Islamic finance set to grow in Russia with new hub in Tatarstan

Islamic finance is drawing more interest in Russia as the country struggles economically and requires fundamentally new approaches to attract investments from abroad.

The sector is just beginning to grow in Russia and its perspectives were discussed during the recent Gaidar’s Forum in Moscow, one of the major annual international conferences on economy in Russia.

Implementation of Islamic finance in Russia started through the so-called pilot projects in the predominantly Muslim republic of Tatarstan. It has both existing infrastructure and client base. It also has lots to offer to the potential partners from the Arabian Gulf countries.

Russia has a native Muslim population of roughly 20 million. As an example, the UK might be a role model for Russia in Islamic finance as it has issued Islamic bonds.

 

Islamic banking could account for up to 5 per cent of the entire financial market in Russia and it could follow the path of  neighbouring Kazakhstan that is expecting Islamic finance to constitute 10 per cent of its financial market by 2020.

Russia initially planned to introduce Islamic banking during the crisis of 2008, as it started looking for additional resources. However, because of unfamiliarity with Islamic banking rules the Russian bank VTB did not succeed in issuing a planned sukuk in 2009. The current crisis dictates new realities for Russia that excludes possibilities of a swift recovery similar to the post-2008 period and the Russian approach is more structural this time.

Tatarstan has nurtured close relations with the Gulf region for years. Delegations from many Gulf countries regularly participate in the international forum of Islamic business and finances ‘Kazan Summit’ in the capital of Tatarstan, Kazan. Several countries have already bankrolled $760 million into ‘Kazan Smart City’, the Tatarstan’s ambitious business hub, as a part of Tatarstan Gulf Investment Company.

In fact, the first Islamic bank in Russia is Ak Bars Bank from Tatarstan. It has already attracted a number of investments from the Gulf, including $60 million in 2011 and $100 million in 2013.  The republic has took its first steps into the world of Islamic finance by issuing a sukuk in 2015 for financing a major business centre in the capital of Kazan.

The pioneering status was highlighted by an agreement in April 2015 between a Malaysian-Russia consortium and the Tatarstan government during the Kazan Sukuk Conference. The agreement serves as a roadmap for opening of an Islamic bank or Islamic banking windows in the republic.

The establishment of Kazan as a centre of Islamic finance in Russia will help expand the sector to other Muslim and non-Muslim regions of the country.

If the Tatarstan’s plan succeeds more regions will follow. Dagestan is the second region in Russia that is undertaking serious efforts to implement Islamic banking and attract investors. It is lagging behind Tatarstan and does not have a clear roadmap yet. However, the local government is already working on implementing similar framework and will largely follow the Tatarstan’s path.

The major problem facing Islamic finance in Russia currently is related to the legal structure. There is neither an existing law nor a draft law regulating the sector in the country. There are also no legal framework that allow state regulators to support banks that have zero-interest operations. Thus, any investment in the field will be of a long-term nature as it will take time to bring in new  legislation.

Russian public as well as authorities are also largely sceptical about Islamic finance. Based on the National Agency for Financial Studies (NAFS) survey only 12 percent of Russian Muslims are ready to use the Islamic banking services. Such results are largely due to the low level of knowledge about the Islamic banking.

In many ways Islamic finance could be implemented in Russia with the bottom-up approach. Local banks could open so-called ‘Islamic banking windrows’ within their branches and see how it works in comparison to standard banking procedures. This approach would gradually reflect advantages of Islamic finance and raise its appeal among the general public.

It might become a feasible alternative to the traditional banking and appeal to both Muslim and non-Muslim Russians with its underlying principle to invest in tangible products. Furthermore, tolerance to customers who have missed payments under Sharia law will attract popularity in a country with infamous brutal practices of collection agencies.

(Al-bawaba Business / 28 February 2016)

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

Malaysia: Khazanah issues US$750mil inaugural USD-denominated sukuk

KUALA LUMPUR: Khazanah Nasional Bhd has priced a 5-year US$750mil (RM3.15bil) US dollar-denominated straight sukuk to refinance Penerbangan Malaysia Bhd guaranteed notes at a significantly lower cost.

The USD sukuk will be issued via a Malaysian-incorporated special purpose vehicle Danga Capital Bhd. This will be Khazanah’s first USD straight sukuk issuance and Danga’s third foreign currency issuance under its Multicurrency Islamic Securities Programme. 

The USD sukuk was priced at a profit rate of 3.035% following an accelerated bookbuilding process which attracted demand of 1.5x booksize from financial institutions, asset management companies, statutory bodies and insurance companies. 

“Despite challenging market conditions, Khazanah achieved its target issue size at a spread of 178 basis points above prevailing 5-year US Treasuries. Proceeds of the USD Sukuk will be utilised to refinance Penerbangan Malaysia Bhd’s US$1bil guaranteed notes maturing this year,” it said in a statement on Wednesday. 

Khazanah said it was able to refinance these notes, which are guaranteed by the Government of Malaysia at a savings of 2.59% per annum against the current 5.625% coupon while simultaneously reducing the Malaysian Government’s contingent liability.

The USD Sukuk is structured under the Shariah principle of Wakalah1 utilising Syariah-compliant shares and Syariah-compliant commodities. It will be listed on Bursa Malaysia Securities Bhd (under an Exempt Regime), Labuan International Financial Exchange Inc (LFX) and the Singapore Exchange Securities Trading Limited (SGX-ST). 

“The USD sukuk issuance demonstrates Khazanah’s ability to access the debt capital markets and achieve a competitive spread against a backdrop of market volatility. This issuance is another milestone for Khazanah, which has consistently closed innovative and landmark transactions,” said Khazanah Chief Financial Officer Datul Mohd Izani Ghani.

CIMB and DBS Bank Ltd are the Joint Global Coordinators while CIMB, DBS Bank Ltd. and Standard Chartered Bank are Joint Bookrunner for this USD Sukuk offering. CIMB Islamic acted as the sole Syariah Adviser for the transaction.


(The Star Online / 24 February 2016)
---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Open the door to Islamic home finance

Discussions have been rife in the past whether Islamic home financing is “better” than a conventional mortgage to buy property. As with many financial matters, things depend on a variety of factors, in this case of course on market liquidity, financial soundness of the lending bank, availability of suitable financial products, types of property eligible for a mortgage, tax environment and legal framework, as well as pricing and fees.

 

Underlying assets

At first, the fundamental differences between Islamic and conventional mortgage need to be understood. The basic difference is the absence of interest in Islamic finance as it does not levy interest in any forms, but involves risk and profit sharing over an asset, in this case a property. The ethical component, apart from the absence or riba (interest) is that Islamic lenders do not solely look at earning profits but also grant loans “for the interest and growth of the community”, while conventional banks simply follow the principle of, as the saying goes, “money breeds money and loan breeds interest.” 

 

This means that, while borrowed money from an Islamic lender is always backed by an underlying asset, a conventional loan is just an entry on a conventional bank’s credit column, so-called “fiat money” created basically out of nothing and in case of a mortgage “secured” by the borrowers property which he already owns on the basis of the freshly created money. Islamic banks do actually buy the property and lease it out to their client until it is paid off with pre-agreed leasing rates that include a profit for the bank. 

 

Given that conventional lenders are driven to make money on compound interest, they often are not financially incentivised to prevent home owners from a foreclosure when they default on their payments. Islamic banks, in turn, are much less likely to pursue foreclosures as they own the property anyway, but tend to seek joint solutions with the borrower.

 

Overall, Islamic home loans can come in different types. "There are multiple options on offer including musharaka- [partnership] and ijara- [leasing] based contracts,” Ashar Nazim, Partner at Bahrain-based Global Islamic Banking Center of consultancy EY, tells GN Focus.

 

“Islamic banks are at par with their conventional counterparts in terms of products, flexibility and penetration. Since mortgages have a tangible underlying asset, they work well with Islamic financing,” he adds.

 

Profit rates

It is, however, often noticed that the profit rate for Islamic property finance is very similar to prevailing market interest rates for conventional finance. Some critics have noted that this would only show that Islamic mortgages are just “rebuilt” after conventional home loans and replace “interest” with “profit”. This is not correct at all as explained above, but the similar rates are inevitable in a competitive economy where money can flow between the two sectors. 

 

Having a lower price for “Islamic money” than the price for “conventional money” would distort the financial system and create arbitrage opportunities that would damage the entire finance sector. In fact, the Islamic finance industry has been working on developing products that can challenge conventional home loans not in terms of profit and interest rates, but in terms of product characteristics and flexibility – and, of course, the ethical aspect.

 

“Today, Islamic home finance solutions offer a level of product sophistication and depth of options which are on par with conventional financing options. Islamic finance covers the entire life cycle of customer needs, including purchase of ready or under-construction property, own construction of property, balance transfer from an existing facility with another bank, refinancing a fully-owned property, debt consolidation under property finance facilities, commercial property financing, financing home improvement and renovations, as well as land financing,” Gil Azevedo, Head of Consumer Banking at Emirates Islamic, explains to GN Focus.

 

In comparison to conventional options, Shariah-compliant home financing offers more protection to customers. For example, in the event the property is damaged due to a fire, providers of Islamic home financing are obliged to freeze the customer’s monthly installments since the property is deemed unusable and the customer ceases to benefit from the asset. Also, in conventional finance, in the event of a delay in paying installments, the customer is charged interest on unpaid interest. This is not permissible in Islamic financing,” he adds.

 

No uncertainty

Pawan Dhawan, Head of Home Finance at Noor Bank, points out another advantage. “There is no uncertainty [in Islamic finance contracts] and hence clients have peace of mind. For example, the profit amount or rate is clearly spelt out in the agreements and does not change unless both parties agree to amend it. This has proven rather advantageous especially for clients who had taken under-construction finance from the bank and even though the deliveries of the units were delayed, the profit amounts that they had to pay after years of delay were in line with what was agreed at the time of contract signing,” he says.

 

Noor Bank mostly enters Ijara agreements which involves sale of the usufruct, or benefit, of a ready or off-plan property but not the asset itself. This enables the client to use the asset without paying large amounts of money, does not transfer the ownershipof the asset but only transfers the right to benefits such as achieving rental income from it. At the end of the contract, ownership gets transferred. 

 

Other options such as “buyouts” and “equity release” are Shariah-compliant variant forms of this. However, it is important to note that Islamic finance also has some challenges. In practice, the arrangement of Islamic home finance is usually more expensive than conventional property finance, which has to do with Islamic banks normally lacking the economies of scale that allow conventional banks to reduce their non-interest costs such as staff and technology expenses. Islamic finance also typically includes more transactions than conventional finance to achieve the same goal, and has other costs such as expenses for the Shariah supervisory board.

 

EY’s Ashar Nazim also points out that “changes to an [Islamic] mortgage contract are usually expensive for customers compared to conventional banking. For example, if a customer wants to pay off the full mortgage during the financing period, or wants to get it refinanced through another bank, there are unnecessary penalties and costs involved. This is unsustainable and will need to change.”

 

Challenges

Another issue is the paperwork involved which Nazim likens to a “cumbersome mortgage sign-up experience”. He cites the result of EY’s recent survey of UAE banking customers saying that “the process is still highly manual, inefficient and poor in terms of customer experience”, which, as a result, also drives up the intermediation cost for banks, which is then passed on to customers.

 

“Banks need to redesign the mortgage service or else they may lose market share to nimble, digitally-enabled financial institutions,” Nazim argues, adding that banks are also “failing to serve a big segment which consist of young and first-time home buyers. The UAE can learn from the UK in this space, where they have introduced the ‘Help to Buy’ scheme for first-time home buyers through a government incentive scheme”.

 

Strong growth

But this seems not to hold back customers in the UAE from applying for Islamic mortgages in growing numbers. For Emirates Islamic’s Azevedo, “Islamic home financing solutions in the UAE has witnessed a strong year-on-year growth". 

 

"A key indicator of this shift in customer interest is the growing market share of Islamic home financing providers of the total home financing market in 2015, which – as per our estimation – stands at approximately 50 per cent, and the penetration of Islamic home financing solutions is far in excess of the overall Islamic banking penetration in the UAE which currently stands at 21.4 per cent,” he says.

 

For Noor Bank’s Dhawan, growth potential is immense. “Shariah-compliant assets in the UAE crossed the $100 billion milestone for the first time in 2015. Islamic banking is growing at more than twice the rate as compared to conventional and is on track to achieve $263 billion of Shariah-compliant assets by 2019. This shows that the UAE expects a growth of more than 200 per cent in Islamic banking assets,” he notes.

(Personal Finance / 24 February 2016)

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

Khazanah bookbuilds for US dollar 5-year sukuk

HONG KONG: Malaysian sovereign wealth fund Khazanah Nasional Berhad is marketing five-year US dollar sukuk in the US Treasuries plus 190bp area.

CIMB, DBS and Standard Chartered are lead managers for the deal that is expected to price today.

The Reg S senior unsecured bonds will list in Malaysia and Singapore under English and Malaysian law.

The sukuk will be issued through Danga Capital Berhad, a special purpose vehicle, with the SWF acting as obligor. They will be issued off a multi-currency Islamic securities issuance programme.

(The Star Online / 23 February 2016)

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

Banks: Tunisian Zitouna invests on Islamic finance

TUNIS, FEBRUARY 23 - Tunisian Islamic bank Zitouna was the first to succeed in placing on the national financial market in December 2015 the Islamic bonds sukuks for a value of 22.5 million euros. The result exceeded expectations - set at 20 million euros - the management of Zitouna said Monday at a Forum on Islamic finance held at Kram in Tunis.

The Forum was attended by several protagonists of the Tunisian economic and financial scenario like central bank governor, Chedly Ayari, the president of Cmf, Salah Sayel and former finance minister, Jalloul Ayed. Zitouna bank, on behalf of its president Ezzedine Khoja, has announced it is launching a new business plan in 2016-2020 with the objective of becoming the bank of reference in Tunisia and a leading Islamic bank in Africa. The emission of Islamic financial bonds, like the sovereign Sukuks, will consolidate the bank's funds and support growth, according to the central bank governor who stressed the need to support Zitouna's new project.

Ayari added that the sovereign sukuks are current practice also in a number of countries that are not Arab nor Muslim, like the UK and Ivory Coast, announcing that a new bill on banks will be examined soon in a government meeting. The new code on banks will include 207 articles with a chapter entirely dedicated to Islamic banks.

(Ansa Med / 23 February 2016)

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

JIC chief promotes Kingdom's Islamic banking, halal food

AMMAN — Jordan Investment Commission (JIC) President Thabet Al Wir highlighted the Jordanian experiments in Islamic banking and halal food as a gate for cooperation with Germany to support the Kingdom's investment and economic environment. 

At a meeting with a German delegation representing the Federation of German Industries (BDI) and the German Federal Ministry of Finance, Wir described the Jordanian expertise in Islamic banking as  top at the regional and international levels.

The Kingdom is also among the first countries to accredit the Islamic banking system, he said.

The presence of many Muslim communities in Germany provides a chance for the country to benefit from the Islamic system in its banking sector, the JIC president added.

There are many Jordanian industries that follow modern, developed methods in preparing and manufacturing halal foods, he continued, noting that several relevant businesses are present in European and East Asian countries as well as the US. 

Wir and the delegates also discussed ways to enhance economic relations between Jordan and Germany according to the outcomes of the London conference, stressing the significance of applying these results to support the Jordanian economy through providing jobs for Jordanians in the first place and then for Syrians. 

The German delegates, who are currently visiting the Kingdom to discuss ways to apply the outcomes of the London conference, had a firsthand look at investment opportunities in the King Hussein Development Zone in Mafraq.

The delegates stressed the importance of enhancing economic cooperation with the Kingdom, and providing investment opportunities to both countries' businesspeople, especially in the banking and food sectors, highlighting the need to support small- and medium-sized sectors to generate new jobs.

(The Jordan Times / 22 February 2016)

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

Nigeria sets up committee to advise on first sovereign sukuk

In a bid to explore alternative funding sources, Nigeria's government has set up a committee to advise on issuing the country's first sovereign sukuk.

Africa's biggest economy plans to borrow as much as $5 billion to help fund a budget deficit worsened by the slump in oil prices that has slashed revenues and weakened the naira.

Any time from the first week of March, the committee is expected to submit its report

Securities and Exchange Commission (SEC) spokesman Nalf Abdusalam said the new committee, including officials from the Debt Management Office (DMO), would advise on the amount to be raised, the timing and jurisdiction of the issue. "Any time from the first week of March, the committee is expected to submit its report," he said.

Islamic banking assets globally now exceed $1 trillion and could reach $4 trillion by 2020, analysts say.

Nigeria has asked the African Development Bank for a $1 billion budget support loan and has held "explanatory talks" with the World Bank.

Issuance of a sovereign sukuk is part of a strategic plan developed by the DMO three years ago to develop alternative sources of funding and to establish a benchmark curve for corporates to follow.

In 2013, Nigeria's Osun State issued 10 billion naira ($62 million) of sukuk, but no other sukuk transactions have followed.

Nigeria is home to the largest Muslim population in sub-Saharan Africa, with about half of its 160 million people members of the Islamic faith. It is also home to one of Africa's fastest growing consumer and corporate banking sectors.

In January, the DMO and SEC agreed to work on a debut issuance of sovereign Islamic bonds (sukuk) before the end of the year.

(The African Report / 19 February 2016)

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

American students schooled on Islamic Finance

Emirates Islamic Bank recently invited university students from the US for a cross-cultural learning programme to get familiarise with the world of Islamic Finance.

The visit were part of a study programme organised by Miami University of Ohio and the University of Minnesota's Carlson School of Management, and was designed to increase the student's understanding of conducting business in the GCC.

During the visit, the bank provided the students an introduction into the basic principles of Islamic Finance, and offered insights on the increasing importance of Islamic Finance on the global financial system, as well as the bank's role in the UAE economy.

"Over the years, Emirates Islamic Bank has taken the lead in raising awareness on Islamic banking, as a core component of our commitment to widen Islamic banking's reach," said Emirates Islamic Bank CEO Jamal Bin Ghalaita.

"Continuing with our outreach campaign, we are delighted to welcome this group of students from USA and we look forward to interacting with more students from the UAE, GCC and across the world."

"Islamic banking assumes increasing relevance today as global financial markets experience challenges making it important for students, future policy makers and business owners to be educated on the principles of Islamic Finance," he added.

(Khaleej Times / 19 February 2016)

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

Fintech set to become game changer for Islamic finance

Fintech, or financial technology with its potential to disrupt traditional structures in the financial industry, is seen as an important factor to change the perception and dissemination of Islamic finance in the Muslim, as well as in the non-Muslim world. 

Gulf Times in the past repeatedly reported about new ventures that combine Shariah-compliant financing principles with new technologies, such as web-based Islamic crowdfunding and peer-to-peer lending, as well as other forms of IT-based alternative financing including special variants such as Bitcoin-based, Shariah-complaint micro-lending.

The latest conferences on Islamic finance, for example the World Islamic Banking Conference 2015 held last December in Manama, Bahrain; the International Forum on Islamic Finance 2016 held last week in Karthoum, Sudan; the Euromoney Islamic Finance and Investment Conference, also held last week in London, as well as the upcoming Islamic Banking & Investment Asia/Middle East Congress 2016 to be held in Singapore in early April all are focusing on new financial technologies featuring “out-of-the-box, forward-looking visionaries” from beyond the traditional confines of the Islamic finance industry.

Globally and financial industry-wide, fintech ventures tripled from around $4bn in capital investment in 2013 to $12.2bn in 2014 and more than $15bn in 2015. While most of the start-ups and inventions so far have been focusing on the conventional finance industry, its influence on the Islamic finance sector cannot be overseen.

Among the most prominent disruptive ventures in Islamic finance is Dubai-based Beehive, a platform that aims to provide low-cost alternative financing to small and medium enterprises (SMEs) and is the first peer-to-peer lending platform in the world to have received independent Shariah certification.

“Our platform applies the innovative technology of crowdfunding to eliminate cost and complexity of traditional finance,” says Beehive’s CEO Craig Moore, adding that “businesses can bypass traditional intermediaries and receive financing directly from the crowd.

Beehive uses commodity murabaha contracts to purchase and resell traded commodity on the Dubai Multi Commodities Center at specified prices as underlying assets for Shariah-compliant loans and has so far provided more than $4bn in financing for SMEs in the UAE, where the SME sector is an important pillar of the economy, but traditionally underserved by banks, including Islamic banks. This market potential and the underlying technology made Beehive a remarkable success.

Another Islamic fintech company, Blossom Finance in Indonesia, provides a Shariah-compliant platform which is Bitcoin-based and provides easy-access alternative financing to SMEs in a country where the vast majority of people in still unbanked. Much like Beehive, the company aims to build “mutually beneficial partnerships” of growth between investors and SEMs by applying the innovative technology of crowd funding to eliminate costs and complexity of banks. 

Other examples for innovative Shariah-compliant finance ventures are Kapital Boost, a Singapore-based Islamic crowdfunding platform, and Club Ethis, a Islamic finance-based real estate crowdfunding venture, also from Singapore.

With such innovative ventures, it becomes clear that disruption in finance will happen first in the areas with the highest fees and largest complexities, and this is where traditional Islamic banks have their weaknesses. This also means that Islamic banks will very likely have to face dropping margins in key areas like credit intermediation unless they open themselves to fintech innovation.

“Automation, customer empowerment, easily accessible advisory services, streamlined infrastructure and data analysis, namely from social data, will all be common important themes affecting Islamic finance operations in the future,” says Akash Anand, head of Middle East, Africa & Asia Pacific operations at UK-based fintech company Profile Software.

(Gulf Times / 17 February 2016)

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

Malaysia: Takaful Industry Expected To Continue Its Growth, Supported By High Awareness

KUALA LUMPUR: The takaful industry is expected to continue its growth, further supported by higher awareness among Malaysians despite the current economic conditions and high cost of living.

Prudential BSN Takaful Bhd (PruBSN) Chief Executive Officer Aman Chowla said due to the higher awareness, the number of Malaysian subscribers has increased from time to time.

PruBSN currently has over 14,000 agents serving more than 700,00 customers.

"As long as the trend is in right direction, we are cautiously optimistic for the overall industry this year, but we need to adapt to the changes if there are any," he told a press conference after the launch of PruBSN Platinum here today.

(Malaysia Digest.Com / 16 February 2015)

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

Islamic finance continues to grow in the British Virgin Islands

The British Virgin Islands remains the most popular international financial centre for incorporating companies due to its tax neutrality, political stability and flexible legal system based on English common law. It is a ready-made platform for the needs of the Islamic finance market. BVI companies are commonly used as holding companies for cross-border investments into many developing markets, including those where Islamic financing is increasingly popular. BVI companies are also used by Islamic high-net-worth individuals and families as holding companies for assets in developed markets.

Further, as the Islamic finance market grows and matures, international financial centres such as the British Virgin Islands are being used to facilitate the structuring of Islamic finance products and transactions such as sukuk and musharakah and the incorporation of investment funds and corporate structures.

Review of 2015

In June 2015 the British Virgin Islands introduced two new fund products under the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015. Incubator funds and approved fund are lightly regulated funds aimed at start-up managers and those managing funds for smaller groups of closely connected investors. There is a maximum of 20 investors per fund and a cap on investments of $20 million for incubator funds or $100 million for approved funds. These should prove attractive to Islamic asset managers or advisers of high-net-worth individuals and families from the traditional Islamic finance regions of the Middle East and Southeast Asia.

Last year saw the continued growth of Islamic finance products in the British Virgin Islands. Building on the British Virgin Islands' close connection with the UK real estate market, BVI companies held by Islamic high-net-worth individuals or families are increasingly being used in Islamic financing (mainlymurabahah) of UK real estate by European private banks. There certainly seems to be increased awareness of Islamic financing in the British Virgin Islands and several private banks have revised their private banking documents to become Sharia compliant.

Islamic financing is increasingly seen as going hand in hand with conventional financing. An example of this joint financing with a BVI element was the Abu Dhabi Islamic Bank's involvement in the $125 million (combined conventional and murabahah) facilities to a group in the oil/gas sector operating in the Middle East and North Africa.

Preview of 2016

Globally, the Islamic finance market is growing, with the past five years having seen compound annual growth of 17%. It is estimated that the current size of the Islamic finance market is between $1.6 trillion and $2 trillion (amounting to 1% of the global finance market) and it is expected to grow to $3.4 trillion by 2018. Not only is the Islamic finance market growing within its traditional user base – such as Islamic banks, Islamic banking departments of conventional banks and governments of Islamic countries – but western firms are now also starting to use Islamic finance products. The predicted continual growth of the market through 2018, coupled with the ever-growing diversification and sophistication of users, is very promising for the growth of the market within the British Virgin Islands during 2016 and beyond.

The British Virgin Islands is tax neutral and politically stable, has a legal system based on English common law and has final recourse to the English Privy Council (important for the use of Islamic finance as the courts will uphold a fatwa from a Sharia board that a contract complies with Sharia) – all of which are attractive to users of Islamic finance products. Further, BVI companies offer a number of benefits in terms of legal flexibility and low costs (in terms of incorporation and maintenance), which make them very popular in such transactions. For example, the British Virgin Islands allows a wide range of corporate entities, including restricted-purpose vehicles, which are commonly used for structured finance transactions including sukuk. There is a valuable element of flexibility for joint venture ormusharakah directors compared to other offshore jurisdictions: a director of a joint venture company can act in the best interests of one of the joint venture partners rather than the company. Finally, BVI companies can have an additional name in Arabic, which is also attractive on the Islamic market.

Based on the aforementioned points, there is likely to be an increase in Islamic asset managers using the British Virgin Islands to take advantage of the new BVI fund products launched during 2015. In addition, there will likely be a continual increase in Islamic financial institutions and investors using BVI companies in Islamic finance structures such as musharakah and murabahah – particularly in respect of investment into the Middle East, Africa and Asia Pacific. Specifically, it is only a matter of time before existing BVI structures holding high-profile hotels and other real estate assets in the Middle East will be refinanced using Islamic finance products.

Comment

These are exciting times for Islamic finance globally, with the last five years having seen unprecedented growth in the market. This growth is predicted to continue into the foreseeable future and, given its role in the global financial markets, the British Virgin Islands will continue to be a major player in international Islamic finance through the use of its flexible and progressive legal system.

(Lexology / 04 Febuary 2016)

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

Islamic Banking in Kashmir

Islamic finance for all: There are three different perspectives to look at the idea of Sharia’h-compliant banking & finance. One is religious, which is where it has come from i.e. Quran & Sunnah;  the second is purely from the Economics point of view, wherein people express their interest in it only because they see it as a viable alternative to the current financial system. However, being Muslims as well as responsible global citizens, we should actually be concerned with both the reasons; hence go with the third perspective of having both the reasons. At the time, when Islamophobes are at their best to reduce Islam to an obsolete 6th century Arab doctrine, what better response could be to it other than offering to them a recession-proof & just economic system, which shall ensure their financial stability and that of their children. It must be noted that Islam does not restrict this system only to the Muslims but it’s open to Non-Muslims as well. It is with the same spirit that we have come up with ‘Islamic Banking Kashmir’ (IBK), which is a Research, Advocacy & Awareness group, based in J&K. However, before anyone talks about its advocacy or its benefits, the general public has a right to know the legal hurdles in the way of its implementation.

Regulatory impediments for us: The banking industry in India is currently governed by The Banking Regulation (BR) Act 1949, The RBI Act 1934, The Cooperative Societies Act & The Negotiable Instruments Act 1961. Certain sections of the said acts are in contradiction with the foundational theory of Islamic banking. Examples: The section 21 of the BR Act necessitates the interest on Deposits. The idea of ‘Profit & Loss Sharing investments’ is clearly prohibited by its sections 5(b) and 5(c). And the section 8 of the BR Act disallows any bank to directly or indirectly buy, sell or barter goods, which closes the door for Islamic bank’s concept of Murabaha in which banks enter Sale & purchase agreements (Edgeverve).  There are three ways to introduce Islamic banking/finance: One is a Stand-alone Islamic bank, second is to open a Special window for Interest Free banking within a Conventional bank & the 3rd is to go for a Non-Banking Finance Corporation (NBFC). Since an NBFC does not fall under the jurisdiction of BR Act, it remains a possibility in Kashmir even this time, on the lines of Cheramaan group in Kerala. The 2nd option of ‘Special window’ has recently been recommended by a high level RBI committee headed by Mr. Deepak Mohanty. The committee had sought suggestions from the concerned entities and we at IBK wrote to the Principal Chief General Manager, Reserve Bank of India, Financial Inclusion and Development Department, Mumbai& gave our suggestions. Within few days we shall also write to the Finance Ministry of India and the RBI governor. The 1st option of a stand-alone Islamic bank seems to be a little far, at the moment.

  Why Islamic banking? Coming back to the various perspectives and motivations to seek this alternative form of finance, let’s delve into them a bit. As far as the argument of freedom of religion goes,  Riba’(Usury/Interest) is the only sin in Islam, wherein such an individual has been declared to be at war with God, categorizing it as an uncompromisable tenet of Islam. The Economics argument can be proven by the fact that Not a single Islamic financial institution has had to be bailed out with tax payer’s money, even during the 2008 sub-prime mortgage crisis (This is not to say that all the financial institutions who claim to be Islamic are really so, but even such opportunists who only want to tap Muslim market use some Islamic contracts, which saved them too). The reason being that no transaction takes place in an Islamic bank, unless it is backed by an asset. Such a principle does not let the industry create the currency out of thin air to lend that & charge interest from the poor individuals at the micro level or countries at the macro level, who crumble under the debt-bubble, which eventually bursts. The money gets concentrated within few people, which makes them richer and the interest payments make majority of the people poorer, hence the disparity. This is no less than a slaughter. This is the channel through which the financial institutions like the IMF, The World Bank or WTO get to control the resources of poor nations, when they fail to pay back debt. Islamic economics believes in risk-sharing & not the financial engineering of risk-transfer, in which only one party takes the risk and the other fats his belly & earns interest doing nothing for it. It’s very simple to understand that anybody who bequeaths wealth will always get wealthier without having to work for it, while the one who is born poor will always get poorer by paying that interest for the loan, which his earlier generation had got, by his sweat & blood. Moreover, our unemployed youngsters who want to start business ventures can benefit from Mudaraba, in which both the bank as well as the applicant will use their resources and expertise to make the applicant’s initiative profitable, as both shall have a stake in its success unlike the current system which is only concerned with the interest they earn on their disbursed loan amount and sealing the mortgage of the applicant, if the start-up fails. However, It resembles Venture Capital financing but here the investment is restricted only to the permissible sectors and it does not invest in the companies which having a zero conventional debt capital structure.  So, it actually fuses economic viability with Islamic permissibility, rendering it a reliable option.  

Conclusion: This is a vast field which can not be summed up in a column. We may still have numerous questions unanswered. However, the time has come for it and we need to help each other to seek knowledge and then seek permission from the concerned authorities, so that those amongst us who prefer it, shall have an option and they don’t find the current financial system at loggerheads with their faith or their freedom of choice. I look forward to your support.

(Greater Kashmir / 05 Febuary 2016)

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

Al Madina Takaful named ‘Oman Insurer of the Year’

Muscat - 

Al Madina Takaful was named ‘Oman Insurer of the Year’ at the MENAIR Insurance Awards 2016 held on January 27 in Dubai.

The company was named a finalist in three categories and won the ‘Oman Insurer of the Year’ award beating competition across both takaful and conventional insurance segments in Oman, a press release said on Tuesday.

Al Madina was the only insurance company from Oman to be recognised at this year’s awards, which are judged by an independent panel of experts and recognise excellence of companies and people in the industry.

The awards are judged by an independent panel of experts and recognise excellence of companies and people in the industry.

Speaking at the awards ceremony, Gautam Datta, CEO of Al Madina Insurance Co, said, “Wining the ‘Oman Insurer of the Year’ award is remarkable, as this the first time we are being recognised in the larger insurance industry, beyond the takaful segment we operate in. This is a milestone achievement for the organisation beating both local and regional players operating in Oman, and comes at a time when the industry is facing tough challenges. It’s a great reward for the hard work and commitment of our team, business partners and clients. A huge thank you to all.”

Speaking on the success, Usama al Barwani, deputy CEO of Al Madina Insurance Co, said, “It give us immense pride to be chosen as ‘Oman Insurer of the Year’. This is a coveted platform, and we are excited to be chosen to represent the industry in this stature. It inspires us further to meet and exceed customer expectations and excel in the way we do business.”

(MuscatDaily.Com / 02 Febuary 2016)

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

Islamic Banking Is Dominant in Saudi Arabia

Saudi Arabia Islamic Banks Dashboard here DUBAI/LONDON, February 02 (Fitch) In a new report, Fitch Ratings says Islamic finance is a mature and developed industry in Saudi Arabia, representing about two-thirds of total bank financing. About 38% comes from Islamic banks and 28% from the Islamic windows of conventional banks. There are 12 licensed commercial banks in Saudi Arabia. Four are fully sharia compliant with the remainder providing a mix of sharia-compliant and conventional banking products and services. Due to the largely Islamic finance nature of the lending market in Saudi Arabia, the performance and credit matrices of both Islamic and conventional banks are to a large extent similar (for more information on Saudi banks see Saudi Banks: Peer Review at www.fitchratings.com). Al Rajhi Bank is the largest Islamic bank in Saudi Arabia, and also the largest Islamic bank internationally with assets of SAR325.2bn (USD87bn) at end-3Q15. National Commercial Bank (NCB) is aiming to convert to a fully sharia-compliant bank following its IPO in 2014. NCB's loan book is already majority sharia compliant and once the bank is fully compliant it could replace Al Rajhi Bank as the world's largest Islamic bank. NCB has a large investment portfolio that will be more challenging to convert into sharia-compliant securities, in terms of availability and variety of appropriate alternatives and maintaining the current yield on the portfolio. Saudi Arabia has the largest Islamic bank asset base of any country that allows commercial banks to operate alongside Islamic banks. All banks are subject to a single supervisory authority and the same disclosure requirements. The Saudi Arabian Monetary Agency (SAMA) regulates sharia-compliant banks in the same way as it regulates conventional banks. No special treatment is applied to Islamic products and no additional support is given to Islamic banks. However, as a predominantly Muslim market, and now that similar retail products exist in both conventional and sharia-compliant form, Islamic banking is seeing the fastest growth. In Saudi Arabia, banks benefit from large volumes of local currency liquid assets, including government securities and deposits with SAMA. However, one of the key differences between conventional and Islamic banks is the structure of their liquidity/investment portfolios. This is because Islamic banks have far fewer sharia-compliant investment options. These are mainly cash and central bank deposits, such as "mutajara" or "murabaha", which are therefore relatively low risk and low return. Investments also include sukuk issued by other Islamic banks. High spending, particularly in the form of large government projects, has started to reduce due to stricter screening, delays and cancellations, as the government reduces spending to match lower oil revenues. We expect the tougher economic environment to continue for at least two years. The challenging operating conditions are likely to affect earnings, with profitability metrics growing less quickly and possibly declining. Fitch also expects asset quality metrics to deteriorate over the next two years. The full report, Saudi Arabia Islamic Banks Dashboard is available at www.fitchratings.com or by clicking the link above. Contact: Bashar Al Natoor Global Head of Islamic Finance +971 4 424 1242 Fitch Ratings Limited Al Thuraya Tower 1 Office 1805 Dubai Media City Redmond Ramsdale Director +971 4 424 1202 Media Relations.

(Reuters / 02 Febuary 2016)

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

Kuwait Finance House considering capital-boosting sukuk

Jan 31 Kuwait Finance House (KFH), the country's biggest Islamic lender, is studying the issuance of Islamic bonds that would boost its capital reserves, its top official told Arabiya TV on Sunday.

The offering still requires necessary approvals, its chief executive Mazen al-Nahedh told the channel.

The firm could issue capital bonds that either enhance its core Tier 1 capital or its supplementary Tier 2 capital.

Besides sukuk plans for the parent company, KFH is also planning to issue Tier 2-enhancing sukuk this year for its Turkish subsidiary.

"We are about to issue Tier 2 sukuk, for the subsidiary bank in Turkey, and we expect the issue will happen this year to support its capital situation so it can grow," he added. 

(Reuters / 31 January 2016)

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

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)

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

Nigeria to issue maiden Sukuk

The Securities and Exchange Commission (SEC) has reached an agreement with the Debt Management Office (DMO) to issue Nigeria’s maiden sovereign Sukuk.

Sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law.

Under a Sukuk, the issuer sells an investor group the certificate, which then rents it back to the issuer for a predetermined rental fee, while the issuer also makes a contractual promise to buy back the bonds at a future date at par value.

The decision by the two government agencies to collaborate to issue the Sukuk was a major outcome of the visit of the Director General of SEC, Mounir Gwarzo to the DMO on Wednesday.

The visit was a return gesture to a similar exercise by the Director General of DMO, Abraham Nwankwo, in November last year.

During the visit
​, Mr. Gwarzo said the agreement by the two chief executives to partner to deepen the domestic bond market was a clear sign of a closer working relationship they were now enjoy.

Welcoming the SEC delegation to his office, Mr. Nwankwo highlighted the importance DMO attached to the non-interest products in the Nigerian financial market.

He revealed that issuing a sovereign Sukuk has been part of the institution’s strategic plan drawn three years ago, urging Nigerians to support SEC to building capacity in order to realize the goal of issuing Nigeria’s first sovereign Sukuk in 2016.

Responding, Mr. Gwarzo assured the DMO of continued support of SEC, pledging to adopt measures that would enhance the capacity of relevant staff of the debt management agency.

The measures include establishing regular interface between the DMO and key staff of SEC who are very knowledgeable in non-interest finance products.

Mr. Gwarzo said the Commission would equally allow DMO staff to participate in the Capital Market Committee sub-committee on non-interest products to further deepen their knowledge and expertise.

“Within the context of continued decline in the prices of crude oil in the international markets, attendant drop in both foreign exchange and government revenues as well as fragility of growth from major emerging markets like China, the need for alternative sources of capital to finance infrastructure becomes increasingly more compelling,” Mr. Gwarzo stated.

Issuing a sovereign Sukuk, he explained, would attract into Nigeria significant and affordable capital from the Gulf countries and other established Islamic markets around the world.

The SEC Director General said issuing a sovereign Sukuk would send a positive message to the market amidst the negative investor sentiment that persists currently.

He was optimistic that Nigeria’s maiden sovereign Sukuk would be oversubscribed as both domestic and foreign investors have a rich appetite for exposure to Nigeria.

Urging DMO to take advantage of this unique opportunity to make a mark on the Sukuk market, in spite of the challenging times, the SEC boss recalled that after the release of rules on Sukuk issuance in 2013, Osun State was the first to issue Sukuk to raise N11.4 billion.

(Premium Times / 21 January 2016)

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