Maldives spearheads growth of Islamic finance in South Asia

Many identify the Maldives as an idyllic tropical island holiday destination, but little is known about the fact that the country is making plenty of waves in developing its Islamic finance industry towards an investment hub for South Asia and centre for the halal industry in the region. 

As an Islamic country – the 1997 Constitution of the Maldives designates Islam as the official state religion – the Maldives was quick in building up an Islamic finance industry at a fast pace with the long-term objective to become an offshore finance centre for Shariah-compliant investments, mainly in order to diversify its industry away from dominating tourism. To that end, President Yameen Abdul Gayyoom’s government has developed a roadmap to expand Islamic financial services throughout the archipelago and base it on official regulations by the Maldives Monetary Authority. 

According to Aishath Muneeza, Deputy Minister in the Maldives Ministry of Finance and Treasury and chairwoman of the Shariah Advisory Committee of the Capital Market Development Authority Maldives, the share of Shariah-compliant financial assets were already at around 5% of total assets by the end of last year, and increasing.

“The growth of Islamic finance is happening at a very fast pace,” she said, adding that “I hope that we will be able to create an Islamic finance centre and act as the leader for Islamic finance and the halal industry in the South Asia region.”

The advent of Islamic finance in the Maldives dates back to 2003 when the country saw the establishment of its first Islamic finance institution, Amana Takaful Maldives, a fully-fledged Islamic insurance company. But due to little knowledge among the population about the characteristics of Islamic finance at that point of time, it took until 2011 for the first Islamic bank to open, Maldives Islamic Bank, with registered capital of $12mn and the assistance of Saudi-based Islamic Corp for the Development of the Private Sector, or ICD, a unit of the Islamic Development Bank.

But from then onwards, the growth of Islamic finance in the country happened at an impressive speed as awareness among the population about Shariah-compliant banking and investment grew and banks and other financial institutions widened their product offerings and services for both retail and corporate customers.

In 2012, the first Islamic window of a non-banking financial institution, HDFC Amna, a unit of the Maldivian housing finance Corp HDFC, was introduced to offer musharakah-based home financing instruments. 

Other financial institutions followed, namely Alia Investment, a private firm offering financing based on ijarah contracts. Later on, an Islamic finance-based Haj pilgrim fund, Maldives Haj Corp, was launched, and the largest bank and the largest insurer of the country, Bank of Maldives and Allied Insurance Maldives, respectively, opened Islamic finance windows.

To cope with demand for Islamic finance experts, the government asked the International Centre for Education in Islamic Finance, or INCEIF, to start offering Islamic finance courses in the Maldives to expand skills of conventional banking staff, and later on launched the Maldives Centre for Islamic Finance, designed to strengthen the Maldives’ footprint as a hub for Islamic finance and the halal industry in South Asia. Furthermore, halal certification was introduced in 2014 and a halal logo for aquaculture and fishery products created.

Last year, the Ministry of Economic Development started offering Islamic microfinancing through the Bank of Maldives, and earlier in 2016, the government launched Hazana Maldives, a special-purpose vehicle for the further development of Islamic finance. It also created a Shariah advisory board and laid the regulatory framework for sukuk investment, an important move in the economic diversification drive of the tourism-dependent island nation as Islamic bonds normally entice larger funds.

In a first focus, the Maldivian government plans to tap Islamic finance from India via debt sales and deposits. India has a huge Muslim population of 166mn, but so far no Islamic finance industry because of opposition from Hindu lawmakers. Incentives for Indian Muslims to use Islamic finance vehicles in the Maldives instead of Pakistan, Bangladesh or Sri Lanka are that the industry – although having a solid regulation framework – is not as much regulated as those of its bigger rivals in the region and thus is more likely to attract bigger players in the industry.


(Gulf Times / 16 August 2016)
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Malaysia's $25 bln pension offshoot set to boost Islamic finance

KUALA LUMPUR, Aug 12 (Reuters) - Malaysia's Islamic finance market is set for a much-needed boost when the country's largest pension fund launches a 100 billion ringgit ($24.9 billion) Islamic fund in January, offering a potential boon for asset managers.

The Employees Provident Fund's (EPF) sharia-compliant pension plan opened to acclaim this week with Malaysians lining outside its offices to invest.

The allocation represents about 15 percent of the EPF's total investments of 681.7 billion ringgit as of March.

Having a standalone pension fund of that size is a rarity in Islamic finance, even for majority-Muslim Malaysia, and it is expected to draw interest from foreign asset management firms with homegrown players also upbeat about the prospects.

"The benefits are multifold, to us and to the industry," said Mohamad Safri Shahul Hamid, CIMB Islamic senior managing director and deputy chief executive officer.

"As EPF allocates more into the sharia fund, surely they would want to progressively deploy more of their funds into sharia-compliant investments."

This would include the market for Islamic bonds, or sukuk, with demand gradually increasing as the EPF hires external firms to manage its bespoke funds, Safri said.

Ancillary businesses such as Islamic securities services would also benefit, as well as Islamic money markets, he said.

The EPF plans to allocate an additional 20 billion to 30 billion ringgit in 2018 to its Islamic fund, depending on the availability of sharia-compliant investments.

The new fund would attract foreign competitors into Malaysia but also widen the opportunities for incumbents, said Mohammad Hasif Murad, investment manager at Aberdeen Islamic Asset Management Sdn Bhd.

"This announcement might be a good value proposition for foreign players to jump on the bandwagon. We expect EPF to continually assess the response from the market and gradually increase the allocation for Islamic in the medium term."

Islamic fund managers screen their portfolios according to religious guidelines such as bans on alcohol and gambling, similar to socially responsible funds in Western countries.

Close to a fifth of total assets under management in Malaysia are now managed this way.

As of December, fund management companies in Malaysia held 132.4 billion ringgit worth of Islamic assets, up 19.7 percent from a year earlier, according to Securities Commission data.

While the benefits of a standalone Islamic retirement fund trickle down to fund managers, the outlook for Malaysia's sukuk market is also improving.

A healthy supply of sukuk is expected for the rest of 2016, on track to exceed the $34.5 billion of sukuk issued in Malaysia last year, CIMB's Safri said.

"We expect an active second half, in terms of total size of the corporate sukuk market, which will grow to $40 billion at the minimum," he said.

Growth in the fixed income market would outpace equities, as investors seek more stable returns, he added.

(Mail Online Wires / 12 August 2016)

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Kenya: Lenders want new law for Islamic financing

Experts want Central Bank of Kenya to set separate regulations for Islamic banks to avoid operation and auditing challenges.

Prof Abdullatif Essajee, currently the CEO and Islamic Finance lecturer at Vision Institute of Professionals, has said Islamic banking has key differences from conventional banks and the two cannot be effectively regulated using the same framework.

 Former Managing Director at First Community Bank (FCB) and now a director at the same bank, Essajee said that most of the time, the external auditors differ with Islamic banks on presentation of several transactions in financial books.

 “We have reporting standards for Islamic banks but because the regime does not allow that, we have not fully embraced the substance of Islamic banking. 

The Islamic standards cannot change the fundamentals of reporting but could have enhanced the quality of reporting,” said Essajee. For instance, Islamic banks, where charging interest is prohibited, avoid terminologies such as interest income and instead go for financing income yet in their books, they are forced to use the term. 

The matter has been complicated by absence of CBK Sharia Supervisory Board that is supposed to keep in check the activities of Islamic banks. Essajee pointed out countries like Malaysia, where each bank has its own Sharia-compliant board that is answerable to a similar board by central bank.

In Kenya, despite the first Islamic product coming to the market a decade ago, the audit practice leans to the practices of conventional banks. 

According to Essajee, most of the high non-performing loans displayed on the financial statements of banks offering more Sharia-based loans, are due to differences in the practice of Islamic products and conventional products. 

“For example, in conventional banking, when financing a construction, banks can demand for payment even before construction is up. That cannot happen in Islamic banks yet when auditors come, they say ‘You issued a facility at this time and it is now almost 90 days and there is no payment so we need to downgrade it,” he explained. 

During his helm at FCB, he added, not so many auditors who came for the auditing process could succeed in borrowing from both conventional and Islamic practices. Under Islamic banking law, most lending is directed to a specific project and is premised on utmost good faith.

 Therefore, where the borrower delays paying yet he invested in a project he or she pre-agreed with the bank and is yet to be paid, Islamic banking laws cannot move to penalise the borrower.

 “It is not a matter of being soft, it is being ethical. If I (Islamic bank) gave you money to build road and the payer is another person and you haven’t been paid, how do I come to touch your property yet we need to work together to get paid?”

 he asked. This may shed light on the increased gross non-performing loans (NPLs) in some lenders that have embraced Islamic products. Half-year results released by NBK, which is one of the lenders with Islamic products, show that gross NPLs moved from Sh16.9 billion to Sh27.3 billion in just three months.

(Standard Digital / 12 August 2016)

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Islamic finance ideal for agricultural, micro and rural financing

LAHORE, Aug. 10 (MNA) – Islamic Finance provides an ideal mechanism to facilitate agricultural, irrigation, livestock, micro and rural financing products to boost the green economy.

Muhammad Zubair Mughal, the Chief Executive Officer, Al-Huda Center of Islamic Banking and Economics (CIBE) addressed the international conference Best Practices in Rural and Agricultural Finance jointly organized by African Rural and Agricultural Credit Association (AFRACA) in partnership with the Rwanda Development Bank (BRD), the Ministry of Agriculture, and IFAD in Kigali, the capital of Rwanda last week and was attended more than 300 delegates of 40 countries: “It not only provides a sustainable solution but creates the positive economic impact in lives of the farmers and rural communities,” said Mr. Mughal.

Mughal stated that the impact of Islamic financial products was much higher than any other financial products due to its uniqueness of asset-based financing and other features, features which is averse to diversion of cash fund for other purposes; “Islamic financial  products can be utilized in many fields for the development of agricultural, rural and micro financing in buying of seed, fertilizer, harvesting and planting equipment, agricultural  inputs, tractor, pesticides, farming goods, solar tube-wells, etc., while Salam is ideal product for agricultural financing, through which a farmer can fulfill all the financial needs for whole crop circle, e.g. liquidity, seed, pesticide, fertilizer, harvesting, irrigation, and market linkages,” said he.

“Istisna can be used for small manufacturing business, dairy or agricultural production, construction of warehouses and cold storages, rural entrepreneur development, while Ijara is good for leasing of tractors, agricultural equipment, threshers, tube wells, small production unit lease, sugarcane planter, rice planter, harvesting vehicles, etc. Meanwhile, farmer can utilize musharaka, mudarabaand diminishing musharaka for rural housing, forest development, agricultural inputs, farming, sprinkler/drip/solar pumps, tube wells, microenterprise and SME setup, Agricultural Joint venture projects, Dairy and livestock development, etc.,” he detailed.

“The Islamic finance has specialized financial solutions for each segment of rural poverty, e.g. for extreme poor; zakat, sadqa, and fitr are available as grant-based financial product, for poor or upper lower class.  

“Irrigation financing is a big challenge for the development of agriculture, and we can observe that only few banks and financial institutions have specialized products to cater the financial needs for  irrigation financing;  but we can understand that Islamic finance again as a step forward to address this issue,” he told the conference.

he concluded that Islamic Financial products were ideal for financial inclusion for those segments of society who are averse to interest-based financial products due to religious reasons; “we have to promote Islamic financial products as system, which can be benefited by Muslim and non-Muslim equally but for Muslim,  there is an extra benefit that it is according to their religious believes but for Non-Muslims, it is an ideal solution of Banking, Finance and Business for prosperity and development,” he added.

Al-Huda Center of Islamic Banking and Islamic Economics (CIBE) is a well-recognized name in Islamic banking and finance industry for research, advisory and capacity building over 11 years. The prime goal has always been to adhere to the commitments and provide state-of-the-art advisory consultancy and educational services through various well-recognized modes vis-à-vis Islamic financial product development, sharia advisory, trainings workshops, and Islamic microfinance and takaful consultancies, etc.

(Mehr News Agency / 10 August 2016)

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Why Southeast Asia Is the Undisputed King of Islamic Finance

The annual World Islamic Economic Forum is always intended to be a global discussion. Nonetheless, this year's forum, which ended on Thursday in Jakarta, highlighted one region in particular as a heavyweight in the global Islamic economy: Southeast Asia. That 63 percent of the forum's 4,200 participants from 73 countries were Indonesian, and 24 percent Malaysian, was not just a function of geographic proximity and ease of travel. Even when it is hosted elsewhere, the forum reinforces the countries' dominance in the burgeoning world of Islamic finance.

The global Islamic economy is an amorphous concept comprising all manner of trade and financial services permitted by Islamic law, such as sukuk, Islamic bonds that avoid interest. In a sense, the Islamic economy consists of any transaction in which money is exchanged in accordance with Sharia principles, and the rules are never quite set in stone. According to simple directives laid out in Islamic verses and discussed over the centuries, Islamic economic law is constantly evolving. In addition, the varying interpretations of Islamic law have produced differing ideas of what constitutes Islamic fashion, food, travel, goods and finance from country to country. The Islamic economy is rife with competition to establish an accepted standard, for instance with a globally accepted halal certification label.

As interest in the sector grows among Muslim countries and their populations, the global Islamic economy is proving to be quite lucrative. In particular, Islamic finance is gaining traction worldwide, offering financial products and services comparable to those available in conventional markets but tailored to Islamic tenets. Rather than integrating with the global financial system, Islamic finance complements it, providing an extra tranche of financial services activity that appeals to Muslims. Estimated at $2 trillion — just 1 to 2 percent of the global financial system — Islamic finance is also much smaller than its conventional counterpart. But it is growing quickly.

Malaysia is the sector's undisputed leader. The country has crafted a dual banking system in which its conventional financial sector runs alongside an Islamic one, and it is responsible for 52 percent of the global Islamic bonds that are outstanding today. Malaysia is also the only country with a healthy domestic Islamic bond market denominated in a local currency. Beyond bonds, roughly 75 percent of the securities listed on Bursa Malaysia, Kuala Lumpur's stock exchange, are Sharia-compliant.

Several factors have contributed to the country's success in Islamic finance, but none more so than the support of its government. In the 1980s, then-Prime Minister Mahathir Mohamad oversaw the formalization of the sector, which he envisioned as a way to bring ethnic Malays into the formal economy then dominated by ethnic Chinese. In the years since, Kuala Lumpur has established a strong, centralized regulatory structure under its central bank, setting it apart from countries trying to catch up to Malaysia, including those in the Gulf Cooperation Council (GCC), which have less centralized banking systems. This has enabled Malaysia's Islamic finance sector to stay innovative and to defy other countries' attempts to surpass it, even as lower oil prices and an overall economic slowdown in Asia have hampered it in the past few years.

Then there is Indonesia, the world's most populous Muslim country, the Islamic world's largest economy, and the host of this year's World Islamic Economic Forum. Indonesia is a burgeoning force in the world of Islamic finance. At the forum, the country unveiled plans — including a banking agreement with Malaysia and a memorandum of understanding with Bursa Malaysia to jointly develop their Islamic capital markets — to further cultivate its Islamic financial sector. Though Jakarta hopes to develop its own Islamic finance industry, it is no surprise that it is taking cues from Malaysia. At the same time, Malaysia is eager to expand its presence in Indonesia, given Jakarta's potential.

Outside Southeast Asia, Islamic finance has taken off in the GCC, as well as in conventional finance capitals such as London, Singapore and Hong Kong, where more and more banks offer Islamic financial products. As part of its effort to increase its share of the global Islamic economy, the GCC began holding its own global summit several years ago. Still, the numbers don't lie. Southeast Asia is well ahead when it comes to Islamic finance, a truth that this year's World Islamic Economic Forum only reaffirmed.

(Stratfor / 05 August 2016)

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China Turns To Islamic Finance To Drive Economic Initiative

In 2013, Chinese President Xi Jinping unveiled the Silk Road Economic Belt and the 21st-century Maritime Silk Road initiative now known as One Belt One Road, (OBOR) in order to actively develop connectivity and economic cooperation with countries mainly between China and Eurasia. The initiative aims to build a community of shared interests, destiny and responsibility with mutual political trust, economic integration and cultural inclusiveness. Initiating investment and developing economic trade communications with Islamic countries is one of important components of the OBOR strategy and this is detailed in the "Vision and Actions on jointly building the Silk Road Economic Belt and 21st-century Maritime Silk Road" published by the government on 28th March, 2015 ("Vision and Actions").

Compared to traditional financial products, Islamic finance has developed significantly due to its high flexibility of business, low risk, low debt requirements and the need to use real estate as collateral. In 2014, Sharia compliant financial institutions represented approximately 1% of total world assets, at around US$2 trillion. The latest study shows that, by 2020, the value of the global Islamic financial market will rise to US$3.25 trillion.

Financial integration is one of the key areas of cooperation set out in the Vision and Actions. The Chinese government emphasises that financial integration is a crucial element in the construction of the OBOR and has decided to speed up the incorporation and operation of the Silk Road fund. Proposals to strengthen the practical cooperation of China-ASEAN Interbank Association and to carry out multilateral financial cooperation in the form of syndicated loans and bank credit has also been completed. Qualified Chinese financial institutions and companies are encouraged to issue bonds in both Renminbi and foreign currencies outside China, and use the funds raised to invest in countries along the OBOR.

As background to the strategic execution of the OBOR, State Owned and private enterprises in China are also trying to make use of Islamic finance, as against traditional finance, to serve their own overseas development. Chinese banks are strengthening their cooperation with Muslim countries, and are busy developing their overseas business and outbound investment. Islamic finance is rapidly becoming an established channel for China to enlarge its overseas economic influence.

Issuing Islamic securities is an important mechanism for Chinese enterprises to raise funds and expand in Muslim countries. Although Islamic finance does not offer interest, there are still opportunities to ensure financial benefits and remuneration primarily through issuing Islamic securities (Sukuk). Investors who purchase such securities would not obtain interest as an income; however, they could be given remuneration in terms of investment gains.

It has been reported that a High Speed Rail project in China is considering using Islamic securities to raise a fund for almost 30 billion Chinese yuan (US$4.7billion). If successful, this would be one of the largest Islamic securities fund ever raised. 

In addition, Hainan Airlines Group is planning to raise US$150 million for ship purchasing, and this could be the first such deal to be approved by the Islamic finance authorities. Hainan is also planning to raise offshore Islamic securities. Some large banks in China have been raising their influence in the Gulf countries indeed, three of these banks issued traditional securities on NASDAQ Dubai, while others are in the planning stages. 

Country Garden, the Chinese mainland real estate agents announced their intention in October 2015 to issue Islamic medium-term notes with a nominal value of MYR1.5 billion (US$340million) through their wholly-owned subsidiary in Malaysia. This is the first case of the Chinese real estate sector raising funds offshore through Islamic finance mechanisms.

Apart from issuing Islamic securities, local Chinese government authorities and enterprises who need to raise funds will do so in Islamic countries with substantial oil capital, fundamental infrastructure and energy projects such as coal, chemicals, wind power and solar generation. These are in compliance with the investment preference of the Islamic finance system on projects with long term, low risk, steady income and the "Go Abroad" strategy of Islamic countries as part of their financial globalization. This has highlighted efforts through the promotion of local development of China to absorb foreign investment and maintain local stability.

However, we must also note that due to the characteristic of Islamic finance, and how it differs from traditional finance, there are numerous difficulties and challenges Chinese enterprises would have to face when using this structure. Unfamiliarity with the Islamic finance process is the prime issue for Chinese enterprises compared with traditional finance. Islamic finance, as a special financing system, has to follow the teachings of Islam, and as such certain areas are forbidden including the payment of interest, speculation, investments in alcohol and gambling, and both risk and interest share. In order to fully use Islamic finance, Chinese enterprises must learn the fundamental system and regulation that govern this financing mechanism and understand it business practices

Constraints on current policies and systems also have an impact on China's development of Islamic finance. In 2009, the Bank of Ningxia was approved as a trial centre for Islamic banking business, and is the first bank in China to do so. There was a further suggestion that Ningxia could be developed as a pilot region of financial cooperation between China and the Gulf states, becoming the Islamic finance centre of China, like Dubai in the Gulf and Kuala Lumpur in Malaysia, however, this has not yet been finalised by the government. One likely reason for this is the unique nature of Islamic finance which makes it very difficult to merge into the current financing management system in China. Under the OBOR, China is considering using Islamic finance as a breakthrough to initiate extensive business communication and project cooperation in many areas with Middle East and South East Asian countries. It is considering opening outbound Islamic financing institutions, and participating in the investment in these regions or developing enterprises which operate through Islamic financing products. This is not only safer for funds and better for comprehensive income, but also improves the long term benefits.

Following the initiation of the OBOR it is now developing the practical stages, and there will be a significant increase in the use of Islamic financing tools and investment in major construction projects. If the Chinese government could enhance its cooperation with Muslim countries through Islamic finance, that it will significantly progress the development of the Silk Road project.

About Mr Du, Baozhong

Mr. Du is a senior legal counsel in the Beijing office of Yingke Law Firm. After graduating from China University of Political Science and Law with a master degree, he had been working for the Department of Treaty and Law in China's Ministry of Commerce for 13 years, and was engaged in legal consulting work in a large-scaled state-owned enterprise. Mr. Du, as the delegation member of Chinese Government, has participated in the working group meetings held by the Commission on International Trade of the United Nations several times, and addressed as the Chinese representative on meetings of OECD and APEC. He is specialized in foreign direct investment, outbound investment, international trade, private equity, venture capital, mergers and acquisitions, foreign-related arbitration, labor law, etc.

About Ms. Li, Xuan

Ms. Li is working as a trainee in the International Legal Affairs Department of the Beijing office of Yingke Law Firm, and also acts as the coordinator of Yingke Brussels Office. After graduating from Dalian Maritime University with a bachelor degree in Maritime Law, and a LLM Maritime Law degree at Bentham House, Faculty of Laws, University College London. She used to work in-house in an international shipping company, responsible for marine insurance and admiralty laws. While working in the UK, she served as the assistant analyst for hedge funds at Thomson Reuters London. Her specialisations are maritime law, international trade law and international arbitration.

(Zawya / 09 June 2016)

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Islamic finance prepares rules for awqaf and zakat charitable funds

Islamic finance institutions will present a set of guidelines for Muslim charitable institutions later this month, as the industry looks to develop a more efficient use of their assets, an Indonesian central bank official told Reuters.

Islamic endowments (awqaf) and alms-giving (zakat) have been in existence for centuries and hold billions of dollars in assets around the globe, but they are often criticised for being poorly managed.

A set of guiding core principles for zakat has now been completed and will be unveiled at an upcoming United Nations summit in Istanbul, said Indonesian central bank deputy governor Perry Warjiyo.

Similar rules for awqaf are also in development, Warjiyo said on the sidelines of the annual meeting of the Islamic Development Bank Group being held in Jakarta.

Indonesia’s central bank is hosting some of the technical discussions for developing the core principles, as it hopes to strengthen the auditing function and professional management of such entities.

Reliable statistics are scarce, but awqaf are believed to hold large portfolios of real estate, commercial enterprises, cash, equities and other assets, with some estimates as high as $1 trillion worth of assets held globally.

In Indonesia alone, registered land from awqaf stands at 1,400 square kilometres with an estimated market value of around $60 billion, according to the country’s Ministry of Finance.

(Reuters / 16 May 2016)

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Gold may fuel Islamic finance

With the Islamic finance industry set to be worth US$3 trillion in the next decade, gold could be a catalyst for its growth with the setting of new regulations that will allow Islamic investors for access to gold-based products for the first time.

The market development body, the World Gold Council (WGC), which is based in London and the Islamic standard setting body, the Accounting and Auditing Organisation for Islamic Financial Institutions (Aaoifi), based in Bahrain, are working on a draft of the standard that would galvanise the $2n Islamic finance industry.

“Consumers more or less have been confined to investing in bars and coins because that’s the only area where the rules are clear," says Natalie Dempster, the WGC’s managing director of central banks and public policy.

“It [the standard] could fundamentally change the way in which Islamic countries access gold."

A final draft is expected to be published in the next few months, to be followed by a period of public consultation, says Ms Dempster. The standard could be issued in the fourth quarter, prompting its adoption and unleashing hundreds of tonnes of extra demand for gold, she adds.

“This is the most significant game-changer for the gold market since the Washington Agreement in 1999, whereby 15 central banks pledged to coordinate and limit their activities," says Matthew Keen, the founder of the Dubai consultancy Evidens. “The price of gold has quadrupled since that agreement was formed."

The Washington agreement limited the amount of gold that several major European central banks can collectively sell in any one year, helping to stabilise the gold market. The price of gold in 1999 was $290.25 an ounce. Now it is trading above $1,266 an ounce.

“I would expect billions of USD equivalent to be made available towards the global gold markets, keeping in mind that gold as an asset class has, anyway, a strong presence in a near zero interest rate environment," says Gerhard Schubert, the founder of Dubai’s Schubert Commodities Consultancy.

The fact that the Aaoifi is working on the standard will speed up its adoption worldwide because the regulations issued by the body are widely accepted, analysts say.

The divisive view of gold as a commodity or currency will also be clarified in the standard, which will take into consideration both aspects of the metal.

“Gold can only be bought and sold on spot/cash basis, there can be no deferred payment for any purchase of gold, and there are specific rules on the use of gold as a commodity or currency," says Megat Hizaini Hassan, the head of Islamic Finance Practice at Lee Hishammuddin Allen & Gledhill in Kuala Lumpur.

“Thus having a Sharia standard on gold would help contracting parties to know what specifically they can or cannot do with gold."

Gold has had a lustrous start to the year, rising by about 20 per cent year to date on the back of the low interest rate environment and flight of investments to a haven asset.

Gold’s rally this year follows three consecutive years of losses, its longest rout in more than 30 years.

Demand for gold rose in the fourth quarter of last year 4 per cent to 1,117.7 tonnes, led by central bank purchases, the WGC says. Central banks are buying the bullion to diversify their asset portfolios amid wobbly global economic growth and plunging commodity prices.

For the full year, gold demand fell 14 tonnes to 4,212.2 tonnes, a level on par with demand for 2010, the WGC adds.

Although Islamic investors have missed the gold train, the new standard will help them channel their money into products such ad gold exchange traded funds (ETFs), gold accumulation accounts and gold savings accounts, analysts and officials say.

ETFs are funds that are listed on an exchange, tracking indices and behaving like stocks.

“[The standard] makes it easier and more cost efficient for banks and financial institutions to issue gold products," says Ms Dempster.

“At the moment, if you want to invest in Sharia-compliant assets, the universe of assets that you have to choose from is actually quite small."

Currently most Islamic investors funnel their money into equities, property and sukuk or Islamic bonds.

“Although the price of gold can prove to be volatile in the short term, it’s always maintained its value over the long term," says Samina Akram, the managing director of London’s Samak Ethical Finance. “Investing in physical gold or mining stocks, I feel, will prove popular for investors in coming years. I would even argue further, values of currencies are declining as fiat money has no intrinsic value, and physical gold could be one of possible remedies to the global financial crises."

Gold could be used as an underlying asset for a number of products, including sukuk.

Islamic banks could also use gold as a high-quality liquid asset (hqlas) to comply with more stringent Basel III banking standards that are being phased in. High-quality liquid assets can be composed of cash, or assets that can be converted into cash at little or no loss of value in private markets to meet a bank’s liquidity needs.

“Since the financial crisis, banks have been required to set aside pockets of so-called high-quality liquid assets to protect them against another systemic liquidity crisis," says Ms Dempster.

“Basel gave national supervisors in Islamic jurisdictions the right to define high-quality liquid assets themselves. And I think gold will fit very well there. It is an extremely liquid market."

But the adoption of the standard could face a few bumps.

Banks should be willing to adopt the standard and dedicate time and effort to create products that investors want.

“The Islamic community will only be able to take advantage of this if the banks, both Islamic banks and regular banks, are prepared to deliver products to their clients, Islamic or otherwise," says Mr Keen.

“If the banks don’t do anything to take advantage of this, then nothing changes.

(The National Business / 15 May 2016)

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Australian budget opens door to Islamic finance

May 9 The Australian government has proposed removing tax barriers to asset-backed financing arrangements as part of its federal budget, a move likely aimed at facilitating interest-free transactions used in Islamic finance.

Islamic finance is gradually catching on in Australia, with National Australia Bank Ltd helping fund a A$160 million ($114 million) Brisbane property purchase in February, after its maiden Islamic finance deal in August.

Under its 2016/17 spending plan, the government would seek to ensure the tax treatment of asset backed financing is similar to other arrangements which are based on interest bearing loans.

The measure would become effective only in 2018 and apply to transactions supported by assets, including deferred payment arrangements and hire purchase arrangements.

The two most common Islamic finance contracts are murabaha, where a client buys a commodity on a deferred-payment basis, and ijara, an installment-based leasing arrangement.

Islamic finance follows religious principles such as bans on interest and gambling but the asset-based nature of such contracts means they can incur double or triple tax charges because they require multiple transfers of titles of underlying assets.

The proposal comes almost five years after the Australian Tax Office first presented a paper on Islamic finance to the government for its review. 

(Reuters / 09 May 2016)

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3rd African Islamic Finance Summit" - Tanzania

Mr. Muhammad Zubair Mughal, Chief Executive Officer, AlHuda CIBE, while talking to the media said that increasing trend of Islamic finance events in Africa is evidence, that Africa is moving forward in this industry. This is quite a wrong conception that Islamic finance is only taking its roots in North African countries e.g. Tunisia, Morocco, and Algeria, etc., rather its potential exists in the whole of African continent. Islamic banking and finance is growing rapidly in Nigeria, Libya, South Africa, Kenya, and Morocco, while Egypt, Sudan, Tunisia have already taken good initiatives in the mentioned field. He said that there is also a rising trend of Islamic banking and finance in Senegal, Mauritania, Uganda, Tanzania, Ghana and Ethiopia.

Analyzing Islamic financial industry of Africa, he added that, according to estimates the total volume of Islamic finance in Africa is 78 Billion USD, which is less than 5% share of global Islamic finance industry. Out of that, Islamic Banking has 81% share, Islamic Fund 7 %, Sukuk 5 %, Takaful 6%, and Islamic microfinance has only 1% share in the African Islamic Finance Industry. While more than 96 Islamic banks, 29 Islamic Funds, 31 Islamic Microfinance Institutions and more than 41 Takaful companies are working over there.

He also emphasized that the increasing trend of poverty in Africa can be reduced by utilizing Islamic Microfinance methodology and the multilateral organizations e.g. African Development Bank, Islamic Development Bank, GIZ, IFAD and World Bank. These can play a pivotal role in this direction to achieve the goal of poverty alleviation and social development. Current economic conditions have further highlighted the need for Islamic banking and finance and African region would definitely take advantage of it.

It is to be noted that AlHuda Centre of Islamic Banking and Economics (CIBE) is an international organization, working for the promotion of Islamic banking and finance. It is working for education, training, advisory and consultancy with having footprints in UAE, South Africa, Uganda, Pakistan, Tanzania, Somali land, and Nigeria.

(Zawya / 03 May 2016)

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

INCEIF takes islamic finance education to a global level

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. 

(The Worldfolio / 25 April 2016)

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

Islamic finance in Oman poised for solid growth: Bank Nizwa CEO

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.

(Times Of Oman / 19 April 2016)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance skills in high demand

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.

Urgent requirement

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.

Regional initiatives

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.

(Special Report / 15 April 2016)

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