Latest from GIFC

Monday, 31 December 2012

Islamic finance industry enters 2013 with new strength

DUBAI, Dec. 29 (Xinhua) -- The year 2012 marked a turning point for banking on Islamic principles as new markets and new regulations in the Mideast helped the sector to flourish.

According to Ernst and Young, globally assets managed in line with Shari'ah will reach in 2013 an all-time high, amounting to 1. 8 trillion U.S. dollars, up from 1.2 trillion U.S. dollars in 2012.

Neither the ongoing turmoil in the Middle East nor the Euro zone debt crisis could prevent Islamic banks in the Middle East from reaching out to new markets and more business. While issuances of Islamic bonds, known as sukuk, flourished and new markets like Egypt and Oman embraced the banking in line with Shari'ah by setting up new laws and regulations to remove legal hurdles for Islamic banks.

Run on Islamic bonds

News issuances of Islamic bonds reached 40 billion U.S. dollars globally in 2012, up from 36 billion dollars last year, according to Malaysian Bank CIMB. In July, the Gulf state of Qatar launched one of the largest sukuk with a volume of four billion dollars. The issuance attracted bids worth a whopping 25 billion dollars. The proceeds will be used to revamp the country's infrastructure in order to be ready to host the FIFA 2022 football world cup.

But the sector suffered a setback when Dana Gas from the Gulf sheikhdom of Sharjah failed to settle a one billion dollar sukuk which was due on Oct. 31 since payment delays from clients in Egypt and in Kurdistan. However, Dana agreed with creditors to restructure the sukuk on Dec. 1.

Crossover markets

Meanwhile, the Egyptian cabinet approved on Dec. 23 draft law on the issuances of sukuk. Under the draft law, new sectors such as individual and investment funds, will now be able to finance government projects through Islamic bonds. The draft law was referred to parliament for debate to be passed and enacted.

The Sultanate of Oman is the latest country which legalized Islamic finance in May 2011. Meanwhile, Oman has amended its national law in order to regulate Islamic banking transactions in order to abide to the royal decree number 69/2012.

As the first Islamic bank in Oman, Bank Nizwa said it would launch operations at the start of 2013. Listed on the Muscat Securities Market on July 5, Bank Nizwa shares have been traded sideways since then.

In addition, "Iraq is contemplating Islamic banking legislation while Libya prepares to implement its Islamic banking framework," said Ashar Nazim, partner for global Islamic banking at Ernst and Young.

Gulf region leads

Although Islamic finance, which forbids interest and trading in shares of "un-ethical" businesses (like producers of weapons of alcohol), is a global phenomenon, the Middle East remains the industry's nucleus. Saudi Arabia is the biggest market for Islamic banking followed by Malaysia and UAE, Nazim said.

According to the report, the Islamic banking industry in Saudi Arabia, with an estimated 207 billion dollars of Shari'ah- compliant assets, was ranked first in 2011. Malaysia ranked second with total assets of 106 billion dollars and the third was United Arab Emirates (UAE) with 75 billion dollars.

Due to the industry's bullish outlook, investors also sent shares of Islamic financial institutions higher. UAE-based Ajman Bank whose shares were listed on the Dubai Financial Market DFM gained 68 percent in value in 2012, outperforming the DFM general index which climbed 17 percent higher.

Al Salam Bank Bahrain shares which were traded in Manama and Dubai rose by 39 percent since Jan. 1. In the third quarter of 2012, the bank's net profit rose five-fold year on year to hit of 6.8 million Bahraini dinars (18.04 million dollars).

Looking abroad

Other Islamic banks prepare to expand abroad. Masraf Al-Rayan from Doha, Qatar, expressed interest in buying troubled Islamic Bank of Britain, known as IBB, but the deadline looms as IBB's largest shareholder Qatar International Islamic Bank wat to have clearity over a possible deal until January, according to sources. "That the Qatar Central Bank separated Islamic banking from conventional banking in 2012 by law helped the Shari'ah-finance industry a lot," said Syed Hasan, general manager wholesale banking at Masraf Al-Rayan.

Frascesco Pavoni, head of financial services at German consultancy Roland Berger, said that all Gulf states shall follow Qatar's example. By separating Islamic finance from conventional banking, Islamic banks, often younger and smaller in size that their conventional counterparts, gain a higher radius to expand and reach out to potential clients, said Pavoni.

Islamic finance is not only about the prohibition of interest. Because risky asset management strategies like short-selling, trading naked options or futures are banned under Shari'ah, banks and investors increasingly choose for Islamic financing strategies. "God has permitted trade, but forbidden interest," says the Holy Koran in sura 2, verse 275.

(Shanghai Daily.Com / 29 Dec 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Solar guys shine light on Islamic debt structures

Solar panel and heating installer The Solar Guys have been marketing its first Islamic bond – or sukuk – raising, due in the first half of 2013, to fund a 250MW solar power plant in Indonesia. Commercial director Dane Muldoon is not alone in Australia in being a novice in Islamic finance, let alone Islamic financing in an Asian market. He is sometimes caught off guard by how quickly things are moving for the family-owned Brisbane operation founded by his father and the connections of his joint venture partner at Mitabu Australia.

Rusydi Mitabu (known as Dody), director of Mitabu Australia, is the mastermind of the financing structure. The Solar Guys and Mitabu have formed a joint venture – SGI-Mitabu - to raise $500 million to build and finance the power plant.
“Just as an example,” Muldoon says. “I was saying to him, ‘you have told me we have this land allocation that’s been given to us by one of these [Indonesian] provinces. I asked him ‘where is this field, I want to know more about this field’. He says ‘you know I don’t know’. So he pulls out his mobile phone and rings the secretary of the governor of the province and says, where is that field again?”
Muldoon says Mitabu has a deep knowledge of Islamic finance structures. An Islamic scholar or sometimes a whole board of them are indispensable advisers for any company trying to tap Islamic finance. Mitabu also has the all important relationships with financiers and the right levels of government in Indonesia.
At a seemingly random meeting in Sydney he also discovered Mitabu was talking to microfinancers, which funnel private funds into development projects that might suit this project as it could bring electricity to some regions in Indonesia for the first time.
To avoid the Australian tax issues that have stymied Australian companies tapping Islamic finance they are raising the money via the Malaysian island of Labuan, which has been set up as tax-free to attract foreign capital.
“We like it because it is being treated as an offshore location for tax purposes and any corporate can raise sukuk in any currency so we won’t have a problem with a currency swap,” says Mitabu.
When raising capital offshore, companies typically face exchange rate risk, especially with recent volatility in the Australian dollar, unless they can raise the money in Australian dollars. Only a few companies can do this in selected markets.
The tax barriers in Australia to sukuk include state-based stamp duty and federal capital gains tax due to the transfer of assets into an out of special purpose vehicles under some sukuk structures to avoid the payment of interest, which is banned under Shariah law.
In SGI-Mitabu’s raising, investors will share ownership and profits with the joint venture in the form of rent instead of receiving interest. As in a normal debt raising, the venture uses Commonwealth government bond rates to price the issue as what they receive is in Australian dollars. Mitabu says pricing is the equivalent of somewhere between a 6 per cent and 7.5 per cent interest rate.
Initially SGI-Mitabu is raising about $100 million to fund the first 50 megawatts (MW). They are building it 50MW at a time because it is important to quickly build an income-producing asset, as investors don’t get a return until the asset they own begins making money.
“We expect to complete the first phase of the project in 10 months [of receiving finance],” says Mitabu. “You can start the project on 50MW. So you might produce 2MW in the first month and start paying the investor.”
Muldoon believes they are only just scratching the surface of the potential for their company in Indonesia. Demand for energy there is rising fast in tandem with a target of 25 per cent renewable energy by 2025 from 5 per cent now.
“250 MW – we could be doing that per annum for the next decade without a great deal of stress,” he says. “We’re talking to some provincial governments about undertaking our projects in their region and they are saying our own projected demand is hundreds of times higher [than this].”
Until recently solar was not a priority for the Indonesian government with abundant geothermal and hydro resources. But a big drop in solar panel prices globally is changing that.
“You have a big population base and a very high rate of industry growth, and simultaneously 25 per cent or so of their population don’t have electricity yet,” adds Muldoon.
“When you match those conditions with a couple of other facts, including that Indonesia is an archipelago of 14,000 islands that is not a good fit for a centralised power network, there is a real opportunity.

(Financial Review / 31 Dec 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sunday, 30 December 2012

Tunisia to tap Sukuk market

Tunisia will be introducing its financial transactions to Sukuk for the first time next year alongside Egypt according to CIMB Group Holdings and OCBC Al-Amin Bank with the global sukuk sales tipped to surpass 2012 record of $46 billion in 2013. Sukuk has been attracting countries after the global economic crises took centre stage.
Countries have been using it more frequently in the Middle East and North Africa region and borrowing costs on Shariah-compliant debt have fallen 11.4% points to 2.82%since the end of 2008 as central banks in Europe, the U.S. and Japan pumped funds into their economies to spur growth. Tunisia, Egypt and Oman tapping the market for the first time has been received with positive reactions.
The head of international finance and capital markets at OCBC Al-Amin Bank based in Kuala Lumpur Alhami Mohd Abdan described “sukuk is an attractive channel to explore for those countries looking to expand funding sources,” and encouraged countries to adhere to it because “liquidity in the Islamic space is growing quite significantly.”
Governments in the Middle East and North Africa are tapping the Sukuk market as part of efforts to widen their funding sources after the European debt crises and demand in the sukuk market has been increasing with a growing pool of wealth seeking Shariah- compliant assets. Tunisia which has a sufficinent Muslim population will also use it as a mean of meeting their demands.
Shariah-compliant bonds sold on the international market returned 9.5% this year, compared with 7.2% in 2011, according to the HSBC/Nasdaq gauge. The difference between average yields on sukuk and the London interbank offered rate narrowed 94 basis points in 2012 to 179 basis points as of December 24 2012, according to HSBC.
(The North Africa Post / 27 Dec 2012)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Islamic banking and finance to continue to grow in 2013

Islamic banking and finance is likely to continue its growth trajectory next year despite the outlook of a challenging year ahead and the slowdown in global economy.

The robust achievement recorded throughout the year coupled with the ‘safe-haven investment’ sentiment among investors will be the main reasons for the industry to remain favourable.

In the Economic Report 2012/2013 by the Ministry of Finance, the Islamic banking business was stated to have continued to expand in the first seven months of this year with total assets increasing 20.6 per cent to RM469.5 billion, representing 24.2 per cent of the country’s banking system’s assets.

In 2011, it expanded by 24.1 per cent to RM436.1 billion, reflecting 23.7 per cent of the total banking system assets.

RHB Islamic Bank Bhd managing director Abdul Rani Lebai Jaafar said Islamic finance in Malaysia was ready to move on to the next stage and compete more aggressively in the global financial market.

He said Islamic finance seemed to have been also equally accepted by both Muslims and non-Muslims due to continuous awareness programmes and customer experience.

He, however, said 2013 could be a challenging year as the issue of ‘funding versus financing’ has remained within the industry where the question of sourcing for funds to generate financing from very limited resources locally needs to be addressed.

Among the challenges would be the limited number of trained and knowledgeable Islamic bankers available in the market to cater for the growing segment.

Although several Islamic banking learning centres such as Islamic Banking and Finance Institute Malaysia (IBFIM) and International Center for Education in Islamic Finance (INCEIF), have been set up by the authorities and training programmes held for fresh graduates by the industry players to tackle the problem, more concerted efforts are needed, Abdul Rani said.

INCEIF chair of Islamic Finance Prof Dr Abbas Mirakhor said the authorities must have a strong commitment in a way that appeals to a pluralistic society to ensure progress for Islamic finance.

“It must be framed, communicated and explained to the society in a way that all segments of the society will understand its benefits and no segment is threatened by either the commitment or the progress,” he said, adding that innovation in products would be also important.

“Malaysia is seen to be in the driver’s seat when it comes to Islamic Banking.

Innovation is a key factor to push Islamic banking to a higher level.” Meanwhile, the new legal framework for Islamic banking and takaful, which is now at the final stages of the enactment process, would be one of the key drivers for the industry movement.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the new law, which would be effective next year, would bring certainty to the legal and regulatory treatment of Islamic financial transactions by providing legal recognition to the contractual requirements in accordance with the Syariah.

“This provides a comprehensive legal environment under which effective risk and profit sharing activities can take place, encompassing all aspects of Islamic financial transactions,” she had said at the Islamic Development Bank Regional Lecture Series on Islamic Economics, Finance and Banking in Jakarta recently.

Abdul Rani said if the new act took effect next year, the outcome would further drive the Islamic finance into greater stability in the midst of continued innovations and globalisation of Islamic finance.

“The new act would potentially provide the industry greater legal certainties in conducting business given Islamic finance development has extended beyond borders; and has interlinkages with various segments of the financial market and real economy.”  On sukuk, RAM Rating Services Bhd Head of the Islamic Finance Ratings Zakariya Othman said Malaysia has built a successful track record as a hub for Islamic finance transactions given its strong legal and regulatory framework that provides a sound foundation.

This coupled with an increased demand for sukuk from investors has spurred the growth of the Malaysian sukuk market.

“Malaysia still dominates the market with a share of 74 per cent of global sukuk issuance as at end-September 2012 and the trend looks set to continue moving forward.

“The significant demand for sukuk has been spurred by the high levels of surplus savings and reserves in Asia, which will further boost the prospects of the burgeoning sukuk market in Malaysia,” Zakariya Othman said.
On the global outlook, Zeti said the vibrant private sector investment, coupled with ongoing government projects will support the growth of sukuk next year.

“We expect the sukuk market to continue to remain on its growth trajectory.”
Sukuk issuances in Malaysia amounted to RM219.4 billion during the first eight months of 2012 against RM120.7 billion in the corresponding period of 2011, contributed in part by the largest issuance to date of RM30.6 billion by Projek Lebuhraya Usahasama Bhd.



(Berneo Post Online / 27 Dec 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Oman: Bank Nizwa signs MoU for Islamic financial services

MUSCAT — Bank Nizwa, the first Islamic bank in the Sultanate of Oman, recently signed a Memorandum of Understanding (MoU) with Capitas Group International (CGI), a leading management firm specialising in Sharia compliant finance. Under the MoU, both firms will collaborate to create specialised financial platforms in the Sultanate by tapping into their combined skills and resources, brought forth by the alliance.


CGI is a Jeddah-based company formed in partnership with the Islamic Development Bank’s private sector arm, the Islamic Corporation for Development of the Private Sector (ICD). The company establishes financial services businesses to fill the unmet demand for Shari’a compliant finance in OIC member countries.

Commenting on the MoU, Dr Jamil el Jaroudi, CEO of Bank Nizwa said, “The MoU with CGI is in line with Bank Nizwa’s efforts to elevate the financial services industry in Oman. Through this strategic partnership we will jointly develop, launch and manage financial platforms and thus promote Islamic Banking and Shari’a compliant products that benefit the customers.

“With the recent Royal Decree in place Islamic finance is now a bonafide component of the Sultanate’s financial infrastructure. The strength of CGI is based on the expertise of its management team which has extensive experience in Sharia compliant finance. This strength is a critical component for the development of Islamic finance at this early stage in Oman.”

In the MoU, Bank Nizwa and CGI have laid down key primary goals, namely to launch a mono-line mortgage finance company and to create a housing development finance programme. “As the first Islamic Bank in Oman, Bank Nizwa is uniquely positioned to act on our main goals under the MoU. Working with the Bank’s trained staff and leveraging its sophisticated processes, CGI looks forward to deploying its expertise and assisting in the overall development of the Islamic finance sector in Oman. This includes leveraging the relationship with our partners, ICD,” stated Naveed Siddiqui, CEO of CGI.

Bank Nizwa is committed to serve the people of Oman by applying fair practices as laid down by the Sharia and by creating job opportunities. The signing of the MoU is aimed at the organic growth of the financial sector in the Sultanate. Bank Nizwa has a pool of knowledgeable and well-trained staff and its world-class software and internal systems are directed towards benefiting the valued customers. Hence the strategic alliance in consultation with each other will explore opportunities in the business sectors mentioned above and will assess their viability in the Sultanate of Oman.

The MoU is a reflection of Bank Nizwa’s efforts to provide quality financial services and comes at an opportune time as Bank Nizwa prepares for its opening.

The bank is in a state of readiness and will open its doors and offer Islamic banking products and solutions to the Sultanate by the beginning of 2013.

Having received the banking license from the Central Bank of Oman the Bank is currently undertaking a comprehensive internal test of its systems and processes, as a precursor to the public launch.

In addition to its work in Oman, CGI is active in several other OIC markets including Saudi Arabia, Morocco, and Tunisia. The Company's senior managers are experts in the field of real estate finance who have established leading Shari’a compliant financial services companies in the United States and Dubai and are now launching a national home finance company in Saudi Arabia. CGI has also held a key role in the structuring and setup of a SAR 1 billion SME Fund which is being sponsored by ICD and the Islamic Development Bank.


(Oman Daily Observer / 30 Dec 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saturday, 29 December 2012

Fiqh Academy issues edicts on five subjects

MAKKAH – International Islamic Fiqh Academy issued here Sunday fatwas or religious edicts on issues concerning Zakat, waiting period for a person who has gone missing, marriage of underage girls, maximum duration of pregnancy, and the right of a guardian.


The academy issued clarification on an earlier decision about prayer timings in countries situated between latitudes 48 degrees and 68 degrees north and south.

The edicts were issued during the academy’s 21st session, said Secretary General of the Muslim World League (MWL) Dr. Abdullah Abdulmuhsin Al-Turki.



The first edict said that Zakat was not compulsory on a creditor for debt which has not been repaid for any reason, but a creditor should pay Zakat on investment debt. If the investment debt has not been repaid for several years, its Zakat can be delayed until it is collected. In this case, the creditor should pay Zakat for the past years. The Zakat should be paid every lunar year. The Zakat is calculated on the investment for the past lunar year without the profits for the coming years.

The edict on the waiting period for a person who has gone missing states that the Qadhi should take a decision to declare the person dead. But the waiting period should not be less than one year and should not exceed four years from the day the person went missing. The circumstances of each case should be taken into consideration. After the elapse of the period decided by the Qadhi, the person’s wealth should be divided and his wife has to observe Iddah.

As to the marriage of underage girls, the Fiqh Academy decided after reviewing many researches and hearing many discussions that the matter needs further research. It also needs more study of statistics as well as social, psychological, medical and legal findings on the subject.



As regards the maximum duration of pregnancy, the academy said that Shariah does not contradict scientific proof, and so the Fiqh Academy has decided that the longest pregnancy duration is one year after the separation of the couple.

The academy said that guardianship will be transferred to the next person if a guardian does not care for his dependent who is sick. The guardian of the sick person should permit conducting a medical procedure if it is in the interest of the sick person.

(Saudi Gazette / 17 Dec 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Filling the gaps [Islamic Business & Finance]

The Investor for Securities Company launched Safa Investment Services, billed as the world's first global Islamic asset manager in the GCC, in October this year. Muslims currently make up 25 per cent of the world's population, and with 450,000 Muslim millionaires in the Middle East, Islamic investment options are becoming increasingly important on the world stage. However, their asset management needs seem to have been sadly neglected by the industry. John Sandwick explained to Islamic Business & Finance how Safa Investment Services has stepped in to fill the void.

What was the rationale behind the launch of Safa Investment Services?

Globally, there are about $80 trillion in professionally managed assets. Muslims must own at least $3 trillion or more of this, of which virtually zero is Shari'ah- compliant. In my nearly 20 years as a Swiss banker I've opened hundreds of private client and institutional managed accounts, mostly for Saudis. Nearly all those clients asked me to avoid Haram investing, or investing that is against their basic spiritual principles. Unfortunately most asset management is Haram. Hedge funds, derivatives, junk bonds, and the like are certainly not acceptable. I realised over five years ago that there is an enormous latent demand for Islamic asset management, but when I looked around there was absolutely no supply. Safa Investment Services fills that gap.
What differentiates Safa Investment Services from other Islamic asset management firms?
There are no other Islamic asset management firms. If you or your readers know of one then please tell me. I'm quite intimate with the domestic banking systems in Malaysia, and I've been of course throughout Saudi Arabia, Dubai, London and Switzerland. There is not one firm or entity doing Islamic asset management. There are many who create and manage Shari'ah- compliant products. But none assemble the best of those products in a disciplined, rigorous, professional fashion that results in robust portfolio allocations, which is the definition of asset management. In that sense Safa is the world's first and only Islamic asset manager. It does not produce investment products, it manages them.
What types of services are you offering?
We are not offering any products. There are other firms that produce and manage many products, about 850 of them by last count. Safa provides the same service you'd find at JPMorgan Asset Management, or Credit Suisse Asset Management. However, the difference is only in that we perform professional asset management of Shari'ah-compliant assets. We construct income, balanced and growth portfolios (low, medium and high risk) comprising cash, fixed income, equity and alternative investment allocations that include "best of class" assets in each category. Our allocations are back tested, benchmarked and then subjected to highly advanced technical analysis, just as you'd expect at BlackRock or Merrill Lynch. The funny thing is, when we compare our allocations to their conventional peers we see enormous outperformance and much lower risk metrics. In other words, Islamic asset management is proving superior to conventional when you make apple- to-apple comparisons.
What makes these products more ethical?
I like to tell people that Islamic asset management is the ultimate in socially responsible investing. It's true. Automatically you get allocations in underlying assets that
'do no harm.' That's what Shari'ah is all about. A Fatwa doesn't tell you if an investment is good or bad, it only tells you that the investment doesn't violate the principles of Shari'ah. Those principles ref lect nearly the identical value systems common among Christians, Jews and really just about everyone. So, to invest according to Shari'ah is essentially the same as ethical investing people are trying to achieve in conventional, Western markets.
What is your target market?
Our target market is multi-layered and will take time to cover. First and foremost we're going to Takaful companies, Islamic endowments, or Awqaf, and family offices throughout Saudi Arabia and the Gulf region. We are showing them how large, sophisticated professionals are doing asset allocation, like big insurers such as Allianz, big private foundations such as the Bill & Melinda Gates Foundation, and big endowments such as Harvard University Endowment.
Presumably these global, professional investors have learned a thing or two about asset allocation. Typically they are very light on real estate and private equity. Unfortunately those two niche, marginal asset classes are predominant in the portfolios of Saudi and Gulf region investors. Teaching people how to properly allocate their assets is our first job, and then showing them how to do so using only Shari'ah-compliant assets is our second job. We think we can capture a good deal of the $200 billion or more portfolio market in Saudi Arabia and the Gulf. Over time we'd like to take Safa to South Africa, Malaysia, Kazakhstan, and even here in Europe. Muslims won't give up their savings for bad investments, but they will always prefer professional investing with Shari'ah compliance over anything else.
What can clients expect from Islamic investing, in terms of levels of risk and length of investment? How does Islamic investing produce superior returns to conventional?
As mentioned, we are seeing that Shari'ah-compliant investing is superior to its conventional peers. Why? The answer is easy. If you
What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters
follow the Shari'ah you also follow basic prudent investment management, meaning your fixed income (Sukuk and trade finance) must be truly asset-backed, not asset-based. Your equities have to be in companies that have very low debt levels, are not in financial services, and which utilise their cash. Of course one must avoid derivatives completely, meaning no hedge funds at all. By following these simple rules one eliminates much of the risk of conventional investing. Our portfolio optimisation software gives us 115 different risk measurements. In every one of them our Safa portfolios outperform conventional allocations. It really is superior.
Islamic asset management is said to be underserved; was this through a lack of demand, expertise, education or anything else?
It is certainly not demand. If you visit any Muslim who has managed wealth and tell him you can do the same thing, with more profits and less risk, but fully Shari'ah-compliant, is he going to say no? The reality is this: Islamic asset management is here, it is tangible and it is a service available now. There is no lack of expertise in asset management. What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters. Also missing is recognition and credibility, which all new services lack. And, of course, people need to be educated not only on the availability of Islamic asset management, but on the basics of prudent asset allocation.
For example, we're looking at the Takaful industry. From 2003 to 2008 most Takaful treasuries were ploughed into local shares, real estate projects and private equity. The results were predictable. While Takaful underwriting is growing at double-digit rates, nearly all Takaful companies are suffering massive losses in their treasuries. Teaching Takaful asset managers on prudent asset allocation is timely and, given they cannot buy anything that's not Islamic, the billions available from Takaful are there for any manager willing to properly organise professional Islamic asset management. Look at Islamic endowments to see an even greater opportunity, where traditionally real estate comprised nearly 100 per cent of assets. There are at least $270 billion in Awqaf assets in Saudi Arabia that urgently need proper professional asset management, and again they can only own Shari'ah-compliant assets.
Is it challenging to have a global asset management firm when there is little standardisation across the Islamic finance world?
There is more to be done in terms of standardisation, but we are at the point where the industry is standardised enough to offer professional Islamic asset management. Groups like AAOIFI, which acts as a standards body, have made enormous progress in the past five years. For example, everyone now knows that Sukuk must be asset-backed, not asset- based. Any Sukuk issued after the famous AAOIFI ruling in February 2008 will likely be asset-backed, and therefore eligible for investing. Even the gap between Malaysian and Saudi and Gulf interpretations of Shari'ah is narrowing to the point of being negligible. We are seeing several large Malaysian asset managers packaging their mutual funds with an additional Fatwa from respected Saudi and Gulf scholars, meaning they are perfectly acceptable to investors in that region. A few years ago you couldn't sell Malaysian funds in Arabia because of the lack of standardisation. That's pretty much behind us now.
What are the myths about Islamic asset management that ought to be dispelled?
The myths exist on two levels. One, Arabs themselves have often thought of Shari'ah-compliant investing as inferior. They are genuinely surprised to see a highly professional team approaching them with a technically advanced investment methodology that is proving superior in terms of risk and reward. The negative image of Shari'ah-compliant investing was for the most part the result of groups like Gulf Finance House (GFH) selling private equity and real estate with gigantic up-front commissions, and then witnessing catastrophic losses in those investments. GFH and its sister and cousin firms were selling widely throughout Arabia, thus a negative perception among some who still remember the hype.
Fortunately liquid portfolio investing is a far cry from those illiquid offerings of years past, and the data doesn't have an agenda. If it shows superior performance then it is because performance is superior.
At another level there are still Western misperceptions of what exactly Muslims want and what exactly is Islamic asset management. I toured nearly every bank in Switzerland for over two years, talking about Islamic asset management. The concept was universally rejected. I think it's because asset managers in Switzerland are stuck in hedge funds, derivatives and other high-commission products that guarantee outsized revenue for an industry that has lost a lot of customers. The ability to see beyond tomorrow is difficult in times of crisis. One head of Middle East sales at a famous Swiss private bank told me, "We don't believe Muslims want Islamic investing." Another said, "We believe the Islamic banking craze will blow out along with the first scandal." Clearly these guys are out of touch with their own markets.
Islamic institutions have been criticised for an overreliance on real estate; surely there must be other suitable assets, or is diversification a challenge in Islamic finance?
In nearly all cultures worldwide there is a foolishness attached to real estate that requires a massive shock to dislodge. It is not only Arabs who fall for the real estate trap. Everyone at some point hears themselves say, "Real estate gets sick but never dies." Or the other favourite, "Real estate, God is not making any more." Real estate lulls investors into a sense of complacency. Look, however, at the tens of billions of dollars lost in Dubai real estate, or Bahrain real estate. For that matter, look at the tens of trillions that were lost worldwide, in particular from the American subprime debacle.
Anyone who had a portfolio of well-balanced, liquid assets would have been vastly better off from 2007 through today, including and in particular Muslims who owned Shari'ah-compliant liquid assets. The crash of real estate in historic proportions is a good lesson for investors in our markets. We are teaching them diversification across all asset categories. Thankfully they are listening.
What are the main challenges in Islamic asset management?
Fortunately the Islamic mutual funds industry is now nearly $100 billion strong and spread across well over 800 funds. Our "buy list" among these- the result of careful filtering, sorting and analysis-comprises nearly 400 mutual funds with over $50 billion in total assets. From this investible universe we can responsibly construct high-performance portfolios. But, compare this to conventional mutual funds, which number around 70,000 worldwide and with over $25 trillion in assets. In comparison the Islamic funds industry is barely visible. Clearly it must grow, and grow substantially. But, which comes first, the chicken or the egg? If there are no Islamic asset managers then the industry will always have few funds. But, with few funds how do you expect to grow the number of managers? The biggest challenge facing Islamic asset management is the parallel and related question: how do you get more investment products, and how do you stimulate the growth of more managers?
What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters
I realised over five years ago that there is an enormous latent demand for Islamic asset management, but when I looked around there was absolutely no supply. Safa Investment Services fills that gap
In Saudi Arabia, the Investor for Securities will be offering this service. The Investor is a regulated investment company based in Riyadh with SAR 200 million paid-in capital.

(Equities.Com/28 Dec 2012)

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Sukuk Seen Topping $46 Billion Record on Debuts

Global sukuk sales will challenge this year’s record of $46 billion in 2013 as countries such as Oman, Tunisia and Egypt tap the market for the first time, CIMB Group Holdings Bhd. and OCBC Al-Amin Bank Bhd. say.
Borrowing costs on Shariah-compliant debt have fallen 11.4 percentage points to 2.82 percent since the end of 2008 as central banks in Europe, the U.S. and Japan pumped funds into their economies to spur growth. Demand will be driven by the rise in Islamic banking assets, which may reach $1.8 trillion next year, compared with $1.3 trillion in 2011, led by Saudi Arabia and Malaysia, Ernst & Young forecast in a Dec. 10 report.
Sales of bonds that comply with Muslim tenets jumped 25 percent in 2012 as companies sold debt as part of government programs in Asia and the Middle East to build railways, ports and roads. Thailand and South Africa have also announced plans to issue sukuk once legislation has been passed that will open up new markets for investors.
“Sukuk is an attractive channel to explore for those countries looking to expand funding sources,” Kuala Lumpur- based Alhami Mohd Abdan, head of international finance and capital markets at OCBC Al-Amin, a unit of Singapore’s Oversea- Chinese Banking Corp., said in a Dec. 21 interview. “Liquidity in the Islamic space is growing quite significantly.”

BIGGEST SALES

The biggest sales came out of Saudi Arabia and Qatar amid development programs of $373 billion and $130 billion, respectively. Malaysia has embarked on a $444 billion spending spree over 10 years that helped spur Islamic bond offerings to an all-time high of 95 billion ringgit ($31 billion) in 2012, data compiled by Bloomberg show.
Saudi Electricity Co. sold $1.75 billion of notes due in 2017 and 2022 in March. The yield on the five-year 2.665 percent securities has since dropped 55 basis points, or 0.55 percentage point, to 1.95 percent, according to data compiled by Bloomberg. Borrowing costs on global Shariah-compliant bonds fell 117 basis points this year and reached a record low of 2.76 percent on Nov. 30, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows.
Qatar completed a $4 billion offering in July. The yield on the 2.09 percent notes due in 2018 declined 13 basis points since the sale date to 1.97 percent.
“There’s an increasing number of governments from the Middle East and North Africa region looking to tap the sukuk market as part of efforts to widen their funding sources following theEuropean debt crisis,” Zakariya Othman, head of Islamic ratings at RAM Ratings Services Bhd., said in a Dec. 18 interview in Kuala Lumpur. “They’re also probably doing so to meet demand from their Muslim populations as there’s now greater awareness of Islamic finance globally.”

RECORD YIELDS

Shariah-compliant bonds sold on the international market returned 9.5 percent this year, compared with 7.2 percent in 2011, according to the HSBC/Nasdaq gauge. JPMorgan Chase & Co.’s EMBI Global Composite Index of emerging-market securities gained 18.2 percent, versus 8.5 percent.
The difference between average yields on sukuk, which pay returns on assets to comply with Islam’s ban on interest, and the London interbank offered rate narrowed 94 basis points in 2012 to 179 basis points as of Dec. 24, according to HSBC.
In Malaysia, borrowing costs on the 3.928 percent dollar- denominated Islamic notes due in 2015 dropped one basis point this month to 1.31 percent, near the all-time low of 1.28 percent reached on Dec. 14, according to data compiled by Bloomberg. The difference between Dubai’s 6.396 percent securities maturing in November 2014 and Malaysia’s debt narrowed 14 basis points in December to 77 basis points as of Dec. 24.

‘NEW JURISDICTIONS’

The Bloomberg-AIBIM Bursa Malaysia Sovereign Shariah Index of the most-active ringgit-denominated bonds rose 3.7 percent in 2012 to 109.5980 and touched a record of 109.882 on Nov. 8.
Central banks in the U.S., Japan and Europe have eased monetary conditions to support growth. The Federal Reserve has pledged to keep borrowing costs near zero until late 2014, while rates in the euro area and Japan are at 0.75 percent and zero to 0.1 percent, respectively. That compares with 2 percent in Saudi Arabia, 3 percent in Malaysia and 5.75 percent in Indonesia.
Issuers will be encouraged to tap the sukuk market as demand increases with a growing pool of wealth seeking Shariah- compliant assets, according to OCBC Al-Amin Bank.
Government Islamic securities accounted for 18 percent of the total global issuance this year, with Qatar, Indonesia, Turkey and the United Arab Emirates completing offerings.
“We expect to see issuance from new jurisdictions in Asia and Europe in 2013,” Mohamad Safri Shahul Hamid, the Kuala Lumpur-based deputy chief executive officer at CIMB Islamic Bank Bhd., a unit of CIMB Group, said in a Dec. 20 e-mail. “The benign interest-rate environment would also help spur the sukuk market in the near to medium term.”
(Bloomberg / 26 Dec 2012)

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Friday, 28 December 2012

Shari`ah-compliant Loans for Poor Muslims

TORONTO – Seeking to tackle poverty in the developing world, a non-profit organization is providing Shari`ah-compliant loans for low-income entrepreneurs to help lead a better life.
“Wafaa is an online micro-financing platform where we act as a middleman between entrepreneurs and individuals who are interested in lending,” Hammam Khaled, Co-founder and Managing Partner of WAFAA told OnIslam.net.
“The idea started in 2008 and Wafaa was launched in 2010.”
Running under the motto “capacity building for a better life”, the British-based company says it seeks to help low-income people to run own projects.
“We cater for 700 different projects and our total portfolio is almost 2.5 million dollars,” Khaled said.
“We target 7 different countries in MENA (Middle East and North African) region.”
Lenders choose the projects they wish to loan to, beginning with as little as $20.
Once the project is fully funded, the Wafaa field partner distributes the loan to the business owner and begins to collect the repayment once the project is up and running.
When the loan is repaid, the Wafaa lender can withdraw their amount or lend to another project of their choice.
“We choose projects through our local partners because we are a very young institution and we rely on organizations that have been working in the field for a very long time,” Khaled said.
Typical projects would be lending money to a person for getting supplies related to their businesses, such as seeds for growing crops or purchasing products for their shops or buying a sewing machine that will give them a way to provide for themselves and their families.
Shari`ah-compliant
Wafaa prides itself in being Shari`ah-compliant company in providing loans.
“We are different from other micro financing organizations because we are a hundred percent Shari`ah-compliant,” Khaled told OnIslam.net.
“We do this by making loans Qard Hasan.
“Operational costs are covered by donations from businesses and organizations.”
Islam forbids Muslims from usury, receiving or paying interest on loans.
Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships
One success story of the company is 25 year-old Ahmed Ali, who lives in Gaza and is the only provider for seven family members.
In 2008, Ali’s store in the West Bank town of Khan Younis was bombed and he lost his job.
Contacting the company for a loan, Ali was provided with $3,000 to rebuild his store.
Microfinance has become common in developing countries where small loans are helping families and whole communities come out of poverty.
Wafa says it seeks to be self-sufficient in it operations in the near future.

“We promote that we make the poor self-sufficient so we have to act as we say and our plan is, in the next 5 years, to become a self-sufficient organization.”


(On Islam / 27 Dec 2012)

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Islamic banking and finance to continue growth in 2013

KUALA LUMPUR: Islamic banking and finance is likely to continue its growth trajectory next year despite the outlook of a challenging year ahead and the slowdown in global economy.
The robust achievement recorded throughout the year coupled with the “safe-haven investment” sentiment among investors will be the main reasons for the industry to remain favourable.
In the Economic Report 2012/2013 by the Ministry of Finance, the Islamic banking business was stated to have continued to expand in the first seven months of this year with total assets increasing 20.6% to RM469.5 billion, representing 24.2% of the country’s banking system’s assets.
In 2011, it expanded by 24.1% to RM436.1 billion, reflecting 23.7% of the total banking system assets.
RHB Islamic Bank Bhd Managing Director Abdul Rani Lebai Jaafar said Islamic finance in Malaysia was ready to move on to the next stage and compete more aggressively in the global financial market.
He said Islamic finance seemed to have been also equally accepted by both Muslims and non-Muslims due to continuous awareness programmes and customer experience.
He, however, said 2013 could be a challenging year as the issue of “funding versus financing” has remained within the industry where the question of sourcing for funds to generate financing from very limited resources locally needs to be addressed.
Among the challenges will be the limited number of trained and knowledgeable Islamic bankers available in the market to cater for the growing segment.
Although several Islamic banking learning centres such as Islamic Banking and Finance Institute Malaysia (IBFIM) and International Center for Education in Islamic Finance (INCEIF), have been set up by the authorities and training programmes held for fresh graduates by the industry players to tackle the problem, more concerted efforts are needed, Abdul Rani said.
INCEIF Chair of Islamic Finance Prof Dr Abbas Mirakhor said the authorities must have a strong commitment in a way that appeals to a pluralistic society to ensure progress for Islamic finance.
“It must be framed, communicated and explained to the society in a way that all segments of the society will understand its benefits and no segment is threatened by either the commitment or the progress,” he said, adding that innovation in products would be also important.
“Malaysia is seen to be in the driver’s seat when it comes to Islamic Banking. Innovation is a key factor to push Islamic banking to a higher level.”
New framework
Meanwhile, the new legal framework for Islamic banking and takaful, which is now at the final stages of the enactment process, would be one of the key drivers for the industry movement.
Bank Negara Governor Dr Zeti Akhtar Aziz (photo) said the new law, which will be effective next year, would bring certainty to the legal and regulatory treatment of Islamic financial transactions by providing legal recognition to the contractual requirements in accordance with the Syariah.
“This provides a comprehensive legal environment under which effective risk and profit sharing activities can take place, encompassing all aspects of Islamic financial transactions,” she had said at the Islamic Development Bank Regional Lecture Series on Islamic Economics, Finance and Banking in Jakarta recently.
Abdul Rani said if the new act takes effect next year, the outcome would further drive the Islamic finance into greater stability in the midst of continued innovations and globalisation of Islamic finance.
“The new act would potentially provide the industry greater legal certainties in conducting business given Islamic finance development has extended beyond borders; and has interlinkages with various segments of the financial market and real economy.”
On sukuk, RAM Rating Services Bhd Head of the Islamic Finance Ratings Zakariya Othman said Malaysia has built a successful track record as a hub for Islamic finance transactions given its strong legal and regulatory framework that provides a sound foundation.
This coupled with an increased demand for sukuk from investors has spurred the growth of the Malaysian sukuk market.
“Malaysia still dominates the market with a share of 74 per cent of global sukuk issuance as at end-September 2012 and the trend looks set to continue moving forward.
“The significant demand for sukuk has been spurred by the high levels of surplus savings and reserves in Asia, which will further boost the prospects of the burgeoning sukuk market in Malaysia,” Zakariya Othman said.
On the global outlook, Zeti said the vibrant private sector investment, coupled with ongoing government projects will support the growth of sukuk next year.
“We expect the sukuk market to continue to remain on its growth trajectory.”
Sukuk issuances in Malaysia amounted to RM219.4 billion during the first eight months of 2012 against RM120.7 billion in the corresponding period of 2011, contributed in part by the largest issuance to date of RM30.6 billion by Projek Lebuhraya Usahasama Bhd.

(F M T News / 27 Dec 2012)

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