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Sunday, 29 June 2014

Senegal Sukuk Shows Way for South Africa, Nigeria to Debut

Senegal beat South Africa and Nigeria to market with sub-Saharan Africa’s biggest sovereign sukuk, clearing the path for the continent’s biggest economies to follow with debut Islamic bonds.

Senegal opened a sale this week for 100 billion CFA francs ($208 million) of the debt that will close July 18, tapping a global market that may surpass record issuance of $46.5 billion in 2012, according to arrangers. Worldwide offerings rose 27 percent to $24.4 billion in 2014 from a year earlier, data compiled by Bloomberg show. Gambia, which shares a border with Senegal, sells sukuk maturing in less than a year weekly, with yields on 91-day notes falling 117 basis points this year to 14.89 percent.
“Other governments on the continent will be watching the issuance with interest,” Sarah Tzinieris, principal Africa analyst at Bath, U.K.-based risk advisory company Maplecroft, said in an e-mailed response to questions on June 25. “With the market still relatively undeveloped in sub-Saharan Africa, the first countries issuing sukuk bonds -– such as Senegal -– are in a strong position to position themselves as African hubs for Islamic finance.”
South Africa, which has the continent’s largest stock and bond exchanges, plans to issue a sukuk this year, the National Treasury said in April. A sukuk is part of Nigeria’s strategic framework through 2017, Patience Oniha, the Abuja-based Debt Management Office market development director, said by e-mail yesterday. Kenya may offer sukuk to broaden its investor base, Treasury Secretary Henry Rotich said two days ago. Nigeria’s Osun state sold 10 billion naira ($61 million) of Islamic debt in September, the first state in the country to sell sukuk.


Since coming to power in the West African nation in 2012, Senegalese President Macky Sall has shut or combined 59 state agencies and allocated more money to curb water and power cuts in the capital, Dakar. He audited the administration of his predecessor, Abdoulaye Wade, and set up a court to try economic crimes, while reducing Senegal’s inflation rate. Senegal’s economy is set to expand 4.6 percent this year, the fastest pace since 2007, and 4.8 percent in 2015, according to the International Monetary Fund.
“Senegal is issuing sukuk bonds before more developed markets in North Africa, such as Morocco and Tunisia, reflecting the investment-minded approach of the Macky Sall government, as well as its crucial need to raise capital,” Tzinieris said.
The sukuk issuance comes as Senegal plans to sell its second Eurobond, with the nation seeking to raise $500 million by July. Standard Chartered Plc, Societe Generale SA’s local unit and Citigroup Inc. have been appointed to manage the offering, Ange Constantin Mancabou, an adviser to Finance Minister Amadou Ba, said by phone from Dakar yesterday.


Yields on its notes due May 2021 have dropped 88 basis points this year to 5.97 percent by 10:52 a.m. in Dakar. The average yield on African dollar bonds dipped to a one-year low of 4.97 percent on May 29, JPMorgan Chase & Co. indexes show.
In July 2012, Sudan raised 955 million Sudanese pounds ($165 million) selling Islamic debt, with no issuance since, Osama Saeed, head of the research and statistics section at Sudan Financial Services Co., said by phone from Khartoum, the capital, yesterday. South Africa’s Treasury didn’t immediately respond to e-mailed requests for comment yesterday.
Senegal has the second-largest economy in the eight-nation West African Economic and Monetary Union and is the only country in the region apart from Cape Verde that’s never had a military overthrow of the government.
Half of the debt earmarked for the sukuk has already been sold, Budget Minister Mouhamadou Mactar Cisse told reporters in Dakar, the capital, on June 25.
“The launch of this sukuk bond marks an important milestone for the development of Islamic finance” in West African markets, he said. “It allows Islamic banks and financial institutions to improve their liquidity.

(Bloomberg / 27 June 2014)
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Morocco’s lower house of parliament approves Islamic banking law

Casablanca, Asharq Al-Awsat—Morocco’s lower house of parliament has approved a new banking law, which for the first time contains articles relating to Islamic banks, paving the way for a fledgling Islamic finance industry in the country after years of false starts.

The new law—previously presented to parliament earlier in January this year and in April 2012—now awaits official ratification via a final vote in the North African Kingdom’s upper house of parliament, the House of Councilors, in the next few weeks.
The bill will allow for local and foreign banking institutions to set up Islamic banking branches in Morocco.
Currently only the country’s largest bank, Attijariwafa, which is part-owned by Moroccan King Mohammed VI’s holding company Société Nationale d’Investissement, has an Islamic banking subsidiary in the Kingdom.
But anticipating the new law, two of Morocco’s largest banks, Banque Marocaine du Commerce Extérieur (BMCE) and La Banque Centrale Populaire du Maroc (BCP), told Reuters in March they were already positioning themselves to set up new Islamic banking branches in the Kingdom.
Morocco has for years been attempting to launch an Islamic finance industry in a bid to attract Gulf money to plug its sizable budget deficit. Along with Malaysia, Gulf countries account for the lion’s share of the global Islamic finance industry, estimated to be worth 1.4–1.7 trillion US dollars.
But Islamic finance products, which Morocco only allowed conventional banks to offer in a limited capacity from 2010, never took off in the Kingdom. According to a recent Gallup poll, only around 1 percent of adults in Morocco said they had used such products, with customers complaining of higher fees than those charged by conventional lenders.
However, it is hoped the new bill, which also contains legislation pertaining to the establishment of a Shari’a committee formed in coordination with the country’s central bank, will help build a robust regulatory environment for the sector in the country.
And despite the thus far lukewarm reception to Islamic finance in Morocco, a recent joint study by Thomson Reuters and Islamic finance consultant IFAAS showed a 98-percent demand for Islamic finance products among the Kingdom’s largely untapped market of 30 million Muslim residents. The study estimated Islamic banks could account for 3–5 percent of the total banking market in the Kingdom by 2018, or about 5.2–8.6 billion US dollars, providing a “substantial opportunity for investors and financial institutions.”
Under the new bill, Islamic banks will be called “Participatory Banks,” an alternative moniker commonly used to designate Islamic banking activity, and which stresses the desire on the part of Shari’a-compliant investors to “participate” in the profits of an institution or company, without earning money on riba, or interest.
The new law also paves the way for the launch of Morocco’s first sovereign Islamic bond, or sukuk, originally scheduled for 2013 when the bill was first presented to parliament in 2012.
Like Islamic finance in general, sukuk allow for partial ownership of an underlying asset by an investor, who now “participates” in, or shares the risk involved, in the asset along with other owners.
The new banking law also contains provisions for microfinance, online and mobile banking, and the regulatory environment for the banking industry as a whole in the Kingdom.
(Asharq Al-Awsat / 26 June 2014)
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Saturday, 21 June 2014

Malaysia Plans To Be A Pioneer of Islamic Wealth Management

Malaysia hopes to be the first country in the world to introduce Islamic wealth management and champion new products under the Islamic financial system, said Deputy Finance Minister Datuk Ahmad Maslan.

According to him, Islamic wealth management is an attractive sub-sector and promises good returns in the financial services industry.
“We understand the concept of wealth management from the Shariah perspective that includes physical and spiritual wealth.
“This principle is contrary to conventional wealth management which focuses only on the physical or material wealth,” he told reporters after opening a conference on Islamic wealth management.
Datuk Ahmad said, having established themselves as a global leader in Islamic finance, Malaysia is currently the world’s third largest market for Shariah assets, namely takaful and sukuk, the products and services of Islamic banking.
Ahmad said, to boost Malaysia’s aspiration to be the center of intellectual excellence in Islamic finance, the government stepped up efforts in that direction.
“A few human resource development institutions, including the International Shariah Research Academy for Islamic Finance (ISRA), the International Centre for Education in Islamic Finance (INCEIF), Islamic Banking and Finance Institute Malaysia (IBFIM) and the Asian Institute of Finance (AIF) have been established to achieve these intentions.
“I expect the Islamic wealth management will evolve to the next stage in the Islamic finance industry with the availability of infrastructure in terms of human resource development for the Islamic financial institutions and expertise that is existing today,” he said.
The two day conference was organised by the Malaysian Financial Planning Council and the Labuan International Business and Finance. It acts as a platform for networking and exchange of ideas and views on the internal operations of the Islamic financial industry.
More than 300 delegates consisting of policy-makers, research institutes, government agencies and academia participated in the conference.
(The Establishment / 16 June 2014)
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Islamic finance still a pipe dream for Hong Kong

Hong Kong has been talking about Islamic finance for seven years with little to show for it.

The essential logic of Islamic funding is compelling. China's capital needs are growing exponentially. China's bond market is projected to soon become the world's second largest. The global financial crisis showed the US dollar and euro markets of the West are vulnerable to crisis and shutdowns, showing the value of diversification to other capital bases, such as the Middle East's.
"There are two important developments for the global financial market. One is the internationalisation of the yuan … and [the fact that] Islamic finance is getting more prominent in the global market," said Peter Pang Sing-tong, deputy chief executive of the Hong Kong Monetary Authority (HKMA).
The member states of the Gulf Co-operation Council and their sovereign wealth funds collectively control US$2 trillion of assets. Islamic finance restructures assets so they do not pay interest - forbidden under Islam - and instead pays out income in the form of profits or rental income.
It was notable that the British government last week announced a plan to bring a £200 million (HK$2.6 billion) sukuk, the first Islamic bond to be issued by a Western government. This stole the thunder from Hong Kong's own sukuk issuance planned this year to raise up to US$1 billion - but it showed Hong Kong to be on the right track.
"We are expanding into the sukuk market. It's important for Hong Kong," said Pang.
The reality is that Hong Kong has made little progress. Hang Seng Bank marketed an Islamic retail fund, six Islamic bonds have started trading on the Hong Kong exchange, and two issuers marketed yuan sukuks in Hong Kong. This week RHB Asset Management launched another Islamic retail fund into Hong Kong.
Hongkongers could be forgiven for not tracking any of these developments, all small deals on the periphery of the market.
Amir Ahmad, a Dubai-based lawyer who specialises in Islamic transactions, said this market needs relentless promotion to take root. He gives the example of Dubai, where leaders are continuously talking up the city as an Islamic funding hub. Dubai in any given year will host dozens of Islamic banking conferences and related industry gatherings. In 2014 Hong Kong has scheduled just one event, a Bank Negara-HKMA co-hosted conference that took place in April.
"Islamic bankers find it difficult [to do deals in Hong Kong]," said Ahmad. "The driving force is the political will. But if the political will is lacking, [Islamic finance] won't happen."
Lawmaker James To Kun-sun, who sits on the Legislative Council's financial affairs panel, said Hong Kong needs to do more work promoting itself as an Islamic hub.
All the promotion in the world will not be any use unless Hong Kong can persuade mainland issuers to use Islamic structures. A bond banker at a universal bank with Islamic capability said this was unlikely.
"I can't see this being much interest to mainland issuers at all," he said. "Issuers would want to see a pricing benefit from that and we would need to demonstrate a pricing benefit. If you go and say this is a new instrument that gives you tighter pricing, then they would consider it … but we can't do that."
In the best-case scenario, Islamic issues yield the same as equivalent conventional bonds. Often, however, the instruments have to offer more yield to investors to compensate them for the fact that sukuk bonds trade with less liquidity than conventional debt (all things being equal) and because Islamic instruments are not included in mainstream bond indices, such as the benchmark JP Morgan Emerging Markets Bond Index.
The diversification argument is also not persuasive. Chinese firms have access to ample liquidity in the Hong Kong and US markets. If they wanted to tap other pools of capital, the vastly liquid euro and yen markets remain largely unused by them.
Islamic debt flourishes in countries where issuers and investors are strongly motivated - for political or religious reasons - to use the structure. Essentially, these are Islamic nations.
"I struggle to see where the mainland authorities are going to see value in supporting [Islamic finance], given their stance towards religion in general. Some of the unrest recently has come from Islamic quarters and politically it's not something that [the Chinese government] want to see their state-owned enterprises doing," said the banker.
(South China Morning Post / 18 June 2014)
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Friday, 20 June 2014

Saudi’s Al Rajhi Capital to launch first sukuk fund

Riyadh: The investment banking arm of Saudi Arabia’s Al Rajhi Bank has received regulatory approval for its first mutual fund that will invest in sukuk (Islamic bonds), as demand for sharia-compliant debt rises in the Gulf’s largest economy.

Al Rajhi is the country’s biggest listed lender and the world’s largest Islamic bank, but it has been slower than some of its peers to embrace the sukuk market. It has never raised money through a sukuk issue itself.
A spokesman at Al Rajhi Capital could not be reached for comment but a source at the firm said the fund, in the pipeline since 2012, had been prompted by a growing number of client inquiries about investing in sukuk.
In January, the firm said it planned to expand its business primarily by underwriting, arranging and investing in sukuk.
Saudi Arabia is the second largest market for Islamic mutual funds with 167, behind only Malaysia, but only five of those funds are dedicated purely to sukuk, stock exchange data shows.
This is because in the past, there has been a lack of domestically available sukuk to feed such funds, and because of the conservative nature of some of the kingdom’s sharia scholars. A number of scholars view trading in sukuk as outright trading of debt, which is banned by Islamic principles.
But over the past two years, issuance of sukuk in Saudi Arabia has ballooned because of increased liquidity, comparatively low borrowing costs and firms’ desire to diversify their funding sources beyond bank loans.
Sukuk issuance in Saudi Arabia rose to the equivalent of $15.2 billion through 20 deals last year, compared to $11.2 billion through 18 deals in 2012, according to data from Zawya, a Thomson Reuters company. Year-to-date, there have been nine sukuk issued worth $8.5 billion.
Some Islamic banks have themselves issued sukuk. This month, Saudi Investment Bank completed a 2 billion riyal ($533 million) capital-boosting sukuk issue, while Banque Saudi Fransi
did a similar deal. National Commercial Bank sold a 5 billion riyal sukuk in February.
(Gulfnews.Com / 19 June 2014)
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Kazakhstan eyes ‘unified’ Islamic banking law next year

Kazakhstan will start drafting a new Islamic banking law that could help the industry develop in the former Soviet state, after a five-year-old set of rules failed to stimulate activity.

Fresh legislation would allow Islamic finance to develop better under the secular regulatory regime of the predominantly Muslim country, said Yerlan Baidaulet, the Kazakhstan member of the board of executive directors at the Saudi Arabia-based Islamic Development Bank.
"A new unified law being developed would aim to avoid any complicated Arabic terms. Instead it will focus on a certain set of financial instruments, on a clear tax regime, the actual structures and mechanisms the industry has to offer."
Drafting could take between four and six months and the proposed legislation may be presented to the government by the middle of next year, said Baidaulet, who also advises the Kazakh Ministry of Industry and New Technologies. The drafting is being funded by a grant from the IDB.
Kazakhstan was the first former Soviet country to introduce Islamic finance rules in 2009, but the industry remains embryonic with total assets of less than $200 million at the end of 2013, a report by rating agency Standard & Poor's said.
The new law is to include provisions to facilitate conversion of conventional banks to sharia-compliant ones, a key element in a country with only one full-fledged Islamic bank, Abu Dhabi-based Al Hilal Bank, which opened its doors in 2010.
In May last year, the private investment arm of the IDB said it planned to invest up to 35 percent of the subscribed and paid-up capital of Zaman Bank to convert it into the country's second Islamic bank, but there is no time frame for those plans.
The rigidity of the existing law means conventional banks would have to shut down and then reapply for licenses to convert their operations, a process that could take up to three years, said Baidaulet.
"The existing law is just a declarative act. Why should we compromise on a dead law that of course is not effective?"
Currently, Islamic banks are categorized on a par with other commercial banks, known as Tier 2 banks, but the current law does not extend to them all the tax privileges that conventional banks have, he added.
"We are not asking for offshore tax or any tax exemptions, we just want to equalize legally all rights and privileges among all other Tier 2 banks to compete on the same and fair basis.
(Al-Arabiya News Asia / 19 June 2014)
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Monday, 16 June 2014

Egypt intensifies efforts to regulate zakat

These efforts include regulating the work of charities and intensifying public awareness campaigns conducted via imams and mosques, officials told Al-Shorfa.
The Ministry of Endowments banned the collection of zakat donations in mosques last Ramadan, but the decision only went into effect this year.
The ministry issued a list of penalties for violators, and is moving, in co-ordination with Al-Azhar and security agencies, to prevent unauthorised donation boxes from being placed in mosques and gathering places, said Mahmoud Metwalli, a member of Egypt's Zakat Committee.
Zakat collection is restricted to Ministry of Endowments and Al-Azhar offices, as well as to around 14,000 licensed, nationally-recognised charitable organisations that receive zakat funds to disburse to the needy, Metwalli said.
"These organisations are subject to supervision and monitoring and are fully transparent with regard to the disclosure of collections and disbursements to the poor and the salaries of their employees," he told Al-Shorfa.
Zakat funds are disbursed each year by Al-Azhar and the endowments and social solidarity ministries to an approved list of eligible recipients, including the sick, orphans, widows and the poor, Metwalli said.
The disbursements are paid out directly or through post offices, in which case the payment dates are announced in the media, he said.
This year, an electronic link will be established between organisations that collect zakat, civil society organisations and the Ministry of Social Solidarity to monitor the funds and verify the beneficiary lists, he added.


In some cases, unlicensed or fictitious organisations that have no defined budgets are collecting funds, Metwalli said, and "thus, the fate of the money they collect is unknown".
Additionally, he said, some individuals go from house to house to collect money, claiming to represent a legitimate organisation.
To stop this type of abuse, Al-Azhar and the Ministry of Endowments are conducting awareness campaigns at mosques around Egypt on the need to restrict zakat payments to authorised parties.
"The awareness campaigns also include the circulation of the names of ministry representatives and licensed organisations and institutions, with emphasis that citizens need to check the ID cards of those who try to collect funds," Metwalli added.
"The state of lawlessness that prevailed in the past period allowed some suspicious individuals to once again infiltrate Egyptian society," said Al-Azhar University sharia professor Nayef Abd Rabbu, who serves as an advisor to the Ministry of Social Solidarity.
"These individuals belong to terrorist groups that wreak havoc in Egyptian territories and require financial support to maintain their existence, and the month of Ramadan represents a favourable opportunity for them," he said.
In response, he said, agencies concerned with the collection and disbursement of zakat are tightening their control over the process to prevent these funds from reaching the coffers of "terrorist groups".


Zakat funds are distributed based on lists of eligible recipients which are researched, vetted and compiled in advance, Abd Rabbu said, noting that Al-Azhar works with civil society organisations and charities to prevent beneficiaries from making multiple claims on these funds.
"The amount of money paid by Egyptians for zakat may reach up to 15 billion Egyptian pounds ($2 billion)," Abd Rabbu said.
Sheikh Abdullah Abdelradi, imam of al-Mustafa mosque in Dokki district, said he has been active in raising public awareness against giving zakat to non-officially licensed parties.
"There are many who exploit the surge in donations during the month of Ramadan to support some extremist and terrorist groups," he told Al-Shorfa.
The Ministry of Endowments is working to eliminate this practice by prohibiting mosques from accepting zakat and cash donations, he said.
"I personally, and other imams, ask citizens who wish to donate to mosques to donate in kind, that is to bring to the mosque equipment it needs" such as air conditioning units, fans, loudspeakers, prayer rugs and other necessities, Abdelradi said.
In-kind donations also can include maintenance work or joining the mosque's charitable organisation to organise evening banquets, or Rahman tables, during the month of Ramadan, he said.
"This way, [the handling of] funds is restricted to official parties only," he said.
In his religious sermons and speeches, Abdelradi said he stresses the need to refrain from giving money to unknown individuals or organisations, "especially those who go door to door to collect donations and zakat for a particular cause or project".
He also suggests that in lieu of cash, those who wish to donate more than the required amount of zakat could pay for student textbooks or tutoring or offer to pay the debts of a struggling family.
(Al-Shorfa.Com / 13 June 2014)
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MENA SMEs Turn To Islamic Financing For Funding

Around 35 per cent of SMEs in the MENA region are excluded from the formal banking sector because they are seeking shariah compliant products that are not readily available in the market, according to a new study by International Finance Corporation (IFC).

The study, which was carried out across nine countries, found a potential market gap of up to $13.2 billion for SME Islamic financing in the region.
Despite the rising demand for Islamic financing among SMEs, the study reported a gap in Shariah complaint offerings among regional lenders. Of the 36 per cent of banks in the MENA region that offer SME products, only 17 per cent offer Islamic options.
The study also noted a significant variation across countries; demand for Islamic banking is as high as 90 per cent in Saudi Arabia while falling low as four per cent in Lebanon.
A high level of risk aversion by banks, poor regulatory environments, differing perceptions of Islamic finance, and a lack of relevant products were found to be hindering the growth of Islamic SME banking.
“The Islamic banking industry is not adopting measures that would grow the market. They don’t have a strategic outlook and there is a lack of product innovation,” added Attiq ur Rehman, partner, Israa Capital.
The study was carried out in Iraq, Pakistan, Yemen, the Kingdom of Saudi Arabia, Egypt, Lebanon, Morocco, Tunisia and Jordan.
But figures are not widely different in other GCC countries, experts noted.
“What we see in Saudi will be applicable to the rest of the GCC region as markets are very similar in that sense,” said Mouayed Makhlouf, regional director for IFC, MENA.
“But more importantly, the study reveals a significant, untapped ‘new to bank’ funding opportunity, as banks and other financial institutions lack adequate strategic focus on this segment to offer Shariah-compliant products. It also highlights the measures they need to take to overcome this.”
The Islamic banking industry is expected to develop significantly over the next few years.
“Islamic banking has a compound annual growth rate of 15 per cent whereas conventional banking in these countries is not more than seven per cent,” said Rehman.
“Islamic banking grew even during the crisis period of 2008 to 2010 when conventional banking slowed. It maintained that growth pattern after that as it saw a phenomenal growth in 2013.”
Rehman attributed the growth in Islamic finance in the region to lower non-performing ratio (NPR) of loans compared to conventional banking.
“The reason is that there are real transaction and people’s tendency to default is low because willful defaulters are less in Islamic banking as compared to conventional banking,” he said.
Fuelled by economic growth in core Islamic financial markets, global Islamic banking assets are set to exceed $3.4 trillion by 2018 according to a report released earlier this year by Ernst & Young (EY).
EY’s Global Islamic Banking Centre said the combined profits of Islamic banks broke the $10 billion mark for the first time at the end of 2013.

(Gulf Business / 14 June 2014)
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Sunday, 15 June 2014

CIMB to jointly arrange £200 mil UK sukuk

CIMB Group Bhd is among five international banks that has been mandated to arrange the British government’s £200 million (RM1.08 billion) sovereign sukuk, the first to be issued by a Western government.

The sukuk, which according to Her Majesty’s Treasury website will be issued “in the coming weeks”, will have a tenure of five years and use the Al-Ijara structure.
It will be underpinned by rental income from three central government office properties, which will remain in government ownership during the lifetime of the sukuk.
The website also announced the appointment of CIMB as part of a syndicate of five banks (that has been mandated to arrange the deal .
The other banks are HSBC, Barwa Bank (Qatar), National Bank of Abu Dhabi (UAE) and Standard Chartered.
The British government first toyed with the sovereign sukuk idea six years ago but was pushed to shelve the plan because the issuance was deemed “too expensive” for the government to structure then.
Prime Minister David Cameron, however, announced last year plans to make London the primary leading hub for Islamic finance in Europe as well as the world, alongside Kuala Lumpur and Dubai.
Issuance of a sovereign sukuk will underscore this goal.
Malaysia has recorded spectacular growth on the sukuk front with a 69 per cent share totalling US$82.4 billion (RM271 billion) of total world issuance as at end-2013, according to a report published by the Malaysia International Islamic Financial Centre (MIFC) in January.
CIMB, through CIMB Islamic Bank Bhd, is also one of the country’s strongest sukuk players with deals encompassing Projek Lebuhraya Usahasama Bhd’s sukuk programme of RM11 billion, Khazanah Nasional Bhd’s 300 million yuan (RM155.65 million) trust certificates due this year and Petroliam Nasional Bhd’s US$4.5 billion (RM14.4 billion) trust certificates.
In an interview with Business Times late last year, CIMB Islamic deputy chief executive officer Mohamad Safri Shahul Hamid had shared his enthusiasm in the wake of the British sovereign sukuk announcement.
“Britain is an economic powerhouse, it is one part of the G-20 countries, and to have a sukuk being issued out of a G-20 country is definitely a step in the right direction for Islamic finance. The sector is definitely booming, but now we have the support of London, the default European Islamic finance centre, to help us expand our wings,” he said, noting that spillover effects of the sukuk will be tremendous.
he sukuk will diversify the asset class of syariah-compliant asset management. This is the first time a pound sterling sukuk has been in the market and it will definitely provide more opportunities for all parties involved, including the issuer, in this case the British government, and the potential investors.

(Malaysia Hronicle / 14 June 2014)
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Islamic finance challenges to be tackled in global conference

Leaders of the global Islamic finance industry will be in Singapore this week to discuss the many challenges that remain for the Islamic banking sector. Experts said however, that there was no sign of a slowdown in the sector. Islamic finance stakeholders will be attending the 5th annual World Islamic Banking Conference: Asia Summit (WIBC Asia), which is hoping to tackle, among other things, the different ways to build cross-border connections to sustain the industries' momentum. CIMB Islamic CEO Badlisyah Abdul Ghani said there was a need for the industry to build international linkages in order to accelerate its development. Islamic Bank of Asia CEO Toby O'Connor said the industry needed to develop new financial products and services in order to cater to evolving needs of customers.

(Asia First / 02 June 2014)
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Wednesday, 11 June 2014

It is early days for Islamic finance in Kazakhstan

Baku, Azerbaijan, June 9

By Elena Kosolapova- Trend: It's still very early days for Islamic finance in Kazakhstan, and there are some important roadblocks to remove to enable its gradual growth, Standard & Poor's Ratings Services said in a credit FAQ "Islamic Finance Slowly Unfolds in Kazakhstan" published on June 9.

"We think product offering is insufficient, market demand is still to be estimated, and the industry needs regulatory fine-tuning," said Standard & Poor's credit analyst Mohamed Damak.

With total assets of less than $200 million at year-end 2013, by the estimate, Kazakhstan's Islamic finance is still embryonic. One Islamic bank is active, and the agency understands that a few other Sharia compliant finance companies have established very small operations as Islamic finance players.

"We think that the potential of Islamic finance will closely hinge on banks' ability to offer competitive products compared with conventional finance products," S&P said.

In S&P's view, there is room for some improvement to the current regulatory environment that would remove growth impediments. For instance, regulation does not authorize conventional banks to create Islamic windows, which has left them behind in the race to create Islamic product offerings.

"Islamic finance could help Kazakhstan to access a new class of investors looking for Sharia compliant products and contribute to widening banking penetration," added Mr. Damak. "The country has a substantial investment pipeline and could use sukuk to attract external financing."

If this growth materializes, Kazakhstan might over time become a regional Islamic finance hub, S&P said.

For Islamic finance to develop in a given market, the agency sees the following as key success factors: securing the political and business community's willingness and support; establishing a central Sharia supervisory body; pricing competitively; introducing liquidity management instruments, and educating human resources on Islamic finance specificities.

(Trend / 09 June 2014)
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Sukuk pipeline - Issue plans around the world

AKTIF BANK - A special purpose vehicle of Turkish lender Aktif Yatirim Bankasi said on June 6 it would issue up to 200m lira ($96m) of sukuk. It did not give details.

RAS AL KHAIMAH - The emirate of Ras Al Khaimah, part of the United Arab Emirates, has invited banks to pitch for arranger roles on a potential dollar-denominated sukuk, sources said in early June. A deal isn't expected until at least the third quarter of this year.
BOTM - Bank of Tokyo-Mitsubishi UFJ said on June 5 it was seeking to raise as much as $500m through a multi-currency Islamic bond programme in Malaysia, becoming the first Japanese bank to use sukuk for fund-raising.
EMAAR - The malls unit of Dubai's Emaar Properties would hold meetings with fixed income investors from June 8 ahead of a potential benchmark-sized sukuk issue, Emaar said. Benchmark size is traditionally understood to be worth at least $500m.
UEM SUNRISE - Malaysian property developer UEM Sunrise has mandated CIMB and Maybank to lead a potential issuance off a 2bn ringgit ($620m) sukuk programme; bookbuilding is likely to kick off over the next couple of weeks after the borrower and its leads sound out investors, bankers said in early June.
BANGLADESH - The central bank is seeking to amend rules on its existing sukuk programme to broaden its use and allow for sovereign issuance by the government, a central bank spokesman said in June.
BANK ISLAM - Malaysia's Bank Islam plans to raise 1bn ringgit by selling Islamic bonds to fund organic growth as well as a potential acquisition in Indonesia, two people involved told Reuters in early June. A 300 million ringgit Basel-III compliant Tier 2 sukuk is awaiting approval from the central bank and the Securities Commission for issue in July.
(Arabian Business.Com / 10 June 2014)
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Tuesday, 10 June 2014

Meethaq, pioneer of Islamic banking in Oman signs MoU with Al Salam Bank, BMI Bank of Bahrain

Muscat: Meethaq, the pioneer of Islamic banking in Oman from Bank Muscat, Al Salam Bank Bahrain, and Bahraini retail and commercial banking institution BMI Bank, have signed an memorandum of understanding (MoU) to collectively pool expertise, technologies and resources. 

They have agreed to work together across a range of Islamic banking activities including Islamic syndications, particularly those issued in Oman, treasury transactions, liquidity management products and Islamic trade finance transactions.

The MoU was signed at BMI Bank's headquarters by Sulaiman Al Harthy, group general manager, Meethaq Islamic Banking; Yousif Taqi, CEO of Al Salam Bank; and Jamal Al Hazeem, CEO of BMI Bank, said a press release.

"Meethaq is delighted to sign the MoU with Al Salam Bank and BMI Bank, and we will work together to offer various Islamic finance products covering treasury, trade finance and capital market in Oman. 
Meethaq is working to strengthen its operations in the Sultanate, which is witnessing substantial growth in the Islamic banking industry. We consider our partnership with Al Salam Bank and BMI Bank a great advantage to maximise favourable opportunities, and thereby expand our coverage," said Al Harthy.

"Since its inception in 2013, Meethaq has emerged as a leading Islamic banking service provider in Oman, and has enhanced its reputation within the region through investments in staff, systems and controls besides the timely launch of several world-class Shari-based products and services. Our organisations share mutual principles, values and expertise, and we are therefore pleased to sign this MoU. We look forward to enhancing this partnership in the coming years," added Al Hazeem. 

(Times Of Oman / 08 June 2014)
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Japan Lacking Sukuk Rules Spurs Malaysia Debuts

Bank of Tokyo-Mitsubishi UFJ is planning a debut sukuk in Malaysia as Japan’s lack of Islamic finance rules forces companies overseas to tap Muslim investors.

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd., a member of the financial group that’s part of Japan’s biggest lender by market value, has set up a $500 million multi-currency program to sell debt complying with Koranic principles and is also considering offering the world’s first yen-denominated sukuk, according to a June 5 statement. The issuance will help manage the bank’s increasing Islamic financing needs, it said.
The lender joins Japan Bank for International Cooperation and the North Asian nation’s Aeon Credit Service (M) Bhd. in choosing Malaysia to sell Islamic bonds, taking advantage of Shariah-compliant banking assets that are set to double to $3.4 trillion worldwide by 2018. The 2.83 percent average yield on dollar sukuk globally is near a one-year low, while conventional emerging-market U.S. currency notes are paying 5.26 percent, according to Deutsche Bank AG and JPMorgan Chase & Co. indexes.
“The experience of Bank of Tokyo-Mitsubishi will be useful for other Japanese institutions to copy,” Raj Mohamad, managing director at Five Pillars Pte, a consulting firm in Singapore, said in an e-mail interview yesterday. “The awareness of Shariah products will improve and slowly it will give investors the opportunity to tap Japanese corporates.”


While Japan has no Islamic banking rules of its own, the government amended legislation in 2008 to allow subsidiaries of the country’s lenders and insurers overseas to provide financial services in accordance with religious tenets. Bank of Tokyo-Mitsubishi UFJ Malaysia offers Shariah-compliant loans and guarantees among its products in the Southeast Asian nation.
Japan Bank for International Cooperation, a state-owned lender, announced in April that it was considering selling its first Islamic bonds this year to fund a project in Malaysia. Aeon Credit Service (ACSM), the local unit of a Japanese consumer finance provider, said in December it was planning to sell sukuk with no set maturity, adding to previous offerings.
Average yields on global dollar sukuk have dropped 59 basis points, or 0.59 percentage point, in 2014 and reached a one-year low of 2.78 percent on May 29, the Deutsche Bank index shows. That compares with an 84 basis point decline in the JPMorgan gauge of developing-market debt.


Japanese banks are selling Islamic bonds to tap Shariah-compliant funds in Malaysia, Indonesia and the Middle East, said Mohamad at Five Pillars. A yen issue would attract interest from investors seeking securities with good ratings and an offering such as this would help boost secondary-market trading in the current buy-and-hold environment, he added.
While global yields have dropped this year, the FTSE Bursa Malaysia KLCI index of shares fell 0.2 percent. Malaysia’s sovereign wealth fund Khazanah Nasional Bhd. abandoned a plan last week to sell exchangeable dollar sukuk because pricing didn’t meet expectations, said a person with knowledge of the deal who asked not to be identified as the details are private.
Khazanah sold Singapore dollar-denominated convertible Islamic bonds in October via the special purpose company Indah Capital. It issued S$600 million ($480 million) of five-year debt at a minus 0.25 percent yield and carrying a 17 percent exchange premium, according to a company statement. The notes yielded minus 0.96 percent yesterday, according to data compiled by Bloomberg.


Bank of Tokyo-Mitsubishi’s sukuk plan comes amid speculation borrowing costs will soon increase with the Federal Reserve (FDTR) on track to end its bond-buying program by year-end and start raising interest rates in 2015. The debt has been rated AAA by Malaysia’s RAM Rating Services Bhd., the highest investment grade.
“While demand for sukuk is still good, issuers who expect to get last year’s pricing for their bonds will be in for a hard time,” Azdini Nor Azman, the Kuala Lumpur-based head of treasury at Bank Muamalat Malaysia Bhd., said in a June 5 phone interview. “Issuers will have to stomach higher borrowing costs as yields are unlikely to fall from current levels.”
Nomura Holdings Inc. tapped the Malaysian Islamic bond market in 2010 and the notes have since matured. Toyota Motor Corp. sold 280 million ringgit ($88 million) of sukuk in 2012 in two offers via its unit Toyota Capital Malaysia Sdn. The 4 percent securities due in May 2015 aren’t actively traded and last yielded 3.58 percent on April 15, stock exchange data show.


Global issuance of bonds that pay returns on assets to comply with Islam’s ban on interest rose 6.5 percent to $20 billion in 2014 from a year earlier, after reaching $43.1 billion last year and a record $46.5 billion in 2012, according to data compiled by Bloomberg.
The Bloomberg-Malaysia Sukuk Ex-MYR Index, which tracks global corporate and sovereign notes from Asia and the Middle East, gained 3.4 percent this year to 116.44, after rising 0.8 percent in 2013. It climbed to a record 116.47 on June 2.
“Islamic investment instruments are currently widely accepted even by conventional investors,” Abas A. Jalil, chief executive officer at Amanah Capital Group Ltd., a consultancy in Kuala Lumpur, said in an e-mail interview yesterday. “More Islamic institutions will start to understand the Japanese market better, and definitely it will start drawing more interest from both issuers and investors.”

(Bloomberg / 10 June 2014)
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