The value of Sukuk listings in Dubai has topped $42.61bn following the ringing of the bell by Islamic Corporation for the Development of the Private Sector yesterday for its $300m issue.
The Islamic Development Bank Group private sector arm said the total nominal value of Sukuk in the emirate was higher than any other centre globally, making it a leader in the Islamic bond sector.
“Using the funds raised by this Sukuk, we will further pursue our mission to provide financing and investment for a range of successful private enterprise projects in our member countries,” said ICD chief executive Khaled Al Aboodi.
The Islamic Devleopment Bank has seven other Sukuk outstanding on Nasdaq Dubai, following its first listing in 2014, with a total nominal value of $8.05bn.
The most recent Sukuk listed on April 14.
ICD has an authorised capital of $4bn and is jointly held by the IDB, 52 Islamic countries and five public financial institutions.
The total nominal value of sukuk currently listed in Dubai has now reached $42.61 billion, more than the value listed in any other centre globally and reinforcing the emirate's leadership role in the Islamic bond sector.
Khaled Al Aboodi, chief executive officer of the Islamic Corporation for the Development of the Private Sector (ICD), on Monday rang the market-opening bell to celebrate the listing of a $300 million sukuk on Nasdaq Dubai.
The ceremony was attended by Essa Kazim, Governor of the Dubai International Financial Centre, secretary-general of the Dubai Islamic Economy Development Centre and chairman of the Dubai Financial Market; Abdul Wahed Al Fahim, chairman of Nasdaq Dubai; and Hamed Ali, chief executive officer of Nasdaq Dubai.
"Using the funds raised by this sukuk, we will further pursue our mission to provide financing and investment for a range of successful private enterprise projects in our member countries. As the international exchange serving the region, Nasdaq Dubai provides us with close links to investors in and beyond the Muslim world as well as global visibility and world-class listing infrastructure," Al Aboodi said.
"Dubai is delighted to support the valuable activities of ICD by providing its capital markets infrastructure to host its sukuk. This listing by a prominent multilateral entity gives further impetus to Dubai's growth as the global capital of the Islamic economy, under the initiative launched by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai," Kazim added.
The sukuk issued by ICD, the private sector arm of the Islamic Development Bank Group, listed on April 14, 2016. IDB has seven other sukuk currently outstanding on Nasdaq Dubai that have listed since 2014, with a total nominal value of $8.05 billion.
Al Fahim said: "The exchange looks forward to welcoming many more sukuk listings from international and regional public and private sector bodies. As we continue to build critical mass in the Islamic capital markets sector, we will extend the range and scope of the services that we offer to market participants including developing new products and further strengthening our links to investors."
Ali said: "Our growing relationship with the IDB group demonstrates our commitment to serving Shariah-compliant issuers wherever they are based, providing visibility and close links with investors. We are also strengthening our ties with issuers around the world that are new entrants to the Islamic capital markets and will benefit from a relationship with the world's leading sukuk exchange.
Dubai: The recent 11th Annual World Takaful Conference in Dubai was an eye opener with regards to the growing number of Takaful operators, and the intense interest in building the Takaful industry and ensuring greater options and benefits for customers.
The Takaful sector is at a promising stage in its development. Although its growth has been fast, there are several challenges and opportunities that the industry as a whole must address, or take advantage of. A key challenge for Takaful companies has been differentiating their product offerings from conventional insurers - which has eroded the value of Takaful operators in an already fiercely competitive market.
In essence, Takaful is based on the concept of mutual indemnification - an agreement that helps all parties involved in cases of loss of health, life or property. Based on ‘risk sharing’, this concept is an alternative method to the more popular ‘risk transfer’ principle used in the conventional insurance space. Takaful is based on the mutual help and cooperation of all the owners of the participant fund, which is basically a risk pool that is made up of participant contributions. In addition, it does not engage in interest-based activities and invests the contributions made by the participants and shareholders in Shari’a compliant securities.
Within the UAE, Takaful products are sold mainly through broker and agency/ advisor distribution channels. In contrast, in Malaysia, Islamic banks are being utilised for their existing customer base to provide a whole new distribution channel to Takaful operators known as bancatakaful. As a result, Takaful operators within the UAE are now quickly catching on to leverage bank distribution for Takaful products. Noor Takaful, for example, has leveraged on its relationship with Islamic banks and led the market with unique new products such as ‘Smart Save Plus’ and a ‘Single Pay Jumbo Plan’ which are sold mainly through the bancatakaful distribution channel.
So far, Middle Eastern Takaful operators have concentrated almost 90 per cent of their takaful activities in the non-life sector of Islamic insurance, whereas in Malaysia, that number is a complete reciprocal, building almost 75% of their activity from within the life sector of Takaful. According to the Dubai Center for Islamic Banking and Finance (DCIBF), only 5 out of the 16 Takaful operators produced a surplus in 2014 in the GCC region. In Asia, that number is even lower - sitting at just 10% of 56 Takaful operators who have produced positive results between 2011- 2013.
In order for Takaful companies to grow, they must focus on customer centricity, the innovation of new products/services, adhering to the customer’s needs, and the implementation of technological enhancements within the organisation - that allows for accurate assessment of risks, while at the same time maintaining the core Islamic values on which Takaful is built.
With readily available information now online, customers are more aware of their needs today than ever before. These buyers have an abundance of options to select from when it comes to Takaful products/services, and Takaful companies need to make more information and products available through online access.
Although both Islamic Takaful and Islamic Banking started at the same point in time in history - around the 1970’s – according to the same DCIBF report, the banking sector has taken off to a massive global revenue size of 1 trillion dollars, whereas the Takaful sector has yet to reach the 50 billion dollar mark from a revenue perspective.
With its relatively new entry into the region as compared to its conventional counterpart, the challenge for the Takaful industry and specifically the Takaful operators to achieve full potential, is to bring new products and technologies to customers, and offer a reasonable pricing of risks alongside efficient business processes.
There is significant potential for consolidation among regional Takaful operators. Countries like Indonesia and Malaysia, for example, with significantly larger populations that the GCC, have achieved deeper penetration with fewer Takaful operators.
Consolidation of Takaful companies in the future may boost growth prospects by instilling greater confidence among customers. Fewer and larger Takaful companies, with larger financial resources will lead to greater financial stability and better ability to compete while focusing on improved risk pricing. In addition, customer trust must be promoted by focusing on corporate governance and ensuring adherence to new regulatory standards. For example, with the recent regulatory changes, new opportunities to demonstrate customer value are opening up, such as mandatory medical insurance and better customer service and response times, all of which point to prospects for greater growth for Takaful companies, especially in the UAE.
The writer is the CEO of Noor Takaful. Views expressed in the column are the writer’s own and do not reflect that of the newspaper.
Daud Vicary Abdullah is a British converted Muslim who since 2011 has been President and CEO of INCEIF, the International Centre for Islamic Finance. Also known as the Global University for Islamic Finance, INCEIF was founded in 2006 by Bank Negara Malaysia, the Central Bank, to attend to the need for human capital development in this field. Since then, its leaders have worked to establish the institution as an elite education center
Education is one of the main challenges, not only in Malaysia but in the world. Can you explain what you are doing at INCEIF and why it is so important?
Malaysia has grown and developed its Islamic finance sector and it has grown quite steadily internally. And there was a reasonable array of self-taught experts. First, there was the creation of Bank Islam and then we started a second bank and opened Islamic windows, and thirdly, we thought about moving away from Islamic windows and having separate banks or subsidiaries. At that point, from about 2003 to 2005, it started becoming obvious that Islamic banking was really taking off and along with it came a huge shortage of skilled and capable resources to lead this kind of expansion. In 2005 I was the first managing director of a new Islamic bank.
There were some “major stars” in the market and companies paid large transfer fees to get them. The central bank paid attention to this problem and did many things. For example, they implemented a scheme by which if you wanted to do this high transfer fee thing, you had to pay a penalty: you had to pay six months’ salary into a fund, which was controlled by the Central Bank. And that fund started funding projects. A part of this was used to set up INCEIF.
There was no specific Islamic finance higher education programs before. The first one, the Chartered Islamic Finance Professional, was launched in 2007. Between 2005 and 2011 - when I was appointed here, not as an academic but as an industry expert - the university grew and developed, forming a number of strategic relationships with other universities around the world to provide Islamic finance education while extending its own repertoire: it started taking on Ph.D research students and it also developed a more academic Master’s program.
We currently have close to 2,000 students from 85 countries; 1,200 of those students are online, they do not come to campus. So we have built a global network. We have a reasonable number of UK students. Our number of students has grown a lot and so has our credibility. We have forged partnerships with important finance institutions. Two years ago, we were considered an official partner of the World Bank, which partners only with two other universities in the world: Oxford and Harvard. We are being assessed now by international business school standards by the AACSB (The Association to Advance Collegiate Schools of Business), in order to become globally accredited. A lot of this has been reached through the vision of Governor Zeti (Tan Sri Dato’ Sri Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia), and many others, but she has been very much the driving force. She has been the most significant figure in Islamic finance.
Why would you say she is such a crucial and respected figure?
Well, I think she is a remarkably good strategist who can actually execute. She has understood the value of Islamic finance.
In my opinion, the most important things in Islamic finance are education, perception and liquidity. Education is vital at every level, and with education you change perceptions. Liquidity is a common issue everywhere nowadays.
Do you think the trend of speculation in the financial economy will continue?
It would be nice to get back to reality in terms of the economy and the concept of risk sharing. With the financial crisis, people lost what they had invested and share values went down, some banks went belly-up and therefore the government had to raise taxes to cover the losses. Individuals were hit three ways, because somebody else has not been held accountable for what they have done. They bet the balance sheet of the bank and it all went wrong, and they did not have any liquidity. To me, this is what happened to Lehman Brothers and others. I am not saying this could not happen in Islamic finance, because everybody is human and greed is human nature - most of what happened was just based on greed. But we need to go back to a level of ethics and then apply those ethics. They are beneficial to all of humanity.
This is the challenge. I think we have more of a challenge after the crisis and the more we get this across, the more we can be sure there is actually an opportunity to get people to change their mind. We have to get back to a level of reality and not only about finances, but also about ecological matters, climate change and other issues.
How can Islamic finance compete with traditional, conventional finance?
Islamic finance has been growing to where it is today largely because it has used conventional tactics or conventional instruments. Now, there is a big opportunity to use new risk-sharing instruments. All the regulations in the world, in banking and finance, are based on debt. However, if you go into a risk-sharing environment, you do not need Basel III because you are actually trying to educate all parties by saying “Do you understand the risk you are going to put your money at here?” We have to explain this clearly - education changes perception. The man in the street is starting to ask questions: “What is going on here? Can we trust the bankers? Can we trust the regulators?”
We are working to start changing perceptions at an early age. We have students working on programs in primary schools about risk sharing. The idea is that people get education early, through play and interaction, and see this not as a religious threat but as a set of options about which they can make realistic choices. And they understand the concepts.
A lot of lawyers are starting to get on board with your INCEIF programs. Can you tell us a little more about this?
The legal profession is really engaged with Islamic finance and any form of finance, because they are in charge of the contracts and deals. British lawyers, as they work in international law firms, have always had the expertise on Islamic finance and they are very good at it. Now, we are partnering with the Chartered Institute of Arbitrators in London to develop a course which educates their members, who are legal professionals who focus on arbitration, and on what happens in the world of Islamic finance.
I think the future of Islamic finance will not rest heavily on it, but an important building block will be professional accreditation.
What would be your advice, or your selling point, regarding the competitive advantage of a sukuk to an English corporation who perhaps does not understand it?
A sukuk looks and feels like a bond, but it is not a bond, because it does not give you interest. It is an attractive vehicle. The market is growing so you can raise funds cheaply, for example, here in Malaysia.
A few of our readers may be thinking “Should I contact INCEIF? Should I look at doing something to get qualifications in Islamic finance?” What would be your rationale for somebody in the UK, for example, to join this university?
Islamic finance is a growing industry. It is growing faster than the overall finance industry. So, becoming an expert is not a necessity, but having some awareness of it will differentiate you from the rest, because a part of your business is going to touch Islamic finance at some point. Of course you do not need to be a Muslim to study with us.
Muscat: Several Omani companies, including financial institutions, property developers and oil firms, are exploring the feasibility of floating Sukuk issues, with the new regulation on Sharia-compliant bond instrument in place.
This is in line with global trends where GCC states along with Malaysia, Indonesia, Turkey, Singapore and Pakistan, have issued $11.1 billion worth of Sukuk in the first three months of 2016. These states are choosing to issue more of their debt as Sukuk rather than conventional bonds. These countries issued 39.3 percent of their debt as Sukuk - the highest ratio of Sukuk to conventional debt in eight years, based on data from Fitch Ratings.
“We have had increased consultations with companies wanting to issue Sukuk. Some of them had wanted to wait until the regulation was out before proceeding,” Kemal Rizadi Arbi, Advisor at the Capital Market Authority, told the Times of Oman. These companies are planning to float Sukuk issues to raise funds from the market.
Kemal said the new regulation allows for the issuance of a Sukuk programme, unlike in case of bond issuance. This means that with a base prospectus and upfront approval from the CMA, a company will be able to determine the timing, amount and pricing of the Sukuk to be issued, based on the company’s funding and operational needs, and not required to issue the whole Sukuk amount all at once and this, not incurring the whole cost upfront. In addition, the new regulation allows not just SAOG and SAOC companies, but also LLC firms with a good track record to raise funds by way of a Sukuk.
Elaborating on the advantages of Sukuk over bonds, he said companies may even get better pricing in terms of their funding cost, due to greater demand and a wider investor base of both conventional and Sharia-compliant investors globally, while attracting required foreign investments into the country. “In the existing bond framework, there are some restrictions. For example, you cannot raise bonds beyond the company’s capital.”
Also, Kemal said, the regulatory authority has introduced a trust structure in the new regulation in line with other international jurisdictions, making Oman one of the few GCC countries to have this. It allows a trustee to hold assets on behalf of the Sukuk holders. In addition, there will not be any restrictions on the Sharia structure of the Sukuk, subject to the respective Sharia Supervisory Board (SSB) approval of the issuer. The choice of the SSB is left to the issuer. The new regulation also allows the incorporation of an LLC as a Special Purpose Vehicle (SPV) and provides an optional rating requirement. All these have been drafted to provide flexibility and spur market players into innovation.
He said the issuance of the country’s first sovereign Sukuk and development bonds by the government will help build a yield curve for the country in order to create a pricing benchmark for issuers and to enhance secondary market activities. “Nevertheless, there needs to be continuous issuances with different maturities, not only by the government but also by government-related entities and financial institutions, to develop this market further.”
Sukuk forms an important element to further enhance Oman’s Islamic financial market and enable the capital market to play its vital role as a fundraising platform for companies, while diversifying the financing base and risk away from the traditional banking sector.
"The issuance of this new Sukuk regulation is another important milestone and will lay the foundation to spur further development of the Sukuk market and capital market for the economic development of Oman,” Kemal said.
KUALA LUMPUR: Malaysia has strengthened its position as a top investment destination with the overwhelming response to the government’s newly-priced global sukuk issuance, which reflects global investors’ continued confidence in the country.
Investors from a combined base of more than 195 accounts subscribed for the government’s 10-year and 30-year benchmark global trust certificates (wakala global sukuk), attracting an aggregate interest of more than US$6.3 billion (RM24.5 billion) and representing an oversubscription of 4.2 times.
Finance Ministry secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia remained among the faster-growing economies in the region and continued to successfully pursue fiscal consolidation while maintaining monetary and financial stability.
“This is a remarkable achievement as demonstrated by the tight pricing and excellent response to this landmark sukuk,” he said in a statement yesterday.
The government, via special purpose entity Malaysia Sukuk Global Bhd, has successfully priced the 10-year and 30-year benchmark sukuk papers at 3.18 and 4.08 per cent, respectively.
The new sukuk format uses non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets (commodity murabaha).
The sukuk used vouchers representing entitlement to travel units and syariah-compliant shares, the statement said.
This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk issuance.
The wakala sukuk are expected to be assigned ratings of “A-” by Fitch Ratings and Standard and Poor’s Ratings Services, and “A3” by Moody’s Investors Services.
The issuance is Malaysia’s fifth global sukuk, after previous issuances in 2002, 2010, 2011 and 2015.
It was priced after a roadshow across global financial centres, including Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York, besides Kuala Lumpur.
CIMB, HSBC, J.P. Morgan and Maybank acted as the bookrunners and lead managers for the offering.
KUALA LUMPUR: Malaysia said on Thursday that it had successfully priced US$1.5bil worth of Islamic bonds, or sukuk, which was oversubscribed by 4.2 times with the bulk of the take-up from Asian accounts.
The sukuk was split between a US$1bil 10-year tranche and a US$500mil 30-year tranche at a rate of 3.179 percent and 4.080 percent respectively, the ministry of finance said in a statement.
The deal attracted orders of over US$6.3bil from a combined investor base of over 195 accounts, the statement said. Asian accounts took two-thirds of the 10-year tranche and over half of the 30-year tranche.
This compares with a similar-sized deal in April of last year which attracted a US$9bil order book from 450 accounts.
It is the fifth global sukuk by Malaysia, with previous issuances in 2002, 2010, 2011 and 2015.
The sovereign tested a new sukuk format as well, using non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets.
The sukuk used vouchers representing entitlement to travel units and sharia-compliant shares, the statement said, without providing further details on those assets.
This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk.
The deal was priced after a roadshow across global financial centres, including Kuala Lumpur, Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York.
CIMB, HSBC, J.P. Morgan and Maybank acted as the joint bookrunners and joint lead managers for the offering.
Sukuk issues volumes will reach $50 billion to $55 billion in 2016, according to Standard & Poor's estimates.
"We estimate Islamic finance assets were worth about $2.1 trillion at year-end 2015, compared with more than $7 trillion of cumulative GDP of the economies of the OIC countries at the same date," the ratings agency said in a report on Monday.
It said that Islamic finance could contribute to meeting some of the sustainable development goals adopted by the UN General Assembly under its 2030 agenda.
Agreed on in September 2015, the UN General Assembly set 17 sustainable development goals, or SDGs, and 169 measurable targets centred on five pillars: people, planet, prosperity, peace and partnership. The UN has stressed that striving for sustainable development will require a revitalised global partnership between all stakeholders.
"Islamic finance could play a role - a modest one at least - in meeting some of the SDGs, particularly those that are in line with the core principles of Islamic finance," said Mohamed Damak, Standard & Poor's global head of islamic finance.
Some sukuk issues by global multilateral lending institutions over the past few years illustrate this point, although their overall amount remains small compared with multilateral lending institutions' (MLIs) conventional debt issuance. "Still, Islamic finance will likely remain a moderate contributor due to the industry's small size and the issues it has yet to resolve to unlock its global potential," added Damak.
Assuming the industry continues its efforts to improve standardisation and reduce the usual timeframe for issuing sukuk, Islamic finance could attract new issuers such as MLIs or governments that might see the industry as a way to diversify their investors' base and fund their SDG agendas.
Manama, Apr. 19 (BNA): The Central Bank of Bahrain (CBB) on Monday said the monthly issue of the Sukuk Al-Salam Islamic securities for the BD 43 million issue, which carries a maturity of 91 days, had been oversubscribed by 143%. The expected return on the issue, which begins on 20 April 2016 and matures on 20 July 2016, is 2.08% compared to 2.09% for the previous issue on 23 March 2016.
The securities are issued by the CBB on behalf of the Government of the Kingdom of Bahrain.
Muscat: Islamic financial institutions in the Sultanate are expected to achieve a healthy growth in the banking sector in the near future, said the chief executive officer of the Bank Nizwa.
“Within no time, Islamic finance will grow above 15-20 per cent of the total banking sector activities in Oman,” Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa told the ‘Times of Oman’.
Stating that Bank Nizwa will open new branches in the Sultanate by the end of the year, he remarked that Oman will be the leader in the Islamic finance soon.
“People’s aspiration on Islamic banking is huge because it is an industry of transparency and fairness so it has no uncertainty,” he said on the sidelines of the launch of Bank Nizwa’s mobile branch.
Speaking about the bank’s growth, he said, “we were able to reach breakeven in December in the three years of time and we consider this as a great achievement because it is a new industry and the sort of operation is different from other conventional banks.”
“This achievement also put us in an important cruising level and we are able to reach the level that to continue as a very successful organisation,” he added.
“Through our new mobile branch, we can easily identify the market needs and demands for future branch location and services” he said. According to him, the ‘branch on wheels’ will take customer close to the bank. “Our mobile branch is part and package of our strategy to deliver greater convenience and accessibility to existing and potential customers,” he said.
“We are continuing our efforts to raise awareness on Islamic banking and bring it to the doorsteps of our growing customer base across the Sultanate,” he added.
Over the next few months, mobile branch will travel all-around the Sultanate offering a host of products, services and also make the people aware on the benefits of Islamic banking.
According to bank officials mobile branch will help customers to open new accounts, activate debit cards, receive account balances and mini statements, deposit cash and cheques.
“Our main idea in launching mobile branch is to be more mobile and offer our products and services to the people across the Sultanate,” Asad Batla, head of Consumer Banking said.
“Our teams of expert will also available in the truck and they offer financial consultations on how they can benefit from this growing industry in their day to day lives,” he added.
Truck’s journey will start from the governorate of Muscat, moving on to Dakhiliyah, Al Sharqiya, Dhofar, Al Batinah and Al Buraimi.
The new listing of Dubai Islamic Bank's (DIB) $500 million sukuk on Nasdaq Dubai has reinforced Dubai's position as an international leader for listed Islamic bonds with a total value of $42.61 billion.
With the latest sukuk, DIB's total Islamic bond listings on the region's international exchange reached $3.25 billion and shows the rapid expansion of Dubai as the global capital of Islamic economy.
DIB's $500 million sukuk listed on the exchange on March 31. DIB had previously listed one sukuk in 2013 and two in 2015.
Dr Adnan Chilwan, group CEO, DIB said: "We are committed to economic development in Dubai and to promote the emirate's growth and success in the field of Islamic finance. Given the challenging market conditions, it was critical to have a strong credit come in and successfully close a deal. As such, this transaction effectively marks the re-opening of the GCC financial sector debt capital markets after a hiatus of four months."
Essa Kazim, governor of Dubai International Financial Centre (DIFC) and secretary-general of Dubai Islamic Economy Development Centre (DIEDC), said: "Through their location in the heart of the Muslim world, Dubai's Islamic capital markets are uniquely placed to expand in all aspects, including issuance and listing. DIB's prominence in both activities reinforces Dubai's status as the leading centre for sukuk and its growth as the global capital of Islamic economy."Abdul Wahed Al Fahim, chairman of Nasdaq Dubai, said: "As a pioneer of Islamic finance and pillar of Dubai's growth and prosperity, DIB is a key issuer on Nasdaq Dubai. Through their close cooperation, a range of government and semi-government institutions in Dubai as well as private companies are underpinning the growth of the Shariah-compliant financial markets in the region and internationally."
Hamed Ali, chief executive of Nasdaq Dubai, said: "The sukuk sector will continue to be a core focus for Nasdaq Dubai as we look forward to further listings in 2016 and beyond from a range of issuers. We are also developing further initiatives in the Islamic capital markets to provide innovative services designed to meet the evolving needs of market participants.
Mauritania is turning to Islamic finance to modernise its banking sector, trying to raise the number of people with accounts from its meagre levels today and in turn increase liquidity so banks can lend more to companies.
Many of the Islamic republic’s citizens are uncomfortable with western banking, opting for informal banking collectives or just “keeping money under the bed”, says one local banking executive.
Officials say that by encouraging Islamic finance, which follows religious principles such as bans on interest and gambling, it will entice more people to enter the formal financial sector, crucial to the wider economy.
Dieng Adama Boubou, director of banking supervision at the Mauritanian central bank, says that the goal was to increase the number of people with bank accounts from 10 per cent today to 25 per cent by 2018, partly by promoting Islamic banking.
“We have a strategy of financial inclusion,” he says, adding that only 4 per cent of people had accounts in 2006. “Developing Islamic finance is a key part of that.”
Moulay Abbas, president of Banque Mauritanienne pour le Commerce International, a commercial and retail bank based in Nouakchott, says: “We are pushing more into Islamic finance, targeting traditional commercial agents who are not formally banked.”
The idea is that the push will help a still relatively under-developed financial sector. It would increase the amount of money banks hold, which would help them support the local economy by giving more long-term loans and letters of credit.
One complaint often made against the Mauritanian financial system is that it is too much driven by relationships, with tribal background and personal connections crucial to getting credit. Mr Abbas says that way of doing business is a thing of the past. “Perhaps this was true 20 years ago, but not today,” he says.
But many entrepreneurs still feel securing long-term credit is tougher than it should be. If there were more money in the system, with more consumer bank accounts, it could help alleviate the problem, say analysts.
Islamic lenders such as Banque Muamelat As Sahiha and Banque Islamique de Mauritanie have launched in Mauritania in the past few years. The country now has 15 banks and 186 branches, up from 90 in 2011.
But the industry has been tested by the low iron ore price. The IMF mission this year wrote that while there were no immediate problems “liquidity [in the banks] is declining and the sector remains vulnerable to shocks”.
The IMF urged the central bank to continue its policy of the past few years of improving the regulatory framework, which was relatively undeveloped during the period of a tough military government in the 1980s and 1990s.
European banks have been attracted to Mauritania in recent years, but have had limited success in getting a foothold. Société Générale and BNP Paribas both launched operations in the country in 2007. But BNP has since sold its stake in its Mauritanian operation to two Moroccan lenders, Attijariwafa Bank and Banque Centrale Populaire, which are turning their attention to Islamic finance.
ISLAMABAD: The government will guarantee Rs100 billion ($955 million) worth of Islamic bonds (sukuk) to fund what would become the country’s fourth largest hydropower plant, aiming to address power shortages that have hindered economic growth.
The deal would be one of largest infrastructure sukuk sold to date, helping expand a funding format that has largely been confined to handling mid-sized deals with shorter tenors.
The 10-year sukuk, to be privately placed by the Neelum Jhelum Hydropower Company (Private) Limited, was given a preliminary AAA rating by credit rating agency JCR-VIS with a stable outlook.
The rating will be finalised upon review of legal documents and the issuance of the government guarantee, which will cover the issuance amount and profit payments, JCR-VIS said in a statement.
Unlike conventional bonds, sukuk are investment certificates which follow religious principles that forbid interest payments, instead paying returns linked to an underlying asset.
The project’s total cost is estimated at Rs40bn, with around three quarters of that being funded through debt. The plant would generate 969 MW of power adding around 5 per cent to the country’s total installed power generation capacity, with the first generating unit expected to start operation in mid 2017.
Infrastructure sukuk have been slow to appear, partly because they often require the transfer of assets into special purpose vehicles, which can be problematic for political or legislative reasons when it comes to large state projects.
Future developments and innovations of an industry are driven by highly skilled and talented human capital and Islamic finance is no exception.
Its Sharia-compliant banking industry is particularly in dire need for such experts because the sector is growing faster than educational institutes can provide professionals.
Figures vary, but with the Islamic finance industry displaying robust growth — estimated to be maintained at 15-20 per cent a year — experts say emerging markets would require at least 50,000 Islamic finance professionals in the next few years to keep the sector moving.
Producing Islamic finance specialists presents challenges, though. Islamic banking, in principle, is of higher complexity than its conventional counterpart, and the expertise where Islamic finance talent is needed includes Sharia-compliant financial engineers and product developers who structure innovative financial solutions tailored for both Muslim and non-Muslim markets.
“It is important for talent to have knowledge combining finance, economics and Sharia principles, while being dynamic, innovative and creative enough to lead the industry forward,” says Riyaz Malik of Malaysia-based International Center for Education in Islamic Finance (INCEIF), one of the largest institutions catering to human capital needs of Sharia-compliant finance.
The centre sets standards for education in the sector and regularly welcomes delegations from educational institutions in the UAE.
In the UAE, the Dubai Islamic Economy Development Centre estimates that around 8,000 Islamic finance experts are needed. Dubai in particular urgently requires specialists with the city’s plans to foster an Islamic economy, enhance Sharia-compliant banking institutions, including setting up a Islamic export-import bank and establishing a halal finance regulatory and standardisation body, as well as an arbitration centre to resolve disputes in Islamic contracts.
To that end, the Bahrain Institute of Banking and Finance recently entered a joint initiative with the UAE-based International Islamic Centre for Reconciliation and Arbitration (IICRA) to launch a Certification in Islamic Arbitration programme.
“It is a first-of-its-kind Islamic finance qualification for legal professionals and a benefit to the Islamic finance industry,” IICRA Secretary-General Abdessattar Khouildi said at the signing ceremony in Dubai last month.
The initiative is among the few that recently contributed to improvement in Islamic finance education. While, globally, close to 500 institutions offer courses or degrees in Islamic finance as per the ICD Thomson Reuters Islamic Finance Development Indicator, most are in Malaysia, and an increasing number in the UK.
In the UAE there are currently nine universities offering Islamic finance-related degrees and over 30 training institutions offering a variety of Islamic finance courses, according to KFH Research.
The problem is that courses and university classes in different countries are not necessarily interchangeable because Sharia banking regulations differ.
“One big challenge for human capital development in Islamic finance is the absence of globally benchmarked standards for Islamic finance education and training,” says Amat Taap Manshor, CEO of Malaysia-based Finance Accreditation Agency (FAA), suggesting an international accreditation body specifically for Islamic finance courses.
The FAA aims to provide exactly that. Since its inception in Malaysia in 2013, where it ensures that Islamic finance training programmes meet international quality standards, the agency extended its services to Europe, as well as the Middle East and North Africa.
GCC countries have also established several initiatives to develop Islamic finance professionals across the region, notably the Saudi Arabia-based Islamic Development Bank and its affiliate, the Islamic Corporation for the Development of the Private Sector.
The latter developed the Islamic Finance Talent Development Programme as a means of addressing the shortfall in Islamic finance human capital in its member countries. Meanwhile, the Accounting and Auditing Organisation for Islamic Financial Institutions in Bahrain is another important regional body to offer training courses.
In the UAE, the Dubai Centre for Excellence in Islamic Banking and Finance was launched in 2013. It offers students masters and foundation certificates in Islamic banking and finance through Hamdan bin Mohammad Smart University, which recently also launched a PhD programme in Islamic finance.
Among the UAE banks that are proactively seeking academic collaborations to develop talent is Abu Dhabi Islamic Bank, which has joint programmes on Islamic finance with academic institutions such as Abu Dhabi University and American University in Dubai, as well as Malaysia’s INCEIF.
Muscat: Oman’s market watchdog Capital Market Authority (CMA) on Wednesday announced its new sukuk regulation, which includes stipulation on establishing a trustee structure and an LLC company as a special purpose vehicle for issuing sukuk.
The regulation, which is effective from Wednesday, also allows structure of the sukuk subject to the approval of respective Sharia Supervisory Board issuer and the choice of the board is left to the issuer.
The regulation made rating optional for the issuer and there is no restriction on the sukuk amount to be raised based on the company’s capital, said a CMA release.
The new sukuk regulation will provide clarity and transparency to the market players, while providing protection to investors in a sukuk transaction. In addition, it has been drafted to provide flexibilities and spur innovation for the market players.
“The issuance of this new sukuk regulation forms an integral part of the overall strategy of the CMA to enable the capital market to play its vital role as a fundraising platform for companies in the economic development of Oman, particularly in the fixed-income market, where sukuk forms an important element to further develop Oman’s Islamic capital market,” said Abdullah Salim Al Salmi, executive president of the CMA.
“In addition, the new sukuk regulation will form a key milestone in the evolution of the sukuk market in Oman and hopefully spur further Sukuk issuances particularly from the private sector players in order to meet their development and funding needs, while diversifying the financing base and risk away from the traditional banking sector,” he added.
“Further, sukuk issuances will also provide an essential liquidity management instrument and investment avenue for both Islamic and conventional financial institutions, investment funds and takaful/insurance operators in Oman. Hence, not only providing a wider investor base of both conventional and Sharia-compliant investors, but also attracting the required foreign investments into the country via the foreign investors. We are confident that this new regulation will have a positive impact on Oman’s capital market and the economy.”
The sukuk regulation is being issued subsequent to the amendments made to the Capital Market Law under Royal Decree No. 59/2014 on December 10, 2014, which provides the CMA the authority to regulate all sukuk issuances in Oman and any Special Purpose Vehicle or Company (SPV) being incorporated for the issuance of a sukuk, including the tax and fee exemption status provided for the SPV.
This sukuk regulation would complement the existing bond regulatory framework, which are currently in place in the Commercial Companies Law and Executive Regulation of the Capital Market Law.
All jurisdictions have specific and separate sukuk regulations, particularly in the Gulf Cooperation Council, with many just having a conventional bond regulatory framework with some additions made on the Sharia requirements.
In a short span of three years, besides the establishment of two Islamic banks and six Islamic windows, the Islamic financial market in Oman has seen the launch of the new Muscat Securities Market (MSM) Sharia Index with 30 Sharia-compliant listed companies on the MSM, three Sharia-compliant investment funds, the first Oman sovereign sukuk and also the first corporate sukuk, and the establishment of two takaful operators including the issuance of the new takaful law.
Istanbul - After Winning the backing of President Tayyip Erdogan, Turkey's new central bank governor must now convince investors that an Islamic banker without formal training in economics can tame inflation while resisting political pressure to cut rates.
Turkey's cabinet on Monday approved Murat Cetinkaya as the next central bank head, giving some initial relief to investors who had feared a battle between Erdogan, who equates high interest rates with treason, and Prime Minister Ahmet Davutoglu's more orthodox economic team.
Despite the initial relief in markets, the 40-year-old Cetinkaya remains something of an unknown quantity, lacking the experience of his predecessor, Erdem Basci, an engineer turned economics Ph.D. whose term as governor expires next week.
KUALA LUMPUR: Moody’s Investors Service has assigned a provisional (P)A3 rating to the US dollar-denominated trust certificates (sukuk) issued by Malaysia Sukuk Global Bhd.
In a statement on Monday, Moody’s said the rating is assigned to the sukuk as the sukuk certificate holders would effectively be exposed to the Government’s senior unsecured credit risk, and not be exposed to the risk of performance of the portfolio assets relating to the certificates.
It said the sukuk also would not have any preferential claim or recourse over the trust assets and the certificate holders could not sell or dispose of any trust assets except as expressly provided for under the transaction documents.
The sukuk certificate holders only have rights against the Government, ranking equally with other senior unsecured obligations as provided in the transaction documents, Moody’s said.
“Legal opinions have also confirmed legal, binding and enforceable obligations for the Government,” it added.
The (P)A3 rating is at the same level as the Government’s long-term local-currency and foreign-currency issuer ratings.
Moody’s said the provisional status of the rating would be removed upon completion of the sukuk issuance and its satisfactory review of the final terms and conditions and legal opinions.
Moody’s also noted that its sukuk rating did not express an opinion on the structure’s compliance with syariah law.