Latest from GIFC

Monday, 31 March 2014

Malaysian Takaful Association will facilitate takaful claims of MH370 victims

KUCHING: The Malaysian Takaful Association (MTA) will assist in any takaful claims for passengers of flight MH370.

MTA chairman Zainudin Ishak said, “This must be a heartbreaking time for the families and 
friends of the crew and passengers.

We hope they will find the strength and support to face the difficult days ahead.”

He also ratified that some of those on board were takaful certificate holders and he ensured that the MTA member companies will assist and expediate claim process.

Affected family members may contact MTA at 03-2031 8160 or email for coverage and claims process details.
(Borneo Post Online / 27 March 2014)
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Hong Kong passes key sukuk bill

HONG KONG: Hong Kong legislators passed a bill that will allow the AAA-rated government to raise around $500 million via sukuk, or Islamic bonds.

A debut sukuk from Hong Kong would help boost its Islamic finance credentials and position itself as a gateway between mainland China and investors in the Gulf and Southeast Asia.
The task of issuing the sukuk now rests with the Hong Kong Monetary Authority under the territory's Government Bond Programme, which has a borrowing ceiling of HK$200 billion ($25.8bn).
As of February, the programme had 14 listed bonds currently outstanding worth a combined HK$94bn, with tenors of up to 10 years.
Hong Kong's sukuk plan comes at a time of increasing competition among financial centres for a slice of Islamic finance business, which is centred in southeast Asia and the Middle East.
A $500m sukuk issue would be larger than debut sovereign issues planned by Luxembourg and Britain, which are at different stages of development.
Legal filings describe the proposed sukuk issuance as "inaugural", suggesting it would not be a one-off like Britain's plan for a £200m ($333m) sukuk issue.
Sukuk proceeds would be placed with the territory's Exchange Fund, which is managed by the Hong Kong Monetary Authority.
(Gulf Daily News / 28 March 2014)
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Saturday, 29 March 2014

Multibillion-dollar zakat fund remains underused

Countries like Bangladesh with a sizable Muslim population are failing to use zakat donations to cut poverty significantly due to lack of professional management and poor book-keeping, leaving assets worth billions of dollars unutilised, a study said.

Islamic alms-giving (zakat) and endowments (waqf) have been in existence for centuries, but are yet to develop efficient use of the assets held by the charitable organisations, the Islamic Research and Training Institute (IRTI) and Thomson Reuters said in the study.

The asset pools that remain unutilised include vast real estate portfolios that are often poorly managed, which could otherwise help reduce poverty across Muslim communities.

"At a micro level, institutions in this sector need to address the issue of sustainability in the supply of funds," said Azmi Omar, director general of the IRTI, a unit of Jeddah-based Islamic Development Bank.

This would involve professionals who are adequately trained not just in shariah-compliance but also in modern financial management techniques for charity-based and not-for-profit institutions, he added.

The study estimates that zakat donations could contribute significantly to poverty alleviation in countries such as Indonesia, India, Pakistan, Bangladesh, Malaysia, Singapore and Brunei, which together account for 45 percent of the world's population.

Muslim minorities in India and Singapore, for instance, could collect zakat in the range of about 0.26 percent to 0.65 percent of their gross domestic product.

The study said the poor as beneficiaries account for above 90 percent in Indonesia, India, Pakistan, Bangladesh.

Growth of zakat contributions in some countries has often been in the double digits: Indonesia collected $231.6 million in 2012, up 27.3 percent from a year earlier; Pakistan collected $105 million in 2011, up 34.5 percent from a year earlier.

Malaysia had one of the largest donation pools with 1.6 billion ringgit, or $497 million, collected in 2011, a 20.3 percent increase from a year earlier.

While there is no official data for India, the report estimated total annual zakat collections stood at a whopping $1.5 billion.

But it is hard to mobilise these resources because of a lack of standardised and globally accepted definitions of what assets are eligible for zakat and how to estimate zakat donations, the study said.

The study also shed light on assets held by Islamic endowments, where India again holds the most untapped potential.

In Bangladesh, a government survey identified 150,593 waqf properties in the country, although only 15,300 were registered with the concerned government administrator.

For Bangladesh, zakat collection in 2010 was about Tk 110 billion or $1.4 billion, which was equivalent to 1.4 percent of gross domestic product of 2011-12.

State-run Zakat Board of the Islamic Foundation collected Tk 14.2 million in 2011 and expected to collect Tk 20 million in 2012.

Distribution of clothes is a traditional method of zakat distribution. Institutional distribution of zakat is more diversified and takes the form of scholarship programmes for poor students, rehabilitation and training for poor women, rehabilitation of widows, housing for the poor, and distribution of rickshaws for the unemployed young people in villages.

(The Daily Star / 29 March 2014)
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Bermuda opening its doors to Islamic Finance

The Premier, the Hon. L. Craig Cannonier, JP, MP, hailed his attendance at the Global Islamic Finance and Investment Group (GIFIG), to be ‘very encouraging for Bermuda’, as the Island was further positioned as a viable option for Islamic Finance.  The Objective of the GIFIG conference was to identify key global opportunities and barriers facing Islamic Finance and to utilize the Group’s extensive knowledge and expertise to create a global Islamic Finance market that supports growth and prosperity.

The Premier commented:  “Building on the speech and subsequent contacts that were made at the World Islamic Economic Forum (WIFE) held in London in October 2013, where Bermuda was the only country invited to speak from the UK Overseas Territories, this particular trip gave us another strategic opportunity to address the group of UK and Middle East stakeholders and practitioners of various financial industries about the benefits of investing in Bermuda – a message that I believe was well received. 

“I let them know that Bermuda is committed to becoming a viable option for Islamic Finance.  I also advised them that we have further opened our doors to foreign investment from around the World inclusive of the Islamic countries, both in terms of establishing international financial entities and in terms of foreign direct investment in our various infrastructure projects.”  

The Premier further told the Conference attendees that the entire World should support the integration of Islamic law-compliant (Sharia) financial instruments into the global financial system as these instruments, as a requirement of Islamic law, are based on social responsibility, ethical objectives and social equity and that he hoped the UK and the Islamic countries that are members of the G20 will lead the World in those global arenas discussing the global financial system.

The Premier concluded “the next steps for Bermuda will be to document our value propositions and invite the various Islamic Finance stakeholders to the Island to see our potential first-hand.”

Accompanying the Premier were the Minister of Finance, the Hon. E. T. ‘Bob’ Richards, the Secretary to the Cabinet, Dr. Derrick Binns and Assistant Financial Secretary, Mr. Wayne Brown.  Participants at the Conference included heads of Islamic Central Banks from Kuwait, Libya, Malaysia, Bahrain, Oman, Saudi Arabia and the UAE.

(Bermuda Sun / 28 March 2014)
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Friday, 28 March 2014

Hong Kong passes Islamic bond bill, paves way for $500m Sukuk

HONG KONG: Hong Kong lawmakers passed a bill on Wednesday that will allow the AAA-rated government to raise around $500 million via Sukuk, or Islamic bonds.

A debut sukuk from Hong Kong would help boost its Islamic finance credentials and position itself as a gateway between mainland China and investors in the Gulf and Southeast Asia.
The Legislative Council's bills committee confirmed the bill was passed in an email response to Reuters.
The task of issuing the sukuk now rests with the Hong Kong Monetary Authority under the territory's Government Bond Programme, which has a borrowing ceiling of HK$200 billion ($25.8 billion).
As of February, the programme had 14 listed bonds currently outstanding worth a combined HK$94 billion, with tenors of up to 10 years.
Hong Kong's Sukuk plan comes at a time of increasing competition among financial centres for a slice of Islamic finance business, which is centred in southeast Asia and the Middle East.
A $500 million Sukuk issue would be larger than debut sovereign issues planned by Luxembourg and Britain, which are at different stages of development.
Legal filings describe the proposed Sukuk issuance as "inaugural", suggesting it would not be a one-off like Britain's plan for a 200 million pound ($333 million) Sukuk issue.
(The Star Online / 27 March 2014)
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Pakistan:Faysal Bank to turn to the Islamic banking system

KARACHI: Faysal Bank is going to turn itself into a full-fledged Shariah-compliant institution in the next two to three years.

Quoting the CEO of Bahrain’s Ithmaar Bank – which owns a 66.7% stake in Faysal Bank along with associated companies, undertakings and related parties – news agency Reuters has reported the Gulf-based Islamic retail bank wants to consolidate its business line.
According to Ithmaar Bank CEO Ahmed Abdul Rahim, the Islamic bank wants to extract up to $35 million in savings from a turnaround plan after posting a net loss of $79.3 million last year.
Faysal Bank operates 216 branches for conventional banking and 58 branches for Islamic banking. It is in discussion with the State Bank of Pakistan (SBP) on the conversion of the entire operations to Shariah-compliant banking, Rahim told Reuters. In case Faysal Bank gets regulatory approvals, its conventional banking arm will merge into its Islamic banking operations.
According to Standard Capital Securities Research Analyst Rajesh Kumar Maheshwari, earnings per share of the bank are expected to increase from Rs1.77 in 2013 to Rs3.54 in 2014. Faysal Bank’s profit after tax for 2013 remained Rs1.85 billion, which was 30.28% higher than the net profit recorded in the preceding year.
The majority shareholder intends to add two more members to Faysal Bank’s board while its shareholding in the bank is expected to remain unchanged.
After increasing at an annualised rate of 9.95% for the last three years, total assets of Faysal Bank stood at Rs355.2 billion at the end of 2013. The annual increase in deposits has been 11.55% during 2010 and 2013.
Maheshwari believes Faysal Bank is focusing on increasing its margins by acquiring low-cost deposits and strengthening its current and savings accounts (CASA) mix. “As per the 2013 report, the bank was able to improve its CASA mix to 64.9% against 60.9% reported in 2013,” he said.
He added that Faysal Bank has the highest advances-to-deposits (ADR) ratio of 68% among middle-tier banks given that their ADR ratios hover around 45%-50%. “This is a double-edged sword for Faysal Bank, as it needs to jack up its deposit base,” he said.
He noted that Faysal Bank has benefited by its growing Islamic banking segment, which posted 36% year-on-year increase in deposits. Referring to the absence of the minimum rate of return condition on Islamic deposits, he said the substantial growth in this segment will help attain Faysal Bank low-cost deposits.
The market share of Islamic banking assets in the overall banking industry increased from 9.5% in September 2013 to 11.2% at the end of 2013. Similarly, the market share of Islamic banking deposits in the total banking industry increased from 10.1% by the end of September to 12.1% on December 31.

(The Express Tribune / 28 March 2014)
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Thursday, 27 March 2014

Oman: Meethaq in joint bid to promote Islamic banking

Muscat: Meethaq, the pioneer of Islamic banking in Oman from Bank Muscat, and Kuwait Finance House, have signed a memorandum of understanding (MoU) that aims at supporting joint business opportunities in the Islamic banking sector. 

This relates to areas of treasury transactions, trade finance and capital markets, especially sukuk and syndications in Oman. In terms of inter-bank facility, the MoU addresses 'Wasi', an overnight liquidity management product launched by KFH-Bahrain.

Sulaiman Al Harthy, group general manager (Meethaq Islamic Banking), and Abdulhakeem Alkhayyat, managing director and chief executive officer of KFH-Bahrain, signed the MoU in Manama. They expressed delight in signing the MoU, which was the culmination of mutual desire to work together in various fields of Islamic banking to develop new opportunities. "The Sultanate is witnessing substantial growth in Islamic banking industry and we consider our partnership with KFH-Bahrain a great advantage to maximise favourable opportunities and thereby expand our coverage. In addition to that, it will support the position of Meethaq Group in the Islamic banking industry," said Al Harthy.

Expanding network
"Meethaq is delighted to sign the MoU with KFH-Bahrain, which is considered to be one of the most reputable Islamic financial institutions. We will work together to offer various Islamic finance products covering treasury, trade finance and capital market in Oman which has a growing Islamic banking industry with sound regulations, laws and transparency. Meethaq is working to strengthen its operations in the Sultanate by expanding the branch network and offering innovative products and services in compliance with the Sharia law," he added.

"We are happy to add Meethaq Islamic banking to our growing list of partners to offer distinctive services and products. KFH-Bahrain is committed to collaborate with Islamic financial institutions as a key facilitator for the development and growth of the industry to meet future requirements," noted Abdulhakeem Alkhayyat.

(Times Of Oman / 26 March 2014)
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Bank of England may broaden Islamic liquidity tools

The Bank of England is studying ways to increase the number of sharia-compliant assets that Islamic financial institutions can use in their liquidity buffers, a step towards reducing concentration risks in the sector.

The move comes as part of a broader push to promote London as a top centre for Islamic finance, in the face of growing competition from other centres such as Dubai and Kuala Lumpur.
Currently, sukuk (Islamic bonds) issued by the AAA-rated Islamic Development Bank are the only assets that meet the central bank's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.
These include six full-fledged Islamic banks such as the European Islamic Investment Bank, Bank of Londonand the Middle East and Gatehouse Bank.
In addition to reducing risks, expanding the eligible list could improve growth prospects for the industry and remove a potential entry barrier to the sector, a consultation paper released by the central bank said.
"Recognising only one asset also potentially limits the growth of existing sharia-compliant firms and creates barriers to entry for new sharia-compliant firms due to the difficulties that can be experienced obtaining the asset."
Islamic finance follows religious principles such as bans on interest and pure monetary speculation; this limits the types of financial tools that banks can use to manage their short-term funding needs.
The Bank of England's proposal is in line with the approach of Basel III global banking regulations, which allow sukuk issued by high-rated sovereigns to be included in the liquid assets buffer without a haircut.
This would allow Britain's proposed 200 million pound ($330 million) sovereign sukuk issue to be used, as well as other high-investment grade instruments such as sukuk issued by the Malaysia-based International Islamic Liquidity Management Corp.
Sukuk issued by sovereigns with lower credit ratings and other non-financial issuers could also be eligible, subject to haircuts and caps, the consultation paper said. The consultation will end on April 15 but no date was given for the proposed reform.
Britain first announced plans for a sovereign sukuk issue six years ago but that issue never materialised as the country's Debt Management Office decided the structure was too expensive.
The new proposal is less than a fifth of the size of the original, and is designed to boost London's status rather than to diversify Britain's investor base to a significant degree.
(Arabian Business .Com / 26 March 2014)
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Wednesday, 26 March 2014

Dubai aims to import Islamic finance courses from Malaysia

Dubai is hoping to attract academic courses in Islamic finance from Malaysia as it aims to become the global hub for the Islamic economy.

Tecom Investments has sent a delegation from Dubai’s Knowledge Village and Dubai International Academic City to meet representatives from Islamic finance academic institutions in Malaysia in an effort to bring some them to the emirate.
Sharia-compliant banking skills are in high demand as the Islamic finance sector expands, a study by the consulting company Deloitte has shown.
The study revealed that there is a particular need for entry-level jobs and financial risk management positions.
Dubai is also planning to start its first Sharia-compliant export-import bank.
During its visit this month, the delegation examined different Islamic economics courses related to Sharia-compliant funds, sukuk, murabaha and the regulatory frameworks related to Islamic finance.
“Our trip to Malaysia represents our continuous strive to attract relevant academic institutions that can provide quality education across all levels, covering graduate, undergraduate, and vocational training courses,” said Ayoub Kazim, the managing director of Dubai Knowledge Village and Dubai International Academic City.
“Our decision to go to Malaysia was based on its leading reputation and expertise in the Islamic finance sector,” he said.
Dubai aims to bring two renowned Islamic finance universities to the city – the International Islamic University Malaysia and The Global University of Islamic Finance – which the delegation encountered during its visit.
It is also keen to bring in governmental professional development centres in the Islamic finance sphere such as the Islamic Banking and Finance Institute Malaysia. The delegation also visited the Labuan International Business and Finance Centre, which has a research focus on Islamic wealth management.
Dubai’s ambitions in Islamic industries include setting up a Sharia council to oversee standards in Islamic finance, an arbitration centre to resolve disputes in Islamic contracts, and a drive to boost production of halal food within Dubai. The ratings agency Standard & Poor’s said it expected the Islamic finance industry to more than double globally to about US$2.6 trillion by 2015.

(The National / 24 March 2014)
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Malaysia: PMB to go into Islamic financing

KUALA LUMPUR: Pelaburan Mara Bhd (PMB) will go into a joint venture with Saudi Arabian-based Islamic Development Bank and inject RM100mil into just-acquiredKFH Ijarah House (M) Sdn Bhd to conduct syariah-compliant financial services, targeting the commercial sector.

KFH Ijarah House will be renamed PMB Tijari Bhd and will be 80:20 owned by PMB and Islamic Development Bank.
“The Islamic finance house would manage PMB’s financial services activities,” PMB group CEO Nazim Rahman said at a press conference.
Nazim said PMB Tijari would specialise in commercial leasing and musharakah and mudarabah services. (Musharakah and mudarabah services include short, medium and long-term project financing, import financing, export financing and working-capital financing.)
In the area of commercial leasing, PMB Tijari would focus on equipment financing, particularly in the oil and gas sector as well as government-related contracts.
“There is a huge market for commercial leasing in Malaysia,” PMB chief executive officer for financing business Tengku Ahmad Badli Shah Raja Hussin said, adding that PMB Tijari already had a good track record in the business.
PMB would continue to explore opportunities to invest in other financial institutions.
“It is a natural progression for us, but we cannot reveal the details due to regulatory sensitivity,” Nazim said.
PMB currently has about RM700mil worth of assets under its management. It expected the value of its assets under management to expand to RM1.5bil by the second quarter of this year.
“We will introduce new funds including a corporate education fund to achieve that goal,” Nazim said.
PMB, the investment and asset management arm of Majlis Amanah Rakyat (Mara), has completed the takeover of KFH Ijarah House for “slightly over RM1mil” since the middle of this month.
The completion of the acquisition of KFH Ijarah House – a subsidiary of Malaysia KFH Capital Ltd – in mid-March 2014 is part of PMB’s agenda to transform itself into a leading investment and fund management institution in the country, PMB group CEO Nazim Rahman said.
Nazim revealed that PMB had acquired KFH Ijarah House at “slightly over RM1mil” on a cash-free, debt-free basis. The price PMB paid represented a slight premium of the net tangible assets of the latter, which stood at around RM1mil.
(The Star Online / 26 March 2014)
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Malaysia: AIBIM Expects New Products Under Islamic Deposits, Investment Accounts

KUALA LUMPUR, March 25 (Bernama) -- Association of Islamic Banking Institutions Malaysia (AIBIM) expects to see new products under the investment accounts by end of this year or early next year.

President Datuk Mohd Redza Shah Abdul Wahid said currently the Islamic institutions were doing housekeeping on the deposits products and would transit immediately over the next few months.

It was reported that Islamic financial institutions would embark on an exercise to reclassify Islamic deposits as defined under the Islamic Financial Services Act 2013 (IFSA 2013).

The Act has introduced two major classifications of products for the acceptance of money from customers by Islamic banking institutions -- Islamic deposits and investment accounts.

Mohd Redza said the Act has given Islamic institutions the ability to offer new products to the public.

"Customers will be given sufficient information and time to make their decisions.

"During the transition period, the affected Islamic deposits or accounts will remain at status quo and will continue to be covered by the Malaysia Deposit Insurance Corporation (PIDM)," he told a media conference Tuesday.

Islamic financial institutions would ensure that the transition process was seamless and would not be inconvenient to customers, said Mohd Redza, who is also Chief Executive Officer of Bank Muamalat Malaysia Bhd.

He said Islamic financial institutions would from time to time be in communication to inform their customers of the latest developments, adding that the exercise would be completed by June 30, 2015.

Customers can call the call centre or visit branches of their respective Islamic financial institutions or Bank Negara Malaysia for queries.

(National News Agency Of Malaysia / 25 March 2014)
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Saudi Electricity Company (SEC) names banks for sukuk

Saudi Electricity Company (SEC) has appointed three international banks for potential sukuk offering and roadshows in the US.

Mubasher Trade said on Tuesday that Saudi Electricity will conduct a series of meetings with fixed-income investors in the US and Europe, starting today (March 25). An offering of Sukuk may follow the investor meetings, subject to market conditions and required regulatory approvals.
Meanwhile, SEC has mandated Deutsche Bank, HSBC, and JP Morgan in connection with the potential offering.
Earlier today, Fitch assigned Saudi Electricity Global Sukuk Company 3's upcoming international Sukuk issue a 'AA-(EXP)' expected rating. Mubasher and Fitch didn’t disclose size of the SEC sukuk.
Fitch said SEC has obtained an additional 49.5 billion riyal loan from the Saudi government this month.
“SEC is drawing down SAR51bn ($14 billion; Dh51.38 billion) of interest free loans from the government to partially finance its capital projects. The government also provided an additional SAR49.5bn loan to SEC in March 2014. Since its inception in 1999, SEC has not paid for fuel provided by Saudi Aramco. SEC transferred a total of SAR57bn in 2007, 2011 and in 2012 of Aramco payables to the Ministry of Finance, converting them to long-term government payables. The government has deferred all dividend payments from SEC since inception, with the latest 10-year deferral running through till 2020,” the ratings agency said.
Fitch said liquidity at SEC is adequate with approximately SAR23.8bn in total liquidity at end-December 2013, including SAR4bn in cash, with the remainder mostly comprising available committed government facility, export credit agency (ECA) and commercial facilities. In addition, SEC issued SAR4.5bn sukuk notes in January 2014. This compares with around SAR8.8bn of maturities due in 2014, and significantly negative free cash flow expectations until 2016 financial year.
The company remains dominant in the Kingdom's electricity generation sector despite the emergence of independent power producers (IPPs), which held 80% of the Kingdom's of total generation capacity at FYE12. SEC retains up to 50% equity positions in five IPPs, sources fuel on their behalf and purchases all electricity produced. Utilising generating capacity at IPPs ahead of its own plants is expected to result in some Ebitda margin compression in coming years, particularly in light of seasonal swings in electricity demand in the Kingdom.
SEC is instrumental in meeting the country's growing electricity demand and executing the state policy on providing subsidised electricity within Saudi Arabia, along with developing a robust, reliable, and stable electricity infrastructure. SEC's current capital spending plan of about SAR157bn ($42bn) over the next three years (2014-2016) includes investment in electricity generation capacity, transmission infrastructure, and distribution assets.
Historically, the maximum annual capital investment by SEC has been around SAR41bn. Delivery of an even larger capex programme than the one executed previously, on time and on budget, while simultaneously managing other construction-related risks could be challenging, Fitch said.
(Emirates Business / 25 March 2014)
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Tuesday, 25 March 2014

Sukuk issuance costs still above conventional bonds in Asia, ADB reports

KUALA LUMPUR, March 24 — Costs of issuing Islamic bonds in Asia are still significantly higher than the costs of issuing conventional bonds, despite the growth of Islamic finance in countries such as Malaysia and Indonesia, a study by the Asian Development Bank found.

In Indonesia, profit rates for sukuk issued by the government are on average 86 basis points higher than comparable conventional government bonds, the Manila-based lender said.
In Malaysia, which has the world’s most liquid sukuk market, profit rates for sukuk are on average 8 bps higher.
Lack of familiarity with complex sukuk structures can translate into higher advisory fees for prospective issuers, while investors demand higher yields because of limited trading activity in secondary markets for sukuk, the ADB said in the March edition of its Asia Bond Monitor.
In Indonesia, corporate sukuk accounted for only about 5 per cent of trading volumes for corporate bonds in 2013.
The average gap between issuance costs for sukuk and conventional bonds in the Gulf, the other world’s other major centre for Islamic finance, is believed to be very small or non-existent — and in some cases, it has proved cheaper to issue sukuk, traders told Reuters.
This is because sukuk have become mainstream in most Gulf countries, especially Saudi Arabia, and because demand from cash-rich institutional investors often exceeds supply.
New sukuk issuance in Asia reached US$91.7 billion (RM303 billion) last year, led by Malaysia with US$83.7 billion. But this still pales in comparison with conventional bond markets; total outstanding local-currency bonds in emerging east Asia hit US$7.4 trillion in 2013, up 11.7 per cent from a year earlier, the ADB said. Indonesia posted the highest annual growth rate of 20.1 per cent.
The ADB defines emerging east Asia as the 10 member countries of the Association of Southeast Asian Nations plus China, Hong Kong, South Korea andTaiwan.
Rising fiscal deficits from Asian countries and tighter liquidity in global bond markets could make sukuk viable funding alternatives in the region’s debt market, the ADB said.
A common template for structuring sukuk could accelerate their adoption across the region and help governments fund their infrastructure needs, the ADB said without elaborating on how this could be achieved.
Its study was issued at a time when the ADB is building links to Islamic finance. The AAA-rated lender is considering whether to issue sukuk of its own, a plan which could evolve into a regular issuance programme and an insurance product to help member countries offer sukuk.
(Malay Mail Online.Com / 24 March 2014)
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Dubai: Islamic finance talent gap to reach 8,000 plus

Dubai: Companies in the UAE will require a lot more than 8,000 new employees trained in Islamic finance next year as Dubai positions itself as the capital of the $8 trillion Islamic economy, a source from an institute told Gulf News.

The bulk of the additional manpower will be required by banks offering Sharia-compliant products and services. Recruiters in the UAE are already seeing a 50 per cent growth in demand for candidates with Islamic finance experience.
Many companies are currently looking to fill positions across all levels, from relationship management, project management to risk management and marketing.
Tahseen Consulting, a specialised advisor on strategic and organisational issues in the Arab world, recently projected that some $87 to $124 billion could potentially enter the Islamic banking system in the UAE next year, creating approximately 7,800 new positions.
“It’s quite a positive industry right now. The growth is showing a lot of positive movements, so hence there is a good potential or possibility of the number even going higher,” Geetu Ahuja, head of GCC at the Chartered Institute of Management Accountants (Cima), a provider of Islamic finance education, told Gulf News in an interview.
“The close to 8,000 projected manpower is only needed around Islamic finance banks, but if we’re looking at other institutions, there are a few more hundreds there itself which will be in demand by next year.”
The Gulf Cooperation Council (GCC) region is set to lead the expansion of the global Islamic finance industry, which is projected to post a double-digit growth by 2016. Estimates show that across the world, Islamic finance will need about 50,000 additional personnel by next year. Adnan Salam, principal consultant at Talent2, a recruitment specialist, said they have seen an increasing demand for Islamic finance professionals in the UAE and the wider GCC market, as conventional banks have been launching new Islamic products.
“At least 40 per cent of the overall roles we are currently working on within the banking and financial services team require Islamic finance qualified or experienced candidates. This is at least a 50 per cent increase compared to the same three-month period in 2013,” Salam told Gulf News.
“We are seeing positions that are in demand across all levels, predominantly within relationship management/sales, business analysis, project management, risk management — more specifically credit risk — and marketing, all related to Islamic finance.”
Analysts have said earlier that while the market is growing, there is a dearth of qualified personnel with Islamic banking skills. The Workforce Planning Study by Dubai International Academic City showed that 50 per cent of the GCC banks find it difficult to hire graduates for entry-level positions, while nearly a quarter (23 per cent) struggle to hire for mid-level roles.
Shailesh Dash, CEO of Al Masah Capital, said the talent shortage can be addressed by utilising the existing pool of professionals working in banks and financial services firms, and providing them with Islamic finance training.
“Instead of relying solely on some sort of certification to determine the authenticity of the professional’s Islamic finance knowledge, one could instead use existing finance [employees] and convert them to Islamic finance experts by giving them the requisite training,” Dash told Gulf News yesterday.
“This would be a far more efficient and quicker way to reduce the gap. By setting up a world-class system, the UAE not only fills a gap in the market, it also provides its national population another opportunity for gainful employment,” he added.
Dubai has announced plans to be the global capital of the Islamic economy, which includes Islamic finance, in the next three years.
(Gulf News.Com / 24 March 2014)
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Sunday, 23 March 2014

The Islamic System Of Banking In Ghana

Mention Islamic banking and you could send a chill down the spine of a traditional banker, and trigger the obvious question of how a financial system operates without interest rates, when interest is the lifeline of a conventional bank and is the mechanism for efficient channeling of funds, the incentive for attracting deposits, the source of earnings from loans, and the motivation for investment in businesses? Indeed, interest free banking is possible and is done through the development of profit-and-loss sharing mechanisms, or through alternatives such as fixed service charges or acting as buying agents for clients. Today, Islamic banking is getting wider attention, including among non-Muslims. That is because Islamic banks, which are open to people of all faiths, have largely survived the global economic crisis intact. So far, none has had to receive substantial bailouts to keep them afloat, suggesting that they somehow offer a safer haven to savers than conventional banks.

The distinct nature of Islamic banking
Islamic finance is all about encouraging and facilitating investment in real economic activity and societal welfare, while prohibiting investment in unethical businesses such as gaming, alcohol or risky financial products like derivatives contracts of the kind which led to the 2008 sub-prime crisis.
The difference between Islamic banks and conventional banks is more apparent in the area of risks and risk management. The distinct nature of relationship with customers and different kinds of financing and investing activities entail unique risks besides general risks faced by all banks. The common risks faced both by Islamic and conventional banks are credit risk, market risk, operational risk and liquidity risk while unique risks such as displaced commercial risk and Sharia compliance risk are related to Islamic banks only.
Mohammed Amin, a London-based Islamic finance consultant, says that perception is partly true, and partly not. In practice, he says, Islamic banks are often more conservative in their commercial activities than ordinary banks. Their prohibitions against interest-bearing loans, for example, meant they did not buy up the large quantities of bad consumer debt that now burdens Western banks and has collapsed and threatened many with collapse.
Many Islamic banks try to guard against such pitfalls by setting formal limits on how much risk they take. According to Sahar Ata at the London School of Business and Finance, that mind-set comes from Islam’s prohibition of gharar, which roughly translates as “excessive risk taking.” She notes that Islamic banks usually try to limit the amount of debt they will assume in amassing their own capital to no more than 30 percent. At the same time, individual Islamic banks report to councils of Shari’a experts, who monitor the bank’s operations and advise when its activities stray from underlining principles.
Why Ghana needs Islamic banking Model
Apart from being a viable alternative to interest based financial systems prone to extreme risk, the interest free solutions of Islamic banking could make equilibrium in society by providing succour to the debt-ridden and other marginalised groups of the population. It has a tool for financial inclusion.
According to Ernst & Young’s (E&Y) World Islamic Banking Competitiveness Report 2013, global Islamic banking assets are expected to cross the $1.8 trillion mark in 2013 up from $1.3 trillion in 2011, with the top 20 Islamic banks registering a continuous growth of 16per cent in the last three years.
The Ghanaian economy faces huge funding gaps in various sectors and government borrowing gets more costly.  For example the cost of 91-day borrowing rose for a sixth straight week to 19.62 percent in January 2014. Yields on one-and two year debt, which have more or less stabilised, as well as bond yields may also pick up. Hence, the growing financial services market in Ghana makes it a logical launch pad for a rollout of Sharia compliant financial services and products. Following the examples of countries such as the UK, France, Germany, Malaysia, Indonesia, Nigeria etc, Ghana could use Islamic Financial products such as Sukuk (long term bond) to fund infrastructure and other sectors. Chiefly, Ghana could attract the Middle East high investible surplus through Islamic finance and banking.
Mechanisms for Introducing Islamic Banking
Setting up Islamic Windows: At first, a commercial bank may only want to probe the potential or market of Islamic banking, and thus launch a pilot project. The bank can take advantage of its existing branch network to open Islamic windows, through which customers can access Sharia compatible products within a conventional bank. At the inception of the Islamic window, the products typically offered are safekeeping deposits on the liability side of the bank and Islamic trade-finance products for small and medium companies on the asset side of the bank.
Islamic and conventional funds: As the activities of the Islamic window expand, the bank may consider fully segregating the window into a separate subsidiary. However, before going from a window to a full subsidiary, banks must meticulously ascertain the profitability of their Islamic business lines, as profits from the Islamic window could be overstated. This is due to the fact that, typically, the overhead costs of the window (e.g., computer systems, building maintenance costs, support personnel, etc.) are borne by the parent bank but needs to be paid from the windows profits.
Islamic Investment Banking: An additional channel through which Islamic finance is swiftly penetrating conventional systems is via investment banking activities. Indeed, in an increasing number of Western countries, conventional banks are offering products specifically designed to attract Shariah compliant investors.
Islamic banking Products:
Mudaraba: This account operates on the basis of the provider pooling all customers’ funds with its own funds to invest in Sharia compliant assets. Each month the provider calculates the actual profit and distributes that profit based on the profit-sharing ratios agreed at the outset with the customer. The related profit is credited to the customer’s account.  The Mudarib fee (or manager’s fee) is a fee which relates specifically to the Islamic finance provider’s profit and is charged for managing the pooled assets.
Musharaka (Islamic mortgage): A Sharia’-compliant mortgage is either structured as a joint purchase by the lending institution and the customer or a lending institution could acquire the property outright, ‘rent’ it to the customer and then sell it to the customer, when the funding has been paid.
Focussing on the former, the following occurs:
●     the ownership is split in the ratio of funding contributed by the respective parties (that is, ratio of deposit paid by the customer compared to the balance paid by the Islamic financial institution).
●     the institution ‘rents’ its part of the property to the customer for a monthly consideration that effectively covers the cost of the finance and the repayment of an instalment of the capital sum lent.
●     when all of the instalments have been paid, the lending institution transfers its legal interest to the customer for a nominal price.
Mostly, the bulk of Sharia -compliant mortgages are residential and VAT (Value Added Tax) exemptions should apply. However, for non-residential mortgages, the situation could be quite complex in view of the application of the option to tax and the range of other rules which could apply. The key objective would be to ensure that there is no unanticipated VAT cost in any proposed transaction.
Murabaha: This is a sales contract (bai’), which in its basic form, consists of a financial institution purchasing an asset (mal) and selling it back to the customer who will make one or more deferred payments over time to cover the payment for the asset plus the mark-up, which is the profit element for the bank. In the conventional world, this would be structured as a loan for the borrower to purchase the underlying asset.
A typical Murabaha works as follows:
●     The customer identifies the goods they are interested in purchasing.
●     The customer and the Islamic finance institution agree a profit margin and the institution purchases the goods from the vendor.
●     The customer takes possession of the goods acting as agent of the institution.
●     The institution then sells the goods to the customer based on cost plus the agreed profit margin which is payable over an agreed period, and the title to the goods passes to the customer at the time the sale occurs.
The Murabaha competes with the conventional hire purchase and credit sale arrangements. The sale of the conventional products would be treated as VATable with the credit charge being treated as VAT-exempt. In the case of the Murabaha, the challenge is to ensure that the profit element (the equivalent of the credit charge) is eligible for VAT exemption. Again, it is important to ensure that any contract relating to the arrangements reflect the requirements for conventional VAT-exempt credit sale agreements such as the disclosure of the profit element and the fact that there is a higher charge for the longer deferment terms. In this regard, a thorough consideration of Ghanaian tax law is helpful.
Sukuk (Islamic bonds): Since the beginning of 2000, sukuks have become important Islamic financial instruments in raising funds for long-term project financing. Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity. A sukukinvestor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the bond.
In the case of conventional bonds the issuer has a contractual obligation to pay to bond holders, on certain specified dates, interest and principal. In contrast, under a sukuk structure the sukuk holders each hold an undivided beneficial ownership in the underlying assets. Consequently, sukuk holders are entitled to a share in the revenues generated by the sukuk assets. The sale of sukuk relates to the sale of a proportionate share in the assets.
There are various types of sukuk structures relating to the nature of the underlying asset. The most commonly used is where the sukuk relates to a partial ownership of an asset (sukuk al-ijarah). Other types of these bonds relate to partial ownership in a debt (sukuk murabaha), project (sukuk al-istisna), business (sukuk al-musharaka), or investment (sukuk al-istithmar).
Thus, so far, one of the key determinants for the successful development of Islamic finance in any jurisdiction is the existence of a friendly legal framework. Jurisdictions that are able to quickly amend their legal framework have managed to achieve significant growth in Islamic finance. The basis for the legal framework is to have governing laws that enable the conduct of Islamic finance business and that puts it on a level playing field with conventional finance. However, this law ideally should also sanction the implicit statutory obligations for sharia compliance.
What is Required to start  Islamic Banking in Ghana?
Requirements to start an Islamic bank often vary greatly from country to country. In Ghana Many difficulties may arise when establishing an Islamic bank in complying with rules originally conceived for the regulation and supervision of conventional banks. These rules intend to ensure the viability and strength of banking institutions and to secure the entire banking system in the country. These often include principles such as capital certainty for depositors and certainty as to the rate of return on deposits. Therefore, it is important to be aware or familiar with national banking laws and regulations and they would affect Islamic banking operations.
Government intervention or active support is also necessary to establish Islamic banks working under the PLS scheme by introducing or adapting legislation or by giving Islamic banks special dispensation to conduct their activities.
Yet, it is important in order to establish an Islamic bank to look into the corporate tax and personal tax structures and look for any available exemptions. Tax implications are more imperative for an Islamic bank than for a conventional. In fact, profit paid to Islamic bank’s depositors should be treated as an acceptable charge for the bank, just as interest paid by conventional banks to their depositors is.
On the tax side, the issue of market place equality should be paramount especially for Islamic mortgages. These products envisage a structure whereby the property is bought and sold twice (that is, the vendor sells to the Islamic Bank which then, in turn, sells to the customer). This ensures that the lender can charge a ‘profit element’ rather than interest. In the case of property transactions, this would typically result in property tax being borne twice, once by the Islamic bank and then by the end consumer. Besides, there could be an issue of double taxation in the case of Islamic trade financing where goods are transferred twice, which could decrease the profitability of the venture. The rates of personal taxes and other statutory payments will also have an impact on charges on the total employees’ costs and hence on the cost of operations
Therefore, when considering the application of VAT to Islamic finance, it is important in the first instance to analyse all aspects of the service or product and consider the VAT treatment under the current rules. In some cases the analysis will be relatively straightforward. For example, with regard to a current account, the fees and charges for a conventional account and a Sharia-compliant account can be structured so as to be the same apart from the fact that there will be no interest charges on the latter account. In these circumstances, the VAT liability of those fees and charges will have the same VAT-exempt treatment.
The real challenge arises from the need to structure more complex Islamic financial services and products to be both Sharia’a-compliant and VAT-neutral. For products and services such as savings accounts, loans, hire/purchase transactions, insurance, bonds, etc, there is an element of buying and selling goods (for example, commodities) that needs to be taken into account. It is the presence of these additional transactions that can create VAT complications.
Most Central Banks require commercial banks to follow a capital adequacy ratio for liquidity purposes by investing a percentage of their liabilities in approved securities which are often interest bearing. In addition, regulators do not generally authorize banks to engage directly in business enterprises using depositors’ funds. Islamic banks also need an interbank money market not using interest bearing transactions or using dual system off-loans their excess liquidity, which may not be available in Ghana.
Relatively Islamic banking sector is growing rapidly, at an international level. Islamic finance differs quite substantially from conventional banking, using very different mechanisms, and operating according to a different theory as it is based on Islamic law. Yet at the same time it is always subject to the law of the particular financial market in which it operates. Islamic financial institutions now operate in over 70 countries. By certain (probably overly optimistic) estimates, up to half of the savings of the Islamic world may in the near future end up being managed by Islamic financial institutions. Thus, potential for the future growth of Islamic finance, in the retail and wholesale markets, is clear and Ghana’s emerging financial services is already underpinned by the factors, in particular, innovation and flexibility and historical links. An Islamic banking system could lead to the availability of new retail products, the expansion of wealth and asset management services and the development of Sukuk and other wholesale markets. 
(Spyghana.Com / 22 March 2014)
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Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain