast Asia’s biggest economy, rose in March at less than a quarter of the pace a year earlier. In Malaysia, overseas sales contracted for the first time since November 2009.

Global issuance of Shariah-compliant bonds totaled $15 billion this year, more than double the $6.1 billion in the same period of 2011, data compiled by Bloomberg show. Offerings reached a record $36.3 billion last year.

Islamic bonds sold to international investors returned 3.3 percent in 2012, according to the HSBC/Nasdaq index, while debt in developing markets climbed 4.7 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

“Sukuk yields have gone up due to risk-aversion,” Lum Choong Kuan, head of fixed-income research at Kuala Lumpur-based CIMB Investment Bank Bhd., said in an interview yesterday. “People are going back to basics in a flight to safety and buying back U.S. dollars.” - Bloomberg

(Business Times / 20 May 2012)

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Malaysia tax breaks spur sukuk rally

Malaysia’s efforts to become a global hub for Islamic finance by offering tax breaks is driving a record rally in foreign-currency sukuk, and arrangers say interest is increasing among local issuers. 

Standard Chartered Plc is in talks with about five companies to manage deals amounting to at least $1 billion, Leon Koay, the Kuala Lumpur-based head of global markets, said in a May 15 interview. The Bloomberg Malaysian Sukuk Ex-MYR Index, which includes notes of Khazanah National Bhd., is rising for a sixth quarter and has gained 9 percent since December 2010. 

Malaysia is seeking to strengthen its lead over the Persian Gulf in an industry that has more than $1 trillion in assets by exempting investors from capital gains taxes on non-ringgit sukuk through to 2014. Yields on state-owned Khazanah’s Singapore dollar-denominated bonds due in 2015 dropped 34 basis points this year to 2.26 percent, twice the pace of its similar- maturity local-currency securities that yield 3.52 percent. 

“Companies see sukuk denominated in currencies other than the ringgit as an alternative funding source” to expand their operations overseas, Mohd Effendi Abdullah, head of Islamic markets at AmInvestment Bank Bhd. in Kuala Lumpur, said in an interview yesterday. “The trend is rising.” 

Record in 2010 

AmInvestment Bank, the third-biggest sukuk arranger last year, said it’s receiving a growing number of inquiries from companies looking to sell foreign-currency Islamic bonds in Malaysia. 

Sales have reached $358 million this year, compared with $2.1 billion for the whole of 2011, which represented 6 percent of the $36.3 billion in local and foreign-currency issuance worldwide, according to data compiled by Bloomberg. There’s a good chance offerings of non-ringgit sukuk by local firms in the Southeast Asian nation will surpass 2010’s high of $2.5 billion next year, Effendi said. 

Yields on global Shariah-compliant notes, which pay returns on assets to comply with Islam’s ban on interest, have fallen this year on increasing demand and because of a shortage of new issues in which Islamic investors can park idle funds. Yields dropped 23 basis points, or 0.23 percentage point, to 3.76 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The rate touched a five-month low of 3.58 percent on April 19. 

International sales of sukuk total $15 billion this year, compared with $6.1 billion in the same period of 2011, according to data compiled by Bloomberg. Issuance climbed more than two- fold last year, with Malaysia’s CIMB Group Holdings Bhd. the top arranger, while Standard Chartered was sixth. 

Ringgit Sukuk 

Khazanah, the country’s sovereign-wealth fund, sold $358 million of seven-year bonds convertible into shares at a negative yield in March. The company, which is rated A3 by Moody’s Investors Service, the fourth-lowest investment grade, also issued the first yuan-denominated Shariah-compliant notes in Hong Kong last year and S$1.5 billion ($1.2 billion) of five and 10-year sukuk in Singapore in August 2010. 

The company’s spokesperson Mohd Asuki Abas declined to say if the fund is considering more issuance of foreign-currency Islamic notes in an e-mailed statement on May 15. 

Adrian Khong, the head of treasury at OSK Investment Bank Bhd. in Kuala Lumpur, said some companies prefer to issue sukuk in ringgit instead of foreign currencies as they can tap the growing pool of cash in the country. 

Malaysia’s Islamic banking assets rose almost 24 percent to 435 billion ringgit ($140 billion) last year and accounted for 22.4 percent of the country’s total, the central bank said in its annual financial report on March 21. 

Cash Surplus 

Corporate sales of sukuk in Malaysia climbed 8 percent this year to 13.4 billion ringgit from the same period of 2011, after Tanjung Bin Energy Sdn. raised 3.3 billion ringgit in March in the biggest offering of 2012. Pembinaan BLT Sdn., a state-owned construction company, attracted demand that exceeded the 1.35 billion ringgit of sukuk on offer by 2.62 times, the company said in a statement a day after the March 27 sale. 

“There are so many funds that are long cash and short of assets,” Khong said. “All the recent corporate issuances have been very oversubscribed. There’s a lot of cash out there that’s chasing few assets.” 

Appetite for sukuk has driven down the yield premium investors demand over the London interbank offered rate this year. The gap narrowed 16 basis points to 257 basis points, according to the HSBC/Nasdaq index. Global Shariah-compliant bonds returned 3.3 percent in 2012, the gauge shows, while debt in developing markets climbed 4.7 percent, according to JPMorgan Chase & Co.’s EMBI Global Composite Index. 

G-10 Countries 

Yields on Malaysia’s 3.928 percent dollar Islamic notes due 2015 increased two basis points to 1.97 percent today, according to data compiled by Bloomberg. The difference in yields between Dubai’s 6.396 percent sukuk maturing in November 2014 and the Malaysian bond narrowed two basis points to 229 basis points. 

Most of the planned non-ringgit Islamic bonds that Standard Chartered has in the pipeline are denominated in dollars and currencies of other Group of 10 nations, Koay said. 

Malaysia’s government and local companies will continue to issue non-ringgit denominated bonds to finance overseas operations, Soon Teck Onn, head of investment funds overseeing about $250 million at Kuala Lumpur-based Zurich/Malaysian Assurance Alliance Bhd., said in an e-mail yesterday. The country is rated A3 by Moody’s and A- by Standard & Poor’s, the fourth-lowest investment grades. 

“Foreign bonds offer an alternative and sometimes are a cheaper financing option for Malaysian issuers,” Soon said. “Malaysian foreign bonds have been well-received by overseas investors due to the country’s investment-grade standing.” - Bloomberg 

(Business Times / 17 May 2012)

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Islamic banks 'facing market challenges'

MANAMA: Islamic banks have outperformed their conventional peers in most markets.
However, a closer look suggests the market dynamics are changing, demonstrating a new trend.
Two key indicators are cause for reflection: slowing growth rates and eroding profitability, according to A T Kearney, a global management consultancy.
Declining growth rates are occurring in key geographies including Saudi Arabia, Bahrain and the UAE, where growth rates have dropped to between three and eight per cent from double-digit figures.
In parallel cost income ratios are increasing in most markets, putting pressure on profitability.
Up until now, Islamic banks have typically emulated the conventional bank offer, but the eroding profitability trend suggests it is now time for a new approach.
A T Kearney says to sustain profitable growth a more sophisticated leveraging of the Islamic banking potential is required.
"Strategically Islamic banks need to revisit their positioning and decide whether they want to fully exploit the Islamic banking niche or compete head-on with conventional banks," said A T Kearney Middle East partner Cyril Garbois.
"Operationally Islamic banks need to seek greater efficiency across the value chain.
"Fully exploiting the Islamic banking niche means targeting customer segments that care most deeply about Sharia compliance in their financial dealings, as well as offering products and services that meet not only general financing but also Muslim-specific customer needs.
"While Islamic banking products abound in car finance and credit cards, there are limited products available in more sophisticated segments, such as asset management and wealth management," he said.
"In addition, products tailored to Muslim-specific needs provide a platform for true differentiation," he added.
"Market gaps to better meet Muslim-specific client needs with dedicated banking products, fully aligned with Islamic core values, are many and varied," said A T Kearney Middle East principal Dr Alexander von Pock.
"These market opportunities are under-developed and present attractive platforms for profitable growth, for players willing to exploit the niche.
"Competing head-on requires Islamic banks to meet a broader set of customer needs, in terms of offer and efficiency of service.
"Islamic banks are typically at a scale disadvantage as they are often smaller in size and this is testing their ability to remain on par with their conventional counterparts, and compete profitably," he said.
"Islamic banks willing to explore alternative branch models, as well as alternative channels such as online banking and phone banking, will be better placed to tackle this challenge," he added.
(Gulf Daily News / 01 May 2012)

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London Islamic bank eyes Middle East expansion

Sharia-compliant Bank of London and the Middle East (BLME) is targeting the thousands of rich Gulf residents who have ties to the UK to boost its corporate and private banking business.

Britain’s largest standalone sharia bank was set up in London in 2006 and does not have a presence in the Middle East, although expansion into this region was always part of the long-term plan.

It is now awaiting regulatory approval to start operations in the Gulf, initially with a representative office this year, and a branch or subsidiary in the longer term, Chief Executive Humphrey Percy told Reuters in an interview.
“The premise on which we set up BLME, which was to send skills and products and services and human capital in both directions, between London and the Middle East ... is just as valid now as in 2006,” said Percy.

The bank, which fully complies with Islamic principles, including a ban on interest, was founded in 2006 with the backing of Kuwaiti investors, including Boubyan Bank.

The UK is the largest Islamic finance center in Europe, with 19 billion dollars out of global assets of 1.7 trillion dollars and is home to five fully sharia-compliant banks, data from the UK Islamic Finance Secretariat (UKIFS) estimates.

Whilst a fraction of the size of the conventional banking sphere, BLME, which offers corporate banking and wealth management, will look to tap into the pools of investment money in the oil-rich Gulf that have been relatively untouched by the global financial crisis.

It has assets under management of around 100 million pounds ($159.2 million) across three funds.

Earlier this year, the bank launched a property advisory service for private clients mostly domiciled in the Middle East, looking for advice on acquisitions as well as help with financing.

“At the moment the asset class of choice in the Middle East is property, in particular central London property,” said Percy.

Although weathering the global financial crisis of 2008 with relative stability, the bank posted its first loss in 2011, after a 14.6 million-pound loss on a loan to a Turkish manufacturing business.

“This particular client chose very much the eleventh hour, literally the last week of the year, not to repay us and in those circumstances the board felt it had no alternative but to make a full provision and pursue them robustly in 2012,” said Percy.

Stripping out impairment charges, operating profit for 2011 would have risen 10 percent on the previous year to 4.35 million pounds.

The bank grew customer deposits by 128 percent and improved its balance sheet by 13 percent to 807 million pounds in 2011, although Percy admits the strength of the UK market will be affected by the euro zone crisis.

(Al Arabia News / 17 May 2012)
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Afghanistan mulls sukuk, the Islamic bonds

(Reuters) - Afghanistan, which has only a semblance of a capital market, intends to sell Islamic bonds as it braces for a possible sharp fall in Western financial support as the war against the Taliban winds down, a senior central bank official said this week.

The official said the sale of short-term Islamic bonds, also known as sukuk, is still in the planning stage, but could be a new way of raising money for the government.

"The purpose is so that the ministry of finance can have tools for their financing to cover their expenses," Khan Afzal Hadawal, first deputy governor at the Afghan central bank, told Reuters in an interview.

"We have to develop the financial markets of Afghanistan. We have to offer those instruments not only for the banks, (but) so that the government has an alternative to finance their projects and the central bank can control money growth."

Billions of dollars in Western aid have propped up the economy since the Taliban government was toppled in 2001. Now Afghanistan faces the prospect of Western cash evaporating after most foreign combat troops withdraw by the end of 2014.

One of the world's most unstable, corrupt countries hopes financial creativity based on Islamic sharia law will help soften the blow, and ultimately deepen its nascent financial markets.

The sukuk are expected initially to be issued in the Afghani currency and offered to local banks within the next year. They may gradually be expanded to medium- and long-term bonds.

A draft law on the bonds must be approved by the justice ministry, and possibly parliament, and should be completed by the end of September, Hadawal said.

Afghanistan may need around $7.8 billion a year in foreign funding to help pay its security and other bills after most U.S.-led NATO combat troops leave, according to the World Bank. It is likely to receive about $4.1 billion in aid for its security forces per year after 2014, but that number could fall.

In the runup to a NATO summit this weekend, the U.S. government has been pressing reluctant European allies to offer around one third of the estimated $4 billion annual cost of financing Afghan forces after 2014.

If international backers slash funds severely, Afghanistan's government may be forced to reduce spending on security and development, making it even more unpopular, and its control of the country even more fragile.

The reputation of Afghan financial institutions was badly damaged in 2010 by a scandal involving Kabulbank, which gave hundreds of millions of dollars in unsecured and undocumented loans to the country's elite, including sitting ministers.


The government hopes the Islamic bonds will give Afghans a sense of stability, and expand financial activities beyond the primary and secondary markets for central bank paper.

"(Sukuk) are something new and people have access to financing, something compliant with sharia ... and the most important thing is, something very secure, guaranteed and people are not worried that they will lose it," Hadawal said.

Islamic bonds will gradually replace capital notes that used to manage liquidity and have weekly auctions of around $40-$80 million depending on market conditions, central bank officials said. Total investment in capital notes stands at around $714 million with yields of about 2.13 percent for 28-day paper.

Unlike mainstream bonds, sukuk do not involve interest payments, which are forbidden in Islamic finance. Instead, holders receive returns from underlying assets.

Details of the assets, amount, maturities and issuance time-frame would be determined after Afghanistan gets technical assistance from the International Monetary Fund, Hadawal said.

"We do not have the people ... who are familiar with the products, with the terms and then with the maturities," he said.

The Afghan finance ministry declined to comment.

Afghanistan is one of the poorest countries in the world, with annual per capita income of just $528. Its fast-growing population means that to provide jobs, the economy must expand far more rapidly than in other countries.

The central bank forecasts economic growth of 7.3 percent this year versus 3.7 percent in 2011, driven by agriculture and agri-business, but future expansion is likely to depend on major mining projects coming online.
(Reuters / 17 May 2012)

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Libya approves Islamic banking law

May 17 (Reuters) - Libya has approved an Islamic banking law that will introduce sharia-compliant banking in the North African country, a member of the ruling National Transitional Council (NTC) said on Thursday.

Libya has been working to amend its banking laws to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi, the central bank governor has said.

NTC Chairman Mustafa Abdul Jalil said in October Libya's new rulers were working on an Islamic banking system. The central bank submitted a proposal on this to the council for approval in the last few months.

"The NTC has adopted the central bank's proposal regarding Islamic banking," Salwa Al-Dgheily, a member of the NTC judicial committee, told Reuters. She said it was up to the central bank to now announce the law.

The central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya. (Reporting by Ali Shuaib; Editing by Elaine Hardcastle)
(Reuters / 17 May 2012)
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Brunei: More graduates needed in local Islamic finance sector

BANDAR SERI BEGAWAN - Brunei needs to encourage more Syariah graduates to enter the finance sector if it wants to become a legitimate player in the Islamic finance industry, said an expert here yesterday.

Executive Director of Malaysia-based International Syariah Research Academy for Islamic Finance Dr Mohamad Akram Laldin said building human capacity is the key to developing Brunei's niche in the market.

"The challenges are integrating the Syariah knowledge and market knowledge. We need to have more Syariah graduates to go into the area and understand the market."

"We need people who are able to run the business, who are capable, and can plan. I believe with the establishment of Centre for Islamic Banking, Finance and Management (CIBFM), Brunei has taken a very good step," Dr Akram said on the sidelines of yesterday's International Conference on Islamic Finance held in the capital.

CIBFM was officially launched earlier this year and offers a range of short courses for banking and finance staff to acquaint them the tenets of Islamic finance.

"We have started seeing more and more people who are trained in Islamic finance coming up. This is a very good sign... The majority (of the) population of Brunei are Muslims, so that is another encouraging factor to improve manpower," he said.

However, working in the English language medium has proven difficult for Syariah graduates and remains a barrier to them entering the finance sector, said Dr Akram.

Accustomed to using Malay and Arabic in their professional lives, graduates will need to become proficient in English as it remains the language medium of finance globally.

"Syariah graduates sometimes feel very uncomfortable using English. I believe we can slowly overcome this."

The need for staff well-versed in Islamic finance becomes more pressing with non-Islamic banks entering the fray.

Dr Akram, who also acts as a consultant for HSBC Brunei, said the bank is also entering the "Islamic window" by drawing up Syariah-compliant financial products.
"In most jurisdictions this is allowed, only in some places such as Qatar they do not allow (conventional banks to offer Islamic finance products). They will have what they call an Islamic window."

Southeast Asia can capitalise on the growing Islamic finance sector, projected to be valued at US$2 trillion by 2017, he added.

"In Southeast Asia, each and every country has their own strength... From what I can see, in Brunei, maybe wealth management, in Malaysia, we have sukuk, in Singapore corporate and investment banking, Indonesia, because of the huge population base retail banking."

(Asia One Business / 16 May 2012)

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Islamic banks urged to be 'entrepreneur-friendly'

BANDAR SERI BEGAWAN - Islamic banks should be more "entrepreneur-friendly", said His Royal Highness Prince Hj Al-Muhtadee Billah, the Crown Prince and Senior Minister at the Prime Minister's Office, by offering a variety of Syariah-compliant financing methods that will help Muslim businesses become successful.

"Such efforts support His Majesty's wishes to enhance the 'Ease of Doing Business' in the country," he said at the International Conference on Islamic Finance held at the Rizqun International Hotel yesterday.

In a sabda, the crown prince said while the industry must fulfil the tenets of Syariah law, it must still be able to compete with the conventional finance industry to offer customers benefits, particularly those that require financing facilities.

He also mooted the creation of a regulatory system for the Islamic finance industry with comprehensive legislation and guidelines to support it.

"Regulations and legislation in the conventional financial system still need to be improved and upgraded," he said.

"At the same time, we need to create a regulatory system with comprehensive rules and legislation (within the Islamic finance industry)."

HRH lauded Universiti Islam Sultan Sharif Ali (UNISSA) for organising the "timely" event, encouraging scholars and experts from the region to come up with sound solutions to further develop the Islamic finance system.

Quoting statistics, the crown prince noted that the industry is undergoing rapid growth with assets valued at US$1.1 trillion - at an annual growth rate of 15 to 20 per cent - and is predicted to reach US$2 trillion in three to five years.

With public confidence in conventional finance shaken after the global economic crisis, and many countries still in a fragile financial state, Islamic finance offers an alternative to investors, he said.
The three-day conference will host scholars and experts from Brunei, Malaysia, Singapore, Indonesia and Kenya and is jointly organised by UNISSA and the International Shari'ah Research Academy for Islamic Finance, Malaysia.

(Asia One Business / 16 May 2012)
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Islamic financial system can boost economy

Karachi—The fast-growing Islamic finance industry (IFI) holds the potential to contain unemployment and boost economy if an efficient and effective monitoring mechanism is in place.

Dr Ali Hasan Hamdani, an economist associated with a local private sector university in a statement received here on Tuesday said IFI industry needed creativity and guidance to ensure Shariah compatibility and integrity of the products offered in the country.

He said around five per cent share held by IFI in Pakistan indicated that masses need to know difference between Islamic and conventional products.

The economist recommended that all the details of the Islamic products, internal compliance, methodology and conflict of opinions should be openly discussed and masses be sensitized about it.

He also suggested need for a good risk management system that is important to protect the interests of investors and institutions.

“The industry must be open to criticism and listen to the clients to win approval,” he said.

Dr. Hamdani said there was an equally urgent need to educate masses as well as investors to boost Islamic finance.

“Islamic banks should not compete or compare themselves with conventional banks,” he suggested and cautioned that financial institutions must not offer services through sub-contractors who lack knowledge of Islamic finance.

A properly developed Islamic financial system can reduce miseries of humanity by bailing out ailing economies in the world claimed the economist.

(Pakistan Observer / 16 May 2012)

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Islamic finance sector facing key challenges

MANAMA: Islamic finance industry is facing key growth constraints that need to be addressed, Central Bank of Bahrain (CBB) executive director of financial institutions supervision Abdul Rahman Al Baker claimed yesterday.
"We are seeing continuing fragmentation in Islamic financial products," he told delegates at an Indonesia-Bahrain seminar on the industry at the Ritz-Carlton Bahrain Hotel and Spa.
"Unless products can be standardised, there will be less liquidity and documentation costs will remain higher than for conventional banks," he said.
"Furthermore, Islamic banking needs to gain a larger share of the retail market by providing investment accounts that are as flexible as conventional deposit accounts and to continue its provision of retail credit products such as credit cards and other products which are flexible enough to be competitive with conventional products.
"This is where teaming up scholars and bankers from different countries can facilitate developments. There needs to be a greater exchange of personnel between countries to facilitate exchange of ideas. Perhaps this seminar is one of the ways to push this process forward," he said.
"The CBB intends to remain at the forefront of the Islamic banking and finance and we look forward to work closely with our Indonesian brothers and market players to develop this key industry."
Mr Al Baker said Bahrain is the home of modern Islamic banking and finance within the GCC.
"From the setting up of Bahrain Islamic Bank in 1978, through to the publication of the first set of Islamic finance regulations in 2001, Bahrain has been at the forefront of developments in Islamic finance," he said.
"In order for the Islamic finance to develop further, both here in Bahrain and in Indonesia, a robust training and educational support is essential. It is only by developing expertise Islamic finance can build up the critical mass of qualified individuals necessary for the industry to reach its full potential in the global marketplace.
"We have also witnessed important developments in the standardisation of wholesale Sharia-compliant financial instruments by the International Islamic Financial Market here in Bahrain," he said.
"I am proud to say that the CBB has played a key role in its programmes of sukuk issuance since the first sukuk issues in 2001.
"These sukuk give banks and financial institutions an eligible liquid asset and a liquid form of collateral for secondary market trading and liquidity generation," he added.
(Gulf Times / 15 May 2012)

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