Latest from GIFC

Tuesday, 30 April 2013

Noor Islamic Bank profit jumps 54%

Noor Islamic Bank on Monday said its net profit rose Dh26.4 million, or 54 per cent, to Dh75.5 million in 2012 year-on-year.
Based on the significant progress made in 2012, the shareholders have underlined their confidence in the bank’s future performance, approving a capital injection of Dh150 million. Currently, Noor Islamic Bank’s capital adequacy ratio stands at 19.54 per cent, with the tier-1 ratio at 14.1 per cent.
Hussain Al Qemzi, Chief Executive Officer of Noor Islamic Bank and Group CEO Noor Investment Group, said: “In line with our strategic road map, building a healthy balance sheet and diversifying core revenue generation capabilities remain our key priorities.
“Following a second consecutive year of registering net profits, the capital injection reflects the shareholders’ confidence. It places the bank in a strong position to take advantage of the much improved economic situation in the UAE and growth opportunities in key emerging markets.”
In 2012, Noor’s liquid asset ratio rose to 27 per cent, marking a 13 per cent increase year-on-year.  The bank also saw its advances to deposit ratio fall by 17 per cent, to stand at 75 per cent and a growth of 18% in customer deposits. Overall, the bank’s balance sheet recorded a growth of 6.4 per cent, compared to 2011.
Streamlining remedial management and credit undertaking criteria, which are key priorities for Noor’s management, allowed Noor to improve its nonperforming loan (NPL) ratio by 7.6 per cent, compared with 2011. In addition, its NPL coverage ratio also improved by 16 per cent year-on-year. Provisions for the year amounted to Dh166 million, a 74 per cent decrease from last year, representing 1.4 per cent on gross advances of Dh11.8 billion.
Since its launch in 2008, Noor has gained a reputation for offering innovative, client-focused, banking products and services. It continues to lead the retail banking market in providing convenient banking solutions, including the UAE’s first fully operational mobile internet banking experience in the Arabic language. Noor was also the first Islamic bank to offer an on-line account opening service.
(Emirates / 29 April 2013)

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Takaful Malaysia eyes bigger revenue contributions

KUALA LUMPUR: Syarikat Takaful Malaysia Bhd expects revenue contributions from its Indonesian operations to easily increase to 20% once the ruling on sales of takaful products by stand-alone takaful companies comes into force in 2015.
Group managing director, Hassan Kamil, said currently the Indonesian operations contributed about 10%.
“Our takaful company in Indonesia is a stand-alone company. So by then we hope the competition will be more equal and fair.
“Currently, the playing field is not level. A lot of conventional companies operate as a window, so they have a significant advantage compared with us as they use the conventional arm to support the takaful window, without the need of a separate capital,” he told a media briefing after the group’s annual general meeting today.
On the group’s plan to acquire a property in London, Hassan said, the plan was put on hold as the Islamic Financial Services Act (IFSA) would be in place this June.
“The IFSA will allow us to have a structure where there is a financial holding company, so we will wait for specific guidelines from Bank Negara Malaysia before we proceed with our next steps in acquiring the property in London.
“With the existence of the financial holding company, this will probably allow us to benefit more from the tax structure if we were to establish the financial holding company in Labuan,” he said, adding that the group expected to restart negotiation on the acquisition in London next year.
The new Act would require conventional and takaful insurers to relinquish their composite licences and conduct their life and general insurance businesses under separate units.
On other possible overseas venture, he said, Takaful Malaysia has looked at the China and Middle East markets, which had large Muslim population.
However, he said, China lacked Syariah-compliant instruments for the group to invest its premiums while Middle East was unstable in terms of security.
Moving forward, Hassan said, the industry’s prospects remained positive and it was anticipated to grow between 20% and 25% this year.
“We hope to ride on that momentum and to grow at least at that percentage to ensure that our market share is sustained,” he said.
Takaful Malaysia, which will present its internal target capital level to BNM by September, is set to have a dividend policy next year.
Hassan said even without a dividend policy, the group has been distributing a good amount of returns to shareholders.
Last year, a total of RM57 million was paid out against net profit of RM100.1 million, he said.

(F.M.T news / 29 April 2013)
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

India: Sharia market goes mainstream

Hyderabad: The subject of Islamic finance has surfaced at copious controversies in India, travelling through court cases, to political podiums, after all of it; finally this vast lucrative finance market is getting a mainstream acceptance, at least academically.
Monad University Uttar Pradesh is introducing Islamic finance as higher educational courses. The university, in collaboration with Institute of Islamic Banking Finance & Insurance (IIBFI), Chennai is providing three passages for Islamic finance education. MU is introducing Post Graduate Diploma in Islamic Banking & Finance (PGDIBF), MBA in Islamic finance and PhD in Islamic finance.
Few years back the Aligarh Muslim University also started a diploma in Islamic banking and finance.
According to MU, these three courses ‘will give students an edge to meet the growing interest in Shariah-compliant finance across the world’, which is according to them, ‘is currently the fastest-expanding sector of the global financial market’.
The entry in the courses is according to the UGC guidelines, as any degree from UGC recognized university is required for enrolling into Post Graduate Diploma in Islamic Banking & Finance (PGDIBF), and MBA in Islamic finance and for enrollment in Ph.D. Islamic finance a Post-Graduation degree and approval of university academic syndicate is essential.
Vice Chancellor of the university Dr. Mian Jaan introducing the university’s Islamic finance courses in Hyderabad addressed a press conference. Dr. Mian Jaan said “In every age, there is a need of knowledge specialization according to the changing trends in the world, and Islamic finance is the next big thing in the coming decade, as already 100 nations has introduced this market, which has now grown to be 1.3 trillion dollar financial service.”
Dr. Mian reiterated that in coming decade there will be a requirement of 5 lakh professional to monitor Islamic finance and his university want to provide job opportunities to the students globally.
He said Monad University, Hapur near Gaziabad which has been established vide Act No.23 of 2010 of the Government of Uttar Pradesh, is offering Islamic finance higher education from this academic year of 2013-2014, the department of Islamic finance will be formally inaugurated by Moulana Arshed Madani of Jamiatul Ulema on May 5th.
Zahid Ali Khan, chief editor of Siasat Urdu daily, who was also present in the conference praised MU for taking a pioneering step in the field of Islamic finance education. Khan urged that India should not shy away from Islamic finance which is a safe investment market and growing many folds every year. He stressed that many nations like America and European countries which has nothing do with Islam is getting attracted towards the market due to its safe and lucrative investment policies.
Khan advised other universities in India to introduce higher educational Islamic finance courses to provide diverse job opportunities to the students.
Md. Asim Farooq Director Academics and Administration IIBFI said Monad University has already selected six students for P.h.D in Islamic finance for this academic year, and University along with IIBFI is planning to start distance educational courses in Islamic finance from next academic year.
(TwoCircles.net / 28 April 2013)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

UK aims to boost role in Islamic finance

Prime Minister David Cameron is looking to Southeast Asia to boost the UK’s role in Islamic finance. It’s the Bank of England he needs to convince first, say Shariah-compliant lenders based in Britain. 

Central bank rules require lenders to hold easy-to-sell assets as protection against short-term funding shocks. Most are off-limits for Islamic banks because they pay interest. 

Islamic lenders are "disadvantaged," Sultan Choudhury, managing director of Islamic Bank of Britain, said in a phone interview from Birmingham, England, on April 22. "We want the ability to operate without the restrictions that we are facing. The biggest example of that is in the liquidity rules." 

Cameron visited Malaysia, the biggest center for the more than US$1 trillion-a-year market, last year to build on a pact to promote bilateral engagement in the industry and created an Islamic Finance Task Force in March. Britain’s six Shariah-compliant lenders will struggle to grow unless regulators adapt bank liquidity rules or highly rated borrowers issue sukuk in pounds, according to Choudhury and Bank of London & the Middle East’s Nigel Denison.




"For an Islamic bank, there is a lack of liquid assets available," Denison, the London-based lender’s head of markets, said by phone. "If there were a liquid sukuk, particularly in sterling -- because we report in sterling -- that would make our lives a lot easier." 

The UK announced plans five years ago to become the first western government to issue sukuk, only to disband the initiative in 2011 when the Debt Management Office said they don’t "provide value for money." 

The average yield on Shariah-compliant debt has climbed 16 basis points this year to 2.8 per cent on April 24, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The yield on 10-year gilts fell 14 basis points to 1.69 per cent, data compiled by Bloomberg show. 

"The cost of funding via conventional sovereign bonds -- gilts -- is still more advantageous than the cost of funding via sukuk," Haissam Saleh, Qatar Islamic Bank UK Plc’s London-based head of Middle East and North Africa treasury structuring and sales, said by e-mail April 17. 

A Treasury spokesman said March 11 there are no immediate plans to issue sukuk. The press service didn’t respond last week to requests for comment. 

"The UK’s liquidity regime applies to all firms equally," Liam Parker, a spokesman for the Bank of England, said in an e-mailed response April 24. "An allowance is made for Shariah-compliant firms with regard to the instruments they are required to hold to meet their liquidity requirements, but not to the quantity of liquidity." 

The overhaul of bank rules known as Basel III may take account of Shariah lenders in the European Union, Parker said. 

"The UK is actively engaged with international regulatory counterparts both in Basel and within the EU on this issue," Parker said. "We would expect that EU implementation will make suitable allowance for Shariah-compliant firms." 

The only sukuk currently meeting Bank of England criteria are dollar notes from Islamic Development Bank, a Saudi-based multilateral lender, according to Choudhury and Denison. The bonds rank AAA at Fitch Ratings, one above the UK. 

The lender may issue sukuk in pounds, Wayne Evans, an adviser to TheCityUK, a group representing financial services companies, said by phone April 2. IDB "is not yet in a position" to comment, Abdul Aziz Al Hinai, vice president for finance, said by e-mail April 22. 

Global Islamic debt sales jumped to US$7.23 billion in March, the third-highest monthly total, data compiled by Bloomberg show. The debt avoids interest through contracts such as Murabahah, where lenders own an asset and sell it back at a mark-up. 

Borrowers are put off selling sukuk in the UK in part because the holder would be liable for value added tax, Gary Campbell, a partner at Deloitte LLP in London, said by phone March 25. The underlying assets would need to be based outside of the UK for exemption, he said. 

"We understand that the UK government is very sympathetic and is keen to eliminate any kind of discrepancies," Campbell said. "Whilst they are sympathetic, they haven’t issued anything formally in writing on the VAT treatment of sukuk." 

Only one Shariah-compliant lender has set up in the UK in the past five years -- Abu Dhabi Islamic Bank PJSC, according to TheCityUK. HSBC Holdings Plc stopped offering Shariah-compliant services in the UK last year. 

The Islamic Finance Task Force will look at ways to encourage sukuk, Richard Thomas, a member of the working group and chief executive officer at Gatehouse Bank Plc, said in a March 14 interview from Dubai. 

"We need to have appropriate liquidity instruments," Mansur Mannan, executive director of DAR Capital, a London-based financial adviser, said in a phone interview March 21. "If regulations can be changed somewhat, that would be a step in the right direction.

(Business Times / 30 April 2013)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Thursday, 25 April 2013

Breaking new ground: Setting misunderstandings aside, Islamic banking grows rapidly

KARACHI: Despite misunderstandings about Islamic banking in different sections of the society, it is growing at a rapid pace in Pakistan and the growth will accelerate further if the central bank continues to chalk out policies.
These were the views of Executive Vice President Head of Product Development & Shariah Compliance, Meezan Bank, Ahmed Ali Siddiqui, who was speaking to a select group of journalists at a workshop on ‘Islamic Banking’ at Meezan Bank’s head office on Tuesday.
Siddiqui believes that Islamic banking will be a strong Rs1 trillion industry by 2015 and its size will be 20% of the country’s banking industry.
“Islamic banking is different from conventional banking and it is completely incorrect to say that both are same things with different names. Here your bank becomes business partner that provides you raw material for a joint business in which both profit and loss are shared among both partners,” he claimed.
Since Islam permitted trade and prohibited interest, Islamic banking focuses on trading by becoming a partner of its clients and does joint trading, he added.
“The size of Islamic banks in Pakistan is growing considerably, I believe that the time is not too far when people will start realising that this system is different and it can boost trade and economy of the country,” he stressed.
Islam encourages circulation of wealth and discourages its concentration in a few hands to narrow down the distinction between rich and poor. “The circulation of wealth is as important as blood in our body. As a blood clot paralyses the body, the concentration of wealth in a few hands paralyses the economy, which is why monopoly is prohibited in Islam,” he said.
Siddiqui said the concept of banking based on pooling of excess funds of depositors and channeling them towards those who require it for investment is not only approved but encouraged by Islam. However, he clarified that the concept of lending and borrowing on the basis of interest in not allowed in Islam.
A fixed rate of return is not permitted under Islamic Shariah. However, the fixed return does not make a transaction halal or haram such as profit on trading and rent on property, he explained.
The total size of the world’s Islamic banking industry is around $1.2 trillion whereas many leading conventional banks have Islamic windows such as Citibank, ANZ, RBS, Goldman Sachs, HSBC, Saudi American Bank, Saudi British Bank and USB AG.
Today, Pakistan has five full-fledged Islamic banks and at least 12 conventional banks are also operating Islamic banking branches.

(The Epxress Tribune / 25 April 2013)

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Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance as a viable alternative financial system

KARACHI: That’s a very difficult question to answer, but one that has been asked many times. The thing is this question can only be answered by financial professionals within the Islamic finance world, or people who practice conventional banking. The first obviously say that it is. After all, it’s their baby, why would they say it isn’t. The second group consists of people who don’t understand the concept enough to give an answer, or they brush it off by saying that there is very little different, it’s just interest under a different name.
Whether it is different or not, really Shariah compliant or not, Islamic finance is gaining clout and influence every passing day. It is the fastest mode of finance in Pakistan and the world with assets and deposits growing faster than its conventional counterpart. It has now become a trillion-dollar industry worldwide and is expected to continue this growth as more and more Muslim countries climb the development ladder with rising incomes.
So this gives rise to another question. Is Islamic finance – considering its increasing clout – really a viable alternative financial system and solution? The answer would seem to be that yes it is.
Let’s get one thing straight, the simplistic description that any zero-interest-rate system is Islamic is superficial. After all, this is the exact term used by mainstream central bankers when they talk about policies pursuing what they call ‘quantitative easing’, so it is not something exclusive to Islamic finance. Islamic finance is a lot more than just the absolute prohibition of interest. There is also the effort to maintain high moral and ethical standards on the part of lenders and borrowers. In fact, if practiced and implemented in letter and spirit, this is perhaps the key thing that sets Islamic finance apart from conventional finance.
And there can be no denying that there is definitely a lot of room for ethics in today’s financial world.
In fact there can be no greater argument or rationale for a zero-interest-rate system than the John Maynard Keynes’s The General Theory, and I quote:
“Provisions against usury are amongst the most ancient economic practices of which we have record … In a world, therefore, which no one reckoned to be safe, it was almost inevitable that the rate of interest, unless it was curbed by every instrument at the disposal of society, would rise too high to permit of an adequate inducement to invest.”
Keynes’s endorsement does not necessarily make this system right, but his analysis does suggest that it should be regarded as a serious proposition.
And the single greatest reason why I feel that Islamic finance, for what it’s worth, can work and can be a successful alternative to conventional systems is the fact that although interest is prohibited under Islamic finance, profit is not; the latter is derived from various arrangements that combine finance and enterprise. In essence, this is a profit-sharing and risk-sharing system that is based entirely on equity finance.
This is the only area where I am not yet entirely convinced that there actually is equitable risk sharing. In theory, at least, Islamic finance contrasts with the current dominant system based on interest-bearing debt, in which risks are theoretically transferred to debt holders. I am not entirely sure if this is entirely the case in practice as well.
But this is where it gets tricky. One may agree that that if people adhere strictly to its ethical requirements, there would be fewer moral-hazard problems in Islamic banking. But we also know that whether any particular system is efficient in avoiding moral hazard is a matter of practice, rather than of theory. And if in the world of Islamic finance, this adherence to ethics cannot be guaranteed, there really is no need of it as a separate or alternative system.

(The Express Tribune / 22 April 2013)

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Islamic finance key to Oman's economic growth

Muscat - There is huge potential for significant growth of Islamic finance in Oman and we are confident of expanding our horizons and activities to create a very successful environment, said Dr Jamil el Jaroudi, CEO of Bank Nizwa .


Speaking at a recent economic forum dedicated to Islamic finance, Dr Jaroudi said, "We have established Bank Nizwa as a centre of excellence for Islamic banking where we provide a just and equitable model for economic growth through a range of banking tools. This is particularly true of our Islamic principles which leverage the economy to new heights through the financing of public sector projects."

Dr Jaroudi, a leading expert in Islamic finance, delivered a presentation under the theme "Islamic Banking, Great Hopes for Investments," which gave participants the opportunity to gain first-hand information on the importance of the industry to the financial landscape of Oman. It included in-depth insights into the Islamic banking tools available to realise growth in the economy.
The forum, which was facilitated by Al Roya newspaper, drew delegates from many important industries across the sultanate.
Dr Jaroudi's address was dedicated to pressing issues of the current stage of Islamic finance development in the sultanate and delved into new approaches to understanding the future for the industry. The guest of honour at the event was H E Darwish al Balushi, Minister Responsible for Financial Affairs.
The Bank Nizwa CEO outlined his hopes for Islamic banking playing a role in spurring the development of Oman's economy. "There is huge potential for significant growth of Islamic finance in Oman, and we are confident of expanding our horizons and activities to create a very successful environment."
Dr Ashraf al Nabhani, general manager, corporate support, Bank Nizwa , also participated in the panel discussion on "Capital Market - Expected Performance.

(Zawya / 22 April 2013)

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Challenges to the growth of the Islamic finance market

KARACHI: While Islamic financial institutions have passed the robustness test by exhibiting greater resilience during the recent global financial crisis, the crisis has also brought under the spotlight some important challenges the industry is currently facing. Going forward, the stakeholders of Islamic finance will need to address a broad spectrum of issues surrounding the industry.
Highlighting the inherent strengths of Islamic finance, the recent global financial crisis coincided with the growing concerns over the possibility that excessive financial innovation might lead the Islamic finance products to bend certain key precepts of Muslim jurisprudence to breaking point. Perhaps the most prominent example is the Sukuk – sometimes even called the “Islamic bond” – as many Islamic Sukuks have gone too far in mimicking conventional, interest-bearing bonds, which are prohibited in Islam.
Diversifying assets
Since there is little room for diversification of assets, the risk management capabilities of the Islamic financial institutions are limited. A direct consequence of this was observed in the last financial crisis when large exposure to real estate of Islamic financial institutions resulted in falling asset values in many of these institutions operating in the OIC member countries, particularly in the MENA region. A study by Ernst & Young (2011) reveals that the real estate concentration still remains a concern for Islamic finance industry and may affect its future growth.
The low penetration levels of Takaful (Islamic insurance) in OIC countries are posing another challenge for the Islamic finance industry. OIC member countries as key Takaful markets are characterised by low insurance penetration rates versus huge potential for rapid economic growth. Global Takaful premiums are estimated by Ernst & Young (2011b) to have reached $16.5 billion in 2011. Moreover, Takaful premiums remain highly concentrated in Iran which generated almost 30% of the global Takaful premiums in 2011. Similar to the relative size of Islamic finance to the global financial industry, the Takaful market represents only 1% of the global insurance market at present (Ernst & Young 2011c).
Regulation and standardisation
Another major impediment to the growth of Islamic finance industry is the weak Islamic finance enabling infrastructure in many OIC countries. Enabling infrastructure would include, among others, legislative, regulatory, legal, accounting, tax, human capital, and Shariah business frameworks. Although member countries such as Bahrain, Malaysia and UAE are among the major Islamic finance centres with developed infrastructures, in many others, an enabling environment is not in place. This, in turn, increases operational risks, including the risk of Shariah compliance.
Development of Islamic money and capital markets, provision of standardised liquidity management tools, improvement of the operational efficiencies of Islamic financial institutions, standardisation in products, synchronisation of regulatory frameworks, and human capital accumulation are other areas where the Islamic finance industry needs to take structural steps.
Broadening the skill base
The broadening of the global skills base in Islamic finance is desirable since the number of qualified practitioners, as well as Shariah scholars available for Shariah boards, is currently very low.
Representation of Shariah scholars on Shariah boards is highly concentrated. A survey by Funds@Work (2011) reveals that only the top 20 Shariah scholars hold 619 board positions which represent more than half of the 1,141 positions available.
All in all, with the challenges ahead, the growth of Islamic finance, free from interest and subject to high moral codes, will be slow in the long-run. And the slow growth of the industry would also slow down economic growth and wealth creation. However, the wealth created would be real, more equitably and profitably distributed, and would encourage spin-offs into real economy, creating jobs, increasing trade both domestically and internationally.

(The Express Tribune / 21 April 2013)

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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

Friday, 19 April 2013

Seeking Halal earning

Friday, April 19, 2013 - According to Abdullah ibn Masud (RA), the Holy Prophet (PBUH) said: ‘Seeking halal earning is a duty after the duty.’ In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj. This brief hadith contains three very important messages. First, it points to the Islamic way out of the apparent dichotomy between the material and the spiritual worlds. We often see them working in opposite directions. Indulgence in the material world does lead one away from the spiritual world. Spiritual uplifting seems to accompany a tendency to distance oneself from the material pleasures. There is a conflict, but is there a contradiction also? 


Is it possible to resolve the conflict in a way that one can take care of both? Or are they mutually exclusive? This has been a central question for all religions and many in the past suggested the second answer, making hermits as the ideal for the humanity. Unfortunately not much humanity is left when one moves too far in this direction. One can read today the horror stories of Christian and Hindu monks, among others, who tried to seek spiritual purification this way. As a reaction, some took the other course, making material pleasures the goal of this life. The westerncivilization today is the prime example of that. Its toll on human spirit and morality is well known and is a constant reminder that something is wrong here as well. In between the two extremes Islam points out the proper path. Man is both a material and a spiritual being. The solution does not lie in denying the material needs and desires but in denying their claim to primacy. 

They are part of being but not the reason or goal of being. As long as they are kept in place, they are an important part of our life. The problem is not money but the love of it. Wealth itself is not bad. In fact Qur’an refers to it as ‘ ... your wealth which Allah has made for you a means of support.’ [Al-Nisa, 4:5]. And another hadith praises the merits of ‘the halal wealth of a pious person.’ The effort to earn a living is not only against spirituality, it is a religious obligation! But this earning must be through halal means. This is the second message of this hadith. Our obligationis not just to make money but to make halal money. This is a broad statement that is the basis for Islamisation of a society’s economic life. Not every business idea or possible business enterprise is good for the society. And the decision regarding right and wrong here cannot be left to the so-called market forces. 

Right and wrong in the economic life, as in all life, must be determined by a higher source. Shariahguides us as to the halal and haram business enterprises and practices, and at both individual and collective levels we must follow that guidance. At times that guidance may conflict with the prevailing practices. For example riba (interest), gambling, pornography, and liquor are haram, and no matter how attractive the financial rewards of engaging in those enterprises may seem to be, a Muslim must refrain from them. This is the economic struggle of a believer, and it is obvious why it should be carried out as a religious obligation. At the individual level the obligation is to engage is halal professions and businesses. 

At the collective level the obligation is to establish a system that facilitates such individual efforts and discourages their opposite. Third, all this effort for halal earning should not eclipse our primary religious obligations. Indulgence even in a purely halal enterprise should not make us miss our Salat, or hajj, for example. This hadith may help us set our priorities right: The economic endeavour is a duty after the primary duties. And let us remember: In economics, as well as in religion, getting the priorities right is part of being right.


(Pakistan Observer / 19 April 2013)

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Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Tuesday, 16 April 2013

Understanding basics of Shariah investing

We all have different reasons to invest our hard-earned money. It might be for a short-term purpose like the purchase of a car or a house, or a long-term goal such as funding our children's education or ensuring a more comfortable retirement.

Investing can take on a religious significance, too. For a growing Muslim audience, investments must not only be able to achieve their goals, but also be compliant with the Islamic law.
The principles of Shariah investing dictate that to be considered acceptable, companies must pass a certain set of criteria. Among them, the balance sheet structure should contain neither too many liquid assets nor debt, and the company should not engage in "haram" (forbidden) industries such as alcohol, tobacco, gambling as well as specific foods considered non-halal or impure.
Advisers who are considered experts in Islamic law are integral to the investment selection and review process. At Franklin Templeton Investments, for instance, portfolios are independently reviewed and endorsed by the Amanie International Shariah Supervisory Board, which is highly regarded for its extensive Shariah and technical expertise.
The Amanie scholars provide initial approval on investment objectives and strategy, as well as ongoing supervisory and monitoring services to ensure continuous adherence to internationally accepted Shariah principles and standards.
Implementation of these standards can be subjective at times, as it depends on the interpretation of different Shariah boards - a challenge to portfolio managers. In addition, this can lead to a lack of homogenized investment approach as well as confuse potential investors.
Shariah Investing 101
Generally, a company that holds too many liquid assets may have Shariah restriction on eligibility. So one would think, this will result to the elimination of the company.
However, this is not always straightforward. It can depend upon the Shariah screening methodology applied by the fund adviser in the review process in which one calculates the company's financial ratio.
If a company classifies a large portion of its liquid assets as long-term, certain Shariah benchmarks will not include it as part of their liquid asset calculations. In addition, some benchmarks will use market capitalization as the denominator while others will use total assets - both of which could provide different results.
Using market capitalization as the denominator is particularly difficult for value investors (like us) because as a stock gets cheaper and hence provides more long-term value, it could suddenly become ineligible as the market capitalization falls relative to the liquid assets or debt.
Stocks that were compliant at one time but then later deemed non-compliant must be disposed of, but once again it's all about details. For example, the frequency at which the company pays its dividends (once a year, semi-annually or annually) could make a difference to eligibility.
Depending on the Shariah screening methodology, a company that accumulates large amounts of cash throughout the year before paying it out in the form of dividends runs the risk of becoming non-compliant. Once it pays the dividend, it may become compliant and hence an eligible investment once again.
The grace period given to dispose a stock (once it becomes non-compliant) is also different from one benchmark or adviser to another. For instance in as far as dividend is concerned, if the grace period to sell non-compliant stocks is short, one may be forced to sell it before it pays the dividend. Conversely, if the grace period is long, the stock could remain compliant by paying the dividend and reducing cash on the balance sheet.
Opportunities abound
Such are the challenges of Shariah investing. But despite the constraints, we are able to find plenty of potential opportunities.
In managing Shariah portfolios, we leverage the same investment team and research process. So Muslim investors essentially get a subset of our broader portfolio, which is compatible with specific Shariah principles.
Overall, our team is finding potential opportunities in the healthcare, energy, and telecommunications sectors. European financials represent a sector our Shariah portfolios cannot invest in, but we've been finding a lot of value over the past year there in our other portfolios.
By country, Malaysia represents one of the biggest markets right now for Shariah investing, and is growing because of its advanced national pension scheme. There is a mandatory monthly contribution into the national pension fund that grows with population and income levels.
Other emerging centers include Middle East financial hubs like Dubai and Abu Dhabi. I think the natural interest in Shariah investing is likely to be confined to Muslim nations, but it would not be surprising to find other countries that are also keen to offer an Islamic investment vehicle. This is due in part to a large and growing Muslim diaspora globally.
Our potential investment opportunities could likewise continue to expand, and we think it's an exciting time to be an investor in this growing space.
Alan Chua is a Singapore-based EVP and portfolio manager at Templeton Global Equity Group.
(Zawya / 15 April 2013)

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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

Turkey offers Islamic banking opportunities

PETALING JAYA: New investment opportunities for foreign companies have come to the fore in Turkey with the announcements of the creation of new Islamic banks by the government.
The nation’s Deputy Prime Minister Ali Babacan indicated that he gave directives to the two biggest state-owned banks – Ziraat Bank and the Halk Bankasi – to establish two new participation banks.
Muhammed Islami Onal, the economic counsellor of Turkey in Malaysia, said foreign investors can apply for new licences to start the new participation banks, adding that the investment should be no less than 30 million New Turkish liras or US$17 million (RM51.7 million).
“With their background, knowledge, experience and pioneer roles in Islamic banking and finance, the Malaysian investors are more than welcomed to get involved in the growing Islamic banking- finance market in Turkey,” Muhammed Islami told The Malaysian Reserve.
The third top ranking bank in Turkey, Garanti Bankasi, announced that it too had plans for a new participation bank, thus offering greater opportunities for foreign investors.
Muhammed Islami said Turkey should be a market to invest for Malaysians with the very close relationship between the two nations and between Bank Negara Malaysia and the Central Bank of Turkey, and the Securities Commission and the Capital Markets Board.
Between December 2011 and June 2012, the participation bank’s growth rates of assets, loans and deposits were about 8.7%, 13% and 8.4% respectively while the same rates were 4.6%, 8% and 3.3% for the whole banking sector, while the average growth rate of the assets rose to a total of 26.1% for the past four years.
Turkey has 49 banks, four of which are participation banks. Participation banks are interest free banking banks, being Syariah-compliant and are not called Islamic banks in Turkey.
So far nine conventional and two participation banks are listed in Turkey’s Stock Exchange with market capitalisation of US$96.7 billion and US$2.09 billion respectively.
Ziraat Bank has aspirations abroad with the largest international service network of any Turkish bank comprising many service points in numerous countries.
Halk Bankasi is listed as an active player in structured finance deals, participating in syndication and securisation deals in favour of other banks.

(F.M.T News / 15 April 2013)

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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

Insights into Islamic Investment Management from a CFA Charterholder in Pakistan

To gather insights into Islamic investment management from experienced CFA charterholders from different countries, we will be conducting a series of interviews. In the first interview of this series, we discuss Islamic investment management with Mohammad Shoaib, CFA.

Shoaib is the chief executive officer of Al Meezan Investment Management Limited based in Karachi, Pakistan. He earned his CFA Charter in 1999. In addition, he holds an MBA from the Institute of Business Administration, Karachi, which is now a program partner of CFA Institute. He has 23 years of work experience, including 10 years in Islamic investment management.

CFA Institute: Tell us about your market and how it has evolved over the years.

Shoaib: The first conventional fund was launched in Pakistan in 1962, and the first Islamic fund was launched in 2002. The Islamic fund management industry is about 12% of the overall fund management industry. All types that are available in the conventional arena, are also available on the Islamic side also. For example, we have Islamic equity, money market, sovereign, corporate fixed income, index tracker, capital protected, and defined contribution pension funds. The market is concentrated; of the total size of USD520 million managed by Islamic funds, about USD400 is being managed by Al Meezan Investment Management Limited
How has the market for Islamic investment management grown relative to that of conventional investment management?
While the market for Islamic funds is relatively new, the annual growth rate of Islamic funds is about 24% as compared to 12–14% growth for conventional funds.
The appeal to the Muslim population and the competitive returns offered by Islamic funds are two predominant factors leading to high growth for Islamic funds. Conventional funds on the other hand have focused more on institutional money.
How do fees charged on Islamic funds compare with conventional counterparts?
The fees and charges applicable to mutual funds are regulated and capped by the SEC in Pakistan. Due to the very competitive market, the fees charged by Islamic funds are same as those by conventional funds. The extra cost related to the Shariah board are borne by an asset management company instead of being charged to the fund.
Describe the screening process employed in your market? What are the effects on the investable universe and portfolio turnover?
It is basically a negative screening process based on nature of business and financial ratios whereby those companies that do not meet screening criteria are excluded from the permissible investment universe.
Most Islamic funds follow the screening criteria developed by a prominent seminary located in Karachi. While the investment universe is somewhat reduced, it does not much affect diversification of portfolio across sectors as most companies with large market cap are Shariah compliant as per the screening criteria.
How have Islamic investments performed in your market?
The only Islamic index available is KSE Meezan Islamic Index (KMI-30), which was launched about four years ago. The leading conventional index is KSE 100 Index. It is interesting to note that KMI-30 has consistently outperformed KSE 100 every year since launch of KMI-30.
How does the CFA Charter help investment professionals in Islamic investment management? What are the preferred sources of continuing professional development (CPD)?
Yes, employers value the CFA charter. However the curriculum does not cover Islamic finance, so employers need to train or arrange for the training of Islamic finance in addition to CFA program. There are not many CPD opportunities available in Islamic investment management.
What are the major challenges and opportunities for Islamic investment management in your market? How do you see its future prospects?
Two major challenges are: (a) creating awareness and understanding of Islamic finance and its principles; and (b) limited number of investible products (assets) on the debt and money market side. Because about 95% of the total population of about 180 million in Pakistan is Muslim, there is lot of untapped potential for growth in Islamic financial markets, which is expected to grow at twice the pace of the growth in conventional financial markets.
If you are interested in Islamic investment management, please consider joining the CFA Institute Islamic Investment Management subgroup on LinkedIn. If you are an experienced professional investor working in Islamic Investment Management and you would like to share your insights with us, please contact the manager of the Islamic Investment Management group on LinkedIn.

(Interprising Invester / 26 March 2013)
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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
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