Islamic banks hope to attract Mauritania’s deposit-wary consumers

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.

(Financial Times / 15 April 2015)

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Faisal Islamic Bank of Egypt to focus on MSMEs in new lending policy

Faisal Islamic Bank of Egypt finalised a plan to increase the percentage of loans granted to micro, small and medium enterprises (MSMEs) to 20% of the bank’s total loans portfolio by the end of 2019, according to deputy general manager of local investment, Sabri El-Bendary.

Faisal Islamic Bank of Egypt informed the Banking Supervision Department at the Central Bank of Egypt (CBE) at the end of last month, in accordance with the CBE’s instructions issued in January 2016, according to El-Bendary.

In January, the CBE launched an initiative to finance SMEs, and obliged banks to provide a minimum of 20% of their total loans portfolio to this sector within four years. Moreover, the CBE mandated that banks must submit a comprehensive outline indicating how they will implement the CBE’s recommendation. The deadline for banks to inform the CBE’s Banking Supervision Department of their implementation plan was the end of February 2016.

Faisal Islamic Bank of Egypt provided approximately EGP 1bn to MSMEs at the close of December 2015, approximately 13% of its total EGP 7bn loan portfolio, according to El-Bendary.

The CBE has provided allowances for banks to correct their plans from the time of submission until next.

Following the CBE’s proscription, Faisal Islamic Bank of Egypt created a MSME department, began training a staff to specifically handle MSME business, and has launched a risk management department.

El-Bendary expects Faisal Bank to begin granting loans to MSMEs next July, in accordance with the new CBE initiative .

Faisal Islamic Bank of Egypt recently withdrew the EGP 1m from the CBE to finance the purchase of housing for the first five middle and low-income homebuyers who had been approved to be financed. This came as part of the real estate financing initiative launched by the CBE in February 2014.

Faisal Islamic Bank recently obtained approval from the Egyptian Financial Supervisory Authority to use Murabaha (non-interest bearing loans) contracts to finance real estate development, allowing Islamic banks to finance this sector in accordance with Islamic law.

Faisal Bank allocated EGP 200m for this purpose, an amount it may increase. The bank’s funding comes under the parameters of contract signed with the Mortgage Finance Fund.

(Daily News Egypt / 06 March 2016)

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Islamic banks to see a significant uptick from post-sanctions Iran

As the Iranian economy opens up for business, regional Islamic banks are likely to benefit most as the country’s banking system is governed by Sharia, according to Moody’s.

Entry into Iran could be easiest for Islamic banks given that Sharia governs the conduct of business and banking regulation in the country. Iran was the first country in the world to fully convert all banking activities to follow Sharia principles with the enactment of the Usury Free Banking Law in 1983. Currently Iranian banking system operates 100 percent according to Islamic banking principles, a unique feature compared to peers globally.

According to the Central Bank of Iran, the country’s banks and other financial institutions held 15,901 trillion Iranian Real ($558 billion) in total assets as of May 2015.

As a result of financial sanctions, the sector has limited links with the global financial system, relying only on domestic funding with limited interbank borrowing. Of the 29 banks operating in the country, three are commercial government-owned banks, five specialized government-owned banks, 19 are private-sector banks and two are special mandate banks.

“Given the sheer size of the banking system and the country’s financing needs, we expect a major boost to sukuk volumes,” said Khalid Howladar — senior credit officer at Moody’s. “However, Sharia harmonization across jurisdictions would likely remain difficult,” he said.

The country’s largest private-sector banks include Bank Saderat Iran, Tejarat Bank and Pasargad Bank, all of which are listed on the Tehran Stock Exchange. In addition, there are more than 6,000 so-called ‘Gharz-al-Hassan’ institutions catering specifically to microfinance, consumer and SME financing.

Its banking sector is the largest contributor to the global total of Islamic banking assets estimated to account for 45 percent of $1.2 trillion market. Some of the largest Islamic banks globally are based in Iran, with two of them — Bank Melli Iran and Mellat Bank — both estimated to have in excess of $65 billion in assets, just behind the world’s largest Islamic Bank Al Rajhi in Saudi Arabia at $87 billion.

(Albawaba Business / 13 September 2015)

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WIBC Leaderboard 2015: Leading Islamic banks represented in the global financial disclosure rankings

As per the rankings, Malaysian based Hong Leong Islamic Bank lead the global financial disclosure index rankings with a score of 80. Next, on the ranking charts is Al Baraka bank and Venture Capital bank, both based in Bahrain with a score of 69 and 68 respectively.

Middle East Global Advisors, the organisers of the WIBC for the past 22 years, utilises the Financial Disclosure Index as one of the sub-indicators of the WIBC Leaderboard, an industry benchmark that will form the basis of the WIBC Performance Awards 2015. The Ceremony for the Awards will be held at the Gala Dinner of the 22nd Annual World Islamic Banking Conference which is taking place on the 1st, 2nd and 3rd December at Gulf Hotel Bahrain.

The financial disclosure rating measures the extent to which customers and stakeholders are protected through disclosure of ownership and financial information. The index ranges from 0 to 100, with higher values indicating more disclosure.

First in the series of the WIBC Leaderboard performance indicators, the Financial Disclosure Index chart shows the bank’s name (horizontal axis) and Financial Disclosure Index score (vertical axis) of the top 15 Global Islamic banks ranked on the basis of financial disclosure score.

(CPI Financial / 09 September 2015)

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Kremlin moves to attract Islamic funds

Russia may amend its financial regulations to allow Islamic banking in abid to attract funds from Muslim countries, as its economy struggles with a recession and Western sanctions.

The move comes as economists, including those at the International Monetary Fund, say U.S. and European sanctions are having a significant negative impact on the Russian economy by blocking important Russian companies from accessing global financial markets.

Officials have created a task force charged with implementing Islamic banking in the country, including amending the country’s banking laws, said Dmitry Savelyev, deputy chairman of the State Duma Committee on Financial Markets and the leader of the task group, the TASS news agency reported.

Islamic law, known as Sharia, places restrictions on certain types of financial transactions, such as interest payments. Over the years, a sophisticated field of banking practices compliant with Sharia has arisen to facilitate financial activity among pious Muslims, including the issuance of Islamic bonds, known as “sukuk.”

The market for Islamic finance is expanding rapidly and should reach a total size of $2.6 trillion by 2017, according to a report by global consulting firm PricewaterhouseCoopers. Another estimate by the IMF said totalglobal Islamic assets would reach $3.4 trillion by the end of 2015.

Russia has a significant Muslim minority, estimated at about 15% of the population, which could make the practice attractive here.

Konstantin Baymukhashev, an attorney at UFS IC, said the changes in Russian legislation should help attract investment into the Russian economy from Arab countries.

Attracting Islamic assets

Rustam Minnikhanov, the president of Tatarstan, one of Russia’s predominantly Muslim regions, has been one of the most vocal proponents for bringing Islamic finance to Russia.

“The Muslim countries have not taken part in the attempts to isolate ourcountry on the international stage, and the latest developments in the world economy have shown that Islamic banks can withstand variousglobal crises and complement the global financial system,” Mr. Minnikhanov said in a speech in June at the KazanSummit Economic Forum.

Islamic finance will help Russian companies compensate for the lack of funding caused by the recent deterioration of relations between Russia and the West, he argued.

In July, Mr. Minnikhanov concluded a cooperation agreement with the president of Russia’s largest lender, state-owned retail banking giant Sberbank, involving the development of Islamic banking in Tatarstan.

Ahmed Mohammed Ali Al-Madani of the Islamic Development Bank, a multilateral Islamic lending organization based in Saudi Arabia, told RIR that Sharia-compliant bonds have also been issued by entities based in non-Muslim countries, including the United Kingdom, and that the worldwide amount of such assets has reached $120 billion.

“The republic of Tatarstan could be promoted as an Islamic finance hub within Russia,” Mr. Al-Madani said. Tatarstan’s largest bank, AK Bark, has already attracted some funds based on Islamic investment. Furthermore, in January 2015, local insurance operator Alliance began selling a specialized insurance product called“Halal Invest” that is compliant with Islamic norms.

“This kind of business is gaining momentum around the world, and by developing it in this country, we will diversify sources of funding and increase confidence in the banking system,” said Semyon Nemtsov, an analyst at Russ-Invest investment company.

However, analysts said Russia is unlikely to see a sudden surge of investment from Islamic countries.

“Islamic banking is first and foremost a religious and ideological concept. Its actual financial significance is secondary. This is why there are in fact a great deal of obstacles that hamper its implementation within Russia’s legal and financial system,” said Konstantin Korishchenko, deputy director of the Department of Capital Markets and Financial Engineering at the Russian Presidential Academy of National Economy and Public Administration.

According to Mr. Korishchenko, there are numerous factors that will significantly complicate the alignment of Islamic finance and standardized Western banking, including the facts that Islamic regulations require that assets be sorted according to their source and deny explicit interest payments or futures transactions.

Moreover, Russia is likely to have more difficulties introducing Islamic finance than do common law countries like the UK. The introduction of Islamic banking will require deep, fundamental changes to Russian law.

According to Mr. Baymukhashev, Islamic and Russian banking systems are radically different from each other. “Islamic banks do not provide their clients with loans in the classical sense, but rather sell actual products or act as partners (co-investors) in some kind of a project, thus bearing all the associated risks with the client,” Mr. Baymukhashev explains, adding that Islamic banking also precludes the financing of companies that produce or sell alcoholic drinks.

“The difference between those two financial systems is significant. Amending the law is only a part of the ground we will have to cover while implementing Islamic banking in Russia,” says Mr. Baymukhashev.

(Russia And India Report / 23 August 2015)

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Bearish economic climate to drag down Islamic banks’ profits, S&P warns

Low oil prices and slower economic growth will hit the earnings growth of Islamic banks in the Arabian Gulf this year and next, says Standard & Poor’s.

Earnings growth would fall to “mid-single digits” in 2015 and 2016, said the credit ratings agency yesterday, down from the sector’s average earnings growth of 12.7 per cent last year.

It said the value of collateral assets held by Islamic banks had been hit by government-related entities’ declining appetite for capital expenditure amid lower government spending, economic growth and the falling value of Dubai properties.

These trends would also bolster non-performing Islamic assets over the next few years, said S&P.

“With revenue from crude oil depressed, and likely to stay depressed, financing activity should go down across the board,” said Sanyalaksna Manibhandu, a senior analyst at the National Bank of Abu Dhabi.

“That doesn’t just apply to the real estate market, everything will go down because consumers and businesses have less demand for loans and less income.”

Islamic banks in the UAE are more exposed to real estate than their conventional counterparts. Sharia principles require all transactions to be based on the exchange of real assets, and real estate is commonly used as a form of collateral by customers of Islamic banks.

Property prices in Dubai’s Marina district have plummeted about 18 per cent over the past three months, according to Dubizzle. Rents in the same area have fallen about 7 per cent. Across Dubai, transactions plunged 69 per cent in the second quarter from the same period last year, according to data from Dubai Land Department.

That follows government moves to cool the housing market with an increased tax on house purchases, and limits to the size of a mortgage that bank customers can take out.

A slowdown in oil and gas projects is also likely to hamper credit growth at Islamic banks. S&P forecasts that the UAE’s Islamic lenders will experience an 8 per cent increase in credit this year and next, down from 9.5 per cent last year and 8.8 per cent in 2013.

A worsening macroeconomic picture underpins much of the gloom. The IMF now projects a 3 per cent GDP growth for the UAE this year, down from its forecast last December of 4.5 per cent growth. That is because government spending cuts will cut economic growth by 1 per cent each year to 2020, and the low oil price is affecting consumer demand.

One analyst said government deposits at banks were beginning to decrease, as the macroeconomic environment worsens.

“2016 will be more challenging because everyone’s factoring in a lower oil price for a longer period. That means that government spending, corporate spending and capex are likely to slow down,” said the analyst.

(The National Business / 12 August 2015)

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Standard Chartered’s Pakistan subsidiary gets over first hurdle in Islamic banks contest

The Pakistani subsidiary of Britain’s Standard Chartered was among the winners of the first round ofGlobal Finance’s debut contest for Islamic banks as part of the famous financial periodical’s annual competition for the title of the world’s best digital bank.

Besides Standard Chartered Pakistan, there were three first-round winners of what was a country-level competition for the World’s Best Digital Islamic Banks awards, which is part of the 2015 World’s BestDigital Banks contest.

They were Kuwait’s Boubyan, Kuveyt Turk, which is a Turkish subsidiary of the Kuwait Finance House bank, and Abu Dhabi’s Al Hilal.

Islamic banking is banking compliant with sharia, Islamic law.

Winners in the World’s Best Digital Banks competition were only selected from banks that had entered the contest, the New York-based magazine said in a statement.

It said the criteria were “strength of strategy for attracting and servicing digital customers, success in getting clients to use digital offerings, growth of digital customers, breadth of product offerings, evidence of tangible benefits gained from digital initiatives, and web/mobile site design and functionality”.

The overall regional and global winners, and global subcategory winners, will be named at Global Finance’s Best Digital Bank Awards dinner on October 27, which will follow the magazine’s Digital Bank Conference. Both events will take place at The Brewery, an event and dining venue in London’s City.

(Emerging Markets.Me / 03 August 2015)

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Investments help to lift Sharjah Islamic Bank profit

Sharjah Islamic Bank said its net profit for the first half increased 1.2 per cent, boosted in part by a jump in the value of its investments.

Net income rose to Dh204.6 million in the first six months of the year compared to Dh202.1m in the corresponding period last year.

The value of its investments jumped 42 per cent to reach Dh2.2 billion compared to Dh1.6bn in the same period last year.

The bank’s deposits rose 7 per cent to Dh27.8bn at the end of the second quarter compared to Dh26bn at the end of the second quarter last year.

The lender did not provide a breakdown of its profit for the second quarter.

Separately, Invest Bank, another Sharjah-based lender, said its second quarter net income decreased less than 1 per cent as gains in fees and commissions were weighed down by losses in the value of its investments.

Net income fell to Dh97.4m from Dh98.2m in the same period last year, the bank said. Net fees and commission income rose 33 per cent to Dh46.7m from Dh35.1m, but net income from investment securities at fair value fell to Dh6.9m from Dh23.5m in the corresponding period last year.

The report did not say which securities the bank invests in, but many lenders in the UAE have exposure to the local stock market which has been volatile amid the collapse in the price of oil.

The price of crude, to which the fortunes of the UAE economy is tied, has dropped 1.3 per cent this year. Last year the price of crude shaved 48 per cent of its value.

Like most UAE lenders, Invest Bank is making more money from fees and commissions. That is because amid a spate of low interest rates, the returns banks have been making from giving out loans have been dwindling, forcing them to offer customers more services from asset management to trade finance.

(The National Business / 20 July 2015)

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Abu Dhabi Islamic Bank Exploring Expansion Into SEA Asia, Africa

Abu Dhabi Islamic Bank PJSC, the United Arab Emirates’ second-biggest shariah-compliant lender, is considering entering markets in South East Asia and Africa to tap demand in countries with a large Muslim population.

The bank has “looked closely” at Indonesia and Malaysia as well as Algeria, Morocco and Jordan, Chief Executive Officer Tirad Mahmoud, told reporters late on Sunday. “We are actively visiting locations where we may be planting a flag” and may consider an acquisition next year as part of the plan, he said.

Banks in the U.A.E. are seeking to expand to diversify revenue and boost growth, which is restricted by the small size of their home market. ADIB, as the bank controlled by Abu Dhabi’s ruling family is known, is present in countries including Saudi Arabia, Qatar, Iraq, Egypt, Sudan and the U.K.

ADIB in 2014 acquired the retail banking business of Barclays Plc in the U.A.E. for 650 million dirhams ($177 million). The bank was also among lenders that bid to buy the retail banking assets of Citigroup Inc. in Egypt this year, losing out to Commercial International Bank Egypt SAE last month.

“We will be looking to do deals in 2016,” Mahmoud said. “If it’s a retail business, it’s going to be acquisitions, if it’s going to be a corporate business it will be greenfield.”

ADIB expects lending to grow by four percent to six percent this year, slower than expected industry loan growth in the “high single digit,” Mahmoud said. A slowdown in property transactions, competition and ample cash at banks is hurting growth, he said.

ADIB would like its return-on-equity to be at the higher end of 15 percent to 18 percent, the range for most U.A.E. banks, Mahmoud said. The bank has no plans to sell Islamic bonds or sukuk in the next three months and will evaluate its capital position every quarter depending on growth, he said.

(Bloomberg Business / 06 July 2015)

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Islamic banks’ finances surge 107 per cent in Oman

MUSCAT: Oman’s Islamic banks and window operations have shown a robust growth of 107 per cent in financing at OMR1,265.8 million for the first four months of 2015, from merely OMR611.1 million in the same period last year.

Such robust growth in Islamic finance shows that Sharia-compliant banks are able to establish themselves in the market and able to overcome their teething problems.

Further, two Islamic banks and window operations of conventional banks have launched innovative products to attract Omani customers, besides opening several branches in different parts of the country.

Total customer deposits held by Islamic institutions also shot up by 194.5 per cent to OMR847.3 million by the end of April 2015, from OMR287.7 million for the same period last year, according to the latest monthly bulletin released by the Central Bank of Oman.

There has been considerable increases in the number of branches and assets held by these entities. Islamic banks are opening up new segments and players and, thus, adding to the competitive environment, not only in terms of efficiencies and innovations, but by also providing consumers the benefit of choosing between both conventional and Islamic banking products.

In Oman, two Islamic banks – Bank Nizwa and Alizz Islamic Bank – along with the window operations of six conventional banks, have scores of branches across the country.

The total assets of Islamic banks and windows stood at OMR1,371 million at the end of December 2014, an increase of 68.2 per cent over the previous year.

Islamic banking entities provided financing of OMR1,049.5 million as of the end of 2014, compared to OMR434.3 million one year earlier. Together, Islamic banks and windows brought down their combined net losses to OMROMR4.4 million last year, from a net loss of OMR13.86 million in the previous year.

(Times Of Oman / 05 July 2015)

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Germany's first interest-free Islamic bank opens in Frankfurt

Germany has opened its first Islamic bank representing a full range of banking services in accordance with the laws of Sharia. The Frankfurt-based bank, called KT Bank AG, is owned by Kuveyt Turk, the largest Islamic banking institution in Turkey.

KT Bank has also opened its affiliates in Mannheim and Berlin and plans to reach Cologne, Hamburg and Munich in the near future.

The Sharia law Islamic banks prohibit bank from charging interest on loans, as well as to take part in investments, especially those considered haram, like gambling, weapons, prostitution and alcohol.

Thus, Islamic banks do not provide customers with a mortgage; instead they buy a house and resell it at a higher price that already includes interest. Given the fact that the bank pays the tax twice – with the purchase and sale of the house – deals become much more expensive compared to those from conventional banks.

Among 4.5 million Muslims residing in Germany, 21 percent are ready to use the services of an Islamic bank, said the head of Kuveyt Turk Bank Kemal Ozan referring to a poll carried out by his company. However, Kuveyt Turk noted that it focuses not only on the Muslims living in Germany, but expects to approach the entire German market.

In 2010, Kuveyt Turk opened a small office in Mannheim, Baden-Wuerttemberg. In 2012 it appealed to the German authorities for a full banking license.

Istanbul-based Kuveyt Turk is one of the largest banks in Turkey and is part of Kuwait Finance House, which is mostly owned by Kuwaiti investors.

Islamic banks have already proved quite successful in the markets of England and France. UK housesfive Islamic banks and the Islamic Bank of Britain reported a 55 percent increase in deposits of non-Muslims over 2014. The bank associates these figures with the Barclays’ rate rigging scandal.

The UK has also become the first non-Muslim country to issue sukuk – an Islamic bond equivalent similar to a participation certificate. This type of bond is also utilized in Hong Kong, Luxembourg and South Africa.

(RT / 01 July 2015)

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Turkey launches Ziraat Bank’s Islamic branch

Turkey’s largest state-owned bank, Ziraat Bank, has launched its first branch for Islamic finance in Istanbul.

“This is a historic step. Other state-owned banks should follow Ziraat’s move,” President Recep Tayyip Erdoğan said on May 29  during the opening ceremony in the Eminönü neighborhood, referring to Vakifbank and Halk Bank. 

The Banking Regulation and Supervision Agency (BDDK) allowed on Oct. 15, 2014 Ziraat and its sister companies - Ziraat Insurance, Ziraat Savings, Ziraat Investment and Ziraat Technology - to establish the new Islamic bank as main shareholders with a capital of $300 million.

Erdoğan underlined that Ziraat Bank should increase the share of Islamic banking in the country instead of taking a part of the current market.

Islamic banking comprises 5 percent of the total banking system, Erdoğan highlighted. The market share should increase to 20 percent by 2023, he said.

There are currently four islamic banks operating in Turkey: Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans. Ziraat is the fifth bank entering into that sector.

Erdoğan and the government are at odds with Bank Asya, which is linked to U.S.-based Islamic scholar Fethullah Gülen, who they blame with attempting to topple the gıovernment. 

The Turkish government aims to see the establishment of three Islamic banks in total as subsidiaries of the current state-run conventional banks by the end of 2015.

Saying that London is an important center for Islamic banking, Erdoğan stressed that Istanbul should take “its deserved place” in Islamic finance. The Turkish government aims to establish Istanbul as a regional financial center and then as a global financial hub by 2023.

Ali Babacan, Deputy Prime Minister, said this is an important start for Turkey, adding that the new bank aims to open 20 branches with a total of 400 employees at the end of this year.

“In 2018, the bank aims to have 170 branches with 2,200 personnel,” he said. President Erdogan said the bank should have 500 branches in 2023.

Babacan stressed that Islamic finance is rapidly growing around the globe. “In 2003, the market was at $200 billion, but it will reach $2 trillion by 2014,” Babacan said.

Islamic banking is based on the principle that money should not simply be lent at interest, but rather invested in a productive process which produces returns.

(Daily News / 30 May 2015)

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Indonesia: Government Plan Aims To Spur Consolidation Of Islamic Banks

JAKARTA, Indonesia – Indonesia’s efforts to develop its Islamic financial market will encourage smaller Islamic banks in the country to consolidate and create a larger domestic sukuk market, said Moody’s Investors Service.

The government is preparing a five-year plan to develop Islamic finance by encouraging the three large state-owned Islamic banks ‎ to merge. It says doing so will create more efficiency and is expected to spur smaller players to link up in order to compete with the new entity.

The government is also preparing regulations that are more conducive to Islamic or Shariah banking. The details are expected to be finalized later this year.

Among Sharia business tenets is a rule that prohibits banks from earning interest. Indonesia, which has the world’s largest Muslim population, currently has 12 banks that comply with Sharia principles.

But while growth in Islamic banking has been in excess of 30% a year since 2005, when it accounted for 1.4% of the banking system, the Islamic banking sector still only captures a 5% share, said Khalid Howladar, Moody’s Global Head of Islamic Finance.

By contrast, in Malaysia, where only 61% of the population is Muslim, Islamic banks garner a 20% market share.

“The Indonesian government’s Islamic roadmap should drive growth in the sector,” Mr. Howladar said in a press release.

Financial analysts say Islamic banking in Indonesia has found it hard to grow due to a lack of support from the government, an uncertain legal environment, and a lack of skilled manpower needed to develop innovative Islamic financial products.

The government is now encouraging the fully-fledged Shariah subsidiaries of the state-owned Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Mandiri to merge, creating a new unit with total assets of $8 billion. The government says it expects that the new institution will be able to quadruple Islamic banks’ market share to 20% by 2018.

The central bank and the agency that regulates and supervises the financial sector, known as OJK, are also encouraging conventional banks to spin off their 23 Shariah-compl‎iant units into fully-fledged Islamic banks.

(Indonesia Real Times / 27 May 2015)

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Qatar Islamic Bank to boost capital via bond sales

Qatar’s biggest Islamic bank plans to sell bonds to help boost core capital to comply with Basel III banking standards.

Qatar Islamic Bank (QIB) expects to issue a Tier 1 capital-boosting bond between this quarter and the third quarter, the bank’s chief financial officer said yesterday. The Doha-listed lender in February received shareholder approval to issue up to 5 billion Qatari riyals (Dh5.04bn) to increase its Tier 1 or core capital in line with Basel III banking standards.

The bond will have a perpetual tenor.

“We have taken approval for 5bn Qatari riyals worth of issuance but at this point when we look at our organic growth requirements and we need up to 2bn riyals only and for the other 3bn riyals we have taken approval from our shareholders in case there are growth opportunities we could tap into and not have to go through the entire approval process,” Gourang Hemani said on the sidelines of a conference in Dubai.

“It is going to be a private placement, most likely within Qatar. We are looking somewhere between the second quarter and third quarter.”

Banks in the Arabian Gulf are issuing capital-boosting bonds as part of raising new funds through capital tools to foster growth and comply with the new Basel III banking rules, which will be phased out by 2019.

The IMF expects Qatar’s economy to grow 7.1 per cent this year and 6.5 per cent next year.

“We see the [credit] market growing on average of 10-12 per cent [a year] over the next two to three years,” said Mr Hemani. “I don’t see why we shouldn’t participate in the growth story.”

QIB’s net profit rose 19 per cent to 400 million riyals in the first quarter of this year, compared to a year earlier. Total income grew 13 per cent in the first quarter to 950m riyals, compared with the year-earlier period.

(The National Business / 18 May 2015)

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

How Islamic banks can better serve the poor

What has been the contribution of Islamic banks to helping the poor and the needy? Almost nothing, and it’s about time to change that, according to Abdul Halim bin Ismail, the recipient of the Royal Award for Islamic Finance 2014.

These charity houses would collect donations from the private sector and utilize the funds to make sound investments, with profits supporting programs that improve livelihood, health and education services for disadvantaged populations.Bin Ismail is proposing a new way for the Islamic finance sector to do more for society. His idea calls on central banks, most notably in Muslim-majority nations, to issue licenses to Islamic banks that would allow them to establish subsidiaries — or Sadaqah houses — catering to the social welfare sector.

“It would be very humbling and very rewarding if this initiative is implemented in my lifetime,” bin Ismail said. “And I hope to encourage other like-minded individuals to push the envelope and introduce innovations in Islamic finance that will grow the industry and also use it to help others.”

In this exclusive interview, the renowned Islamic finance expert from Malaysia shared his aspirations for the proposal and the Islamic banking sector.

What makes your proposed solution unique, and what do you see as its biggest socio-economic benefits for Muslims?

I believe that the fortunate, including myself, have a responsibility to society, and my proposal is to introduce a charity scheme to be operated by Islamic banks that would make it easier for people to give to the needy and, in the process, raise the bar around the notion of “ethical banking,” which Islamic banking is strongly associated with.

By introducing banking products and services specifically for charity, it would create a radical new way of facilitating donations to society’s most needy that would also be ethical in its approach to charity.

Islamic banking has achieved tremendous growth in the past 30 years, particularly in the private and public sector, but it still needs to address the gap in social welfare by prioritizing charity to the poor as a key area of business.

There are over 1 billion Muslims in the world today and in Southeast Asia, the population is 250 million. Sadly, poverty is a common problem among many Muslim-majority nations. Over half a billion of the world’s poor, who earn below $2 per day, come from Indonesia, Bangladesh, Pakistan, Nigeria and Egypt.

These are often people who have tried very hard, but they have not had the good fortune to secure all that is required to make ends meet and sustain a certain quality of life. These are the people we can and should reach out to and help, by providing them the support and opportunity they need to rise from poverty.

I hope the Sadaqah houses will result in a sustainable charity system for the less fortunate, raising millions and effecting real, lasting change.

What is the level of interest in contributing to these efforts?

I believe my proposal for Sadaqah houses taps into the social sensibilities of Muslims around the world as it makes it easy for individuals to contribute to charity in perpetuity, with their donations channelled toward initiatives that will allow society to continue benefiting from in the long term.

Charity is one of the main tenets of Islam, which teaches its followers to give to the less fortunate and that they will be rewarded for their good deeds in the thereafter. Muslims will view these donations as an investment — an investment in their lives in the thereafter, as these contributions to charity in perpetuity continue to be counted as good deeds even after death.

However, it is crucial for the banks to develop an efficient and transparent transaction system. The demand is already there, but there is not yet a system in place where transaction is easy and non-time consuming for people who have the means and the desire to give to charity. Currently, these people don’t know who to reach out to, and the proposed Sadaqah house can facilitate that process.

What would also get more people to contribute is if banking groups can come up with highly differentiated or imaginative products under the Sadaqah house.

I do also see interest coming from the non-Muslim segment, the same way this segment has supported the growth of Islamic banking in the past 30 years. Though Islamic banking was initially aimed at addressing the banking requirements of the Muslim community, its current wider acceptance across the world has been encouraging. I believe the appeal is in the fact that their donations will be channelled towards initiatives which society can benefit from for the long term.

What role does Islamic financing play in financial inclusion?

Islamic finance is deeply connected with the real economy, offering ethical investments and funding options for businesses. The principles of Islamic finance also encourage inclusiveness and collaboration to create a fair and equitable financial system that is accessible to all.

Islamic finance has achieved such phenomenal growth in the past 30 years, supported by both Muslims and non-Muslims alike. It has expanded its presence to almost everywhere in the world. However, these growths are limited to the public and private sector so I see much potential for Islamic banking to achieve further growths.

Its development is incomplete when it comes to the social welfare sector. There are areas where more could be done to make Islamic banking sector more aligned to Islamic principles. In particular, Islamic banks need to address the gap in social welfare by prioritizing charity to the poor as a key area of business.

With my proposal, I hope to see banks integrate charity into their businesses, which would benefit families living below the breadline, the homeless and the long-term unemployed from all over the world.

(Devex / 07 May 2015)

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