Russia Recognizes the Benefits of Islamic Banking

It’s very hard to conceptualize a banking without interest. Interest after all is the primary fuel and the metric of success in commercial banking. Well, thanks to Islamic prohibitions against charging interest, there is a very robust branch of alternative banking called Islamic banking.

Islamic banking doesn’t look money as a commodity. Instead, it looks at commercial transactions and makes its money off the commercial transactions made possible by its lending activities. Compare this with conventional banking where the bank is focused solely on the amount of money it lends out and the amount of money it collects. The amount of money it collects has to have an interest because that’s how it measures its success. Islamic banking, on the other hand, lends out money but profit and losses are shared by the bank. In other words, the money lent out by the bank is not the primary measurement of success, but the economic activity made possible by those funds.

This may seem mind-blowing and foreign to many economies focused on conventional banking. However, Islamic banking actually accounts for $2.6 trillion of global economic activity, and that rate is growing. It is no surprise that the UK, South Africa, and Luxembourg have forayed into this specialty type of banking. Now Russia is looking into Islamic finance.

There’s a lot of money to be made in Islamic finance. At the very least, if Russia opens its first Islamic bank, it might be able to attract capital from Indonesia, Malaysia, Arab states, and the cash-rich United Arab Emirates. This will be Russia’s way of getting around the tough international financial sanctions it’s facing due to its involvement in the Ukrainian civil war. Russia is looking towards Islamic banking as a way to keep the Russian economy from sliding towards a recession.

The Russian economy has been through a tough time recently. In addition to the sanctions, it’s been hammered hard by the crash in global oil prices. This is a seriously bad news for Russia because the vast majority of its GDP comes from its energy exports.

(Street Wise Journal / 27 February 2015)

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The UK plans to lead the globe in Islamic finance

In June last year, the UK became the first non-Muslim country to issue a bond compliant with sharia law, known as a Sukuk. Now, a government minister has said London should become a hub for Islamic finance worldwide.

Tobias Ellwood, under secretary of state at the Foreign and Commonwealth Office, told a conference on the Middle East run by the Telegraph newspaper in the UK capital that Britain needed to “promote inclusive political participation and job creation across the region.”

He said that prosperity was at the heart of a long-term security strategy for the Middle East, the Telegraph reports.

Islamic law prohibits the charging or paying of interest, so a Sukuk is structured differently from other bonds. This can involve an investment in a tangible asset, in which the bondholder will gain a stake through their Sukuk purchase. The bonds can be issued by corporations or sovereign states.

Dubai and Bangladesh are some recent issuers, along with a very long list of others. The UK’s Sukuk, which went on sale in June 2014,attracted orders of £2.3 billion ($3.55 billion) (paywall)—ten times the £200 million available.

Money from the Middle East has been used to fund some of London’s big recent building projects, such as The Shard, which became the tallest building in the country when it was completed in 2013 and was eventually paid for by a consortium of investors from Qatar.

Chancellor George Osborne has long been supportive of foreign investment in the UK, and of London rivaling finance centers elsewhere by cultivating a flexible approach. “I want Britain to be not just the western hub of Chinese finance—but of Islamic finance too,” he said in a key speech in June 2014.

(Quartz / 28 February 2015)

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Garuda considers issuing global sukuk

National flag carrier Garuda Indonesia (GIAA) is mulling over a global sukuk issuance this year, with the aim of raising US$500 million to refinance its maturing debt.

According to I Gusti Ngurah “Ari” Askhara Danadiputra, Garuda’s chief financial officer and risk management head, the bond issuance will probably take place in mid-April.

“We are still in the preparation stage and we have not officially appointed any financial institution to arrange the bond issuance, but we are hoping to secure funds from investors in Asia, Europe and the Middle East,” he told reporters on Tuesday.

Part of the funds generated from the sukuk sale will be used to refinance the airline’s debt, worth $350 million, which will mature this year. The remaining $150 million of the funds will be used for various general purposes, including capital expenditure.

“The selection of sukuk is based on our desire to attract Middle Eastern investors. It may be easier for us as well because sukuk issuance does not require the issuer to obtain credit ratings from rating agencies,” Ari said.

He added that the debt papers would most likely be listed overseas, in a Middle Eastern country. If all goes ahead as planned, Garuda will become the first Indonesian company to offer global Islamic bonds.

In preparation for the bond issuance, Garuda has obtained a bridge loan worth $400 million from the National Bank of Abu Dhabi (NBAD) and Dubai Islamic Bank PJSC (DIB).

The loan agreement — which will mature after 12 months — was signed on Feb. 18, as stated in a document submitted by the company to the Indonesia Stock Exchange (IDX).

According to Ari, the bridge loan will function as a “back stop facility” if the sukuk issuance does not go according to plan.

Back stops are commonly used as a guarantee that a bond issuer will still obtain the needed funds, even if the debt paper sale fails.

“The back stop facility will mature after seven years and by then, the facility will be worth $500 million, equal to our sukuk target,” he said, adding that the NBAD and DIB had expressed interest in being coordinators in the sukuk sale.

Meanwhile, Ari said that the airline aimed to post net profits from its operations this year, overturning net losses that it recorded during the January to September 2014 period. The company has not yet published its 2014 full-year financial report.

“To overturn the situation, we decided to cut several routes that were not profitable, reduce flight frequencies for other routes and increase flight frequencies for routes that are making money, such as the one to Jeddah [in Saudi Arabia],” he said.

The company plans to open up new routes across Java as well as use smaller aircraft to boost its business.

Ari also claimed that the airline had identified up to $148 million of funds that it could potentially save through various cost efficiencies.

A $17 million portion of those savings came from a cross-currency swap agreement that it recently signed with lenders Bank Negara Indonesia (BNI), Standard Chartered Bank Indonesia and CIMB Niaga.

Following the announcement of its sukuk plan, Garuda saw its shares slump 1.8 percent to Rp 535 (4 US cents) per share on the IDX from a day before

(The Jakarta Post / 25 February 2014)

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Britain to lead the world in Islamic finance

London has set its sights on becoming the world centre for the Islamic finance industry according to the UK's foreign office minister for Middle East.

Speaking at The Telegraph's Middle East Congress on Wednesday, Tobias Ellwood, under secretary of state at the Foreign Office, said the capital had ambitions to stand alongside Dubai and Kuala Lumpur as a global hub for Islamic finance.

Britain became the first country outside the Muslim world to issue an Islamic bond, known as Sukuk, last year.

The £200m bond attracted healthy investor interest and was the first step in encouraging wider investment from the region to the City of London.

Britain was also committed to promoting a "peaceful and prosperous" Middle East and expanding trade ties with the region, which topped £35bn last year, said Mr Ellwood

"A long-term security strategy must have prosperity at its heart."

Islamic finance products comply with religious rulings, known as sharia, to pool risk and prohibit traditional interest payments.

There are currently six Islamic banks in Britain, while another 20 lenders currently offer Islamic financial products and services, more than any other Western country.

Chancellor George Osborne has said promoting the Islamic finance industry, which is worth nearly $2 trillion, would help make Britain “the undisputed centre of the global financial system".

Mr Ellwood also celebrated notable sharia-compliant investments that have been used to fund some of the capital’s largest developments, including The Shard and the Olympic Village.

The sovereign Sukuk market, which makes up only 0.1pc of global financial assets, is predicted to expand by 20pc a year, according Robert Gray, chairman of debt finance at HSBC.

Sukuk provide fixed returns from underlying assets, thus bypassing the Islamic prohibition on receiving interest.

Mr Gray added the recent fall in oil prices would not hinder the industry and could stimulate the issuance of Sharia compliant debt from the likes of Saudi Arabia.

With a depth of reserves, Gulf nations have a “strong capacity to accept more debt and a strong inclination to use Islamic capital markets”, said Mr Gray.

(The Telegraph / 25 February 2015)

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Nigeria’s Central Bank Centralises Regulation Of Islamic Banking

VENTURES AFRICA – Nigeria’s Central Bank has become the latest regulator to opt for a centralised approach to Islamic Banking after it issued guidelines for an advisory body that will oversee the industry in the country. Nigeria has the largest Muslim population in sub-Saharan Africa, virtually half of the country’s 170 million people.

The advisory body, known as the Financial Regulation Advisory Council of Experts, will be tasked with ensuring all banking products that are designated as Islamic conform to sharia principles. The Central Bank guidelines, published on Friday, set out minimum requirements for the advisory body, which will comprise a minimum of five members including one of its official. Members will serve renewable two-year terms, must be qualified in Islamic jurisprudence, and are restricted from working for any other financial institution supervised by the central bank.  The guideline also stipulates that the advisory body will be guided by the principles of sharia governance issued by the Malaysia-based Islamic Financial Services Board.

Although Islamic banks have long practiced self-regulation, a centralised model of supervision is increasingly being favoured across much of the world. Morocco is one of the several countries that have adopted such format in a bid to limit differences between products, speed the design of new products and boost investor confidence

Financial institutions that offer Islamic banking products in Nigeria are already required to have their own boards of sharia finance experts, who are limited to serving in one institution at a time. However, the centralization is part of the effort to establish the country as the African hub for Islamic finance.

(Ventures / 23 February 2015)

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Central Bank of Nigeria (CBN) Sets Guidelines For Islamic Finance Advisory Body

The Central Bank of Nigeria (CBN) has issued guidelines for an advisory body that will oversee Islamic banking in Nigeria, becoming the latest regulator to opt for a centralised approach to the industry.

Nigeria’s advisory body, known as the Financial Regulation Advisory Council of Experts, will be tasked with ensuring all banking products that are designated as Islamic conform to sharia principles.

The guidelines, published on Friday, set out minimum requirements for the advisory body, which will comprise a minimum of five members including a CBN official.

Members will serve renewable two-year terms, must be qualified in Islamic jurisprudence, and are restricted from working for any other financial institution supervised by the CBN.

Financial institutions that offer Islamic banking products in Nigeria are already required to have their own boards of sharia finance experts, who are limited to serving in one institution at a time.

The CBN’s advisory body will be guided by the principles of sharia governance issued by the Malaysia-based Islamic Financial Services Board.

Countries including Bahrain and Morocco have opted for such a format, which can help to limit differences between products, speed the design of new products and boost investor confidence.

(Channel Television / 23 February 2014)

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Indonesia plans to create USD8bn mega-Islamic bank

According to the chairman of Indonesia's Financial Services Authority, Muliaman Hadad, the merger between the Islamic finance units of government-controlled Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, as well as a small unit of Bank Tabungan Negara, could happen as early as this year. 

The idea behind the mega-merger is to create an Islamic banking institution that would be able to face the growing foreign competition in Shariah-banking in Indonesia through so-called "Islamic windows" of conventional banks, as well as to boost the currently quite small market share of Islamic finance in the country of about 5% four-fold to 20% by 2018, as per a forecast by the Indonesia Islamic Banking Association, bringing the share on par with Malaysia. 

The new Islamic mega-bank would also be a catalyst for new products for retail customers and businesses and generally improve public awareness of Shariah-compliant finance. It would have lower operating costs and through its combined asset base would be able to finance larger infrastructure projects in the country, Hadad argued. 

Together with a five-year roadmap for Islamic banking development drafted by Indonesia's Financial Services Authority, the new focus on Islamic finance should correct the imbalance between Indonesia's huge Muslim population and their low use of Shariah-compliant financial products and services. For example, while the number of Indonesia's Muslims is 12 times higher than Malaysia's - Indonesia also has the largest Muslim population of any country in the world - total deposits at Islamic banks are less than a sixth of Malaysia's, the Jakarta Globe cited official data. The roadmap thus plans to introduce clear new regulations on Islamic finance, as well as incentives to attract first-time investors to the Islamic finance market. It also will seek that the new mega-Islamic bank will integrate itself into the global financial system by bringing its risk management and capital requirements in line with international standards.

Compared internationally, with just $24bn, Indonesia's Islamic banking assets are currently just slightly above the UK's, where Islamic banking has grown impressively in the recent past and reached an asset base of $19bn as per 2014. They are also significantly lower than Saudi Arabia's ($260bn), the UAE's ($90bn) and Qatar's ($60bn). Malaysia's Islamic finance assets are worth around $115bn as of 2014. 

With regards to foreign investors, Indonesia has already tested the appetite for sukuks, or Islamic bonds. In September last year, a US-dollar denominated $1.5bn sovereign sukuk had an orderbook comprising $10bn worth of bids submitted by foreign investors, having been more than 6-time oversubscribed. The huge demand for this bond has prompted the Indonesian government to come back with another sukuk issue as early as in the first half of 2015.

Economists also point at a regulation that requires conventional banks in Indonesia to separate their "Islamic windows" - or Islamic banking units of which there are more than 20 currently in operation by domestic and foreign conventional banks- into dedicated standalone institutions by 2023 similar to what the Qatar Central Bank asked conventional banks in Qatar to do in 2012. It is expected that this regulation will lead to a noticeable consolidation among such "Islamic window" units in the coming years in Indonesia.

(Zawya / 22 February 2014)
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Islamic financing aiding robust growth in Oman's banking sector

Muscat: Oman is a prime location for the Islamic finance sector to thrive and statistics show that it will do so, was the main conclusion of the Accounting for Islamic Finance event held by ACCA Oman's members' advisory committee (the Association of Chartered Certified Accountants).

Sponsored and held at Bank Muscat Meethaq, Sulaiman Al Harthy, Group General Manager of Islamic Banking at Bank Muscat and Khalid Yousaf, Director of Islamic Finance Advisory Services at KPMG Oman spoke at the event.

Sulaiman Al Harthy said: "Meethaq is proud to host the ACCA member event Accounting for Islamic finance as part of initiatives reflecting the bank's focus on maintaining the leadership role in Islamic banking and finance. Islamic banking in the Sultanate is contributing to the growth and development of the banking sector in Oman and Meethaq is committed to sustaining its contribution to Oman's economy in light of the emerging trends."

"With strong economic growth projections, significant government expenditure on infrastructure projects and a young, Shari'a-sensitive population, Oman has all the ingredients required for a successful Islamic finance sector. Apart from Islamic liquidity management, the challenge is in tackling long-term funding requirements," he added.

Islamic banking assets

"Islamic banking assets in Oman stood at $2.8 billion in June 2014, or 4.4 per cent of total banking assets, since the launch of Islamic finance less than two years ago in January 2013. This growth is expected to continue and Islamic banking assets are projected to grow to between $5 billion to $7 billion by 2018. The growth is driven by a combination of the enabling environment fostered by regulators and a young, Shari'a-sensitive population."

"Meethaq has adopted the best practices in Islamic banking and finance worldwide to combine a robust model which protects customers and complements the Islamic banking industry. In just over two years of operations, Meethaq has attained a leading position in the Islamic banking industry in Oman with over 50 per cent of financing receivables."

Growing public awareness

KPMG director Khalid Yousaf said: "Growth of Islamic Finance in Oman has been slow but steady. 2015 is likely to see all Islamic Banks and Windows break-even and turn profitable, merely within two years of start-up operations. Growing public awareness will feed further growth in the coming years.

"Though still small compared to conventional finance, Islamic Finance has created its niche space globally. Its transactions being largely participation-based, appeal not only to faith-based investors but also to conservative risk-takers shunning high levels of leveraging."  

Maqbool Al Lawati, chair of ACCA's members' advisory committee in Oman, said: "The event highlighted products available in Oman for Islamic banking and how successful the sector has been in the past few years. 

"More than 60 ACCA members and key employers attended the event which I think proves just how interesting and important this topic is," he added.

(Times Of Oman / 21 February 2015)

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Emirates hires banks for UK-guaranteed sukuk of up to $1 bln

Emirates, the Dubai-based airline, has hired banks to help it arrange a sukuk or Islamic bond of up to $1 billion, five sources familiar with the matter said, as the airline seeks to raise cash to finance its pipeline of aircraft orders.

The issue will be backed by UK Export Finance (UKEF), the sources said, the first time Britain's export credit agency has guaranteed an Islamic bond issue.

Spokeswomen for Emirates and UK Export Finance declined comment.

Export credit agencies aim to provide funding to companies outside their countries, on the proviso that the money is used to support home industries.

Emirates is the largest customer for the Airbus A380, for which the wings are assembled at the manufacturer's plant in Broughton, Wales.

UKEF expected to guarantee an Islamic bond in 2015 issued by a customer of Airbus, Britain's finance ministry said in October. This came after the UK became the first Western nation to sell an Islamic bond, attracting bids worth more than 10 times the 200 million pounds ($322 million) on offer.

It will not be the first time Emirates has issued bonds backed by export credit agencies as it seeks to diversify its sources of funding for the delivery of around $107.5 billion worth of aircraft from Boeing and Airbus in coming years.

Emirates in 2012 raised a bond which was guaranteed by U.S. Ex-Im Bank to help support the purchase of Boeing aircraft and in 2013 it refinanced two Airbus A380s through a bond backed by COFACE, the French export credit agency.

It also sold a $1 billion sukuk in March 2013.

Two of the sources said the upcoming U.K.-backed Emirates deal could close by the end of the first quarter.

The transaction is likely to be worth up to $1 billion, according to three of the sources, with one adding that the lifespan would be between five and 10 years.

Eight banks are arranging the transaction, according to two of the sources: HSBC, Citigroup, JP Morgan , National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD and Standard Chartered.

(Reuters / 19 February 2015)

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Game theory model for Islamic finance?

Researchers are seeking to apply the principles of game theory to Islamic finance, one of several efforts to shed new light on economic behaviour in an industry driven by religious principles.

Traditionally, research into Islamic finance has focused on what is religiously permissible – whether activities and instruments follow syariah law, such as bans on interest payments and pure monetary speculation.

But as the industry grows, attention is shifting to include practical matters such as how investors and fund-raising institutions make decisions, and how to design economically viable new products.

The shift comes as Islamic banks try to expand beyond a relatively small client base that focuses on syariah compliance, to a much larger one whose financial decisions are based on a wide range of factors such as pricing and service quality.

A competition launched this month by the Islamic Development Bank (IDB), in partnership with universities in Morocco and Saudi Arabia, invites entrants worldwide to submit computer models of some aspect of Islamic economics or finance.

Cash prizes are offered for the best three submissions.

Models are to employ agent-based simulation (ABS), which uses individual rules for the behaviour of each participant and shows how their interaction can have results that no participant intended.

Sami Al Suwailem, head of the financial product development centre at the Jeddah-based IDB, said he hoped the models would reveal how various agents in Islamic finance – such as customers, banks and regulators – responded to each other.

“There is a disconnect now between theory and practice in Islamic finance. Not surprisingly, there is little innovation in the industry,” he said.

“ABS is one way, among many, to help bridge this gap and to spur innovation.”

Conventional finance has used mathematical models and massive computing power for decades.

Islamic finance now seems to be reaching a size and complexity that make it worth doing the same; the industry’s global assets are estimated to exceed US$2 trillion (RM7.22 trillion) and are growing faster than conventional finance.

In 2013, the IDB set up an Islamic financial engineering laboratory at Morocco’s Mohamed V University, which launched the ABS research competition with Saudi Arabia’s Imam Mohammed Bin Saud Islamic University.

ABS could help estimate the impact of introducing new Islamic financial products to the market, said Mohammad Al Suhaibani, professor of economics at the Saudi university.

“The research in this topic is very important to improve our understanding of Muslim economic behaviour. We are confident this award will open a new chapter in Islamic finance and economics research.”

Many new research efforts are backed by partnerships between financial institutions – either multilateral institutions such as the IDB, or commercial banks – and universities.

In November, Malaysia’s CIMB Islamic Bank and the International Centre for Education in Islamic Finance (INCEIF) in Kuala Lumpur set up a research centre that focuses on product development.

Islamic financial research is evolving from a focus on theoretical concepts in the 1980s and the regulatory environment in the 1990s to operational issues such as product design and cross-border deals, INCEIF said in a statement.

“There is a real need to bridge the gap between academic knowledge and industry experience,” it said, adding this was becoming possible because more historical data had been made available in recent years, allowing more empirical studies to be conducted.

Meanwhile, the World Bank and the Bahrain-based Al Baraka Banking Group have tied up to develop a series of research projects studying the legal and regulatory environment needed for equity-based Islamic finance contracts.

The first initiative will study the risk-management challenges facing Islamic banks, with a focus on profit-sharing contracts known as musharaka and mudaraba, which are widely known conceptually but little used in practice.

Preliminary findings of that project are expected to be available in the first quarter of this year.

(The Rakyat Post / 19 February 2015)

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Asian Dollar Sukuk Sales Poised to Set Records

Asia is set for the busiest year for dollar sukuk sales in at least five years as Malaysia’s state oil company plans a record offering and Indonesia’s government seeks to beat rising U.S. borrowing costs.

Petroliam Nasional Bhd. may sell as much as $7 billion of Islamic notes, the biggest ever foreign-currency sukuk, which will take the amount outstanding from Asia to $19 billion, compared with $76 billion worldwide. Malaysia, Cagamas Bhd. and Export Import Bank of Malaysia also plan offerings this year, after a combined $4.3 billion from the region in 2014 that was the largest in Bloomberg-compiled data going back to 2010.

Asian issuers of U.S. currency sukuk are looking to take advantage of the rising pool of Islamic banking assets that Ernst & Young LLP forecasts will double to $3.4 trillion by 2018. Petronas, as Malaysia’s only Fortune 500 company is known, is coming to the market just as a slump in crude prices is hurting revenues for the region’s only major oil exporter.

“We are seeing more Asian companies and sovereigns tapping the dollar market because they want to take the opportunity before the Federal Reserve raises interest rates,” Mohamed Azahari Kamil, chief executive officer of Asian Finance Bank Bhd. in Kuala Lumpur, said by phone Feb. 12. “Despite the challenges, Petronas will be successful in selling the sukuk because the company is well-managed and is backed by strong fundamentals.”

Indonesia, which last sold Shariah-compliant dollar notes in September 2014, is seeking to return to the fold in the first half of this year. Malaysia has asked for proposals from banks for a global offering as $1.25 billion of sukuk are due to mature in June. It would be its first sale since 2011.

Bonds Maturing

Petronas is selling debt to raise funds for working capital, a person familiar with the matter, who asked not to be identified because the process is private, said on Feb. 11. Petronas won’t issue a statement on the planned offering, according to a Feb. 12 e-mailed statement.

Malaysia’s top oil producer reported a 14 percent drop in third-quarter profit on Nov. 28 amid a 36 percent decline in Brent crude since June. Net income fell to 12.4 billion ringgit ($3.5 billion) and revenue decreased 1.3 percent to 80.4 billion ringgit. Numbers for the period to December will be issued later this month.

Petronas, which is rated A- by Standard & Poor’s, has $625 million of U.S. currency notes due in August. The company’s only dollar sukuk, sold in 2009 at a coupon of 4.25 percent, matured last year. The yield on the 2015 non-Islamic debt denominated in the greenback increased one basis point this year to 1.12 percent and the yield on the 2022 securities rose two basis points to 3.43 percent, according to data compiled by Bloomberg.

Spurring Sales

The government invited bankers to submit proposals for a dollar sukuk by Wednesday, separate people with knowledge of the matter said Feb. 12. Export Import Bank of Malaysia plans its sale for the final six months of the year. Cagamas, the nation’s state-owned mortgage provider, has set up a $2.5 billion multicurrency program.

The yield on Malaysia’s 4.646 percent notes maturing in 2021 climbed 24 basis points, or 0.24 percentage point, this month to 2.98 percent, data compiled by Bloomberg show. The yield on Indonesia’s 4.35 percent 2024 debt decreased one basis point to 4.07 percent.

“A name like Petronas should attract interest and will encourage other issuers to follow suit,” Mohd. Effendi Abdullah, head of Islamic markets at AmInvestment Bank Bhd., Malaysia’s third-biggest sukuk arranger, said by phone Feb. 12 in Kuala Lumpur. “It will give a boost to the Islamic bond market, and may help global sukuk surpass 2012’s record.”

Record Issuance

Worldwide offerings of Islamic bonds, including local-currency notes, totaled $46.3 billion in 2014, $500 million short of the all-time high, data compiled by Bloomberg show. Sales have dwindled to $1.7 billion so far in 2015, the worst start to a year since the $561 million in 2010.

While the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 2.9 percent this year, the ringgit has fallen 2.5 percent. The average yield on U.S. currency sukuk has dropped 13 basis points to 2.92 percent this year, after reaching an 11-month high of 3.28 percent on Dec. 16, according to a Deutsche Bank AG index.

“The planned sales by Petronas, Malaysia and Indonesia will be positive as they will help ease the shortage of sukuk,” Jesse Liew, Kuala Lumpur-based head of global Islamic bonds at BNP Paribas Investment Partners Malaysia, which has more than $900 million of assets, said in a phone interview Monday. “It would be better if they sell in the first quarter as borrowing costs are still low.

(Bloomberg Business / 17 February 2015)

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what’s next for the Islamic finance market?

The history of Islamic finance goes back more than 1,400 years, when the general population was mostly active in goods trading. However, modern Islamic finance has seen a rapid resurgence, particularly since the mid-1970s, and today one can claim that Islamic finance is present on a global basis across all segments of the financial markets. In fact, the industry has seen tremendous growth in the past 20 years, with total assets rising from $150bn in the 1990s to exceeding the $2tn mark in 2014.

More recently, global financial centres, such as London, Singapore, Hong Kong and Luxembourg have begun to show increasing interest in serving as financial hubs for Islamic finance. This has been spurred by successes in the sukuk (bond) market, which had a particularly commendable performance last year, reaching $104bn from 630 issues at the end of October 2014. Given the impact that the industry is having, World Finance sat down with the CEO of the Islamic Corporation for the Development of the Private Sector (ICD), Khaled Al-Aboodi, to discuss how Islamic finance aims to continue its success.

What do you think the potential of the Islamic finance market is?

We can see that Islamic finance is getting more and more recognition worldwide, especially due to its social and ethical aspects and also importantly for its impact on the real economy. As the Islamic finance industry expands its outreach and becomes more mainstream across the Muslim world we will certainly see more product innovation and a reduction in transaction costs, which should result in greater depth in the various segments of the markets. With more governments recognising the added value of Islamic finance as a comprehensive financial system, which can run parallel to their conventional system, more policy attention is being paid to introducing an Islamic finance legal and regulatory framework, which should lead to better corporate governance and risk management across the industry.

What part has the ICD played in the development of Islamic finance?The positive demographics of the global Muslim population, which will reach 26 percent of the total global population by 2020 and of which over 60 percent are under the age of 30, will continue to drive demand for Islamic finance in terms of sophistication and product offering. I believe the industry has gained the traction and maturity to rise to a much higher level within the next few years and the growing interest of key global financial centres will further accelerate the growth and the internationalisation of Islamic finance.

ICD as the private sector arm of the Islamic Development Bank Group (IsDBG), is the premier multilateral financial organisation, which operates under the principles of Islamic finance in the private sector arena. The ICD supports the private sector of its member countries in terms of providing financing and investment and also providing advisory services in various fields of activities such as advising governments on sukuk issuances, privatisation programmes and setting up of special economic zones.

The IsDBG has been a pioneer in the Islamic finance industry since its creation 40 years ago. ICD, which was created more recently in the year 2000, has been leading the way in the private sector of many of its member countries by setting up financial institutions such as Islamic banks, leasing companies and investment companies in addition to providing term financing, all in accordance to the principles of Islamic finance.

Moreover, recognising the acute shortage of properly qualified Islamic finance professionals and its negative impact on the industry, ICD, three years ago, launched a special programme called the Islamic Finance Talent Development Programme with a view to develop and fill the gap in terms of the required human capital to take the Islamic finance industry forward on a strong footing.

Can you expand on ICDs key achievements to date?

ICD is now in its 14th year of operation and recorded another year of positive results in 2013 and is also expecting positive results in 2014. As a multilateral development financial institution, we do not measure our success and achievements only in financial terms, but most importantly in terms of the developmental impact of our interventions in our member countries.

I can confidently claim that ICD has been able to continue providing effective services and support to its member countries despite the challenges arising from the broader socio-economic environment in which it is operating. In addition to the enduring negative effects of financial crises, some of our member countries are facing continued political turmoil and armed conflicts. Nonetheless we remain focused on our mandate to promote the development of the private sector in our member countries while observing our short-term priorities to ensure that ICD remains effective and relevant towards its long-term objectives. Over the last 13 years ICD has expanded its geographical reach across the world (see Fig. 1) and its accumulated gross approvals at the end of 2013 stood at approximately $3bn allocated in various modes of finance (see Fig. 2) to over 300 projects across 25 countries.

In line with its core strategy, ICD has been focusing more resources in the financial sector with the objective of fast tracking funds to the small- and medium-sized enterprises (SME) sector. In addition to providing lines of credit to local banks in its member countries for onward financing of SMEs, ICD as part of its overall strategy has been setting up leasing companies, investment companies and Islamic banks to act as its ‘channels’ to reach a greater multitude of beneficiaries.

ICD has been active in setting up funds to improve SMEs access to term financing and equity investments. As an example, ICD established the first SME investment fund in Saudi Arabia, a SAR 1bn ($266.5m) quasi equity and debt sharia compliant SME fund. This fund will invest in targeted SMEs showing high-growth potential for contributing substantially to job creation among the youth and with a strong developmental impact to ensure overall social and economic stability.

What products and services do you offer?

As mentioned earlier, ICD was set up as the private sector arm of the IDB Group to focus primarily on private sector development with a view to creation of employment and reduction of poverty in its member countries. ICD offers a wide array of products and services that supports the establishment, expansion and modernisations of private enterprises. ICD intervenes through various modes of financing including equity participation and quasi equity, term financing, corporate financing, and various types of advisory services including technical assistance.

What is the ICDs role in the development of the private sector?

The private sector is unanimously recognised as a critical driver of sustainable economic development that drives economic growth for the improvement of people’s living conditions.

ICD is the leading multilateral financial institution offering a multitude of Islamic finance investment and financing products and continues to play an important role for the development of the private sector in its member countries. ICD has also been successful in mobilising resources to bring highly needed investments in certain member countries through the comfort it provides to other foreign investors by its own participation in these projects. ICD also offers advice to governments and private sector organisations to encourage the establishment, expansion and modernisation of private enterprises, the development of capital markets and the adoption of best management practices.

What is ICDs strategy and how do you see it changing in the years ahead?

I believe that increased liberalisation and greater awareness of Islamic banking in non-Muslim countries and the developments in the Islamic capital markets will certainly lead to greater adoption of Islamic finance across the world.

We plan to continue our successful partnership with our member countries and expand our activities into new regions. We are also directing our efforts to expanding our partnerships with non-Muslim and non-member countries, as a means of supporting the internationalisation of Islamic finance.

We will continue our efforts to support and improve the living standards of people in our member countries through the development of the private sector by ensuring that Islamic finance remains inclusive and accessible to all, particularly the lower income groups and small businesses. I strongly believe that it is only by bringing the financially underserved population into the economic mainstream that we can truly contribute towards more sustainable and equitable economic growth, which is at the heart of Islamic finance.

(World Finance / 17 February 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Meethaq Islamic Banking starts saving campaign for children

Muscat: Bank Muscat's Meethaq Islamic Banking has launched 'Little Investor' campaign, aimed at promoting the basic concepts of financial planning and saving among school students and their families.

"By launching this programme, Meethaq Islamic Banking aims to realise a number of objectives, most importantly to familiarise participants with the fundamentals of financial planning and money management," SulaimanAl Harthy, group general manager, Meethaq Islamic Banking, said at a ceremony on Monday. 

According to him, the programme is being implemented in cooperation with Happy Family Centre for Family and Educational Consultancy and is in line with Meethaq's plans to promote Islamic Banking. 

Aisha Al Harthy, director of the centre, said that the campaign will initially start at three private schools and may be expanded to more schools in future. 

The purpose of the campaign is to instill Islamic money-related ethics and values in students with the help of their families, she said, emphasising the importance of saving and educating students about the difference between 'what they need' and 'what they want'. 

The programme also includes 'Baraem Children' saving account for children below 18 years of age, which offers a range of benefits. 

According to Meethaq, children who save a certain amount of money in their Baraem account will earn additional money on it and will receive a 'recognition card' that will let them enjoy discounts at book stores and other shops. 

Meethaq has also launched a microsite, where children can learn more about this type of account and access games and educational materials, which will make them familiar with how the bank works and how they can use their money wisely. 

A Baraem account can be opened by parents at all Meethaq branches and children should have their identity card and their birth certificate with them. Registration is open to both Omanis and expatriates.

(Times Of Oman / 16 February 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com