Kenyan government to institute Islamic Finance

Kenya is preparing to allow the use of Islamic finance, and is even preparing to launch its first sukuk. 

Kenya is a Christian-majority country. Until now, when Muslims do business in Kenya, they have not been able to apply Islamic Sharia law as most Kenyan institutions are not accustomed to it. 

But the government is now taking steps to bridge this gap. 

Speaking at the International Islamic Finance conference of Africa, the first ever summit of its kind ever to be held on African soil, in Nairobi on Monday, Treasury Secretary Henry Rotich said that the Kenyan government would adopt legislation that would make Islamic finance possible – previous financial legislation did not permit the use of the alternate forms of banking and insurance which is based on the principle of not collecting interest. 

“Kenya will be issuing Sharia-compliant sukuk bonds in the coming year, and these will be used to finance infrastructure, Kenya will also join the organization of Islamic countries and adjust rules and regulations in the financial sector to support shari’a-compliant products in the market,” Rotich said. 

The conference is intended to aid developing countries in Africa to tap into the $2.1 trillion market of Islamic finance, using it as a catalyst of economic growth. Kenya can learn about the application of Islamic finance by taking advice from Muslim countries, Rotich said.

Policymakers’ business leaders and government officials spent Monday and Tuesday speaking on how Islamic financial principles can help combat poverty and alleviate poverty in Africa. 

Developing countries were given a chance to learn from actors in more mature markets on how to use Islamic microfinance as a tool for promoting economic growth for low-income workers and business owners. 

It is hoped that the development of Islamic Finance in Africa will help woo investors from Muslim countries to come and invest in developing countries in the region, conference participants said.

(Anadolu Agency / 28 January 2016)

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

Jury Out on Jokowi Committee as Indonesia Islamic Finance Stalls

The jury is out on whether a group helmed by President Joko Widodo can revive stalled growth in Indonesia’s Islamic finance industry.

The head of the world’s biggest Muslim population is chairing a new committee tasked with bringing fragmented regulations under one roof and taking action to spur the market, according to the Cabinet Secretariat. Shariah-compliant banking assets increased less than 1 percent in the first 10 months of 2015, compared with 6.8 percent overall.

“The fact that it’s being led by Jokowi demonstrates the seriousness,” said Raj Mohamad, managing director at Singapore-based consultancy Five Pillars Pte. “But as they say, the devil is in the details, as we have yet to see the blueprint.”

Indonesia’s ambition to rival Malaysia as a regional hub for finance catering to Muslims is being hindered by a lack of progress in scrapping double taxation on sukuk and a delay in creating an Islamic megabank. The success of the new oversight body may test Jokowi’s credentials after he faced opposition in parliament over reforms since taking office in 2014.

Financial products governed by religious tenets currently have to comply with the regulations of Bank Indonesia, the Financial Services Authority and the National Ulema Council of Shariah scholars. The heads of those institutions will also be part of the new committee, which will be charged with encouraging development, improving endowment mechanisms and raising public awareness, National Planning Minister Sofyan Djalil told reporters in Jakarta on Jan. 5.

Indonesia’s Islamic finance industry is slowing even after a five-year blueprint was unveiled in 2014 to strengthen the capital base of banks, improve the management of funds used for the annual pilgrimage to Mecca and increase the number of experts.

Assets rose 0.4 percent through October to 273 trillion rupiah ($19.7 billion), after increasing 12 percent in 2014, 24 percent in 2013 and 34 percent in 2012, data from the Financial Services Regulator show. That’s a far cry from Malaysia’s 672.6 billion ringgit ($152 billion).

“Islamic finance in Indonesia is still far short of the potential,” minister Djalil said. “What we need is synergy among the participants.”

The Southeast Asian nation is also susceptible to a global slowdown just like any other regional economy, making it more imperative that Indonesia boosts its Shariah-compliant industry. More than five years after the central bank asked the tax department to look into the issue of double taxation on sukuk, companies interested in selling such debt are still in limbo and offerings have to be considered on a case-by-case basis.

A plan to create an Islamic megabank by merging the Shariah units of PT Bank Mandiri, PT Bank Negara Indonesia, PT Bank Rakyat Indonesia and PT Bank Tabungan Negara has also been pushed back, with various officials touting different target dates to achieve it.

Financial Services Authority Director Dhani Gunawan Idat said last month that such an entity will be established in 2017.

“There are many areas that the committee will need to consider and attempt to address,” said Suhaimi Zainul-Abidin, a founding member of the Gulf Asia Shari’ah Compliant Investments Association in Singapore. “With President Jokowi chairing the committee and given the membership composition, it should be much easier for the different stakeholders to reach a consensus of what needs to be done, and to thereafter activate the appropriate levers to make things happen.

(Bloomberg Business / 12 January 2016) 

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

Tax Season Canada poised to be hub of Islamic finance

Islamic banking is being touted as the next big thing for Canada's financial services sector, but experts say it's up to the new federal government to demonstrate that it welcomes Shariah-compliant investments.

"It's absolutely fundamental that the Canadian government signal that, in fact, it is open to Islamic finance," says Walid Hejazi, an associate professor at the University of Toronto's Rotman School of Management.

They could do so either by issuing sukuk – Islamic bonds – or by making a public statement, Hejazi says, noting that the previous government was on record as saying it welcomed such investments.

"If there is a risk that a change in government is going to change its view on that kind of investment, that spooks investors," he said. "So the government must be clear to say . . . 'We're open to Islamic finance, we welcome it,"' Islamic finance – which bans interest payments and investments in gambling, pornography, weapons, alcohol, tobacco and pork – is a fast-growing niche in the financial services industry.

A study released earlier this month by the Toronto Financial Services Alliance and Thomson Reuters says Canada has a number of advantages – including a growing Muslim population, a stable banking system and a favourable regulatory environment – that make it well positioned to become a North American hub for Islamic banking.

"Islamic finance is one of the fastest growing kinds of finance in the world," said Janet Ecker, president and CEO of the TFSA.

"There are opportunities here which should be explored. Toronto is an international financial centre. ... This is another way to keep our reputation and our capabilities growing."

Hejazi says the Islamic ban on interest doesn't mean consumers borrow money for free – it just requires loans to be structured more like partnerships between financial institutions and borrowers.

"The whole idea or the concept is to avoid people becoming buried in debt because, back in the days of the Prophet, ... when people weren't able to pay their debt they were enslaved or exploited," he said.

In the case of commercial loans, that means both the bank and the borrower must have a vested interest in the success of the underlying business.

"If the underlying business does well, they share in the profit," Hejazi says. "If it does poorly, they share in the losses. That's the fundamental difference; this idea of shared risks, and nobody can have a guaranteed return."

The report commissioned by TFSA says there are a number of opportunities for Islamic banking to expand in Canada. Some Muslim Canadians desire Shariah-compliant solutions to their personal finance needs, including mortgages, insurance and investment opportunities.

The Canadian government could also issue sukuk, or Islamic bonds, which are structured in such a way that they generate returns without the use of interest payments, to help fund its planned infrastructure spending, according to the report.

"The new federal government has an opportunity to demonstrate Canada's openness to foreign investment from markets in the Middle East and Southeast Asia by encouraging investments either in a conventional or an Islamic-compliant manner," said Jeffrey Graham, partner and the head of the financial services regulatory group at Borden Ladner Gervais LLP.

"Other governments who have been seeking to do the same thing have issued sovereign sukuks, or Islamic bonds, to help promote their financial sectors."

However, a spokesman for the Department of Finance appeared to throw cold water that idea, saying in an email that "there continues to be very strong demand for regular 'plain vanilla' Government of Canada securities."

Meanwhile, one of the obstacles to the growth of Islamic finance in Canada is the lack of what Hejazi calls "human capital."

"We need to have people across the country that understand Islamic finance, which we don't have," said Hejazi, who teaches a course onIslamic finance, now in its fifth year, at Rotman. Last year the course was full, with 40 students on the waiting list.

"I get so many e-mails from people downtown, from the banks, the accounting firms, consulting firms, saying 'Could I sit in on your class?"' says Hejazi. "There's a lot of interest. People really want to learn more."

(CBC.News Business / 23 December 2015)

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