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Tuesday, 24 September 2013

Expert expects India to allow Islamic banking

DOHA: Aiming to mobilise resources from the GCC states for the proposed mega infrastructure projects, there is a “very strong possibility” of India taking positive steps to amend the country’s banking regulatory laws to introduce the Islamic banking system in a full-fledged manner, before the upcoming parliamentary elections in 2014, said an expert yesterday.

The existing Banking Regulation Act (1949) of India hinders the establishment of Islamic banking as it does not allow banks to operate on a profit-loss basis and forbids murabaha, or, the buying, selling, or barter of goods.

“I strongly believe India soon will take some positive steps, either to amend the laws of the Reserve Bank of India (the country’s central bank) or promulgate ordinance to make way forward to establish Islamic banking system by 2014,” said Dr Manzoor Alam, President of Indo-Arab Economic Cooperation Forum, and also an expert of Islamic banking.

Recently the RBI permitted the Kerala government (a state in south India) to go-ahead to launch a Non-banking Financial Institution (NBFI) based-on the principles of Islamic finance.

Dr Alam, who has been striving for over two decades to introduce interest-free banking system in the country, advocated that participatory banking is the need of the hour to facilitate foreign investments to generate resources, especially at a time when the government has approved many ambitious programmes, including Food Security Bill and mega infrastructure projects, which alone will cost the exchequer over $50bn.

“I see a political will in the present government. A couple of  years ago, Prime Minister Manmohan Singh announced in Malaysia at an international conference on Islamic banking to form a committee to conduct a feasibility study in this regard, and subsequently, the committee made positive recommendations. However, there is tremendous pressure on the government from different quarters including right wing political parties, particularly Bharatiya Janata Party (BJP) to prevent introducing a system which will not only help the Muslims, but the whole nation,”  he said. 

Many think that unless and until full-fledged Islamic banks are permitted in India, an Islamic finance sector will find it hard to develop. 

However, some analysts suggest that the RBI’s recent decision with regards to the Kerela government reflects a significant and positive change in its attitude towards Shariah-based NBFIs. 

Some politicians and private organisations have been making efforts for years to start Islamic banking in India, but they have faced strong opposition from bureaucrats and conventional banking circles. Established in early 1970s over 50 countries have adopted the system of interest-free banking across the globe. 
“The global market capitalisation of interest-free banking is expected reach over $1.6 trillion by the end of 2013. And the world’s leading economies such as Japan, the UK and the USA have already allowed the system and becoming increasingly popular in other advanced countries. But in India, there is still some misnomer or misunderstanding that it will help Islamisation of the country,” added Dr Alam. 

Dr Alam also suggested that there is an urgent need to establish a global regulatory framework, similar to the Basel-based Bank of International Settlements (BIS), to make the Shariah-compliant banking more popular and sustainable.
(The Peninsula / 24 Sept 2013)

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Philippines: Bangko Sentral ng Pilipinas (BSP) pushes Islamic banking

MANILA,  - The Bangko Sentral ng Pilipinas (BSP) is pushing for the development of Islamic banking in the country.
BSP Deputy Governor Nestor A. Espenilla Jr. said this financial reform will allow the central bank to create regulations that could spur investments and support economic development in Mindanao.
“We just want to have an enabling provision in the BSP charter that will allow us to develop regulations that can support (Islamic) banking,” Espenilla told reporters.
“Today, there’s only one operating (Islamic) bank, Al-Amanah (Islamic Investment Bank of the Philippines)... so this will pave the facility for developing an Islamic banking system and not only individual entities,” Espenilla said.
The BSP, under its proposed amendments to its charter, aims to provide “financial facilities for Islamic banks.”
Espenilla explained that they carefully worded the provision in a “generic” way as some products of Islamic banks tend to be different as compared with what conventional banks have.
Islamic banks generally offer the same facilities as conventional ones but they adhere to the laws of Sharia, the moral code and law set by Islam, he explained.
One of the main differences of Islamic banking and conventional banking is doing away with interest or fees for loans as it is prohibited under the principles of Sharia, Espenilla said.
Supporting the Islamic banking industry may be crucial to the economic development of Mindanao as Muslims tend to avoid banks or products non-compliant with their religious law.
With regard to foreign Islamic banks that may want to establish presence in the Philippines, Espenilla said the central bank will allow them as long as they comply with the regulations governing banks in the country.
(Phil.Star.Com / 24 Sept 2013)

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London steps up Islamic finance ambitions

Aiming to build on London's status as a leading exporter of financial services, Britain hopes to step up the challenge to Islamic finance centres such as Dubai and Kuala Lumpur.
"We want to be the leading (Islamic) finance sector outside of the Muslim world," deputy mayor of London Edward Lister said in a press conference in Kuala Lumpur on Wednesday.
Islamic finance follows religious principles such as bans on interest and gambling, and is playing an increasingly prominent role internationally as often oil and gas-rich investors from Islamic countries put more of their money to work overseas.
Britain's Islamic finance task force, established in March, is led by several ministers and industry figures as well as top executives from Gatehouse Bank and Oakstone Merchant Bank Ltd.
It was launched ahead of London hosting the World Islamic Economic Forum in October and its mandate is to facilitate Islamic financial business, including investment in British infrastructure by Islamic sovereign wealth funds.
The forum, which saw 28 billion ringgit ($8.6 billion) worth of deals inked last year, is being held outside an Islamic city for the first time.
Islamic finance has already played a role in several major deals in London, with Qatari investors taking part in funding the city's Shard tower, Harrod's department store and the athletes' village used for last year's summer Olympics.
A Malaysian consortium is also spearheading the redevelopment of London's Battersea power station, after acquiring the site for 400 million pounds last year. Malaysia is the second largest investor in London's real estate market behind the United States.
"The task force has just started and its aim is to make it easier for banks in London to have Islamic products, which is still quite a new concept to any of them," Lister said.
"Only now people are beginning to understand what the products actually mean and how they comply ... What you will see is a lot of companies introducing those products."
Maybank Islamic, an arm of Malaysia's largest bank Malayan Banking Bhd, has launched a sterling-denominated and sharia-compliant mortgage product for high net-worth Malaysians looking to invest in London's real estate market.

Britain currently has 22 financial institutions, including five fully sharia-compliant banks, offering Islamic finance products. They are supported by 30 London law firms offering expertise on the sector.
(Reuters / 18 Sept 2013)

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Bangladesh: Islamic finance bears vow of playing beneficial role in socioeconomic dev

Bangladesh Bank (BB) Governor Dr Atiur Rahman has said Islamic finance bears the promise of playing a major beneficial role in the country's socioeconomic development.

"With its ethical, inclusivity promoting and stability enhancing attributes, Islamic finance undoubtedly bears the promise of playing a major beneficial role in our socioeconomic development," the central bank chief said while speaking at a seminar held in a local hotel Monday. 

The two-day-long seminar on 'the prospects and challenges in the development of Islamic finance for Bangladesh' was organised jointly by the Islamic Financial Services Board (IFSB) and the BB. 

Dr Rahman said Islamic finance market participants must exercise utmost caution in steering clear of any involvement with extremist dogma driven influences aiding or abetting terrorism; meticulously adhering to anti-money laundering (AML) compliance routines prescribed by BB's financial intelligent unit (FIU).

Islamic finance commenced in Bangladesh in early 1980s with just one Islamic commercial bank. By now there are eight Islamic banks run wholly on Shariah principles. 

Besides, as many as 17 conventional banks, including one globally active foreign bank, are running Islamic banking branches or windows side by side with their conventional banking, according to the central bank statistics. 

"Â….approval requests of a number of conventional banks for their conversion into wholly Shariah-based Islamic banks indicate robust customer demand in Bangladesh for Islamic financial services," the BB governor noted. 

He also said the BB has taken a move for structuring some appropriate Shariah-compliant small and medium enterprises (SME) refinance support line for the Islamic banks. 

"Apart from Islamic banking, Takaful or Islamic insurance is also now gaining ground in our financial market," the central bank governor said. 

Barring one exception of a small sick Islamic bank in process of restructuring, the Islamic banks in Bangladesh generally have higher capital adequacy ratios and lower non-performing loan ratios than their conventional banking counterparts, according to the BB governor. 

He also said aggregate assets and deposits of Islamic banks in Bangladesh have nearly doubled in the last four years; by end of 2012 aggregate assets and deposits both crossed the trillion taka threshold, comprising around a fifth of total banking sector assets and liabilities. 

"This share of Islamic banking looks set to grow further with time, given its faster growth than conventional banking," the BB governor said.

Speaking on the occasion Secretary General of the IFSB Jaseem Ahmed said Islamic finance is contributing to the deepening and widening of the global financial system through the use of innovative, Shariah-compliant, contractual forms. 

"Priority must be given to the creation of an enabling financial infrastructure consisting of common international standards for supervision and regulation, as well as for transparency and disclosure," Mr Ahmed noted. 

A collaborative effort between the supervisory authority, policy-makers and market players is the key to maintaining the balance between strong regulation and the market's ability to grow, according to the IFSB secretary general.

"At the end of day, we must be guided, in promoting Islamic finance, by the recognition that an enterprise has value only if it helps to transform the lives of ordinary human beings," he noted. 

Kuala Lumpur-based the IFSB was officially inaugurated on November 3, 2002 and started operations on March 10, 2003. 

It serves as an international standard-setting body of regulatory and supervisory agencies that have vested interests in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance.

Currently, 187 members of the IFSB comprise 57 regulatory and supervisory authorities, eight international inter-governmental organisations - such as the World Bank, the International Monetary Fund (IMF) and Asian Development Bank (ADB) - and 122 market players, professional firms and industry associations operating in 43 jurisdictions.

(The Financial Express/ 24 Sept 2013)

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Malaysia wants Islamic finance industry to ‘look West’

PETALING JAYA: With the backing of Maybank Islamic Bhd, the World Islamic Economic Foundation (WIEF) is working together with the Greater London Authority to boost trade and investment between Malaysia, the Association of South-East Asian Nations (Asean) and the UK.
The idea is based on the consensus of using Islamic finance as the platform for the transactions that will involve Malaysian investors and businesses in their efforts to diversify their portfolios into the UK, particularly in London, Maybank Islamic chief executive officer Muzaffar Hisham said last week in Kuala Lumpur.
“There is an increasing interest by Malaysian investors in diversifying their investment portfolios into the UK and particularly London. Maybank Islamic is well placed to encourage such opportunities”, Muzaffar said.
Muzaffar emphasised on the strategic importance of Islamic Finance for London as an opportunity to tap into a new source of capital, assets and liquidity in Islamic markets for London’s future growth and global ambitions.
Muzaffar has not only encouraged sovereigns but also UK corporate firms that are wishing to issue funds to consider Shariah-compliant instruments as they expand to new frontiers, especially in the Gulf Cooperation Council (GCC) and Asean/Malaysia.
“The deal will most probably be announced during the 9th WIEF in London in October,” Muzaffar told reporters after the soft launch of its new retail mortgage product at the WIEF headquarter in Kuala Lumpur.
Maybank Islamic has recently secured pound sterling cross border financing, making it the first Malaysian bank to have such financing instruments in London, Bernama reported.
Also present during the event were deputy mayor of London Sir Edward Lister and WIEF managing director Syed Abu Bakar Almohdzar, who both reiterated the importance of boosting trade, investments and business between Malaysia, Asean and London through Islamic Finance.
“Developing trade and investment links with Malaysia is a key priority for London and Maybank’s initiative significantly broadens the range of Shariah-compliant investment opportunities. Hosting the world,” Lister said.
The WIEF will showcase London’s role as the leading Western hub for Islamic Finance and lay the foundation for strengthening our bond with the Islamic world, Lister added.
London has taken proactive measures to grow Islamic Finance in an attempt to attract more investment from the Middle East and other Muslim countries in the Asean region, believing these are essential to further boost London’s standing as an important centre for the industry.
There is a growing appetite for Shariah-compliant investments in London as it grows in Malaysia and Asean, the Maybank Islamic feels that it is well placed to bridge prospective clients in facilitating their aspirations.
In addition, Maybank Islamic is also actively expanding its foreign currency business in the retail banking space.
The bank is in the final stage of launching an Islamic foreign currency property financing product for London properties due to be launched in fourthquarter of 2013.
On the other hand, Syed Abu Bakar said Malaysia will continue to play a leading role in Islamic finance, through the WIEF, with London as a new global centerpoint.
“As Malaysia continues to play a leading role in Islamic finance, the World Islamic Economic Forum continues to be a strong advocate of Islamic Finance in Muslim and non-Muslim communities around the world,” Syed Abu Bakar said.

(F.M.T News / 23 Sept 2013)

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Monday, 16 September 2013

Sustainable investing: Opportunity awaits Islamic finance industry

Islamic finance and the forms of finance generally referred to as sustainable and responsible investing (SRI) are yet to actively collaborate with each other. One would think that to strengthen their position in a market dominated by conventional finance, Islamic finance and SRI would be sharing their successes and failures, coming together for joint ventures, and supporting each other on issues where they have similar views. But such collaboration has not occurred. Building bridges between the two remains an opportunity that is waiting to be seized upon by the industry leaders from the two sides.
Islamic finance and SRI share some obvious similarities in their objectives (do good; avoid harm), methods (e.g. exclusionary screening) and claims (such as emphasis on ethics). Both seem to trigger similar expectations among their proponents of being ethically different from conventional finance. They also face similar criticism of not being able to live to up to these expectations as shown by the ‘form versus substance’ debate in Islamic finance and ‘green washing’ debate in SRI. Although SRI is older and larger than Islamic finance, which is estimated between $1 to $2 trillion in terms of global assets, both are relatively small and growing segments.

(Gulf.News.Com / 16 Sept 2013)

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Islamic pensions make inroads among asset managers

SYDNEY/KUALA LUMPUR (Reuters) - Islamic pensions are making inroads in several majority-Muslim countries, and their success may help the growth of asset management industries across much of Asia and the Middle East.

Most pension plans around the world are state-funded. But many countries are trying to develop private pension sectors as a way to deepen their financial markets, and the experience of Pakistan, Turkey and Malaysia suggests Islamic finance can become a significant part of this effort.

If state-owned pensions in major Islamic markets shifted a portion of their money into sharia-compliant schemes, that could add between $160 billion and $190 billion to the sector, according to consultants Ernst & Young.

"So you've got a pent-up demand - your challenge is how to create a supply-side mechanism to cater to that latent demand," said Ashar Nazim, Islamic financial services leader at E&Y.

Pakistan launched such a mechanism in 2005, creating a voluntary pension system (VPS) which now holds 3.4 billion rupees ($32.4 million) of Islamic assets, or 61 percent of all VPS assets.

While modest in absolute terms, Islamic pension assets account for a much larger proportion of the VPS sector than Islamic bank deposits' 10 percent share of all Pakistani bank deposits.

All seven VPS managers offer Islamic pensions and the largest, run by a unit of Meezan Bank , is triple the size of its conventional peer. Islamic assets under management have doubled in the last year.

Growth was initially stagnant until 2010, when changes in the tax regime, favorable market conditions and a wider product range boosted the sector, said Muhammad Afzal, a director at Pakistan's Securities and Exchange Commission.

"The popularity of Islamic pension funds can be attributed to demand from the general public for retirement products designed in accordance with the Islamic precepts," said Afzal.

"This money can be retained for a very long-term basis given 70 percent of the country's population is under 35 years of age," said Wasim Akram, fund manager at HBL Asset Management, a VPS provider and a unit of Habib Bank .

"With time, I believe that the performance of the already-launched funds will attract more and more members as the opportunities for growth are enormous."


Islamic fund managers screen their portfolios according to religious guidelines such as bans on tobacco, alcohol and gambling, in much the same way as socially responsible funds in Western markets.

They have an additional constraint, Islam's ban on interest payments, which confines them to sukuk in the fixed-income space - a relatively small market globally where demand has exceeded supply in many countries.

Islamic fund managers see potential, however, in countries such as Turkey, where a 2001 private pension law has been energized by government reforms introduced this year. The number of contributors to private pensions has reached 3.8 million, up from 3.1 million in December, after the Turkish state began making a 25 percent contribution to private pension premium payments and fund management charges were cut.

The vast majority of private pension assets in Turkey are conventional financial instruments. But Cuneyt Cicek, chief financial officer at Asya Emeklilik, the Islamic pension unit of Bank Asya , predicted customer preferences could help Islamic pensions reach the target of 15 percent market share by 2023 that the government has set for Islamic banks overall.

Islamic pension products reached $175 million in assets as of September, according to Turkey's Capital Markets Board. That is equivalent to about 1.5 percent of the industry.

"The asset volume and number of participants in the system are likely to grow significantly with the incentives," said Cicek.

Asya Emeklilik is one of 17 conventional and Islamic pension firms in the Turkish system; it is the only full-fledged Islamic firm, although a few others offer sharia-compliant products.

(Chicago Tribune Business / 15 Sept 2013)

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KFH major trader with USD 490 mln in IILM sukuk program

KUWAIT, Sept 14 (KUNA) -- Kuwait Finance House (KFH) has participated, as a major trader, with USD 490 million in the first issuance of a short-term sukuk program released by the International Islamic Liquidity Management Corporation (IILM), Baitik's Treasury General Manager Abdulwahab Al-Roshood said Saturday.

In a press release, Al-Roshood noted that program is sharia compliant, tradable and able to provide sources to finance corporations and governments through new mechanisms.

He continued as saying that IILM has recently issued the first issuance for 3 months with the participation of 8 gulf and foreign banks, including KFH. He added that sukuk issued by IILM enjoys the privilege of being short term, rated as the short-term highest credit rating A-1 by the international Standard and Poor's. It contributes in enhancing asset quality for participants and it is considered a source of good income due to its rewarding returns compared to its short term periods.

Al-Roshood explained that the IILM is a new corporation based in Malaysia. The goal behind establishing such corporation lies on the deployment of short-term Sovereign sukuk ranging from one month to one year with USD 2 billion program volume.

IILM aims to enhance cross-border investment flows, international linkages and financial stability. It was established on 25 October 2010, the current shareholders are from the central banks and monetary agency of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey, the United Arab Emirates and the Islamic Development Bank. 

(Kuwait News Agency / 14 Sept 2013)

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Testing Islamic finance skills

MANAMA: Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) held the examinations for its certified Sharia adviser and auditor (CSAA) and certified Islamic professional accountant (CIPA) professional development programmes on September 11 in several locations across the globe.
AAOIFI secretary-general and chief executive Dr Khaled Al Fakih said through the CSAA and CIPA programmes, Islamic finance professionals can gain technical understanding of AAOIFI international Islamic finance standards and be guided on practical application of those standards.
"The programmes go a long way towards promoting adoption of AAOIFI standards in major Islamic finance markets.
"We are thankful for the support that we have received from the international Islamic finance industry," he said.
"We are especially grateful for assistance given by central banks, Islamic banks and higher learning institutions across the world in hosting the examinations for us," Dr Al Fakih added.
The examinations were held in major Islamic finance markets including Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Malaysia, Oman, Pakistan, Qatar, Saudi Arabia, South Africa, the UAE and the UK. AAOIFI will also be holding the next round of training courses for CSAA and CIPA professional development programmes from November 20 to 23 in Manama.
The training courses will follow the conclusion of AAOIFI-World Bank Annual Conference on Islamic Banking and Finance on November 18 and 19 in the kingdom.
(Gulf Daily News / 15 Sept 2013)

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Thursday, 12 September 2013

Islamic banking set to grow

The global banking crises was good oportunity for Islamic banking , a community based system which does not use payment of interest, to become an alternative to conventional banking however the market is still small, said Azmi Omar, director general of Islamic Research & Training Institute (IRTI), an affiliate of Islamic Development Bank (IDB) .
Speaking at the ninth International Conference on Islamic Economies and Finance which began in Istanbul on Monday Omar said;  "If you look back at 2008, 2009 people were not happy, they were demonstrating against their governments and the governments were looking for some alternatives. To me, Islamic finance can provide the alternative."
"Unfortunately" added Omar, "Islamic finance market is still small except some countries like Bahrain, Saudi Arabia, Malaysia but the rest are very small like one percent, two percent."
On the other hand, Omar highlighted that the trade between countries that already used the Islamic financial system grew, "from 20 to 50 percent annually" after the global financial crisis. Prospects for the future are good but to capitalize on the growth  there is a need for more expertise, research and conferences on how to formulate policies to manage the expanded market.
"When the market expands do you have avaliable, ready policy? For example when you have a dual banking system, conventional and Islamic, how do you manage the monetary policy? So there are issues to be adressed."
"The turmoil in Syria and Egypt has had no negative or positive effects on Islamic banking and finance as it does not have any political agenda", commented another attendee at the conference Islamic Economist Prof. Humayon Dar.
“Because Islamic banking and finance has no political agenda it will not change the sentiment of people either to increase their business with Islamic banking or decrease,” Dar said. “Given this neutrality of Islamic banking and finance to politics there will not be any effects on the role of Islamic banking .”
He said when shareholders have some kind of political aspirations, their businesses may be  badly affected by the turmoil and added “Shareholders  involved in Islamic banking and finance all over the world  are very neutral and  business oriented people and they are looking for pure business opportunities.”
Dar said many people perceive that Islamic banking and finance, which generates around $1.6 trillion worldwide, is an oil driven phenomenon, which is only partially true.
“This is true in the case of Saudi Arabia and some other oil rich countries. But it is definitely not the case in the countries such as Malaysia, Indonesia, and Pakistan where oil does not have a very significant role,” Dar said.

(World Bulletin / 11 Sept 2013)

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Wednesday, 11 September 2013

Indonesia Sells $1.5 Billion of Sukuk at Top Rate Since 2009

Indonesia sold $1.5 billion of dollar-denominated Islamic bonds at the highest yield since 2009 as it seeks to bolster its foreign-exchange reserves to support the plunging rupiah.
The nation issued the notes due in 5.5 years to yield 6.125 percent, according to Dahlan Siamat, Islamic financing director at the debt management office. That was the highest rate for global Shariah-compliant securities since Indonesia paid 8.8 percent on its debut dollar sukuk in 2009. The country last offered global Islamic paper in November, selling $1 billion of 10-year securities at a record-low yield of 3.3 percent.
Bank Indonesia has burned through $19.8 billion of foreign-currency reserves this year to stem declines in the rupiah, which has weakened 14 percent against the dollar. Investors submitted $5.6 billion of bids, more than three times the amount offered, Siamat said, compared with a bid-to-cover ratio of 1.9 times at a sale of non-Islamic 10-year dollar bonds in July.
“We succeeded in tightening the yield significantly as demand from investors was extremely large,” he said in an interview in Jakarta today. “Our financing position is now very secure for this year.”
The government hired Standard Chartered Plc, Citigroup Inc. and Deutsche Bank AG to arrange the sale, Robert Pakpahan, director general at the debt management office in Jakarta, said in July. Indonesia allocated 15 percent of the notes to local investors, 25 percent to the rest of Asia, 24 percent to the U.S., 16 percent to Europe and 20 percent to Islamic and Middle Eastern funds, according to a person familiar with the matter who asked not to be named as the details are private.


The nation follows South Korea in tapping the global debt market, after Asia’s fourth-biggest economy drew bids for five times the $1 billion of bonds it offered last week. The 10-year notes were sold at 4.02 percent, 115 basis points more than similar-maturity Treasuries, the Finance Ministry said.
Indonesia’s dollar bonds are the worst performers in 2013 among 11 Asian emerging markets tracked by HSBC Holdings Plc indexes, declining 18 percent. The nation’s new dollar sukuk was sold at a premium of 436 basis points, or 4.36 percentage points, over similar-maturity Treasuries.
“We are compromising by taking a shorter tenor with a hopefully reasonable yield,” Siamat said yesterday. “While the government wants a longer-term horizon, we have to consider market appetite, especially the preference for shorter tenors, and secondly the cost.”


Standard & Poor’s rates the offer at BB+, the top junk level, to reflect the “weak policy environment and external pressures,” it said in an Aug. 22 statement. Moody’s Investors Service ranks the debt at the lowest investment grade along with Fitch Ratings, which cautioned last month that Indonesia’s widening current-account deficit may destabilize the economy and lead to a rating downgrade.
The shortfall in the broadest measure of trade was $9.8 billion in the second quarter, the largest in data compiled by Bloomberg going back to 1989. Foreign-exchange reserves fell 18 percent this year to $93 billion last month, central bank figures show.
“The government must have decided that supporting foreign reserves is worth paying a steep price to sell global sukuk,” Angky Hendra, Jakarta-based head of fixed income at PT Batavia Prosperindo Aset Manajemen, which oversees 13 trillion rupiah ($1.1 billion), said last month. “The concern is that if reserves keep falling, then investor confidence will worsen.”


The average yield on emerging-market sovereign dollar notes was 6.2 percent yesterday, near the 6.27 percent reached on Sept. 5, which was highest since October 2011, according to JPMorgan Chase & Co. index data. The rate has climbed 182 basis points this year.
The average yield on global bonds that pay returns on assets to comply with Islam’s ban on interest rose 148 basis points this year to 4.29 percent on Sept. 6, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
Southeast Asia’s largest economy raised its 2013 net debt sales target to 231.8 trillion rupiah in June, from 180.4 trillion rupiah, as it seeks to fund an estimated budget deficit of 2.38 percent of gross domestic product this year, which would be the largest in data compiled by Bloomberg going back to 2004.
(Bloomberg / 11 Sept 2013)

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Fatwa and transaction costs in Islamic finance

Shariah advice on structures of Islamic financial products and on compliance of such products with the Islamic law are a necessary pre-requisite and a regulatory requirement for financial institutions in many countries, including Pakistan. Consequently, Shariah costs are included in the transaction costs associated with Islamic financial products.
Financial fatwas play an integral part in the development of Islamic financial products, as without an explicit endorsement from a Shariah viewpoint such products cannot be successfully marketed.
A fatwa in the context of Islamic banking and finance is a religious opinion by a qualified Shariah scholar on structure of an Islamic financial product, like a mortgage, the conduct of management, like a fund manager, and operations of an Islamic financial institution, like an Islamic bank, determining their compliance or otherwise with the Islamic law.
Fatwa, if issued by an individual scholar or jurist, is non-binding and therefore, its utility is rather limited in this sense. However, if a collective body of scholars issues a fatwa under an enforcement regime, like a government or another such authority, it could be made binding on the market participants.
Legislation in Malaysia makes it compulsory, not only for all market players (Islamic banks and Takaful companies) but also for the judges hearing the cases related with Islamic banks and finance in Malaysian courts, to abide by the fatwas and Shariah rulings publically issued by the Shariah Advisory Council of Bank Negara Malaysia, the central bank.
In Pakistan, the Shariah Advisory Board of the State Bank of Pakistan issues fatwas to govern Islamic banking operations in the country. The legal standing of such fatwas has yet to be tested in a court of law.
Many observers of Islamic finance frequently refer to what is now rather cynically known as “Fatwa shopping.” Those who use the term, refer it to the process of an institution approaching a number of Shariah scholars (simultaneously or one after one) to solicit their Shariah advice on an individual basis and then choosing the one, which is the least restrictive or most liberal. This notion of Fatwa shopping is considered as bad and in fact most Shariah scholars discourage this practice.
If this is what people mean by Fatwa shopping then it should not be entirely wrong, as long as the quality of Shariah advice thus obtained fulfils strict Shariah requirements. This indeed has cost implications for the party seeking Shariah advice but if one is willing to pay relatively high costs of procuring Shariah advice, it should be left to the individual to do so.
In the absence of the Islamic law in most countries (including the ones with majority Muslim population), it is important that there is an independent Shariah verification of the products, practices and operations of Islamic financial institutions and other institutions offering Islamic financial services.
Ideally, this verification should come from a government authority like a central bank or any other financial regulator.
The best option remains a government authority, as it has enforcement power. Other organisations are ineffective unless the governments accept their Shariah Standards and make them binding on the institutions offering Islamic financial services.
In a less ideal scenario, the Shariah verification function must be offered by professional Shariah advisory firms registered with a regulator (like the Securities and Exchange Commission of Pakistan or the State Bank).
It is important to note that a new fatwa is required only when there are no clear guidelines available on a product. Thus, now that setting up an Islamic equity or mutual fund has received mainstream relevance in a number of countries, there is no need for obtaining a new fatwa from a Shariah board or a Shariah scholar. However, it remains important that the fund/transaction is supervised and monitored by a competent body to ensure its strict adherence with Shariah.
There is sometimes an over-emphasis on the importance of fatwa. For instance, there are some training providers in Islamic finance, who advocate the issuance of a fatwa on the Shariah authenticity of the training materials and their delivery. While importance of Shariah authenticity of the content and delivery of Islamic finance training cannot be underestimated, this is nevertheless needlessly stretching the concept of fatwa and its modern applications.

The writer is an economist and a PhD from Cambridge University
Published in The Express Tribune, September 9th,  2013.

(The Express Tribune / 08 Sept 2013)

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Lack Of Governance Affects Islamic Finance Growth In Middle East

Lack of proper governance and regulation for Islamic finance can affect future growth and confidence of the sector in the region, industry experts have warned.

“The bigger you grow, the more transparent an industry needs to be in order to gain confidence. This happens only when there is proper governance and regulation,” said Ashruff Jamal, partner and global Islamic finance leader at PwC, Dubai.

Middle East banks are yet to agree on a centralised board of governance and regulation for Islamic finance seen in countries like Malaysia, which is obstructing the region from tapping the sector’s potential.

Jamal said that culture plays a major role in the lack of common governance in the region where every bank has its Sharia standards and regulations.

“Here each bank started out with its own board which sets out Sharia regulations and now finds it hard to give up that control.”

According to PwC’s report, global Islamic finance assets are valued at $1.2 trillion with Middle East constituting a large part of that market.

Jamal said that the Islamic finance industry is estimated to grow rapidly and more than double in the next four years.

The world’s Islamic population is projected to grow by 30 per cent by 2030, significantly boosting the demand for Islamic finance. The current demand for Islamic finance is expected to grow mainly in Africa and Asia, which hold 95 per cent of the world’s Islamic population, the report said.

Experts said that there is an attractive market among the emerging middle class for Islamic deposits, lending, protection and payment products. The growth in the retirement market is further creating demand for Islamic pension and asset management products.

However the Middle East will be unable to cash in on the boom experienced by Islamic finance due to its lack of regulation.

Jamal said that due to the lack of common governance and regulation, various banks in the region have the same Sharia scholars. He said that research showed around 20 Sharia scholars are part of as many as 619 boards creating room for conflict.

The expert also said that the pace at which the Islamic finance industry has been expanding is equally challenging. These institutions are traditionally small compared to their conventional banking counterparts making them unprepared for this quick growth.

Jamal said that the industry should have more Sharia scholars in the region in order to reduce conflicts and arrive at a common governance board.

“Speculation around the future of Islamic finance is over. Larger global forces are ensuring that Islamic finance is here to stay and grow particularly in view of the need to satisfy the rapidly increasing Islamic financial service needs of South America, Africa, Asia and Middle East region,” he said.

( Gulf Business / 09 Sept 2013)

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Saturday, 7 September 2013

India debuts Syariah-based investment firm Cheraman seeks 20b rupees in 2 years to fund infrastructure

KUALA LUMPUR] India has started its first Syariah- compliant investment company, seeking to tap Islamic wealth to fund a US$1 trillion infrastructure spending plan even as the rupee plunges.
Cheraman Financial Services Ltd, which began operations in July, is seeking to raise more than 20 billion rupees (S$377 million) over two years, managing director Mohammed Hanish said in a Sept 2 interview. The firm, based in Kochi in south-western Kerala state, is seeking capital from India, the Middle East and South-east Asia that could be used to finance the government's five-year development programme, he said.
The initiative will be a game changer for new institutions and foreign investment at a time when the economy faces challenges, including a record current account deficit, according to Ernst & Young LLP. India has resisted introducing Islamic banking laws since at least 2008 amid opposition from the country's majority Hindu population.
"Islamic finance can be a quick-win solution to address part of the challenges India faces today," Ashar Nazim, Bahrain-based partner at Ernst & Young, said in a Sept 3 interview. "The risk, on the other hand, of a failed experiment is it will hurt the credibility of the industry big time in India and push it back another 5-10 years."

(Bt Premium / 06 Sept 2013)

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Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain