Pakistan is upbeat on Islamic banking

Upbeat on shariah-compliant modes, Pakistan has just launched Islamic branchless banking claiming it to be "the first" - globally.

At the same time, State Bank of Pakistan (SBP), the central bank, just unveiled vast opportunities for foreign and domestic investors to come into the fold of all types of conventional and Islamic banking to invest and earn big dividends.

The first to take up the Branchless Islamic Banking (BIB) are Kuwait-based Meezan Bank and Ufone, a subsidiary of Pakistan Telecommunications Corporation (PTCL), partly owned by etisalat. The new ventures will carry the brand name of "Meezan-Upaisa," and it is the only Shariah-based branchless banking service.

The other cellphone-based branchless conventional banking in the country are Mobicash Waseela Bank operated by Mobilink, EasyPaisa-Tameer launched in cooperation with Norway-based Telenor, Ypaisa-U bank of Ufone and Timepey-Askari Bank.

While launching the new BIB customer service across Pakistan, SBP governor Ashraf Mahmood Wathra said this is the first product of its kind, not only in Pakistan, but in the whole world. "We have granted the permission to launch this unique service in order to facilitate 95 per cent of Pakistanis who will like to deal only with Islamic banking services, and have remained away from the current conventional banking services, because of their Islamic faith," Wathra said.

SBP, which recently conducted a survey 'Knowledge, attitude and practices of Islamic banking in Pakistan', said there is an overwhelming, and evenly distributed, demand in the urban and rural areas of the country for Islamic banking. The demand for Islamic banking is as high as 95 per cent among the households at the retail level. "Demand stands at 73 per cent among the businessmen," according to the SBP survey, which is based on 9,000 households nationwide and includes banked and non-banked customers, and 1,000 corporates. Meezan Bank and Ufone took a full year to develop the BIB model, which has now been launched.

Win-win situation

"With this new collaboration, we aim to capitalise on the strength of both the parties - Meezan Bank's strength in Islamic banking and Upaisa's geographic footprint in facilitating customers, making it a win-win situation for all. This is because Upaisa is at the forefront in providing branchless banking services, and its collaboration at various levels and Meezan Bank holding over 50 per cent of the Islamic banking share in Pakistan," Ufone President Abdul Aziz said.

Asher Yaqub Khan, chief commercial officer of Ufone, said Islamic branchless banking will accelerate the goal of financial inclusion of the economy to a great extent.

President and chief executive of Meezan Bank Irfan Siddiqui said his bank has played a vital role in expanding access to Islamic financial services in Pakistan. "This initiative is poised to accelerate financial inclusion by adding convenience and greater reliability, deepening the role of Ufone through enhancing the value it provides to its customers and that of Meezan Bank in expanding the reach of Islamic financial services to every citizen in the country."

The two partners - Meezan Bank and Ufone - hope that their partnership will expand Islamic system footprint to its maximum potential customers and facilitate them to avail branchless banking services with utmost ease and convenience under the Islamic system. This will be the fist milestone in the ambit of Islamic branchless banking.

"Our partnership will provide the service at 10,000 points of service across 500 cities, districts and  villages. BIB will not only promote micro-financing but also finance for agriculture and small businessmen. It will also encourage savings by the general public, based on profit and loss model."

What is the size and scope of banking, and branchless banking, both in the conventional and Islamic modes? Wathra indicated this on the basis of current surveys conducted by the central bank.

Speaking at the launch of the Meezan Bank Ufone initiative he said it has opened up several new opportunities for the entire banking sector, as it will provide access to the people of low income groups. "There are 12,000 bank branches, 95 per cent of which are online, whereas 25,0000 branchless banking agents are serving low-cost and convenient access points. They are serving the needs of masses for cash-in and cash-out, domestic remittances, and bill payments."

Wathra also said that at present 9,600 ATMs have been installed, which are inter-connected through a local switch, providing payment facilities at merchant points. He said 42 million bank accounts have been opened, about 26 million plastic cards have been issued, and over 10 million mobile-wallet accounts are offering basic financial services on finger tips.

"Inspite of this big expansion of the banking services, there is no room for complacency. Pakistan, where 190 million people reside in geographically diverse areas, only 23 per cent of the adults currently avail any form of financial service. The access of people to a formal bank account is only 16 per cent, whereas only two per cent of adults have availed any form of formal credit. It is quite evident that the conventional approach of brick and mortar branches will never adequately serve the millions of unbanked masses in Pakistan," Wathra said.

SBP's recent surveys show that the market share of branchless or mobile-based, conventional banking mode Easy-Paisa is 54 per cent, United Bank's UBL-Omni 20 per cent, Mobicash of Mobilink 14 per cent and Ufone's Upaisa four per cent.

It shows that as far as the future of all types of banking services is concerned, sky is the limit. And here lies the vast money making opportunities for foreign and domestic investors and banks to make good dividends.

(Khleej Times / 29 November 2015)

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New insights on outlook of global Islamic finance to be unveiled

MANAMA — The convener of the 22-year World Islamic Banking Conference (WIBC) — Middle East Global Advisors — is set to reveal cutting-edge insights on the outlook of the global Islamic financial industry in its inaugural “Finance Forward Islamic Finance Outlook Report 2016” this December.

The “Finance Forward Islamic Finance Outlook Report 2016” will be launched on Dec. 1 during the World Islamic Banking Conference in Bahrain. The three-day conference will cover various areas related to Islamic banking in the current global financial environment.

Speaking ahead of the presentation of the report — to be launched at WIBC itself — Dr. Sayd Farook, vice chairman and CEO of Middle East Global Advisors, shared: “The Outlook Report is expected to serve as a compass for Islamic Finance leaders who are undertaking key decisions that will fundamentally shape their business strategies for 2016.”

The uniqueness of the report, he continued, is that it combines meaningful insights from Islamic finance leaders — gathered from an extensive survey of practitioners’ sentiment — with robust analysis of the performance of Islamic financial institutions.

According to the report, three major global macro developments of 2015 will shape the outlook of the industry: commodity prices (particularly oil), development in global interest rate policy, and a slowdown of the Chinese economy. Low commodity prices do not bode well for either the Gulf Cooperation Council or Southeast Asian economies, home to most of the world’s Islamic banks.

However, a positive outcome for Islamic banks in a ‘new normal’ of low oil prices is that they enter with low rates of non-performing loans, high liquidity (in part due to the limited liquidity management options), high capital levels and simple balance sheets with mostly Tier 1 capital overall.

Thus, while the outlook for Islamic banks is likely to be muted going forward (and some may even face some fall-off in profitability), many leading Islamic banks have built up their resilience in the face of tightening liquidity, slowing loan growth and worsening credit risks.

Survey results of the Outlook Report highlighted two key trends: the development of ethical business models and that of Digital Banking.

Speaking about the importance of these trends, Blake Goud, chief research officer at Middle East Global Advisors added, “Shariah compliance is necessary but not sufficient for consumers demanding ethical financial services. This implies that corporate social responsibility is not enough — consumers want their financial institutions to integrate an ethical approach into their core business mode.

(Saudi Gazette / 29 November 2015)

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Turkish watchdog to revise Islamic banking regulations

The head of Turkey’s banking watchdog has pledged to revise the regulations governing the Islamic banking sector to increase the popularity of the sector in the country.

Mehmet Ali Akben, president of the Banking Regulation and Supervision Agency (BDDK), said there was a strong need for changes to the rules governing what are known as “participation banks” in Turkey.

“We are trying to readjust those rules,” he told an Islamic finance conference in Istanbul on Nov. 19. “We believe this system will shine on both a local and global scale in the coming years.”

He said there was a demand for a financial model working under non-interest-based rules and that the BDDK had launched a separate body to analyze how Islamic finance could be developed and popularized in Turkey.

Launch of sharia boards for Islamic banking 

Akben said the BDDK would launch the required regulations enabling the system to grow further in Turkey and to become exemplary around the world. 

“In this vein, should the sharia boards be under the direction of the BDDK? ... There have plans to launch these boards under the Association of the Participation Banks, but this issue could be reassessed to determine which option is best,” he said.  

 Talat Ulussever, chairman of the Borsa Istanbul exchange, called for a system in which members of the public could invest in major projects.

“We need to exert effort to establish financial structures in which Turkey’s big projects in areas such as energy, communication, defense and infrastructure will be financed by people as profit is shared by them,” he said.

Ulussever said the 2008 financial crisis showed that conventional finance could not absorb volatility in global markets.

“There is a recent survey by the OECD that indicates financing through credit has a negative affect while economies that prefer stock exchanges for their financing needs grow faster and sustainably,” he said.

(Daily News  22 November 2015)

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Turkey shows progress in developing Islamic finance

Experts who attended at a G20 conference on Islamic finance in Istanbul have pointed to Turkey's progress in developing the sector.

Aysegul Eksit, executive vice chair at the Capital Markets Board of Turkey, said that the Turkish government is hard at work to create better enabling conditions for Islamic finance.

Islamic lenders now account for about 5.3 percent of Turkish banks' total assets, and this is more than twice the level a decade ago, Eksit said.

The value of Islamic finance assets in Turkey was $51.2 billion in 2014, making the country the eighth in the world. Only about 3.6 percent of global sukuk issuance comes from Turkey, according to World Bank statistics.

Sukuk are instruments similar to bonds, but in which asset growth provides income as opposed to the collection of interest which is forbidden under Sharia law.

“The Turkish legal framework for the issuance of sukuk is in the process of completion. Laws passed in 2012 and 2013 have established the use of these instruments,” Eksit said.

But there are still legal obstacles to the development of the sukuk market in Turkey, Eksit pointed out.

“There are still tax-related issues that limit the development of sukuk in Turkey. But there is work currently underway at the Ministry of Finance to overcome these obstacles,” Eksit said.

For now, almost all sukuk issuance in Turkey is made by participation banks and the Turkish Treasury.

In 2014, the Treasury has also created the basis for a wider range of Islamic finance instruments, such as “Mudarabah”, or investment based on profit sharing; “Murabahah”, in which a buyer purchases from a seller at a fixed profit margin; “Musharakah”, which allows each party involved in a business to share in the profits and risks; and “Wakalah”, which refers to a type of Takaful insurance contract.

“Corporates still do not issue sukuk, although there is no legal obstacle to their doing so,” Eksit said.

There are four private Islamic banks operating in Turkey for many years: Albaraka Turk, Bank Asya, Kuveyt Turk, and Turkiye Finans.

The sector employs about 16,000 people, and is growing at about 32 percent per year, relatively faster than the rest of banks in Turkey.

But on Oct. 15, the Banking Regulation and Supervision Agency (BDDK) allowed state-owned Ziraat Bank to establish an Islamic banking branch, and this opened on May 29.

State-owned VakifBank has also received a license for Islamic finance operations in Turkey.

“This is a game changer,” commented Khalid Howladar, global head of Islamic Finance at credit agency Moody’s.

“The market in Turkey has been small, but the entrance of these large state-owned banks, with thousands of points of distribution among them, should be a major step into growing the market. The large banks are also likely to involve corporates in the market for the first time,” Howladar said.

Turkey also boasts four Sharia-compliant pension funds, although assets under management remain low by global standards -- total value of investment in individual Turkish pension system is at about $14 billion, according to OECD statistics.

But the entire pension sector has invested in sukuk in the past, and is expected to show a considerable interest in sukuk as the instrument and the market becomes more mature in Turkey, Eksit said.

(Anadolu Agency / 21 November 2015)

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Bahrain's growing stature in Islamic banking underlined

Manama, Nov 16 (BNA): CEO Khalid Hamad of Banking Supervision at Central Bank of Bahrain highlighted Bahrain's leading standing attained in the world of Islamic banking through the adoption and development of the Islamic banking.


In a press conference held today at the Bahrain Stock Exchange to review the details of the World Islamic Banking Conference 2015, Hamad asserted that many of the developed and developing countries have resorted to Bahraini expertise and its qualitative initiatives in the field of Islamic banking. 

He attributed Bahrain's success to the sound Islamic banking policies followed, commitment to legitimate controls and implementation of best accounting and auditing standards in the Islamic banking sector. He called for investing in education, training, agriculture and health areas. 


(Bahrain News Agency / 16 November 2015)
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Turkey a Rare Bright Spot in Islamic Finance's Forgettable Year

In a year to forget for the Islamic finance industry, this month’s Turkish election may prove the high point.

Two Turkish banks, Kuveyt Turk and Albaraka Turk, are marketing international sukuk issues this week in what may herald a revival of the Shariah-compliant industry in the country after the AK Party regained its parliamentary majority this month. The government’s Islamic drive had foundered following a previously inconclusive election in June as sukuk sales dwindled and the largest-listed state lender halted plans to set up a Shariah-compliant unit.

“A lot of the transactions that were on hold are being dusted off right now," Rizwan H. Kanji, a Dubai-based partner at law firm King & Spalding LLP who structures Islamic deals, said by phone from Riyadh. “We’re in the next phase of the growth of participation banking in Turkey."

The return to majority rule of the party co-founded by Turkish President Recep Tayyip Erdogan comes at a time when global sales of sukuk are heading for their slowest year since 2010. The AK Party has introduced Islamic units at state banks and expanded Shariah-compliant finance education at universities.

Unmet Demand

Kuveyt Turk meets investors this week before a potential $400 million sukuk sale, while Albaraka started meetings Nov. 13 before a Tier 2 subordinated offering.

Economic and political stability in Turkey will boost investor confidence and participation banking will be a direct beneficiary, according to Ashar Nazim, a partner at Ernst & Young LLP’s Global Islamic Banking Center. Untapped demand for banking that adheres to the religion’s ban on interest means the industry could expand as much as 10-fold in Turkey, he said.

"There’s no need to rush," said Melih Murat Borekci, the London-based co-head of equity research at Yapi Kredi Yatirim, a Turkish brokerage. "I don’t think that there will be a change to AK Party’s intention to establish state presence in participation banking, but there could be changes to the previous economy management. New appointees would need time set their own plans and timeline.”

Halkbank, the country’s biggest state-controlled publicly traded lender, withdrew its application for an Islamic banking unit before this month’s elections. Plans to start a new unit would be clear in two to three months, Chief Executive Officer Ali Fuat Taskesenlioglu said in October.

Despite Erdogan’s ambition to increase the proportion of Shariah-compliant banking assets to much as 20 percent of the market by 2023, for several years they haven’t gained market share. In September they were at 5.1 percent, their lowest as a percentage of the entire industry’s assets in almost three years.

New Units

Turkey’s cabinet appointed Mehmet Ali Akben, a career Islamic banker who has worked at two of the country’s five Shariah-compliant banks, to lead the Banking Regulation and Supervision Agency in May. The regulator approved state-run Ziraat Bank’s Islamic unit the same month.

Vakifbank’s main shareholder got the regulator’s nod for its own unit a month later, while Halkbank looks poised to revive its plans.

"Ziraat participation arm is already in action, we’re going to see another two state banks set up these units in the first half 2016 and we’ll have three participation banks,” said Aykut Ahlatcioglu, a banking analyst at Istanbul-based brokerage Oyak Menkul Degerler AS. "Participation banking will grow faster than their conventional peers.

(Bloomberg Business / 16 November 2015)

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Wanted — Islamic finance specialists

KUALA LUMPUR: Rapid growth in Islamic finance in recent years is pushing up demand for more experts in the field, with the Financial Accreditation Agency (FAA)identifying five key areas in which specialists are urgently needed.

However, programmes offered by local universities now are too generic and provide only a broad-based education on Islamic finance, noted FAA chief executive Dr Amat Taap Mashor in an interview with The Edge Financial Daily.

The industry and its future growth, at the very least, require experts that are specialised in compliance, risk management, governance, audit and the syariah principles guiding all these areas of expertise, he said.

“What is needed now are specialised areas of studies. Currently, if someone wants to specialise in risk management for Islamic finance, the [local] universities might offer only one class on risk management. How is the student supposed to develop the depth of knowledge needed [in] Islamic finance?

“Without a depth of knowledge in syariah principles, how can you design a syariah-compliant product?” asked Amat.

According to the FAA, an independent quality assurance and accreditation body for the financial services industry that is supported by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia, global syariah-compliant assets are expected to expand to US$3 trillion (RM13.20 trillion) in a few years.

Last year, Ernst and Young said it expected such assets to enjoy a global double-digit growth of 19.7% a year until 2018.

On whether there are any specialised programmes offered or developed by tertiary education institutions to fulfil the industry’s needs, Amat said some are being developed, but the results will likely be seen only from 2020.

“Even when we were developing a generic programme, it took us one and a half years. A specialised programme will take a lot more work. The International Centre for Education in Islamic Finance and the International Islamic University, for instance, are in the midst of developing specialised programmes.

He said Islamic finance may be the best tool to battle an economic downturn due to syariah compliancy requiring real assets, granting it stronger fundamentals when compared with speculation-based conventional finance.

“Islamic finance is based on real assets. When you talk about land or a building, there is physical evidence. You are not [merely] talking about market sentiment or speculation.

“When the economy is [facing] a downtrend, Islamic finance can provide a bedrock [for the economy]. That’s why even in Europe recently, they have begun asking if Islamic finance is the solution when the economy is on a downward spiral because the conventional system cannot seem to sustain it.

“This is a good sign for Islamic finance as a whole because there will be great demand for [a] non-conventional market,” he said.

But again, the issue of talent crops up. There is a lack of syariah knowledge among some of its practitioners as they were trained in conventional finance, which may not comply with syariah requirements.

To address this, BNM has tasked the Islamic Financial Institute of Malaysia to conduct professional programmes to equip conventional professionals with a better understanding of syariah principles.

In 2010, the central bank said Malaysia requires at least 40,000 syariah-compliant professionals in the industry by 2020. Currently, it is not known how many such professionals the country has trained.

“Another problem is other countries pinching our graduates. Many of our graduates receive offers from Singapore, Australia, the Middle East and even Europe.

“[However, this can also be viewed] as a good sign. It shows that our programmes are well developed and produce quality talent.”

Still, due to the extra cost in preparing for syariah compliance, many businesses unfamiliar with Islamic finance may have doubts about investing their resources to train syariah-compliant professionals.

(The Edge Market / 16 October 2015)

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Zakat Foundation to expand projects

The Zakat Foundation of America, Ghana, a social and humanitarian organization, is to expand its interventions in the southern parts of the country to benefit more vulnerable and deprived people.

Mr Habib Abubakar, Programme Manager of Zakat Foundation of America, Ghana, disclosed this when he briefed journalists in Tamale after they have toured the organization's projects in the Northern Region.

The tour was to enable the visiting Interim Programme Director of Zakat Foundation, based in Chicago, United States of America, Mr Kamal Ali Birru, to assess the projects being undertaken by Zakat Foundation of America, Ghana, in all its project areas.

Mr Abubakar said currently, Zakat Foundation of America, Ghana, which is based in Kumasi, worked in the areas of education, health, livelihood empowerment and humanitarian assistance in three regions, namely, the Brong-Ahafo, Northern and Upper East Regions.

He disclosed that the organization was implementing a livelihood programme in the Bole District where it had set up a cassava processing plant to help especially women farmers to process their cassava, including vocational training and equipping beneficiaries with machines to start work as self-employed.

He also spoke about other interventions of Zakat Foundation of America, Ghana, which he said, included the provision of medical supplies to four hospitals and 32 water wells across Bole, Bawku and Binduri.

He said the interventions were helping to transform lives, and pledged to improve on them to touch more lives.

Mr Birru, who is based in Chicago, Headquarters of Zakat Foundation, expressed gratitude to all partners, including District Assemblies, for their collaboration to ensure the delivery of the projects.

(Ghana Web / 31 October 2015)

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SEC canvasses issuance of national Sukuk bond

Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator, has called for issuance of issuance of a sovereign Sukuk bond by the Federal Government to deepen the fledgling alternative finance market in Nigeria.

Director General, Securities and Exchange Commission (SEC), Mr Mounir Gwarzo, said the Debt Management Office (DMO) should consider issuance of Sukuk bond on behalf of the Federal Government. DMO oversees and issues sovereign debt issues on behalf of the Federal Government.

At a parley with the Director General of Debt Management Office (DMO), Dr. Abraham Nwankwo, SEC noted that a major plank of the 10-year capital market master plan, which the apex regulator is currently implementing, is the development and deepening of the non-interest capital market in Nigeria.

Unlike interest-paying conventional bond issue, Sukuk makes returns to the investors through sharing of profit or cash flow from the underlying asset with them in addition to redemption of the principal upon maturity. Nigeria currently has only one Sukuk bond issued by the Osun Sate Government.

Gwarzo said the issuance of Sukuk by the central government would not only provide a benchmark for other issuers of Sukuk like state governments but will also be in line with global trends.

Annual Sukuk issuances have grown from $15 billion in 2008 to almost $120 billion in 2014. This is growth is not only coming from the usual issuers like Malaysia, Saudi Arabia, the United Arab Emirates (UAE), Turkey and Indonesia. In 2014, countries such as the United Kingdom, Hong Kong and Luxemburg, including peer African countries like Senegal, South Africa issued their debut Sukuk.

Gwarzo expressed optimism that Nigeria has potential to become a global leader in Sukuk and non-interest financial market and urged the DMO to contribute to actualizing that aspiration by issuing sovereign Sukuk for Nigeria.

SEC’s Rules on Sukuk Issuance in Nigeria underline that Sukuk shall be structured as Sukuk Ijarah – leased contract; Sukuk Musharakah– sharing contract; Sukuk Istisnah–  exchange contract; Sukuk Murabahah– financing contract; and any other form of contract that may be approved by the Commission.

According to the rules, eligible issuers of Sukuk include public companies including Special Purpose Vehicles (SPVs), State Governments, Local Governments, and Government Agencies as well as multilateral agencies.

The rules stipulate that any issue, offer or invitation of Sukuk by a public company which is capable of being converted or exchanged into equity with the intention of being listed shall be subjected to the additional requirements stipulated in the listing requirements of a securities exchange.

Both SEC and DMO agreed to work in synergy for the growth and development of Nigeria’s financial system, particularly, the domestic bond market.

Gwarzo applauded the DMO’s role in the ongoing restructuring of loans owed by state governments while emphasizing the need for closer collaboration between SEC and DMO to catalyze the development of the bond market, including the non-interest segment.

So far, the DMO has been able to convert about N575 billion in state government loans into longer tenured debt instruments.

Gwarzo pledged further support from the SEC to ensure states enjoy a cost effective restructuring as well as reduced debt-servicing burden.

While outlining a number of initiatives which require closer collaboration with the DMO to achieve, the SEC DG applauded the role DMO plays in sustaining the Irrevocable Standing Payment Order (ISPO) framework which has been critical for investor confidence in the domestic bond market.

He urged the DMO to focus on conducting more robust debt sustainability analyses for the states in line with its mandate enshrined within the DMO Establishment Act 2003.

Both institutions agreed to work together to avoid crowding-out effect by Federal Government bond issues by ensuring that states and companies also have easy access to long term capital.

With increasing interest from multilateral institutions in the domestic bond market, both SEC and DMO emphasized the need for synergy to efficiently coordinate such applications. The World Bank’s private sector arm, International Finance Corporation (IFC), and the African Development Bank (AfDB), have both issued naira-denominated bonds within the past two years. Both multilateral development finance institutions have also expressed interest in registering medium term note programmes that ensure periodic issuances to deepen the bond market.

The two institutions agreed to strengthen the interagency team already in place and ensure that issues concerning the development of the bond market are jointly addressed.

(The Nation / 11 November 2015)

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Islamic finance can promote stability

Kuwait City (AFP) - The fast growing, Sharia-compliant Islamic finance industry has the potential to promote financial stability because of its risk-sharing and asset-backed features, International Monetary Fund managing director Christine Lagarde said Wednesday.

"Islamic finance has, in principle, the potential to promote financial stability because its risk-sharing feature reduces leverage and its financing is asset-backed and thus fully collateralized," Lagarde told an Islamic finance conference in Kuwait.

Islamic banks also offer profit-sharing and loss-bearing accounts that can help mitigate losses and contagion in the event of banking sector distress, she said.

"This leads... to higher total loss-absorbing capital, one of the key objectives of the new global regulatory reform," Lagarde told the one-day event organised by the IMF and Central Bank of Kuwait.

But she said that for the industry to unlock its full potential, it must expand its customer base, harmonise standards and improve regulatory frameworks.

Lagarde later told a press conference the IMF will increase its involvement in the Islamic finance industry by providing more bilateral surveillance and analytical help.

The Islamic finance industry, which bans speculation and interest, still lacks effective regulatory and supervisory frameworks catering to its unique risks.

It also bans dealing in products with excessive uncertainty, gambling, short sales and financing prohibited activities considered harmful to society.

Lagarde said Islamic assets have crossed the $2 trillion mark and has the potential to grow much larger.

Around 40 million of the world's 1.6 billion Muslims are clients of the Islamic finance industry, which has surged in popularity since its niche market days of the early 1970s.

Kuwait's Central Bank governor Mohammad al-Hashel said Islamic finance can offer a system based on strong principles and social justice.

"A system, which if implemented in its true spirit, will bolster growth, create jobs, reduce poverty and address inequality," Hashel said.

He said the Islamic system channels credit into productive investments that are socially responsible and not in wasteful speculative activity.

The objective is to create a system that is "ethically right, socially just, financially stable and economically productive", Hashel said.

Officials and experts, however, acknowledged that the industry still faces tough hurdles, mainly setting consistent regulations for all markets.

The Jeddah-based Islamic Development Bank president, Ahmad Mohamed Ali, said he believes the main obstacle is the failure to create a mega Islamic bank and the lack of sufficient tools to manage liquidity effectively.

(Yahoo News / 12 November 2015)

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Emirates mulls $1b sukuk next year

Dubai: Emirates could issue a conventional or Islamic bond in 2016 to raise as much as $1 billion (Dh3.67 billion) to be used to fund around 30 aircraft that are scheduled to be delivered that year.

Shaikh Ahmad Bin Saeed Al Maktoum, President of Dubai Civil Aviaition and Chairman and CEO of Emirates airline and Group, said on Sunday that the company will use some of its cash on reserve for aircraft deliveries. He added that the issuance of a conventional bond or Islamic bond, known as a sukuk, is a possibility.

Asked how much Emirates would be looking to raise he said, “Always we’re talking anything between $500 million and $1 billion.”

(Gulf news Aviation / 09 November 2015)

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Badlisyah: Islamic finance to continue strong growth

KUALA LUMPUR: Malaysia’s Islamic finance industry will continue to grow strongly despite the withdrawal of some Islamic finance-related incentives in Budget 2016.

Chartered Institute of Islamic Finance Professionals (CIIF) president Badlisyah Abdul Ghani said the country’s Islamic financing market has grown positively over the years, attributed to the tax incentives provided for Islamic financing in previous budgets.

“(But now) the Islamic finance no longer requires that assistance to penetrate the market. (Previously) the incentives were there to create the momentum to build nderstanding and acceptance of Islamic finance,” he told a press conference after the launch of CIIF last Friday.

Badlisyah said the CIIF, a professional body for qualified practitioners in the Islamic finance industry, was established following the increasing need for a global reference point for professional talent in the industry, as it expands internationally.

The new entity, which replaces the Association of Chartered Islamic Financial Professionals Malaysia, is mandated to set standards for professional education and qualifications in Islamic finance for its members. It aims to have 3,000 members by 2016, compared with 240 currently.

(The Sun Daily  09 November 2015)

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Sukuk: The Islamic Way of Investing

WASHINGTON, Nov. 6, 2015 /PRNewswire/ -- A two-day ASEAN Islamic Finance Conference, held at the National Press Club of Washington and the Embassy of Malaysia, brought together over 50 leading Islamic Capital Market and U.S. business leaders last week. The conference was an important opportunity for prominent international dignitaries, business leaders, and the public to meet and to network with members of the ASEAN diplomatic communities.

During an introductory address, H.E. Datuk Dr. Awang Adek Bin Hussin, Ambassador of Malaysia, spoke about the noticeable growth of the Islamic Capital Markets. "This is only the beginning," he said. "We expect them to increase even more significantly now that British Prime Minister David Cameron announced his plans to make U.K. a major financial center for Islamic bonds in the western hemisphere."

What distinguish Islamic bonds (Sukuk) from conventional bonds is their low risk. Instead of being paid interest, investors are buying into the business and receiving a percentage of its real income. For this reason, it becomes an important investment with solid protection. Conference speaker, Owaiz M. Dadabhoy, Director of Islamic Investing and Islamic Investment Group Manager, Saturna Capital, summed it up succinctly by saying "that the greatest benefit of Sukuk is their high performance. Also, unlike bonds, they are transparent from top down and bottom up, and easier to evaluate as an investment."

Roy Michael, executive director of the Malaysian US Chamber of Commerce, attributed the success of the Islamic financial market to the non-speculative and low interest rates as compared to  the speculative nature of many of today's conventional investments.

"Investors want investments that will provide larger return and safer performance," Michael said. "While conventional investments are recovering from the negative market events of the past seven years, Islamic bonds have demonstrated strong demand-driven gain."

Michael believes that the growing choice of Islamic investment funds is making Sukuk very attractive to many investors. He thinks it will be a matter of time before pension houses, private bankers, and institutional investors in the U.S. start considering the Islamic bond market seriously.

In summary, Ambassador Hussin, said, "I expect the long-term benefits of our growing new relationship will enhance stability and peace, and accelerate social and cultural progress by providing an attractive region for U.S. companies to cultivate long-term business relationships. I am optimistic that someday soon ASEAN will be one of the bright spots that will bring light to our world.

(Market Watch / 06 November 2015)

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

Islamic financing is growing across the globe, trumping Western banking

ABIDJAN, Ivory Coast — It works like this: No interest on investments, but the borrower and the lender share the risk and split the returns. This growing form of banking, known as Islamic finance, is now making significant headway into Africa, one of the fastest-growing regions in the world.

In fact, proponents of Islamic banking are touting this alternative to classic Western financial practices as a better way to help Africa improve roads, develop state-of-the-art health care systems and create a massive middle class to address some of the issues hindering growth.

“Islamic finance offers excellent prospects for the African continent, which we should seize,” Ivory Coast Prime Minister Daniel Kablan Duncan said last month before an audience of around 500 people at the region’s first Islamic Finance Forum.

Nigeria’s securities commission last month staged a roundtable discussion to educate local lenders and businesses about the benefits of an “Islamic capital market.” The Central Bank of Djibouti this week is putting together a two-day event billed as the International Banking Summit Africa, which is designed to boost trade and investment between the oil-rich Middle East and sub-Saharan Africa using Islamic financing practices.

This form of financing — Standard & Poor’s estimates that Islamic finance grew by as much as 15 percent in the past decade to reach $2 trillion globally — could also be a way for rich Muslims from the Middle East and beyond to enhance their portfolios while adhering to their religion, which prohibits “riba,” or the charging of interest on monetary loans.

Those same investors might not otherwise recognize the potential in markets such as western Africa, said Fabrice Toka, a South Africa-based senior director covering sub-Saharan Africa at Fitch Ratings.

“Islamic finance doesn’t take away from that which you can already do with traditional financing,” Mr. Toka said. “It adds another pool of investors.”

Rather than charging the borrower a set interest rate for a set period, Islamic lending is based on Shariah principles and works on the basis of risk- and profit-sharing. The customer and the bank share the returns and risk of investments on negotiated terms.

“There is a level of return that is expected,” said Nida Raza, advisory director of the Saudi Arabia-based Islamic Corporation for the Development of the Private Sector, or ICD. “The difference is, it’s not interest; it’s profit.”

Home to roughly a quarter of the world’s Muslim population, Africa represents a growing market for faithful Muslims to put their money to work, according to an ICD report.

“Although the potential contribution of Islamic finance in favor of African economic development has long since been recognized by experts, the rhythm is now accelerating,” said the report, titled “Islamic Finance in Africa: A Promising Future.”

Ready for takeoff

Economic growth in Africa averages roughly 5 percent a year, rivaling Asia and other regions, according to the International Monetary Fund.

But since 2001, at least half of the 10 fastest-growing economies in the world have been in Africa. The continent also sports 15 percent of the world’s population, two-thirds of the Earth’s uncultivated arable land, rich energy resources and a rising youth population, according to the IMF.

Developed nations such as the United States, Japan and China have actively wooed African countries in recent years, typically with high-profile summits in which billions of dollars in deals and financing projects have been struck. Last week, India hosted its first such gathering for 54 African countries, including 41 heads of state, announcing a doubling of subsidized loans to the continent to $10 billion over the next five years, along with some $600 million in grants.

But around 340 million people in sub-Saharan Africa still lack reliable access to traditional banks, the ICD report noted.

Those trends have led the ICD to boost its funding in Africa by more than double to around $12 billion in the next five years.

“Africa has the highest growth in the world. It needs more finances to back up the growth,” said Islamic Corporation CEO Khaled Al-Aboodi. “Access to finances presently here are scarce and difficult to attain.”

Islamic financing can take different forms. An “ijara” investment involves a bank buying an asset — such as a tractor — that is leased to the debtor, who uses it for business. In “murabaha” lending, banks purchase goods and resell them to customers, who make installment payments on the goods at markups. In a “musharaka” deal, the bank and its customer launch a joint venture and share the resulting profits or losses.

Ms. Raza said Islamic banking protects debtors from interest charges that cut into debtors’ revenue whether or not they are operating in the black. Islamic financing also gives lenders more flexibility when debtors encounter hardships and threaten default, she said.

“The majority of Islamic finance transactions do carry a level of risk-sharing,” she said.

Ms. Raza noted, however, that debtors couldn’t necessarily exploit banks in Islamic financing. Banks can quickly repossess assets loaned under the terms of most transactions, for example. “There are deterrents put into place during the structuring process to avoid any sort of misuse of the flexibility that Islamic financing is supposed to ensure,” she said.

In West Africa, where at least 80 percent of the population is Muslim, Islamic financing has grown in popularity. Since 2014, Ivory Coast, Nigeria, Niger and Senegal have issued “sukuks,” or Islamic bonds, totaling almost $800 million, according to the countries’ financial filings.

A sukuk pays a dividend based on a return from a tangible asset. It is similar to a traditional Western-financed bond, without the interest. Proceeds from sukuks often finance large state development projects for purposes such as education, agriculture and infrastructure.

“With these tools, we could build a freight terminal at the Felix Houphouet-Boigny Airport,” Ivory Coast’s Mr. Duncan said at the forum. “Cote d’Ivoire can use these finances for infrastructure development.”

Despite its promise, Mr. Toka said, it will take more than a new financing mechanism to bring prosperity to a region that has struggled with issues such as political instability and corruption, epidemics such as Ebola and terrorist threats from Islamic extremist forces such as Boko Haram.

“For Islamic finance to thrive, we need to provide the legal and regulatory framework that goes with it,” he said. “Countries need to have those frameworks put into place so it can actually help with the expansion of Islamic finance in Africa.”

(The Washington Times / 06 November 2015)

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

UAE, Malaysia show willingness to issue green sukuk

Kuala Lumpur: Countries such as the UAE and Malaysia have shown the willingness to issue green sukuks, and advisers such as Climate Bonds Initiative hope to have at least one [issued] in 2016, the chief executive officer of the advisory firm told Gulf News.

“Dewa (Dubai Electricity and Water Authority) has said that they are considering issuing a green sukuk for clean energy,” said Sean Kidney, chief executive officer of Climate Bonds Initiative. The firm has a sukuk advisory group in the UAE, trying to promote issuance.

The world is heading for up to seven degrees of global warming, according to the International Energy Agency (IEA), which may make many of the parts of the earth uninhabitable, impacting the rich and the poor alike, and Kidney feels the solutions are investible without impacting the government budgets.

“The world is full of money and there’s no shortage of capital, we just have to get our government settings in place,” Kidney said, adding “green bonds are a way to make it simple for people to invest in them.”

“One of the reasons that I like this idea of green sukuk is that it marries the idea of protecting the environment, and it makes sure that our financial system is designed around a social cause and not around making money for billionaires in New York,” he said.

Currently, there is a $65.9 billion (Dh242 billion) of outstanding in labelled green bonds, with transport and energy remaining the dominant themes. The development banks and corporations contribute to the 80 per cent of the issuers. Kidney expects an issuance of another $50 billion bonds next year.

“We need to have the right kind of industrial planning and economic planning that provides transition to the green economy,” he added.

Dubai as an example

Saudi Arabia’s oil minister, Ali Al Nuaimi, had recently said that the largest exporter of crude oil wants to be a solar energy exporter, indicating the extent of the solar ambitions.

“The truth is that oil remains a finite resource,” Kidney said.

Climate Bonds Initiative considers Dubai as an example which has made considerable efforts in developing solar energy.

“The Gulf needs to follow Dubai’s economic model, rather than depend on fossil fuel, as quickly as possible,” Kidney said, adding, “use the wealth now to diversify your economy and diversify the risk”.

“We need to be aware that oil is a sunset industry and we need to quickly move [on with] the transition,” he added.

(Gulf News Market / 05 November 2015)

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