Egypt Signals Sukuk Intent While Preparing Foreign Bond Comeback

The pieces are falling into place for Egypt’s first Islamic bond sale, as Abdel-Fattah El-Sisi’s government grapples with foreign currency reserves near the lowest in 20 months and debt to overseas oil companies.

The Arab nation’s sukuk law is likely to be ready by the start of the new fiscal year in July, according to Finance Minister Hany Kadry Dimian, who told reporters in Cairo on Thursday the government will sell dollar-denominated Shariah-compliant notes once the rules are in place. Egypt also said last week it’s preparing to issue its first conventional international bond since 2010.

Dimian’s comments are the strongest signal yet the government of El-Sisi, the former army chief elected in May after the ouster of Islamist President Mohamed Mursi, endorses Islamic finance. Egypt’s currency savings have dwindled by more than half since the 2011 uprising against Hosni Mubarak, leaving the Arab World’s most populous nation largely dependent on handouts from oil-producing Gulf Arab neighbors to keep its economy afloat.

“Given improvements in the economy, they feel there might be appetite for their paper,” Ahmed Shehada, the head of advisory and institutions in Abu Dhabi at NBAD Securities LLC, the brokerage of the biggest bank in the United Arab Emirates, said by phone on Sunday. “I’m sure they will find enough interest regionally to make it worthwhile.”

Reserves Slump

Saudi Arabia, the U.A.E., Kuwait and Oman pledged more than $12 billion at a conference this month to help Egypt’s reconstruction projects, half of them as deposits in the central bank. The $300 billion economy has been growing at near the slowest rate in two decades, according to data compiled by Bloomberg. Egypt’s foreign reserves dropped to $15.5 billion at the end of February, compared to about $33 billion four years earlier.

“The country has stabilized, they want to start implementing the projects, that’s why they’re trying to accelerate the sukuk law,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd., said by phone yesterday. “Receiving aid is a good thing, but increasing the self-financing of the country would be a great step for them.”

Egypt had been moving toward a sale of sukuk two years ago under Mursi, whose Muslim Brotherhood administration planned to boost the Shariah-compliant industry with an initial issue of $1 billion of notes. A sukuk law approved by the government in 2013 was never implemented. “Nobody wants to touch it,” Sherif Samy, the chairman of the Egyptian Financial Supervisory Authority, said as recently as August last year.

Oil Companies

Egypt has hired banks including Morgan Stanley, BNP Paribas SA and Natixis SA for a $1.5 billion non-Shariah compliant bond sale, Dimian said last week.

The cash raised will be partly used to pay dues to foreign oil companies, according to Investment Minister Ashraf Salman.

The sukuk sale will probably also be used to finance “mega-projects that have been approved by the government during the investment conference” in Sharm El-Sheikh this month, Walid Hegazy, secretary general of the Egyptian Islamic Finance Association and managing partner at Hegazy Law & Associates, said by phone from Cairo on March 29. Egypt signed agreements for a total of $60 billion in investments during the summit, including $18.6 billion worth of engineering, procurement and construction system projects.

The yield on Egypt’s $1 billion of conventional notes due April 2020 dropped 21 basis points this year through Friday to 4.58 percent, according to data compiled by Bloomberg. That compares with a 19 basis-point decline in the yield of Middle East bonds on average, according to JPMorgan Chase & Co. indexes.

“You want to start building a yield curve that’s independent of the aid and support,” Shehada said. “It’s a step in the right direction.

(Bloomberg Business / 30 March 2015)

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UAE Islamic banking sector to achieve $263 billion assets by 2019

DUBAI: Islamic banking is growing at more than twice the rate of conventional banking in the UAE and the sector is on track to achieve $263 billion of Sharia- compliant assets by 2019, according to a report.

The UAE Islamic financial sector, estimated to be worth $127 billion in 2014, is the third largest Islamic banking market by value after the Saudi Arabian and Malaysian markets, said the World Islamic Banking Competitiveness (WIBC) report compiled by the Ernst & Young Global Limited (EY), a UK-based multinational firm.

The report released on Sunday said Sharia-compliant assets, which meet all the requirements of Shariah law and the principles articulated for Islamic finance, in the UAE crossed the $100 billion milestone for the first time.

The current penetration of Islamic banking in the region stands at 21.4 per cent and represents a 14.6 per cent share of the global market.

The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream, it said.

"Islamic banks in the UAE, are eyeing revenue growth through experience-led transformation of their domestic business. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalisation of the Islamic banking industry," said Ashar Nazim, Global Islamic Finance Leader at EY.

The company monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

The study of social media comments has revealed an improvement opportunity for Sharia-compliant banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction.

"The call to action for Islamic banks in the UAE is to build rich insights into customers' delight and pain points, and break operational silos," Ashar said.

"Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers," he said.

(Times Of India / 30 March 2015)

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Islamic banking assets gaining bigger share of global banking

Participation banking assets with commercial banks in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) are expected to represent a $1.8 trillion participation banking industry, EY’s World Islamic Banking Competitiveness (WIBC) report revealed. Participation banking assets with commercial banks in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) are set to cross $753b in 2014 and will represent 82% of the international participation banking assets.

In Malaysia, for example, Participation banking is still growing approximately two times faster than conventional counterparts. In Indonesia, the Participation banking sector is currently growing at super-normal speed, while Turkey is aspiring to build a 15% market share by 2023.

Trade finance, mobile payment solutions and regulatory compliance are three factors that have a significant impact on the industry performance and would help narrow the performance gap that exists between Participation and traditional banks.

Digital banking is the future, with customers of Participation banks showing tremendous interest as they are increasingly active online. Banking is set to evolve towards technology-based, service-driven value propositions.

Banks should invest in analytics, to build rich insights into customers’ delights and pain points and personalize user experience. But customers do not just want their bank to have a digital presence; they want it be tailored to their lifestyle relationships and connections.

They also consider service excellence and capabilities to be the most differentiating factors. A different audience requires a different (and high-impact) brand and communication strategy.

Eliminating operational silos, leveraging customer insights to improve channel performance and risk management are the keys to mainstream profitability.

Ashar Nazim, Global Islamic Finance Leader at EY, said: “Islamic banks in the UAE, also known as participation banks, are eyeing revenue growth through experience-led transformation of their domestic business. Stronger capital position is also driving their international expansion. Initiatives in mobile payments are likely to cause positive disruption to banks’ traditional operating models. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalization of the Islamic banking industry.”

Shariah-compliant assets in the UAE crossed the $100 billion milestone for the first time. Islamic banking penetration in the UAE currently stands at 21.4 per cent and represents a 14.6 per cent share of the global market. The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream.

In the study, EY monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

Banking clients were most satisfied with customer service, where positive comments on social media outnumbered negative comments by more than 5 per cent. Half of all the positive sentiments monitored were around customer service levels and complaint handling.

Customer feelings were mixed with respect to branch experience, online banking and phone banking. Out of the sentiments monitored on social media for all the three experiences, there was almost an equal number of positive and negative comments.

The study of social media comments has revealed an improvement opportunity for Shariah-compliant banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction. Half of the overall negative sentiments monitored were about disappointing experiences with regard to product and service offerings.

“The call to action for Islamic banks in the UAE is to build rich insights into customers’ delight and pain points, and break operational silos. The time is right for analytics; banks need to challenge their channel capabilities and push for more customized products and services. Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers,” Ashar added.

(Yahoo.News / 30 March 2015)

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New Afghanistan banking law may jump-start Islamic finance

Afghanistan could have a new banking law approved by parliament in a few months including provisions for Islamic products, which may help to draw hundreds of thousands of people into the formal financial sector.

In one of the poorest countries in the world, Afghanistan's government faces a growing fiscal crisis aggravated by a drop in foreign financial aid. An estimated nine out of 10 households in the Muslim-majority nation of 30 million shun interest-based finance, at least partly for religious reasons.

The central bank, Da Afghanistan Bank (DAB) [AFCB.UL], is finalizing a regulatory framework for Islamic banking which will be ready by the time the new law is passed, Akhond Jan Rustaqi, acting deputy director general of Islamic banking at DAB, told Reuters.

"The new banking law, which includes Islamic banking, is with the parliament and DAB hopes it will be adopted by June."

Currently, Islamic banking products are offered by a handful of lenders through so-called Islamic windows, but there is no standalone Islamic lender. As of last June, Afghan banks held $4.2 billion in assets and $813 million in outstanding loans, according to the World Bank.

The central bank has stopped processing banking license applications until the new law is approved, said Rustaqi.

The new banking law and the central bank's rules will cover areas such as operating procedures, contract specifications and the operation of a centralized sharia board to determine whether products obey Islamic principles.

Banks with Islamic windows include Afghan United Bank, Ghazanfar Bank and state-owned New Kabul Bank. Afghanistan International Bank launched an Islamic window last year.

RULES

The central bank's Islamic banking rules have been developed over the past year by Afghanistan Holding Group and Malaysia's Amanie Advisors, with funding from Harakat-AICFO, a non-profit body which channels funds from foreign donors into projects that help to develop the Afghan economy.

The rules are important because several banks want clearer guidance to expand their existing windows or convert themselves into full-fledged Islamic banks, said Ahmed Bassam, managing partner atAfghanistan Holding Group, a consultancy.

"The unbanked population is very conservative, interest is considered haram (unlawful), and banks haven't been able to utilize this market."

A survey by Harakat-AICFO found 83 percent of households in five major urban centers wanted access to mortgage loans, but 93 percent of respondents preferred non-interest based financial products. Housing demand was estimated at 1.5 million dwellings in 2014 by the World Bank and DAB.

Some customers have remained cautious about using Islamic windows because of doubts over their religious permissibility, so the creation of full-fledged Islamic banks could prove crucial.

"The public had lost their confidence and trust in Islamic windows as there was no official regulatory framework in place from DAB to regulate Islamic banking," said Abdul Ali Farahi, senior project manager at Harakat-AICFO.

(Reuters / 29 March 2015)

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HSBC's Islamic banking unit plans sukuk sale in Malaysia

The Malaysian Islamic banking arm of HSBC Holdings will tap the Islamic bonds (sukuk) market for only the third time on Friday, as part of a 3 billion ringgit ($816 million) sukuk programme, the lender said in a regulatory filing.

No size or tenor for the deal was given, but a separate term sheet seen by Reuters said the bank planned to raise up to 500 million ringgit worth of sukuk using an agency-based structure known as 'wakala'.

The transaction would be the latest issuance of sukuk by HSBC Amanah Malaysia Berhad, with the bank last tapping the market in October with a five-year 500 million ringgit deal, with a similar debut deal in September 2012.

HSBC Amanah has appointed HSBC as lead arranger with Hong Leong Islamic Bank and Maybank Investment Bank as joint lead managers for the sale, the term sheet said.

(Reuters / 26 March 2015)

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Dar pledges support for Islamic finance centre

KARACHI: Federal Finance Minister, Ishaq Dar on Wednesday expressed pleasure over the efforts being swiftly expedited to create the Centre of Excellence for Islamic finance education that was announced last year.

Speaking at the State Bank of Pakistan, Karachi on the occasion of the opening ceremony of proposals received to establish a Centre of Excellence for Islamic finance education, he said, “I would like to extend my special appreciation to the State Bank of Pakistan for supporting such initiatives.”

“I am optimistic that this Centre will further strengthen the foundations of Islamic finance in the country through rigorous research and by addressing the challenge of the dearth of human resources”, he added.

According to press release issued by SBP, the Minister said that rapidly increasing presence of Islamic finance around the globe is a long awaited development needed to address the issues created by the interest based financial system.

On the other hand, the Governor, State Bank of Pakistan, Ashraf Mahmood Wathra while giving his welcome address said that Islamic finance has witnessed tremendous growth in the last four decades and its outreach currently spans across the globe, with an asset base of US$ 1.8 trillion.

“Having established itself as a viable alternative during the last financial crises, standard-setting bodies are increasingly viewing Islamic finance as means to promote broad-based, inclusive economic growth”, he said.

(Ary-News / 26 March 2015)

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People urged to donate zakat to govt’s fund

LAHORE: 

Zakat and Ushr minister Malik Nadeem Kamran on Wednesday urged the public to contribute their zakat to the department’s fund.

He said with the adoption of the new distribution and monitoring system, the donors could rest assured that their funds would go only to the needy. “The department will share complete information of the recipients with the donors,” he said.

Kamran said a database of beneficiaries had already been compiled to prevent any irregularity in disbursement of funds. He said the department was now comparing its data with the National Database and Registration Authority record.

He said the department was now using the money transfer service of various cell phone companies to disburse zakat funds. He said with the new system in place the department was cutting down on the time and paperwork needed in the distribution of funds.

He said funds were earlier distributed using cross cheques issued in the name of the beneficiaries.

“The department had to prepare up to 500,000 cheques after every three months,” he said.

He said with the new distribution system in place monitoring of the payment process had become easier.

Kamran said that a telephone help-line had been set up by the department for the assistance of deserving beneficiaries.

Information about district- and union council- level committees was now available on the department’s website, he said. This included office addresses and telephone numbers of the committee chairmen, he said. He said application forms for the zakat.

(The Express Tribune / 26 March 2015)

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SBP to establish Centre of Excellence in Islamic Finance Education

KARACHI: State Bank of Pakistan aimed to establish the Centre of Excellence in Islamic Finance Education (CEIFE) after getting proposals from the HEC certified universities having business schools, reported by External Relations Department of State Bank of Pakistan.

The Finance Minister Ishaq Dar, addressing at the opening ceremony of proposals received to establish a CEIFE expressed his pleasure on the efforts being made to increase the radius of Islamic banking and finance. He said, “I would like to extend my special appreciation to the State Bank of Pakistan for supporting such initiatives. I am optimistic that this Centre will further strengthen the foundations of Islamic finance in the country through rigorous research and by addressing the challenge of the dearth of human resources.”

The Minister said, both SBP and Government are committed for the development of Islamic banking in Pakistan. After coming to power, our Government established a ‘Steering Committee’ to look after the Islamic banking in the country.

The Governor SBP, Ashraf Mahmood Wathra said the size of Islamic finance industry had reached US$ 1.8 trillion in last four decades.

According to experts, Globally, Shariah compliant assets are expected to grow 15-20% annually and financial assets are likely to hit the milestone of US$5 trillion by 2020. If talk about Pakistan, by the end of 2018, share of Islamic Banking in overall banking industry will be 15$ that is currently 10%.

The opening ceremony of CEIFE  was arranged after getting proposals from the HEC certified universities preferably with business schools by the end of February 20, 2015. The centre would be established after considering the proposals.

(The News Teller / 26 March 2015)

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First Islamic Bank to Open in Germany

According to the Handelsblatt newspaper, German regulator Bafin, is to grant a full banking license to the Turkish bank, Kuveyt Turk Bank AG. The first branch of the bank is expected to be up and running in June, with branches planned for Frankfurt, Cologne and Berlin. The bank also plans to expand its services throughout Europe, according to a statement, released yesterday.

The bank’s guidelines will conform with sharia law. This means that it will not involve itself in speculative ventures or investments, and it cannot charge interest on loans, based on the Islamic teaching that a Muslim may not benefit from lending money or receiving money from someone else. Islamic banks may still purchase assets and resell them for a profit, however.

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Islamic banks do not put any money into companies that produce alcohol or deal with pornography, gambling or pork and they also tend to stay away from companies with debts amounting to more than 30% of their own value.

According to Kemal Ozan, the managing director of Kuveyt Turk, the banks hopes to be popular with Germany’s four million Muslims - the largestMuslim community in Europe.

"Our market research has shown, that 21% of Muslims in this country would see an Islamic bank as their natural household bank," Ozan said.

Britain remains Europe's main Islamic finance hub, with five fully-fledged Islamic banks, and 20 banks that offers Islamic banking services.

The demand for Islamic banking is now increasing across the rest of Europe, due to the growing Muslim population on the continent. According to the U.S.-based Gatestone Institute, Islamic banking is growing faster in Britain, France and Germany than in many Islamic countries in the Middle East and Asia.

The sector is growing too among non-Muslims. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

Tim Sinclair, senior head of marketing and retail sales at Al Rayan bank, formerly the Islamic bank of Britain, says that over the last two years 83% of customers making fixed-term deposits were non-Muslims. Sinclair believes this is due to the ethical attraction of the bank. “We’re relatively small, and we  tick the ethical box,” he says. “Being Sharia compliant means we’re not investing in bad things, and we’re transparent.”

The number of asylum seekers arriving in Germany, many from the Middle East, jumped to around 200,000 last year - four times as many as in 2012. Last week, German government statistics revealed that the proportion of the population without German citizenship is approaching 8.2 million - nearly 10% of the overall population. The number of foreign nationals living in Germany rose by more than half a million in 2014, the most in a single year since 1991 and 1992.

(News Week / 23 March 2015)

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More African nations ‘set to embrace Islamic finance

 the ICD, which helped arrange Senegal's debut 100 billion CFA franc ($162 million) Islamic bond last June, is “actively exploring” opportunities for Nigeria and Ivory Coast.

Earlier this month the ICD, which is the private sector arm of the Jeddah-based Islamic Development Bank Group, signed an agreement with the African Export-Import Bank (Afreximbank) to cooperate in the development of the private sector in ICD member countries in Africa.

Al Aboodi said then that Africa and the Islamic finance industry “are key strategic directions for ICD and we hope, via this partnership, we will increase our presence in the continent”.

Under the terms of the agreement with Afeximbank, the ICD said both institutions would “collaborate in joint operations, expand financial products and exchange information on modalities for enhanced and efficient interventions for private sector development in ICD affected countries”.

According to the agreement, ICD and Afreximbank will “share information on projects and business opportunities in Africa and on participation in the arrangement of syndications or investment in funds”. ICD said the institutions will also cooperate in structuring sukuk/debt capital market transaction opportunities, “co-invest in Islamic leasing companies and support local financial institutions in Africa through the raising of capital via lines of finances”.

The ICD said: “The agreement also covers exploration of opportunities for cooperation in financing projects in the construction, energy, manufacturing and leasing sectors in African countries.”

The ICD said last December that it planned to tap Islamic capital markets to raise as much as $1.2 billion in long-term funds during its current financial year and “will also explore a capital increase as it expands its economic development activities”, with a proposal to be presented to shareholders in June 2015.

A study by the Dubai Chamber of Commerce and Industry published last yearsaid Gulf businesses had invested at least $30bn in infrastructure projects in Africa over the past decade and were set to step up investment across the continent.

The survey showed that investment over the past decade amounted to up to 10% of total inflows from the Gulf, of which about $15bn was in loans and grants from Gulf development agencies and around 15bn in direct investments. The study said efforts by African regulators effort to “deepen Islamic financial systems” created an opportunity to encourage further Gulf investment in Africa’s infrastructure.

(Out-Law.Com / 24 March 2015)

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Omantel gets shareholder assent for $130 mln sukuk issue

Oman Telecommunications (Omantel) said on Monday its shareholders had approved the issuance of Islamic bonds, or sukuk, worth 50 million rials ($129.9 million).

Omantel did not give any timing for the issue in the bourse filing, which followed the operator's annual meeting on Sunday.

The former monopoly, which competes with Ooredoo Oman , said earlier this month it would seek shareholder approval for the offering, which would be only the second sukuk from a corporate in the sultanate.

(Reuters / 23 March 2015)

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Credibility key to growth of Islamic finance, says expert

The challenge among Islamic banks is to maintain their credibility to push the growth of Islamic finance among non-Muslim countries, said Dr Hatem el-Karanshawy, founding dean of the Qatar Faculty of Islamic Studies at Hamad Bin Khalifa University (HBKU).

“The potential is quite great and the challenge is credibility, and so far, Islamic banks have been maintaining their integrity,” said el-Karanshawy, when asked about global growth prospects for Islamic banking on sidelines of the 10th International Conference on Islamic Economics and Finance held yesterday at the HBKU Student Centre.

He added, “The global presence of Islamic banks is still small in terms of international finance percentage, but when you are small, your potential for growth is big.”

Islamic Development Bank (IDB) president Ahmed Mohamed Ali al-Madani said in his keynote address Islamic finance assets saw a 17% global growth rate reaching $1.6tn, and are expected to reach $4.2tn by 2020.

El-Karanshawy noted that the increase in demand for Islamic finance products from both Muslim and non-Muslim countries has also contributed to the growth of the industry, such as the global issuance of sukuk by the UK, South Africa, and Luxembourg.

“At the same time, there is demand from both Muslims and non-Muslims; it is these financial products that have now developed the demand from Islamic and non-Islamic countries. Governments have been a very strong addition, which is another source of growth that is likely to be reflected strongly in the coming future,” he explained.

He added, “There are true merits for Islamic financial products that really fit the needs of many of these countries thus, the potential for growth. Once the experience is successful, other countries are going to study it. There is no rush for it but they will study and follow it.”

This was echoed by Azmi Omar, director general of the Islamic Research and Training Institute at IDB, who said aside from issuing sukuk, some countries have started to introduce regulations to enable Islamic financial institutions to operate globally. “Islamic economics and finance have gained prominence over the years and it is now becoming a part of public policy hence, the issues of institutional reforms and setting-up of the right standards are becoming important.

“We are also witnessing the sprouting of the third generation of economists interested in this discipline, who will have the opportunity not only to develop the theory but also to contribute to policy making,” Omar stressed.

He added that the global financial crisis and the sovereign debt crisis “highlighted a range of fallacies in the conventional financial system and underscored the usefulness of Islamic financial principles for stability and sustainable growth.”

El-Karanshawy also pointed to “friendly competition” in various areas, including finance, between economic centres like Bahrain, Dubai, and Qatar as another motivation for growth in Islamic banking.

(Gulf Times / 23 March 2015)

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Bank Muscat gets nod for OMR500 million sukuk, 45 per cent dividend

Muscat: Bank Muscat shareholders on Wednesday approved a OMR500-million Meethaq sukuk programme and payout of 45 per cent dividend for 2014.

The issuance of sukuk will be in various tranches, either in Omani rials or United States dollar, in the domestic and international markets through public subscription or private placement within 5 years from the approval by shareholders.

The payout of 45 per cent dividend also received the endorsement of shareholders. For the year 2014, the bank will pay 25 per cent cash dividend, 15 per cent in the form of mandatory convertible bonds and 5 per cent as bonus shares. 

"Amid the challenging economic and financial situation marked by volatile oil prices in the last quarter of 2014, the key business lines of the bank recorded healthy performance on expected lines," said Shaikh Khalid bin Mustahail Al Mashani, chairman of the bank.

Bank Muscat shareholders will receive cash dividend of OMR0.025 per ordinary share of OMR0.100 each aggregating to OMR54.57 million on the bank's existing share capital. In addition, they will receive bonus shares in the proportion of one share for every 20 ordinary shares aggregating to 109,134,409 shares of OMR0.100 each amounting to OMR10.91 million. They will also receive mandatory-convertible bonds of OMR0.015 per ordinary share of OMR0.100 each aggregating to OMR32.74 million (including issue expenses), which will carry a coupon rate of 3.5 per cent per annum, payable every six months.

The bonds will mature after a period of three years from the date of issuance. On maturity, the bonds will be converted to ordinary shares of the bank by using a 'conversion price' which will be calculated by applying 20 per cent discount to 3-month average share price of the bank on the Muscat Securities Market prior to the conversion. The bonds will be listed on the Muscat Securities Market.

Bank Muscat posted a net profit of OMR163.23 million in 2014 compared to OMR152.19 million in 2013, an increase of 7.3 per cent. The basic earnings per share were OMR0.075 in 2014 as against OMR0.072 in 2013. The banks' capital adequacy ratio stood at 15.92 per cent after appropriation for proposed dividend for the year 2014 as against the minimum required level of 12.625 per cent as per Basel III regulations issued by the Central Bank of Oman.  

(Times Of Oman / 21 March 2015)

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Russia to Lift Barrier to Islamic Finance as Western Sanctions Continue

Russian lawmakers have introduced to parliament a draft bill to support Islamic finance, aiming to attract capital inflows at a time when an economic slowdown is intensifying and Western sanctions show no sign of being lifted.

The draft law, sent to parliament's lower house, the State Duma, this week, proposes allowing banks to engage in trade activities, a concept central to many of the structures used in sharia-compliant financial products.

While many other obstacles remain, the bill is seen a first step to spur development of a sector which has posted double-digit growth in several Gulf and Southeast Asian countries, but which has struggled to get off the ground in Russia.

Instead of interest, which is prohibited on religious grounds, Islamic finance relies on banks charging service fees and depositors sharing in bank profits. Turkey is another country that is looking to expand in the sector.

"During a period of a practically total economic blockade from Europe and the U.S., our banks must find new ways to attract investment," said Dmitry Savelyev, who sits on the Duma's financial markets committee.

Western-imposed sanctions on Russian officials and large firms over the country's role in the Ukraine crisis have dried up access to international capital markets. A collapse in oil prices has further contributed to a slowdown in the economy, which is expected to contract by at least 3 percent this year.

The draft law must pass three readings in the Duma before it moves to the upper house and then to President Vladimir Putin's desk to be signed into law.

Lawmakers would have to pass further amendments in areas such as taxation before the sector can fully develop. The changes could take at least a year to be passed, experts say.

State development bank Vnesheconombank and VTB Bank, both hit by sanctions, have sought to build their Islamic finance know-how in a bid to develop new funding sources.

One impulse for the recent efforts is that Russia is looking to diversify its economic ties away from Western markets, said Linar Yakupov, the head of the Association of Regional Investment Agencies of the Russian Federation.

"This is where recent sanctions became a kind of catalyst, an extra push, to further look at the economic perspective in the relationship between Russia and OIC [Organization of Islamic Cooperation] countries," he said in an interview in Bahrain.

Islamic finance could attract foreign investment and also mobilize funds from Russia's 20 million Muslims, Yakupov added.

Political Will

Legislation is crucial to facilitating Islamic finance transactions which can attract double or triple tax duties as they require multiple transfers of underlying assets, moves which countries like Britain and Luxembourg have addressed.

"It is theoretically and technically possible for the government to prepare a law on Islamic banking, but it all depends on political will," said Murad Aliskerov, chief executive of LaRiba Finance, an Islamic financial company based in Russia's Dagestan republic.

"Islamic banks could have a huge social impact and act as an alternative to traditional banks."

A feasibility study is now under way between a consortium of Russian and Malaysian investors to create a standalone Islamic bank or an Islamic unit within a Russian lender, Yakupov said.

The study would be ready by September, allowing the sides to draw up concrete details for creating such an entity and assess which laws would have to be changed, he said.

Companies are also keen to explore Islamic bonds [sukuk] as alternative financing tools, with Russia's Tatarstan republic hosting an industry summit next month focused primarily on such instruments.

The impact could extend to former Soviet republics in central Asia. A proposal is being pushed to create a regional working group to coordinate Islamic finance efforts with countries such as Kazakhstan, Tajikistan and Kyrgyzstan.

(The Moscow Times / 20 March 2014)

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

Malaysia: Islamic finance a viable complement in global financial system

KUALA LUMPUR: Policymakers should consider Islamic finance as a viable complement or reinforcement to the still fragile global financial system, the Sultan of Perak, Sultan Nazrin Shah said.

He said the principles and values in the syariah-compliant Islamic finance are universally desirable and should therefore be acceptable.

“However, we must also recognise that strong commitment and coordination among the policymakers and other relevant stakeholders are required for this approach to achieve a positive outcome.

“I look forward to even more developments in relationship building between parties in the United Kingdom and Malaysia in the coming years,” he said in his address at the 6th Securities Commission-Oxford Centre for Islamic finance (SC-OCIS) dinner in London Friday.

The text of his speech was made available to Bernama.

The dinner was held in conjunction with the 6th SC-OCIS Roundtable on Islamic Finance.

Sultan Nazrin Shah, who is also Royal Patron for Malaysia’s Islamic Finance Initiative, welcomed closer collaboration in various areas of Islamic finance between the two countries to create greater business opportunities, strengthen industry skill sets and enhance industry profiling.

As a global financial centre, he said London could create a wider acceptance and adoption of Islamic finance, which would later on contribute significantly towards the vibrancy and reach of Islamic finance, not only in the country but also globally.

He said the Battersea Power Station development, one of the Malaysian-owned projects based in the UK, has secured a Syariah-compliant syndicated financing of 467 million pound, one of the largest Islamic finance transactions ever conducted in the British market.

“In my view, the defining event in the development of Islamic finance globally was the maiden issuance last year by the United Kingdom government of 200 million pound sovereign sukuk.

“The issuance underscores London’s ability, as an international financial centre, to successfully market a product that hitherto has only been offered by Muslim countries.

“It also reaffirms the United Kingdom government’s commitment in developing Islamic finance, and its ability to play a leadership role in this regard,” he said.

He said the sovereign issuance by the UK was followed in quick succession by other non-Muslim countries, namely Hong Kong, South Africa and Luxembourg.

According to rating agency Moody’s, the US$2 trillion sukuk market is set to grow to US$4 trillion by 2020, growing annually at 15 to 20 per cent.

(New Straits Times Online / 15 March 2015)

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

Zakat Fund project sees more than Dh28m given to needy patients

More than Dh28.69 million has been given to needy patients under the Zakat Fund’s “Well-being” project since 2011, the fund’s secretary-general has said.

The Zakat Fund launched the programme for patients who find it difficult to afford medical treatment, said Mohammed Al Balushi, director of the fund’s Department of Zakat Beneficiaries, state news agency Wam reported.

The number of project beneficiaries reached 1,402 as of last year, said Mira Al Ameri, project manager of the programme.

Federal Law No 4 of 2003, issued by the late Sheikh Zayed, founder the UAE, established the Zakat Fund, which reports directly to the UAE Cabinet, to which it submits periodical reports relating to its performance, activities and achievement of its objectives.

(The National / 03 March 2015)

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

Opportunities In Islamic Finance Grow

I am convinced that opportunities exist in Islamic, or Shariah-compliant, investment products to address the investment needs of the world’s 1.6 billion Muslim citizens. I recently attended a conference on Islamic investment that Franklin Templeton organized in Dubai, where H.R.H. Sultan Nazrin Muizzuddin Shah, Sultan of Perak Darul Ridzuan and Royal Patron for Malaysia’s Islamic Finance Initiative, delivered the keynote speech. He reflected on the progress made by Islamic finance in recent years, and the challenges that remain. I believe the presence at our conference of such a distinguished and respected member of the Islamic financial community reflects well on the efforts both of our team in Malaysia (a key center for Islamic finance) and those within our wider organization.

The presence of the Royal Patron for Malaysia’s Islamic Finance Initiative at our conference in Dubai was no accident, as Malaysia and Dubai are among the strongest proponents of Shariah finance globally. Both countries have been active in developing institutional structures opening the way to the international development of Shariah-compliant products, including both Shariah equities and Sukuk, commonly referred to as Islamic bonds. Malaysian authorities, in particular, have been proactive in encouraging the development of a wider range of Shariah-compliant financial products, while Dubai is the home of one of the first Islamic banks, set up in 1975, and is aiming to become a major global hub for Islamic finance.

The efforts of proponents of Shariah-compliant investment in Malaysia, Dubai and elsewhere were fruitful in 2014. Several Sukuk offerings from non-Muslim countries— including the United Kingdom, Hong Kong, South Africa and Luxembourg—represented a major breakthrough for a type of product that had previously been largely local in nature, with issuance restricted to a few Islamic nations. In the context of global financial markets, Shariah-compliant equity and Sukuk investments remain relatively small in scale. Islamic finance is still a young industry in comparison with its conventional counterpart, growing fast but still representing a small fraction of global financial assets. The bulk of industry assets are still accounted for by Islamic bank deposit accounts. Aspects of Islamic law affect investment, including the prohibition of the payment of interest, so-called “riba,” and on a range of activities and products forbidden to Muslims including alcohol, armaments and a number of foodstuffs and food-related activities. These prohibitions appear relatively simple in principle. In practice, the interpretation of what is Shariah-compliant and what is not can be complex, requiring the active involvement of Islamic scholars, especially as new investment products are developed to widen the range of the Islamic investment industry but that require considerable discussion. Furthermore, interpretation of Shariah principles differs from one Islamic scholar to another. Thus, creating uniform standards for products can be problematic, with differences from jurisdiction to jurisdiction, and with many products not adhering fully to those standards that are set.

With businesses looking to develop increasingly complex Shariah instruments, for example in the field of derivatives and currency hedging, issues of interpretation can be a barrier to market acceptance. However, I find that many of the ideas implicit in Islamic investment are gaining increasing acceptance within conventional markets through the concept of ethical or socially responsible investment, creating an obvious point of contact between the Shariah-compliant financial world and a growing area of conventional finance. In addition, Shariah-compliant investments emphasize a worthy function and social impact to help mankind. This aspect appears to potentially fit with the need for high levels of infrastructure investment across a wide range of emerging countries, both in the Islamic world and beyond: investments that will likely need to tap resources well beyond the capacities of individual governments.

With much work going into creating infrastructure Sukuk with international acceptability, I believe this pressing global need could represent a great opportunity, and one that we at Franklin Templeton could be well placed to participate in. With Islamic nations among the world’s most populous and fastest-growing economies, I strongly believe that Shariah investing could become increasingly important, as well as a thoroughly worthy endeavor in tune with the ideals of our mentor, Sir John Templeton.

Mark Mobius’ comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The information provided in this material is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding any country, region market or investment.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton Investments (“FTI”) has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FTI affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

What Are the Risks?

All investments involve risks, including possible loss of principal. Foreign securities involve special risks, including currency fluctuations and economic and political uncertainties. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets.

(ValueWalk / 11 March 2015)

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