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Wednesday, 31 October 2012

StanChart eyes UAE, Bahrain for Islamic banking growth

Standard Chartered, which makes most of its revenue from Asia, is expanding its retail Islamic banking business in the UAE and Bahrain, two markets HSBC Holdings is withdrawing from.

Standard Chartered Saadiq, the lender’s Islamic banking unit, has started to offer Shariah-compliant financing to small and medium-sized companies in Bahrain, according to Sultan Ali Haider, Dubai-based general manager for consumer Islamic banking. The bank is also developing its businesses in the UAE, the second-biggest Arab economy, he said in an e-mailed response to questions on Monday.

“Our strategy is to continue to cater to this growing demand of the consumers for Shariah-compliant banking services,” Haider said.

Regional and global banks are stepping up efforts to seize a slice of an industry whose financial assets may double to $3tn by 2015, according to Standard & Poor’s. The “tough competition” prompted HSBC to announce this month that it would stop offering Shariah-compliant retail products in the UAE, Bahrain, Bangladesh, Singapore, the UK and Mauritius, markets that make up 17% of its Islamic business revenue.

The withdrawal was from “smaller markets where we don’t have sufficient scale,” Patrick Humphris, an HSBC spokesman, said in a phone interview on October 4. 

Other providers see potential for growth: Mashreq Al Islami seeks to double its contribution to Mashreqbank’s profit to as much as 20% in three years, Moinuddin Malim, chief executive officer of the Dubai- based unit, said in an interview October 9.

Islamic banking expanded faster than the non-Shariah compliant industry in Malaysia, Indonesia, Turkey, Saudi Arabia, the UAE and Qatar between 2006 and 2010, according to a World Bank report released in March. In the UAE, the industry grew 27% in the period, behind Qatar and Turkey, the data show.

“Islamic banking is one of the fastest-growing finance businesses globally,” recording compound annual growth rates of 15% to 20% “in recent years,” according to Jonathan Tyce, a senior banking analyst at Bloomberg Industries. “The mainstay of Islamic banking assets is centred around the Arabian Gulf states, the Middle East and Malaysia,” he said in a report this month.

Assets in the six-nation Gulf Co-operation Council stood at about $411bn in 2011, more than twice the size in Asia, according to a report presented at the Global Islamic Finance Forum in Kuala Lumpur last month.

As the industry matures, Standard Chartered has “observed that more customers are now finding it easy to adapt to Islamic banking products and services,” Haider said. “Saudi Arabia, Kuwait, Qatar and the UAE are all big markets for Shariah- compliant banking, Saudi being the largest.

Saudi Arabia, the largest Arab economy, is one of three markets where HSBC said it would focus its Islamic finance offerings, the other two being Indonesia and Malaysia. The London-based bank would also continue to offer sukuk underwriting services through operations in Malaysia and Saudi Arabia, where a government spending programme of more than $500bn to upgrade infrastructure and create jobs is spurring record debt sales.

HSBC helped manage $8.5bn in GCC sukuk sales, or about 44% of $19.2bn record offerings this year, according to data compiled by Bloomberg. That has positioned the London-based lender to maintain its rank as the region’s top sukuk underwriter for a fourth year, the data show.

The bank, which owns a 40% stake in Riyadh-based Saudi British Bank, acted as the sole underwriter of the 15bn Saudi riyal ($4bn) January sale by the state-run General Authority for Civil Aviation, the kingdom’s biggest sukuk offering for 2012.

Standard Chartered helped borrowers raise $2bn in Islamic debt in the region this year, giving it a market share of about 11%, data compiled by Bloomberg show. The bank has requested a full Saudi banking licence and currently operates a capital markets office in the kingdom.

The bank has started to offer Shariah-compliant services to its private banking clients to boost its share of a fast-growing market, Haider said. The products include deposit accounts, property financing, equities, Islamic bonds or sukuk and mutual funds, it said in a statement on June 25.

“The trend points to a promising future,” Haider said.

Lender sees wider Iran settlement by year end

Standard Chartered said it was aiming for a wider year-end settlement with US authorities investigating its Iran-linked transactions. 

The Asia-focused bank, on track for a tenth straight year of record earnings, agreed in August to pay New York’s banking regulator $340mn to settle allegations it hid some $250bn worth of transactions with Iran. 

But other probes, including a criminal investigation, are still going on. 

“We’re in active and constructive dialogue with all of the other agencies. We hope to get that finished and completed by the year end but it’s not wholly in our power to do that,” finance director Richard Meddings said.

Standard Chartered, which is negotiating with the Manhattan District Attorney, the US Treasury Department, the Justice Department and the New York Federal Reserve, said last month it could not predict the outcome or quantify potential liabilities.

The bank said yesterday its operating profit grew by a mid-single digit rate in the first nine months of the year. 

Earnings would have risen by at least 10% but for the settlement with New York regulators who threatened to strip the bank of its state licence over its Iranian deals.

(Gulf Times / 30 Oct 2012)

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ADIB plans capital boost through sukuk sale

Abu Dhabi Islamic Bank is planning to boost its capital through the sale of a Shariah-compliant debt instrument, in what would be a rare method by a regional lender to boost its core capital ratios. 

ADIB, the largest Shariah-compliant lender by market value in Abu Dhabi, will start investor meetings today ahead of a potential Islamic bond, or sukuk, sale, a statement from the arranging banks said yesterday. 

The sukuk sale is likely to be benchmark-sized, a source at one of the arranging banks said. Benchmark size bonds are typically $500mn or more in size. 

The bank has mandated HSBC Holdings, Morgan Stanley, National Bank of Abu Dhabi, Standard Chartered and itself to arrange the roadshows, with a potential sale of a tier one perpetual dollar-denominated sukuk to follow, subject to market conditions. 

Tier one capital is a key measure of a bank’s financial strength. ADIB had a tier one ratio of 13.45% at the end of June 2012, and said in its second quarter results that it aims to improve this to above 15% in the near term. 

The public sale of a debt instrument to raise tier one capital is extremely rare in the Middle East. Lenders including Commercialbank (Qatar), Burgan Bank and Saudi Hollandi Bank have sold tier two instruments in recent years. 

ADIB issued a $2bn tier one sukuk instrument in 2009 to the Abu Dhabi government as part of a wider scheme by the authorities to bolster the country’s banking system in response to the global financial crisis. 

Shareholders approved the issuance of tier one sukuk worth up to $2bn, the bank said in a bourse filing last week

(Gulf Times / 30 Oct 2012)

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Malaysia: TH Plantations, pilgrim's fund set up 1 billion ringgit sukuk programme

TH Plantations said in statement on Tuesday that Hong Leong Islamic Bank and RHB Investment Bank were appointed as the joint principal advisers, joint lead arrangers and joint lead Managers for this sukuk murabahah programme.

The sukuk will be issued to the pilgrim's fund or Lembaga Tabung, making it non tradable and non transferable, TH Plantations said.

TH Plantations issued a first tranche of 200 million ringgit under the programme on Tuesday, which has a tenure of 15 years and will mature on October 2027. The bonds have a profit rate of 6.6 percent yearly, paid every six months.
(Reuters / 30 Oct 2012)
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IFSB to revise capital adequacy standard for Islamic banks

The IFSB sets global guidelines for Islamic finance, although national financial regulators have the final say on how much capital banks must maintain and in what form.

The Islamic body released its original guidelines on capital adequacy in December 2005, based on Basel II standards which regulators were then applying around the world. Since then, global regulators have agreed on stricter Basel III standards which will be phased in over the next several years.

IFSB spokeswoman Rose Halim told Reuters that her institution's new guidelines would address the issue of which Islamic instruments could be classified as bank capital.

"The IFSB is revising its capital adequacy standard, and in this context we are elaborating the issue of component of capital," she said in an email.

"For issuing sukuk as part of bank capital we have proposed different types of sukuk," Halim said, adding that sharia advisors where still discussing details.

Because sukuk or Islamic bonds are based on real assets rather than pure debt, as conventional bonds are, some analysts and bankers believe sukuk could play a major role in helping banks around the world meet Basel III's minimum capital ratios.

It will be up to national regulators, taking into account the advice of the IFSB, to determine which sukuk structures can be classified as capital and to what extent.

Some banks in the Gulf are already issuing sukuk in the expectation that the instruments will count as capital. Abu Dhabi Islamic Bank plans to boost its capital through the sale of a sharia-compliant debt instrument, and will start investor meetings on Wednesday, a statement from the arranging banks said on Tuesday.

The sukuk sale is likely to be benchmark-sized, a source at one of the arrangers said; benchmark bonds are typically $500 million or more in size.

Last year Saudi Arabia-based Bank Al Jazira strengthened its capital base by issuing a 10-year, 1 billion riyal ($265 million) sukuk, which it said would be classified as Tier 2 capital.

A draft of the IFSB's new guidelines will be issued in the first week of November for public consultation, said Zahid ur Rehman Khokher, a member of the IFSB's technical and research secretariat, the team that worked on the project.

(Reuters / 31 Oct 2012)

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Tuesday, 30 October 2012

China: Hong Kong Government responds favourably to Sukuk consultation - 30 October 2012 - Today the Financial Services Branch of the Financial Services and the Treasury Bureau of Hong Kong issued their response to the Sukuk consultation paper which was issued in March 2012.

The formal title of the consultation paper was "Proposed Amendments to the Inland Revenue Ordinance (Cap. 112) and the Stamp Duty Ordinance (Cap. 117) to Facilitate Development of an Islamic Bond (i.e. Sukuk) Market in Hong Kong”. It provided a detailed analysis of the Sukuk market and relevant tax related changes which would be needed to facilitate the use of Hong Kong based assets in a Sukuk issuance.

Davide Barzilai, Banking Partner and Asia Pacific Head of Islamic Finance at Norton Rose said,

"Interestingly, the Bureau received 15 responses from a broad range of stakeholders. Perhaps this is an indication of the level of interest within Hong Kong for Sukuk instruments. We have seen increased use of Hong Kong as a launch pad for Dim Sum issuances from Malaysian companies and this response will tie in well with what is happening in the market."

Barzilai also confirmed that, "We were very happy to see that the Bureau has taken into account comments made by market practitioners in Hong Kong, in particular, the inclusion of Wakalah based structures. I am glad to see that Hong Kong has been able to avoid any of the political issues which has burdened some other non-Muslim countries when trying to introduce legislative changes to enable a level playing field for Islamic finance".

If you are interested in talking with Davide Barzilai, Partner and and Asia Pacific Head of Islamic Finance at Norton Rose, please contact me to arrange.

(Law Feul.Com / 30 Oct 2012)

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Dubai Oasis Drying Up as Property Rally Nears Edge: Arab credit

The rally that sent real estate company bond yields in Dubai to record lows risks petering out because the emirate’s property recovery may not be broad enough to justify further price gains.
Dubai Holding Commercial Operations’ January 2014 and February 2017 bonds were cut to hold from buy at Exotix Ltd. after yields fell to the lowest since 2007 this month. Emaar Properties PJSC (EMAAR)’s August 2016 note yields rose nine basis points to 4.44 percent yesterday since Oct. 23, when the company reported third-quarter profit that missed estimates. Property company Nakheel PJSC’s 10 percent sukuk, or Islamic bonds, due June 2016 have “little upside potential,” Exotix said.
A nascent real estate recovery in Dubai has been limited to a few areas in the emirate, which suffered a property slump in the past four years causing values to fall by as much as 65 percent. While the pick up is set to continue, opportunities in the bond market are limited at current prices, Exotix, National Bank of Abu Dhabi PJSC (NBAD) and Emirates Investment Bank PJSC (EIBANK) say.
“The recovery has been in selective areas, not broad- based,” Gus Chehayeb, Dubai-based director for Middle East research at Exotix, said by phone Oct. 29. “I don’t think there’s substantial value remaining in the real estate credit space, especially compared to the bargains we saw over the past three years.”


Investor optimism in Dubai’s recovery gained ground this year as sale prices for villas and apartments jumped and retail and tourism industries extended their best year since the crash. The average price of a mid-range villa and high-end apartment in the city advanced 27 percent and 14 percent, respectively, in September, according to data from property broker Cluttons LLC.
The emirate’s property industry isn’t out of the woods. A quarter of residential units are empty and an additional 25,000 are due to be completed in 2013, Jones Lang LaSalle Inc. (JLL)estimates show.
The number of property transactions jumped by 50 percent in the first half of 2012 from the year earlier, according to Dubai Land Department data. Even so, the value of the purchases is 74 percent less than the first half of 2008, prior to the crash that started later that year.


Government-owned Nakheel, developer of artificial islands shaped like the world map and fronds of a palm tree, has seen its bonds rally this year as profit at the company surged 83 percent in the first nine months. The yield on the debt maturing in August 2016 has tumbled 794 basis points, or 7.94 percentage points, this year to 10.37 percent yesterday. That compares with the 294 basis-point drop to 2.64 percent in the yield on Dubai’s 6.396 percent sukuk due November 2014.
“I wouldn’t be accumulating large positions at these prices,” said Yaser Abushaban, director of asset management at Emirates Investment Bank. “Accumulation would have been advised when they were priced much lower, specifically when you look at higher-yielding names,” including Nakheel.
Exotix reiterated a hold recommendation on Nakheel’s August 2016 notes, saying the developer hasn’t released audited earnings since 2008 and “is still highly levered post restructuring.” The builder, which wrote down the value of its real estate by $21 billion from late 2008 through mid-2010, got an $8.6 billion bailout from the Dubai government in 2009 to help avoid default.


Emaar, developer of the world’s tallest skyscraper, posted a 5 percent decline in third-quarter profit as revenue fell 12 percent. The company’s 8.5 percent sukuk maturing in August 2016 yielded 4.43 percent yesterday compared with 8.2 percent at the end of 2011 and the bonds trade at a Z-spread, a measure of credit risk, of 365 basis points, compared with about 440 for similarly rated companies tracked by Bank of America Merrill Lynch’s BB Global Emerging Markets Credit Index.
“I don’t think such a premium is warranted,” Chehayeb at Exotix said. “The market is now trading Emaar almost as if it’s a risk-free asset” and the sukuk “is trading very rich compared to equivalently rated emerging market peers.”
The economy of Dubai, one of seven emirates that comprise the United Arab Emirates, is making a comeback and its default risk tumbled as several state-linked companies restructured or paid debt this year. Economic growth will accelerate to 5 percent this year from 3 percent in 2011, according to government forecasts.


Dubai’s five-year credit default swaps fell 200 basis points this year to 246 on Oct. 26, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That outpaced the 68 basis-point decline to 261 in the average for contracts in the Middle East and North Africa.
“There have been some signs of selected stability in the real estate market, and that has created a lot of investor optimism,” said Nick Stadtmiller, head of fixed income research atEmirates NBD PJSC. (EMIRATES)
Still, Dubai has more than $17 billion of bonds and loans maturing in 2013 and 2014, according to data compiled by Bloomberg. Emaar, which still generates most of its revenue domestically, is also vulnerable to political developments in countries including Syria, where it’s expanding, and Egypt, where it plans to invest more than 5 billion pounds ($819 million). The yield on Emaar’s 7.5 percent notes maturing in December 2015 rose 13 basis points to 3.57 percent yesterday since hitting a record low a week earlier.
“In terms of risk-reward, much of the juice has already been extracted on some of these names,” Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi, the U.A.E.’s second-biggest bank, said by e-mail yesterday.
(Bloomberg / 30 Oct 2012)

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UK: Jersey poised to profit from forecast Islamic finance boom

JERSEY is well placed to benefit from a forecast massive rise in Islamic finance by having made such a strong move into the Gulf region, according to global advisory firm Ernst & Young.

The global demand for sukuk, securities structured to comply with Islamic law, is expected to grow three-fold from US$300 billion to US$900 billion by 2017, according to estimates by the big four accountancy firm.
And a senior manager at the firm’s global Islamic banking centre, Bilal Ahmed, said that as most of the demand for sukuk comes from South East Asia and the Middle East, Jersey can capitalise on its strong links with Arab states in order to increase its involvement in the area.
Jersey Finance has opened an office in Abu Dhabi and is looking at how it can penetrate further into the Gulf region with plans to target Saudi Arabia.

Mr Ahmed said: ‘The growth in anticipated demand provides Jersey with further opportunities to acquire a larger share of the sukuk market and increase its footprint in the Islamic finance industry.’

He said that Jersey had already been playing an important role by providing a reputable jurisdiction for special purpose vehicles used for sukuk issuances.

‘There is no doubt that sukuk offers the Island an opportunity to engage in a rapidly growing sector. It is also attractive precisely because it offers greater stability than traditionally western forms of debt have been able to offer in recent years,’ he said
Mr Ahmed said that the exponential rise in demand was primarily a result of the double-digit growth of the Islamic banking industry and the increasing appetite for credible, Shari’a compliant, liquid securities.

He said the demand principally comes from Islamic financial institutions, fund managers and high net worth individuals.

‘The Eurozone debt crisis has also prompted renewed interest from conventional institutions because these products are backed by real assets,’ he said.

He said that currently the main constraint on the sukuk market was a lack of supply of sukuk securities. Ernst & Young say that has not been helped by the lack of a global standardised platform to facilitate trading.

(Jersey Evening Post / 29 Oct 2012)

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Islamic Finance to Play a Key Role in Boosting Economic Development in Africa

Over the last decade, trade between African countries and the rest of the world has grown significantly and, in particular, charting a 170% increase in trade with the GCC. The ongoing shift by African countries from being aid-dependant to increasing trade and investment ties with the Middle East has positioned Islamic finance to play a key role in facilitating further increases in trade and investment flows between Africa and the Middle East. 

This is even more significant given the inherently strong linkages between Islamic finance and real economic activity and the potential to provide funding for key areas such as SMEs and project finance. Increased interest from Gulf investors in terms of agricultural land acquisitions combined with a growing Asian investor base, particularly in manufacturing, is expected to provide further impetus to the growth of the continent’s economies.

Speaking ahead of a high-profile conference addressing the opportunities for Islamic finance in Africa, David McLean, Chief Executive of the Islamic Banking Summit Africa (IBSA 2012) noted that “as a result of the recent policy revisions, regulatory changes and economic reforms in key markets on the continent, Africa has now been re-positioned as the third fastest growing region in the world, after the Middle East and Asia. 

The resurrection of Africa's trade ties with the rest of the world has resulted in an increased international investor interest in the region. The rapid expansion of the major economies in the region has also resulted in the need to invest heavily in developing vital infrastructure. 

These factors highlight the tremendous opportunity that Africa presents for the growth of Islamic finance and also indicate how Islamic finance can play a key role in catalysing economic development in the region.”

“It is against this dynamic backdrop that we are launching the Islamic Banking Summit: Africa (IBSA 2012) as a key regionally focused initiative of the World Islamic Banking Conference (WIBC).”

Held under the official support of the Central Bank of Djibouti, the two-day gathering of international industry leaders provides a high-profile platform to specifically focus on the opportunities and challenges that are forging the rapidly emerging Islamic banking, finance and investment landscape in Africa. 

To be held on the 6th and 7th of November 2012 at the Djibouti Palace Kempinski, Djibouti, IBSA 2012 will feature critical discussions that will seek to ‘Capture the Africa Opportunity in Islamic Finance’.

The Islamic Banking Summit Africa (IBSA 2012) will be officially inaugurated on the 6th of November by H. E. Ismail Omar Guelleh, the President of the Republic of Djibouti and Head of Government.

The inaugural address will be immediately followed by an opening keynote address by H.E. Djama M. Haid, Governor of the Central Bank of Djibouti. 

Commenting on the Central Bank of Djibouti’s patronage for the event, H.E. Djama M. Haid noted that “Islamic finance is undoubtedly one of the most exciting and high growth areas of the global financial sector. 

With the total assets of Islamic banks globally hitting the $1 trillion mark at the end of 2011 and with the industry expected to grow to US $ 2 trillion by 2015, financial centres outside the traditional Islamic markets of the Middle East and South East Asia are increasingly positioning themselves to play a vital role in the further development of the Islamic finance industry and to attract investments that are Shari’ah compliant.”

He also observed that “Africa presents a tremendous opportunity for Islamic finance and is probably the next logical or strategic decision for leading financial institutions looking to extend their products and services to a new high-potential market. 

“Provided that the continent continues to grow at its current pace, which is the fastest in decades, incremental wealth creation will make it easier for the Islamic financial services sector to tap into this vast potential.”

“We are delighted to be hosting and supporting this first Islamic Banking Summit: Africa (IBSA 2012) to be held in Djibouti and we see this event as a unique opportunity to engage the industry leaders in discussions that will seek to capture the Africa opportunity for Islamic finance", he added.

A key highlight of IBSA 2012 will be the special keynote address that will discuss how Islamic finance can act as a catalyst for a new wave of economic development in Africa. The session will analyse how Islamic finance can mobilise trade and investment flows into Africa and how Africa can be connected with the world through Islamic finance.

The Islamic Banking Summit Africa will also feature a high-powered industry leaders’ keynote debate. The session chaired by Abdul Rahman Awl, Vice Chairman - Board of Directors, Dahabshil Bank International will discuss how Islamic finance players can tap into and capture the opportunities in Africa. 

The power debate featuring Dr. Suleiman Walhad, Chief Executive Officer of Dahabshil Bank International; Asad Aziz Ahmed, Managing Director of Gulf African Bank; Basel A. Haj-Issa, Chief Executive Officer of Saba Islamic Bank; and Cassim Docrat, Director of DDCAP (DIFC) Limited will seek to identify the key African markets that are making headway in Islamic finance and will also analyse the key challenges to be overcome to achieve significant growth in the Islamic banking and finance industry in Africa.

Commenting on their participation at the event, Dr. Suleiman Walhad, Chief Executive Officer of Dahabshil Bank International said that “the rapid pace of the development of Islamic finance in the continent leaves no doubt among policy makers all over Africa, and in particular Djibouti, that Islamic finance presents many prospects for exciting growth. 

“Though Islamic finance is still in its embryonic stage in Africa, the potential for growth is tremendous considering Africa’s population of nearly one billion people, nearly half of which are Muslims. 

“With Africa now being recognised as one of the fastest growing regions in the world, joining the top league of emerging economies, Islamic banking and finance has a tremendous opportunity to capitalise on the current under-developed state of the banking and financial system in the region and become a key driver in the promotion of financial inclusion by appealing to the large Muslim population in Africa.”

He also said that “as a leading Islamic Bank in the region, Dahabshil Bank International is extremely delighted to be supporting the inaugural Islamic Banking Summit Africa (IBSA 2012) and we are very keen on exploring the tremendous opportunity that the Islamic finance industry has to offer. 

“We hope that this important event will play a key role in identifying and capturing the unique growth opportunities that will advance Islamic finance in Africa to its next stage of development.

(The Tripoli Post / 29 Oct 2012)

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Monday, 29 October 2012

IDB eyes investment in Kazakhstan, Central Asia energy, farming

ASTANA, Oct 1 (Reuters) - The Islamic Development Bank is looking to resource-rich Kazakhstan and Central Asia as a fertile ground for investment, with the launch of a $50 million renewable energy fund on Monday and plans to finance agricultural projects, an official said.

The Saudi Arabia-based multilateral bank's private sector arm, the Islamic Corporation for the Development of the Private Sector (ICD), said it was considering financing farming projects in Kazakhstan from its $600 million agribusiness fund.

"There are Gulf countries which have the capital but lack the agricultural resources, while there are countries in Central Asia, Africa, which have the resources but not the capital. This fund will try to bridge the gap," ICD Chief Executive Khaled Al-Aboodi said on the sidelines of a conference.

"We are looking at Kazakhstan," he said.

Kazakhstan's resource-driven economy, at $185 billion the largest in Central Asia, presents opportunities for Islamic banking.

Seventy percent of its 17 million population is Muslim, and investors in Kazakhstan have been looking for alternative sources of finance since the financial crisis laid bare Kazakh banks' exposure to bloated real estate markets and foreign borrowing.

President Nursultan Nazarbayev, a 72-year-old former steelworker who has led Kazakhstan since Soviet times, has given his support to the development of an Islamic finance industry in the country.

Al-Aboodi said the ICD's agribusiness fund was considering grain, meat and dairy projects in Kazakhstan, one of the world's top 10 wheat exporters, for sharia-compliant investment.

Its Central Asia-specific renewable energy fund is lining up potential solar and wind projects, he said, adding that the fund had commitments from government and institutional investors for more than half of the $50 million it plans to raise.

Kazakhstan's open steppe has huge potential for renewable energy, although investment to date has been minimal in a country that also holds around 3 percent of global crude oil reserves and is the world's largest uranium miner.

"This sector (renewable energy) is not receiving enough attention. Everyone is focusing on oil and gas," said Al-Aboodi.


Oil-rich Kazakhstan has shelved plans for a sovereign Islamic bond issue, but the issuance of a debut sukuk bond this year by the state-run Development Bank of Kazakhstan was a major breakthrough for Islamic finance in the country.

The ICD also said it had agreed with a group of international and local investors to establish the first ijara, or Islamic leasing, company in Kazakhstan, with initial paid-up capital of around $35 million. The company is due to launch in early 2013.

One of the potential investors is Al Hilal Bank, the Abu Dhabi-based lender that became the pioneer for Islamic banking in Kazakhstan when it opened its doors in March 2010. Al Hilal is still the only Islamic bank operating in Kazakhstan so far.

"We hope to be a joint shareholder in the leasing company," Al Hilal Chief Executive Prasad Abraham said. "We have a portfolio in excess of $120 million. Al Hilal has become profitable, proving that the Islamic banking model can work."

Abraham said, however, that the presence of a second or third Islamic bank would be important to the growth of sharia-compliant banking in Kazakhstan.

Al Hilal represents less than 1 percent of Kazakhstan's total banking assets. Entry rules for new players - Islamic or conventional - are strict, with a minimum capital requirement of 10 billion tenge, or around $67 million. Kazakh law does not permit conventional banks to run Islamic sections.

"One is a very lonely number. Contrary to what people often ask me, we wouldn't consider another Islamic bank coming in as a challenge; we would consider it complementary," Abraham said. 
(Reuters / 29 Oct 2012)
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In economic flux, Islamic banking and Islamic finance are gaining ground

The economic stagnation of the past year and a half has taken a toll on many businesses, but a fleet of Islamic investment banks in Egypt sees opportunity in the new emerging order.

Ridge Islamic Capital, one such investment bank, has found a niche in the finance sector and made plans to capitalize on it. It offers Sharia-compliant investment banking, asset management and wealth management services to a market that experts say is primed for Islamic finance.
Launched in late September, the firm is among a slew of banks offering, or planning to offer, Islamic investment products. Others are the National Development Bank and partners EFG Hermes and QInvest.
Officials have repeatedly touted the resilience of Islamic finance, with the new government keen on broadening the industry. Officials said Egypt would introduce sukuk, or Islamic bonds, in a bid to ease the funding crisis brought about by diminished foreign reserves and a widening budget deficit.
The government is looking to raise the market share of Islamic finance to 35 percent from 5 percent, according to a Bloomberg report.
Ridge Islamic Capital has garnered significant attention for its quick move into the market and a promise of US$100 million in investments in the coming two years. Bank officials recently announced that they are looking to buy a local brokerage, and have so far shortlisted three from 10 that are for sale.
Egypt Independent sat down with its director, Ahmed Rizkallah, to discuss the bank’s mission and plans in Egypt, and why he thinks Islamic finance could help solve the speculation ills in the world economy.
Sustainable system
First set up in May, Ridge Islamic Capital is the Islamic financial arm of Dubai-based regional investment company Ridge Solutions International Holding, which is part of the Angola-based Ridge Solutions Group.
In Angola, the conglomerate grew famous for financing projects in the aquaculture, agriculture and industry sectors, amid the country’s real estate boom. At the peak of the financial crisis in 2008, though, the bank saw a new opportunity in the weaknesses of traditional free-market finance.
“Our chairman had a vision of capitalizing on the sustainable and resilient Islamic banking and finance industry,” said Rizkallah.
Bank officials saw over-speculation as one of the main causes of the financial crisis and saw Islamic finance as an anecdote, with its built-in prohibitions against speculating.
“In the derivatives market, the trades and volume at one point reached $600 trillion a year, while the combined GDP of the whole world is $60 trillion,” said Rizkallah. “One type of trade and activity was 10 times the GDP of the whole world.”
Less speculation means fewer market distortions.
“We believe that Islamic finance, in essence, is a very sustainable system,” he said.
An untapped market
The initial plan was to open an Islamic commercial bank in the region, Rizkallah said, but after some fine-tuning, the company decided to get into the specialty of Islamic investment banking.
In 2011, bank officials flagged Egypt as an ideal place for this expansion because of its “strong fundamentals.”
“For us, Egypt is the anchor of the region,” he said.
There was also room for expansion. Despite being the region’s most populous country, it is only seventh in terms of Islamic banking assets. The smaller Gulf nations have a much larger array of Islamic financial products.
Egypt’s banked population is estimated to be less than 10 percent, though it is likely slightly higher. Of that segment, even fewer bank customers use what little Islamic finance services and products are offered on the market.
There are only three full-fledged Islamic financial institutions operating in Egypt, and 11 with Islamic banking operating windows, Rizkallah said.
It’s an environment poised for growth in the banking sector, and especially the Islamic banking sector, many experts say.
Angus Blair, founder of the Signet Institute, a Cairo-based think tank on Middle Eastern and North African economies, said the banks currently offering Islamic investment products include Faisal Islamic Bank, Al Baraka, Bank Audi and Ahli United Bank.
Other institutions have offered Islamic forms of products to clients, said Blair, but not on a large-scale level. Previously, he said, a number of offshore companies offered services to Egyptians, although these transactions are now limited due to capital controls.
These customers will now have to go to local Islamic finance institutions for their banking and investment needs.
In comparison, there are more than 30 conventional banks in Egypt.
“The banking segment of Egypt is small but growing — there’s still a cash-based mentality — and Islamic banks have a niche they’ve been leveraging,” said Rizkallah.
And it certainly seems the high rate of growth will continue. The Islamic financing industry — still nascent, compared with conventional banking — has expanded considerably in recent years, with experts putting the annual growth rate between 10 and 15 percent.
“Islamic banking is considered the fastest growing segment in the global financial system,” Jose Ramos, chairman and executive president of Ridge Solutions Group, said in a statement.
Modern Islamic products
Ridge’s assets currently being managed weigh in at LE50 million, of which LE30 million are in the Misr Iran fund of funds, and the remaining in individual portfolios, Rizkallah said.
A “fund of funds” is one that invests in a number of funds, either locally or regionally, without investing directly in the stock market.
“This considerably reduces the risk to investors and gives them more diversity,” he said.
The firm also plans to inject roughly $100 million into different funds and investments in Egypt, and aims to place $15 million as an initial capital increase in the coming months, which Rizkallah said would be used for expansions and to support the funds under management.
But, again, he sees room to grow.
“Outside Egypt, there are more than 50 mature products available in Islamic banks,” Rizkallah said, but locally, “we are only trading around 15.”
Islamic banking assets are about 5–7 percent, compared with banking assets in general in Egypt, he said.
“The theme is modern Islamic services,” he said. “By saying Islamic, we are not alienating anyone. It’s not about stereotyping or segregating investors, it’s about showing that we have a different way of offering services.”
The firm plans to soon launch a regional fund of funds with a target size of $150 million, which has already been approved by the Central Bank of Bahrain.
“We’ll screen the Sharia-compliant funds in the region, filter the best performers, invest in those funds, and keep reallocating and balancing among those funds,” he said.
Other products allow investors to put money in the stock market, in a Sharia-compliant way, using fixed-income securities.
“The main challenge to developing such a structure in Egypt is the limited offering of Sharia-compliant fixed-income tools,” said Rizkallah.
They are also looking into creating a real estate fund for investors.
“Real estate in general is one of the strong projects in Islamic finance industry because it is a solid asset,” said Rizkallah.
In Egypt, Rizkallah sees middle-income housing compounds as a particularly profitable segment, due to their “payback after three years and a yield of 20 or 30 percent.”
Changing perceptions
Locally, there’s a negative perception of Islamic finance due to previously unregulated attempts in the market to provide these services. In the 1990s, the sector was marred by several scams, which gave the niche market a bad name.
“The result was people segregated into two parties: people who want Islamic because of religious reasons, without caring about the impact and regardless of the bank’s modernization [or lack thereof],” said Rizkallah. “The other party is completely against it, thinking it’s just an emotional and sentimental sort of a business.”
He said residents in the Gulf, Europe and Asia have a better approach.
“People look at what you’re offering them and giving them in return,” he said. “They just care about how this is going to affect their wealth.”
On the political level, Rizkallah is confident that the people in power will continue to promote Islamic finance.
“After the revolution, politicians realized that we need to be open for everything,” he said. “We should accept anything that might benefit the country.”

(Egypt Independent / 27 Oct 2012)
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Unsaturated halal market promising large revenues

The halal market is a growing one with a potential well within the multitrillion dollar range, but only a small portion of it is utilized, according to World Halal Council’s (WHC) Turkish chairman Hüseyin Kami Büyüközer. 

Halal food, which refers to goods approved by the Islamic code, is a $860 billion market spread across the world and this figure rises even higher to $2.1 trillion when textiles, cosmetics and medical products are factored into the mix, said Büyüközer, who also chairs Gimdes, Turkey’s local halal-licensing authority. “Unfortunately only some 14 percent of this potential is materialized,” he said. This refers to somewhere between $150 and $200 in food products. There is a large space there,”

The Turkish Standards Institute, which started granting halal food licenses in July 2011, has given 117 documents to 63 separate companies so far. 

Gimdes, an older actor whose licenses are expected in around 50 countries, has certified products of 300 companies since 2009. These companies exported $10 billion worth goods until the end of 2011, said Büyüközer, adding that he is expecting the figure to reach $17 billion by the end of 2012.

Halal certification has “opened gates” for the Turkish processed meat company Namet, said foreign trade executive Nihal Kayar. 

Kayar forecasted the world’s Muslim population would reach between 25 percent and 27 in 2030 from today’s 20. “This is why the halal market is a rapidly growing one and why we are looking to become stronger in this market with halal certification.” 

The company aims at increasing exports’ share in its 595 million Turkish Liras budget to 25 percent from today’s moderate 2 percent. 

Iran, Iraq, Afghanistan, Tajikistan, the Middle East and Arab nations are insistent about the certification, poultry firm Beyza Piliç’s General Coordinator Necmettin Çalışkan told Anatolia news agency. He also said that a demand from consumers would grow the local market. Rival Erpiliç’s Güney Tuna added Libya, Georgia, Azerbaijan and Bosnia to these emerging markets.

(Daily News / 29 Oct 2012)

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